Since our last update on the issue in late February 2023, further decisions on the enforceability of intra-EU investor-State awards came to light. These developments highlight the importance of pursuing a global strategy when seeking enforcement of these awards.
EU Member States have continued with their attempts to resist enforcement on the basis of the well-known judgments in Achmea and Komstroy by the European Court of Justice on the incompatibility of intra-EU investment treaty disputes with EU law, ie the so-called intra-EU objection. Save for one instance – currently undergoing appeal – this defence has so far proven to be ineffective outside of the EU.
Court proceedings on the enforcement of intra-EU awards outside of the EU, ie in the US, the UK, Australia and Switzerland show the following developments:
- In the US, two district judges of the District of Columbia – in February and March 2023, respectively – reached conflicting decisions on whether an intra-EU award may be enforced. An appeal judge will now decide these cases together.
- In the UK, in March 2023 certain Spanish assets were temporarily frozen, pending intra-EU award enforcement proceedings. In May 2023, the Commercial Court of England and Wales allowed the enforcement of another intra-EU award against Spain with a landmark decision rejecting all EU law and State immunity defences.
- In Switzerland (which has a peculiar approach to enforcement), in March 2023 the Swiss Federal Supreme Court rejected a request to attach assets belonging to Spain in the context of the enforcement of an intra-EU award on grounds unrelated to the intra-EU objection.
- In Australia, the High Court of Australia, the highest court of the country, established in April 2023 that by ratifying the ICSID Convention states waive their immunity against recognition and enforcement of ICSID awards. This renders the intra-EU objection in enforcement proceedings ineffective.
Investors have also continued to pursue out-of-court strategies targeting sovereign debt instruments to exert further pressure on states failing to comply with international arbitration awards.
Contradictory intra-EU award enforcement judgments in the US to be heard together in appeal proceedings
In February 2023, a US judge of the US District Court for the District of Columbia dismissed in two judgments (NextEra v Spain; 9REN v Spain) Spain’s intra-EU objection at the enforcement stage. This meant that, for this US judge, EU member States cannot rely on the supposed invalidity of the arbitration agreement under EU law to resist enforcement outside of the EU. The US court found that establishing the existence of an agreement to arbitrate, not its validity, was sufficient to withhold jurisdiction. EU law and the intra-EU objection could not affect the existence of the arbitration agreement in the ECT.
Despite these two recent judgments, on 29 March 2023, a judge of the same district considered the intra-EU objection and rejected Blanket Renewable Investments’ (Blanket) request to enforce the intra-EU award in PV Investors v Spain worth €26.5 million. In a first of its kind decision, the US judge followed Spain’s EU law arguments and held that under EU law Spain lacked the legal capacity to extend an offer to arbitrate to EU investors. In the judge’s opinion, no valid arbitration agreement existed and therefore Spain’s state immunity from US courts’ jurisdiction was not waived. The US court therefore declared its lack of jurisdiction and rejected the enforcement request.
The enforcement proceedings in NextEra, 9REN, and PV Investors are now under appeal before the US Court of Appeals for the District of Columbia Circuit. On 20 April 2023, the Court of Appeals decided to hear the three cases together, with final briefs scheduled for August 2023.
Australia’s highest court rejects sovereign immunity defences in intra-EU award enforcement proceedings
On the other side of the world, in the context of the Antin v Spain intra-EU award enforcement proceedings, the High Court of Australia – Australia’s highest court – issued a judgment on 12 April 2023 ruling that Spain cannot rely on State immunity to resist recognition and enforcement proceedings of ICSID awards.
For context, in February 2020, a primary judge of the Federal Court of Australia granted the claimants’ request to enforce the €101 million award rejecting Spain’s foreign state immunity arguments and ordered Spain to pay the award. A year later, as we reported, the Full Court of the Federal Court of Australia on appeal recognised the award and rejected Spain’s EU law arguments.
In the April 2023 judgment, the High Court found that Spain had waived its State immunity from jurisdiction in recognition and enforcement proceedings of ICSID awards by ratifying the ICSID Convention. The High Court rejected Spain’s EU law arguments establishing that the relevant instrument to assess Spain’s waiver of state immunity is the ICSID Convention. This means that a States party to the ICSID Convention cannot rely on State immunity as a defence against enforcement of ICSID awards.
Commercial Court of England and Wales freezes Spain’s assets in one proceeding and enforces an intra-EU award against Spain in a landmark decision in another one
On 27 March 2023, the Commercial Court of England and Wales froze assets belonging to Spain in enforcement proceedings of another intra-EU award. The court issued three interim orders in favour of Blasket – the same award-holder of the above-mentioned PV Investors award – concerning the InfraRed v Spain intra-EU award of approx. €40 million.
Two of the interim orders are charging orders, ie land charges made in relation to property, applicable to the facilities of the Cervantes Institute and the office of the Agency for Business Competitiveness of Catalunya. The third order is a third-party debt order requiring the UK branch of the Spanish bank Santander to identify accounts held by the Cervantes Institute. The orders do not require any payment yet and reportedly gave Spain two months to invoke State immunity. A hearing on this matter reportedly took place on 2 May 2023.
