When Sovereign Immunity Becomes Sovereign Impunity -By Fransiscus Nanga Roka

The refusal of the US Supreme Court to hear Spain’s sovereign immunity appeal is much more than a procedural order, but rather, it is a thunderclap in the growing global battle over international investment law. In siding with renewable energy investors against the D.C. Circuit, the Court has reminded states that signing a treaty means giving up the luxury of selective compliance.

At the root of this conflict is a policy choice that should make every government that uses “economic crisis” to annul legal obligations shudder. Spain intervened unilaterally and cross retrospective cuts in subsidies and incentives that had previously attracted billions of capital investment into its solar and renewable energy businesses. Soon after the state moved the goalposts investors (who had relied on Spain’s self-regulatory pledges saw their business models collapse overnight not due to market risk, but because the rules were changed post-bet.

That is not fiscal discipline but regulatory guile. As a result, investors sought arbitration under the Energy Charter Treaty (ECT) and in many cases the ICSID Convention against Spain which it had freely and consciously ratified. If Madrid never had to face an unforeseen burden, it should not have been surprised to see the tab for its own duplicity in court laid before it: when the arbitral tribunals ruled on multiple occasions that Spain had failed and awarded hundreds of millions in damages, it was not met with a shock; they merely presented a bill.

Spain would subsequently employ a strategy of jurisdictional brinkmanship in Washington. Spain, backed by the Foreign Sovereign Immunities Act (FSIA), defended that U.S. Courts did not have the jurisdiction to enforce these awards and further claimed that even if they did, they were void under EU law as established in Achmea and Komstroy. Specifically, Spain argued that the ECT’s intra EU arbitral awards were stillborn and that this allegedly invalid birth revived its sovereignty immunity from the jurisdiction of US courts.

In a decision that short-circuits this attempt to relitigate consent at the enforcement stage, the D.C. Whether intra EU disputes “should” have been dismissed by going to arbitration was treated as a merits issue, not jurisdictional magic key that could open wide the gate of state immunity after the fact.

The Court also denied certiorari which meant that it declined to play along with Spain’s attempt to turn daydreams about EU internal constitutional worries into a universal means of eluding international accountability. It is a silent but lethal challenge to the idea that the jurisprudence of a regional court can externally rewrite consent inherent in multilateral treaties over the rest of the world.

Perhaps most importantly, is the stance of the U.S. government itself. The Solicitor General asked the Court to deny Spain’s démand, clearly anchoring the United States position in the Vienna Convention on the Law of Treaties: a state may not invoke its internal law including regional judicial pronouncements to disavow binding international obligations it voluntarily undertook. The Spanish government countered that its appeal did not even reach the standard for Supreme Court review.

It was a normative, rather than technical warning. In endorsing the “arbitration exception” to the FSIA in this context, the U.S. Executive made clear that sovereign immunity is no refuge from treaty breaking and that forum non conveniens is powerless to send creditors chasing dreams of phantoms across borders while assets remain safely harbored on U.S. shores.

It would be ironic for the Justice Department of a Trump era frequently painted as skeptical of multilateralism to become an unforeseen guarantor of arbitral finality in a climate dispute, and one Spain’s legal team might do well to recognize: When Washington honors the Vienna Convention more than a European Union member state waving around “rule of law” platitudes, something is askew.

At its core, Spain’s gambit was an attempt to speak the language not of sovereign immunity, but sovereign impunity. The state, on the one hand wanted to switch between two legal universes, when it is beneficial for its geopolitical and economic ambitions by invoking ECT and ICSID; on the other hand, retroactively hiding behind ECJ case law when arbitral consequences become politically inconvenient. This is not coherence with the law, it is instrumentalism cloaked in constitutional scrupulosity.

The D.C. Circuit’s decision which the Supreme Court opted not to disturb, blows this dual track approach apart. U.S. courts now recognize that these awards fall squarely within the arbitration exception to the FSIA, and that Spain’s obligations under the ECT cannot be vaporized through post hoc doctrinal pivots in Luxembourg. It is obvious that if a state agrees to submit matters to arbitration, enters appearance in the proceedings, and fails to comply with the award thereafter, benevolent third state courts must not condone that international crime.

And its practical consequences are bloody and highly deserved. Wednesday marked the end of Spain’s final judicial refuge in the US with the Supreme Court denial. Investors can now scour through U.S. based Spanish state assets, commercial bank accounts, holdings and attachable property in order to enforce awards that collectively total more than €2 billion euros. No longer a theoretical threat, but one that creditor groups have explicitly plotted: new waves of cash and property seizures in retaliation against Spain’s chronic non-payment

The new cartography of enforcement is this: as recalcitrant states entrench behind domestic courts or regional jurisprudence, creditors will look outwards, and they will target assets in jurisdictions that refuse to submit to the banishment of international arbitration. America has now become the primary enforcement centre for intra EU awards which Europe itself has sought to politically quarantine.

The broader precedent is unmistakable. States willing to commit themselves to investment treaties and arbitration mechanisms can not escape their debts behind newly minted ‘constitutional doctrines’, at least not without reputational and financial damage in third countries. ICSID and the other arbitral institutions, which some have long mocked as toothless or captured, just became enforcers with help from the most powerful judiciary on Earth.

It should travel well beyond Madrid the defeat of Spain It sends a message to any government ripping up the rulebook or viewing international commitments as mere expendable policy levers, and to any regional court eager to rewrite history by judicial fiat. The question is not whether international arbitration is legitimate; it is whether domestic and regional law have become excuses for treaty breach, and state sovereignty an unannounced license to bully.

Fransiscus Nanga Roka

Faculty pf Law University 17 August 1945 Surabaya and Managing Partner Law Firm Victorious Indonesia