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On 16 August 2024, the US Court of Appeals for the District of Columbia Circuit (Court) delivered judgment in NextEra Energy Global Holdings B.V. v Kingdom of Spain. The judgment represents the latest chapter in a complex, worldwide battle over recognition and enforcement of ‘intra-EU’ investment arbitration awards.
The judgment resolved appeals in three proceedings. Each proceeding involves attempts by award creditors – investors and their successors – to enforce against the Kingdom of Spain their rights under multi-million-euro awards issued in arbitrations arising from breaches of protections under the Energy Charter Treaty (ECT).
The Court confined its judgment to two issues:
Arbitration exception to immunity from jurisdiction
The US Foreign Sovereign Immunities Act (FSIA) withdraws sovereign immunity in an action “to confirm an award made pursuant to … an agreement to arbitrate”.
To engage this ‘arbitration exception’, there must be: (i) an arbitration agreement, “made by the foreign state with or for the benefit of a private party”; (ii) an award; and (iii) a treaty potentially governing enforcement of the award.
Spain did not dispute that the award creditors had demonstrated awards, and treaties governing enforcement. However, Spain argued that there was no arbitration agreement with the relevant investors. It contended that the standing offer to arbitrate in the ECT did not “extend” to investors from EU Member States, because the CJEU’s Komstroy opinion declared that the ECT “does not permit intra-EU arbitration”. Therefore, Spain “could not form any arbitration agreement” with the investors as a matter of EU law.
The first-instance courts split on these issues. In two proceedings, the district court rejected Spain’s arguments as a merits defence to enforcement, not a jurisdictional question under the FSIA, and thus upheld jurisdiction under the arbitration exception. In the third, the district court accepted that Spain’s offer to arbitrate was “void” as to these investors under EU law and therefore “no valid agreement to arbitrate” existed, precluding reliance on the arbitration exception.
The Court resolved this divergence in favour of the award creditors, unanimously agreeing that Spain’s arguments raised merits questions rather than jurisdictional questions. Spain had ratified the ECT, an arbitration agreement “for the benefit of” private parties. Spain’s argument that the standing offer to arbitrate in the ECT was not “for the benefit of” EU investors concerned the scope of the agreement, not its existence. That went to the enforceability of the awards on the merits, and not to jurisdiction under the FSIA and, therefore, the district courts have jurisdiction to enforce these awards. However, the Court stressed that this does not mean the district courts must enforce the awards, noting the unresolved “merits question” as to whether the ECT’s arbitration provision extends to EU nationals.
Anti-anti-suit injunctions against a foreign sovereign
After the award creditors commenced proceedings in the US, Spain sought anti-suit injunctions in the Netherlands and Luxembourg (the investors’ home States) to prevent the investors from proceeding with the US actions. In response, the award creditors sought anti-anti-suit injunctions in the US, restraining Spain from seeking relief in foreign courts to enjoin the US proceedings.
In two proceedings, the district court granted the requested injunctions; in the third, the district court denied the injunction as moot in light of its finding that Spain was immune.
The Court, by majority, held that the injunctions against Spain were an abuse of discretion, due to two errors in the district court’s evaluation of the relevant factors:
First, the district court did not give sufficient consideration to Spain’s sovereign status, which raised serious comity concerns.
Second, with comity concerns “near their peak”, the district court failed to identify domestic interests strong enough to warrant the injunctions. A public interest in encouraging arbitration and US obligations under the ICSID Convention were insufficient, particularly as the US had no direct interest in the underlying disputes.
In dissent, Judge Pan would have upheld the injunctions, finding that the majority gave insufficient weight to the US’s interest in upholding the ICSID Convention, overlooked Spain’s lack of comity and apparent bad faith, and ignored the district court’s finding that the injunctions were necessary to prevent irreparable harm to the award creditors. As reasonable minds differed on how to weigh the competing factors, Judge Pan considered the district court’s discretionary decision was within its “range of choice”.
With all three cases now remanded to the district courts for further proceedings, and enforcement actions pending in other jurisdictions worldwide, the ‘intra-EU’ recognition and enforcement battle will continue to unfold.9 September 2024
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