Sistema Sends a Notice under India-Russia Bilateral Investment Treaty to Settle Disputes Amicably

See this news item in the Hindu and this post in the International Law Curry blog providing information on the Notice sent by Sistema, a Russian Corporation alleging breach by India of the Agreement between the Government of Russian Federation and the government of the Republic of India for the Promotion and Mutual Protection of Investment dated 23.12.1994 (pdf) (India Russia BIT) and calling upon India to amicably settle the dispute between Sistema and India. Sistema's action comes after the licences of Sistema's affiliate Sistema Shyam TeleServices Ltd. (SSTL) in which Sistema owned about 56% stakes were declared illegal and quashed by a two judge Bench of the Supreme Court of India consisting of AK Ganguly & GS Singhvi, JJ. in Centre for PIL v. Union of India.

As per Article 9 of the BIT quoted below, where there is a dispute between an an Investor and a Contracting Party (in this case, India ) in relation to investments made in India concerning obligations under the BIT, the same is to resolved to the extent possible by amicable settlement and, if both parties agree, through conciliation under the UNCITRAL Conciliation Rules.In case such dispute cannot be amicably settled within six months from the date of dispute, the same shall be referred to arbitration under the UNCITRAL Arbitration Rules, 1976. Note that by virtue of Article 1(2) of the UNCITRAL Arbitration Rules, 2010, where an arbitration agreement is concluded prior to 15 August 2010, the 1976 version of the Rules would upply unless parties agree otherwise. Since Article 9 of the BIT does not refer to the UNCITRAL Arbitration Rules "currently in force", the 1976 Rules would apply. Relevant portions of Article 9 read:

"1. Disputes between an Investor of either Contracting Party and the other Contracting Party arising in relation to investments made in the territory of the State of the latter, concerning obligations under this Agreement, shall as far as possible be settled amicably including resort to, upon mutual agreement of the parties to the dispute, conciliation procedures under the Conciliation Rules of the United Nations Commission on International Trade Law (UNCITRAL).
2. If a dispute cannot be settled in such a manner within six months from the date either party to the dispute requested In writing amicable settlement, unless otherwise agreed to by both partie, the investor concerned may submit the dispute to an ad-hoc International arbitration tribunal set up in accordance with the Arbitration Rules of UNCITRAL..."

This seems to be a season for investment arbitration against India. See the previous posts in this blog on the White Industries investment arbitration against India. Sistem'a Press Release on the Notice can be accessed from this link. Considering the White Industries Investment arbitration and Sistema's recent action of invoking the dispute resolution provisions of the India Russia BIT, the Government of India might go ahead with its proposed action not to agree to arbitration clauses between Investor and the Government of India. Livemint in this news report states:

"As reported by Mint on 29 January, India is likely to exclude in bilateral trade pacts the clause that permits a foreign investor to sue the host country at an international dispute settlement agency. The department of industrial policy and promotion has, in principle, decided not to include such a condition. India had declined to include such a clause, also known as the investor-to-state dispute settlement mechanism, in negotiations over a trade pact with the European Union, Mint reported on 4 July. These negotiations are continuing."

We will follow this investment arbitration closely.

Reference of Disputes under Competition Act, 2002 to Arbitration: Delhi HC Says No

Union of India (UOI) v. Competition Commission of India (CCI), a case decided by the Delhi High Court on 23.02.2012 discusses the important issue of whether allegations relating to abuse of dominant position under Competition Law are arbitrable. 

Under Section 19(1) of the Competition Act, 2002 (hereinafter “2002 Act”), the Competition Commission (Commission) is given the discretion to conduct inquiry into an alleged contravention of Section 3(1) (relating to prohibition of anti-competitive agreements) or Section 4(1) (relating to prohibition of abuse of dominant position) on the basis of receipt of information along with fee from any person, consumer, consumer association or trade association.

An informant (Informant) had sent information to the Commission under Section 19(1) alleging that the Ministry of Railways and the Container Corporation of India (a Government of India Corporation primarily involved in container transportation through railroad) (CONCOR) had abused their dominant position. The allegations were that despite the Parent Company of the Informant entering into a Concession Agreement with Ministry and having invested Rs. 550 crores into the Project, the Ministry had abused its dominant position thereby contravening Section 4 of the 2002 Act. 

Section 26(1) of the 2002 Act empowers the Commission to order the Director General of the Commission to investigate if, based on the information supplied under Section 19(1), there is a prima facie case of contravention of Section 3(1) or 4(1). On the basis of the information supplied and after hearing the Informant, the Commission was of the view that there was a prima facie case and consequently, ordered the Director General to investigate into the matter (Order dt. 24.01.2011). The Director General took cognizance of the matter and issued notice to the Ministry of Railways. The said notice was challenged by a writ petition filed in the Delhi High Court raising several jurisdictional pleas. The petition was dismissed on 23.03.2011 on the ground that the Ministry could raise all those jurisdictional pleas even before the Commission.

