Authored By: Dewanshi Bhatt
Bennett University
INTRODUCTION
The goal of this research paper is to better understand how investment arbitration judgements will be implemented in real-world lawsuits and court practice. It is clearly known that this White Industries case has far-reaching repercussions that will totally change the landscape in international arbitration in India. As a result, the White Industries award acts as a reminder of the importance of smoothing up the wrinkles in Indian arbitration legislation. The judgement must be analysed both academically and from the practitioner’s perspective. It’s funny to see how far off these viewpoints of view are. The positive aspects that an academic perceives in the situation are disadvantages to a legal practitioner. These irregularities must be resolved.
Even though the judgement is not without criticism, it is a significant step forward in improving the laws governing bilateral agreements in international arbitration in India, as the unexpected outcome has urged the nation of India to contemplate twice before entering into another such treaty with vague clauses. The judgement discusses numerous aspects of international arbitration, such as the treaty signed, the articles to be followed (the MFN Clause in this case), implementation of the decision in the other country, and topics such as investment definition and expropriation in depth.
Overall, the judgment’s virtues outweigh its negatives, and one is able to determine as the Supreme Court is moving in the right path by implementing the law in both its genuine form and spirit.
JURISDICTION
The Tribunal adopted this stance, supporting the widely held belief that, with regard to claims made outside of the ICSID Convention[1], the applicable investment treaty suffices to determine whether a qualified investment exists. Regardless, the Tribunal found that White’s investment met the “Salini criteria,” which were established in the Salini v. Morocco case[2] and include contribution, duration, element of risk, regularity of profit and return, and a contribution to the economic development of the host State. In order to determine whether there is an investment for the purposes of ICSID Convention Article 25(1), [3]these factors are frequently used. White’s rights within the original contract were, the tribunal further explained, investments, as the Treaty defined “investment” as “rights to income or to perform anything with a value of money, contractual or otherwise.”
JUDGES/ ARBITRATORS
The first-ever Investment Treaty arbitral ruling involving the Republic of India was rendered by the Arbitral Tribunal, which was composed of J. William Rowley (Chairman), Charles N. Brown, and Christopher Lau. The tribunal was established in November 2011 in accordance with the UNCITRAL[4] Arbitration Rules.
FACTS OF THE CASE
White Industries received an arbitral ruling in favourable terms by a dispute over a contract involving Coal India, routinely an Indian publicly traded firm, and sought execution of the award in the Delhi High Court. Simultaneously, Coal India petitioned the Calcutta High Court asking to have the judgement set aside, and the motion was granted. White Industries filed an appeal before the Supreme Court in 2004, and the ultimate verdict is still pending.
White Industries filed for arbitration in 2010, claiming that the Indian courts’ excessive delay in enforcing the arbitration ruling violated the India-Australia BIT. [5]White Industries claimed that the delay breached provisions governing equal consideration (FET), [6]confiscation, MFN [7]the therapy, and free flow of funds.
The panel dismissed White Industries’ charges of FET violations, expropriation, and free transfer of funds. However, the panel held that India violated the India-Australia BIT’s MFN provision, awarding White Industries $4 million Australian dollars.
CONTENTIONS OF THE PARTIES
CONTENTIONS OF WHITE INDUSTRIES
That the excessive delay in enforcing the foreign award violated the India-Australia BIT’s fair and equitable treatment (FET), expropriation, MFN, and free transfer of funds clauses.
CONTENTIONS OF THE REPUBLIC OF INDIA.
That the current mining deal was nothing more than a business contract, with the primary BIT requirement being the sale of products and services. As a result, it did not fall under the framework of investment, and so no breach occurred as claimed by the appellants.
QUESTIONS BEFORE COURT
- 1. Was the commercial agreement between India and Australia a deal to invest pursuant Article 1 of the Indian-Australian Bilateral Investment Treaty?
- Is it possible that the Indian government violated the India-Australia BIT’s expropriation, MFN, fair and equitable treatment (FET), expropriation, MFN, and free transfer of funds provisions?
