"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.

Thursday, April 26, 2012

NLSIR Symposium on Corporate Mergers and Acquisitions

See below the NLSIR Symposium announcement on "Corporate Mergers and Acquisitions in India:
Recent Regulatory Changes".

The National Law School of India Review (NLSIR) - the flagship journal of the National Law School of India University, Bangalore is pleased to announce the V NLSIR Symposium on "Corporate Mergers and Acquisitions in India: Recent Regulatory Changes" scheduled to be held on May 5 and 6, 2012 at the National Law School campus, Bangalore. Confirmed speakers for the symposium include renowned legal luminaries such as Hon’ble Mr. Justice V. Ramasubramanian (Judge, Madras High Court), Mr. Dhanendra Kumar (Former Chairman, Competition Commission of India), Mr. Uday Holla (Senior Counsel, Karnataka High Court), Mr. Nishith Desai (Nishith Desai Associates), Mr. V. Umakanth (Assistant Professor, National University of Singapore), Mr. Sandip Bhagat, Mr. Rajat Sethi (Partners, SNR), Mr. Somasekhar Sundaresan (Partner, J Sagar Associates), Mr. Ajay Vohra (Managing Partner, Vaish Associates), and Mr. K. Swaminathan (Director - Direct Tax and Transfer Pricing Litigation, Delloitte Haskins and Sells), amongst others.

This year, the discussions will be divided into four panels: 
Session I: The Competition Regime Governing Transaction of Business in Combinations 
(Forenoon, May 5, 2012, Saturday)

Session II: Takeover Regulation in India: Liberalisation with Caution
(Afternoon, May 5, 2012, Saturday)

Session III: Cross-border Mergers and India’s Taxation Regime
(Forenoon, May 6, 2012, Sunday)

Session IV: Companies Bill, 2011: Indian Company Law at the Cross-roads
(Afternoon, May 6, 2012, Sunday)
Registration fee for the symposium is Rs. 500 for students and Rs. 1500 for others.

For more details including the concept note, program schedule and online registration, please visit:  http://www.nlsir.in/symposium.html.

For regular updates, also see our Facebook page: http://www.facebook.com/NationalLawSchoolOfIndiaReviewSymposium2012?ref=ts

For further information, please contact Krishnaprasad K.V. (Chief Editor): +91-9916589670; Ashwita Ambast (Deputy Chief Editor):  +91-9986478265 or email us at mail.nlsir@gmail.com.

Wednesday, April 25, 2012

Indian Journal of Arbitration Law: Call for Papers

See the below call for papers from the Indian Journal of Arbitration Law
 
The Indian Journal of Arbitration Law is a biannual, student reviewed e-journal launched by the Centre for Advanced Research and Training in Arbitration Law of National Law University, Jodhpur.

National Law University, Jodhpur, one of the premier national law institutions in India, is taking successful initiatives for the promotion of areas related to the specialized fields of law. To strengthen the promotion of knowledge, research and legal interaction in the subject of arbitration law, it has established the Centre for Advanced Research and Training in Arbitration Law. The Indian Journal of Arbitration Law is the one such initiative of this centre towards the development of this expert legal arena. 

The Journal strives to inculcate the prevalent theories in the field of arbitration with their practical relevance. The editorial board seeks to achieve this feat by including contributions from individuals with varied expertise of practicing arbitration and by focusing on developing trends. In this regard, the board would give due emphasis to the rich thought processes of students of law, who bring to the forefront the innovative academic research currently underway in most law schools all over the world. Inclusion of changing regional trends will play a vital part in understanding the scope and extant of this discipline and would therefore find due importance in the Journal.

The Indian Journal on Arbitration is pleased to announce its inaugural edition, which is to be published in July this year.

The theme for the inaugural edition would be: “India's tryst with Arbitration: Are we heading in the right direction?”

The Board of Editors cordially invites original, unpublished submissions for publication in the following categories:
  • Articles
  • Notes
  • Comments
  • Book Reviews
For details regarding publishing policy and guidelines please visit http://nlujodhpur.ac.in/call_for_papers.php

Manuscripts may be submitted via email.

