"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.

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).

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