- Has the white industry invested in India in accordance with the Bilateral Investment Treaty (BIT)?
- Does the arbitration body have the authority to rule on coal India’s actions and inactions?
- .Has India violated Article 3 (1) of the BIT[8] by failing to promote and prompt suitable circumstances for investors.
- Does India’s actions amount to a violation of the BIT because they violate the fair and equitable standards?
- Does India’s actions amount to a failure to offer efficient channels for putting forward claims?
- This consequently represented a violation of BIT Article 4 (2)[9]?
- Has India violated Article 7 of the BIT[10] by expropriating White’s investment?
- Has India violated Article 9 of the Bilateral Investment Treaty (BIT)[11] by preventing the free flow of investment funds to white-collar industries?
- Does white industry have a right to damages for any BIT violations?
COMPARISION WITH OTHER CASES
The Bhatia International[12] and Satyam Computer[13] judgements were two of the most heavily criticised in Indian arbitration law. They were completely responsible for White Industries’ delay and incapacity to implement the ICC award. The Calcutta High Court struck aside the foreign award based mostly on the Satyam Computer case ratio. The tribunal’s decision fairly vindicates the criticism of these judgements. The verdict is more like a slap in the face to the court for overstepping its bounds by construing regulations more liberally than is permissible.
It will be fascinating to observe how courts approach the statutes in the future, recognising that any verdict obstructing the implementation of foreign awards will have serious consequences under BITs, including harsher fines.
The panel in the case determined the ICC Award is enforceable in Indian law, but it did not address the breach. This means that the judiciary was supposed to provide a view on whether failing to enforce the award violated the New York Convention. It might have been fascinating if the panel had also expressed a view on this topic. Alternatively, White Industries might have implemented the awards in all of the additional New York Convention nations where the Indian government owns holdings.
In addition to what the tribunal chooses not to discuss, the non-enforcement of a foreign award is in violation of the New York Convention since Article V[14] of that convention enumerates numerous grounds that the courts of the nation where enforcement is sought can use to set aside a foreign award.
JUDICIAL REASONING
According to the effective means criteria, which requires the host country to offer effective means of claiming claims and enforcing rights, the tribunal found the Indian Government accountable for violating it. The tribunal determined that the effective means requirement is less stringent and can be directly applied to the current facts, allowing justice to be served, because the Most Favoured Nation clause hadn’t been specifically referenced. The panel observed that the effective methods standard indicates that the legal system in question is operating impartially, adhering to international norms, and functioning properly and efficiently at the time the dispute emerges or remedy is sought.
There should be no gaps in the system’s operation. Accordingly, the respondent in this instance argues that there was no ineffective procedure where White Industries sought implementation of the verdict because the Indian legal system is notorious for its supply of delayed justice. White Industries ought to have known that the Indian court system operates in this manner and shouldn’t have been raising such a fuss about something that was flatly denied.
The tribunal was therefore in no doubt that the most efficient provision was not properly taken into account by the court. However, the tribunal rejected other claims made by the respondents, such as the FET violation, which involved the appellants’ claim that the Indian courts had violated the concept of legitimate expectation by failing to immediately enforce the ICC award and to dismiss Coal India’s application to set it aside. Instead, the appellants had been waiting for justice for more than nine years, which was unexpected according to such a bilateral treaty. But according to the tribunal, such reasonable expectations could only have developed from a precise, “unambiguous affirmation to that effect by India”[15], which was not the situation.
The appellants’ other concern was that the Indian government would expropriate their investments if they were not set aside. However, the tribunal found that the main elements of an expropriation would include a devaluation or loss of the property’s value or a substantial impact on the appellants’ rights because none of the requirements were met and the investment was unaffected in any way; as a result, no expropriation has occurred to date.
Because of the delay in implementing the award, the effective means standard was the only rule that was found to have been violated against the White Industries.
CONCLUSION
The Tribunal found that White Industries qualified as a “investor” for the purposes of the Bilateral Investment Treaty (BIT) between the governments of Australia and India. It further found that the rights resulting from the agreement between White Industries and Coal India qualified as investments for the purposes of the BIT.
