by Aleksander Kalisz[1]
In the recent Infrastructure Services Luxembourg v Spain [2023] EWHC 1226 (Comm), the English High Court dismissed an application by Spain to set aside an order to register an ICSID arbitral award in favour of Infrastructure Services Luxembourg. In doing so, the High Court rejected Spain’s objection to the enforcement of intra-EU investment awards stating that, from the standpoint of English law, the Court of Justice of the European Union (CJEU) was not the sole competent court to decide issues of EU law. The case hence applied the seminal decision of the UK Supreme Court in Micula v Romania [2020] UKSC 5 and explored the ‘exceptional or extraordinary’ defence to the enforcement of ICSID awards that the Supreme Court left open. The decision also explained the relationship between state immunity from court proceedings and agreements to arbitrate enclosed in investment treaties.
Background
The ICSID dispute, under the Energy Charter Treaty (ECT) arose due to Spain’s revocation of renewable energy subsidies following the 2008 financial crisis. The tribunal rendered an award in favour of the investors and Spain’s annulment application, under the ICSID Convention, failed. The investors then applied to the English High Court to register the award under the Arbitration (International Investment Disputes) Act 1966 (the 1966 Act). The award was registered by an Order in June 2021. The application to register the award was done ex parte under CPR Part 62.21(2)(b) and CPR 74.3(2)(b) but the Order expressly permitted Spain to make an application to set it aside. Spain subsequently did so on the basis of defective service, but this was denied. The present case stems from a separate set-aside application relating to the Order, this time on the grounds of jurisdiction and a minor point of non-disclosure of evidence (para 39).
The case raises interesting questions of jurisdiction and operation of international investment law in the context of EU law and English law.
Jurisdictional objections
Spain’s main jurisdictional objection was that the English High Court was presented with an intra-EU award that was unenforceable by virtue of EU law (paras 36-40). The argument is not entirely unfounded. By way of background, in Slovak Republic v Achmea (C-284/16), the CJEU decided that the Treaty on the Functioning of the European Union (TFEU) in Article 267 (concerning the jurisdiction of the CJEU) and Article 344 (EU Member States must not submit disputes concerning the interpretation of the EU Treaties to other dispute settlement mechanisms), must be interpreted as precluding a provision in an international agreement concluded between Member States of the EU if it has an adverse effect upon the autonomy of EU law (para 59). That case was widely interpreted as precluding arbitration provisions in intra-EU bilateral investment treaties. Spain also relied on a subsequent CJEU case Moldova v Komstroy (C-741/19), which reinforced the position in Achmea and confirmed the prohibition of the intra-EU investment arbitration to multilateral investment treaties such as the ECT.
However, Spain faced an obstacle. In the aforementioned Micula v Romania, the UK Supreme Court rejected an application for the stay of enforcement of an intra-EU ICSID award pending a determination of the CJEU on whether an award constituted illegal state aid. The decision was binding, of course, on the High Court. The Supreme Court did, however, recognise that a defence to enforcement could apply ‘in certain exceptional or extraordinary circumstances which are not defined’ as long as it did not overlap with the grounds on which an award may be challenged under the ICSID Convention.
Spain’s immunity from court jurisdiction
Spain raised two arguments to convince the court that such an undefined narrow exception applied to this case. Firstly, it pointed to its immunity from English court proceedings. The basis for the argument was Section 1 of the State Immunity Act 1978. It states:
General immunity from jurisdiction.
- A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.
- A court shall give effect to the immunity conferred by this section even though the State does not appear in the proceedings in question.
The investors, on the other hand, argued that two exceptions found elsewhere in the Act applied. Consequently, Section 2 of the Act provides that state immunity does not apply if the state submitted itself to the jurisdiction of the English courts. Secondly, Section 9 provides that the Section 1 immunity does not apply to English court proceedings concerning an arbitration agreement that the state consented to in writing.
The High Court held that the ECT under Article 26 constituted a prior written agreement to arbitrate for the purposes of the Act and hence Spain waived its immunity (para 95). It was not necessary for Spain to consent to this specific dispute, as long as the unilateral offer to arbitrate in the ECT stood (paras 102-103).
The intra-EU objection
Spain also argued that the effect of EU law on the arbitration provision of the ECT constituted one of the ‘exceptional or extraordinary’ defences to enforcement of the ICSID awards specified in Micula.
The English High Court first noted that it is central to international arbitration that the tribunal can determine disputes referred to it in lieu of the courts, save for supervisory or enforcement purposes. In this case, there was hence a strong indication against jurisdiction of the CJEU. The English High Court stated that it has an obligation to uphold the adherence of the UK to its own international treaty obligations, including the ICSID Convention (as set out in the 1966 Act) (para 109). Fraser J’s statement best reflects this view: ‘with the greatest of respect to the CJEU, it is not the ultimate arbiter under the ICSID Convention, nor under the ECT’ (para 80). TFEU Articles 267 and 344, as interpreted by the CJEU, do not have primacy over Article 26 of the ECT as a matter of international law, from the English standpoint. Spain, or indeed any other EU Member State, was held not to be able to rely upon the Achmea or Komstroy decisions to dilute the UK’s own international treaty obligations (para 125).
Additionally, reliance on Achmea and Komstroy was irrelevant as it is a ‘purely EU law issue’, which does not concern the jurisdiction of English courts and the ICSID tribunal. This is an important point to note as Achmea and Komstroy cannot be used to create within the ECT itself a partial offer of arbitration depending on whether the investors are residents of Member States or not (paras 88, 101). This means that for as long as Spain and the UK are party to the ICSID Convention, English courts will apply its enforcement mechanism even in relation to intra-EU awards.
Commentary
The case reinforces the reputation of the English courts as being pro-arbitration and as a jurisdiction that uphold investors’ rights, particularly after Brexit and the severance of English and EU law. The case also evidences the robust enforcement of ICSID awards in the UK, highlighting the self-contained nature of the ICSID Convention regime.
As noted by Fraser J, the entire purpose of the ICSID Convention, the 1966 Act and international arbitration in general would be undermined if proceedings related to the registration of an award were lengthy, unless a case is ‘truly exceptional’. This approach, in turn, reduces costs and time allocated for disputes and associated court proceedings. Of note is also the case’s importance in interpreting obligations in international treaties. By holding that EU law is not above other international obligations, the case highlights the complexity associated with an EU Member State fulfilling its international obligations to non-EU states: EU Member States are bound by CJEU decisions whereas non-EU states are not, while both can be subject to similar or identical international obligations.
Moreover, it is worth noting that Spain along with several other EU Member States has announced its intention to withdraw from the ECT. The ECT, however, contains a 20-year sunset clause (Article 47) ensuring that the current arbitration regime remains in place for some time. Following the present case, investors might be inclined to use it as a basis to enforce their intra-EU ICSID awards in non-EU jurisdictions. It may hence attract investors to enforce their investment awards in the UK, provided that respondent states possess some (commercial) assets in the jurisdiction.
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Research Associate in Dispute Resolution at the Centre of Construction Law & Dispute Resolution, King’s College London; Visiting Fellow at the Stockholm Centre for Commercial Law, Stockholm University ↑