Enforcement of foreign arbitral awards in Australia: where does 'recognition' end and where do 'enforcement' and 'execution' begin?
Nicholas Lingard
Freshfields Bruckhaus Deringer, Singapore
nicholas.lingard@freshfields.com
Ann Matthias
Freshfields Bruckhaus Deringer, Dubai
ann.matthias@freshfields.com
With the Australian Centre for International Commercial Arbitration labelling Australia a “geographically attractive, neutral location to arbitrate disputes”,[1] Australia continues its efforts to become a global arbitration destination – both a desirable seat of arbitration and a jurisdiction known for the efficient enforcement of arbitral awards.
However, with Australia’s apex court recently granting special leave to the Kingdom of Spain in relation to its resistance of the enforcement of a foreign arbitral award – representing the culmination of a series of recent judgments concerning the recognition and enforcement of foreign arbitral awards – all eyes will be on the court’s decision, and what it means for future enforcement of international arbitral awards in Australia.
Enforcement of foreign arbitral awards in Australia: the basics
Arbitration is a popular form of dispute resolution in Australia due to “a preparedness in its laws and court systems to facilitate the enforcement both of arbitration agreements and awards”,[2] and Australia is typically seen as a ‘pro-arbitration’ jurisdiction. This view is mirrored in the International Arbitration Act 1974 (Cth) ('Arbitration Act'), whereby arbitration is encouraged as a method of resolving disputes.[3]
The Arbitration Act is a federal law harmonising the legal framework for domestic and international arbitrations across Australia’s states and territories, and also regulating the recognition and enforcement of foreign arbitral awards. It gives force of law in Australia to the New York Convention of the Recognition and Enforcement of Foreign Arbitral Awards 1958 ('New York Convention'), and the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 ('Model Law').[4] A foreign arbitral award made in a New York Convention country is binding on the parties to the award, and can be enforced in an Australian court as if the award were a judgment or order of the relevant court,[5] subject to a limited, exhaustive list of exceptions.[6]
Australia is also party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ('ICSID Convention'), which provides a framework for the enforcement of ICSID awards. The ICSID Convention also has the force of law in Australia,[7] and an award is binding on a party to the investment dispute to which the award relates.[8]
As to cases involving sovereigns, s 9 of the Foreign State Immunities Act 1985 (Cth) ('Immunities Act') provides that, except as provided for elsewhere in that Act, “a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding”.[12] Section 10 of the Immunities Act then recognises an exception, by which a foreign State may submit to jurisdiction “by agreement or otherwise”, with “agreement” defined to include a contract or a treaty.
The enforcement of arbitral awards has been considered by the courts in a number of recent Australian cases, which we summarise briefly below, including the first-known enforcement proceedings relating to an investment treaty award in Australia.
Recent case law
Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company (2021): constitution of the tribunal not in accordance with the parties’ agreement
In Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company,[9] the Full Court of the Federal Court of Australia declined to enforce a foreign arbitral award where it found that the enforcing party did not adhere to the agreed procedure for the appointment of the arbitral tribunal. Specifically, it was found that the successful party in the arbitration had failed to notify the respondent that it had nominated an arbitrator (although the respondent received several other notifications about the arbitration and declined to participate in it). While the court recognised it had scope to exercise discretion to enforce the award, this procedural defect of notice was, the court held, fundamental and could not be overlooked.
Neptune Wellness Solutions, Inc v Azpa Pharmaceuticals Pty Ltd (2021): enforcement against a non-participating party
In Neptune Wellness Solutions, Inc v Azpa Pharmaceuticals Pty Ltd,[10] Neptune Wellness Solutions, Inc ('Neptune') began proceedings seeking a declaration that it was entitled to enforce an arbitral award made in Montreal, Canada, as though it were a judgment of the Federal Court of Australia. As (i) Canada is a party to the New York Convention; and (ii) the requirements of s 9 of the Arbitration Act were met, including that the award was a ‘foreign award’ for the purposes of the Arbitration Act,[11] Neptune was granted judgment in the amount of the award. The respondent did not participate in the proceedings, reaffirming that a failure to submit an appearance will not impede the court’s decision.
Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. (2021): is there a (meaningful) distinction among recognition, enforcement and execution under the ICSID Convention?
This case arises from one of the dozens of renewable energy claims against Spain under the Energy Charter Treaty. In Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l, the critical issue on enforcement is whether a foreign arbitral award against Spain in an investment arbitration governed by the ICSID Convention should be enforced under section 35(4) of the Arbitration Act.