This is an interesting development, given that case law of the International Court of Justice and the European Court of Human Rights (ECHR) have in the past considered similar cultural institutes (eg the German Goethe Institute) as “inextricably linked to the fulfilment of sovereign purposes” and therefore immune from enforcement actions.
Notably, in the enforcement proceedings concerning the Antin v Spain intra-EU award, the Commercial Court has already rejected Spain’s State immunity arguments. Indeed, only a month after their victory in Australia as described above, Antin secured another big win in the UK. On 25 May 2023, the Commercial Court rejected Spain’s EU law and sovereign immunity arguments and enforced the intra-EU award. The judgment pertains to an action by Spain to set aside a previous order of 29 June 2021 registering the award on the grounds that the English courts lacked jurisdiction. In the judgment, the judge explained that Spain had given its unconditional consent under the ECT and the ICSID Convention to remove the dispute from domestic jurisdiction (including the European Court of Justice) therefore making Spain’s EU law contentions irrelevant. The judge also rejected Spain’s sovereign immunity arguments, establishing that by consenting to arbitration under the ICSID Convention and the ECT, Spain effectively waived its sovereign immunity from the jurisdiction of UK courts under the UK State Immunity Act of 1978.
The Commercial Court found support for this judgment in the ruling from the High Court of Australia issued also in favour of Antin. The judge also found that the decision from the US District Court for the District of Columbia in PV Investors v Spain rejecting an intra-EU enforcement request, mentioned above, was less relevant given that it concerned an UNCITRAL as opposed to an ICSID award.
The English judge concluded that “there are no grounds for repetition or rehearing” EU law arguments, unless in a truly exceptional case. This is because “to do so would be contrary to the ICSID Convention [...] and is exactly what international arbitration is designed to avoid”.
This decision consolidates the UK as a favourable jurisdiction for intra-EU awards holders seeking to enforce their awards.
Swiss Federal Supreme Court rejects enforcement because of lack of “sufficient domestic connection to Switzerland”
In an anonymised judgment dated 17 March 2023, the Swiss Federal Supreme Court rejected an appeal concerning the enforcement of an intra-EU ICSID award over Spain’s assets amounting to €34 million. The underlying dispute is reportedly OperaFund v Spain. The investor originally applied to the Regional Court of Bern-Mittelland in April 2022 to attach trademarks, patents, real estate, bank accounts, assets in deposit boxes and precious metals supposedly owned by Spain. Such request was rejected both by the first and second instance courts. The investor then appealed before the Federal Supreme Court of Switzerland.
The Federal Supreme Court equally rejected the investor’s petition to enforce the award. It established that the Swiss rules on State immunity are applicable to all arbitral awards, including ICSID awards. These rules require that the award’s underlying relationship has a sufficient domestic connection to Switzerland. The court found that no such connection existed (despite one of the claimants in the arbitration being organised under the laws of Switzerland).
The compatibility of this decision with Switzerland’s obligations under the ICSID Convention and the ECHR is questionable. Under the ICSID Convention, contracting States have a clear, unqualified obligation to enforce ICSID awards. As recently established by the European Court of Human Rights in BTS v Slovakia, an arbitral award qualifies as a protected right (a “possession”) under the European Charter of Human Rights and failure to enforce it might constitute an unlawful interference with the right to peaceful enjoyment of possessions.
Investors’ global strategies to monetise intra-EU awards
Against the background of these approaches adopted by different jurisdictions, it is not surprising that investors seek to adopt a global and holistic strategy when it comes to enforcing intra-EU investment treaty awards. For instance, Blasket, which acquired interests in at least three intra-EU awards against Spain (InfraRed, PV Investors and RREEF) amounting to over €100 million, is seeking enforcement in the US and the UK in parallel. Antin is doing the same in the US, the UK and Australia in relation to its €101 million award.
Both investors have also exerted pressure on Spain through out-of-court strategies. As we described before, Antin reportedly approached the International Monetary Fund and other private rating agencies such as Fitch and Moody’s to request the downgrade of Spain’s credit rating due to Spain’s non-compliance with international arbitration awards.
Blasket has now made a similar move. It approached Chase Bank and Bank of New York Mellon, the financial agents of one of Spain’s sovereign debt instruments. Blasket argues that Spain’s failure to comply with arbitral awards amounts to an event of default under Spain’s sovereign debt instruments and therefore the amount thereof is immediately repayable.
The importance of a global strategy is also showcased by developments in Germany. In the context of German energy giant RWE’s attempts to enforce its ECT award against Spain, Spain sought an anti-enforcement order before German courts. On 4 April 2023, the Higher Regional Court of Hamm (whose jurisdiction covers the city of Essen, where RWE’s headquarters are located) issued a temporary order directing RWE to refrain from pursuing an anti-anti-enforcement injunction in the US, pending the decision by the German court. This means that RWE cannot challenge an anti-enforcement injunction filed by Spain before US courts with another similar injunction while the Higher Regional Court decides on Spain’s anti-enforcement injunction. Non-compliance with this order would result in a fine of up to €250,000 and/or up to six months of prison for RWE’s executives. This development may render alternative monetisation options (eg sale of the award) for European investors more attractive.
This article has been updated after first publication to reflect the new landmark decision by the Commercial Court of England and Wales of 24 May 2023 on the enforcement of the Antin v Spain award.