Eiser Infrastructure Ltd v Kingdom of Spain

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FEDERAL COURT OF AUSTRALIA

Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157

File numbers: NSD 601 of 2019
NSD 602 of 2019
Judge: STEWART J
Date of judgment: 24 February 2020
Catchwords:

ARBITRATION – international arbitration – applications for recognition and enforcement of awards of the International Centre for Settlement of Investment Disputes (ICSID) under s 35(4) of the International Arbitration Act 1974 (Cth)

PRIVATE INTERNATIONAL LAW – foreign state immunity – where foreign state respondent asserts sovereign immunity – interaction between s 9 of the Foreign States Immunities Act 1985 (Cth) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Investment Convention) which is given the force of law by s 32 of the Arbitration Act – where s 9 of the Immunities Act provides that a foreign state is immune from the jurisdiction of the courts of Australia in a proceeding – where Art 54 of the Investment Convention provides that each Contracting State shall recognise an award rendered pursuant to the Investment Convention as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court of that state – whether the apparent inconsistency between Art 54 of the Investment Convention and s 9 of the Immunities Act can be resolved – whether submission to jurisdiction under s 10 of the Immunities Act

PRIVATE INTERNATIONAL LAW – foreign state immunity – interpretation of the Investment Convention – whether the Investment Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award – distinction between recognition and enforcement of award as if it were a final judgment of a court under Art 54(1) and execution of an award in Art 54(3) of the Investment Convention – where Art 55 provides that nothing in Art 54 shall be construed as derogating from the law in force in relation to immunity from execution

STATUTORY INTERPRETATION – public international law – Vienna Convention on the Law of Treaties – construction of the Investment Convention – reconciling the English, French and Spanish authentic texts
Legislation:

Acts Interpretation Act 1901 (Cth) s 13

Explanatory Memorandum, Foreign States Immunities Bill 1985 (Cth)

Explanatory Memorandum, ICSID Implementation Bill 1990 (Cth)

Federal Court of Australia Act 1976 (Cth) s 43

Foreign Judgments Act 1991 (Cth)

Foreign States Immunities Act 1985 (Cth) Pts II, IV; ss 3, 7, 9, 10, 17, 30, 31, 32, 33, 34, 35

ICSID Implementation Act 1990 (Cth)

International Arbitration Act 1974 (Cth) Pt IV; ss 2D, 8, 31, 32, 34, 35

Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment, opened for signature 10 December 1984, 1465 UNTS 85 (entered into force 26 June 1987)

Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (entered into force 14 October 1966) Arts 26, 27, 49, 50, 51, 52,…

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Details
Case
[2020] FCA 157
Decision Date

CaseChat Overview and Summary

The case of Eiser Infrastructure Ltd and others v Kingdom of Spain involved the applicants seeking recognition and enforcement of awards rendered by the International Centre for Settlement of Investment Disputes (ICSID) against Spain. The applicants, who had invested heavily in solar power projects in Spain, claimed that Spain's subsequent legislative changes that diminished the value of their investments constituted a breach of their fair and equitable treatment under the Energy Charter Treaty (ECT) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Investment Convention). The central legal issues revolved around the interaction between foreign state immunity, as provided by the Foreign States Immunities Act 1985 (Cth), and the obligations under the Investment Convention for the recognition and enforcement of ICSID awards.

The court had to determine whether the apparent inconsistency between Article 54 of the Investment Convention, which mandates the recognition and enforcement of ICSID awards, and section 9 of the Immunities Act, which provides immunity from jurisdiction, could be resolved. Additionally, the court considered whether Spain's participation in the ICSID arbitration constituted a submission to jurisdiction under section 10 of the Immunities Act. The court found that Spain's engagement in the ICSID proceedings, including its active participation and the execution of contracts governed by the Investment Convention, amounted to a submission to jurisdiction. Therefore, the court held that Spain could not rely on foreign state immunity to resist the enforcement of the ICSID awards.

The court's reasoning hinged on interpreting the Investment Convention and reconciling its provisions with the Immunities Act. It found that Article 54 of the Investment Convention, which requires recognition and enforcement of awards as if they were final judgments, did not derogate from the law in force in relation to immunity from execution as provided by Article 55. However, since Spain had submitted to the jurisdiction of the ICSID, it was precluded from asserting immunity in proceedings for the recognition and enforcement of the awards.

The final orders granted the applicants leave to enforce the ICSID awards against Spain, directing Spain to pay the awarded compensation and interest, along with the applicants' costs. Spain was also ordered to pay the amounts in different currencies as specified in the awards. Any party wishing to vary the costs order could apply to the court within 14 days of the making of these orders.