Vide an application dt. 30.03.2011, the Ministry raised several jurisdictional objections before the Commission. The Ministry also prayed in the application that the jurisdictional objections should be decided first before going into the merits. Simultaneously, the Ministry moved an application under Section 8 of the Arbitration and Conciliation Act, 1996 (1996 Act) for referring the dispute to an arbitral tribunal in view of the arbitration clause in the Concession Agreement. The Commission dismissed the applications. According to the Commission, the scope of the proceedings under the 2002 Act relating to abuse of dominant position were completely different from an adjudication by an arbitral tribunal on the contractual rights of the parties. The Commission also relied Section 60 of the Act which gave an overriding effect to the 2002 Act "notwithstanding anything inconsistent therewith contained in any other law for the time being in force" and Section 62 by which it was provided that the 2002 Act "shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force". The jurisdictional objections on other grounds are not dealt with here. 

Against the dismissal order, the Ministry filed a writ petition before the Delhi High Court.

Contentions:

On Behalf of UOI (Ministry), it was contended that the issues raised before the Commission by Respondent 2 were contractual disputes which could be decided by the tribunal provided in the Concession Agreement. Additionally, it was also contended that since the railway transport industry was specifically reserved for the public sector under the Industrial Policy, 1991, the impugned acts were done in the exercise of sovereign functions. 

Apart from the jurisdictional objection that the writ petition was not maintainable for availability of adequate statutory remedy of appeal before the Competition Appellate Tribunal, it was contended by Respondent 2 that UOI was not discharging sovereign functions. 

Decision:

Vipin Singhi, J. of the High Court rejected the contentions of UOI. Its decision is summarized below:

• The 2002 Act is in addition to and not in derogation to any other law in force in India (Section 62). This is similar to Section 3 of the Consumer Protection Act, 1986 (1986 Act). A similar question arose under the Consumer Protection Act, 1986 in Fair Air Engineers v. NK Modi(1996) 6 SCC 385 wherein the Supreme Court observed that the 1986 Act provided an additional remedy.
• The nature of proceedings before the arbitral tribunal is different from that under the 2002 Act. Further, the focus of investigation by the tribunal is not the same as that of the Commission. The tribunal may not even go into the question of abuse of dominant position. Further, the arbitral tribunal is not the appropriate body to implement the 2002 Act for the following reasons:

o   It does not have the mandate to conduct an investigation under the 2002 Act.

o   The arbitral tribunal would not have the expertise or the resources for such an investigation

Consequently the court rejected the argument that the proceedings before the Commission are not maintainable in view of the arbitration clause. 

The judgement of the Delhi High Court in UOI v CCI can be accessed from here. The judgement came to the attention of this blawgger through this page in the website of Taxmann.

Opinions/ Editorials on the White Industries Investment Arbitration and its Implications

Mr. Prabash Ranjan, a PhD candidate in law, King's College, London and faculty member (on leave), NUJS has written a piece in the Financial Express on the implications of the White Industries award. The article can be accessed from here. Apart from the discussions on implications, the piece also critiques, perhaps rightly so, the Indian Government's silence on the award indicating lack of transparency.

Ms. Kumkum Sen, Partner, Bharucha & Partners discusses the award in this piece in the Business Standard. This article is more of a descriptive comment but concludes:

"There are whispers in the corridors of power that India has taken a decision to drop arbitration procedures, in all future BITs and CEPAS or make it specific to the treaty in hand – no more MFNs and grandfather clauses."

Part II: Comments on the Award in White Industries Investment Arbitration against India

In the last post we had listed the facts relevant to the investment arbitration between White Industries Australia Limited (WIAL) and the Government of India (India). In the next few posts, we would be dealing with the contentions of WIAL and India on several aspects. In this short post, we summarize the arguments of WIAL on whether it was an "investor" and whether it made the an "investment" for the purposes of the India Australia Bilateral Investment Treaty (BIT):

1. Article 1(d) of the BIT defines "investor" to mean:

"(i) in respect of India, a company or a national. A national is a person deriving status as an Indian national from the laws in force in India;
(ii) in respect of Australia, a company or a natural person who is a citizen or permanent resident of Australia. A permanent resident is a natural person whose residence in Australia is not limited as to time under its laws;"

WIAL is a "company" registered in Australia. "Company" is defined in Article 1(a) to mean "any corporation, association, partnership, trust or legally recognised entity that is duly incorporated, constituted, set up or otherwise duly organised (i) under the laws of a Contracting Party...". Since WIAL is a corporation duly incorporated under the laws of Australia, WIAL is an investor. Further, India does not dispute that WIAL is not an investor. Its case is only that WIAL has not made any "investment" as defined in the BIT.

