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.