Commercial Reservation of New York Convention in India & Latest Developments in India's International Investment Treaty Practice

India was one of the founding signatories to the New York Convention, 1958, formally known as the Convention on Recognition & Enforcement of Foreign Arbitral Awards, 1958. The commercial reservation meant that the New York Convention insofar as applicable to India was only in respect of international commercial arbitration and not international investment arbitration.

This position was reiterated in Union of India vs. Vodafone Group Plc United Kingdom and Ors. (07.05.2018 - DELHC) : MANU/DE/1673/2018, where the Delhi High Court held:

"89. Also, though the BIPA constitutes an arbitration agreement between a private investor on the one side and the host State on the other, yet it is neither an International Commercial Arbitration governed by the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act, 1996") nor a domestic arbitration.

90. The Act, 1996 including Sections 5 and 45 thereof, do not apply proprio vigore to a BIPA..." 

BIPA referenced here was the UK Bilateral Investment Protection Agreement.

There have been numerous papers, etc. written on the lack of enforcement mechanisms of BIT awards in India. The Model BIT addresses this issue by holding:

"27.5 A claim that is submitted to arbitration under this Article shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention."

This provision has now found its place in various BITs signed since 2015-2016. For instance, the Belarus India BIT, 2018 states:

"27.5 A claim that is submitted to arbitration under this Chapter shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention."

Note that this BIT has been signed and is in force as well.

Similar provision exists in Article 27.5 of the India Kyrgyzstan BIT (2019) too, although it does not find any place in the Brazil India BIT, 2020 most likely because the Brazil India BIT does not provide for Investor-State Disputes. 

Thus, it appears that India has now sought to address the problem of enforceability of the BIT awards through recognition that BITs are "commercial" transactions for the purpose of the New York Convention, thereby retaining the Commercial Reservation but also by providing that BIT awards would be enforceable under Part II of the Arbitration and Conciliation Act, 1996, which deals with enforcement of foreign awards.

Slides of the Lecture Series on Introduction to International Law

In the previous post, we had listed out the lectures in the introductory lecture series on international investment law. We have been getting comments from many who have been watching those videos to post the content in a text document. Owing to constraints of time, we are not able to do so now. But, those interested can access the slides that were used for recording the videos. 

Links to these slides are given below (click on "link to the Slides" given against each Chapter.):

Chapter 0: Overview of Lectures: Lecture 0 (link to the Slides)

Chapter I: History & Nature of International Investment Law: Lectures 1 to 5 (link to the Slides)

• Lecture 1: Origins of International Investment Law before 1870 (click on the lecture name)
• Lecture 2: More About Origins & A Bit about Phase I
• Lecture 3: Inter-War Period & Evolution Thereafter
• Lecture 4: The Era of Dichotomy
• Lecture 5: The Eras of Proliferation and Reorientation

Chapter II: Investment Treaty/ Contract: Lectures 6 to 14 (link to the Slides)

• Lecture 6: Nature of Foreign Investment
• Lecture 7: What is Investment?
• Lecture 8: What is Investment? Part II
• Lecture 9: Who is an Investor?
• Lecture 10: Natural Persons as Investors
• Lecture 11: Legal Persons as Investors
• Lecture 12: Who is an Investor? Treaty Shopping
• Lecture 13: Shareholders as Investors
• Lecture 14: Elements of an Investment Treaty

Chapter III: Substantive Standards I: Lectures 15 to 27 (link to the Slides)

• Lecture 15: Fair & Equitable Treatment: An Introduction
• Lecture 16: Fair & Equitable Treatment: Preliminary Aspects
• Lecture 17: More on Fair and Equitable Standards
• Lecture 18: India and the FET Standard
• Lecture 19: Introduction to Full Protection and Security Standard
• Lecture 20: More on Full Protection and Security Standard
• Lecture 21: Full Protection & Security in LDA v India Arbitration
• Lecture 22: Non-Impairment Standard: An Introduction
• Lecture 23: More on the Non-Impairment Standard
• Lecture 24: The Umbrella Clause
• Lecture 25: More on the Umbrella Clause
• Lecture 26: Approaches to the Umbrella Clause
• Lecture 27: Nissan v India and the Umbrella Clause