In case of any further queries, please contact the editors at: editor.cartal@nlujodhpur.ac.in

Last Date for Submissions: 15 June, 2012

Wednesday, April 18, 2012

Updates on Investor-State Arbitration: Frontier Petroleum

Image from here
We had, in a previous post, given justifications for not following Investor-State Arbitrations. The main reason why we have not done it so far is because of time constraint: if we begin to deal with non-commercial arbitrations, the focus on commercial arbitration, which is the primary area of focus in this blog, would be lost. However, considering the recent White Industries arbitration and other Investor-State arbitrations invoked against India, lawyers and law students in India cannot afford to ignore the developments taking place in Investor-State arbitration. More importantly, after White Industries, an award which cannot be enforced due to prolonged challenge proceedings pending in India, can be indirectly enforced through a BIT. This development has led to another mode of enforcing, albeit indirectly, a commercial arbitral award. For these reasons, we plan to provide monthly updates of the important developments in Investor-State arbitration. 

Although this post would not be a monthly roundup, we thought we'll provide details of the the final award in Frontier Petroleum Services Ltd. v. The Czech Republic which is more or less similar to the White Industries case but the conclusions are diametrically opposite. Another interesting aspect of Frontier Petroleum  is the holding that the tribunal can review whether the interpretation afforded by the local courts to "public policy" under the New York Convention was arbitrary or discriminatory. Does this mean that the tribunal can hold invalid a substantively broader interpretation of the notion of public policy? The Award elaborates on this aspect. Considering that an award set aside on the ground of public policy of the seat can be questioned under the BIT, this decision should be interesting for the followers of Investor-State Arbitration as well as the followers of commercial arbitration. Several grounds raied in Frontier Petroleum such as fair and equitable treatment, obligations to provide full protection and security have also been raised in the Notice of Dispute given by Vodafone International Holdings BV (see here for more details on the Notice. We quote the relevant portions of the Award in extenso to aid those who would not have the time to go through the 192 page award. For those who want to, we have posted the link to the Award at the end of the post. Happy Reading!

Frontier Petroleum Services Ltd. v. The Czech Republic:
Date of Award: 12 November 2010
Tribunal: David A.R. Williams QC, Presiding Arbitrator, Henri Alvarez QC, & Christoph Schreuer
Registry: Permanent Court of Arbitration
Aspects in the Award:
  • Jurisdictional objections- when to be made and waiver of right, interpretation of Article 21(3) of the UNCITRAL Arbitration Rules 1976
  • Meaning of "Measure"
  • Failure to enforce arbitral award as a breach of the BIT ["The Tribunal also notes that Article 1(a) of the BIT provides that “[a]ny change in the form of an investment does not affect its character as an investment”. Accordingly, by refusing to recognise and enforce the Final Award in its entirety, the Tribunal accepts that Respondent could be said to have affected the management, use, enjoyment, or disposal by Claimant of what remained of its original investment."]
  • Obligation to Provide Full Protection and Security ["The wording of these full protection and security clauses suggests that the host state is under an obligation to take active measures to protect the investment from adverse effects that stem from private parties or from the host state and its organs. The mere fact, however, that the investor lost its investment is insufficient to demonstrate a breach of full protection and security. In a number of cases tribunals have suggested that the standard of full protection and security applies exclusively or preponderantly to physical security and to the host state's duty to protect the investor against violence directed at persons and property stemming from state organs or private parties. But, there are also authorities which show that the principle of full protection and security extends beyond protection against physical violence to legal protection for the investor. it is apparent that the duty of protection and security extends to providing a legal framework that offers legal protection to investors – including both substantive provisions to protect investments and appropriate procedures that enable investors to vindicate their rights. In this Tribunal’s view, where the acts of the host state’s judiciary are at stake, “full protection and security” means that the state is under an obligation to make a functioning system of courts and legal remedies available to the investor. On the other hand, not every failure to obtain redress is a violation of the principle of full protection and security. 
