Sovereign immunity and investment arbitration: The UK Court of Appeal’s ruling on ICSID awards

The UK Court of Appeal’s recent decision in Infrastructure Services Luxembourg S.A.R.L. and Energia Termosolar v Kingdom of Spain ([2024] EWCA Civ 1257), delivered on 22 October 2024, provides important clarification on the scope of sovereign immunity when enforcing investment treaty arbitration awards issued under the International Centre for Settlement of Investment Disputes Convention (ICSID Convention). The Court held that states cannot rely on state immunity to oppose enforcement of ICSID arbitration awards, a position consistent with international jurisprudence.

Background: ICSID Convention and the State Immunity Act 1978

The ICSID Convention provides a framework for resolving disputes between states and foreign investors. Article 54 of the Convention mandates that member states recognise and enforce ICSID awards “as if it were a final judgment of a court in that state.” The Arbitration (International Investment Disputes) Act 1966 (the 1966 Act) incorporates the ICSID Convention in the UK, allowing ICSID awards to be registered as judgments of the High Court. A separate piece of legislation, the State Immunity Act (SIA) provides states with immunity from suit and enforcement, subject to a list of exceptions. The Infrastructure Services case addressed whether foreign states can invoke state immunity to resist registration of an ICSID award in the UK.

Arguments from Spain and Zimbabwe on Sovereign Immunity

In Infrastructure Services Spain and Zimbabwe invoked state immunity to resist registration of ICSID awards rendered against them.

The arguments centred on three main points:

1. Sovereign Immunity under SIA Section 1(1): Spain and Zimbabwe argued that section 1(1) of the SIA grants them immunity from adjudicative jurisdiction in the UK unless specifically waived or excluded.
2. No Jurisdictional Submission: the states also argued that Article 54 of the ICSID Convention did not meet the SIA’s requirement for a State to have submitted to the jurisdiction of the UK Courts through a prior written agreement (section 2).
3. Validity of Arbitration Agreement under Section 9: Under section 9, the SIA removes immunity for arbitration proceedings only if the state has agreed in writing to arbitration. Spain and Zimbabwe contended that no valid agreements existed to support the ICSID arbitrations.

Court of Appeal’s Key Findings

The Court of Appeal, led by Sir Julian Flaux, ruled against Spain and Zimbabwe, emphasising that sovereign immunity does not prevent states from registering and enforcing ICSID awards in the UK. The Court’s main findings include:

• ICSID Awards as Adjudicative Acts: The Court ruled that registering an ICSID award involves adjudicative jurisdiction, not merely a ministerial act. Recognising the award means the UK court substantively triggers section 1(1) of the SIA, but this did not prevent the application of the exceptions under the SIA.
• Article 54 as Jurisdictional Submission: The Court held that Article 54 functions as a binding agreement by contracting states to recognise and enforce ICSID awards.  Under section 2(2) of the SIA, this satisfies the requirement for a prior written submission to jurisdiction. This interpretation aligns with the position in other jurisdictions, namely Australia, New Zealand, the US, France and Malaysia, which were considered by the Court of Appeal. It was held that Article 54 is a mutual agreement among states to submit to each other’s courts for the purpose of enforcing ICSID awards.
• Clarification on SIA Section 9: As the Court determined that the exception in section 2(2) of the SIA was triggered, the Court did not find it necessary to apply section 9 directly. However, it was noted that section 9 might not apply where no separate arbitration agreement exists beyond the ICSID Convention.

The ruling clarifies that, although the SIA applies to ICSID awards, states cannot use it to evade ICSID award registration in the UK.

Implications for Investment Arbitration

The Court of Appeal’s decision is important for investors enforcing ICSID awards in the UK. Key points include:

• Strengthened Enforcement Framework: The ruling strengthens the UK as a reliable forum for enforcing ICSID awards, aligning with other arbitration-friendly jurisdictions. By confirming that Article 54 waives immunity under the SIA, the Court of Appeal has bolstered the UK’s pro-arbitration reputation.
• Reduced Sovereign Immunity Defences: States can no longer assume immunity shields them from ICSID award registration. This ruling highlights that ICSID awards possess a unique enforceability mechanism under international law, reducing domestic courts’ discretion to deny enforcement.

^{This article is co-authored by trainee solicitor, Kasey Cummings.}