Delineating Investor-State Arbitration: Delhi High Court's Vodafone Judgement

Yesterday's judgement by Manmohan, J. of the Delhi High Court in the civil suit by Union of India seeking a declaration and an injunction against the second investor-treaty arbitration invoked by Vodafone in its lengthy tax dispute with the Union of India is one of the clearest expositions of law in the recent times. The judgement, although a little lengthy (80 pages) is a must read for those who are interested in arbitration, be it commercial, investor-treaty, or otherwise.

The judgement should form a part of any reading material in Indian law schools on Investor-Treaty Law and Arbitration. The judgement can be accessed from this link.

For those who wish to read the judgement later but are curious to know what the judgement says, we quote the conclusion by Manmohan, J. which succinctly summarises the law on the subject:

"142. To conclude, investment treaty arbitration between a private investor and the host State, which results by following the treaty route is not itself a treaty, but is sui generis and recognized as such all over the world. It has its roots in public international law, obligations of States and administrative law. As a species of arbitrations, it is of recent origin and its jurisprudence cannot be said to be settled or written in stone; far from it. Investment Treaty jurisprudence is still a work in progress. 

143. However, there is some disquiet over the spectrum of nations both developed and developing as to the spiraling consequences of investment awards and its impact on sovereign functions, as reflected in the speech of Mr. Justice Sundaresh Menon, Chief Justice of Singapore on International Arbitration : The Coming of New Age for Asia (and Elsewhere) (supra). 

144. It also cannot be said as an absolute proposition of law that the moment there is an investment treaty arbitration between a private investor and the State, National Courts are divested of their jurisdiction. The Court of Appeal in England in Republic of Ecuador (supra) rejected the argument that the Courts have no jurisdiction to interpret or apply unincorporated International treaties between an investor and a host State. Consequently, in the opinion of this Court, there is no legal bar over the subject matter of the suit. 

145. Further, Investment Arbitration disputes are fundamentally different from commercial disputes as the cause of action (whether contractual or not) is grounded on State guarantees and assurances (and are not commercial in nature). 

146. As the present case is not a commercial arbitration, the Act, 1996 shall not apply. This Court is of the view that in a situation where the Act, 1996 does not apply, its inherent powers are not circumscribed by anything contained in the Act and the ratio in McDonald (supra) will not apply. Even in commercial arbitration, the jurisprudence of minimum intervention is relatively of recent vintage. It has its roots in Article 5 of the Model Law of 1985 which then took fifteen to twenty years to gain traction and general acceptance in the body of nations. 

147. Notwithstanding, this limited intervention role, it is not unknown for Courts to issue anti arbitration injunction under their inherent power, especially when neither the seat of arbitration nor the curial law has been agreed upon. In Excalibur Ventures LLC (supra), the Court held that where he foreign arbitration was oppressive or unconscionable, the Court may exercise its power to grant an injunction. In fact, the said judgment cites seven cases which have upheld the Court‟s jurisdiction to restrain foreign seated arbitrations. 

148. Of course, it is a matter of practice that National Courts will exercise great self restraint and grant injunction only if there are very compelling circumstances and the Court has been approached in good faith and there is no alternative efficacious remedy available. Such a restrictive approach and jurisdiction is in consonance with any international obligation, India may have under VCLT or any other treaty. 

149. However, keeping in view the aforesaid findings vis-a-vis, the abuse of process, kompetenz-kompetenz issues, the present suit and application are dismissed with liberty to the Plaintiff-Union of India to raise the issue of abuse of process before India-United Kingdom BIPA, that now stands constituted... "