  • Creation of Favourable Conditions and Fair and Equitable Treatment ["The typical situations [under this head] most relevant to the present case are (i) protection of the investor’s legitimate expectations; (ii) procedural propriety and due process; and (iii) action in good faith. identify some concrete principles. The typical situations most relevant to the present case are (i) protection of the investor’s legitimate expectations; (ii) procedural propriety and due process; and (iii) action in good faith... To assess whether court delays are in breach of the requirement of a fair hearing, [the aspects to be taken] into account [are] the complexity of the matter, whether the Claimants availed themselves of the possibilities of accelerating the proceedings, and whether the Claimants suffered from the delay...  In order to constitute a breach of fair and equitable treatment on the grounds of procedural impropriety and a lack of due process or bad faith, other tribunals have considered factors including a failure to hear the investor, lack of proper notification, persistent appeals to local favouritism, and denial of access to the courts... The refusal of the bankruptcy courts to recognise and enforce the first and second orders granted in the Final Award on the ground that doing so would be contrary to Czech public policy appears consistent with Czech law. Hence it is open for this Tribunal to find in light of all the evidence, and it does so find, that the courts would not have come to a different conclusion had they given Claimant a hearing. This failure to provide a hearing had no bearing on the final outcome."]
  • Failure of Officials of the Host State to Assist Claimant, and Failure to Provide Means to Enforce Arbitral Award ["As to the Final Award, the Tribunal rejects Respondent’s argument that this Tribunal does not have the power to review the decision of a national court’s conception of the public policy exception under the New York Convention. The Tribunal’s role under this claim is to determine whether the refusal of the Czech courts to recognise and enforce the Final Award in full violates Article III(1) of the BIT. In order to answer this question, the Tribunal must ask whether the Czech courts’ refusal amounts to an abuse of rights contrary to the international principle of good faith, i.e. was the interpretation given by the Czech courts to the public policy exception in Article V(2)(b) of the New York Convention made in an arbitrary or discriminatory manner or did it otherwise amount to a breach of the fair and equitable treatment standard… It is a cardinal rule of the international law on denial of justice that erroneous decisions of national courts on questions of domestic law do not involve the international responsibility of the state. Therefore, even if Claimant could establish that Respondent incorrectlyapplied the New York Convention public policy exception, such an error of law would not amount to the denial of justice in breach of Article III of the BIT… As to the Final Award, the Tribunal rejects Respondent’s argument that this Tribunal does not have the power to review the decision of a national court’s conception of the public policy exception under the New York Convention. The Tribunal’s role under this claim is to determine whether the refusal of the Czech courts to recognise and enforce the Final Award in full violates Article III(1) of the BIT. In order to answer this question, the Tribunal must ask whether the Czech courts’ refusal amounts to an abuse of rights contrary to the international principle of good faith, i.e. was the interpretation given by the Czech courts to the public policy exception in Article V(2)(b) of the New York Convention made in an arbitrary or discriminatory manner or did it otherwise amount to a breach of the fair and equitable treatment standardArticle V(2)(b) of the New York Convention gives a competent authority in the country where recognition and enforcement is sought the discretion to refuse the recognition and enforcement of an arbitral award if the competent authority finds that the recognition or enforcement of the award would be “contrary to the public policy of that country… In the present case, this refers to the public policy of the Czech Republic. It is widely accepted that while the reference to “public policy” in Article V(2)(b) of the New York Convention refers to international public policy, it is nonetheless a reference to the particular national conception of international public policy that is relevant rather than to a conception of public policy that is in some way detached from the legal system at the place where recognition and enforcement is sought. States enjoy a certain margin of appreciation in determining what their own conception of international public policy is... Put another way, was the decision by the Czech courts reasonably tenable and made in good faith?"]
  • Costs under the UNCITRAL Arbitration Rules including costs expended towards the tribunal and cost of legal representation.
The Award can be accessed from here (pdf).