Orders

Orders of the court

1. The applicants have leave under s 35(4) of the International Arbitration Act 1974 (Cth) to enforce the award of the International Centre for Settlement of Investment Disputes dated 15 June 2018 as rectified by the award dated 29 January 2019 in Case No. ARB/13/31 against the respondent;

2. The respondent pay the applicants €101,000,000;

3. The respondent pay the applicants interest on €101,000,000 from 20 June 2014 to 15 June 2018 at the rate of 2.07%, compounded monthly, and from 16 June 2018 to the date of payment at the rate of 2.50%, compounded monthly;

4. The respondent pay the applicants US$635,431.70 and £2,447,008.61;

5. The respondent pay the applicants’ costs of the proceeding, save that if any party wishes to vary this order 5 it may apply to do so by filing an interlocutory application to that effect with written submissions of no more than three pages within 14 days of the making of these orders.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The background facts set out below in relation to each proceeding are summarised from the arbitration award in each case.Background to NSD601 From 1997, Spain adopted a series of regulatory measures aimed at promoting the development of solar power and other sources of renewable energy. In particular, in 2007 Spain adopted legislation known as “RD 661/2007” aimed at establishing a stable subsidy system that guaranteed attractive profitability for electricity production from solar power and other renewable resources. Relying on the financial incentives and inducements available to the applicants under this legislative regime, the applicants invested approximately €126 million in solar power projects in Spain’s territory. Following a change in government, Spain adopted a series of laws between 2012 and 2014 reducing, and eventually revoking, the financial incentives on which the applicants had relied when making their investments in Spain. The new measures adopted by Spain were intended to, and did, accomplish the objective of significantly reducing the level of subsidies paid to solar power and other renewable energy generators. The changes in Spain’s legislative regime caused substantial harm to the value of the applicants’ investments.The ECT The ECT is a multilateral treaty which was opened for signature in 1994 and entered into force in 1998. According to Art 2 of the ECT, its purpose is to establish a legal framework in order to promote long-term cooperation in the energy field, based on “complementarities and mutual benefits” in accordance with the objectives and principles of the European Energy Charter (adopted in the Concluding Document of the Hague Conference on the European Energy Charter signed at The Hague on 17 December 1991). Article 10(1) of the ECT obliges Contracting Parties to encourage and create stable, equitable, favourable and transparent conditions for investors of other contracting parties, including to accord to their investments fair and equitable treatment. Article 26 of the ECT provides for dispute resolution mechanisms which include, at the option of an Investor (as defined in Art 1(7) of the ECT) in certain circumstances, arbitration under the auspices of the Centre pursuant to the Investment Convention. I will return to the specifics of this mechanism when I consider the applicants’ argument that Spain submitted to the jurisdiction of this Court, amongst others, for recognition and enforcement of the awards in this case and thereby waived any reliance on foreign state immunity. See at [178]-[179] below. In the meanwhile, it can be noted that Spain is a Contracting Party to the ECT and a Contracting State to the Investment Convention. The applicants are Investors under the ECT and are incorporated in countries that are Contracting Parties to the ECT and Contracting States to the Investment Convention. Australia is also a signatory to the ECT, although it has not ratified it. By Arts 38 and 39 of the ECT, signature alone is not sufficient to cause a state to be bound by the ECT. See G Korontzis, “Making the Treaty” in D Hollis (ed.) The Oxford Guide to Treaties (Oxford University Press, 2012) 195-201.The ICSID arbitration

