The enforcement of arbitral awards against states and state entities: global developments

Globally, there are a number of new developments in regards to the recognition and enforcement of arbitral awards against states and state entities – a critical issue from the perspective of prospective claimants and award creditors. However, the question continues to generate vast amounts of jurisprudence as parties search for assets against which to secure and recover states’ award debt.

At ACICA’s recent Australian Arbitration Week, Corrs’ Head of Arbitration Nastasja Suhadolnik chaired a panel on this topic, alongside global experts Ben Juratowitch KC (Essex Court Chambers, London), Swee Yen Koh SC (WongPartnership, Singapore), Chester Brown SC (7 Wentworth Selborne Chambers, Sydney) and Robert Kirkness (Thorndon Chambers, Wellington).

The panel discussed a number of key developments in Australia, the United Kingdom, Singapore, Hong Kong, New Zealand and the United States, including:

• State immunity from jurisdiction for the purpose of recognition and enforcement
  
  
• The relationship between EU law and investment treaty obligations
  
  
• Immunity from execution and prospects for enforcement against the assets of a state’s alter ego.

State immunity from jurisdiction for the purpose of recognition and enforcement

When faced with an application for recognition and enforcement of an unfavourable award, states’ first line of defence typically is to rely on state immunity from the jurisdiction of foreign courts. The question of how states’ jurisdictional immunity may apply in recognition and enforcement proceedings has recently given rise to a series of interesting decisions. A trend has emerged of courts giving wide scope to various exceptions and waivers of immunity in this context. Each of the panellists provided an overview of the current legal position on state immunity for the purpose of recognition and enforcement of arbitral awards across a range of jurisdictions.

Australia

The position in Australia, as Chester Brown SC summarised, is most notably synthesised in the recent decision of the Australian High Court, where it determined that Spain had waived immunity from recognition and enforcement by becoming a party to the International Centre for Settlement of Investment Disputes (ICSID) Convention (Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11). In this seminal decision, discussed in our article, High Court rejects Spain’s foreign state immunity claim and reinforces Australia’s reputation as ‘pro-arbitration’, the High Court disagreed with Spain’s submission that any waiver of immunity must be express and not implied. The High Court also held that, while Spain had waived immunity for recognition and enforcement, its immunity from execution of the award had been preserved. The High Court emphasised the distinct differences between these three concepts, with recognition being the Court’s determination that an award is entitled to be binding, enforcement being the process through which an award becomes part of the domestic law, and execution being the process of giving effect to the award.

Chester explained that the same outcome was reached for recognition and enforcement of non-ICSID Awards in CCDM Holdings, LLC v Republic of India (No 3) [2023] FCA 1266. In that case, as discussed in Federal Court finds India waived foreign state immunity in proceedings to recognise and enforce US$111 million award, the Court held that India had waived its immunity from recognition and enforcement via its accession to the India-Mauritius Bilateral Investment Treaty. The first instance judgment has been appealed and, at the time of writing, the appeal judgment is reserved.

United Kingdom

Ben Juratowitch KC explained that the English High Court reached the same outcome as the Australian High Court in Infrastructure Services Luxembourg SARL & Anor v Kingdom of Spain (Rev1) [2023] EWHC 1226 (Comm).

However, in Border Timbers Ltd v Republic of Zimbabwe [2024] EWHC 58, the English Commercial Court held that assent to the ICSID Convention did not constitute submission to English courts. Here, the Court said that the enforcement court was entitled to consider jurisdictional issues for the purpose of determining whether immunity had been waived. In this novel decision, Dias J considered that the process of registering an ICSID award was not an exercise of adjudicative power. Therefore, immunity from jurisdiction was considered irrelevant at the stage of recognition.

Recently, on 22 October 2024, the Court of Appeal of England and Wales issued judgment on the jointly heard appeal of both these cases (Infrastructure Services Luxembourg S.À.R.L. v. Kingdom of Spain and Border Timbers Limited v. Republic of Zimbabwe [2024] EWCA Civ 1257). The Court of Appeal disagreed with Dias J and held that Article 54 of the ICSID Convention does indeed amount to the state’s submission to jurisdiction of the English courts, and that the registration of an ICSID award is an exercise of adjudicative power.

Singapore and Hong Kong

Swee Yen Koh SC explained that in Singapore, courts have held that a state is considered to have waived immunity where it has agreed in writing to submit a dispute to arbitration. While there are no reported decisions with respect to enforcement of ICSID awards, Swee Yen’s view is that Singapore courts are likely to adopt the same position as Australian courts.

