Novel decision by English Court on state immunity and the enforcement of ICSID awards

In Border Timbers Ltd v Republic of Zimbabwe [2024] EWHC 58 (Comm), the English Commercial Court has declined to set aside an order for the registration of an ICSID award against Zimbabwe, finding that the question of sovereign immunity does not arise at the registration stage (but may be relied upon later in relation to any further steps towards execution).

Background

The underlying arbitration was brought by the Claimants against the Defendant, the Republic of Zimbabwe, under the Zimbabwe–Switzerland BIT, in relation to the alleged expropriation of the Claimants' land in Zimbabwe. By an ICSID award dated 28 July 2015, Zimbabwe was ordered to pay the Claimants US$124 million plus interest, and a further US$1 million in moral damages and costs.  Zimbabwe brought an application for annulment of the award, which an ad hoc ICSID committee dismissed on 21 November 2018, ordering Zimbabwe to pay further costs.

In 2021, the Claimants made an ex parte application to the English High Court for registration and entry of judgment on the award under CPR Part 62.21, pursuant to the Arbitration (International Investment Disputes) Act 1966 (the 1966 Act), which is the statute by which the ICSID Convention has been implemented under English law. This application was granted by Mrs Justice Cockerill, who ordered that the award be recognised and entered as a final judgment of the court.

Zimbabwe applied to set aside Cockerill J's order on the grounds that it was entitled to immunity from the jurisdiction of the UK courts under the State Immunity Act 1978 (the 1978 Act). The Claimants argued that the claim fell within the statutory exceptions to immunity from jurisdiction in sections 2 and/or 9 of the 1978 Act.

It fell to Mrs Justice Dias DBE to decide on the following preliminary issues:

"(a) Whether Zimbabwe was entitled to claim state immunity in relation to these proceedings;

(b) Whether Zimbabwe had waived such immunity under section 2 of the State Immunity Act by operation of the ICSID Convention;

(c) Whether the English court was bound for the purposes of section 9 of the State Immunity Act by the determination of the ICSID tribunal and the annulment committee as to the jurisdiction of the tribunal;

(d) Whether Cockerill J's order should in any event be set aside for breach of the Claimants' duty of full and frank disclosure in failing to draw the attention of the judge in the without notice application to potential arguments on state immunity and/or in failing to establish any legal basis for an exception to immunity."

Decision

Sovereign immunity not engaged in recognition of ICSID awards

Dias J held that the question of sovereign immunity is not engaged at all during the stages of applying for, or issuing, a registration order for an ICSID award due to the distinct procedural regime applicable to ICSID awards under CPR Part 62 and the 1966 Act.

Dias J considered that, unlike the procedural regime for the recognition of non-ICSID awards, CPR Part 62.21 and section 1(6) of the 1966 Act require "mere notification" of the application for registration of ICSID awards. In particular, CPR Part 62.21 makes no reference to any requirement for a claim form or service out of jurisdiction in an application for registration. CPR Part 62.21(3) merely states that such an application must be made in accordance with the CPR Part 8 procedure, which is the alternative court procedure applicable where a claimant seeks the court's decision on a question which is unlikely to involve a substantial dispute of fact. It was also "noteworthy" that CPR Part 74.6(3)(c)-(e), which give a judgment debtor the right to apply to have registration set aside, are "expressly not applied" to ICSID awards. Additionally, under section 2 of the 1966 Act, the court does not exercise any discretion over registration of the award; it is "subject only to proof of authenticity and other evidential requirements".

Dias J therefore disagreed with Fraser J (as he then was) in Infrastructure Services Luxembourg Sarl v Spain [2023] EWHC 1226 (Comm) that the recognition of an ICSID award "involves the exercise of the court's adjudicative jurisdiction". To the contrary, Dias J held that "[t]he court's jurisdiction to make the order derives directly from the 1966 Act and involves no exercise of discretion or adjudication at all but merely gives effect to the applicant's statutory entitlement". She accepted that hers was a "novel approach for which there is no direct authority".

For these reasons, Dias J held that, on an application for registration of an ICSID award, the court is being asked to perform an "essentially ministerial act in compliance with the UK's international obligations under the ICSID Convention" (namely to recognise any ICSID award as binding). It follows that the principles of state immunity are not engaged because no "substantive steps" are taken against the state and no "adjudicative jurisdiction" is asserted. It was therefore not open to Zimbabwe to apply to set aside the registration order on the basis of state immunity, although she highlighted that Zimbabwe could claim immunity in relation to further steps towards execution.

Dias J additionally found that the Claimants’ failure to make any mention at all of state immunity in its ex parte application was a "culpable, albeit not deliberate" breach of the duty of full and frank disclosure, although she declined to set aside the registration order on that basis.

