English High Court Enforces ICSID Award Despite Alleged EU Incompatibility

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A recent illuminating decision from the Commercial High Court of England and Wales sets an important precedent in favour of the recognition and enforcement of International Centre for the Settlement of Investment Dispute (ICSID) arbitral awards by English courts. Infrastructure Services Luxembourg v Kingdom of Spain, [2023] EWHC 1226 (Comm) (24 May 2023), involved an application by Spain to set aside an award issued by an  ICSID tribunal in 2018 (Antin v Spain, ICSID Case No. ARB/13/31). The award, entitling the investor to €120 million, itself concerned breaches by Spain of the Energy Charter Treaty (ECT) relating to the state’s removal of incentives for the generation of solar energy. Challenges to ICSID awards in municipal courts are difficult given that under Art 54 of the ICSID Convention (to which both Spain and the UK are signatories), awards issued by ICSID tribunal are automatically recognized and enforceable in signatory states.

Appearing before the Honourable Mr Justice Fraser, Spain argued that the arbitral award should be vacated on the grounds that it was issued in violation of its sovereign immunity, essentially repeating jurisdictional claims that it had made in the original arbitral hearing as well as before the ICSID annulment procedure. This contention was grounded in two key decisions of the Court of Justice of the European Union (CJEU): Achmea v Slovak Republic, Case C-284/16 (Judgment, Grand Chamber), which invalidated the application of investment treaties between EU member states; and the recent Komstroy v Moldova,  Case C-741/19 (Judgment, Grand Chamber), which essentially ruled that the ECT could not apply to intra-EU disputes. Relying on these CJEU rulings, Spain asserted that the ICSID award under the ECT in favour of Infrastructure was an afront to the EU’s legal order, the final arbiter of which is the CJEU. Since an investment treaty like the ECT creates an arbitral tribunal that is outside the CJEU’s jurisdiction, Spain contended, if that tribunal is required to apply or interpret EU law, its conclusions will be unreviewable, undermining the autonomy of EU law.

Mr Justice Fraser was not moved by Spain’s suggestions that breaches of EU law flowing from recognition of ICSID awards undermined the jurisdiction of the original tribunal as well as that of the present court. Emphasizing the paramountcy of international law he stated: “The EU treaties do not trump [Spain’s] pre-existing obligations under international law (the ICSID Convention), nor do they override the relevant domestic law mechanism in the United Kingdom (the International Investment Disputes Act of 1966).”

Turning to the ICSID Convention itself and relevant academic authority (Professor Schreuer), Mr Justice Fraser went on to reiterate that ICSID is a self-contained system that does not permit a re-examination of an award on its merits by a court of a signatory state. This is unaffected by EU law. Interestingly, the fact that the UK has left the EU legal order is irrelevant in this regard. Indeed, Mr Justice Fraser explicitly noted that pre-existing international legal obligations (the ICSID Convention of 1966) would not have been ousted by the subsequent European Communities Act of 1972 through which the UK acceded to the EU’s legal order, even if the 1972 Act had not been repealed as a consequence of Brexit.

Highlighting the supremacy of international law over EU law, Mr Justice Fraser continued: “The CJEU … is not the ultimate arbiter under the ICSID Convention, nor under the ECT, and the difficulties in which Spain finds itself does not assist it here, given the United Kingdom’s own treaty obligations under the ICSID Convention, which are owed to all signatories of the ICSID Convention.” He followed this with a discussion of the Vienna Convention on the Law of Treaties Art 28 and the doctrine of pacta sunt servanda, requiring treaty parties to perform their duties under treaties in good faith, andchrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:/legal.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf Article 29 in which states may not invoke domestic law as a justification for a treaty breach. Accordingly, a written agreement to arbitrate (as found in the ECT) removes Spain from the scope of protection that would have been afforded by the UK State Immunities Act of 1978.

Further comments from Mr Justice Fraser in relation to the interaction of EU and international law bear repeating: “Spain acceded to [the ICSID Convention] freely and so did the United Kingdom. Spain – or any other Member State in my judgment – cannot rely upon the Achmea and/or the Komstroy cases to dilute the United Kingdom’s own multilateral international treaty obligations.” He continued: “Spain maintain[s] that both the ECT and the ICSID Convention – both of which clearly have signatories who are not Member States of the EU – should be interpreted by ignoring their clear terms regarding dispute resolution, in preference to granting the decisions of the CJEU complete primacy over those pre-existing treaty obligations of all states. I do not accept that is the correct approach, and I do not consider that such a result can be achieved by applying international law principles to conflicting treaty provisions.”

With regards to Spain’s claim, again based on Achmea and Komstroy, that its consent to ICSID arbitration under the ECT should not be interpreted to have been extended to investors from EU member states, Fraser responded bluntly: “There is no justification for interpreting [Achmea and Komstroy’s] effect as … creating within the ECT itself, only a partial offer of arbitration to some investors, but not others, depending upon whether those investors were resident within Member States or elsewhere. Spain cannot rely upon any particular wording within [the ECT] itself that could accomplish such an extraordinary result. There is no such wording.”

In a lengthy but memorable passage capturing the essence of the conflict between the two legal orders, Mr Justice Fraser again emphasized the primacy of Spain’s international legal obligations under the ICSID Convention and the ECT: “[Spain’s] argument … is that these decisions of the CJEU must be taken as binding all the parties to the ECT and to the ICSID Convention – whether Member States of the EU or otherwise – and take priority over all other treaty obligations entered into by any other state, even those obligations assumed by treaty prior to the creation of the EU. What this would mean… is that by reason of the terms of the EU Treaties, and by reason of the rulings of the CJEU and its supremacy over EU law matters, the EU and the CJEU would have unilaterally changed – if not removed – all the existing treaty obligations of all the Contracting Parties to the ICSID Convention. I know of no framework of international law in which such a position could be correct. I would go further and observe that it simply cannot be correct. It would mean that the existing treaty obligations of any Contracting Party to the ICSID Convention would have been changed, without any intention or involvement on the part of that Contracting Party, a sovereign nation, as a result of rulings by the CJEU. That is not a conventional analysis of how international obligations work.”

Mr Justice Fraser closed his well-reasoned decision by adding a warning to other states which may seek to undermine the enforcement of ICSID awards in English courts that the thoroughness of his judgement “should not be taken as encouragement by any state in a similar position to Spain that there is a lengthy and costly legal argument, based on wide-ranging arguments under international law, to be had on all or any attempts to obtain recognition of an ICSID award by an investor under the 1966 Act. There is not.”

With this final flourish, the Infrastructure ruling sends a clear message that EU member states will not be able to resist enforcement of awards by investors with assets held in England and Wales by arguing incompatibility with EU law, either in the case of the ECT and probably also under the few remaining active intra-EU BITs. This result could likely spell further trouble for the beleaguered ECT, from which many EU member states have now withdrawn, notwithstanding efforts to upgrade the ECT to make it more environmentally-friendly. Infrastructure is also a resounding confirmation that UK courts remain deeply committed to their international obligations, something that should offer much assurance for litigants and foreign investors alike.

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Alex B says

July 6, 2023

I believe the citations should be to VCLT Articles 26 and 27, not 28 and 29. Otherwise, good article.