The English High Court has recently made a significant judgment regarding the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The court rejected Zimbabwe’s application to set aside an order for registering an award made under the Convention, which challenges the prevailing view on whether the ICSID Convention constitutes an effective waiver of State immunity.
The judgment takes a “novel approach” by concluding that state immunity is irrelevant to registering an ICSID award. This decision has important implications for the settlement of investment disputes between states and nationals of other states, as well as for the ICSID Convention and its adjudicative jurisdiction.
ICSID Award Orders Zimbabwe to Pay USD 125m
In a case involving Zimbabwe’s Land Reform Programme, two companies brought an ICSID arbitration alleging expropriation of their land under the Zimbabwe-Switzerland Bilateral Investment Treaty. The tribunal ordered Zimbabwe to pay some USD 125m plus interest and costs on 28 July 2015. 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.
The Award requires Zimbabwe to pay USD 125m plus interest and costs to the two companies. The Order allows the claimants to enforce the Award as if it were a judgment of the High Court of England and Wales. This means that the claimants can execute against assets in England and Wales to satisfy the Award. It also allows them to register the Award in other jurisdictions to facilitate enforcement.
The Award covers compensation for the expropriation of land, restitution of legal title in the properties, and pecuniary and moral damages. The case highlights the importance of recognition and enforcement of arbitral awards and the consequences of failing to satisfy them.
Zimbabwe’s Challenge to the Order
Zimbabwe has applied to set aside the Order, arguing that it is immune from the jurisdiction of the UK courts under s.1(1) of the State Immunity Act 1978 (SIA 1978). This section establishes that a State has immunity from the jurisdiction of the UK courts, unless one of the exceptions in the SIA applies.
The claimants, on the other hand, have relied on the exceptions to immunity in ss. 2 and 9 of the SIA 1978. They have argued that Zimbabwe falls within one or both of the exceptions to immunity because it had submitted to the jurisdiction of the UK courts by virtue of its agreement to the ICSID Convention. Additionally, they have claimed that Zimbabwe had agreed to submit the underlying dispute to ICSID arbitration and therefore, was not immune in respect of proceedings in the UK relating to that arbitration.
This argument is not without precedent, as the exceptions to immunity have been before the courts recently, including in Infrastructure Services v Spain. The claimants’ submission to the jurisdiction of the UK courts is based on the validity of the arbitration agreement and the submission to jurisdiction, which the annulment committee had previously annulled.
The challenge to the Order raises questions about the validity of the arbitration agreement and the submission to jurisdiction, as well as the extent of Zimbabwe’s immunity from the jurisdiction of the UK courts. The outcome of the appeal will have significant implications for the Republic of Zimbabwe and its future submission to jurisdiction in identifiable proceedings.
High Court declines to follow Infrastructure Services v Spain
In a recent case, the High Court declined to follow the decision in Infrastructure Services v Spain. The court dismissed the claimants’ arguments that Zimbabwe fell within the exceptions in the State Immunity Act 1978 (SIA 1978).
The court found that Articles 53-55 of the International Centre for Settlement of Investment Disputes (ICSID) Convention require a Contracting State to recognize an ICSID award as binding and to enforce any pecuniary obligations. The ICSID Convention provided a general waiver of state immunity in respect of recognition and enforcement but not execution. This is because execution was expressly carved out in Articles 54(3) and 55 of the ICSID Convention. However, the court noted that the general waiver must fall within the scope of the exceptions in the SIA 1978 before a State would lose immunity.
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 section 2 of the SIA 1978. The court disagreed with the High Court decision in Infrastructure Services v Spain, which had taken a different approach.
Furthermore, section 9 of the SIA 1978 could only be engaged if it could be shown that a State had agreed to submit a dispute to arbitration. The court concluded that it must come to its own conclusion on whether a valid arbitration agreement existed and whether the dispute fell within its ambit, running contrary to the decision in Infrastructure Services v Spain. The court reasoned that 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.
It is worth noting that the court’s decision in this case differs from the approach taken in Infrastructure Services Luxembourg Sarl v Spain. In that case, the court delved straight into the question of whether sections 2 and 9 of the SIA 1978 were engaged, without first considering whether there had been a waiver under the ICSID Convention. The court’s decision in this case clarifies the approach that English courts will take in cases involving intra-EU awards.
Overall, the court’s decision in this case provides important guidance on the interpretation of Articles 53-55 of the ICSID Convention and the scope of the exceptions in the SIA 1978. It also highlights the importance of considering the waiver of state immunity under the ICSID Convention before considering the application of the SIA 1978.
Order to Set Aside Award Dismissed via “Novel Approach”
The court declined to set aside the Order despite dismissing the claimants’ arguments. The court took a novel approach without direct authority, stating 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. At this stage, the State was not impleaded, and therefore, the issue of 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
In any application against a respondent State, the party making the application must address the question of State immunity as part of its full and frank disclosure. Failure to do so may result in penalties, including costs. The court has an overriding duty to give effect to State immunity, even in ex parte applications. In a recent case, the court found that the claimants committed a culpable breach of their duty by failing to address State immunity in their application. Although the court did not set aside the Order, it penalized the claimants in costs.
Comment
The recent judgment of Border Timbers Limited & Or v Zimbabwe has significant implications for parties seeking to enforce or resist enforcement of International Centre for Settlement of Investment Disputes (ICSID) awards in the UK. The court’s decision to reject Zimbabwe’s invocation of State immunity has been viewed as a positive development for claimants seeking to enforce ICSID awards against States.
However, the court’s decision is not without limitations. Although the court rejected Zimbabwe’s claim of State immunity, it left open the possibility for Zimbabwe to raise further challenges based on State immunity once the claimants formally serve an order and take steps towards execution of the USD 125m arbitral award. This may prove to be a pyrrhic victory for the claimants.
The court’s departure from jurisprudence from other jurisdictions and the English High Court in Infrastructure Services v Spain is notable. The court’s admission that its approach was “novel” highlights the need for further clarity and guidance on the principles of State immunity and exceptions to it.
This case serves as a reminder that parties seeking to make an application with a State as respondent must address the question of State immunity 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 penalization in costs.
The permission to appeal given in relation to both Infrastructure Services v Spain and Border Timbers Limited & Or v Zimbabwe suggests that this is not the final word on the matter. Therefore, it is important for parties to be mindful of the ongoing developments in this area of law.
