The Full Court clarifies procedure for recognition and enforcement of ICSID awards in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3.

In a judgment delivered on 1 February 2021, the Full Court of the Federal Court of Australia confirmed that Spain could not rely on foreign state immunity to defend against proceedings to recognise an ICSID award arising from Spain's renewable energy reforms. However, the Full Court upheld Spain's appeal insofar as the lower court judgment amounted to enforcement of the ICSID award.

In 2019, European investors applied to the Federal Court of Australia to recognise two ICSID awards obtained in connection with Spain's renewable energy reforms. These proceedings were contested by Spain, which asserted sovereign immunity. In February 2020, the Federal Court held that Spain's accession to the ICSID Convention ("Convention") constituted waiver of state immunity under Australia's foreign state immunity legislation, and made orders recognising and enforcing the awards. See our Jones Day Commentary about that decision.

Spain appealed this decision to the Full Court, arguing, in part, that the proceedings before the Federal Court were "enforcement" proceedings and that the court erred when finding that Spain's entry into the Convention amounted to a waiver of immunity in enforcement proceedings.

In considering Spain's appeal, the Full Court confirmed the distinction between the interrelated (and sometimes confused) concepts of "recognition," "enforcement" and "execution" of arbitral awards. The Full Court summarised that recognition of an arbitral award refers to the formal confirmation by a court that an arbitral award is authentic with legal consequences. Enforcement, however, refers to the subsequent process by which a party seeks the court's assistance to ensure compliance with the recognised award. Execution refers to the process by which enforcement is performed.

Ultimately, the Full Court dismissed Spain's arguments, finding that the proceedings were "recognition proceedings" and pursuant to Art. 54 of the Convention, Spain had waived its right to rely on state immunity in respect of the recognition of an arbitral award. However, the Full Court held that this did not extend to enforcement of an arbitral award, which is subject to Art. 55 of the Convention. While the Full Court determined that the current proceedings were "recognition proceedings," it found that the language used in the orders of the Federal Court strayed beyond recognition in that they granted the investors leave to "enforce" the award and ordered Spain to "pay [the investors]" the amounts awarded. It therefore set aside those orders and ordered they be replaced with orders confined to recognition of the award.

While the rejection of Spain's immunity argument at the recognition stage is a positive development for the investors, this decision may still leave the door ajar for Spain to mount a fresh state immunity defence in subsequent enforcement proceedings in Australia.