Chapter IV: Substantive Standards of Protection II: Lectures 28 to 44 (link to the Slides)

• Lecture 28: Most Favoured Nation Standard
• Lecture 29: More on the MFN Standard
• Lecture 30: MFN & Procedural Rules
• Lecture 31: National Treatment
• Lecture 32: More on National Treatment
• Lecture 33: Some Features of National Treatment & the LDA Award
• Lecture 34: Expropriation
• Lecture 35: Direct and Indirect Expropriation
• Lecture 36: Ingredients of Indirect Expropriation
• Lecture 37: Indirect Expropriation: Some More Examples
• Lecture 38: Compensation for Expropriation
• Lecture 39: More on Compensation for Expropriation
• Lecture 40: Some More on Compensation for Expropriation
• Lecture 41: Use of DCF Methodology
• Lecture 44: Moral Damages in International Investment Law

Chapter V: Dispute Resolution in International Investment Law: Lectures 45 to 49 (link to the Slides)

• Lecture 45: Dispute Resolution in BITs
• Lecture 46: Recent Trends in Dispute Resolution: Brazil India BIT 2020
• Lecture 47: Local Exhaustion
• Lecture 48: Local Exhaustion II
• Lecture 49: A Bit More on ELR

Chapter VI: Recent Developments & Concluding Observations: Lectures 42-43 & 50 (link to the Slides)

• Lecture 42: Comment on the 10th Report of the Committee of External Affairs (2020-2021)- Part I
• Lecture 43: Comment on the 10th Report of the Committee of External Affairs (2020-2021)- Part II
• Lecture 50: Recent Developments & Concluding Observations

Happy Reading!

Lecture Series on Introduction to International Investment Law: (Lectures 1 to 50: Complete Lectures)

On 20 March 2021, almost ten months back, we began a lecture series introducing the topic of international investment law. With the 50th and the last lecture uploaded on 14 January 2022, we complete this introductory lecture series on international investment law.

The objective behind this lecture series was to provide a set of simple lectures on the subject, given the lack of openly accessible materials on the subject. Most law schools in India do not teach this important subject. With these lectures freely accessible, no law student in India, for that matter, no student anywhere in the world, will have problem understanding the basics of international investment law. All one needs is a decent internet connection and a smart phone or a laptop. The links provided in the description constitute important materials regarding the topics discussed there. Most of the materials referred to in these lectures are also openly accessible.

This post provides an overview of the complete set of lectures and draws from content provided in two previous posts (here and here) of this blog. The Playlist of the lectures can be accessed from here. Link to each lecture is provided below:

Chapter I : History & Nature of International Investment Law

Lecture 1: Origins of International Investment Law before 1870 (click on the lecture name)

Historically, International Investment Law has evolved in three distinct phases in the modern history: Phase I is the period from 1870 to 1914; Phase II is the inter-war period, between 1918 to1945, and phase III is the post-war period, beginning from 1945. But, even before the first phase (1870), certain developments in international politics have had influence in the evolution of IIL. This lecture deals with those developments.

Lecture 2: More About Origins & A Bit about Phase I

In this lecture we delve into the evolution of IIL in the first phase that is, between 1870 and 1914. But before we go further, those watching may refer to two interesting papers on the origins before 1870, one by Kate Miles, the author of the book which we referred to in last lecture, and the other by Anne-Charlotte Martineau.

Lecture 3: Inter-War Period & Evolution Thereafter

Evolution of International Investment Law during the inter-war period, between 1914 and 1945, and during the post-II world war phase till 1964.