Saturday, April 14, 2012

Practical Academic Facebook Page

Check out the facebook page of the Practical Academic Blog. We'll keep posting business law related links, especially arbitration related links, on the page. Happy reading!

Tuesday, April 10, 2012

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

In the last post on this topic, we had dealt, in part, with the decision of of the arbitral tribunal in the Investor-state arbitration between White Industries Australia Limited (WIAL) and India under the India Australia BIT on whether there was an Investment by WIAL. In this post, we complete the descriptive comment of the decision of the tribunal on the said issue.

Salini Test:
10. The Salini Test, a more onerous test, was developed in the context of the definition of Investment under the ICSID Convention. Since the present case is not a case under the ICSID Convention, the Salini Test, the commentary of Douglas on the same and the decisions cited by India (which are all cases under the ICSID Convention) are not applicable.
11.  Even if it is assumed that the Salini test was applicable, WIAL has satisfied the same in view of the following:
(a) the substantial commitment of WIAL’s working capital, provision of bank guarantee, personnel, equipment, training, appointment of technical staff and more than hundred contractors,  transfer of technology, and know-how; (substantial commitment requirement)
(b) the coal mine was to be developed within sixty six months from the contract date. In actuality, it took eight years to complete the same. (duration requirement)
(c) Following risks were assumed by WIAL in relation to the project:
(i) WIAL was to be paid a fixed fee under the contract despite the project duration even if there was a substantial increase in project costs;
(ii) risk of invocation of AU$ 45 million worth bank guarantees;
(iii) risk of substantial penalty and risk of losing the bonus under the contract. (risk requirement)
(d) WIAL was to earn AU$ 206 million from the project (profit/ return requirement);
(e) The Piparwar coal mine project was initiated by the Government of India. Further increased production and refining of coal achieved by performance of contract were of direct benefit to the development of India (contribution to host state requirement).
Bank Guarantees as Investment
12. Although the bank guarantees in the case constituted an element of Investment of the Salini Test, the bank guarantees alone do not constitute Investment.
13. The bank guarantee does not give any substantive rights to WIAL and is not an Asset of WIAL
ICC Arbitral Award as Investment
14.  WIAL has been inconsistent in its submissions as regards the nature of the ICC award in its favour as an Investment. On the one hand, it has contended that since the award constitutes a right to money or to any performance having financial value or otherwise, it is Investment; on the other hand it has contended that the award itself is not an Investment but the award is a part of the original Investment.
15. WIAL’s former assertion that the award itself is an Investment is not correct. The latter, however, is. According to the tribunal in Saipem v. Bangladesh: “The rights embodied in the ICC Awarded were not created by the Award but arise out of the Contracts. The ICC Award crystallized the parties’ rights and obligations under the original contract.” Similar reasoning has been adopted in several other decisions.
16. India has cited the case of GEA Group AG v. Ukraine (para 161-162) where it was held that the ICC Award does not constitute Investment. The observations of the tribunal in that case is obiter dicta as the tribunal had concluded that the concerned agreements therein did not constitute Investment. Also, the said observations are incorrect in the light of the developing jurisprudence treating arbitral awards as Investments under BITs. As stated in the Chevron award (link above), an Investment, once established, continues to exist till its ultimate disposal.
17. Therefore the rights under the ICC Award are a part of WIAL’s original Investment and are subject to protection under the India-Australia BIT.
In the next post, we deal with the issue of whether the Tribunal had jurisdiction against the acts and omissions of Coal India Limited and the arguments of WIAL and India. Previous posts on this topic can be accessed from  here (Part I), here (Part II), here (Part III) and here (Part IV).

Saturday, April 7, 2012

Power to Award Interest on Interest: Matter referred to a Three Judge Bench

Recently, a two judge Bench of the Supreme consisting of RM Lodha & HL Gokhale, JJ in Hyder Consulting (UK) Ltd. v. Governor, State of Orissa [SLP (C) 29407/2010] has referred the question pertaining to whether an arbitral tribunal could award interest on interest. The question before the court in the case concerned whether an arbitral tribunal could award post-award interest on the sum of the claim along-with pre-award interest. It was argued before the court that there were conflicting judgements on this issue. 
 
In State of Haryana v. SL Arora & Co. (2010) 3 SCC 690 (SL Arora), it was held by a two judge Bench of the Supreme Court that the tribunal cannot award post-award interest on pre-award interest. On the other hand, in ONGC v. MC Clelland Engineers (1999) 4 SCC 327, McDermott International v. Burn Standard Co (2006) 11 SCC 181 and UP Co-operative Fund Ltd v. Three Circles (2009) 10 SCC 374, it was held that the tribunal could award post-award interest even on pre-award interest. In view of the conflicting decisions, the Supreme Court deemed it fit to refer the matter to the Chief Justice of India for the constitution of a Three Judge Bench to resolve the question. In addition, the court also referred the question of whether the tribunal can award post-award interest on costs.

Section 31(7) which reads below deals with the provision on award of costs in arbitration:
(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment.”
In SL Arora, the arbitrator awarded interest at 12% till the date of award (i.e., pre-award interest) on the claim and a post award interest on the claim and pre-award interest at 18% per annum. The said award was passed in June 2000. After the proceedings under Section 34 were dismissed, the party in whose favour the award was passed filed a petition in October 2004 for the execution of the award. In the execution petition, the execution petitioner claimed post-award interest at 18% on the claim amount as well as on the pre-award interest. The respondent in the execution proceedings contended that the arbitrator could not have awarded post-award interest on the pre-award interest. The court held that Section 31(7) does not empower the tribunal to order interest on interest for the following reasons:

(a) There is no reference in Section 31(7) to compound interest or inter4est on interest
(b) Section 31(7) does not require the interest accruing till the date of interest to be treated as a part of the principal for the purpose of calculating post-award interest.
(c) The said provision merely uses the words "a sum directed to be paid by an arbitral award shall carry interest" thereby indicating that interest shall be awarded only on the amount in the award and not pre-award interest. 