2. As per Article 1(c) defines "investment" to mean: 

"every kind of asset, including intellectual property rights, invested by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and investment policies of that Contracting Party, and in particular, though not exclusively, includes:
(i) moveable and immovable property as well as other rights such as mortgages, liens, or pledges;
(ii) shares, stocks, bonds and debentures and any other form of participation in a company;
(iii) right to money or to any performance having a financial value, contractual or otherwise;
(iv) business concessions and any other rights required to conduct economic activity and having economic value conferred by law or under a contract, including rights to search for, extract and utilise oil  and other minerals;
(v) activities associated with investments, such as the organisation and operation of business facilities, the acquisition, exercise and disposition of property rights including intellectual property rights;"

 "Investment" is broadly defined to mean every kind of asset, tangible and intangible. WIAL's investment consists of (a) all of its contractual rights under the contract, (b) all of its rights in relation to the bank guarantee, (c) all of its rights under the ICC Award given in its favour and against Coal India. 

3. The term "investment" is broadly defined by the BIT. In interpretation of the definition of "investment", plain meaning and ordinary must be attributed to the words in the definition in order to see if the purported investment comes within the definition of the same under the BIT. If plain meaning is attributed to the words in the definition, it would be seen that the rights of WIAL stated above would specifically come within the purview of clauses (iii- right to money or to any performance having a financial value, contractual or otherwise;) and (iv-business concessions and any other rights required to conduct economic activity and having economic value conferred by law or under a contract, including rights to search for, extract and utilise oil and other minerals;) of the definition of "investment". The contract between WIAL and Coal India Limited (CIL) conferred a "right to money" and the right to "conduct economic activity". Further, the commitment extended to mere provision of equipment and services, it included provision of guarantees.

4. The Salini Test does not apply to the BIT because the said Test applied only in the context of the double jurisdiction requirement under the ICSID Convention (The arbitral tribunal's jurisdiction depended on whether there was an "investment" as defined in the BIT as well as for the purposes of the ICSID Convention). Therefore, the Salini test is applicable to arbitrations under the ICSID Conventions, as confirmed in Mytilineos Holdings SA v. State Union of Serbia and Montenegro and Republic of Serbia (pdf) (Para 117-118) .

5. Even if Salini test is applicable, WIAL had satisfied the same for the following reasons:
a. As per Agreement between WIAL and CIL (Contract), the coal mine was to be developed over a duration of five and a half years, the Contract duration was six years and CIL had the right to retain the bank guarantee for several years. 

b. There was an element of risk involved in the project for the below reasons:
i) As stated by the Salini tribunal, the coal mine project was akin to "a construction that stretched out over many years, which total cost cannot be established with certainty in advance, creates an obvious risk for the contract".
ii) It was entitled only to a fixed fee irrespective of the expenses incurred over the contractual term.
iii)WIAL was exposed to the risk of encashment of bank guarantees whose quantum was large and also to the risk of unlawful retention of bank guarantees 

iv) In case of failure to meet the contractual obligations, it was bound to pay a penalty to CIL
v) Its bonus entitlement under the contract was at risk
c. The requirement that the investment should have contributed to the Host State's economic development is no more necessary in investment treaty arbitration. Nevertheless, WIAL's investment met even this criteria: (i) Piparwar was initiated by India to enhance its coal production to more than twice its annual production; (ii) the study conducted by WIAL to improve the productivity of Piparwar was even approved by India's Public Investment Board; (iii) approval by India shows that project contributed to the development of India; 

d. WIAL maintained about 38 of its employees (mostly technical staff) in the Piparwar coal mine and provided substantial know-how in the implementation of project. WIAL also transferred technology in
respect of two crucial processes in the coal mine. In view of the above, WIAL had made an investment even as per the Salini test.

In the next post, we shall see India's response on WIAL's contention that it was an Investor and there was Investment.

Comments on the Award in White Industries Investment Arbitration Against India

We had written previously in this blog about the investment arbitration between White Industries (Australia) Ltd. against the Government of India. Following are the posts: 

• White Industries Investment Arbitration: Some More Info (On the Notice invoking Arbitration under the India Australia Bilateral Investment Treaty and the Court Proceedings pertaining to Challenge and Enforcement of ICC Award)
• Investment Arbitration between White Industries Australia Limited and Government India under the India- Australia BIT (Background of the Dispute- Arbitration Proceedings in the ICC's International Court of Arbitration and the Court Proceedings pertaining to Challenge and Enforcement of the ICC Award) 
• Investment Arbitration against India under the Bilateral Investment Treaty between India and Australia (Compilation of information on the available media reports on the investment arbitration)

In a series of posts starting from this one, we'll discuss the award in the Investment Arbitration. In this post, we will state the facts of the investment arbitration. It is necessary to devote a separate post for the facts considering that those facts were found relevant by the tribunal in coming to its decision. In the next few posts, we will discuss the arguments of the parties. Thereafter, we will discuss the decision and reasoning of the tribunal. Although it is possible to provide a summary of the arbitral award in a single post, considering the implications of the award on resolution of commercial disputes in India, we deal with the award in detail. 

