After nine years of unsuccessfully trying to enforce an ICC award against an Indian company in the Indian courts, White Industries (White) has won its claim against India under the Australia/India bilateral investment treaty (the Treaty) that India had not fulfilled its obligation to provide White with an effective means of asserting claims and enforcing rights.
The decision in White Industries Australia Ltd v The Republic of India UNCITRAL (Australia/India BIT), Final Award, 30 November 2011 highlights the possibility of using investment treaty arbitration as a means of final recourse for the enforcement of foreign arbitral awards in commercial arbitration disputes.
Indian proceedings
In May 2002, following a contractual dispute between White and its JV partner - Coal India Ltd (Coal India), a State-owned mining utility - White was awarded AUD 4 million by a Paris-seated tribunal in an ICC arbitration. The award was rendered by a majority, with India's nominated arbitrator - Mr Justice Reddy, a retired justice of the Supreme Court of India - providing a dissenting opinion.
In September of that year White sought enforcement of the award in the Delhi High Court, relying on India's obligations under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Simultaneously, Coal India successfully applied to the Calcutta High Court to have the award set aside under the Indian Arbitration and Conciliation Act 1996 (1996 Act).
White unsuccessfully applied to the Calcutta High Court for Coal India's set-aside petition to be dismissed. Ultimately, White appealed to the Indian Supreme Court in 2004, arguing that the Calcutta High Court lacked jurisdiction to hear Coal India's application. In March 2006, the Delhi High Court stayed White's enforcement application pending resolution of the set-aside proceedings. In July 2010, having spent almost eight years trying to enforce the ICC award through the Indian courts, White commenced UNCITRAL arbitration proceedings against India under the Treaty. The seat of the arbitration was London. At the time of the oral hearing in the UNCITRAL arbitration process (September 2011) there was still no indication from the Supreme Court when it would hear the appeal.
Treaty claim
White's claim rested on alleged breaches of a wide range of substantive protections contained in the Treaty by both Coal India and India, including the protection against expropriation without compensation and the fair and equitable treatment (FET) standard. White also alleged that India had failed to encourage and promote favourable conditions for investors as required by the Treaty. Finally, White invoked the Treaty's most-favoured-nation (MFN) clause and relied on India's obligation to provide effective means of asserting claims and enforcing rights contained in the India/Kuwait bilateral investment treaty (the India/Kuwait Treaty).
India objected to the Tribunal's jurisdiction and admissibility of the claims, arguing that neither White's contractual rights nor its ICC award were an "investment" for the purposes of the Treaty. India also argued that the actions and omissions of Coal India were not attributable to it and that White could not avail itself of the substantive protections under the India/Kuwait Treaty. It also denied all of the alleged breaches.
Tribunal's findings - jurisdiction
The Tribunal dismissed India's objections to jurisdiction and admissibility. The Tribunal endorsed the view that awards made by tribunals arising out of disputes concerning investments protected by an investment treaty should be seen as a continuation or transformation of the original investment and protected accordingly, following Saipem SpA v The People's Republic of Bangladesh (ICSID Case No ARB/05/07) and dismissing GAE Group Aktiengesellschaft v Ukraine (ICSID Case No ARB/08/16).
The Tribunal was satisfied that White's rights under the original contract were an investment as the definition of "investment" in the Treaty specifically included "right to money or to any performance having a financial value, contractual or otherwise". It rejected India's contention that the term "investment" had an inherent meaning irrespective of the definition of "investment" in the relevant investment treaty (cf. Romak SA (Switzerland) v The Republic of Uzbekistan (PCA Case No AA280)), thus endorsing the prevalent view that in respect of claims outside the ICSID Convention there is no need to look further than the applicable investment treaty in order to establish whether there is a qualifying investment. In any event, the Tribunal was satisfied that White's investment satisfied the so called "Salini criteria" (ie contribution, duration, element of risk, regularity of profit and return and a contribution to the host State's economic development). These criteria are often applied to establish whether there is an investment for the purposes of Article 251 of the ICSID Convention.
Tribunal's findings - merits
It was only by invoking the Treaty's MFN clause, and, thus, importing the obligation to provide investors with effective means of asserting claims and enforcing rights from the India/Kuwait Treaty, that White was able to establish breach of the Treaty by India. Drawing on the deliberations of the Tribunal in Chevron Corporation (USA) and Texaco Petroleum Company (USA) v The Republic of Ecuador (UNCITRAL, PCA Case No 34877), the Tribunal noted that the effective means standard was an objective, international standard, distinct from, and potentially less stringent than, the test for denial of justice. For a finding of denial of justice, Tribunals typically look for bad faith on the part of the State or "a particularly serious shortcoming and egregious conduct that shocks, or at least surprises, a sense of judicial propriety" (eg the Chevron decision noted above). On the facts, the Tribunal held that it had no difficulty in concluding that the Indian courts' failure to resolve White's jurisdictional claim over a period of nine years and, in particular, the Supreme Court's delay in hearing White's appeal, amounted to a breach of India's obligation to provide White with effective means of asserting claims and enforcing rights. The Tribunal acknowledged that court congestion and backlogs were relevant factors to consider but did not accept that they constituted a complete defence.
