Federal Court rejects India’s state immunity claim reinforcing Australia as a pro-arbitration and enforcement jurisdiction

The Federal Court of Australia has further strengthened Australia’s reputation as a pro-arbitration and enforcement jurisdiction as it rejected India’s claim to foreign state immunity. This decision in CCDM Holdings, LLC v Republic of India (No 3) [2023] FCA 1266, came shortly after the Australian High Court (being Australia’s highest court) found a similar investor-state award binding and enforceable against Spain in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11.

The respondent, the Republic of India (India) unsuccessfully argued that a foreign arbitral agreement could not be recognised or enforced against it by an Australian court on foreign state immunity grounds. The judge, Jackson J, found that by entering into the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the relevant arbitration agreement, India had waived its immunity against recognition and enforcement of the arbitral award by necessary implication.

The case provides clear guidance on which matters are relevant for the exceptions to foreign state immunity in Australia and examines the complex interplay between international treaties, private contracts and domestic law.

Background facts

The applicants, CCDM Holdings, LLC; Devas Employees Fund US, LLC; and Telcom Devas, LLC (Applicants) were assigned the benefit of an award of the Permanent Court of Arbitration by CC/Devas (Mauritius) Ltd and its related entities (Original Applicants). This award was against India.

The Original Applicants were incorporated in Mauritius. In 1998, India and Mauritius signed and entered into a bilateral treaty known as 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 provided a regime for Mauritian investors to enter the Indian market and required fair treatment of their investments (Art 4(1)). Art 8 stated that any dispute between the investor of one contracting state and the other contracting state in relation to an investment shall be settled through negotiations. Should such dispute not settle within six months, the investor may submit the dispute to arbitration with several options in Art 8(2).

In arbitral proceedings between the Original Applicants and India, overseen by the Permanent Court of Arbitration (Tribunal), the Original Applicants alleged the relevant investments subject to the BIT were the shareholdings they had in Devas Multimedia Private Limited (Devas India) and through that shareholding, indirect interests in an agreement between Devas India and Antrix Corporation Limited (Antrix) (Devas-Antrix Agreement). The Devas-Antrix Agreement concerned a satellite deal. Antrix was wholly owned by India and in 2011, the Indian Cabinet Committee on Security decided to annul the Devas-Antrix Agreement justifying it on “the needs of defence, para-military forces, railways and other public utility services as well as for societal need”. The Original Applicants claimed this was a breach of the BIT and India had also breached its obligation of “fair and equitable treatment” (Art 4(1)) and the “most favoured nation” clause (Art 4(2) and 4(3)).

In 2016, the Tribunal delivered an award on jurisdiction and merits and in 2020, the Tribunal issued a quantum award (Quantum Award). The Quantum Award was the subject of the current originating application before the Australian Federal Court, in which the Applicants are seeking to recognise and enforce it in Australia under the International Arbitration Act 1974 (Cth).

Federal Court judgement

Foreign state immunity from jurisdiction in Australia

The Foreign States Immunities Act 1985 (Cth) (FSI Act) concerns immunity from jurisdiction for foreign states. Section 9 states that except as provided for under the FSI Act, a foreign state is immune from the jurisdiction of Australian courts. 

This is tempered by section 10, carving out exceptions:

(1)        A foreign State is not immune in a proceeding in which it has submitted to the jurisdiction in accordance with this section.

(2)         A foreign State may submit to the jurisdiction at any time, whether by agreement or otherwise, but a foreign State shall not be taken to have so submitted by reason only that it is a party to an agreement the proper law of which is the law of Australia.

(3)         A submission under subsection (2) may be subject to a specified limitation, condition or exclusion (whether in respect of remedies or otherwise).

…

(7)         A foreign State shall not be taken to have submitted to the jurisdiction in a proceeding by reason only that:

…

(b) it has intervened, or has taken a step, in the proceeding for the purpose or in the course of asserting immunity.

‘Agreement’ is defined in s 3(1) as “an agreement in writing” and includes “a treaty or other international agreement” and “a contract or other agreement in writing”.

Section 11 provides further carve-outs for immunity in relation to commercial transactions:

(1) A foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction.

In response to India’s reliance on section 9 of the FSI Act, the Applicants relied on the exceptions to immunity in section 10 and 11.

Section 10 FSI Act

The Applicants argued that India, having signed the New York Convention, submitted to the jurisdiction of the Australian Federal Court for proceedings involving the recognition and enforcement of the foreign arbitral award. The Applicants based their claim on Art 8 of the BIT, the notice of arbitration and the terms of appointment of the arbitrator.

The judge identified two relevant issues to determine in relation to the section 10 exception:

(1) What principles are relevantly applicable to determine whether a submission by agreement has been made for the purposes of s 10(2); and

(2) Did India by signing the New York Convention submit within the meaning of s 10(1) and (2) to the jurisdiction of the Federal Court of Australia in relation to proceedings for recognition and enforcement of a foreign arbitral award?

1. What principles are relevantly applicable to determine whether a submission by agreement has been made for the purposes of s 10(2)

An expression of waiver can only be derived from an international agreement where it is an express term, or it is term implied by necessity. If an international agreement does not expressly use the word “waiver”, the inference that an express term is a waiver of immunity will only be drawn if the implication is clear from the words used and the context, requiring a high level of “clarity and necessity” due to the unusual situation and significant consequences.