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In Firebird it was held (at [47]-[49]) that an ex parte application for registration of a foreign judgment under the Foreign Judgments Act 1991 (Cth) is a “proceeding” within the meaning of s 9 of the Immunities Act. The same must be true of an application to enforce an arbitration award under s 35 of the Arbitration Act. Unsurprisingly, it was common ground that each proceeding in this Court is a “proceeding” within the meaning of s 9. Of the various exceptions to foreign state immunity in Pt II of the Immunities Act, the only one relied on by the applicants is submission to jurisdiction in s 10 which relevantly provides as follows:10 Submission to jurisdiction(1)A foreign State is not immune in a proceeding in which it has submitted to the jurisdiction in accordance with this section.(2)A foreign State may submit to the jurisdiction at any time, whether by agreement or otherwise, but a foreign State shall not be taken to have so submitted by reason only that it is a party to an agreement the proper law of which is the law of Australia.(3)A submission under subsection (2) may be subject to a specified limitation, condition or exclusion (whether in respect of remedies or otherwise).(4)Without limiting any other power of a court to dismiss, stay or otherwise decline to hear and determine a proceeding, the court may dismiss, stay or otherwise decline to hear and determine a proceeding if it is satisfied that, by reason of the nature of a limitation, condition or exclusion to which a submission is subject (not being a limitation, condition or exclusion in respect of remedies), it is appropriate to do so.(5)An agreement by a foreign State to waive its immunity under this Part has effect to waive that immunity and the waiver may not be withdrawn except in accordance with the terms of the agreement.…(11)In addition to any other person who has authority to submit, on behalf of a foreign State, to the jurisdiction:(a)the person for the time being performing the functions of the head of the State’s diplomatic mission in Australia has that authority; and(b) a person who has entered into a contract on behalf of and with the authority of the State has authority to submit in that contract, on behalf of the State, to the jurisdiction in respect of a proceeding arising out of the contract. In s 3(1) of the Immunities Act “agreement” is defined to mean an agreement in writing which includes “a treaty or other international agreement in writing”. This is relevant because the applicants rely on Spain being a party to the ECT and the Investment Convention to found their case that Spain submitted to the jurisdiction of this Court under s 10. Although the applicants only rely on s 10 of the Immunities Act, Spain refers to s 17 in its submission that in a proceeding for the recognition or enforcement of an arbitration award against a state it is only the s 17 exception from foreign state immunity that can apply. I will deal with that submission below (at [186]-[190]), but in the meanwhile it is pertinent to identify that s 17 deals with two distinct exceptions to immunity in respect of arbitrations to which a state is a party. The first, in s 17(1), is in relation to the supervisory jurisdiction of a court in respect of such an arbitration. It is not presently relevant. The second, in s 17(2), is in respect of “a proceeding concerning the recognition as binding for any purpose, or for the enforcement, of an award made pursuant to the arbitration, wherever the award was made.”

Ratio Decidendi

Legal Principle Established

In the meanwhile, it can be noted that Spain is a Contracting Party to the ECT and a Contracting State to the Investment Convention. The applicants are Investors under the ECT and are incorporated in countries that are Contracting Parties to the ECT and Contracting States to the Investment Convention. Australia is also a signatory to the ECT, although it has not ratified it. By Arts 38 and 39 of the ECT, signature alone is not sufficient to cause a state to be bound by the ECT. See G Korontzis, “Making the Treaty” in D Hollis (ed.) The Oxford Guide to Treaties (Oxford University Press, 2012) 195-201.The ICSID arbitration In December 2013, the applicants commenced arbitration proceedings under the auspices of the Centre. ICSID case number ARB/13/36 was allocated to the proceeding. In summary, the applicants contended that Spain’s legislative actions that resulted in the diminution of the value of their investments constituted a breach of its obligation under Art 10(1) of the ECT to provide fair and equitable treatment. A three-member tribunal was established. The tribunal conducted a “Hearing on Jurisdiction and the Merits” in Paris, France, in February 2016. The applicants and Spain both took an active part in the arbitration at all stages. The tribunal issued its award on 4 May 2017, finding that:(1)it had jurisdiction to determine the claim under the ECT and the Investment Convention; and(2)Spain had breached Art 10(1) of the ECT by failing to accord fair and equitable treatment to the applicants’ investments. The award requires Spain to pay the applicants:(1)€128,000,000 as compensation; and(2)Interest on the sum awarded from 20 June 2014 to 4 May 2017 at the rate of 2.07%, compounded monthly, and interest at the rate of 2.5% from 5 May 2017 until the date of payment, compounded monthly. The tribunal decided that each party should bear its own costs.Spain’s application for annulment of the Award Following publication of the award, Spain made an application to the Centre for annulment of the award, including a stay of enforcement. Article 52 of the Investment Convention provides for either party to an arbitration to request annulment of the award issued by the tribunal on one or more specified grounds, but not by way of a review of the merits of the award. In July 2017, the Secretary-General of the Centre provisionally stayed the enforcement of the award as required under the Art 52(5) of the Investment Convention and r 54(2) of the ICSID Rules of Procedure for Arbitration Proceedings 2006 (ICSID Arbitration Rules) pending the appointment of the Annulment Committee. In March 2018, the Annulment Committee issued a decision not to continue the stay of enforcement of the award pending its decision on annulment. Spain made a subsequent application to stay the award but that was rejected by the Annulment Committee with the result that the stay remained terminated as from 23 March 2018. In March 2019, the Annulment Committee held a hearing on annulment in Paris, France. As at the date of the hearing in this Court, no decision had yet been issued on Spain’s annulment application. However, the Committee’s decision not to continue the stay on enforcement of the award means that there is no obstacle (in this respect) to the recognition and enforcement of the award by this Court.