High Court Hands Down an Important Arbitration Decision

On 12 April 2023 the High Court delivered its judgment in Kingdom of Spain v Infrastructure Services Luxembourg S.A.R.L & Anor (ISL) [2023] HCA 11 when it unanimously dismissed an appeal from the Full Court of the Federal Court of Australia relating to the interpretation of the Convention on the Settlement of Investments Disputes between States and Nationals of Other States (1965) (ICSID).

The underlying dispute between the parties involved an investment that ISL had made in solar power in Spain based upon the existence of a Spanish subsidy program, which Spain later withdrew. ISL claimed this was a breach of the Energy Charter Treaty 1994 (ECT) between the Kingdom of Spain and the contracting parties. 

The ECT contained an arbitration agreement by which Spain had agreed to arbitration with investing parties under the ICSID.  Australia and Spain are both parties to the ICSID, which provides a mechanism for the conduct of international arbitrations and provides recognition and enforcement of awards in signatory states. 

An arbitration of the dispute took place in 2018 – with ISL being awarded €101m.  ISL then commenced enforcement proceedings in Federal Court of Australia to have the arbitration award recognised as if it were a judgment of the Court pursuant to the International Arbitration Act 1974 (Cth).

The High Court held that, inter alia:

(a) Spain was the subject of a binding ICSID award, with Spain’s agreement to Articles 53, 54 and 55 of the ICSID amounting to a waiver of foreign State immunity from the jurisdiction of Australian Courts to recognise and enforce, but not to execute, that award;

(b) the international law principle that a waiver of immunity under s.10 of the International Arbitration Act 1974 (Cth) must be “express” should not be understood as denying the ordinary and natural role of implications in elucidating the meaning of expressed words, and concluded that the orders made by the courts below were properly characterised as orders for recognition and enforcement.

With respect to the “express” nature of the waiver the High Court said:

21. A similar requirement for a waiver of immunity in a treaty to be “express” can be seen in numerous treaties of widespread operation. Article 32(2) of the Vienna Convention on Diplomatic Relations (1961)provides that a waiver of immunity from jurisdiction of diplomatic agents “must always be express”.Article 2 of the European Convention on State Immunity (1972)¹ relevantly provides that a Contracting State cannot claim immunity from the jurisdiction of a court of another Contracting State if it has undertaken to submit to the jurisdiction of that court by “international agreement” or “an express term contained in a contract in writing”. In the Explanatory Report to the latter Convention², the drafters observe that Art 2, as a whole, “concerns cases in which a Contracting State has expressly undertaken to submit to the jurisdiction of a foreign court”.
22. This principle of international law was reflected in Lord Millett’s and Lord Goff of Chieveley’s judgments in R v Bow Street Magistrate; Ex parte Pinochet [No 3]³. In that case, their Lordships considered a provision concerning waiver of immunity by agreement, similarly worded to s 10(2) of the Foreign States Immunities Act⁴. Lord Goff accepted that a waiver of immunity could occur by implication from conduct outside the terms of a treaty, such as by taking steps in proceedings concerning the merits of the case⁵. However, Lord Goff said that in the interpretation of a treaty, “consent by a state party to the exercise of jurisdiction against it must … be express”⁶. One source relied upon by Lord Goff for this reasoning was the 1991 Report of the International Law Commission which said that customary international law and international usage required waiver of immunity to be “expressed … in no uncertain terms”⁷. Similarly, Lord Millett said that it was not in dispute that “where [State immunity] is waived by treaty or convention the waiver must be express”.

The Austlii link to this High Court decision is: Kingdom of Spain v Infrastructure Services Luxembourg S.a.r.l. [2023] HCA 11 (12 April 2023) (austlii.com)

The link to the High Court summary of the decision is at: https://www.hcourt.gov.au/assets/publications/judgment-summaries/2023/hca-11-2023-04-12.pdf

This decision represents an important finding for Australian arbitration jurisprudence.

[1] 1495 UNTS 181.

[2] Council of Europe, Explanatory Report to the European Convention on State Immunity (1972) at 5 [21].

[3] [1999] UKHL 17; [2000] 1 AC 147.

[4] State Immunity Act 1978 (UK), s 2(2).

[5] [1999] UKHL 17; [2000] 1 AC 147 at 215, citing Oppenheim’s International Law, 9th ed (1992), vol 1 at 351‑355. Consistently with this, see Crawford, Brownlie’s Principles of Public International Law,9th ed (2019) at 486.

[6] [1999] UKHL 17; [2000] 1 AC 147 at 216.

[7] United Nations General Assembly, Report of the International Law Commission on the work of its forty‑third session (1991) at 53.