Facts:

According to the tribunal, most of the facts in the matter were "either agreed or not seriously disputed". The facts as per the tribunal are listed below:

• Coal India Limited (CIL) was a PSU responsible for the coal sector in India. Although CIL discharged purely commercial functions, it had to obtain prior approval of the Government of India (India) for projects whose capital requirements were beyond certain limit specified. 
• 1980s: Discussions were held between India and Australia regarding co-operation in the mining sector. The Australian government offered to finance India for particular projects. Indian officials visited Australia to inspect Australian mining technology. WIAL marketed its technology to the Indian delegation.
• 1988: Ministry of Coal (Ministry) requested WIAL CIL's subsidiary, Central Mine Planning and Design Institute Ltd. (CMPDI), to prepare a preparing feasibility report for the development of a coal mine at Piparwar. WIAL's assistance was sought by CMPDI to prepare the feasibility report. WIAL's "interest" in assisting CMPDI was to supply equipment for the Piparwar mine.
• 1989: Feasibility Reports were submitted to the Indian Government which approved the development of the mine. Government approval was required because the capital requirements were greater than the limits within which the Board of Directors could grant approval to a project. WIAL was informed by several officials of India that India was a safe place to invest, that WIAL would be treated fairly and Indian law was derived from English Law. Since CIL did not have the necessary funds to import equipment, Australian Trade Commission (ATC) facilitated funding to CIL from Export Finance and Insurance Corporation of Australia (EFIC). Such funding was available to a buyer where an Australian company had the potential to enter into a contract with the buyer. Discussions were held between CIL, WIAL, ATC and EFIC regarding terms of funding and importation of equipment. Officials from the Indian government did not participate in such discussions.
• 28.09.1989: WIAL entered into an agreement (Contract) with CIL with an objective of developing an open cast mine "under Australia/ India Bilateral Assistance" (Article 2.1 of  the Contract). Approximate consideration for the same was AU$ 206.6 million. Recitals to the Contract provided: "Pursuant to Indo-Australian meeting on Coal held in November 1986 a proposal summary and financial offer was made by Australian Trade Commission ("AUTRADE / EFIC") in conjunction with WIL (selected by AUSTRADE/EFIC for the development of the project as Annexure I to this agreement during November 1987 for the supply of foreign equipment, and management of the local development of Piparwar Coal Mines... for Central Coal Fields Limited..., a subsidiary of CIL, India..."  The Contract provided for supply of equipment to CCL as well as technical services. 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." CIL also entered into a Credit Agreement with ATC-EFIC (Credit Agreement) wherein CIL was provided a soft loan for the Piparwar Project. The Credit Agreement notes that the loan was provided at the request of CIL. The Credit Agreement provided that on request of CIL to make available credit facility "to finance the Contract for import of foreign goods and services" EFIC agreed to make the credit facility available from which EFIC may make loans to CIL. Further, the Credit Agreement provided that each payment made by EFIC to CIL constituted a loan and that CIL had irrevocably authorised EFIC "to make payments of proceeds of each disbursement in Australian currency at the Exchange Rate to or at the direction of [WIAL] or into [WIAL's] account." 
• 1999: Disputes arose between CIL and WIAL  in relation to levy by CIL of penalty and entitlement of WIAL to bonus 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. CIL did not agree to WIAL's contention that WIAL was entitled to bonus and encashed the bank guarantee for approximately AU$2.77 million.
• 28.06.1999: 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.
• 27.05.2002: 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	Amount
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

• 06.09.2002: Application by CIL to Calcutta High Court under Section 34 of the Act (AP No. 290/2002) challenging the ICC Award.
• 11.09.2002: WIAL applied to the Delhi High Court to have the ICC Award enforced (ExP No. 199/2002)
• 24.10.2002: WIAL Application to the Supreme Court of India to have AP No. 290/2002 transferred from the Calcutta High Court to the Delhi High Court.[TP(C) 877/2002)]
• 29.10.2002: In TP(C) 877/2002, the Supreme Court stayed the proceedings before the Calcutta High Court in AP No. 290/2002). (order)
• 20.01.2003: WIAL withdrew TP(C) 877/2002 and the petition was consequently dismissed (order). WIAL's Notice of Arbitration mentions the court's advice of its inclination to dismiss the petition as the reason for its withdrawal.
• 10.03.2003: Application by WIAL (GA 934/2003) before the Calcutta High Court to dismiss AP No. 290/2002.
• 27.11.2003: GA 934/2003 was rejected by a Single Judge of the Calcutta High Court (judgement)
• 15.12.2003: Appeal filed APOT 719/2003 from the decision of the Single Judge in GA 934/2003
• 07.05.2004: Appeal APOT 719/2003 was dismissed by the Division Bench
• 31.07.2004: Special Leave Petition 18883/2004 filed against the decision in APOT 719/2004 before the Supreme Court.
• 9.09.2004: The Supreme Court ordered that the appeal be heard along with another matter, Civil Appeal 339/2003 [Nirma Ltd. v. Lurgi Energie Und Entsorgung GmbH- the matter was dismissed for becoming infructuous on 07.01.2007- see order]
• 09.03.2006: Delhi High Court stayed proceedings before it.
• 03.04.2007: In view of the dismissal of Civil Appeal 339/ 2003, the Supreme Court listed the matter alongwith Civil Appeal 7019/2005-Bharat Aluminium Co. v. Kaiser Aluminium- the Five Judge Bench matter that is currently reconsidering Bhatia International).
• 16.01.2008: the Civil Appeal 7019/ 2005 was heard by a Two Judge Bench which referred the matter to a Three Judge Bench.
• 10.12.2009, WIAL, through its counsel Mallesons Stephen Jaques, a leading law firm in Australia, based in Sydney, sent a draft notice of arbitration as per the UNCITRAL Arbitration Rules, 1976. In the covering letter to the Notice of Arbitration, addressed to the Prime Minister of India, Minister of State of Coal and the Minister of Law and Justice, WIAL contended:

