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.