A recent Federal Court of Australia appellate judgment confirms Australia's pro-arbitration and pro-recognition approach, affirming that Spain is not entitled to rely on a sovereign immunity defence to thwart recognition of an international arbitration award concerning renewable energy projects investments.
The Federal Court of Australia in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l.  FCAFC3 allowed an appeal from the Court's own first-instance decision, rejecting Spain's attempts to use a sovereign immunity defence in the context of a recognition proceeding. This is one of the rare occasions on which an Australian court has been required to adjudicate issues of recognition of an International Centre for Settlement of Investment Disputes (ICSID) award. In particular: (i) the availability of a foreign sovereign immunity defence, (ii) the distinction to be drawn between recognition, enforcement and execution under the Convention on the Settlement of Investment Disputes and Nationals of Other States (ICSID Convention), and (iii) the form which recognition should take in the procedural sense.
The case concerns an arbitral award issued in 2018 against Spain by a tribunal constituted under the ICSID Convention. It arose out of legislative reforms to Spain's energy sector between 2012 and 2014, pursuant to which the Spanish government unwound a series of financial incentives for solar power and other renewable resources. Several investors, including Infrastructure Services Luxembourg S.à.r.l. and Energia Solar Luxembourg S.à.r.l. (the Investors), had relied upon these financial incentives when making investments in renewable energy projects in Spain.
The tribunal found that Spain had breached the Energy Charter Treaty (ECT) in force between Spain, Luxembourg and the Netherlands by failing to accord fair and equitable treatment to the Investors, ultimately awarding them €101 million in compensation.
The Investors sought to have the award recognised and enforced in Australia and the US. Spain meanwhile applied for annulment of the award, including a successful application for stay of enforcement. Spain's principal argument in the annulment proceedings is that the award is contrary to the European Court of Justice's landmark 2018 ruling on intra-EU investment arbitration in the Achmea case. The annulment proceedings are currently pending. The stay was recently lifted by an ICSID ad hoc committee, allowing the application for recognition of the award to proceed in the Australian Federal Court.
At first instance, Justice Stewart rejected Spain's foreign sovereign immunity plea, granting the Investors leave to enforce the award against Spain and ordering Spain to pay €101 million in compensation. The key issue both at first instance and on appeal was whether Spain's accession to the ICSID Convention constituted submission to the jurisdiction of the Australian Federal Court.
A Full Court of the Federal Court (Full Court), comprised of a three-judge appellate bench, upheld the appeal. In lead judgment, with which the other justices agreed, Justice Perram, ruled that whilst the primary judge was correct in rejecting Spain's sovereign immunity plea in the context of a recognition proceeding, he had erred in the form of the recognition granted. On this basis, the Full Court set aside several of the orders made at first instance and invited further submissions from the parties as to the form that recognition should take in this case.
The Full Court characterised the proceeding as one of recognition, as distinct from enforcement and execution under the ICSID Convention. This distinction enabled the Full Court to dispense with Spain's primary argument, namely that the proceeding sought to "enforce" the ICSID award and that the term "execution" used in Article 55 of the ICSID Convention includes enforcement. On this basis, Spain argued that it was entitled to claim immunity from the Australian Federal Court's jurisdiction.
Having regard to the Full Court's determination that the proceeding was one of recognition, it accorded that Article 55 of the ICSID Convention was not applicable:
"Once it is accepted, as it must be, that the Respondents are entitled to recognition under domestic law and that that domestic law is itself merely the instantiation of the recognition procedure to which Spain itself has explicitly agreed by means of the solemn public act of acceding to a treaty, it follows for the reasons already given that there can be no plea of foreign state immunity available to it whether before judgment or, even on the approach in Micula, after judgment. The problem it has is that the immunity has been lost by reason of an agreement within the meaning of s 10(2) of the Immunities Act."
The Full Court agreed that the term "execution" under Art. 55 of the ICSID Convention included the concept of "enforcement". This did not, however, have any bearing on the outcome as the Full Court was careful to point out that "execution" under Article 54 of the ICSID Convention could not include recognition as this would render recognition proceedings "perpetually unavailable" in each case against a sovereign state. The Full Court proceeded to rule Spain's accession to the ICSID Convention as constituting its agreement to submit to the Australian Federal Court's jurisdiction in a recognition proceeding.
Furthermore, the Full Court held that Spain's attempt to argue that Article 26 of the Energy Charter Treaty was unlawful under European law bore no connection to any question of foreign state immunity. As such, the Full Court disregarded this submission.
Interestingly, the European Commission applied for leave to intervene in the appeal, seeking to ventilate issues regarding the underlying ICSID arbitral tribunal's alleged lack of jurisdiction to render its award in the first place (along the lines of reasoning set out in Achmea). The Full Court dismissed the Commission's application, instead confining itself to the narrow question of whether Spain was entitled to rely on a plea of foreign state immunity, and stating in no uncertain terms that the arbitral tribunal's jurisdiction was not a matter the Full Court could competently consider.
This important decision provides useful guidance on Australian courts' approach to recognition of ICSID awards, bringing to light several issues of particular interest to parties contemplating recognition and enforcement of their international arbitration awards in Australia:
 Per Stewart J in Eiser Infrastructure Ltd v Kingdom of Spain  FCA 157.
 Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. v The Kingdom of Spain ICSID Case No. ARB/13/31.
 Plus interest and costs.
 Case C-284/16 Slovak Republic v Achmea. In this case, the European Court of Justice held that an arbitration clause in an international investment agreement between two EU member states is incompatible with EU law. Understandably, this case has had far-reaching consequences for intra-EU investment arbitration agreements and arbitration proceedings arising thereunder.
 Article 55 of the ICSID Convention provides: "[n]othing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution".
 Under the relevant provisions contained at section 35(4) of the International Arbitration Act 1974 (Cth) Pt IV.