  "By the action of its courts, and by the actions of Coal India Limited (an entity it controls), the Republic of India has breached the following obligations it owes to White Industries under the BIT:

  (a) the obligation, under Article 3 of the BIT, to afford fair and equitable White Industries' investment;
  (b) the obligation, under Article 9 of the BIT, to permit all funds of an investor related to an investment to be freely transferred without unreasonable delay and on a non-discriminatory basis;
  (c) the obligation, under Article 4 of the BIT to encourage and promote favourable conditions for investors making investments in India: and
  (d) the obligation, under Article 7 of the BIT, not to expropriate the investments of investors of the other Contracting Party except against fair and equitable compensation."

• 27.07.2010: The Notice of Arbitration was initiated on 27.07.2010 (The Notice of Arbitration mentioned in a previous post in this blog was a Draft Notice of Arbitration). On 09.11.2010, the arbitral tribunal was constituted.  In accordance with Article 12 quoted above, the arbitration was conducted in accordance with the UNCITRAL Arbitration Rules, 1976.

The fundamental issue before the arbitral tribunal consisting of the Hon'ble Charles N Brower (WIAL's nominee), Christopher Lau SC (India's nominee) and J William Rowley QC (presiding arbitrator/ chairman)was to determine "whether, and if so, the extent to which the Republic of India... has breached its obligations to [WIAL]... arising under the [India Australia BIT]". Article 12 of the said BIT provided for dispute resolution. Relevant portions of Article 12 provided:

"Settlement of disputes between an investor and a Contracting Party:
1. Any dispute between an investor of one Contracting Party and the other Contracting Party in relation to an investment of the former under this Agreement shall, as far as possible, be settled amicably through negotiations between the Parties to the dispute.
...
3. Should the Parties fail to agree on a dispute settlement procedure provided under paragraph 2 of this article or where a dispute is referred to conciliation but conciliation proceedings are terminated other than by signing of a settlement agreement, the dispute may be referred to Arbitration. The Arbitration procedure shall be as follows:
(a) if the Contracting Party of the investor and the other Contracting Party are both Parties to the Convention on the Settlement of Investment Disputes between States and Nationals of other States, 1965, and both Parties to the dispute consent in writing to submit the dispute to the International Centre for Settlement of Investment Disputes such a dispute shall be referred to the Centre;
(b) if both Parties to the dispute so agree, under the Additional Facility for the Administration of Conciliation, Arbitration and Fact-Finding Proceedings; or
(c) to an ad hoc arbitral tribunal by either Party to the dispute in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law, 1976, subject to the following provisions;
(i) The Arbitral Tribunal shall consists of three arbitrators. Each Party shall select an arbitrator. These two arbitrators shall appoint by mutual agreement a third arbitrator, the Chairperson, who shall be a national of a third State. All arbitrators shall be appointed within two months from the date when one of the Parties to the dispute informs the other of its intention to submit the dispute to arbitration;
(ii) If the necessary appointments are not made within the period specified in sub-paragraph (c)(i), either Party may, in the absence of any other agreement, request the President of the International Court of Justice to make the necessary appointments;
(iii) The arbitral award shall be made in accordance with the provisions of this Agreement;
(iv) The tribunal shall reach its decision by a majority of votes;
(v) The decision of the arbitral tribunal shall be final and binding and the Parties shall abide by and comply with the terms of its award;
(vi) The arbitral tribunal shall state the basis of its decision and give reasons upon the request of either Party;
(vii) Each Party concerned shall bear the cost of its own arbitrator and its representation in the arbitral proceedings. The cost of the Chairperson in discharging his or her arbitral function and the remaining costs of the tribunal shall be borne equally by the Parties concerned. The tribunal may, however, in its decision direct that a higher proportion of costs shall be borne by one of the two Parties, and this award shall be binding on both Parties...

WIAL was represented by Mallesons Stephen Jaques. India was represented by Vivek Tankha (Additional Solicitor General of India), Fox Mandal & Co., and Toby Landau QC. Note that Toby Landau QC had appeared on behalf of the Government of Pakistan before the English Courts in the Dallah Real Estate v. Pakistan matter (the case was ultimately decided by the UK Supreme Court  in favour of Pakistan).

Arbitration Proceedings:

On 15.11.2010, the Chairman of the Tribunal invited the parties to send a Draft Terms of Appointment (Terms) for the tribunal and to jointly suggest a timetable and a set of procedures for the conduct of the arbitration. The same was done by November end.

