This article was featured in our 2023 Energy Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the energy industry, encompassing information on electricity & renewables, based on data available on Jus Mundi and Jus Connect as of September 2023. Discover updated insights into energy arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on energy projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHORS:
Ali Ismael Al Zarooni, Founder and Managing Partner at Horizons & Co.
Rodrigo Carè Associate at Horizons & Co.
In the aftermath of the Achmea and Komstroy judgments of the Court of Justice of the European Union (“CJEU”), the enforceability of arbitral awards based on intra-EU Bilateral Investment Treaties, or The Energy Charter Treaty (“ECT”), has become uncertain. Consequently, investors seeking to enforce these awards have increasingly turned to jurisdictions outside the EU to collect on their awards. There are a number of reasons behind this strategic choice.
First, under the secluded mechanism enshrined in Art. 54(1) of the ICSID Convention, the court seized with the enforcement action “shall treat the award as if it were a final judgment of the courts of a constituent state.”
Second, even where the award at issue is not an ICSID award (for example, an SCC or UNCITRAL award), the Achmea ruling does not represent a binding precedent for non-EU courts, and Respondent States will have to invoke the limited avenues set in the New York Convention to deny recognition and enforcement of a foreign arbitral award.
Jurisdictions where claimants have attempted to enforce ECT and intra-EU bilateral treaty awards outside the EU include the United States, Switzerland, the United Kingdom, and Australia.
In the U.S., The United States District Court for the District of Colombia (“DDC”) has been frequently seized with such actions, also thanks to domestic legislation that designates it as the default venue for actions against foreign sovereigns (28 U.S.C. § 1391(f) of the FSIA). However, in a decision date 29 March 2023 concerning the enforcement of the PV Investors award, the DDC rejected the investor’s request to enforce the award holding that under EU law Spain lacked the legal capacity to extend an offer to arbitrate to the EU investors, and therefore no valid arbitration agreement existed. The investor appealed and it is understood that the matter will be heard by the DC Court of Appeal together with the NextEra and 9REN matters.
Investors have also started resorting to the Swiss courts to enforce intra-EU awards, likely building on the positive experience of investors in the Swiss chapter of the Yukos saga. However, in a decision dated 17 March 2023 the Swiss Federal Supreme Court rejected a request to attach assets belonging to Spain on the ground that the matter had no “sufficient connection” with the country.
In the United Kingdom, seized with the enforcement of the Antin v. Spain award, the Commercial Court of England and Wales rendered on 24 May 2023 an important decision rejecting all EU law and State immunity defenses. Notably, the English court determined that the intra-EU objection was “a purely EU law issue” and, relying on Schreuer’s Commentary to Article 54 on the ICSID Convention (as the UK Supreme Court did in Micula), concluded that the decisions of the EU top court do not have primacy over the application of the Convention.
Another positive decision regarding the Antin award was obtained recently in Australia, where Spain again argued sovereign immunity. On 12 April 2023, the High Court of Australia rejected that argument, concluding that Spain’s agreement to Arts 53-55 of the ICSID Convention amounted to a waiver of foreign State immunity from the jurisdiction of the courts of Australia to recognise and enforce ICSID awards.
One cannot escape noticing that extra-EU enforcement actions against Spain (or other European Respondents) have focused on the above-listed jurisdictions so far. While Switzerland is geographically and culturally closer to the EU, and more likely to host EU States’ assets, there is no clear link with the other jurisdictions.
Indeed, in the Swiss judgment, it emerged that the investors had located assets for (only) CHF 33 million, represented by patents, trademarks, real estate, bank accounts and safety boxes. On the other hand, the English judgment resulted in a further order, dated 2 August 2023, where the High Court issued an interim charging order allowing the award creditor to seize (one) property Spain owns at 317 Portobello Road in London; and it is not known whether the investor has identified any Spanish assets in Australia. Thus, the amount of assets identified in the relevant jurisdictions is unlikely to be the determinant reason for investors choosing these jurisdictions, as it is quite plausible that respondent States possess at least as many assets in other countries.
However, it cannot be ignored that, with the exception of Switzerland, all that these jurisdictions have in common is that they are common law jurisdictions. It is therefore submitted that the preference of intra-EU award creditors for enforcing their awards for these jurisdictions is, at least in part, dictated by the familiarity of their legal representatives (often US or UK-headquartered law firms) with the legal framework of these jurisdictions.
The countries of the Gulf Cooperation Council, on the other hand, are at least as likely to host assets of sovereigns, and particularly the assets of those who are active in the oil & gas industry and may have invested in the region directly, or through state-owned companies.
The GCC countries include in their legal systems special free zones with common law courts. However, these have never been used to enforce ICSID awards or non-ICSID awards based on investment treaties.
The Courts of the Dubai International Financial Centre (DIFC Courts), in particular, have already shown a willingness to enforce (commercial) arbitral awards against sovereigns. In Pearl Petroleum v. Kurdistan, the DIFC Courts rejected all claims of sovereign immunity, reasoning that the fact that the Kurdistan Regional Governmet of Iraq had waived such immunity when it entered in the arbitration agreement providing for LCIA Arbitration in London. Another award against Kurdistan was enforced in Lahela v. Lameez. In Fal Oil Company v Sharjah Electricity And Water Authority, the DIFC Courts enforced a court judgment against a UAE sovereign.
DIFC Courts judgments benefit from a simplified enforcement mechanism in the UAE through local statutes, and in the rest of the GCC thanks to the Riyadh Arab Convention for Judicial Co-operation and the GCC Judgements Convention.
The Abu Dhabi Global Market (“ADGM”) Courts benefit from a similar framework, within the UAE and the rest of the GCC. Finally, the Qatar Financial Centre (“QFC”) Court is based in Doha, and foreign arbitral awards can be enforced within the QFC jurisdiction under the QFC Arbitration Regulations. Such regulations, much like their equivalent in the DIFC and ADGM, are based on the UNCITRAL Model Law on International Commercial Arbitration.
ABOUT THE AUTHORS
Ali Ismael Al Zarooni is a Founder and Managing Partner of Horizons & Co., specialized in dispute resolution, particularly in the construction, real estate, energy, and infrastructure sectors. He focuses on arbitration and litigation and has represented some of the most prominent international and GCC companies, contractors, and government authorities before all levels of the UAE courts and various arbitration tribunals in the UAE, Middle East and around the world. He is a qualified arbitrator registered with Dubai International Arbitration Centre, the ICC and ICA.
Rodrigo Carè is an Associate at Horizons & Co., admitted to practice in New York, Italy, and before the Courts of the Dubai International Financial Centre. His practice covers all levels of the energy industry, in particular price reviews under long-term natural gas and LNG agreements under a variety of seats including Paris, London, and Stockholm. Rodrigo’s expertise includes investor-State arbitration, having served as a Judicial Fellow for Charles N. Brower, and represented investors as well as States in treaty arbitrations under the ICSID, UNCITRAL, and SCC Rules.
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