All other claims advanced by White were dismissed. Claims founded on Coal India's conduct were dismissed because White had failed to show that India had both general control over Coal India as well as specific control over the particular acts and omissions in question. The fact that India had power over the appointment of Coal India's board of directors and that it could have and did in fact exercise control over its actions on other occasions was not considered sufficient. Consequently, the Tribunal held that Coal India's actions and omissions were not attributable to India.
The Tribunal found that India's undertaking in the Treaty to encourage and promote favourable conditions for foreign investors did not in itself require India to take positive, concrete steps in the interests of investors. The undertaking was insufficient to amount to a positive stand-alone commitment. This finding endorses the consensus amongst commentators that such provisions in investment treaties do not give rise to substantive rights for foreign investors, although there is at least one reported award in which a tribunal read a similar provision to give rise to such substantive rights (Award in an inter-State arbitration between Italy and Cuba, 2008). That somewhat obscure decision is not mentioned in the Award.
Although the Tribunal endorsed the decision in Saipem, where it was held that the Bangladeshi Supreme Court's annulment of an ICC award amounted to expropriation, it held that, on the facts, there had been no expropriation as the ICC award was not yet "taken" or set aside.
The Tribunal also dismissed White's claims founded on breach of the FET standard. White claimed, among other things, that India frustrated its legitimate expectations of proper and timely enforcement of New York Convention awards and transparency in court proceedings, and that the conduct of the Indian courts regarding the set aside and/or enforcement applications amounted to a denial of justice to White. While sympathetic to White's predicament, the Tribunal applied the principle that an investor must generally take a host State (including its court system) as it finds it, and held that, absent specific assurances by India, White could not have had the alleged legitimate expectations, and that the Indian proceedings were in any event sufficiently transparent. As for denial of justice, the Tribunal noted that the test was a stringent one and that, furthermore, public international law did not provide fixed time limits within which certain classes of cases must be resolved. In the event, it found that the delays in the Indian proceedings were not yet capable of constituting a denial of justice, particularly given that India was a developing country with an overstretched judiciary.
Tribunal's findings - compensation
Before considering the amount of compensation, the Tribunal conducted a substantive review of Coal India's set aside application and motion to resist enforcement in light of India's argument that, even if there was a breach of the Treaty, White was not entitled to any compensation as it had not demonstrated that Coal India's application and motion had no prospect of success. Having found that an Indian court, acting reasonably and complying with India's international obligations, would have established that the ICC award should not be set aside and should be enforced, the Tribunal ordered India to pay White the original amounts payable under the ICC award plus interest.
Comment
This decision highlights the possibility of using investment treaty arbitration as an alternative route for enforcing commercial awards in circumstances where the foreign investor's efforts are frustrated by delays in local courts. While a claim based on denial of justice may be difficult to establish, it may suffice to rely on breach of the effective means standard, which is potentially easier to establish. As the decision illustrates, it may be enough when the effective means standard is contained in another treaty of the host State as an investment treaty will usually contain an MFN clause which will allow the foreign investor to rely on a substantive standard contained in the other treaty. However, other tribunals may not regard a commercial award as a continuation of the original investment as readily as the Tribunal in this case. Of course UNICTRAL awards have no formal precedent value although in practice they can be followed.
Although this award could meet a similar fate to the ICC award, the key advantage for White is that it can seek to enforce this award against Indian assets outside of India as opposed to merely against the assets of its former contractual counterparty, Coal India. It appears that India has not sought to challenge the award in London or in India.
In the Indian context, this award is topical in light of the long-awaited appeal before the Supreme Court of India in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc & other consolidated appeals. A five-judge bench is revisiting a controversial line of judgments holding that the 1996 Act allows Indian courts to intervene in arbitrations seated outside India, just as the Calcutta High Court intervened in the underlying ICC award in this case. White and a number of other parties have been joined as petitioners in these proceedings. A&O is acting for one of the interested parties to the appeal.
Footnotes
(1) This award was made public in February 2012. The Tribunal consisted of J. William Rowley (Chairman), Charles N. Brower and Christopher Lau.
Further information
This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.