On 23.11.2010, the Claimant sent an Amended Notice of Arbitration, which according to it, constituted the Claimant's Statement of Claim in the arbitration.

After discussions with the parties, the Terms of Reference were finalised in January 2011. On 18.02.2011, India filed its Statement of Defence. Although, Singapore was to be the venue of arbitration initially, parties agreed to move the venue to London.

From the Claimant's side there were four witnesses while from India's side there were four witnesses, apart from an expert report by Retd. Justice BN Srikrishna. Parties mutually agreed that they would not cross examine each others' witnesses.

Oral hearings took place between 19.09.2011 to 21.09.2011. On 04.11.2011, the Tribunal declared (as per Article 29 of the UNCITRAL Rules 1976) that the proceedings as regards filing of submissions or documents were closed. The award was passed on 30.11.2011.

In the next few posts on this topic, we will discuss the contents of the pleadings of WIAL and India.

White Industries Investment Arbitration: Some More Info

Readers must have heard the news that White Industries Australia Limited (WIAL) has won the investment arbitration against India. News and details can be accessed from Investment Arbitration Reporter (or IA Reporter, which first broke the news), Blog Arbitration, International Law Curry Blog, Lex Arbitri Blog (containing an interview with Mr. Luke Eric Peterson of IA Reporter) and the Indian Express (daily news paper).

In this post, we mention a few details about the Investment Arbitration. The details posted here are from the Notice invoking Arbitration against the Government of India under the Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments dated 29 February 1999 (BIT). Readers are requested to refer to our previous post on the topic, which contains some background information relating to the original ICC Award which was sought to be enforced by WIAL and the first post in this blog on the arbitration.

Further Background of the Investment Arbitration:

In our previous post, we had given a summary of the ICC Arbitration (ICC Award) and the application in the Calcuta High Court by WIAL for  rejecting the petition filed by Coal India Limited (CIL) for setting aside the award under Section 34 of the Arbitration and Conciliation Act, 1996 (Act). We had also noted that the application was dismissed by the Calcutta High Court. The following events seem to have happened (source of info: websites of the courts and the Notice of Arbitration):

• 06.09.02: Application by CIL to Calcutta High Court under Section 34 of the Act (AP No. 290/2002)
• 11.09.02: WIAL applied to the Delhi High Court to have the ICC Award enforced (ExP No. 199/2002)
• 24.10.02: WIAL Application to the Supreme Court of India to have AP No. 290/2002 transferred from the Calcutta High Court to the Delhi High Court.[TP(C) 877/2002)]
• 29.10.02: In TP(C) 877/2002, the Supreme Court stayed the proceedings before the Calcutta High Court in AP No. 290/2002). (order)
• 20.01.03: WIAL withdrew TP(C) 877/2002 and the petition was consequently dismissed (order). WIAL's Notice of Arbitration mentions the court's advice of its inclination to dismiss the petition as the reason for its withdrawal.
• 10.03.03: Application by WIAL (GA 934/2003) before the Calcutta High Court to dismiss AP No. 290/2002.
• 27.11.03: GA 934/2003 was rejected by a Single Judge of the Calcutta High Court (judgement)
• 15.12.03: Appeal filed APOT 719/2003 from the decision of the Single Judge in GA 934/2003
• 07.05.04: Appeal APOT 719/2003 was dismissed by the Division Bench
• 31.07.04: Special Leave Petition 18883/2004 filed against the decision in APOT 719/2004 before the Supreme Court
• 29.09.04: The Supreme Court ordered that the appeal be heard along with another matter, Civil Appeal 339/2003 (Nirma Ltd. v. Lurgi Energie Und Entsorgung GmbH- the matter was dismissed for becoming infructuous on 07.01.2007- see order) 
• 09.03.06: Delhi High Court stayed proceedings befor it.
• 03.04.07: In view of the dismissal of Civil Appeal 339/ 2003, the Supreme Court listed the matter alongwith Civil Appeal 7019/2005-Bharat Aluminium Co. v. Kaiser Aluminium- the Five Judge Bench matter that is currently reconsidering Bhatia International).
• 16.01.08: the Civil Appeal 7019/ 2005 was heard by a Two Judge Bench which referred the matter to a Three Judge Bench.

On 10.12.2009, WIAL, through its counsel Mallesons Stephen Jaques, a leading law firm in Australia, based in Sydney, sent a notice of arbitration as per the UNCITRAL Arbitration Rules, 1976. In the covering letter to the Notice of Arbitration, addressed to the Prime Minister of India, Minister of State of Coal and the Minister of Law and Justice, WIAL contended:

"By the action of its courts, and by the actions of Coal India Limited (an entity it controls), the Republic of India has breached the following obligations it owes to White Industries under the BIT:

(a) the obligation, under Article 3 of the BIT, to afford fair and equitable White Industries' investment;
(b) the obligation, under Article 9 of the BIT, to permit all funds of an investor related to an investment to be freely transferred without unreasonable delay and on a non-discriminatory basis;
(c) the obligation, under Article 4 of the BIT to encourage and promote favourable conditions for investors making investments in India: and
(d) the obligation, under Article 7 of the BIT, not to expropriate the investments of investors of the other Contracting Party except against fair and equitable compensation."

