A Ray Of Sunshine For Solar Energy Investors: High Court Of Australia Rejects Spain's Sovereign Immunity Plea Against Recognition And Enforcement Of ICSID Arbitral Award

• Law Firm: Steptoe & Johnson
• Subject Matter: Litigation, Mediation & Arbitration, Energy and Natural Resources, Energy Law, Oil, Gas & Electricity, Arbitration & Dispute Resolution, Sovereign Immunity: Public Sector Government, Renewables
• Author: Michael Lee
• Published date: 19 May 2023

Introduction

On April 12, 2023, the High Court of Australia (High Court) rendered a unanimous judgment affirming that a foreign state was not immune from proceedings seeking recognition and enforcement of an International Centre for Settlement of Investment Disputes (ICSID) arbitral award. This landmark decision provides welcome guidance on the interaction between Australia's sovereign immunity regime and its international arbitration legislation implementing the ICSID Convention.

Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. v. Kingdom of Spain (ICSID Case No. ARB/13/31)

Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l. & Anor [2023] HCA 11

Factual and Procedural Background

During the 2000s, Spain legislated a regime of special feed-in tariffs to incentivize renewable electricity production. A pair of Luxembourgish and Dutch companies, Infrastructure Services and Energia Solar (Investors), invested almost EUR 140 million in 2011 to acquire shareholding in two concentrated solar power plants in Granada.

However, from 2012 onwards, a new Spanish government gradually suppressed and eliminated its incentivized tariff regime in an effort to combat the country's accumulating tariff deficit. In response, the Investors instituted ICSID proceedings against Spain in late 2013, alleging breaches of fair and equitable treatment as well as arbitrary/discriminatory conduct under the Energy Charter Treaty. In particular, they contended to have suffered "substantial losses to [their] investments ... due to [Spain's] fundamental alteration of the applicable legal and regulatory framework".

In 2018, the Investors prevailed and received a EUR 101 million award in their favor (Award). While Spain applied (but ultimately failed) to have it annulled, the Investors sought the Award's recognition and enforcement around the world, including in Australia, which Spain resisted on grounds of sovereign immunity. After losing at first instance and appeal before the Australian federal courts, Spain launched a final appeal to the High Court in 2022.

Sovereign Immunity in Australia

Like many leading common law jurisdictions, Australia subscribes to the restrictive doctrine of sovereign immunity, whereby a foreign state may become subject to its domestic courts and judicial processes even absent a voluntary submission to jurisdiction. The Foreign State Immunities Act 1985 (FSIA) is the principal statutory instrument, and operates according to the following key principles:

• Presumptive...