[1]HOW HAS INVESTMENT ARBITRATION DEVELOPED AMONG THE YEARS FROM THE FIRST CASE THAT INDIA HAS LOST TO THE FIRST THAT CASE THAT INDIA HAS WON

                                                                                                                                      – Suman V.

According to the reports, there are only two disputes which have been concluded by way of Investment Arbitration. They are the White Industries case and the LDA case which are almost 7 years apart.

Firstly, in the White Industries case, the dispute arose between White Industries, an Australian Company, and Coal India Ltd, a government owned PSU.

Factual matrix–

An ICC Arbitration clause was triggered in regard with a contract which was entered to develop a mine in Piparwar, India. The cost of the contract was valued at 206.6 Australian Dollars. The Arbitration with its seats in Paris resulted in an award of 4.10 Million U.S. Dollars (or approx. INR 29.17 crores) in favour of White Industries[2]. There was a delay of over nine years in enforcement of this award by the Indian courts. White Industries relied on this ground to initiate a separate Arbitration proceeding against India under the India-Australia BIT[3]. The claimants contended that the inordinate delay of the enforcement of the foreign award had caused a violation of fair and equitable treatment (FET), expropriation, MFN and free transfer of funds of the India-Australia BIT and transfer of funds of the India-Australia BIT[4]. On the other side, the respondents had contended that the present mining contract was nothing but a commercial contract wherein the main BIT obligation was the supply of goods and services and hence, it had not come within the four walls of investment. Thus, there had been no violation as alleged by the appellants[5].

Award–

The Tribunal held the Indian government liable for violating the effective means standard according to which effective means of asserting claims and enforcing rights to the investing country have to be provided by the host country by accepting the argument of the Claimants that this delay negatively impacted the Australian investor by not allowing “effective means of asserting claims and enforcing rights”, which was an obligation on India under Kuwait-India BIT (which was applicable to Australia as well under the MFN clause of the India-Australia BIT which elucidates a contracting party is obligated to extend the same benefits to all its trade partners as received by other parties)[6]. The Tribunal overruled India’s objection that such “borrowing will ‘fundamentally subvert the carefully negotiated balance of the BIT’” and held that “the balance can be subverted only if the MFN provision is used to borrow a beneficial dispute resolution provision from another BIT”[7]. Thus, the contention of the respondent in the present case that, “Since the Indian legal system is well known for its delayed justice provision hence there was no effective mechanism when White Industries sought enforcement of award. It was a usual manner in which legal system functions in India and White Industries should have had information about the same and should not be creating such a hue and cry for the same.” was outright rejected[8]. But, the Tribunal dismissed other contentions of the respondents like FET violation wherein the contentions of the appellants were that the principle of Legitimate Expectation had been violated by the Indian courts as they expected the ICC award to be immediately enforced[9]. It is important to note that the MFN provision in the India-Australia BIT recognises certain exceptions, such as not extending any treatment, preferences or privileges arising from a) customs union, economic union or a free trade agreement; b) the provisions of a double taxation agreement; and c) any legislation relating wholly or mainly to taxation[10]. The BIT also has a general exception to the entire treaty and to MFN provision as well, which states that “the host country can deviate from its BIT obligations in order to adopt measures necessary for the protection of its own essential security interests or for the prevention of diseases or pests”. None of these exceptions were applicable to India in this case, and hence White Industries was permitted to benefit from the broadly worded MFN provision[11]. The Tribunal also ruled that the primary constituents to an expropriation would be the devaluation or loss to the value of the property to deteriorate or the rights be substantially effected since none of the pre-requisites were met with and the investment in no way is affected because the award had actually not been disposed off. Hence, no expropriation happened till date[12].

The need to revisit the existing BIT–

This ruling had negative remarks to the Investment regime in India. Most importantly, the problem with this ruling is that it had broken the trust of people in the BITs which bragged about creating a balance between the investment protection, economic development and India’s sovereign power. The problem with such BITs is that provisions like Most Favoured Nations which had never been properly included and vague provisions where effective means are given were so open to interpretation that the parties go treaty shopping and find the most convenient and befitting treaty which helps them get maximum compensation. This affected the Indian economy[13]. The award had given a renewed confidence to the investors regarding the protection of their investment. A bypass had been created which subverts the delayed judicial process. It opened up another route for investors outside of the Indian courts. If investors face many years’ delay in enforcing arbitral awards, they might pursue the government of India directly. Of course, in order to do this the investors would need to have access to a similar BIT as the Australia-India BIT, or the Kuwait-India BIT. In light of this ruling, it was pertinent that India reviewed the MFN provisions in its BITs, which were often defined in an expansive manner without adequate exceptions. Further, an important implication of this ruling is that inordinate delays in Indian courts in disposing matters related to a foreign investor could, potentially, violate India’s BIT obligations not due to the violation of ‘denial of justice,’ but due to a violation of the ‘effective means’ standard, which requireed a lower threshold than ‘denial of justice’[14]. India had been entering into BITs without fully understanding their implications. The sanguine belief in the Indian official establishment was that Indian BITs adequately balance investment protection with India’s ability to exercise sovereign powers[15].

