"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.

Friday, February 17, 2012

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: 
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. 

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
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.

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