Sovereign and Diplomatic Disputes: key trends from 2024 and predictions for 2025
Insight
Three developments have the potential to change the legal landscape significantly in 2025.
Never say die: Spain clashes with the investor-state arbitration community
Spain is at the forefront of an ongoing battle between the EU and much of the investor-state arbitration community (including investors), and there is little sign of any of the parties backing down.
The International Centre for Settlement of Investment Disputes (ICSID) convention allows certain investors to bring claims against States in an international forum. States that are signatories to the convention are bound to recognise any subsequent awards as if they were “a final judgment of a court in that State.”
However, intra-EU ICSID arbitration has been met with a strong resistance from the EU, which has terminated intra-EU bilateral investment treaties and suggested that certain awards made pursuant to them are effectively worthless. This affects Spain in particular given the large number of claims it has faced following changes it has made to its renewable energy regulatory regime.
On 14 May 2024, Spain formally withdrew from the Energy Charter Treaty (ECT) and has refused to pay numerous outstanding investor-state arbitration awards. Spain now has more extant awards than any other state, including Russia and Venezuela.
This development is important for several reasons:
- Spain’s stance has highlighted the reliance of the investor-state arbitration system on the consent of participating states, with significant challenges for investors if the States refuses to comply. Nevertheless, we expect well-resourced investors to continue to push to enforce awards against Spain by seeking to execute against Spain’s assets globally.
- Spain has proved willing to use every tool in its armoury, most recently attempting a novel argument based on state immunity, in the case of Infrastructure Services and Energia Termosolar v Spain. While the English Court of Appeal did not uphold Spain’s challenge on State immunity grounds, this case nevertheless points to Spain’s willingness to bring challenges in various jurisdictions.
- Spain has arguably emboldened other states: eg Zimbabwe’s challenge in Border Timbers and others v Zimbabwe was heard alongside the Infrastructure Services case and dismissed by the Court of Appeal on the same grounds. However, it demonstrates Spain’s willingness to fight hard while exploring novel arguments and its ability to bring other states on board as it continues the battle in the English courts and across the world
A growing number of claims against states for alleged surveillance
The principle that all states are equal underpins international law. It is extremely rare for national courts anywhere in the world to take jurisdiction over sovereign acts of another state that have taken place outside of its territory.
The wave of litigation in English courts surrounding the alleged use of NSO’s Pegasus spyware by states acting overseas illustrates how legislation that is nearly 50 years old is being tested to the limit by new technology.
The courts of England are not the first to hear allegations of alleged illegal transboundary surveillance. Several such cases have gone before the courts of the United States of America, such as Doe v Federal Democratic Republic of Ethiopia, where the State in question was deemed to be immune from US jurisdiction. But unusually for a major immunity issue, the English courts are significantly diverging from the practice of US courts.
This divergence could be hugely significant, not least because many countries globally follow the UK’s lead on immunity laws. Crucially, we may see the UK becoming a centre for claims against states, with mass claims potentially also on the horizon.
Increasing use of psychiatric injury in employment claims
A growing number of claims against states, particularly in the employment courts, now include allegations of psychiatric injury. This trend has emerged following recent English court decisions that have confirmed that claiming psychiatric injury allows claimants to make use of the personal injury exception to immunity under s5 of the State Immunity Act 1978.
This relatively new trend offers a new angle for claims against states in England - one that is rarely seen globally. This may add to the growing sense among diplomats that State and diplomatic immunity standards in the UK are weakening and falling out of line with other countries.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2025
Dispute resolution trends and predictions
This insight is part of our wider report – "Dispute resolution trends & predictions" – which includes comprehensive analysis from our specialists together with valuable viewpoints from our clients.