On the other hand, in McDermott, the Supreme Court held that it was within the discretion of the arbitral tribunal to grant post-award interest even on pre-award interest. [ONGC v. MC Clelland Engineers (1999) 4 SCC 327 and and UP Co-operative Fund Ltd v. Three Circles (2009) 10 SCC 374 may not be altogether relevant because these are decisions under the Arbitration Act, 1940.]

In view of the difference in views, the court referred the matter to the Chief Justice for decision by a three judge Bench. The order of the Court can be accessed from here.

Tuesday, April 3, 2012

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

In three posts, we commented on the arbitral award in the Investor-state arbitration between White Industries Australia Limited (WIAL) and India under the India Australia BIT. These posts can be accessed from here (Part I), here (Part II) and here (Part III). Part I dealt with facts as found relevant by the seven member arbitral tribunal. Part II dealt with the arguments of WIAL on the threshold issues as to whether it was an Investor and whether it made an Investment as per the BIT. Part III dealt with the arguments of India on the same.

Eight “principal questions” were formulated by the seven member arbitral tribunal. The first one was: “is White an “investor” in India and has it an “investment” pursuant to the BIT?”. In this post and the next on the topic, we summarise the decision of the tribunal on the first issue.

1. The issue as to whether WIAL is an Investor and whether there was Investment depends on answering of five questions: “(a) does White qualify as “Investor”; (b) where a contractual right is relied upon to establish an “investment, must the contract create rights in rem; (c) do White’s rights under the Contract qualify as “investment”; (d) do White’s rights under the Bank Guarantees qualify as an “investment”; and (e) do White’s rights under the Award qualify as an “investment”?

Does White Qualify as Investor?

2. 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;"
"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...".] 

2. India’s dispute is not that WIAL is not a company incorporated in Australia. Its dispute is that there is no investment by WIAL. Since WIAL is a company incorporated in Australia, it is an Investor for the purposes of the BIT.

Attributes of Investment under the BIT:

3. Investment is defined in Article 1(c) of the BIT 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;"
The proper approach in determining whether there was an Investment is “to consider the plain and ordinary meaning of the words used in the BIT in their context and in the light of its object and purpose and determine whether the matters relied on by White satisfy the definition employed in the BIT.

4. The below test for Investment as per Zachary Douglas is a general test applicable to all investment treaty claim regardless of the applicable rules of arbitration:
"Rule 22: The legal materialization of an investment is the acquisition of a bundle of rights in property that has the characteristics of one or more of the categories of an investment defined by the applicable investment treaty where such property is situated in the territory of the host State or is recognised by the rules of the host State’s private international law to be situated in the host State or is created by the municipal law of the host State."
"Rule 23: The economic materialisation of an investment requires the commitment of resources to the economy of the host State by the claimant entailing the assumption of risk in expectation of a commercial return."
Rule 22 is derived from the non-exhaustive examples of “assets” that constitute investment. Rule 23 deals with the economic characteristic of Investment and is nothing but what is known in common parlance as Foreign Direct Investment.

Whether Rights in Rem Alone Constitute Investment?

5. India’s position that only rights in rem constitute Investment is not tenable. The BIT contains no such restrictions. In fact, in the definition of Investment in BIT, the “right to money or to any performance having a financial value, contractual or otherwise” is a right inpersonem.WIAL had the right to money for the performance of its obligations under its contract with Coal India Limited (CIL).

Rights of WIAL under the Contract

6. Rights arising from contracts may amount to Investments as per BITs. In SPP v. Egypt (pdf), for example, the tribunal held:
Clearly those rights and interests were of a contractual rather than in rem nature. However, there is considerable authority for the proposition that contractual rights are entitled to the protection of international law and that the taking of such rights involves an obligation to make compensation therefor.”
7. Although India had contended that ordinary commercial contracts do not constitute investments, India has failed to produce case law or jurisprudence on the point.

8. The contract with CIL conferred a right to money to WIAL and the right to conduct an economic activity and both form a part of the definition of Investment under the BIT. WIAL’s contract extended beyond provision of equipment of services simiplicter.

9. In view of the definition of Investment under the BIT which include the rights of WIAL under the contract and in view of the decisions of other arbitral tribunals (such as the (all pdf links) Interim Award in Chevron Corp. v. Republic of Ecuador, Inmaris Perestroika Sailing Maritime Services v. Ukraine, ATA Construction Co. v. Jordan, Southern Pacific Properties v. Egypt, Tokios Tekeles v. Ukraine, Impregilo v. Pakistan, Bayindir Insaat etc v. Pakistan, Eureko v. Poland), these in personem rights of WIAL constitute Investment as defined in the BIT.  

More on the decision of the tribunal on the same issue in our next post.