The position in Hong Kong is less clear following China’s implementation of a new foreign state immunity law on 1 January 2024. Hong Kong is bound to follow the rules and policies of the PRC on foreign state immunity, and is therefore expected to move away from the absolute to the restrictive doctrine of foreign state immunity, similar to the common law position. However, while the Hong Kong courts can be expected to apply the substance of the new law as of 1 January 2024, its precise application in the context of specific proceedings remains to be tested. Swee Yen expects to see more jurisprudence on this issue coming out of China and Hong Kong in the near future.

New Zealand and the United States

The New Zealand position aligns with Australian law, according to Robert Kirkness, and reflects the fact that New Zealand has implemented a large portion of the ICSID Convention into domestic legislation. The New Zealand position was recently confirmed by the High Court in Sodexo Pass International SAS v Hungary.[1]

Robert also discussed the position in the United States, where the D.C. Circuit Court recently heard consolidated appeals of the first instance decisions in enforcement cases brought by NextEra, 9REN Holding and Blasket Renewable Investments against Spain[2] (which each resulted in a different lower court decision on waiver of foreign state immunity). They held that Spain had waived immunity from jurisdiction by virtue of being party to the Energy Charter Treaty (ECT) (NextEra Energy v Spain No. 23-7031 (D.C. Cir. 2024)[3]). Interestingly, in an exercise of judicial economy, the judgment did not consider the effect of Spain being party to the ICSID Convention on its foreign state immunity, so this question remains live in the United States.

Relationship between EU law and treaty obligations

The question of the enforceability of intra-European Union investment treaty awards continues to arise following the Court of Justice of the European Union’s Achmea[4] and Komstroy[5] decisions, as Nastasja Suhadolnik noted, particularly in Spain’s efforts to resist enforcement around the world. In these cases, the Court found that arbitration agreements in intra-European Union investment treaties are incompatible with European Union (EU) law and therefore unenforceable. Spain continues to resist enforcement of ECT awards by European investors on this basis.

Chester Brown SC discussed how EU member states attempting to resist enforcement argue that there is a conflict between their obligations under EU treaties and the relevant investment treaty, and that EU law should be given primacy. This argument arises from the fact that according to EU law, any court or tribunal required to apply or interpret EU law must have the authority to refer the issue to the Court of Justice of the European Union. EU member states consider that this invalidates arbitration agreements contained within or made under investment treaties between two EU states, and will cause a state to breach EU laws on state aid if they comply with any award made pursuant to those treaties.

Chester mentioned that this issue was briefly raised in the Australian High Court’s Infrastructure Services decision, but not fully ventilated. However, these arguments have been rejected in the United Kingdom[6] and United States[7] as a ground for states to resist recognition and enforcement of ICSID awards. This is because courts have held that the ICSID Convention establishes a self-contained legal regime, where excess of jurisdiction is not grounds for refusing enforcement because the treaty itself grants jurisdiction to an appointed ICSID tribunal. The issue remains live in Australia in a series of further cases before the Federal Court brought by European investors against Spain seeking recognition and enforcement of ECT awards.[8]

Ben Juratowitch KC discussed his view that intra-EU awards are clearly enforceable under international law despite the ideological issue underlying Spain’s arguments that EU law must be given primacy over states' obligations under international law.

Transnational issue estoppel

Enforcement forum shopping is becoming more common as award creditors search for friendly jurisdictions in which to enforce sovereign award debt, Nastasja Suhadolnik explained. This has (among other things) led to a rise in jurisprudence on transnational issue estoppel and the question of whether award debtors should be allowed to re-litigate the same objections to award validity before enforcement courts after they are finally disposed of by the seat court.

Swee Yen Koh SC discussed the recent decision of the Singapore Court of Appeal in The Republic of India v Deutsche Telekom AG [2023] SGCA(I) 10. It upheld the lower court’s decision that issue estoppel precluded India from raising the same challenges relating to the validity of the underlying award that were raised, but rejected before the court of the seat of the arbitration. Some argue that this decision ensures certainty in enforcement proceedings and reflects the special position of seat courts in the New York Convention. Others criticise it for being too ‘territorialist’ by constraining the ability of enforcement courts to make their own decisions.

Swee Yen also discussed the ‘primacy principle’ and whether, even if transnational issue estoppel does not apply, the enforcement court should be bound by the primacy of the seat in international arbitration and follow decisions of the seat court. The Singapore Court of Appeal held in Deutsche Telekom that the primacy principle will generally apply except in special circumstances, for instance where:

• it conflicts with Singapore’s public policy,
  
  
• there are serious procedural flaws in the seat court’s decision-making, or
  
  
• the decision is fundamentally flawed.

Referring to a more recent case, Sacofa Sdn Bhd v Super Sea Cable Networks Pte Ltd and SEAX Malaysia Sdn Bhd [2024] SGHC 54, Swee Yen added that issue estoppel can even apply to restrain the seat court when considering award validity challenges already dealt with by an enforcement court. This is in respect of issues which are specific to the enforcement forum (in that case, public policy objections based on illegality under Malaysian law). However, the principle of primacy of the seat court meant that issue estoppel did not apply to the seat court’s decision regarding other grounds of challenge, such as (in that case) the tribunal’s excess of jurisdiction, which the seat court considered afresh without being bound by the previous decision of the enforcement court.