Lecture 4: The Era of Dichotomy

In the last lecture, we saw that there are four phases through which IIL evolved after the World War II. We saw that the first phase, known as the era of infancy spanned up to 1964. In this lecture, we look at the Era of Dichotomy from 1965 to 1987.

Lecture 5: The Eras of Proliferation and Reorientation

In this lecture, we discuss how International Investment Law evolved through the eras of proliferation (1990-2007) and reorientation (2008- till date).

Chapter II: Investment Treaty/ Contract

Lecture 6: Nature of Foreign Investment

In the first five lectures we introduced the subject and provided a historical overview of how IIL evolved. In this lecture, we will have a look at the nature of foreign investment.

Lecture 7: What is Investment?

In this lecture, we will answer the fundamental question: what is investment?

Lecture 8: What is Investment? Part II

In the last video, we discussed the concept of “Investment” and analysed two different types of definition of investment, taking the India-UAE BIT and the Brazil- India BIT as examples. We also saw the general practices regarding the definition of investment. In this video, we’ll discuss the ICSID practice and the Salini test on the definition of investment.

Lecture 9: Who is an Investor?

In this video we will be dealing with another important threshold question: Who is an investor?

Lecture 10: Natural Persons as Investors

In the last lecture, we discussed certain general aspects relating to the question: “who is an investor?”. In this lecture, we will look at how the question is answered from the perspective of natural persons.

Lecture 11: Legal Persons as Investors

In this, video, we will discuss various tests to determine the nationality of juridical persons.

Lecture 12: Who is an Investor? Treaty Shopping

In this lecture we will deal with an important aspect relating to the question "who is an investor?": Treaty shopping.

Lecture 13: Shareholders as Investors

The general principles regarding investor and investment apply equally to shareholders. This lecture deals with the law relating to whether shareholders could initiate investment treaty claims.

Lecture 14: Elements of an Investment Treaty

In this lecture, we will see the core elements of an investment treaty. We will also use the India-UAE BIT, 2013 and the Brazil India BIT, 2020 to provide an idea of how these provisions look in practice.

Chapter III: Substantive Standards I

Lecture 15: Fair & Equitable Treatment: An Introduction

In this lecture, we will discuss one of the most widely used substantial protections under international investment law, that is, Fair and Equitable Treatment, or FET.

Lecture 16: Fair & Equitable Treatment: Preliminary Aspects

This lecture deals with certain preliminary aspects of the FET standard, including its brief history and its nature and function.

Lecture 17: More on Fair and Equitable Standards

This lecture addresses issues such as whether FET standard is a part of customary international law relating to minimum standard of treatment and the evolution of FET standard

Lecture 18: India and the FET Standard

This lecture looks at India’s skirmishes with the FET standard in the White Industries Award and the Cairn BIT Award. Note that the purpose of this lecture series is to introduce readers to the subject and therefore, this lecture does not critically examines the Award insofar as the FET standard is concerned but would only provide a descriptive comment.

Lecture 19: Introduction to Full Protection and Security Standard

This lecture introduces the full protection and security standard. It talks about how the standard finds its place in certain Indian BITs and about the first case in BIT history, which pertained to this standard.

Lecture 20: More on Full Protection and Security Standard

Lecture 20 discusses the scope of the FPSS and provides an overview of its features.

Lecture 21: Full Protection & Security in LDA v India Arbitration

This lecture concerns the application of the Full Protection and Security standard in the Louis Dreyfus Armateurs SAS (France) v. India arbitration, which India successfully defended.

Lecture 22: Non-Impairment Standard: An Introduction

Lecture 22 discusses Non-impairment standard, which is another substantive protection in investment treaties. The lecture discusses the non-impairment.

Lecture 23: More on the Non-Impairment Standard

Lecture 23 discusses the measures that can constitute a violation of the non-impairment standard. The cases of EDF (Services) Limited v. Romania, ELSI Elettronica Sicula SpA, Siemens v. Argentina, LG&E Energy Corp v. Argentina have also been discussed.

