Registration of ICSID Awards in the UK: Normal Service Resumed

The English Court of Appeal has clarified the position regarding the interaction between the UK’s State Immunity Act 1978 (the SIA) and the Arbitration (International Investment Disputes) Act 1966 (the “1966 Act”) (which implemented the ICSID Convention in UK law). In summary, the CoA confirmed that Article 54(1) of the ICSID Convention constitutes an express waiver of immunity and submission to the adjudicative jurisdiction of the English courts under section 2 SIA.

In our previous article, we reported on the decision in Border Timbers Ltd. & Anor v. Republic of Zimbabwe [2024] EWHC 58 (Comm) and the novel approach taken to state immunity in the context of an ICSID enforcement action in the English High Court. The Court of Appeal (CoA) has now decided the appeal to that decision, alongside the appeal in Infrastructure Services Luxembourg S.á.r.l.; Energia Termosolar B.V. v. The Kingdom of Spain [2023] EWHC 1226 (Comm), which considered a similar issue, yet was decided on different reasoning. In both cases, the state party appealed the decision.

Factual Background

The case before the CoA considered two challenges brought by Spain and Zimbabwe that were similar enough to be heard together.

Spain appealed the registration of a €101 million Energy Charter Treaty award in favour of Infrastructure Services Luxembourg (ISL) and an affiliate in 2018. ISL was successful in a claim relating to changes in Spain’s renewable energy subsidy regime.

Zimbabwe appealed the registration of a US$124 million ICSID award in favour of Border Timbers and Hangani that Justice Dias refused to set aside earlier this year. The award related to a controversial land reform programme launched by then-President Robert Mugabe in 2015.

In both cases, the claimants sought registration and enforcement of their respective awards before the English courts and the state parties resisted on sovereign immunity grounds:

(i) ISL v. Spain: Justice Fraser held that states cannot rely on their immunity under the SIA to prevent registration of an ICSID award due to the states’ agreement to submit to the jurisdiction, as per the interaction between section 2 of the SIA and Article 54 of the ICSID Convention.

(ii) Border Timbers v. Zimbabwe: Justice Dias reached the same conclusion, but for very different reasons. She held that section 1 of the SIA was irrelevant to the registration of an ICSID award as it was essentially an automatic ministerial act which did not involve any adjudicative steps. Importantly, she also found that if the SIA was triggered, then Article 54 of the ICSID Convention was not a sufficiently clear and unequivocal submission to the jurisdiction for the purposes of section 2 SIA.

The decision of Justice Dias was a departure from the generally accepted premise that Article 54 of the ICSID Convention constituted submission to the jurisdiction for registration and enforcement.

Relevant Law

Article 54 of the Convention provides that:

(1) Each Contracting State shall recognise an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.

In England and Wales, an award registered under the 1966 Act has the same force and effect as a domestic judgment for the purposes of executing any financial obligations it imposes.

Section 1 of the SIA provides broad immunity to states from the jurisdiction of the English courts:

A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.

The primary exceptions to this immunity are provided by sections 2 and 9 of the SIA:

2. Submission to jurisdiction

(1) A State is not immune as respects proceedings in respect of which it has submitted to the jurisdiction of the courts of the United Kingdom.

(2) A State may submit after the dispute giving rise to the proceedings has arisen or by a prior written agreement …

9. Arbitrations

Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration.

Issues in Dispute

Both Spain and Zimbabwe argued that the Convention did not deprive them of their immunity as states. Further, Article 54 of the Convention did not constitute a prior written agreement to submit to the jurisdiction of UK courts.

Instead, the states argued that the correct exception to state immunity was section 9 of the SIA (being that a valid agreement to arbitrate was required) and that the English courts must redetermine the validity of the relevant arbitration agreement and the jurisdiction of the arbitral tribunal when determining whether the section 9 exception applies.

Both states further disputed the validity of the arbitration proceedings against them:

(i) Spain argued that the arbitration clause in the Energy Charter Treaty was applied incorrectly after the CJEU judgments in Achmea and Komstroy, and therefore the Tribunal which rendered an award against it lacked jurisdiction as there was no valid agreement to arbitrate.

(ii) Zimbabwe argued that its dispute fell outside the scope of a bilateral investment treaty it had with Switzerland, and the Court should determine afresh whether the Tribunal had jurisdiction.

In each case, the exception under section 9 of the SIA would not be triggered if there was no valid agreement to submit that dispute to arbitration (either because the clause was invalid (Spain) or the subject of that dispute was not within the arbitration clause (Zimbabwe)).

The CoA identified three key issues that need to be decided:

1. Whether section 1(1) of the SIA applies, in principle, to the registration of ICSID arbitration awards against a foreign state under the 1966 Act.
2. If section 1(1) does apply, whether the exception to state immunity in section 2 of the SIA is necessarily valid because states, in signing the ICSID Convention, have agreed in writing to submit to the jurisdiction in relation to the enforcement of ICSID arbitration awards (Article 54 of the ICSID Convention).
3. If section 1(1) does apply, and a state has not submitted to the jurisdiction by becoming a party to the ICSID Convention, whether a foreign state is estopped or otherwise prevented from asserting the invalidity of the underlying award, with the result that the exception in section 9 of SIA is necessarily satisfied.

CoA Judgment

First, the CoA held that there was no reason why the statutory immunity conferred by section 1(1) of the SIA should not apply in the case of registering an ICSID award against a contracting state. The approach adopted by Justice Dias with respect to ministerial acts was therefore rejected.

Second, the CoA held that Article 54 of the ICSID Convention was a clear agreement by the contracting states to waive immunity and submit to the jurisdiction of the UK courts. They could not, therefore, oppose the registration of ICSID awards against them on the grounds of state immunity as the section 2 exception applied. The CoA therefore affirmed the approach taken by Justice Fraser.

Third, with regard to section 9 of the SIA, while the CoA did not consider the third issue in detail as it was not relevant to the outcome of the appeals, Phillips LJ nonetheless observed that it was difficult to interpret section 9 other than as imposing a duty on the court to satisfy itself that the state in question had agreed in writing to submit the dispute in question to arbitration.

Concluding Remarks

The High Court decision in Border Timbers created considerable uncertainty regarding the treatment of ICSID awards before the English courts. That uncertainty has now been resolved by the CoA, and the clarified and restated position is that Article 54 of the ICSID Convention does constitute a clear submission to the jurisdiction for the purposes of section 2 of the SIA. The judgment provides clarity to investors with ICSID awards that they can safely seek registration (and enforcement) of their awards in the UK. Critically, this decision also brings the UK back into line with international practice on this issue.