Dispute Resolution Clause of the BIT:  

Article 12 of the BIT provided:

"Settlement of disputes between an investor and a Contracting Party:
1. Any dispute between an investor of one Contracting Party and the other Contracting Party in relation to an investment of the former under this Agreement shall, as far as possible, be settled amicably through negotiations between the Parties to the dispute.
2. Any such dispute which has not been amicably settled may, if both Parties agree, be submitted;
(a) for resolution, in accordance with the law of the Contracting Party which has admitted the investment to that Contracting Party's competent judicial or administrative bodies; or
(b) to international conciliation under the Conciliation Rules of the United Nations Commission on International Trade Law.
3. Should the Parties fail to agree on a dispute settlement procedure provided under paragraph 2 of this article or where a dispute is referred to conciliation but conciliation proceedings are terminated other than by signing of a settlement agreement, the dispute may be referred to Arbitration. The Arbitration procedure shall be as follows:
(a) if the Contracting Party of the investor and the other Contracting Party are both Parties to the Convention on the Settlement of Investment Disputes between States and Nationals of other States, 1965, and both Parties to the dispute consent in writing to submit the dispute to the International Centre for Settlement of Investment Disputes such a dispute shall be referred to the Centre;
(b) if both Parties to the dispute so agree, under the Additional Facility for the Administration of Conciliation, Arbitration and Fact-Finding Proceedings; or
(c) to an ad hoc arbitral tribunal by either Party to the dispute in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law, 1976, subject to the following provisions;
(i) The Arbitral Tribunal shall consists of three arbitrators. Each Party shall select an arbitrator. These two arbitrators shall appoint by mutual agreement a third arbitrator, the Chairperson, who shall be a national of a third State. All arbitrators shall be appointed within two months from the date when one of the Parties to the dispute informs the other of its intention to submit the dispute to arbitration;
(ii) If the necessary appointments are not made within the period specified in sub-paragraph (c)(i), either Party may, in the absence of any other agreement, request the President of the International Court of Justice to make the necessary appointments;
(iii) The arbitral award shall be made in accordance with the provisions of this Agreement;
(iv) The tribunal shall reach its decision by a majority of votes;
(v) The decision of the arbitral tribunal shall be final and binding and the Parties shall abide by and comply with the terms of its award;
(vi) The arbitral tribunal shall state the basis of its decision and give reasons upon the request of either Party;
(vii) Each Party concerned shall bear the cost of its own arbitrator and its representation in the arbitral proceedings. The cost of the Chairperson in discharging his or her arbitral function and the remaining costs of the tribunal shall be borne equally by the Parties concerned. The tribunal may, however, in its decision direct that a higher proportion of costs shall be borne by one of the two Parties, and this award shall be binding on both Parties.
4. Once an action referred to in paragraphs 2 and 3 of this Article has been taken, neither Contracting Party shall pursue the dispute through diplomatic channels unless:
(a) the relevant judicial or administrative body, the Secretary General of the Centre, the arbitral authority or tribunal or the conciliation commission, as the case may be, has decided that it has no jurisdiction in relation to the dispute in question; or
(b) the other Contracting Party has failed to abide by or comply with any judgement, award, order or other determination made by the body in question." (emphasis supplied)

In the covering letter referred to above, the Claimant stated that by that letter, the negotiation period of six months as provided in Article 13.2 of the BIT commenced. It must be noted that Article 12 does not provide for any period for which parties must amicable settle their disputes. Article 13 (Disputes Between Contracting Parties)  provides:

"2. If a dispute between the Contracting Parties cannot thus be settled within six months of one Contracting Party receiving a request in writing for such negotiations or consultations, it shall upon the request of either Contracting Party be submitted to an arbitral tribunal. Arbitration proceedings shall be instituted upon notice being given through the diplomatic channel by the Contracting Party instituting such proceedings to the other Contracting Party."

Contracting Parties is defined in the BIT to mean the Government of India and the Government of Australia. Thus, 13.2 applied only to disputes between both the Governments and not between an Investor and a Contracting Party.

"Investor" and "Investment":
WIAL's contention was that it was an investor and the contractual rights under the contract with CIL, the rights in relation to bank guarantee provides as security for performance in the contract and the rights in the award constituted its investment.

Breach of Obligations by India:
As stated above, WIAL's notice mentions that India was in breach of the obligations under the BIT on four counts, which are detailed below:

According Fair Treatment to Investors (Article 3):Article 3 (Promotion and Protection of Investments) provided:

"1. Each Contracting Party shall encourage and promote favourable conditions for investors of the other Contracting Party to make investments in its territory. Each Contracting Party shall admit such investments in accordance with its laws and investment policies applicable from time to time.
2. Investments or investors of each Contracting Party shall at all times be accorded fair and equitable treatment.
3. A Contracting Party shall, subject to its laws, accord within its territory protection and security to investments and shall not impair the management, maintenance, use, enjoyment or disposal of investments."

