On 24 October 2023, the Federal Court of Australia dismissed India’s application to set aside an investor’s application to recognise and enforce an award against India on the basis of sovereign immunity (CCDM Holdings, LLC v Republic of India (No 3)  FCA 1266).
The central issue was whether India, a Contracting State to the 1958 New York Convention on the Recognition and Enforcement of Arbitration Awards (New York Convention), had waived sovereign immunity and submitted to the jurisdiction of the Court with respect to proceedings for the recognition and enforcement of an arbitral award. It was ultimately held that India had waived sovereign immunity and submitted to the Court’s jurisdiction “by agreement” within the meaning of the Foreign States Immunities Act 1985 (Cth) (FSI Act) because: (a) India was a signatory of the New York Convention; and (b) the Mauritian investors had tendered a copy of an arbitral award against India together with a prima facie arbitration agreement.
Mauritian investors had commenced arbitration proceedings against India under the Agreement between the Government of the Republic of India and the Government of the Republic of Mauritius for the Promotion and Protection of Investments (BIT).
The BIT afforded legal protections to investors investing in India, as well as a dispute resolution mechanism for claims by investors against India for violations of those protections. In particular, the BIT allowed investors to refer disputes against India to arbitration under either: the International Convention on the Settlement of Investment Disputes (ICSID Convention); or ad hoc arbitration under the United Nations Commission on International Trade Law Arbitration Rules 1976 (UNCITRAL Rules). As India was not a Contracting Party to the ICSID Convention at the time of the dispute, the investors commenced ad hoc arbitration proceedings in the Netherlands (another Contracting State to the New York Convention).
In 2020, the tribunal rendered an award on quantum in favour of the investors, in which it ordered India to pay $US 740 million. Subsequently, the investors applied to the Australian courts to recognise and enforce the award against India.
Waiver of sovereign immunity in relation to proceedings for the recognition and enforcement of an arbitral award
India rejected the jurisdiction of the Court and asserted sovereign immunity, relying on section 9 of the FSI Act which provides that “except as provided by or under this Act, a foreign state is immune from the jurisdiction of the courts of Australia in a proceeding”. However, the investors countered that India’s immunity had been waived under section 10(2) of the FSI Act, which states that “A foreign State may submit to the jurisdiction at any time, whether by agreement or otherwise”.
The Court found that India had waived sovereign immunity and submitted to the Court’s jurisdiction on the basis that:
- The standard of conduct required for submission by a foreign State to the Court’s jurisdiction by agreement, as expressed by the High Court of Australia in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l  HCA 11, needed “either express words or an implication arising clearly and unmistakably by necessity from the express words used”.
- While the New York Convention contained no express words of waiver, sovereign immunity could still be waived by implication.
- Article III of the New York Convention, which provides “[e]ach Contracting State shall recognize arbitral awards as binding and enforce them”, obliges each Contracting State to recognise and enforce arbitral awards of all other Contracting States (presently comprising 170 countries) that fall within the scope of the Convention.
- By agreeing to the terms of the New York Convention, India (a Contracting State) agreed that Australia (another Contracting State) would recognise and enforce arbitral awards which fall within the scope of the Convention, including if India is a party to such an arbitral award.
- In that situation, it “is an obvious and necessary implication” that India consented to Australia recognising and enforcing such awards even if India is party to such award, and that preventing Australia from doing so by maintaining sovereign immunity is inconsistent with that agreement.
- Thus, India’s status as a Contracting State to the New York Convention created a “clear and unmistakeable submission by agreement within the meaning of s 10(2) of the FSI Act” in proceedings regarding recognition and enforcement of arbitral awards.
There were a range of subsidiary issues that were ventilated before the Court. These issues ultimately did not bear on the Court’s judgment that immunity had been waived. However, the Court made the following additional findings:
- The fact that the ICSID Convention “more clearly and unmistakably” evinced a waiver of sovereign immunity was irrelevant to the inquiry of whether the New York Convention implied such a waiver.
- There was no basis for limiting the scope of the New York Convention to arbitral awards only involving a commercial or private law dispute, as opposed to awards dealing with disputes where the State was acting in a public capacity.
- Whether sovereign immunity could be relied on as defence to the proceedings did not turn on its characterisation as either a substantive or procedural issue.
The definition of “commercial transaction” in section 11 of the FSI Act does not apply to executive acts
The investors alternatively argued that India’s immunity had been waived under section 11 of the FSI Act, which states that “A foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction”. In particular, the investors alleged that the arbitral proceedings concerned the conduct of “various emanations of the Indian state” by which India annulled the agreement between the investors and India to lease space segment capacity in the S-band electromagnetic spectrum on two Indian satellites (Annulment), which was commercial transaction.
The Court found that the section 11 of the FSI Act supplied a freestanding exception to immunity in relation to proceedings to recognise and enforce a foreign arbitral award. However, the Court rejected the assertion that the Annulment was a commercial transaction or “a like activity in which the State has engaged”, on the basis that the Annulment was made by various executive bodies of the Indian government including the Council of Ministers and Cabinet. Cabinet decision making is “an act of State with no comparison with the activities of commercial parties or the entry into, or performance of, commercial transactions”.
Standard of proof that the arbitration agreement was valid and applicable
India contested, in a range of different ways, the validity and applicability of the apparent arbitration agreement in the BIT.
The Court deferred consideration of these issues on the basis that:
- At the application for recognition and enforcement stage, all that an applicant need prove to establish the power of the Court to exercise jurisdiction over a foreign State is “the existence of an agreement to arbitrate by documents which on their face appear to establish such an agreement” together with tender of the award itself. This standard had been met in the case before the Court.
- Subsequently, a party could apply to the Court to refuse recognition and enforcement of the award on the basis of certain limited grounds set out in the New York Convention, including that the arbitration agreement was not valid or applicable.
- However, these grounds could only be invoked at the request of that party, and would require a submission to jurisdiction of the Court by that party.
- India could contend in due course that the apparent arbitration agreement did not in fact represent an agreement which was valid or applicable to the particular dispute.
The New York Convention, in contrast to the ICSID Convention, does not include any language concerning state immunity. How such immunity will be considered at the recognition and enforcement stage is therefore a matter for the domestic law of the place where enforcement is sought. Many States include in their domestic legislation an exception from immunity for court proceedings which relate to international arbitration. However, this decision from the Federal Court of Australia is noteworthy as it implies a waiver of immunity into the ratification of the New York Convention. We recently discussed the enforcement of awards against States, and some of the unique challenges presented, in our article Risks and awards – Challenges of enforcement against states.
For further information, please contact Andrew Cannon, Partner, Antony Crockett, Partner, Chad Catterwell, Partner, James Allsop, Partner, Imogen Kenny, Senior Associate, Joy Rao, Solicitor or your usual Herbert Smith Freehills contact.