In Eiser Infrastructure v Kingdom of Spain [2021] FCAFC 3, the Federal Court of Australia was asked to overturn the enforcement of two awards issued under investor state arbitrations, conducted under ICSID's rules.
The arbitrations concerned solar power and renewable resources projects; Spain issued regulations withdrawing subsidies which induced Eiser to undertake EUR 139 million of projects. Eiser argued that the withdrawal breached an international treaty to which Spain was a signatory, The Energy Charter Treaty, which included a submission to arbitration under the ICSID rules. Eiser was awarded EUR 101 million, plus interest in the two arbitrations.
Eiser sought enforcement in Australia under the ICSID Convention, to which both Spain and Australia are contracting parties. At first instance, Eiser prevailed. Spain appealed to the Federal Court of Australia.
The sole issue before the court was whether or not Spain's accession to the ICSID Convention constitutes a submission to jurisdiction of the Federal Court. Spain's case was that it was entitled to full sovereign immunity under the Australian Foreign States Immunities Act 1985, which provides in section 30 that the property of a foreign state is not subject to any court process or order to satisfy or enforce any judgment, order or arbitration award.
Drawing an unusual, and unhelpful distinction, the full court noted that recognition of an award is separate from enforcement, which is subject to immunity from execution under the Immunities Act. In making that distinction, the court noted:
Simplistically, recognition refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law. Enforcement goes a step further. It refers to the process by which a successful party seeks the municipal court’s assistance in ensuring compliance with the award (as recognised) and obtaining the redress to which it is entitled. Execution refers to the formal process by which enforcement is carried out.
While semantically, there must be a difference between the two terms, the result must be that "recognition" of an award serves no practical purpose. It is hard to believe that the parties to the ICSID Convention, or to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, intended that such awards could be reviewed for validity by the courts of Australia, but could not be enforced. Even if the distinction were to be accepted, Eiser's position that acceding to the ICSID Convention was an effective submission to jurisdiction and waiver of sovereign immunity for the purposes of section 31 of the Immunities Act must carry some force.
The case raises a number of questions over enforcing foreign awards in Australia. While both the NY Convention and the ICSID Convention provide for recognition and enforcement, sovereign immunity under the Immunity Act prevails against enforcement, notwithstanding a state's submission to jurisdiction and accession to enforcement under international treaty.
Enforcement of ISDS awards in Australia has suddenly become a difficult and uncertain prospect.