Under the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, contracting states agreed to recognise and enforce arbitration awards as binding, equivalent to a final court judgment. However, national courts were responsible for handling matters of execution.
Article 54(1) of the Convention seemed to indicate a waiver of state immunity by contracting states regarding the recognition and enforcement of awards. However, this waiver was not the same as submitting to jurisdiction under the <span class="news-text_italic-underline">State Immunity Act 1978</span>.
State immunity only became relevant once an order granting registration of a Convention award was served. The doctrine of state immunity was not automatically forfeited by simply being a party to the 1965 Convention.
The court was determining preliminary issues regarding the defendant's claim of state immunity regarding the claimants’ registration and entry of judgment in England.
The claimants had obtained an arbitration award against the defendant under the 1965 ICSID Convention. After the award was left unsatisfied, the claimants successfully obtained an order in England to register and enter the award as a judgment, pursuant to the Arbitration (International Investment Disputes) Act 1966.
The defendant applied to set aside this order, arguing it was immune from the jurisdiction of the English courts under the State Immunity Act 1978. The claimants contended that the defendant had submitted to the jurisdiction under exceptions in the 1978 Act, either by agreeing to the ICSID Convention or submitting the underlying dispute to ICSID arbitration.
Therefore, the key issues were around the defendant's claim of state immunity versus the claimants’ arguments that exceptions to immunity applied based on the defendant's actions.
The terms of the Convention needed to be interpreted in context and considering its object and purpose, requiring a holistic approach. The primary source for the object and purpose was the treaty preamble or any other common expression of intent, with caution exercised before extending further. The principles were set out in <span class="news-text_italic-underline">Czech Republic v European Media Ventures SA [2007] EWHC 2851 (Comm)</span>. Regarding articles 53-55, the Convention envisioned every contracting state recognising an ICSID award as binding and treating it as a final judgment of its own courts,
while execution matters were left to national courts. This interpretation aligned with <span class="news-text_italic-underline">Micula v Romania [2020] UKSC 5</span>. If correct, article 54(1) implied a waiver of state immunity by contracting states for recognition and enforcement but not for asset execution processes.
Relying on <span class="news-text_italic-underline">Infrastructure Services Luxembourg Sarl v Spain [2023] EWHC 1226 (Comm)</span>, the claimants argued that by agreeing to recognise and enforce awards, the defendant had waived immunity and submitted to the jurisdiction of contracting states for that purpose. Under the 1978 Act, a state had blanket immunity unless an exception applied. Therefore, a general waiver of immunity only deprives a state of its immunity if it fits within one of those exceptions.
The Act needed to be interpreted consistently with the 1966 Act and the UK’s international obligations but was of general application. Thus, proceedings involving ICSID awards had to be approached similarly to those involving non-ICSID awards. Section 2 required any submission specific to the jurisdiction exercised in those proceedings.
A waiver of immunity unrelated to identifiable proceedings was not synonymous with jurisdiction submission under s.2, despite potential overlaps. Article 54 was not a clear submission to English courts for recognising and enforcing the award against the defendant. This conclusion, though possibly contrary to the ICSID Convention’s object and purpose, resulted from applying the clear words of s.2. It also differed from Infrastructure Services, as the distinction between waiver and submission was not argued there. The defendant had not submitted to the jurisdiction of the English courts.
The exception to immunity in s.9 applied where a state agreed in writing to arbitration. The defendant argued the dispute was not covered by the arbitration agreement due to lack of tribunal jurisdiction. The court had to decide if the defendant could raise jurisdictional points to argue that the s.9 exception did not apply.
Before s.9 could be engaged, the court needed to ensure there was an agreement to submit the specific dispute, the person accepting the arbitration offer was entitled to do so, and the dispute fell within the arbitration agreement scope, as considered in <span class="news-text_italic-underline">PAO Tatneft v Ukraine [2018] EWHC 1797 (Comm)</span>. Section 9 applied equally to ICSID and non-ICSID awards. Unlike s.2 related to art.54, where the key question was submission to jurisdiction, s.9 did not apply here.
The procedure for registering an ICSID award under r.62.21 did not require service of the originating process; the foreign state was not impleaded until served with the registration order. State immunity was engaged at that point. A serving process in a state involves an exercise of sovereignty, contrasting with merely notifying of the registration application.
Requiring service of the registration order secured the opportunity to assert immunity before asset execution, as considered in <span class="news-text_italic-underline">General Dynamics United Kingdom Ltd v Libya [2021] UKSC 22</span>. The defendant could not set aside ICSID award registration based on sovereign immunity but could claim immunity against further execution steps. This distinguished ICSID award enforcement applications from New York Convention award applications, which required service and court adjudication on defences, preserving established case law.
State immunity was not mentioned in the claimants’ application for registration. The court had an overriding duty to uphold state immunity, even if the state did not appear. Applications naming a state as respondent had to address immunity to allow the court to confirm it was not engaged. The claimants could register the award, as state immunity was irrelevant to the registration application. Thus, the disclosure failure was immaterial.
The claimants exercised their statutory right with no tangible prejudice to the defendant. The defendant could use state immunity to resist execution attempts. Al-though culpable, the breach was not deliberate, and depriving the claimants of their registration entitlement would be excessively harsh.
The Border Timbers Ltd v Zimbabwe case highlights crucial distinctions between recognising and enforcing ICSID awards and the execution against state assets. The ruling clarifies that while contracting states under the ICSID Convention agree to recognise awards as binding, this does not constitute a waiver of state immunity for execution purposes.
This distinction requires investors and legal practitioners to navigate national legal systems carefully when seeking to enforce arbitration awards against sovereign states. The case also emphasises that a general waiver of immunity through ICSID participation does not equate to submission to jurisdiction under the <span class="news-text_italic-underline">State Immunity Act 1978</span>, necessitating explicit submissions in specific proceedings.
This case is likely to influence the drafting of arbitration clauses, with parties ensuring more precise language regarding state immunity and jurisdiction. Legal strategies must account for comprehensive consideration of state immunity at all litigation stages. Additionally, the case may prompt legislative revisions to better align national laws with international obligations under the ICSID Convention, providing clearer guidelines for enforcing arbitration awards against sovereign states.