Robert Kirkness noted that in the Deutsche Telekom decision, the Singapore Court of Appeal expressly left open the question of whether issue estoppel might also apply where an enforcement court was called upon to consider an earlier decision of another enforcement court. This is a more limited approach than that taken in the United Kingdom, where the position is that an earlier decision of an enforcement court may give rise to an issue estoppel in the same way as an earlier decision by a seat court.

Robert noted that there is no single, monolithic concept of transnational issue estoppel. Deutsche Telekom is an example of issue estoppel under Singapore law applied in a transnational context. On the issue left open by the Singapore Court of Appeal, Robert said that the Court of Appeal had identified the logic underpinning issue estoppel in a transnational context in Deutsche Telekom as finality to a dispute and international comity and noted that both those concerns applied equally to earlier decisions of enforcement courts and seat courts. Although there is an argument that a distinction between seat courts and enforcement courts can be implied in the New York Convention, Robert said he found persuasive the separate reasons of Lord Mance IJ in Deutsche Telekom. These were that there is no basis in the New York Convention for giving seat courts a special legal status and conventional doctrines such as issue estoppel and the rule in Henderson v Henderson are sufficiently flexible to be applied by courts in a manner that mitigates concerns around enforcement forum shopping.

Immunity from execution and enforcement against a state’s alter egos

The panel concluded with a brief discussion on the live question of state immunity from execution of awards, which is distinct and treated differently from jurisdictional immunity. Many questions remain unanswered, including the scope of state immunity from execution, and the potential for execution of a sovereign award debt against assets owned by state entities and state-owned enterprises.

Chester Brown SC discussed the challenges that arise from identifying assets of a state and executing against assets held by state-owned enterprises. This is often difficult because the award debtor would usually seek to find assets which are held by the state (as such assets are often held by related entities and not the state itself), then consider whether the state might succeed in an argument that the assets benefit from immunity from execution, before seeking to execute the award.

Chester also noted that it is unclear how Australian courts would determine whether execution is possible against assets held by separate state entities. Chester mentioned the American approach that considers whether a state-owned company is an alter ego or agent of the state. He also mentioned the approach of the UK Privy Council, which has stated the test as being whether the affairs of the separate entity and the state are so closely intertwined that the separate entity could not properly be regarded as being distinct from the state (and vice versa).

Ben Juratowitch KC referred to a recent lecture by Professor Philippa Webb, in which she identified a potential solution via the concept of a comprehensive (or double) waiver of immunity. This is the idea that once a state has waived its jurisdictional immunity (by agreeing to arbitrate under specific arbitral rules, or ratifying a treaty), the waiver extends to immunity from enforcement measures. Ben noted that this was already the law in France and a few other jurisdictions, and the question has become more relevant as states are attempting to resist execution more frequently. Ben also explained that when it comes to enforcement against states’ alter egos, it is important not to conflate the test that applies in the enforcement (or immunity) context with the tests applied in the context of attribution of conduct to a state for the purpose of determining if that conduct constitutes an internationally wrongful act of that state. It is clear that this is a live issue before courts around the world and we can expect significant jurisprudence in this area for years to come.

^{[1] Sodexo Pass International SAS v Hungary [2021] NZHC 371, 10 December 20221.}

^{[2] NextEra Energy v. Spain, 656 F. Supp. 3d 201 (D.D.C. 2023); 9REN Holings S.A.R.L. v Spain, No. 19-CV-01871 (TSC), 2023 WL 2016933 (D.D.C. Feb. 15, 2023); Blasket Renewable Investments LLC v Spain, 665 F. Supp. 3d 1 (D.D.C. 2023).}

^{[3] 2024 WL 3837484 (D.C. Cir. Aug. 16, 2024).}

^{[4] Slovak Republic v Achmea BV (European Court of Justice, C-284/16, 2018).}

^{[5] Republic of Moldova v Komstroy LLC (European Court of Justice, C-741/19, 2021).}

^{[6] Infrastructure Services Luxembourg S.À.R.L. v. Kingdom of Spain [2023] EWHC 1226 (Comm).}

^{[7] NextEra Energy v Spain, No. 23-7031, 2024 WL 3837484 (D.C. Cir. Aug. 16, 2024).}

^{[8] NextEra Energy Global Holdings B.V. & Anor v Kingdom of Spain, NSD415/2023; Blasket Renewable Investments LLC v Kingdom of Spain, NSD449/2020; 9REN Holding S.A.R.L v Kingdom of Spain, NSD365/2020.}