Lecture 24: The Umbrella Clause

This lecture discusses the meaning, evolution, and variants of the Umbrella clause.

Lecture 25: More on the Umbrella Clause

This lecture discusses the case of SGS v Pakistan insofar as it relates to the Umbrella clause.

Lecture 26: Approaches to the Umbrella Clause

Umbrella clause has not received a uniform interpretation. Different tribunals, including the one in SGS v. Pakistan, have construed the clause differently.

Lecture 27: Nissan v India and the Umbrella Clause

This lecture discusses the recent case of Nissan v. India which relates to the Umbrella clause.

Chapter IV: Substantive Standards of Protection II

Lecture 28: Most Favoured Nation Standard

The Most Favoured Nation or the MFN standard.

Lecture 29: More on the MFN Standard

Exceptions to MFN standard and the temporal scope of the standard.

Lecture 30: MFN & Procedural Rules

Extension of MFN to procedural rules. The MFN standard has been construed to extend even to procedural provisions such as dispute resolution although MFN in itself is a substantive standard.

Lecture 31: National Treatment

Basics of the national treatment standard and the relevance of WTO jurisprudence relating to national treatment in construing the contours of the national treatment obligations in international investment agreements.

Lecture 32: More on National Treatment

Factors to determine violation of the national treatment standard.

Lecture 33: Some Features of National Treatment & the LDA Award

Basic features of the national treatment standard and the Louis Dreyfus Armateurs SAS (France) v. India insofar as it relates to the national treatment standard.

Lecture 34: Expropriation

Concept of expropriation.

Lecture 35: Direct and Indirect Expropriation

The India UAE and the Brazil India BITs with reference to direct and indirect expropriation.

Lecture 36: Ingredients of Indirect Expropriation

The ingredients of indirect expropriation.

Lecture 37: Indirect Expropriation: Some More Examples

The ingredients of indirect expropriation with examples.

Lecture 38: Compensation for Expropriation

Compensation for expropriation.

Lecture 39: More on Compensation for Expropriation

Determination of Fair Market Value as compensation for expropriation.

Lecture 40: Some More on Compensation for Expropriation

Various aspects relating to compensation for unlawful expropriation.

Lecture 41: Use of DCF Methodology

Key ideas presented in the webinar organised by FTI Consulting and Mumbai Centre for International Arbitration on the topic of compensation in international investment law on 2 December 2021 concerning the topic of compensation for expropriation.

Lecture 44: Moral Damages in International Investment Law

Concept of moral damages in international investment law.

Chapter V: Dispute Resolution in International Investment Law

Lecture 45: Dispute Resolution in BITs

General aspects relating to dispute resolution in international investment treaties.

Lecture 46: Recent Trends in Dispute Resolution: Brazil India BIT 2020

Recent trends in dispute resolution provisions with special reference to Brazil India BIT, 2020.

Lecture 47: Local Exhaustion

Exhaustion of Local Remedies (ELR)

Lecture 48: Local Exhaustion II

More on Exhaustion of Local Remedies (ELR)

Lecture 49:  A Bit More on ELR

Overview of some case law on the principle of Exhaustion of Local Remedies or ELR and the relevant provisions in India’s Model BIT on ELR.

Chapter VI: Recent Developments & Concluding Observations

Lecture 42: Comment on the 10th Report of the Committee of External Affairs (2020-2021)- Part I

Descriptive comment on the Parliament of India’s Standing Committee Report of September 2021 titled “Tenth Report of the Committee on External Affairs (2020-21) on the subject ‘India and Bilateral Investment Treaties’.”

Lecture 43: Comment on the 10th Report of the Committee of External Affairs (2020-2021)- Part II

Second Part of the descriptive comment on the first two chapters of the Departmentally Related Standing Committee Report of September 2021 titled “Tenth Report of the Committee on External Affairs (2020-21) on the subject ‘India and Bilateral Investment Treaties’.

