Kingdom of Spain v Infrastructure Services Luxembourg and Republic of Zimbabwe v Border Timbers: sovereign immunity and ICSID award enforcement

The Supreme Court has unanimously dismissed appeals brought by Spain and Zimbabwe, holding that both states, by ratifying the ICSID Convention, submitted to the adjudicative jurisdiction of English courts for the purposes of recognising and enforcing arbitral awards rendered against them. Neither state could rely on sovereign immunity under the State Immunity Act 1978 to resist registration of those awards in the High Court.

The litigation arose from two distinct ICSID arbitrations. Spain had been ordered to pay approximately €101 million in compensation to Infrastructure Services Luxembourg and Energia Termosolar BV following amendments to its renewable energy regulatory regime, found to breach the fair and equitable treatment standard in the Energy Charter Treaty. Zimbabwe had been ordered to pay over US$124 million to Border Timbers Ltd and Hangani Development Co following the expropriation of land without compensation. Both states sought to set aside the registration of those awards in England, invoking immunity under section 1(1) of the State Immunity Act 1978.

The test under section 2(2) of the State Immunity Act 1978

The Court took the opportunity to clarify the test for waiver of immunity by treaty. Section 2(2) of the 1978 Act permits a state to submit to jurisdiction by prior written agreement, and section 17(2) extends that to include treaties and conventions. The appellant states argued that waiver must be explicit, requiring language such as "waiver" or "submission". The Court rejected that narrow approach, finding it inconsistent with the Supreme Court's earlier decision in NML Capital Ltd v Republic of Argentina [2011] 2 AC 495, where Argentina's agreement that a New York judgement could be enforced in any court to whose jurisdiction it was subject was held to be the "clearest possible waiver of immunity", notwithstanding the absence of such terms.

The Court also declined to follow the dissenting judgement of Lord Goff in R v Bow Street Magistrate, ex parte Pinochet (No 3) [2000] 1 AC 147 insofar as it suggested that waiver requires explicit mention of immunity. The correct test, the Court held, is whether the words used necessarily lead to the conclusion that the state has submitted to jurisdiction — construed in accordance with the Vienna Convention on the Law of Treaties. A clear and unequivocal expression of consent is required, but that consent may be conveyed by what necessarily follows as a consequence of the express words used, without any need to imply additional terms.

The interpretation of article 54(1) of the ICSID Convention

Article 54(1) obliges each contracting state to recognise an ICSID award as binding and to "enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State." The Court held that, on its ordinary meaning and read in context, this provision constituted a clear and unequivocal submission to adjudicative jurisdiction.

The reasoning is straightforward: by becoming party to the Convention, each state not only assumes the obligation to recognise and enforce awards but consents to all other contracting states being under the same obligation — including in respect of awards rendered against that state. A contracting state cannot simultaneously agree that courts of other contracting states shall recognise and enforce awards against it whilst claiming immunity from those very proceedings. The obligations in article 54(1) are mutual and reciprocal, and their fulfilment necessarily involves an exercise of adjudicative jurisdiction that is incompatible with the maintenance of immunity from it.

Critically, article 55 preserves immunity from execution only. Its deliberate silence on adjudicative immunity reinforces the conclusion that no such immunity survives ratification. The travaux préparatoires, whilst not necessary to resolve any ambiguity, confirmed that the drafters addressed themselves exclusively to immunity from execution when introducing article 55 — and that awards against states were always contemplated to be subject to enforcement in other contracting states.

International consensus

The Court noted broad consensus among foreign courts. Australia, New Zealand, Malaysia, and the United States have each interpreted article 54(1) as a waiver of adjudicative immunity. The lone dissenting decision, from the British Virgin Islands High Court in Tethyan Copper v Pakistan, was criticised as having failed to grapple with the reciprocal structure of the Convention's obligations.

Practical effect

The Court emphasised that its decision concerns immunity from adjudicative jurisdiction only; immunity from execution under article 55 and domestic law remains unaffected. A sovereign state that fails to satisfy an ICSID award may therefore resist forced seizure of its assets, but cannot prevent a domestic court from recognising that award and treating it as equivalent to a final judgement. Zimbabwe's reserved non-immunity defences — which were not adjudicated upon — are remitted to the Commercial Court.

Copyright & permissions