State Immunity Challenged: UK Court of Appeal’s Pro-Enforcement Stance on ICSID Awards

The UK Court of Appeal’s recent judgment in the combined appeals of Infrastructure Services Luxembourg S.À.R.L. v Kingdom of Spain and Border Timbers Limited v Republic of Zimbabwe marks a pivotal development in the enforcement of investor-State awards under the ICSID Convention within the UK.

The judgment confirms that while the UK’s State Immunity Act 1978 (the “1978 Act”) applies to ICSID enforcement proceedings, Article 54 of the ICSID Convention amounts to an exception to State immunity based on a “prior written agreement” as outlined in section 2 of the 1978 Act.

This decision, which aligns the UK with other jurisdictions such as Australia, New Zealand, the United States, France and Malaysia, underscores the pro-enforcement stance of the UK courts and provides a significant boost to investors seeking to enforce ICSID awards in the UK.

Case Background

The case involved two separate appeals centred on the enforcement of ICSID awards against sovereign States, both of which invoked immunity defences to resist enforcement.

Infrastructure Services v Spain

In 2018, the investor claimants secured an ICSID arbitral award worth €101 million against Spain under the Energy Charter Treaty for changes to Spain’s tariff advantage scheme for solar energy. The claimants obtained a UK registration order in 2021 under the Arbitration (International Investment Disputes) Act 1966 (the “1966 Act”) which gives effect to the ICSID Convention in the UK. Spain’s attempt to overturn this order on the grounds of State immunity was rejected by Fraser J in the Commercial Court in 2023.

Border Timbers v Zimbabwe

In 2015, the claimants received an ICSID award of approximately $124 million against Zimbabwe under a bilateral investment treaty with Switzerland for the expropriation of their land. They obtained a UK registration order in 2021 under the 1966 Act. Zimbabwe’s attempt to set aside this order on State immunity grounds was dismissed by Dias J in the Commercial Court in 2024.

Joint Appeal Outcome

The Court of Appeal firmly dismissed the State immunity defences presented by Spain and Zimbabwe in their joint appeal against the Commercial Court decisions. The defences primarily relied on section 1 of the 1978 Act, which grants foreign States immunity from UK court proceedings unless a specified exception in the 1978 Act applies.

Having confirmed that State immunity applies to the registration of ICSID awards under the 1966 Act, the Court of Appeal considered whether contracting States to the ICSID Convention have waived that immunity pursuant to the exception in section 2 of the 1978 Act by ratifying the ICSID Convention. Section 2 provides that a contracting State may expressly waive State immunity and submit to the jurisdiction of the English courts through a “prior written agreement”.

Delivering a unanimous judgment, the Court of Appeal held that Article 54 of the ICSID Convention constitutes a clear and express waiver of State immunity under section 2 of the 1978 Act. This decision rejected the principal analysis of the first instance judges, concluding that contracting States to the ICSID Convention have waived immunity and submitted to the enforcement jurisdiction of the UK courts by virtue of Article 54.

Given their findings that the section 2 exception applies, the Court of Appeal found it was unnecessary to determine whether a second exception to State immunity in section 9 is automatically engaged in the case of ICSID awards. Section 9 stipulates that where a State has agreed to arbitration, it cannot claim immunity from legal proceedings in UK courts related to the arbitration.

Conclusion

The UK Court of Appeal’s judgment is a landmark decision in the realm of international arbitration and the enforcement of investor-State awards. By confirming that the ratification of the ICSID Convention constitutes a waiver of State immunity, the Court of Appeal has provided a robust framework for the enforcement of ICSID awards in the UK. This decision not only aligns the UK with other leading jurisdictions but also reinforces its position as a favourable venue for investors seeking to enforce ICSID awards.

For investors, this judgment is a clear signal of the UK courts’ commitment to upholding the principles of the ICSID Convention and supporting the enforceability of investor-State awards. While the decision is a major development, it is important to note that it may be subject to further appeal to the UK Supreme Court.

This article was written by Sheena Buddhdev, Katia Finkel, and Katie McCay, lawyers in our Litigation & Dispute Management and Global Enforcement group.