Federal Court finds India waived foreign state immunity in proceedings to recognise and enforce US$111 million award

In a significant decision handed down on 24 October 2023, the Federal Court of Australia rejected an attempt by India to set aside an application for the recognition and enforcement of a US$111 million arbitral award made against it.

In CCDM Holdings, LLC v Republic of India (No 3) [2023] FCA 1266 (Devas), the Federal Court found that India waived foreign State immunity under the Foreign States Immunities Act 1985 (Cth) (FSIA) by becoming a party to the 1958 New York Convention on the Recognition and Enforcement of Arbitration Awards (New York Convention). This decision further consolidates Australia’s reputation as a pro-arbitration and pro-enforcement jurisdiction, and answers a question left open after the High Court’s judgment in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11.

Background

The arbitral proceedings that gave rise to this case were initiated on 3 July 2012 by three Mauritian shareholders of the Indian company, Devas Multimedia Private Limited (Investors).[1] Devas Multimedia Private Limited held an agreement with an Indian State-owned enterprise, Antrix Corporation Ltd, concerning the lease of space segment capacity on two Indian satellites (Devas/Antrix Agreement). The Indian Cabinet Committee on Security annulled the Devas/Antrix Agreement on 17 January 2011, referring to defence, strategic and societal needs.

The Investors commenced arbitration against India pursuant to Article 8 of 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 (India-Mauritius BIT). The arbitration was administered as an ad hoc arbitration under the United Nations Commission on International Trade Law Arbitration Rules 1976 by the Permanent Court of Arbitration. On 25 July 2016, the tribunal found that the annulment of the agreement constituted unlawful expropriation and, on 13 October 2020, ordered India to pay US$111 million in compensation (Quantum Award).

On 21 April 2021, the Investors commenced proceedings in the Federal Court of Australia, seeking, under section 8(3) of the International Arbitration Act 1974 (Cth), an order for the recognition and enforcement of the Quantum Award as if it were a judgment of the Court, together with orders that judgment be entered in amounts based on the Quantum Award. On 12 April 2022, India filed an interlocutory application seeking orders that the Originating Application be set aside on the basis of foreign State immunity.

The Federal Court’s reasoning

Under section 10(2) of the FSIA, immunity is waived if a State submits to the jurisdiction of Australian Courts in a proceeding ‘by agreement’. The key question in this case was whether India had waived its immunity and submitted to the Federal Court’s jurisdiction by agreeing to the terms of the New York Convention.

Applicable principles

The Court first considered the principles applicable in determining whether submission by agreement has been made. Citing from the High Court’s decision in Kingdom of Spain, the Court emphasised the requirements for a waiver of immunity to be:

• "express” (that is, to be derived from the express words of the international agreement, either as an express term or as a term implied with great care, for reasons including necessity); and
  
  
• where it is implied, established by “clear and unmistakeable necessary implication”. In other words, if an international agreement does not expressly use the word ‘waiver’, the inference that an express term involves a waiver of immunity will only be drawn if the implication is clear from the words used and the context.

India waived foreign State immunity from jurisdiction by signing the New York Convention

The Court held that, by becoming a party to the New York Convention, India had submitted to the jurisdiction of the Court within the meaning of section 10(2) of the FSIA “by way of clear and unmistakeable necessary implication”.

The Court described the obligation of contracting States under Article III of the New York Convention to recognise arbitral awards as binding and enforce them, as a promise made by each contracting State to all other contracting States. By ratifying the New York Convention, India was agreeing – and moreover, requiring – Australia to recognise and enforce an arbitral award that falls within the scope of the Convention. To oppose recognition and enforcement on the ground of foreign State immunity would be inconsistent with Article III.

The Court further held that at the stage of determining whether the sovereign award debtor has waived immunity, it suffices for the award creditor to tender what appears to be on its face an arbitration agreement and a relevant arbitral award. The award creditor does not need to go further and establish that the apparent arbitration agreement is valid or applicable. Any challenges as to the validity or applicability of the arbitration agreement are to be dealt with in a subsequent stage of the proceedings involving consideration of the award debtor’s grounds for resisting enforcement under Article V of the New York Convention.

Commercial transaction exception not ‘enlivened’

The applicants also relied on the ‘commercial transaction’ exception to jurisdictional immunity under section 11 of the FSIA.

Section 11(1) provides that “[a] foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction”. The term ‘commercial transaction’ is defined in section 11(3) to include “a commercial, trading, business, professional or industrial or like transaction into which the foreign State has entered or a like activity in which the State has engaged”.

The applicants’ argument was not that the India-Mauritius BIT or the Devas/Antrix Agreement were ‘commercial transactions’, but that the annulment of the Devas/Antrix Agreement by the Indian government was “a like activity in which the State has engaged” within the meaning of section 11(3) of the FSIA. The Court disagreed. As the annulment decision was made by a body vested with the highest form of executive policy-making in India, and was stated to be for reasons of public policy, the Court considered that such an act of State could not be characterised as a ‘like activity’ to “a commercial, trading, business, professional or industrial or like transaction” within the meaning of section 11(3).

Impact of the decision

The Federal Court’s decision has potentially far-reaching implications.

In the case involving the Kingdom of Spain, the High Court found that Spain had waived its foreign State immunity for the purposes of recognition of enforcement of awards by agreeing to the terms of the ICSID Convention. In that judgment, the High Court had relied on a textual analysis of the ICSID Convention, leaving the door open for an Australian court to decide differently if recognition and enforcement were pursued under the New York Convention.

The Federal Court’s decision in Devas has now clarified that the same implication arises from the terms of the New York Convention, even though the Convention says nothing about sovereign immunity or a waiver thereof.

Further, in applying for recognition and enforcement against a sovereign debtor in Australia, all that an award creditor will 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.

Finding that a State has submitted to the jurisdiction of Australian courts does not require a determination that the arbitration agreement relied on was applicable or enforceable.

While this decision is consistent with the approach taken in some other common law jurisdictions, including the United States, other States’ courts may be less willing to find that a foreign State has submitted to their jurisdiction where the validity or applicability of the underlying arbitration agreement is challenged by the sovereign award debtor. In this sense, the Federal Court’s decision seems to reach further, potentially paving the way for increased enforcement activity in Australia.

However, the Federal Court’s decision guarantees neither enforcement nor execution. Should no appeal be forthcoming, the Court will proceed to determine whether recognition and enforcement should be granted, which India may (and is likely to) challenge based on grounds available under Article V of the New York Convention, including arguments regarding invalidity of the arbitration agreement and that enforcement would be contrary to public policy (alleging that the award was infected by fraud).

Even if the award is recognised and enforced in Australia, execution will require a separate consideration of foreign State immunity and identification of assets that, pursuant to the FSIA, are not immune from execution.

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_{[1] After the winding-up of Devas Multimedia Private Limited, its US affiliates (including CCDM Holdings, LLC) were assigned rights to the award and were substituted as parties by the Federal Court earlier this year.}