Case Note: Kingdom of Spain v Infrastructure Services Luxembourg S.a.r.l.
 FCAFC 3 and  FCAFC 112
The Full Court of the Federal Court highlights the difference between recognition and enforcement of an award made under the ICSID Convention in the recent decision in Kingdom of Spain v Infrastructure Services Luxembourg S.a.r.l.  FCAFC 3.
Infrastructure Services Luxembourg S.a.r.l. (ISL) and Energia Termosolar B.V. (Energia) invested in solar power generation within the territories of the Kingdom of Spain (Spain). The investment was made relying on a subsidy program which had been put in place by Spain. The subsidy program was withdrawn after the investment was made. ISL and Energia alleged that this was a contravention of a treaty entered into by Spain. Arbitration proceedings were commenced by ISL and Energia under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).
ISL and Energia obtained an arbitral award against Spain in the sum of EUR$110 million plus interest and costs. They sought leave under s. 35(4) of the International Arbitration Act 1974 (Cth) (IAA) to enforce the award as if it were a judgment of the Federal Court of Australia. Spain contested the jurisdiction of the Federal Court. Spain argued that it was immune from the suit as a consequence of s. 9 of the Foreign States Immunities Act 1985 (Cth) (Immunities Act).
The principal issue raised in the appeal was whether Spain had agreed to submit to the jurisdiction of the court by acceding to the ICSID Convention. That issue turned on the construction of two articles of the ICSID Convention and the distinction between recognition and enforcement of an arbitral award.
Foreign State immunity and the ICSID Convention
Spain claimed foreign State immunity under s. 9 of the Immunities Act. That section provided that a foreign State was “… immune from the jurisdiction of the courts of Australia in a proceeding”. Section 9 was subject to an exception contained in s. 10 of the Immunities Act. Section 10 provided that:
“(1) A foreign State is not immune in a proceeding in which it has submitted to the jurisdiction in accordance with this section.
(2) A foreign State may submit to the jurisdiction at any time, whether by agreement or otherwise, but a foreign State shall not be taken to have so submitted by reason only that it is a party to an agreement the proper law of which is the law of Australia…”
The Immunities Act defined the term “agreement” as including “a treaty or other international agreement in writing”. Both Spain and Australia were signatories to the ICSID Convention. ISL and Energia submitted that the Convention was an “agreement” as defined in the Immunities Act and that, pursuant to that agreement, Spain had submitted to jurisdiction. The application of the ICSID Convention was therefore critical to the resolution of the question of whether Spain had submitted to the jurisdiction of the Federal Court as provided in s. 10 of the Immunities Act.
There were two Articles of the ICSID Convention which were relevant. These were Articles 54 and 55. Article 54 provided that:
“(1) Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.
(2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.
(3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.”
Article 55 provided that:
“Nothing 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 50 execution.”
ISL and Energia relied on s. 10(1) and (2) of the Immunities Act and contended that the ICSID Convention was an agreement by Spain to submit to the jurisdiction of the Federal Court of Australia. Spain pointed to Article 55 of the ICSID Convention. It argued firstly that the proceeding was one for enforcement of the award and that Article 55, which referred to immunity of a foreign State from “execution”, should be understood as including a proceeding for enforcement. As a result, Article 55 required Article 54 to be construed in a way which would not derogate from Australian law as to foreign State immunity as contained in s. 9 of the Immunities Act. Secondly, Spain argued that the proper construction of Article 55 could only be definitely resolved by the International Court of Justice. Until that Court determined the proper construction of Article 55, Spain’s accession to articles 54 and 55 of the ICSID Convention could not represent a clear agreement to submit to the jurisdiction of the Federal Court of Australia.
The Full Court of the Federal Court (Allsop CJ, Perram and Moshinsky JJ) rejected both of Spain’s arguments. The principal judgment was delivered by Perram J. His Honour identified that Article 54(2) permitted a party to apply to a domestic court for recognition of an award made under the ICSID Convention. The Article also permitted a party to apply to a domestic court for enforcement of that award. The article therefore recognised that there was a distinction between the two processes.
His Honour characterised the proceeding at first instance as a recognition proceeding rather than an enforcement proceeding. That is to say, it was a proceeding in a domestic court for confirmation that an award was authentic and had consequences under domestic law.1 It was to be distinguished from an enforcement proceeding, which was a proceeding which sought the assistance of the domestic court to ensure compliance with the award.
