Australian Court provides interpretation highlighting distinction between recognition and enforcement of arbitral awards vis-a-vis ICSID Convention

Federal Court of Australia: While deciding the instant appeal dealing with interpretational technicalities associated with international arbitration, the Court clarified the principles and distinctions between recognition and enforcement of arbitral awards vis-à-vis the ICSID Convention. The Court also clarified the legal position over the question that whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.

Facts: The dispute between the parties is related to the investment by the Respondents of EUR139,500,000 into solar power generation projects within the territory of Spain. The respondents were encouraged to do so by a subsidy program put in place by Spain, which was subsequently withdrawn. The Respondents alleged that the withdrawal of the subsidy program was a contravention of the Energy Charter Treaty (ECT). Pursuant to Article 26(3)(a) of the ECT, Spain agreed that it gave its unconditional consent to the submission of the dispute to international arbitration and, by the virtue of Article 26(4)(a) it agreed to an international arbitration under the auspices of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The arbitrators eventually awarded the Respondents EUR101,000,000 with interest. The respondents applied to the Federal Court at first instance for an order that Spain pay it that amount with interest. Spain filed a notice contesting the jurisdiction of the Federal Court of Australia on the basis that it was immune from suit as a foreign state under S. 9 of the Foreign States Immunities Act 1985.

Issues: The following key issues were involved in the dispute-

  • Whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.
  • Meaning of recognition and enforcement in Art 54 and execution in Art 55 of ICSID Convention.
  • Whether Spain’s accession to the ICSID Convention constitutes submission to the jurisdiction of the Federal Court.

Contentions: Spain put forth the following arguments-

  • The word ‘execution’ in Article 55 must be understood as including a proceeding to ‘enforce’ an award (the reasons for this are, to an extent, complex and discussion of this issue may be postponed for now).
  • Even if ‘execution’ in Articles 54(3) and  55 does not mean ‘enforcement’, nevertheless, the question of the proper construction of Art 55 can only be definitively resolved by the International Court of Justice. Until then it is arguable Spain’s accession to Articles 54 and 55 cannot represent its clear agreement to submit to jurisdiction of Federal Court.

Relevant statutes: The case revolves around the interpretation of Articles 54 and 55 of the ICSID Convention. Article 54 deals with the recognition and enforcement of the pecuniary obligations imposed by the award. Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought. Article 55 states that –“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution”.

The other statutory provisions that were highlighted in the case were Sections 3, 9 and 10 of the Foreign States Immunity Act, 1985. The provisions respectively deal with interpretation of an agreement (including international treaties and agreement); immunity of a foreign state from the jurisdiction of the courts of Australia; and, instances wherein a foreign state has to submit to the jurisdiction of the Australian law and courts.

Observations: The Court noted that, “The principal difficulty at the centre of the debate is linguistic or semantic” – (Allsop, CJ.,). With the parties to the dispute seeking lucidity on the aforementioned provisions, the Court examined them and made the following observations, with Perram, J., elucidating the key aspects of the provisions in question-

Regarding Articles 54 and 55

  • It was noted that ‘recognition’, ‘enforcement’ and ‘execution’ are concepts predating and existing outside of the ICSID Convention. Broadly “recognition refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law. Enforcement 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”.
  • Since the issue at hand orbits around ICSID provisions, therefore the concepts must be interpreted accordingly. Perram, J., noted that under Art. 54 the Contracting States are required to recognise an award. It also permits a party having the benefit of an award to apply to a competent court for its recognition. It also permits a party to apply for the enforcement of the award by application to a competent court. “As such the Article explicitly contemplates two distinct applications to the competent court (or other authority). If enforcement in Art 54(2) were synonymous with recognition this distinction would appear to be pointless. The Article therefore recognises the distinction between the two applications and requires applications for both to be made to the ‘competent court’”.
  • The Judge further pointed out that Article 54(1) imposes two obligations on a Contracting State, first, recognition of the award as binding; and, secondly, (implicitly in relation to an award which has been recognised), enforcement of the pecuniary obligations imposed by the award ‘as if’ it were a final judgment of a domestic court. Article 54 does not contemplate the enforcement of awards which have not been recognised.
  •  “Article 55 does not refer to recognition and there can be no warrant for reading it as if it did”. Interpreting the Article along with the preceding provision (Article 54), the Court stated that the combined effect of Article 54 is that a Contracting State is required to recognise an award when a certified copy of the award is furnished to the competent court (or other authority).
  • If ‘execution’ were construed to include ‘recognition’ in Article 55 there could be no circumstance in which the recognition application expressly contemplated by Art 54(2) could ever be made against a Contracting State. This would render the recognition procedure in Art 54(2) perpetually unavailable against a Contracting State and would have the consequence that the obligation to recognise an award in Art 54(1) as binding could never be engaged. “It may be noted that the fact that recognition is wholly distinct from enforcement (including, if necessary, execution) is also reflected in the heading to Section 6: ‘Recognition and Enforcement of the Award’ where Art 54 and Art 55 are contained. For those reasons, Art 55 does not apply to recognition proceedings and is unavailable to modify the meaning of Art 54(1) and (2) in relation to such proceedings”.

Regarding Spain’s submission to Federal Court’s Jurisdiction: Deliberating upon the question that whether Article 54(1) and (2) constitute Spain’s agreement to submit to the jurisdiction of the Federal Court in a recognition proceeding, the Court answered in affirmative. Article 54(2) is in terms Spain’s agreement with Australia that the Respondents may apply to a competent court for recognition and the Federal Court has been designated as a competent court for the purposes of Article 54. Spain has therefore agreed to submit to the jurisdiction of this Court in relation to a recognition proceeding. Article 55 can have no impact on that conclusion because it has no application to recognition proceedings.

Making an interesting observation, the Court pointed out that the ICSID Convention had been done in English, Spanish and French. Article 33 of the Vienna Convention provides that where ‘a treaty has been authenticated in two or more languages, the text is equally authoritative in each language’; where a difference in meaning emerges which cannot otherwise be resolved by ordinary principles of interpretation ‘the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.’ Allsop, C.J., noted that the relationship between recognition and enforcement can be seen by the wording of the ICSID Convention itself. “Whether the French and Spanish languages have a penumbra or range of meaning in the words exécution and ejecutar to encompass a non-execution procedure of enforcement would be a matter of evidence. I am unconvinced that the question of resolution of the meaning of the English, French and Spanish texts can be done in ignorance of the content by way of evidence of two of the three languages”.[Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3, decided on 01-02-2021]


Sucheta Sarkar, Editorial Assistant has put this story together.

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