"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, January 23, 2012

Investment Arbitration between White Industries Australia Limited and Government India under the India- Australia BIT

In a previous post in this blog we had covered an investment arbitration between White Industries Australia Limited and the Government of India under the India Australia Bilateral Investment Treaty. An informal request for info to my practising friends has revealed that the Investment Arbitration has reached its final stages and only the award is yet to be passed (Thanks to Deepak Raju of the Lex Arbitri Blog). The purpose of this post is to give certain background facts in relation to the reason for White Industries to invoke arbitration. 

Coal India Limited (CIL) and White Industries Australia Limited (WIAL) signed an agreement in September 1989 for the turnkey development of the Open-cast Coal Mine at Piparwar. An Open-cast mine is an excavation made on the surface of the ground for extracting coal and is open and accessible from the ground surface during the life of the mine (source).  Article 3, Part II of the Agreement contained the arbitration clause, which read:
"3.1 The Parties mutually agree that in the event of a dispute of any nature whatsoever, related directly or indirectly to this Agreement, they shall use every means at their disposal to settle said dispute on an amicable basis.
3.2 Should the Parties fail to reach an agreement within thirty (30) days after the dispute arises or any such greater period as may be mutually agreed upon, the dispute may be submitted by either Party to Arbitration for final settlement under the rules of conciliation and arbitration of the International Chamber of Commerce. Paris. France, by one or more arbitrators appointed in accordance with the Rules.
3.3 Said arbitration shall be held in and be conducted in the English language.
3.4 The Parties mutually agree that if the decision rendered as a result of the aforementioned conciliation or arbitration involves the payment of compensation, the amount of such compensation shall be expressed and payable in dollars.
3.5 Both Parties shalf make endeavours not to delay the arbitration proceedings. The decision of the arbitrator(s) shall be final and binding on both parties.Enforcement thereof may be entered in any court having jurisdiction."
Article 4.1, Part III of the Agreement provided that the Agreement was to be governed by the "laws in force in India except that the Indian Arbitration Act of 1940 shall not apply."

Disputes arose between CIL and WIAL  in relation to levy by CIL of penalty as contemplated under the Agreement.. The relevant clause provided that in case the proof of production of coal was more than the guaranteed production, WIAL would be entitled to bonus as per a pre-determined formula and if the proof of production of coal was lesser than the guaranteed production, WIAL shall be liable for the payment of penalty, again, as per a pre-determined formula.

Since the parties could not amicably settle the dispute, WIAL filed a Request for Arbitration with the Secretary General of the ICC's International Court of Arbitration (ICA) in July 1999. WIAL appointed Trevor Morling QC as its arbitrator. CIL nominated Justice BP Jeevan Reddy  as its arbitrator. The Chairman of the Tribunal- Max Abrahamson- was appointed by the ICA in November 1999. The seat of arbitration was Paris but the hearings were held for convenience in London. The award was passed in May 2002. The tribunal held that WIAL was entitled to a bonus of AU $ 2,281,600 and was also liable for a penalty of AU $ 969,060. The tribunal (with Justice BP Jeevan Reddy dissenting) found that in total (including the bank guarantee amount), WIAL was entitled to AU $ 4,085,180 and interest at 8% per annum. The details of the award are below:

Award Particulars
Net sum entitled
AU $ 4,085,180.00
Interest at 8% per annum
AU $ 326,814.40
Legal and other Costs
AU $ 500,000.00
Arbitrator and ICC fee (after set off)
US $ 84,000.00

A scanned copy of the award can be accessed from here (pardon the badly scanned award).

CIL filed an application under Section 34 r/w Section 48 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award (AP. No. 290/ 2002). WIAL filed an application in the said proceedings (GA 934/ 2003) for rejection of AP. No. 290/ 2002 on the basis of the following grounds:
  • Parties had agreed that Arbitration Act, 1940 would not be applicable to the arbitration
  • There was no provision in the 1996 Act for setting aside foreign awards.
  • Part I of the Act containing Section 34 was applicable only in respect of domestic awards
  • The Indian Arbitration law was not applicable and the French Arbitration Law was applicable
The above were countered by CIL on the ground that procedural law of the place of award applied only till the arbitration proceedings ended.

Relying upon certain observations made in Sumitomo Heavy Industries v. ONGC  Bhatia International and Nirma v. Lurgie Energie, the Calcutta High Court held that the application filed by CIL under Section 34 was maintainable. The judgement of the High Court in GA 934/ 2003 can be accessed from here (again, pardon the badly scanned judgement). An appeal before a Division Bench of the Calcutta High Court by WIAL was rejected. Further appeal to the Supreme Court (CA 6284/ 2004) has not yet been decided. The said matter is being heard by the Supreme Court along with Bharat Aluminium v. Kaiser Aluminium, the case in which the Supreme Court has been asked to re-consider Bhatia International. The latest order in the matter can be accessed from here.

More on the investment arbitration in another post.

[The award and the judgement of the Calcutta High Court in GA 934/ 2003 were obtained through an application dated 06.10.2011 under the Right to Information Act, 2005 from Coal India Limited. Although this blawgger had asked for the judgement of the Division Bench in the application, Coal India Limited had given the judgement in GA 934/ 2003 by mistake. In any case, Coal India Limited was prompt in responding to the request for information. This blawgger's application was received only on 31.10.2011 by Coal India Limited. They sent a Reply dated 22.11.2011 asking this blawgger to pay some money for the photocopying. After receiving this blawgger's fee on 12.01.2012, Coal India sent a letter dated 17.01.2012 providing the documents. In all, Coal India took not more than 30 days to respond to the request. This blawgger profuesely thanks the CPIO, Coal India Limited for the prompt response.]


Sumit Rai said...

This post is a testament to your commitment to acurate and comprehensive research for each post. I am yet to come across Poanother blog with such commitment. Many thanks

Badrinath Srinivasan said...

Thanks for the inspiring comment, Sumit. Will try to improve on the range and the depth of topics covered here.