English Court of Appeal Says States Cannot Rely on State Immunity to Set Aside Registration of ICSID Awards

In its judgment dated 22 October 2024, the English Court of Appeal held that foreign states cannot rely on state immunity to oppose registration of adverse arbitration awards issued under the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). This judgment is in line with other national courts' decisions on state immunity, including a decision of the High Court of Australia which considered "the very same issue".

Background

In Infrastructure Services Luxembourg Sarl v Spain [2023] EWHC 1226 (Comm) and Border Timbers Ltd v Republic of Zimbabwe [2024] EWHC 58 (Comm), Spain and Zimbabwe (respectively) sought to oppose registration of adverse ICSID awards pursuant to the 1966 Arbitration (International Investment Disputes) Act (the 1966 Act), by which the UK gave effect to its obligations under the ICSID Convention. The 1966 Act provides that a person seeking recognition or enforcement of an ICSID award shall be entitled to have the award registered in the English High Court. The two States relied on their state immunity conferred under s1(1) of the 1978 State Immunity Act (the SIA) to resist enforcement.

At first instance, both Fraser J (in Infrastructure Services) and Dias J (in Border Timbers) concluded, for different reasons, that Spain and Zimbabwe cannot rely on state immunity to set aside registration of adverse ICSID awards, following which both States were granted permission to appeal.   

The Court of Appeal heard the appeals brought by Spain and Zimbabwe together. The key legal arguments made by the States, which were considered by the Court, were as follows:

• Neither the ICSID Convention nor the 1966 Act deprived the States of their state immunity conferred under s1(1) of the SIA, which provides that "[a] State is immune from the jurisdiction of the courts of the [UK] except as provided in the following provisions of this Part of [the SIA]."
• Article 54 of the ICSID Convention does not constitute a prior written agreement by each of the States to submit to the jurisdiction of the English courts within the meaning of the exception from state immunity as set out in s2 of the SIA (Submission to jurisdiction).

The Court of Appeal's judgment ([2024] EWCA Civ 1257)

Does s1(1) of the SIA apply to the registration of ICSID awards under the 1966 Act?

The Court of Appeal held that the express statutory general immunity conferred by s1(1) of the SIA does apply where an application is made to register an ICSID award against a state.

The Court disagreed with the "novel approach" of Dias J in Border Timbers, that the foreign state is not "impleaded" (i.e. made a party to the proceedings against its will) until the order granting registration is served on it, and that the doctrine of state immunity therefore has no application at this stage, discussed in detail in one of our previous blog posts here.

The Court held that the registration of an award is not merely a ministerial or administrative act. Instead, it involves the court exercising its adjudicative jurisdiction over a foreign state. The Court considered this to be the case even if the foreign state has not yet been served with proceedings, as the court is mandated by s1(2) of the SIA to invoke the immunity. The decision to register an award necessarily involves determining whether the state has general immunity and, if so, whether registration of the award falls under one of the exceptions to this immunity.  

Further, the Court did not see any merit in the argument that s23(3) of the SIA excluded its application to ICSID awards and the 1966 Act. S23(3) provides that proceedings in respect of certain "matters" that occurred before the coming into force of the SIA would not attract immunity. The Court held that "matters" in s23(3) of the SIA cannot refer to the ICSID Convention or the 1966 Act.

Had the States agreed in writing to submit to the jurisdiction of the English courts in relation to the enforcement of ICSID arbitration awards by signing the ICSID Convention for the purposes of s2 of the SIA?

The Court of Appeal held that ICSID Contracting States had submitted to the jurisdiction of the English courts by virtue of Article 54 of the ICSID Convention. The Court concluded, therefore, that s2 of the SIA was engaged, and the States may not oppose registration of ICSID awards on the grounds of state immunity.

As a consequence of this conclusion, the Court did not need to consider whether the exception to general adjudicative state immunity in s9 of the SIA was also engaged.

In the judgment, the Court of Appeal referred to decisions of the courts of Australia, New Zealand, the US, France and Malaysia, all of which have interpreted Article 54 as a waiver of adjudicative immunity by each Contracting State and (where relevant) a submission to the jurisdiction, noting that these decisions were "of considerable persuasive force". 

The Court was not persuaded by the argument put forward by the two States that, properly interpreted, there was no intention under the ICSID Convention that Contracting States would be subject to domestic legal proceedings in respect of adverse ICSID awards. The States argued that the Convention assumed that states would honour adverse ICSID awards. If they did not, then its Article 27 would be triggered such that the investor could receive protection from its home state, which could then make a claim against the defaulting state before the International Court of Justice. The Court considered, however, that this interpretation strayed far from the ordinary meaning of the words used in the ICSID Convention.

Comment

This decision from the Court of Appeal reconciles the views of Fraser J in Infrastructure Services and Dias J in Border Timbers and provides clarity on the issue of state immunity at the stage of registration of ICSID awards in the UK, as well as on the interpretation of Article 54 of the ICSID Convention. The Court of Appeal has confirmed that while the statutory immunity conferred by s1(1) of the SIA does arise in the case of registering an ICSID award against a State, the key question is whether one of the exceptions to the general immunity is engaged. The answer to this question is 'yes', as Contracting States to the ICSID Convention have submitted to the jurisdiction of the English courts by virtue of Article 54.