Authors: Neeta Saini, Jaipur National University
Anushka Malkhare, ILS Law college, Pune
Editor: Naman Joshi, Faculty of Law, DU
International Arbitration is an institution which safeguards foreign investors in response to the expropriation of private investments by the state. It is associated with Investor-sate dispute settlement which is an instrument of public international law. It contains a number of bilateral investment treaties and trade treaties.
Case Law: White Industries India vs. The Republic of India
In this case, dispute arose over whether and to how much extent Republic of India is liable to compensate White Industries under the contractual obligations. Finally in 2011 after many fruitless attempts, Republic of India was held guilty of violating the Indian - Australian Bilateral investment treaty by the arbitral tribunal. It is the first known investment treaty against India despite the fact that India had mammoth investment treaties with different countries, first being with UK in 1994.
● Parties to the case
Claimant - White Industries India
Respondent- The Republic of India
● The Tribunal
The Honorable Charles N. Brower
Christopher Lau SC
J. William Rowley QC ( Chairman)
● Facts of the case:
In 1989, an Australian Company named White Industries entered into a long term contract with a state owned Indian Company called Coal India Limited.
Under the contractual obligation
● White industries agreed to supply equipments and develop coal mine near Piparwar ( Bihar) and in return it was to be paid approximately A$ 206.6 million.
● Any dispute arising out of the contract ( Arbitration Clause), would be settled under ICC Arbitration Rules excluding the Indian Arbitration Act 1940.
● During the initial six months, the production target of washed and processed coal was 2.76 million tonnes.
● White industries was entitled to bonus where production exceeds the target and conversely.
● In certain circumstances, White industries was entitled to Coal Handling Plant, bonus as well as penalty.
Subsequently, dispute arose between the two regarding the payment of bonus to the White industries or whether Coal India entitled to penality payment and regarding the quality of washed and processed coal. Under ICC Arbitration Rules 1999, White industries initiated legal proceedings against Coal India Limited. According to the norms of ICC, the ICC court decided Paris as the place of arbitration but for the sake of convenience, the hearing would take place in London. The majority arbitrators decided in favour of White industries and rendered an award of A$ 4.08 million ( ICC Award). Almost simultaneously in September 2002, Coal India applied in Calcutta High court to set aside the ICC Award ( on the basis of the Indian Arbitration and conciliation Act 1996) meanwhile White industries applied in New Delhi High court to enforce the award. Both the industries, White industries and Coal India received notice from the Calcutta HC and New Delhi HC respectively. In the meantime, White industries approached the Supreme court to transfer Coal India application to Delhi HC and listed the petition in front of the SC. Both the proceedings experienced significant delays for one or the other reasons. After years of delays and misfired attempts by the White Industries in enforcing ICC Award, it commenced legal proceedings against Coal India Ltd. under India Australia BIT Arbitration. It ( White industries) claimed that their was an unjustified delay resulted in the breach offair and equitable treatment, expropriation and free transfer of funds under the treaty. This treaty gives rights to Indian and Australian investors and in case of infringement of rights they can initiate proceedings against the government of the respective states.
● Issues involved in the case
1. Can the commercial contract drafted between Indian and Australia be termed as investment under Article 1 of Indian-Australian BIT ?
2. Has Indian Government committed a violation of expropriation, MFN , fair and equitable treatment (FET), and free transfer of funds of the Indian-Australian BIT?
● The tribunal rejected India's contention that the word investment had a hidden meaning despite its clear definition and the tribunal recognised that the rights stated under the original contract were in fact investment as defined in the treaty - “ Right to money or to any performance having financial value,contractual or otherwise.”
● The tribunal dismissed the objection of admissibility and jurisdiction made by India and held that the awards arising out of dispute concerning investment should be protected under the investment treaty and should be held as continuation of the original treaty and protected accordingly
Most favoured nation
● The tribunal held India guilty of violating their obligation of providing ‘effective means standard’ in which the effective means of ascertaining claims and enforcing rights to the investing company have to be provided by the host company . The tribunal found India in violation of the Indian - Australian BIT treaty as India was unable to deal with jurisdictional claim as the were left hanging for over nine years.The tribunal got around by holding that white industries can borrow effective means provision from the India-Kuwait BIT as the most favoured nation clause was broadly worded and did not have appropriate conditions
● The tribunal noted that effective means states that the redressal system should work impartially and should follow the international standards , there should not be any loopholes. Taking this into account the tribunal concluded that the indian justice system is famous for giving delayed justice and so there was no ineffective mechanism when White industries sought the enforcement award.
● The tribunal further dismissed the claims of breach of FET standards of violating the principle of legitimate expectations. The court held that legitimate expectations would only arise out of a specific “ unambiguous affirmation to effect by India” which was not the case here.
● The Appellants Claim that the annulment of ICC award by the Bangladeshi supreme court had expropriated their investments was dismissed on the fact that the primary requisite for expropriation would be loss to the value of property or devaluation or if the rights to property were subsequently affected as non of the requisite matched the investment as the ICC award was not yet taken or even set aside
All other further claims made by white industries were dismissed as the appellant failed to show that India had genal control or specific control over the actions of coal India in question . India had control over the appointment of board of directors and occasionally exercised control over certain matters, this fact was not held sufficient . It was further held that India was not accountable for the actions of Coal India.
In the end the only violation recorded was that against White industries of effective means standard for delay in administering the award.
The decision of the tribunal highlights the possibility of using investment treaty arbitration as a way of enforcing commercial awards especially in cases where the investor is frustrated because of the delay in judicial process. The decision also concluded that the effective means standard can be borrowed from another treaty of the host as the MFN standard would contain the substantive standard which would facilitate the investor to rely on another treaty.