On 31 January 2025, the Full Court of the Federal Court of Australia unanimously upheld an appeal by the Republic of India to set aside an application for the recognition and enforcement of a US$111 million arbitral award made against it under the India-Mauritius bilateral investment treaty (BIT).
In Republic of India v CCDM Holdings, LLC [2025] FCAFC 2, the Full Court found that India had not waived its sovereign immunity and submitted to the jurisdiction of the Federal Court in respect of the recognition and enforcement of arbitral awards because India’s reservation under Art 1(3) of the New York Convention excluded the application of the New York Convention to awards made against India pursuant to BITs relating to ‘non-commercial’ disputes.
This decision is the latest in an increasing number of significant Australian decisions relating to international arbitration and adds to Australia’s growing body of law on the intersection of foreign State immunity and investment treaty arbitration. The decision, if it stands, may enable the 40 (out of 172) Contracting States who have made similar reservations to the New York Convention to avoid enforcement of arbitral awards made against foreign States under BITs in Australian courts on the basis of foreign State immunity.
Background
The case concerned an award made in favour of Mauritian shareholders in an Indian company, which found that the Indian Government’s annulment of a contract between the company and another company wholly owned by the Indian Government (and the commercial arm of India’s national space agency) was unlawful expropriation under the 1998 BIT between India and Mauritius (India-Mauritius BIT). The arbitral tribunal ultimately awarded the Mauritian shareholders US$111 million in compensation (Award).
The Mauritian shareholders commenced proceedings in the Federal Court of Australia in April 2021, seeking an order for the recognition and enforcement of the Award. India defended against enforcement on the basis of foreign State immunity.
The primary judgment
Foreign States enjoy general immunity from the jurisdiction of the Australian courts (section 9 of the Foreign States Immunities Act 1985 (Cth) (Act)), except in specific circumstances prescribed under the Act. One of those circumstances is where the foreign State has submitted to the jurisdiction of Australian courts 'by agreement' (sections 10(1) and 10(2) of the Act). The shareholders contended that India had done this when it ratified the New York Convention.
In deciding whether the Award could be enforced against India in the Federal Court of Australia, the primary judge, Justice Jackman, held that India had, “by way of clear and unmistakable necessary implication”, waived its immunity and submitted to the Federal Court’s jurisdiction by ratifying the New York Convention.
Justice Jackman rejected India’s contention that its ‘commercial reservation’ under Art 1(3) of the New York Convention, which states that India is bound by the New York Convention only in respect of disputes “considered as commercial under the law of India”, was relevant. Justice Jackman found that India’s reservation was “not directly relevant to the dispute, in that Australia did not make any such reservation and Australia is the State where recognition and enforcement is presently sought”. This finding was the primary subject of the appeal by India to the Full Court.
The appeal judgment
The key issue on appeal was whether India, by ratifying the New York Convention, waived foreign State immunity in circumstances where India’s ratification of the New York Convention was subject to its commercial reservation. This required the Full Court to determine two issues:
(a) Whether Australia was required to limit its recognition and enforcement of awards in line with the commercial reservation (i.e. whether the reservation has a reciprocal effect on all Contracting States to the New York Convention); and
(b) Whether the Award fell within the commercial reservation, that is, whether the Award arose out of a legal relationship which is considered commercial under the law of India.
On the first issue, the Full Court held that the commercial reservation had a reciprocal effect, meaning that India’s submission to the jurisdiction of Australian courts for the purposes of enforcement of arbitral awards only occurs if the underlying dispute was considered commercial under the law of India.
On the second issue, the Full Court found that the Award did not arise out of a commercial legal relationship because the relationship created by the BIT was one of public international law and the dispute arose out of the cancellation of a contract on public interest grounds. As a result, the Full Court held that India had not waived its foreign State immunity against enforcement of the Award by ratifying the New York Convention.
Key takeaway
As the law now stands, an investment treaty award of a similar nature obtained against a Contracting State may not be enforceable in Australia under the New York Convention if that Contracting State has made a ‘commercial reservation’ to the New York Convention.
It seems likely that, given the importance of these issues to the enforceability of awards made pursuant to BITs in Australia, the shareholders will seek special leave to appeal the Full Court’s decision to the High Court of Australia. If special leave is granted, we expect the High Court to focus on the issue of whether it is correct to consider disputes under BITs as not arising from a commercial relationship. On that question, other international courts are split, with most interpreting similar commercial reservations broadly to include BIT disputes, while others finding that BIT disputes cannot be considered 'commercial'. It will be interesting to see whether Australia follows the majority trend internationally, or (as the Full Court has done) takes the opposite route.