The respondents (the investor claimants in the arbitration) sought to enforce an award against Spain’s state assets located in Australia. Spain asserted that it was immune from the jurisdiction of the Australian courts pursuant to the Foreign State Immunities Act 1985 (Cth), which, as noted, states that “except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding”. An exception to the general position is for proceedings in respect of which a foreign State has submitted,[13] and a foreign State can submit to the jurisdiction at any time, whether by agreement or otherwise.[14]
At first instance,[15] his Honour Stewart J accepted that, on its face, Spain was entitled to immunity, but held that by being a contracting party to the ICSID Convention and the Energy Charter Treaty, Spain had submitted to the jurisdiction of the Australian courts (as well as the jurisdiction of the courts of the other contracting states in respect of the recognition and enforcement, of any resulting award), and this was a waiver of its immunity. Ultimately, the court held that the respondents could enforce the award as if the award were a final judgment of a court in accordance with the Arbitration Act.
Spain appealed. The Full Federal Court of Australia distinguished between the ‘recognition’ and ‘enforcement’ of an award, concluding that it was clear that Spain had waived immunity as to ‘recognition’. [16] In making this assessment, it turned to the wording of Article 54(1) (“[e]ach Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court in that State”) and Article 54(2) (referring to “recognition or enforcement”) of the ICSID Convention, both provisions drawing a distinction between recognition (similar to exequatur in several civil systems), on the one hand, and enforcement, on the other.
The court then considered the effect of Article 55 of the ICSID Convention, which provides that “[n]othing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity […] of any foreign State from execution”. The court relied on Article 55 to hold that State Parties to the ICSID Convention clearly waived immunity as to recognition. Interestingly, relying in part on the Spanish and French texts of the ICSID Convention, the court went on to hold that “execution” is synonymous with enforcement, with the result that, under Australian law, immunity extends to enforcement but not to “recognition” of an ICSID award. The court then determined that the application before it was best understood as an application for recognition – which could not be defeated by a defence of foreign state immunity, and thus the investors were entitled to have the award recognised as a judgment, and it is to be enforceable as such.
Spain sought special leave (akin to a grant of certiorari by the US Supreme Court), and this was granted by the High Court of Australia on 18 March 2022.[17]
The High Court is expected to hear the appeal later this year.
What do these cases mean?
Australia is ‘pro-arbitration’. It is also ‘pro-enforcement’, but not blindly so: each case will be analysed in detail.
As to the enforcement of ICSID awards specifically, pending the final resolution of Infrastructure Services by Australia’s highest court, the position (at least on the reasoning of the Full Court of the Federal Court) would seem to be that ICSID awards can be “recognised” in Australia, but immunity may defeat enforcement (not only “execution”, which is governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought). The High Court will therefore be called upon to elucidate the distinctions (if any) between recognition, enforcement and execution (and in particular whether enforcement and execution are coterminous), with consequences for the scope of immunity against any of those acts with respect to an ICSID award in Australia.
Nicholas Lingard is a Partner and Ann Matthias is an Associate at Freshfields Bruckhaus Deringer LLP.
This article does not express the general position of Freshfields Bruckhaus Deringer LLP, nor its authors. This article is of a general nature and is not intended to be taken as legal advice.
[1]https://acica.org.au/arbitration-in-australia-profile/.
[2]The Role of Courts in Arbitration, Justice Steven Rares, speech dated 4 August 2012, https://www.fedcourt.gov.au/digital-law-library/judges-speeches/justice-rares/rares-j-20120804.
[3] Arbitration Act, s 2D.
[4]Arbitration Act, s 16.
[5]Arbitration Act, ss 8(1), 8(2) and 8(3).
[6]Arbitration Act, s 8(5)..
[7]Arbitration Act, s 32.
[8]Arbitration Act, s 33.
[9][2021] FCAFC 110.
[10][2021] FCA 676.
[11]Arbitration Act, s 9.
[12]Arbitration Act, s 9..
[13]Immunities Act, s 10(1).
[14]Immunities Act, s 10(2).
[15]Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157.
[16]Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3; Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. (No 3) [2021] FCAFC 112.
[17]Kingdom of Spain v Infrastructure Services Luxembourg S.A.R.L. & Anor [2022] HCATrans 39.