Spain won special leave on Friday to challenge a February 2021 judgment from the Full Federal Court rejecting claims that the country was immune as a foreign state from recognition of awards made in proceedings before the the International Centre for the Settlement of Investment Disputes.

Eiser Infrastructure and Infrastructure Services Luxembourg sued Spain in the Federal Court seeking enforcement of awards issued by ICSID tribunals which found Spain had breached the International Energy Charter Treaty (ECT) by changing its renewable energy policies, resulting in losses for solar farm investors.

The pair argued that the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), which established the ICSID tribunals and which is given force in Australia by the International Arbitration Act, excludes any claim for foreign state immunity in proceedings to enforce an award.

In a judgment upheld by the Full Court, Justice Angus Stewart agreed with the applicants, finding that by becoming a contracting party to the ECT and a contracting state to the ICSID Convention, Spain had submitted to the jurisdiction of the Federal Court and waived immunity under the Foreign States Immunities Act.

Justice Stewart ruled that Eiser and Antin could enforce the awards under the International Arbitration Act and ordered Spain to pay Eiser and Antin $210 million (€128 million) and $165 million (€101 million) respectively, plus interest.

Appearing for Spain before the High Court on Friday, Christopher Ward SC said the special leave application raised the question of whether sovereign immunity can be waived other than by a “clear and unambiguous action of a state”.

“We, of course, say that the mere act of Spain becoming a party to the ICSID agreement does not amount to a sufficiently clear and unambiguous waiver of immunity,” Ward said.

Recognition versus enforcement of an award

The Full Court held that Justice Stewart’s February 2020 judgment ordering Spain to pay the award was correct but that the orders the judge handed down needed to be redrafted to allow for “recognition” of the award under the International Arbitration Act and the ICSID Convention.

Writing for the Full Court, Justice Nye Perram found the particular orders given by Justice Stewart were not framed in the proper manner.

“[The] primary judge reasoned that the appropriate way to recognise an award was to enter judgment on it. Despite that conclusion, this was not the order his Honour in fact made,” Justice Perram wrote.

The Full Court granted Eiser and Antin leave to enforce the award against Spain and ordered Spain to pay the required amounts “rather than entering judgment in that sum”.

Justice Perram sketched out the difference between recognition of an award and enforcement. The former “refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law” while enforcement refers to process by why a winning party seek’s a court’s assistance in ensuring compliance with an award, the judge said.

The Full Court found the public state immunity terms of the ICSID Convention, in particular Article 55, do not apply to recognition proceedings and that there was “no warrant” for reading the provision as if it did.

The court rejected Spain’s contentions that the word ‘execution’ in Article 55 also included recognition, saying this submission clashed with the purpose of Article 54 under which “contracting states’ could recognise awards.

“If ‘execution’ were construed to include ‘recognition’ in Art 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. In every case against a contracting state, the competent court in Art 54(2) would be met with a plea of foreign state immunity and recognition would be unavailable,” the Full Court said.

On Friday, Ward told the High Court the dichotomy between recognition and enforcement which the Full Court sketched out “does not arise textually in the treaty itself”. The two terms were “relevantly indistinguishable” and were both the subject of immunity under Article 55, he argued.

Appearing for the companies, Bret Walker SC urged the High Court to reject the special leave application.

“The Full Court of the Federal Court has, in our submission, authoritatively and clearly – by which I mean unambiguously, among other things – determined that the effect of the agreement by Spain for ICSID dispute resolution, including the self-contained system for recognition enforcement of its awards, is one which necessarily, as explained concisely and convincingly by Justice Perram, involves acceptance of the jurisdiction of other contracting state’s courts for the purpose of enforcement.”

Walker said Spain’s argument that ‘recognition’, ‘enforcement’ and potentially ‘execution’ were used interchangeably in the ICSID Convention was “plainly incorrect textually”.

An expectation of stable relations

The underlying disputes arose from the companies’ investments in solar power projects in Spain.

In bringing its case before ICSID, Eiser alleged that Spain had breached the ECT through 2013 and 2014 amendments to its special regime, which was implemented to attract investors into the renewable energy sector.

Eiser had invested €126 million into the development of three concentrated solar power plants in Spain in the period from 2007 onwards. The company claimed that when it decided to invest, it held reasonable expectations that the government’s regulatory framework would be stable.

The tribunal awarded Eiser €128 million to compensate for a reduction in the fair market value of its investments, finding that the company was entitled to expect that Spain would not unexpectedly revise its special regime to such a large degree that any investment made in the regime was lost.

In its case before ICSID, Antin said Spain had “wiped out” the benefits it gained from the original special regime, which it had expected to continue.

In 2011, Antin purchased shares in Spanish organisations that owned two operational concentrated solar plants in Granada.

While Antin had only purchased the shares later in the game, the tribunal found that there was still a reasonable expectation that the regulatory framework would be stable and that the government had made repeated promises to this effect.

The tribunal awarded Antin €112 million as compensation, not for historic losses, but for damages based on a projected future cash flow for the predicted 25-year lifespan of the plant.

The Kingdom of Spain is represented by Christopher Ward SC and Philip Santucci, instructed by K&L Gates. The companies are represented by Bret Walker SC, Justin Hogan-Doran SC and Chester Brown, instructed by Norton Rose Fulbright.

The appeal is Kingdom of Spain v Eiser Infrastructure Limited & Anor. The primary cases are Eiser Infrastructure Limited & Anor v Kingdom of Spain and Infrastructure Services Luxembourg SARL & Anor v Kingdom of Spain.

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