On 12 April 2023, the Australian High Court unanimously rejected an appeal from the federal court decision of Kingdom of Spain v Infrastructure Services Luxembourg S.a.r.l., Cementing the Australian’s position as “as an efficient, pro-arbitration jurisdiction”.
Arbitration
In the years following the 2008 Financial crisis, a number of new fiscal policies were instituted by the nation of Spain, including the withdrawal of a number of renewable energy subsidies.
Infrastructure Services Luxembourg (ISL) had, prior to the changes in policy, invested significant amounts in solar power in Spain, in reliance on the noted policies.
ISL and a number of other entities across the world initiated actions against spain, with ISL claiming in the noted Australian arbitration action, that Spain had breached the Energy Charter Treaty (1994). The Energy Charter Treaty (1994) notably carried an agreement to arbitrate under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States(1965), to which Australia is also a party.
In 2018, an arbitration was conducted, with the decision awarding ISL a sum of €101 million.
Federal Court Appeals
ISL brought an action against the Kingdom of Spain, seeking to have the arbitral decision recognized under section 35(4) of the International Arbitration Act 1974 (Cth).
The Kingdom of Spain resisted the application, claiming foreign state immunity under the Foreign States Immunities Act 1985 (Cth).
The 2021 decision of Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. (No 3) [2021] FCAFC 112 saw the Full Federal Court of Australia recognize the arbitral decision as binding as against Spain and issue orders for the full sum of €101 million.
High Court Decision
The Federal Court decision was appealed to the High Court, on the basis of the meaning of the words “enforcement” and “execution”, with Spain again arguing that the arbitration was not binding.
A significant concern which arose in respect of these issues was if the high court found that the award was not enforceable, the enforceability of any award made against a foreign state might be rendered of questionable enforceability, if not altogether unenforceable.
The High Court’s Decision in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11, ultimately dismissed the appeal, in effect, confirming the judgment against the Kingdom of Spain.
The Remaining Question of Enforcement
Notably, one matter which remains un-addressed in the decision is whether a nation-state may still be able to rely on foreign state immunities to fend off various forms of enforcement actions, however the recognition of the arbitral award still presents a significant path forward for arbitrations involving state actors in the Australian jurisdiction.
Impacts For Australian Arbitration
The decision was received with great enthusiasm by a number of commentators in the Australian arbitration, with one commentator noting, that the decision would “enhance the international reputation of Australia as an efficient, pro-arbitration jurisdiction” and another quoted as stating “There are clear advantages to conducting arbitrations in Australia, and one of them is the positive support that our courts give”.
While the execution of the agreement remains to be tested, the High Court’s decision lays the ground for recognition of international arbitration awards as against nation states and marks Australia as a leading pro-arbitration jurisdiction.
The high court’s decision makes Australia a particularly desirable jurisdiction for European entities seeking a jurisdiction for efficient and final arbitration, as Australia’s recognition of an award against a foreign nation state under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) provides an island of firm ground across the globe, where similar issues have not yet been broadly tested outside of the EU.