Waiver of immunity by operation of the ICSID Convention

In the judgment, Dias J also waded into the "deep waters" of the relationship between ICSID arbitration and state immunity, by examining whether Zimbabwe had waived immunity under sections 2 and 9 of the 1978 Act by operation of the ICSID Convention (although these points were ultimately not dispositive).

Submission to jurisdiction under Section 2 of the 1978 Act

Dias J considered, as a starting point, that Article 54(1) of the ICSID Convention was a waiver of state immunity in relation to recognition and enforcement, but not in relation to further steps of execution against assets. She reasoned that execution is expressly carved out in Articles 54(3) and 55, which provide that execution shall be governed by the laws of the place in which execution is sought, and that nothing in Article 54 shall be construed as derogating from the applicable laws relating to immunity from execution.

Dias J then considered whether (what she identified as) a general waiver of immunity under Article 54(1) of the ICSID Convention was sufficient to amount to a submission to the jurisdiction of the English courts for the purposes of section 2 of the 1978 Act. She noted the distinction between a general waiver of immunity and the submission to jurisdiction in specific proceedings. She emphasised that a waiver "unrelated to any identifiable proceedings" would be insufficient to constitute a waiver under section 2 of the 1978 Act.

Again departing from Fraser J’s decision in Infrastructure Services Luxembourg Sarl v Spain, Dias J concluded that Article 54 is "not a sufficiently clear and unequivocal submission" to the jurisdiction of the English courts, such that Zimbabwe had not waived its immunity from jurisdiction under section 2 of the 1978 Act.

The 'arbitration exception' in Section 9 of 1978 Act

Dias J also considered whether Zimbabwe had agreed to submit the dispute to arbitration within the meaning of section 9 of the 1978 Act, which provides that a State is not immune in proceedings that relate to an arbitration to which it validly consented.

Relying on the English High Court decision in PAO Tatneft v Ukraine [2018] EWHC 1797 (Comm), Dias J held that the court is not bound by a tribunal’s findings on its own jurisdiction, or (in the circumstances of this case) those of an ICSID ad hoc annulment committee, when determining whether the arbitration exception under section 9 of the 1978 Act applies. It must independently satisfy itself that there existed a valid consent to arbitration.

Although Tatneft involved a non-ICSID award under UNCITRAL rules, Dias J found that ICSID awards did not fall to be treated differently. She emphasised that it was "irrelevant that ICSID is a self-contained regime" and concluded that the Claimants had failed to establish the applicability of the section 9 exception to immunity. This was a further departure from Infrastructure Services Luxembourg Sarl v Spain in which Fraser J had highlighted the "very important difference" between ICSID awards and UNCITRAL awards, and held that a state was not entitled to rely on a defence that fell within ICSID’s system of annulment (such as lack of jurisdiction) to resist the recognition and enforcement of an ICSID award.

Comment

As the judge acknowledged, the finding that sovereign immunity is not engaged at all when applying for recognition of an ICSID award represents a "novel" approach for which there was no "direct authority".

The judge also expressly declined to follow the earlier judgment of Fraser J in Infrastructure Services Luxembourg Sarl v Spain in concluding that (1) Article 54 of the ICSID Convention is not sufficient to amount to a submission to the jurisdiction of the English courts for the purposes of section 2 of the 1978 Act; and (2) the enforcing court must determine for itself whether a valid arbitration agreement exists for the purposes of section 9 of the 1978 Act, and is not bound by the finding of an ICSID tribunal (or an ad hoc annulment committee) on its own jurisdiction.  The judge also declined to follow decisions from other jurisdictions, including the High Court of Australia, the High Court of New Zealand and the US courts, on the first point.

It is worth noting that the US District Court for the District of Columbia in August 2023 rejected Zimbabwe's application to dismiss an action by the Claimants to enforce the ICSID award on state immunity grounds.

Dias J emphasised that, knowing the Court of Appeal would soon be examining the matter in the appeal from the judgment in Infrastructure Services Luxembourg Sarl v Spain, she had allowed herself "slightly more latitude" in reaching her conclusions. Zimbabwe has been granted permission to appeal the decision to the Court of Appeal, raising the possibility that it could be heard as a conjoined appeal.

In a related case, Fraser J has since ruled that a final decision on Spain’s challenge on immunity grounds to an order recognising the ICSID award in OperaFund Eco-Invest and Schwab Holding v Spain should await the outcome of the appeal in Infrastructure Services.

We shall provide further updates as these cases develop.

For more information, please contact Andrew Cannon, Partner, Marco De Sousa, Senior Associate, or your usual Herbert Smith Freehills contact.

The authors would like to thank Gloria Schiavo for her contribution to this blog post.