Escaping Sovereign Immunity Through Arbitration Treaties

Sovereign Immunity presents a challenge to business transactions with state-owned (or closely related) entities. It can also present challenges when State action interferes with international business ventures. International arbitration, whether by contract or even treaty, can in many cases mitigate such risks and potentially make the difference between recovering just compensation or walking away with nothing.

The Problem of Sovereign Immunity

The Sovereign Immunity doctrine typically protects States from suits brought against them or their various organs. Under this doctrine, domestic courts will usually decline to adjudicate cases against sovereign States, to confirm judgments entered against sovereign States, or to execute judgments against State-owned property.

In other words, the principle of sovereign immunity imposes a substantial obstacle at each step in the pathway to a remedy. In some cases, these obstacles are simply insurmountable.

The Solution of International Arbitration Treaties

There are, however, ways to overcome Sovereign Immunity’s obstacles. The most reliable method is to include an arbitration agreement and waiver of Sovereign Immunity in your contract with the State or State-owned entity. But even if such an agreement and waiver do not exist, all hope may not be lost. International arbitration treaties, and most notably bilateral investment treaties, may provide an alternative mechanism to avoid Sovereign Immunity.
Two recent North American decisions illustrate this point: NextEra v. Spain and Devas v. India.

The Origins of NextEra and Devas

In NextEra Energy v. Spain, two Dutch companies decided to build solar power plants in Spain pursuant to an incentive scheme that Spain adopted in 2007. The companies spent about € 750 million developing these plants. After this money had been spent, however, Spain dramatically altered its incentive scheme in ways that wiped out the profitability of the Dutch companies’ investments.

In Devas v. India, a number of Mauritian companies invested in an Indian private company that subsequently contracted with an Indian state-owned company to lease “S-band” broadcast capacity on two satellites. Just five years later, however, the Government of India adopted a resolution reserving all S-band broadcast capacity for state use and terminating the state-owned company’s contract with the Indian private company.

In NextEra, the foreign investors did not have a contract with the State or any State-related entity. Their claim against the State arose exclusively out of the State’s interference with their legitimate business interest. In Devas, by contrast, the investors had a contract with a State-owned entity. Their claim against the State arose both from the State-owned entity’s breach of that contract and the State’s role in causing the breach. In both cases, however, the States raised Sovereign Immunity to bar the investors’ claims.

In many cases, the story would have ended here for the foreign investors in NextEra and Devas. Sovereign immunity would have prevented the investors from bringing their disputes with Spain and India before an impartial tribunal for resolution on the merits. And even if the investors had managed to obtain a judgment against Spain or India, sovereign immunity would likely have prevented the investors from confirming and executing those judgments in the jurisdictions in which Spain and India maintain property.

Fortunately for the foreign investors in NextEra and Devas, however, Spain and India had signed treaties providing for arbitration of disputes with foreign investors and thereby waived their right to Sovereign Immunity.

The First Step: Treaty Mandated International Arbitration

Because Spain and India had signed arbitration treaties, the investors in NextEra and Devas were able to have their disputes heard before impartial tribunals regardless of whether they had secured contractual waivers of Sovereign Immunity directly from Spain and India.

In NextEra, the relevant treaty was the Energy Charter Treaty. Under this treaty, Spain had given “unconditional consent to the submission of” its disputes with foreign investors “to international arbitration.” In Devas, the relevant treaty was a bilateral investment treaty between India and Mauritius. Under this treaty, India had agreed that international arbitration would serve as a mechanism for resolving “[a]ny dispute between an investor of one Contracting Party and the other Contracting Party in relation to an investment of the former” under the treaty.

Relying on these treaties, the investors in NextEra and Devas brought Spain and India into arbitration proceedings and obtained arbitral awards recognizing the harm the investors had suffered. But the treaties’ benefits went further than that.

The Second Step: Confirming the Arbitral Award in a Domestic Judgment

Because of Spain’s and India’s arbitration treaties, the investors in NextEra and Devas were also able to confirm their arbitral awards in domestically enforceable judgments in the jurisdictions in which Spain and India maintain property.

In NextEra, the investors sought to confirm their arbitral award in the United States. They brought their petition before the United States District Court for the District of Columbia. Spain resisted the proceedings, arguing that the principle of sovereign immunity deprived the court of jurisdiction over Spain. But, in an opinion issued February 15, 2023, the court rejected Spain’s assertion of sovereign immunity.

The court reasoned that the investors’ petition fell within an exception to the United States’ foreign sovereign immunity statute that eliminates sovereign immunity for proceedings to confirm an award made pursuant to “an agreement to arbitrate.” The Court noted that Spain was a signatory of the Energy Charter Treaty and that this treaty had required Spain to submit its dispute with the plaintiff-investors to arbitration. On this basis, the court concluded that the Energy Charter Treaty’s arbitration provision was an “agreement to arbitrate” and that Spain had surrendered its sovereign immunity from the investors’ suit by signing the Energy Charter Treaty. Notably, the United States is not a signatory of the Energy Charter Treaty, but this had no impact on the court’s willingness to recognize the treaty’s arbitration provision as a valid agreement to arbitrate within the foreign sovereign immunity statute’s exception.

The court in Devas reached a similar result, albeit through slightly different reasoning. In Devas, the investors sought to confirm their arbitral award in Canada and brought their petition before the Superior Court of Quebec. India raised sovereign immunity as a bar to the proceedings. Like the court in NextEra, the Superior Court of Quebec rejected this assertion of sovereign immunity.

One of the court’s rationales for rejecting sovereign immunity was that India had waived its sovereign immunity by entering a bilateral investment treaty that requiring arbitration of disputes like the one that had arisen in Devas. The court reasoned that, by signing that treaty, and by participating in an arbitration with the Devas investors pursuant to that treaty, India had waived its sovereign immunity from proceedings in Canada to confirm the arbitration’s result. The court also noted that India has also signed the New York Convention, which requires signatories to enforce arbitral awards. The court concluded that India’s acceptance of the New York Convention reflected yet another waiver of its sovereign immunity. And since Canada is also a signatory of the New York Convention, Canadian courts must recognize and enforce valid arbitral awards.

Thanks to Spain’s and India’s arbitration treaties, the investors in NextEra and Devas now have domestic judgments reflecting their arbitral awards that are enforceable in the countries in which Spain and India maintain property.

The Third Step: Executing Against State-Owned Property

The story is not yet over for the investors in NextEra and Devas. While they have cleared he first two sovereign immunity hurdles in their pursuant of a remedy, they will still have to execute their judgments against Spain’s property in the United States and India’s property in Canada. Spain and India will surely raise sovereign immunity arguments again in this next step. Given the courts’ reasoning in NextEra and Devas, however, Spain’s and India’s arbitration treaties could play a substantial role in mitigating the effects of sovereign immunity at this step as well.


As NextEra and Devas make clear, if you do business in countries with large numbers of state-owned enterprises or with volatile regulatory regimes, you should speak to a lawyer about how Sovereign Immunity could affect your transactions. In addition to negotiating for arbitration agreements and express waivers of Sovereign Immunity in your contracts, you should consider what enforcement mechanisms could be available to you under international treaties should dispute resolution become necessary. And you should also consider whether the country in which or with which you are doing business maintains property in jurisdictions that are known to enforce arbitral awards, whether under the New York Convention or otherwise.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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