India has been participating in BITs without fully comprehending what they entail. The optimistic view held by the Indian official elite is that the country’s capabilities to exercise sovereignty and investment protection are suitably balanced by Indian BITs. The fact that India’s regulatory activities have so infrequently been contested under BITs has contributed to the strengthening of this false impression over time. Still, it would be erroneous to think that Indian investment accords are faultless.
The White Industries award highlights how BIT clauses, such as the MFN clause, are frequently ambiguous and expansive. Because of this, White Industries was able to engage in negotiation of treaties and get an outcome that India had not expected. The decision also makes it abundantly evident how the Indian judiciary’s sovereign duties may be equated with BIT violations. Therefore, it is expected that this decision will prompt a thorough evaluation of India’s BIT initiative. Given the rising number of fresh investment and trade agreements, like the free trade agreement between India and the EU, and India’s growing economic interconnectedness with the world, this kind of evaluation is essential.
Reference(S):
[1] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (International Centre for Settlement of Investment Disputes [ICSID]) 575 UNTS 159
[2] Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4
[3] ICSID Convention Article 25(1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.
[4] Model Law on International Commercial Arbitration 1985 (United Nations Commission on International Trade Law [UNCITRAL]) UN Doc A/40/17, Annex I
[5] Australia – India BIT (1999)
[6] The Fair and Equitable Treatment (FET) Standard in International Investment Law
[7] MFN clauses are designed to ensure equality and non-discrimination in the treatment of protected investors vis-à-vis other foreign investors in the host State. As noted by the Bayindir tribunal, MFN clauses are designed to “provide a level playing field…between foreign investors from different countries”.
[8] Art. 3(1) BIT No Party shall subject investments made by investors of the other Party to measures which constitute a violation of customary international law1 through: (i) Denial of justice in any judicial or administrative proceedings; or (ii) fundamental breach of due process; or (iii) targeted discrimination on manifestly unjustified grounds, such as gender, race or religious belief; or (iv)manifestly abusive treatment, such as coercion, duress and harassment.
[9] Art 4(2) BIT – The treatment accorded by a Party under Article 4.1 means, with respect to a Sub-national government, treatment no less favourable than the treatment accorded, in like circumstances, by that Sub-national government to investors, and to investments of investors, of the Party of which it forms a part.
[10] Art 7 BIT- Each Party shall accord to investors of another Party, and to investments by such investors, non-discriminatory treatment with respect to measures, including restitution, indemnification, compensation or other settlement, it adopts or maintains relating to losses suffered by investments in its territory owing to war or other armed conflict, civil strife, state of national emergency or a natural disaster.
[11] Art. 9 BIT
9.1 Subject to its law relating to the entry and sojourn of non-citizens and on the basis of reciprocity, each Party shall permit natural persons of the other Party employed by the investor or the locally established enterprise to enter and remain in its territory for the purpose of engaging in activities connected with the investment.
9.2 For the purposes of this Article, “natural person of the other Party” means a natural person who resides in the territory of that Party or elsewhere, and who under the law of that other Party: (i) is a national of that other Party; or (ii) has the right of permanent residence in that other Party, provided that such other Party accords substantially the same treatment to its permanent residents as it does to its nationals in respect of measures affecting trade in services, and notifies the same after the entry into force of this Agreement or under any bilateral or multilateral agreement on trade in services entered into between the Parties. Such notification shall include the assurance to assume, with respect to the permanent residents, in accordance with its laws and regulations, the same responsibilities that such other Party bears with respect to its nationals. For the purpose of clarification, no Party is obliged to accord to permanent residents of another Party treatment more favourable than would be accorded by that other Party to such permanent residents.
[12] Bhatia International v. Respondent: Bulk Trading S.A. and Anr., (2002) 2 SCR 411.
[13] Satyam computer Case, Civil appeal number 3678 of 2007.
[14] Art. V New York Convention- Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought
[15] White Industries v. Republic of India, Final Award, November 30th, 2011.