Perram J noted that article 54(2) of the ICSID Convention makes a distinction between a proceeding for recognition of an award and one for enforcement. His Honour stated:
“Article 54(1) and (2) show that a party may seek recognition of an award without seeking its enforcement. It is also possible, as Art 54(2) shows, for a party to apply for enforcement of the award without applying for its recognition. In such a case, however, it will be implicit in any enforcement step thereafter approved by the court that the award will have been recognised or, to put it another way, whilst a party seeking recognition need not formally seek enforcement under Art 54(2), any application for enforcement, if granted, will necessarily entail recognition.”
His Honour observed that if enforcement in Article 54 was synonymous with recognition, this distinction would be pointless.2
Spain’s argument as to the proper construction of Article 55 turned on the meaning of the word “execution” which, Spain argued, included the concept of enforcement. Although Perram J accepted this argument, it did not assist Spain. This was because the proceeding at first instance involved recognition of an award and not enforcement. Recognition of the award was a step which was anterior to, and necessarily distinct from, enforcement or execution.3
His Honour noted that if the term “execution” in Article 55 included a recognition proceeding, there would be no circumstances in which a recognition application could be made against a State that was a party to the ICSID Convention. The domestic court hearing the application would inevitably be met with a plea of foreign State immunity, so that recognition of an award made under the ICSID Convention would not be available.4 His Honour concluded that this construction of Articles 54 and 55 of the ICSID Convention was perverse and should be avoided.
His Honour went on to consider whether Spain submitted to the jurisdiction by becoming a party to the ICSID Convention. In doing so, His Honour held that Article 54(2) of the ICSID Convention constituted Spain’s agreement with Australia to the effect that where a party succeeded in an award under the Convention, that party could apply to a competent domestic court for recognition of that award.5 Accordingly, foreign State immunity could not be relied upon by Spain under s. 9 of the Immunities Act in answer to an proceeding seeking recognition of an arbitral award, because the exception to that principle established by s. 10 of that Act had been engaged. Spain had submitted to jurisdiction of a competent domestic court by agreement in the form of the ICSID Convention.
Spain’s second argument to the effect that the meaning of Article 55 had to be declared by the International Court of Justice was also dismissed. As the proceeding was to be characterised as a recognition proceeding rather than an enforcement proceeding, the meaning of Article 55 was of limited relevance. Perram J’s rejection of Spain’s submission was concisely summarised as follows:
“The opinion of the International Court of Justice on the issue, whilst definitive, would be definitive on an issue which does not matter. Spain’s secondary argument therefore passes wide off the mark.”
There was a further dispute between the parties as to the form of order which should be entered by the Full Federal Court. A separate decision was published by the Court in relation to this issue.6 The form of order ultimately entered by the Full Federal Court recognised the award as binding on Spain and entered judgment in favour of ISL and Energia against Spain for the pecuniary obligations under the award.
Relevance of the decision outside the ICSID Convention framework
Although the primary relevance of the decision lies in the discussion around the recognition and enforcement of an award made under the ICSID Convention, the reasoning of the Full Federal Court carries other possible implications.
In particular, the decision of the Full Federal Court affirmed the principle that an award should be enforced in a way that is most convenient to the party who stands to benefit from the award. Although the Court was dealing with an application under s. 35 of the IAA, there are sufficient similarities between s. 35, which deals with recognition of an award made under the ICSID Convention, and s. 8 of the IAA which deals with recognition of foreign arbitral awards more generally. Thus, the principle that an award should be enforced in a way which is most convenient to the party seeking enforcement can be applied to any foreign arbitral award in the same way as it is applied to an award under the ICSID Convention. Speaking in the context of s. 35(4) of the IAA, Allsop CJ stated:
“There is to be no difference in consequence and status between an award and a judgment. Thus, it is legitimate to perfect this statutory command to “enforce as if”, by entering judgment for the award debt as pecuniary obligations under the award and thereby creating a judgment debt.”7
The statutory command to “enforce as if” is used in the same way in s. 8 of the IAA, which applies to the enforcement of foreign arbitral awards more generally. It follows that this approach to recognition and enforcement should be applied to the enforcement of any other foreign arbitral award.
1  FCAFC3 at .
2 Ibid .
3 Ibid .
4 Ibid .
5 Ibid .
6  FCAFC 112.
7 Ibid at .