WIAL's complaint was that India frustrrated the legitimate expectation of WIAL that India would apply the New York Convention "properly and in accordance with generally accepted international standards" and WIAL's legitimate expectation that the ICC Award would be allowed enforcement in a fair and timely manner was breached. Therefore, WIAL contended that it was denied fair and equitable treatment.

Breach of obligation to permit all funds of an investor related to an investment to be freely transferred without unreasonable delay and on a non-discriminatory basis:Article 9 of the BIT provided:

"1. Each Contracting Party shall permit all funds of an investor of the other Contracting Party related to an investment in its territory to be freely transferred, without unreasonable delay and on a non-discriminatory basis. Such funds may include: (a) Capital and additional capital amounts used to maintain and increase investments; (b) Returns; (c) Repayments of any loan, including interest thereon, relating to the investment; (d) Payment of royalties and services fees relating to the investment; (e) Proceeds from sales of their shares; (f) Proceeds received by investors in case of sale or partial sale or liquidation; (g) The earnings of citizens/nationals of one Contracting Party who work in connection with investment in the territory of the other Contracting Party; (h) Compensation for loss payments made pursuant to Article 8.
2. Unless otherwise agreed to between the Parties, currency transfer under paragraph 1 of this Article shall be permitted in the currency of the original investment or any other convertible currency. Such transfer shall be made at the prevailing market rate of exchange on the date of transfer."

WIAL contended that since CIL improperly encashed the bank guarantee it had submitted and had improperly retained funds, this amounted to breach of India's obligation under Article 9 to permit all funds of WIAL related to an investment to be freely transferred without unreasonable delay and on a non-discriminatory basis

Obligation to encourage and promote favourable conditions for investors making investments in India: Article 4 of the BIT provided (treatment of Investments):

"1. Each Contracting Party shall, subject to its laws, regulations and investment policies, grant to investments made in its territory by investors of the other Contracting Party treatment no less favourable than that which it accords to investments of its own investors.
2. A Contracting Party shall at all times treat investments in its own territory on a basis no less favourable than that accorded to investments of investors of any third country.
3. In addition each Contracting Party shall accord to investors of the other Contracting Party treatment, with respect to the management, maintenance, use, enjoyment or disposal of investments, which shall not be less favourable than that accorded to investors of any third state.
4. This Article shall not require a Contracting Party to extend to investments any treatment, preference or privilege resulting from: (a) any customs union, economic union, free trade area or regional economic integration agreement to which the Contracting Party belongs; or (b) the provisions of a double taxation agreement with a third country; or (c) any legislation relating wholly or mainly to taxation."

WIAL alleged that if India had complied with Article 4 of the BIT,  it would not have (a) permitted CIL to improperly call upon CIL to encash the bank guarantee and improperly retain funds which CIL was entiteld to, (b) through its court, breach the New York Convention, and (c) through its courts, deny justice to WIAL through extraordinary delay in the legal proceedings.

Obligation not to expropriate except for reasonable and fair compensation: Lastly, it was contended that India was in breach of Clause 1 of Article 7 (Expropriation and Nationalisation) which provided:

"1. Neither Contracting Party shall nationalise, expropriate or subject to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as "expropriation") the investments of investors of the other Contracting Party except for a public purpose, on a non-discriminatory basis, in accordance with its laws and against fair and equitable compensation"

WIAL alleged that since courts of India were an organ of the Government of India and since India breached international law by acting contrary to the New York Convention (by permitting an award to be challenged in a place which was not the seat), India had deprived WIAL the right to have an international arbitral award enforced. This, according to WIAL, amounted expropriation.

Relief Claimed:

In view of the alleged breaches, WIAL claimed the following reliefs:

• a declaration that India was in breach of Articles 3, 4, 7 and 9 of the BIT
• a declaration that White Industries as a result of the breaches suffered losses and damage
• an order that India pay the amount to which WIAL was entitled as per the ICC Award plus expenses incurred on amicable settlement of the dispute, and interest on these amounts
• costs of the arbitration

The Covering Letter and the Notice of Arbitration can be accessed from here.

UNCITRAL's Monthly Bibliography: An Excellent Research Tool

Readers of this blog may be aware that we have been giving links to the monthly Bibliography published by the UNCITRAL on the recent writings related to UNCITRAL's work. In this post, we discuss the importance of the Bibliography for researchers. The UNCITRAL bibliography is a must-use tool for research on any UNCITRAL related instrument. For some time UNCITRAL has been publishing it monthly. All those interested in Commercial/ Trade Laws might want to check it out on a monthly basis. To the extent possible, we will be providing links in this blog to the latest bibliography on a monthly basis. Check out the Bibliography Page of the UNCITRAL from this link. This page also gives links to the bibliography published since 1968. The latest bibliography (January 2012) can be accessed from here (pdf). LLM/PhD/Research candidates- Please don't miss this. Happy researching!