Insights

‘This is an unhappy case’.

So lamented Fraser L.J. (as he now is) on the recent applications before him in (1) Operafund Eco-Invest Sicav Plc (2) Schwab Holding AG vs Kingdom of Spain [2024] EWHC 82 (Comm) (‘Operafund’), a case concerning the enforceability of yet another ICSID award against the Iberian sovereign arising from its breach of the Energy Charter Treaty in the context of solar feed-in tariff investments.

The learned Judge, pre-elevation, had of course been here before in Infrastructure Services ([2023] EWHC 1226 (Comm). On that occasion, he rejected Spain’s attempts to circumvent the enforcement provisions in the ICSID Convention and held that EU law did not override the UK’s pre-accession treaty obligations to implement the Convention as enacted in the Arbitration (International Investment Disputes) Act 1966, whatever the Court of Justice of the European Union might have said in Achmea vs Slovakia and Republic of Moldova vs Komstroy.

If Infrastructure had rested with the decision of his Court, he may not have felt so blue when Spain challenged the ex parte recognition order granted in the claimants’ favour in Operafund on the familiar grounds of state immunity and jurisdiction, both of the ICSID tribunal that made the award and the High Court to register it. Alas, on 5 October 2023, Spain was successful in obtaining permission from the Court of Appeal to appeal the decision in Infrastructure, with Males L.J. granting the Spanish government permission to appeal on all its grounds. The appeal will be heard in June 2024. Accordingly, in Operafund, Spain’s primary Intra-EU arguments were stayed pending the Court of Appeal’s decision in Infrastruture.

In the meanwhile however, Fraser L.J. was obliged in Operafund to deal with an extra-EU wrinkle arising in part from the domicile of one of the claimants in the context of what became defined as the ‘Unitary Award’ issue.

Schwab Holding AG is a Swiss company. Accordingly, Schwab asserted that it was not affected by the intra-EU arguments based on Achmea and Komstroy. Spain belatedly agreed (after submissions advanced by the EU in the pending decision of Nord Stream AG v European Union (PCA Case No. 2020-07)). Schwab therefore sought to proceed to enforcement of the award on its own as a result, and sought a commensurate order from Fraser L.J. Spain objected.

The Unitary Award argument was as follows: there was a single arbitration brought by both claimants against Spain. The award expressly declared that ‘[Spain] shall pay damages to Claimants amounting to USD29.3m’. The use of the plural was significant; there was no express or implicit differentiation or division in respect of dealing with the claimants separately insofar as the money sum was concerned. As Fraser L.J. noted, Schwab sought to have the Court treat the claimants separately, and one of the solutions suggested would have had the effect of dividing (in some way) the sums as being partly awarded or payable to Schwab, and the remainder to Operafund. There was no evidence before the Court suggesting that Operfund supported Schwab’s position, and Fraser L.J. guarded against making any assumption and proceeding as though Operafund considered itself wholly unaffected by any change in the terms of an order to its potential detriment and to the benefit of its co-claimant; he noted that this was particularly marked ‘given the confusion that appeared to reign at the hearing regarding which party was being represented by counsel..’

The parties framed the Unitary Award issue in slightly different ways, but both were premised on the assumption that ‘the Intra-EU Argument succeeds against [Operafund] and that [Spain] is immune from the Court’s adjudicative jurisdiction under s 1(1) of the State Immunity Act in respect of Operafund..’. Fraser L.J. considered this approach to be ‘fundamentally flawed’. He considered that it appeared to be predicated only on Spain succeeding on the Intra-EU Argument before the Court of Appeal in Infrastructure when permission had been granted on two anterior grounds, namely:

• Whether s 1(1) State Immunity Act 1978 (‘SIA’) applies to proceedings for the registration of an ICSID award under the Arbitration (International Investment Disputes) 1966 Act; and
• Whether the ICSID Convention constitutes a submission by Spain to the jurisdiction of the English Courts under s. 2 of the SIA.

As Fraser L.J. noted, neither of the above grounds, if Spain succeeded on them, would affect only a claiming party located in a member state of the EU and not one domiciled in Switzerland. If Spain has state immunity because the ICSID tribunal had no jurisdiction, that would impact Operafund and Schwab. Some of Spain’s arguments in Infrastructure were, after all, based on Spain’s membership of the EU, rather than the domicile of the claimants within the EU.

‘It all depends upon what the Court of Appeal decides and each [of the grounds of appeal] could be resolved in ways that are not currently anticipated potentially, but which are certainly not covered within either, or indeed any, of the ways in which each set of the issues is framed. One point of considerable – and potentially additional – importance will also be what the Court of Appeal decides on the Intra-EU Argument alone, and it is not possible to anticipate what that will be. Accordingly, proceedings on the Unitary Award Issue now would be wholly academic, and of no practical use or utility to any of the parties… It would be an entirely hypothetical exercise.’

Fraser L.J. therefore put off all arguments in the case until the Court of Appeal hands down its judgment in Infrastructure.

Unhappiness indeed.