Secondly, the LDA case, the dispute concerns the Haldia Dock Complex (HDC), situated near Kolkata, under the authority of the Kolkata Port Trust (KPT).

Factual matrix–

In 2010, LDA, the shipping business within the Louis Dreyfus Group conglomerate, became part of a Joint Venture as a minority indirect shareholder in a special purpose vehicle, Haldia Bulk Terminals Pvt. Ltd. (HBT), which was to carry out modernisation works at Haldia Docks. From 2012, a number of problems began to occur. A dispute arose between HBT and the Kolkata Port Trust over removal of equipment and the project faced disruption due to trade union unrest following the dismissal of 275 workers, resulting in multiple pieces of litigation. Following the alleged armed kidnapping of company officers and members of an officer’s family, the Joint Venture was abandoned. In 2014, LDA filed a treaty claim under the BIT alleging that the Indian government had breached its treaty commitment to provide full protection and security, in particular as regards HBT’s employees and their families, and was also in breach for its failure to follow court orders dealing with the removal of equipment. The claim gave rise to a request for an anti-Arbitration injunction from the Calcutta High Court and a judgment[16] on that application in September 2014. In December 2015, the Tribunal ruled in India’s favour, finding that LDA lacked jurisdiction to bring the claim, however it granted permission to LDA to reformulate its claim.

Award–

The Tribunal, in its latest award is reported to have upheld its previous ruling. Despite LDA’s reformulation of its claim, the Tribunal found that LDA’s claims still lacked jurisdiction. Article 2(1) of the France-India BIT excludes from the scope of protection, the indirect investments in which an investor owns less than 51% of an intermediate investment vehicle, wherever located[17];

The Arbitral Tribunal dismissed a US$36 million claim. LDA is ordered to pay India[18]:

(a) USD540, 885.30, towards India’s share of the Tribunal and PCA costs of Arbitration and

(b) USD 6,626,971.85, towards India’s costs and expenses of legal representation and assistance.

 

*The scope of this article is limited only to Arbitration proceedings in which India has been a respondent to between 2003 and 2019.

[2] White Industries Australia Ltd. v. Republic of India, IIC 529 (2011).

[3] Significance of International Investment Arbitration in India’s efforts toward instituting a robust regulatory regime Docs.manupatra.in, http://docs.manupatra.in/newsline/articles/Upload/864f022d-cc7d-441c-ab0f-e3ec8c51f770.pdf (last visited Apr 22, 2020)

[4] Case Comments on White Industries v. Republic Of India – Academike Lawctopus, https://www.lawctopus.com/academike/case-comments-white-industries-v-republic-india/ (last visited Apr 22, 2020)

[5] Id.

[6] Significance of International Investment Arbitration in India’s efforts toward instituting a robust regulatory regime Docs.manupatra.in, http://docs.manupatra.in/newsline/articles/Upload/864f022d-cc7d-441c-ab0f-e3ec8c51f770.pdf (last visited Apr 22, 2020)

[7] White Industries, supra at Note 9.

[8] Supra at Note 3.

[9] Supra at Note 3.

[10] See Article 4(4) of the India-Australia BIT.

[11] The White Industries Arbitration: Implications for India’s Investment Treaty Program – Investment Treaty News iisd.org, https://www.iisd.org/itn/2012/04/13/the-white-industries-Arbitration-implications-for-indias-investment-treaty-program/ (last visited Apr 22, 2020)

[12] Supra at Note 3.

[13] Significance of International Investment Arbitration in India’s efforts toward instituting a robust regulatory regime Docs.manupatra.in, http://docs.manupatra.in/newsline/articles/Upload/864f022d-cc7d-441c-ab0f-e3ec8c51f770.pdf (last visited Apr 22, 2020)

[14] See Article 4(4) of the India-Australia BIT.

[15] Id.

[16] Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS, MANU/WB/0695/2014

[17] Louis Dreyfus Armateurs SAS v. The Republic of India, PCA Case No. 2014-26 (2018)

[18] Id.