Opinion

English High Court finds that State immunity is irrelevant in ICSID arbitration award registrations

Published Date
Feb 28, 2024
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The English High Court has rejected Zimbabwe’s application to set aside an order for registering an award made under the auspices of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The judgment challenges the prevailing view on whether the ICSID Convention constitutes an effective waiver of State immunity. It also takes a “novel approach” in concluding that state immunity is irrelevant to registering an ICSID award.

ICSID award orders Zimbabwe to pay USD 125m

The case concerns an ICSID arbitration arising from Zimbabwe’s Land Reform Programme. Under this programme, Zimbabwe acquired properties that formed part of a forestry estate. Two companies brought an arbitration alleging expropriation of their land under the Zimbabwe-Switzerland Bilateral Investment Treaty. They sought restitution of legal title in the properties and compensation. On 28 July 2015, the tribunal ordered Zimbabwe to pay some USD 125m plus interest and costs (the Award). The Award was upheld by the ICSID annulment committee on 21 September 2018. However, the Award was never satisfied.

On 15 September 2021, the claimants made an ex parte application to register the Award in England under the Arbitration (International Investment Disputes) Act 1966 (1966 Act). The registration order (the Order) was granted on 27 May 2022.

Zimbabwe’s challenge to the Order

Zimbabwe applied to set the Order aside. It argued that Zimbabwe was immune from the jurisdiction of the UK courts by virtue of s.1(1) of the State Immunity Act 1978 (SIA 1978). This section establishes the general proposition that a State has immunity from the jurisdiction of the UK courts, unless one of the exceptions in the SIA apply.

In response, the claimants relied on the exceptions to immunity in ss. 2 and 9 of the SIA 1978. These exceptions have been before the courts recently, including in Infrastructure Services v Spain, discussed here. In sum, the claimants argued that Zimbabwe fell within one or both of the exceptions to immunity on the basis that: (i) it had submitted to the jurisdiction of the UK courts by virtue of its agreement to the ICSID Convention; and/or (ii) it had agreed to submit the underlying dispute to ICSID arbitration and so was not immune in respect of proceedings in the UK relating to that arbitration. 

High Court declines to follow Infrastructure Services v Spain

The court dismissed the claimants’ arguments that Zimbabwe fell within the exceptions in the SIA 1978. In reaching its conclusions, the court declined to follow the recent judgment in Infrastructure Services v Spain.

Interpreting Articles 53-55 ICSID Convention

First, the court found that Articles 53-55 of the ICSID Convention require a Contracting State to recognise an ICSID award as binding and to enforce any pecuniary obligations. This was achieved through the obligation to give any arbitral award the same status as a final judgment of its own courts, meaning that it could not be re-opened on the merits. Importantly, the court considered that the ICSID Convention provided a general waiver of state immunity in respect of recognition and enforcement (i.e. reducing the award to a judgment), but not execution. This is because execution was expressly carved out in Articles 54(3) and 55 of the ICSID Convention. Despite concluding that the ICSID Convention established a general waiver in respect of recognition and enforcement, the court noted that it must also be satisfied that the general waiver fell within the scope of the exceptions in the SIA 1978 before a State would lose immunity. This contrasts with the approach taken in Infrastructure Services v Spain, in which the court delved straight into the question of whether ss. 2 and 9 of the SIA 1978 were engaged, without first considering whether there had been a waiver under the ICSID Convention.

S.2 SIA 1978

Second, the court found that the general waiver of immunity (provided for by the ICSID Convention) was insufficient to amount to a submission to the jurisdiction of the English courts for specific or identifiable proceedings, which the court found to be required for the purposes of s.2 SIA 1978. The court rejected the argument that a State implicitly submits to the jurisdiction of the courts of another Contracting State. In so doing, the court disagreed with in the High Court decision in Infrastructure Services v Spain. The court reasoned that the Pinochet case requires any waiver of sovereign immunity by treaty to be express if in writing or, where not in writing, be expressed in a clear and unequivocal way. As Article 54 did not satisfy this requirement, s.2 SIA 1978 was not engaged.

S.9 SIA 1978

Third, s.9 could only be engaged if it could be shown that a State had agreed to submit a dispute to arbitration. The question for the court was whether s.9 required the court to make its own determination on whether a valid arbitration agreement existed and whether the dispute fell within its ambit, or whether it was bound by the decision of the ICSID tribunal and the annulment committee on these questions. Ultimately, the court concluded that it must come to its own conclusion, again running contrary to the decision in Infrastructure Services v Spain. The fact that ICSID is a self-contained regime, under which the ICSID tribunal is the final arbiter of jurisdiction, did not mean that the enforcement court was bound by an ICSID tribunal’s finding on jurisdiction.

Order to set aside award dismissed via “novel approach”

Despite dismissing the claimants’ arguments, the court nevertheless declined to set aside the Order. Taking a novel approach without direct authority, the court held that the question of State immunity from jurisdiction was irrelevant to ICSID award registration applications. The court reasoned that the procedural rules for registration of an ICSID award did not require the court to exercise its adjudicatory jurisdiction, and, at this stage, the State was not impleaded. As such, the issue whether the court was required to refrain from action as a result of sovereign immunity did not arise.

Full and frank disclosure or pay the price

The court underscored its overriding duty to give effect to State immunity, even in ex parte applications. Therefore, any party making an application against a respondent State must address the question of State immunity as part of its full and frank disclosure. The court found that the claimants failed to do so, thereby committing a culpable, albeit not deliberate, breach of their duty. Although the court did not exercise its discretion to set aside Order, it nevertheless penalised the claimants in costs.

Comment

Although Zimbabwe’s invocation of State immunity was rejected, the court left the door open for Zimbabwe to raise a further challenge on the basis of State immunity once the claimants formally serve an order on it and take steps towards execution of the USD 125m arbitral award. This decision may, therefore, still prove to be a pyrrhic victory for the claimants.

The judgment raises important issues for parties seeking to enforce, or resist enforcement of, ICSID awards in the UK. Notably, the court declined to follow jurisprudence from other jurisdictions as well as the English High Court in Infrastructure Services v Spain, and the court admitted that the approach was “novel”. Permission to appeal has been given in relation to both Infrastructure Services v Spain and Border Timbers Limited & Or v Zimbabwe, suggesting that this is not the last word on the matter.

Finally, the case provides a reminder that parties who make an application with a State as respondent must address the question of State immunity in order to allow the court to be satisfied that immunity is not engaged. Failure to do so may result in the application being set aside or penalisation in costs.

Judgment: Border Timbers Limited & Or v Zimbabwe 

 
 
 
 
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