To Stay or not to Stay?

The case of Infrastructure Services Luxembourg S.A.R.L v Kingdom of Spain [2019] FCA 1220 raised an interesting question of law as to whether the determination of a stay application would make the Kingdom of Spain a party to a legal proceeding against its will in circumstances where Spain had raised the defence of foreign state immunity.

The Federal Court of Australia was able to untangle the matter by distinguishing between subject matter jurisdiction and jurisdiction over a foreign state and staying the enforcement proceeding without determining Spain’s immunity defence.

Background

On 15 June 2018, a tribunal established by the International Centre for Settlement of Investment Disputes (ICSID) issued an arbitral award against Spain and in favour of Infrastructure Services Luxembourg S.A.R.L and Energeia Solar Luxemburg S.A.R.L after the tribunal determined that the Kingdom of Spain breached the Energy Charter Treaty (ECT) in force between Spain, Luxemburg and the Netherlands by failing to accord fair and equitable treatment to the Claimants who had investments in Spain’s renewable energy sector (Award).[1] 

In April 2019, the claimants in the arbitration, who subsequently became the Applicants in Australian Federal Court proceedings, sought orders from the Federal Court of Australia for leave to have the award enforced against Spain.[2]  The Applicants also sought payment of the Award in the amount of €101 million plus interest and costs.[3]

However, before any substantive steps were taken in the Federal Court proceedings, Spain filed an application with the ICSID to have the Award annulled and requested the Secretary General of ICSID to provisionally stay enforcement of the Award until the annulment application is determined.[4]  On 23 May 2019, the Secretary General of ICSID provisionally stayed the enforcement of the Award.[5]

The next step in the Federal Court proceedings was taken by Spain when, on 6 June 2019, Spain filed a conditional appearance for the purpose of asserting immunity from the jurisdiction of the Australian courts pursuant to the Foreign States Immunities Act 1985 (Cth) (Immunities Act).[6]

In a twist, and as a result of the ICSID provisional stay, in July 2019, the Applicants filed an interlocutory application seeking orders to stay their own enforcement proceeding.[7]  In essence, the Applicants were of the view that if they proceeded with the Federal Court proceeding, they would be in conflict with the ICSID provisional stay.[8]  Yet, if they failed to proceed with the Federal Court proceeding, they would be in breach of the Court’s programming orders for the service and filing of evidence in the enforcement proceedings.[9]  The Applicants indicated that they would apply for the stay to be lifted if the ICSID provisional stay was lifted.[10]

Meanwhile, in a move that was considered unusual, Spain opposed the Applicants’ stay application and instead argued that the Federal Court must proceed to determine the foreign state immunity issue prior to exercising any jurisdiction against Spain, including by determining the Applicants’ stay application.[11]

To Stay or not to Stay?

The key issue for the Federal Court’s consideration was the interaction between Articles 52(5) and 54(1) of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention) which, by virtue of section 32 of the International Arbitration Act 1974 (Cth), has the force of law in Australia. 

Article 52(5) of the ICSID provides for the mandatory provisional stay of enforcement if requested in an annulment application.  Whereas, Article 54(1) makes it mandatory for a state party to the ICSID Convention (which Australia is) to recognise and enforce an award made pursuant to the ICSID Convention.

It was Justice Stewart’s view that the obligations on a state to recognise and enforce an award are subject to the provisional stay of enforcement provisions such that a provisional stay also suspends Australia’s enforcement obligations.[12]

Justice Stewart’s position aligned with the reasoning in Maritime International Nominees Establishment v Republic of Guinea[13] where it was held that:[14]

‘although the Convention does not explicitly so provide, it seems clear that suspension of a party’s obligation to abide by and comply with the award necessarily carries with it suspension of a Contracting State’s obligation (and for that matter its authority) to enforce the Award even though during the pendency of the Committee’s examination of the application for annulment the validity of the Award remains unaffected.’

In adopting the above reasoning, Stewart J found that the above position is the only logical way to read the articles together. 

Spain’s Immunity Argument

Before concluding on the Applicants’ stay application, Stewart J had to address Spain’s argument that the issue of state immunity must be determined prior to any stay being granted.

Justice Stewart distinguished between subject matter jurisdiction (which he found that the Federal Court clearly has as the designated court under the International Arbitration Act for the purpose of recognition and enforcement of ICSID awards) and jurisdiction over a foreign state.[15]

In considering whether the Federal Court had jurisdiction over Spain, Stewart J referred to the plurality inPT Garuda Indonesia Ltd v Australian Competition and Consumer Commission (PT Garuda),[16] who considered jurisdiction in the context of the Immunities Act and noted that in this context,

‘”jurisdiction” is used not to identify the subject matter of a proceeding, but the amenability of a defendant to the process of Australian courts’.[17]

The plurality in PT Garuda also considered the term ‘immunity’ in the same context and found that foreign immunity is a foreign state’s protection from being made a party to a legal proceeding against its will.[18]

Justice Stewart considered these interpretations and found that his determination of the stay application did not ‘implead’ Spain, nor did it make Spain a party to a legal proceeding against its will.[19]  He was therefore not prevented from determining the stay application.

On this basis, Stewart J exercised the Federal Court’s powers and stayed the Federal Court enforcement proceedings.[20]

Costs

Interestingly, the Applicants originally sought their costs of the application but, at the hearing, asked for costs to be reserved.  Justice Stewart rightly observed that this change of position allayed him from having to consider whether a costs order would have impleaded Spain such that Spain’s immunity argument would need to be heard before a costs order could be made against it.[21]

Concluding Remarks

This is the first time a party has sought the recognition and enforcement of an ICSID award in Australian courts.  Given the proliferation of ECT arbitrations and other investor-state arbitrations globally, this case is one to watch to gain an insight into how Australian Courts will approach the enforcement of ICSID awards and other investor-state arbitration awards against foreign sovereign nations.  Should the ICSID award, in this case, be enforced in the future, Australia will embed itself as a pro-arbitration country, including for the enforcement of awards against foreign states.  The matter is set down for a case management hearing on 29 October 2019.

For further information, please contact our Arbitration team below.

---

References: [1] Infrastructure Services Luxembourg S.A.R.L v Kingdom of Spain [2019] FCA 1220 [8]-[11]. [2] Ibid [1]. [3] Ibid [2]. [4] Ibid [12]. [5] Ibid [13]. [6] Ibid [16]. [7] Ibid [18] [8] Ibid [19]. [9] Ibid. [10] Ibid [18]. [11] Ibid [3], [19], [21]. [12] Ibid [28]. [13] ICSID Case No. ARB/84/4, Interim Order 1, 12 August 1988. [14] Ibid [10]. [15] Infrastructure Services Luxembourg S.A.R.L v Kingdom of Spain [2019] FCA 1220[39]. [16] 247 CLR 240. [17] Ibid [17]. [18] Ibid. [19] Infrastructure Services Luxembourg S.A.R.L v Kingdom of Spain [2019] FCA 1220[37]. [20] Ibid [41]. [21] Ibid [42].

---

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.