Not the last word: High Court holds that ICSID Convention does not effect automatic waiver of immunity

The decision in Border Timbers Ltd v. Republic of Zimbabwe [2024] EWHC (Comm) [2024] EWHC 58 (Comm) considers state immunity under English law in the context of enforcement of ICSID arbitral awards. It deviates from a line of English and other common law decisions in holding that the ICSID Convention does not effect an automatic waiver of immunity. It also cautions parties seeking ex parte relief against states who are under a duty of full and frank disclosure that sovereign immunity should always be raised as a possible defence.

Background:

In July 2015, Border Timbers and Hangani (the Claimants) obtained an award of approximately US$125 million (plus interest) under the ICSID convention (the Convention) as the tribunal found breaches of the Zimbabwe–Switzerland BIT. The award was upheld on a challenge before the ICSID annulment committee in 2018.

In 2021, the Claimants obtained an ex parte enforcement order from the English courts seeking to recognise and enforce the award. Zimbabwe applied to set aside this ex parte order on the basis of its sovereign immunity as provided for in the State Immunity Act 1978 (the Act).

The decision of Dias J in the High Court:

Exceptions under the State Immunity Act:

The Claimants relied on two exceptions under the Act in order to argue that Zimbabwe was not immune:

• Consent to English Court jurisdiction under section 2 of the Act; and
• The agreement to arbitration exception under section 9 of the Act.

As regards the exception under section 2 of the Act:

• The Claimants argued that Zimbabwe had submitted to the English court's jurisdiction, by way of its consent under Article 54 of the ICSID Convention.
• The judge held that section 2 of the Act required any submission to be in respect of the jurisdiction being exercised in those specific proceedings. A general waiver of immunity unrelated to any identifiable proceedings was therefore insufficient.
• The judge held that Article 54 of the ICSID Convention was not a sufficiently clear and unequivocal submission to the jurisdiction of the English courts for the purposes of recognising and enforcing the award against the defendant. In doing so, the judge undertook a comprehensive interpretive analysis of the ICSID Convention, including an analysis of the travaux préparatoires.
• The judge recognised that the above outcome was arguably contrary to the object and purpose of the Convention. However, she was of the view that this was the result of the clear words of section 2 of the Act, which she was required to enforce.

As regards s.9 of the Act:

• The Claimants argued that s.9 applied to ICSID awards so as to exclude any review by the enforcement court of arbitral jurisdiction. This was because the Convention, in their submission, was a comprehensive process. Given that Zimbabwe's objections to the tribunal's jurisdiction had been dismissed by the annulment committee¹, the Claimants argued that the issue should not be reviewed by the English courts again.
• The judge recognised the hermetically sealed nature of arbitration under the Convention under which there are no means of challenge other than by annulment and which gives rise to an award which is final and binding with no possibility of further review.
• However, the judge found that she was bound by the wording of section 9 which made it quite clear that the statutory exception only applies if a state has agreed in writing to submit a dispute to arbitration. This, she found, is a question that the English Court needs to independently satisfy itself of.

In reaching the above conclusions in favour of Zimbabwe, the judge parted with the recent English High Court decision in Infrastructure Services Luxembourg Sarl v Spain, [2023] EWHC 1226 (Comm) and also the decisions of certain other common law jurisdictions (which admittedly had different statutory regimes applicable to sovereign immunity). However, the judge noted that she had allowed herself slightly more latitude in reaching her conclusions, in the knowledge that the Court of Appeal would soon be examining the issue of state immunity in respect of ICSID awards in the appeal of Infrastructure Services.

Full and frank disclosure:

The judge noted that the Act obliged the English courts to give effect to sovereign immunity (as provided for in the Act) even if the state did not appear. It was therefore “incumbent on anyone making an application which names a state as respondent to address the question in order to allow the court to satisfy itself that immunity is not engaged”. Therefore, the Claimants were deemed culpable of a breach of their obligation of full and frank disclosure, in failing to raise this ground at the ex parte hearing.

However, the judge nevertheless declined to exercise her discretion to set aside the enforcement order. In doing so, she relied on the distinction between recognition and enforcement on the one hand, and execution of a judgment, on the other, holding that sovereign immunity is not engaged in the recognition and enforcement stages (which were engaged in this stage), but only in respect of steps taken to effect actual execution of the judgment against the assets of a state (which would require additional steps to be taken by the Claimants).

Comment:

Whilst it may seem like a bold deviation from precedent, this decision may not be the last word on state immunity in the context of enforcement of ICSID awards under English law. As the judge herself noted the Court of Appeal will soon need to determine the appeal in the Infrastructure Services case. Furthermore, it has been reported that Zimbabwe has also received permission to appeal the decision at hand to the Court of Appeal. Also, since this decision, Spain's challenge to the enforcement of yet another ECT award on very similar grounds has also been stayed pending the outcome of the appeal in Infrastructure Services.²

However, this case nevertheless serves as a cautionary tale to parties seeking ex-parte relief against states. Parties would be well advised to flag possible objections on account of sovereign immunity, pursuant to their obligation of full and frank disclosure, even in circumstances where they genuinely believe no such grounds to exist.