It is crucial to analyse the “background, purpose and operation” of the relevant convention (instrument) to answer the question.

2. Did India, by signing the New York Convention, submit within the meaning of s 10(1) and (2) to the jurisdiction of the Federal Court of Australia in relation to proceedings for recognition and enforcement of a foreign arbitral award?

India, as well as the other contracting states, requires by Art III of the New York Convention that Australia recognise and enforce arbitral awards that fall within the scope of the convention. If India is a party to such an award, it is “an obvious and necessary implication” that India is requiring Australia to recognise and enforce that award. It would be inconsistent with the terms of Art III if Australia could not enforce the award against India because India was able to oppose its recognition and enforcement because of foreign state immunity.

The judge implicitly rejected the wide doctrine (that when a state party to New York Convention consents to arbitration it is taken to have waived immunity from enforcement of that award anywhere in the world where foreign arbitral awards can be enforced). Similarly, his Honour also rejected the narrow doctrine (that a state signatory to the New York Convention, without stipulation to the contrary, would only be taken to have waived immunity in relation to the enforcement of an arbitral award if the state would not be immune to legal proceedings in the relevant court on the subject matter of the award).

Further, at the stage of considering immunity, it is not necessary to decide on the validity of the arbitral award (and in connection with that, the validity of the agreement to arbitrate). To draw the necessary implication of a waiver of foreign state immunity, all the Applicants need to show is:

1. The enforcing court is of a state (Australia) that is a party to the New York Convention;
2. The state that is a party to the arbitration agreement (India) is also a party to the New York Convention; and
3. There is, what appears on its face, an agreement by the state (India) to arbitrate the dispute.

Art I of the New York Convention refers to arbitral awards “arising out of differences between persons, whether physical or legal”, and it was accepted by India that the concept of ‘legal persons’ includes states.

The judge found no basis to limit Art I to states entering the field of commercial or private law. The language used in Arts I-III is “too broad and general” to allow a construction where the convention would only apply to states where the awards involved a commercial or private law dispute. The preferred construction does not lead to a result that is “manifestly absurd or unreasonable”. The preparatory work confirmed that such a construction is correct and included, for example, the Committee on the Enforcement of International Arbitral Awards expressly rejecting a ‘commercial disputes’ limitation in Art I.

Section 11 FSI

1. Can the commercial transaction exception in s 11 supply a freestanding exception to immunity in relation to proceedings to recognise and enforce a foreign arbitral award

The judge held that section 11 of the FSI Act operates independently of the other exceptions contained in Pt II of the FSI Act.

2. What is the construction and application of s 11(1) (“concerns a commercial transaction”), including having regard to the findings of fact and law made in the winding up proceedings

Commercial transactions mean “dealings of a commercial, trading and business character”. The BIT, being a treaty is a dealing of a nature that could only be performed by a government body and would not constitute a commercial transaction. However, the Quantum Award was “based” on the BIT itself and the breach of the BIT which gave rise to the right to compensation. Therefore, both the BIT and the annulment of the Devas-Antrix Agreement are “the source of rights”. If the breach of obligations under the BIT by India constituted a commercial transaction, section 11 could apply to the Quantum Award.

3. What is the construction and application of s 11(3) (“commercial transaction”) to the impugned conduct of India, being a decision of its highest executive organ, including having regard to the findings of fact and law made in the winding up proceedings

The relevant breach of the BIT was made by the “highest form of executive policymaking in India” and the justification was ground in public policy. Such an act cannot be characterised as a “commercial, trading, business, professional or industrial or like transaction”.

Further, the annulment of the Devas-Antrix Agreement could not have been performed by a private party which was not a party to the contract, due to the doctrine of privity of contract. The annulment was not “essentially of a private law character” and to read section 11(3) as including transactions and decisions that formed part of the commercial activity of India would be an unreasonable expansion of the scope of that section.

Outcome

The judge held that the exception under section 10 of the FSI Act applied, but the exception under section 11 did not. This meant that India was not immune from Australian courts’ jurisdiction in relation to the recognition and enforcement of the Quantum Award.

Key takeaways

1. This judgment is consistent with Kingdom of Spain the High Court case and applies the same reasoning to conclude that a state party to the New York Convention that also consents to arbitration waives its foreign state immunity against recognition and enforcement of that arbitral award in Australia (Section 10 FSI Act). The arbitral award does not need to be in relation to a commercial dispute between the state and enforcing party.
2. More generally, a state will only waive immunity against recognition and enforcement if it enters into a treaty or agreement that has an express term providing the waiver or if immunity is waived by necessary implication.
3. The judgment stressed that in considering immunity, the court does not need to decide whether the arbitral award or agreement to arbitrate are valid. All that is required is that there is a document which is on its face an agreement by the state to arbitrate the dispute.
4. The commercial transaction exception under section 11 of the FSI Act is another avenue to lift foreign state immunity. It requires the dealing to be of a commercial, trading and business character. A transaction that could not have been performed by a private party would not come within this exception.
5. Beneficiaries of arbitral awards should consider Australia as a primary jurisdiction for recognition and enforcement, especially in relation to foreign states which are likely to have assets in the jurisdiction.