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India is held liable for investment treaty breach due to protracted judicial delays suffered by foreign investor

publication date: Feb 7, 2012
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By Luke Eric Peterson
(Editor's Note: Due to media interest in our report about this case, we are making this article viewable to the general public for the short term.)

IAReporter has determined that The Government of India has been held in breach of a bilateral investment treaty obligation owed to an Australian mining company.

In a unanimous November 2011 arbitral award, a three-member tribunal* ruled that White Industries Australia Ltd. was denied “effective means” of asserting claims and enforcing rights with respect to its investment in India. The award has not yet been published. (UPDATE: The award became public, and we published a detailed analysis here.)

As we revealed in July of 2011, White Industries took solace in the Australia-India BIT after having been thwarted for many years in its effort to enforce and collect on a commercial (ICC rules) arbitration award rendered in 2002 in a dispute with an Indian state-owned mining company.

White’s effort to enforce the foreign (Paris seat) arbitral award in India remain stayed while its former joint-venture partner, Coal India Limited, seeks to set aside the 2002 award in India.

BIT claim was arbitrated with unusual speed

White is believed to have turned to BIT arbitration with India in 2010. A tribunal convened to hear the case operated with unusual dispatch – perhaps mindful that any verdict in a judicial delay case should not spring from an arbitration process of similar length.

Final hearings were held in September of 2011 in the BIT arbitration, and in a mere two months the tribunal had issued a final award.

In that award, the arbitrators reportedly held that India should pay White Industries compensation equal to the amount awarded to White in the earlier arbitration with Coal India, as well as interest. (According to publicly-available sources, White was awarded some 4 Million Australian Dollars in its original arbitration with Coal India.)

ICC award is part of a protected investment

It is becoming increasingly commonplace for foreign investors to turn to BIT arbitration when they encounter obstacles to enforcing commercial arbitration awards.

In the White v. India case, the tribunal accepted that a commercial arbitration award can be an integral component of a broader foreign investment – a question that has divided BIT tribunals in recent years.**

Judicial delays breach India’s duty to offer “effective means” to assert claims

In an apparent echo of a 2010 ruling in a dispute between the U.S. based energy company Chevron and the Republic of Ecuador***, arbitrators in the White v. India case have held that excessive delays in local courts may amount to a breach of a bilateral investment treaty (without needing to rise to the level of a “denial of justice” under international law).

Notably, the India-Australia BIT does not contain an obligation to provide for “effective means” of asserting claims, but it does contain a Most-Favoured Nation (MFN) clause. Thanks to that MFN clause, White Industries was allowed to rely upon an “effective means” obligation found in a (differently-worded) Indian BIT with Kuwait.

The effect of the tribunal’s ruling could spread across the full range of foreign investors covered by an Indian BIT assuming that future arbitrators agree that an MFN clause suffices to entitle would-be claimants to the “effective means” guarantees contained in the Kuwait-India BIT.

Tribunal may have sidestepped ruling on India’s compliance with NY Convention obligations

Initial reports suggest that the tribunal majority focused squarely on the delays suffered by White Industries, while declining to rule that India is in breach of its obligations under the New York Convention on the recognition and enforcement of foreign arbitral awards (and perhaps, by extension, of certain other BIT obligations).

(There are many commentators outside of India who bemoan the willingness of Indian courts to entertain applications for set-aside of awards that have been rendered elsewhere, and which should be accorded more deference under the framework provided by the NY Convention.)

Unless and until the arbitral award is released into the public domain, the nuance of the tribunal’s decision remains shrouded in mystery.

Parties have been mum on outcome

To date, the Government of India and White Industries have not announced publicly the outcome of the BIT arbitration.

India does not appear to have paid the award, but neither did it move to set aside the arbitral award within the 30 day window provided under the law of Singapore (where the arbitration was seated). Of course, it remains to be seen whether the government will seek to challenge the award in its own courts. In should be recalled that the very receptivity of the Indian courts to hearing set-aside applications against awards rendered in other jurisdictions has spawned the White Industries’ BIT claim.

The BIT award comes against a backdrop of legal uncertainty within India, as that country’s Supreme Court is currently grappling with a series of cases – including one by White Industries – which center upon the willingness of Indian courts to contemplate the set-aside of foreign-seated arbitral awards. Depending upon the outcome in that Supreme Court case, India’s courts may take a less aggressive posture towards reviewing foreign arbitral awards.

Indian press and government more aware of BIT protections as of late

India’s first setback in BIT arbitration comes at a time of growing awareness and debate in the Indian media and within various government departments as to the risks and benefits of investment treaty protections.

This interest appears to be a by-product of high-profile investment protection negotiations launched last year with the European Union. However, there is also a growing awareness as to the potential for existing BITs to be used by would-be claimants against the Government of India.

In fact, in recent days, the Indian business press has reported that foreign investors in the country’s telecoms sector may seek to use BIT remedies in an effort to challenge the recent quashing of numerous telecoms licenses on the grounds that they were tainted by government corruption.

Earlier reading of an “effective means” clause continues to be contested

While the White Industries arbitration is the latest where an arbitral tribunal has offered an interpretation of an “effective means” BIT obligation, an earlier ruling in the Chevron/Tex-Pet v. Ecuador case continues to be controversial. In that case, arbitrators ruled that they could step into the shoes of a local court – in circumstances where the courts were failing to deliver justice in a timely fashion – and offer their own view as to the merits of a series of long-running contract disputes.

The Republic of Ecuador has condemned the tribunal’s approach, and is seeking to set-aside the 2010 partial award rendered in the Chevron/Tex-Pet v. Ecuador arbitration. At the same time, Ecuador has also initiated a state-to-state arbitration with the United States in a bid to have a new arbitral panel rule on the meaning of the controversial treaty clause.*****

IAReporter understands that a tribunal is still being selected for that latter proceeding. The ICSID Secretariat is the appointing authority designated by the U.S.-Ecuador treaty to select a tribunal chair in the absence of agreement between the two parties to a state-to-state arbitration. IAReporter has learned that Ecuador has asked ICSID to appoint a chair, but that one has not been selected as of press time.

* See our prior reporting on the White Industries v. Government of India case here: http://www.iareporter.com/articles/20110707_2. As we reported previously, the arbitrators in the case are: William Rowley, Christopher Lau, and Charles Brower.

** For differing views as to whether an arbitral award can be an investment (or a part thereof), see our reporting on the Saipem v. Bangladeh and GEA v. Ukraine cases at ICSID: http://www.iareporter.com/articles/20090912_2 and http://www.iareporter.com/articles/20110414_1.

See also our report on a third BIT case, FPS v. Czech Republic, where arbitrators reviewed the conduct of local courts with respect to efforts to enforce a commercial arbitral award: http://www.iareporter.com/articles/20101217_7

*** For background on the Chevron ruling of 2010: http://www.iareporter.com/articles/20100331

**** For coverage of the telecoms controversy, see this report: http://articles.economictimes.indiatimes.com/2012-02-04/news/31024842_1_significant-retroactive-consequences-sistema-shyam-review-petition

***** For reporting on the state-to-state arbitration initiated by Ecuador, see this link: http://www.iareporter.com/articles/20111122_5

Investment Arbitration Reporter is a specialized news publication tracking developments in the area of international investment law and policy.

The publication does not offer legal or financial advice or recommendations of any kind.
To offer news-tips or comments, email the Editor, Luke Eric Peterson, at: editor@iareporter.com
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Investment Arbitration Reporter is a news & analysis service tracking investor state dispute settlement (ISDS) arbitration claims.

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