Lecture 50: Recent Developments & Concluding Observations

Recent developments in international investment law and concluding observations

Lecture Series on International Investment Law: Lectures 16 to 30

Just before the Second Wave of Covid19 in India, we started off a lecture series introducing international investment law. As was stated in a previous post in this blog, the objective of the lecture series was to cover the fundamentals of International Investment Law and making the subject more accessible through short lectures (approximately 8 to 10 minutes). The lecture series is not restricted to any particular jurisdiction, although many of the examples provided relate to India. Overview of the first fifteen lectures is contained in this post. This post covers lectures 16 to 30.

Chapter 3: Substantive Standards of Protection I

Lecture 15: Fair & Equitable Treatment: An Introduction

In this lecture, we discuss one of the most widely used substantial protections under international investment law, that is, Fair and Equitable Treatment, or FET. We also deal with the FET clause in the India-UAE BIT, 2013 and the Brazil India BIT, 2020

Lecture 16: Fair & Equitable Treatment: Preliminary Aspects

This lecture deals with certain preliminary aspects of the FET standard, including its brief history and its nature and function.

Lecture 17: More on Fair and Equitable Standards

This lecture addresses issues such as whether FET standard is a part of customary international law relating to minimum standard of treatment and the evolution of FET standard

Lecture 18: India and the FET Standard

This lecture looks at India’s skirmishes with the FET standard in the White Industries Award and the Cairn BIT Award. Note that the purpose of this lecture series is to introduce readers to the subject and therefore, this lecture does not critically examines the Award insofar as the FET standard is concerned but would only provide a descriptive comment.

Lecture 19: Introduction to Full Protection and Security Standard

This lecture introduces the full protection and security standard. It talks about how the standard finds its place in certain Indian BITs and about the first case in BIT history, which pertained to this standard.

Lecture 20: More on Full Protection and Security Standard

Lecture 20 discusses the scope of the FPSS and provides an overview of its features.

Lecture 21: Full Protection & Security in LDA v India Arbitration

This lecture concerns the application of the Full Protection and Security standard in the Louis Dreyfus Armateurs SAS (France) v. India arbitration, which India successfully defended.

Lecture 22: Non-Impairment Standard: An Introduction

Lecture 22 discusses Non-impairment standard, which is another substantive protection in investment treaties. The lecture discusses the non-impairment.

Lecture 23: More on the Non-Impairment Standard

Lecture 23 discusses the measures that can constitute a violation of the non-impairment standard. The cases of EDF (Services) Limited v. Romania, ELSI Elettronica Sicula SpA, Siemens v. Argentina, LG&E Energy Corp v. Argentina have also been discussed.

Lecture 24: The Umbrella Clause

This lecture discusses the meaning, evolution, and variants of the Umbrella clause.

Lecture 25: More on the Umbrella Clause

This lecture discusses the case of SGS v Pakistan insofar as it relates to the Umbrella clause.

Lecture 26: Approaches to the Umbrella Clause

Umbrella clause has not received a uniform interpretation. Different tribunals, including the one in SGS v. Pakistan, have construed the clause differently.

Lecture 27: Nissan v India and the Umbrella Clause

This lecture discusses the recent case of Nissan v. India which relates to the Umbrella clause.

Chapter IV: Substantive Standards of Protection II

Lecture 28: Most Favoured Nation Standard

In this lecture, we discuss the Most Favoured Nation or the MFN standard.

Lecture 29: More on the MFN Standard

In this lecture, we cover the issues of exceptions to MFN standard and the temporal scope of the standard.

Lecture 30: MFN & Procedural Rules

In this lecture, we deal with an interesting topic under MFN-extension of MFN to procedural rules. The MFN standard has been construed to extend even to procedural provisions such as dispute resolution although MFN in itself is a substantive standard.

Are the Supreme Court and the High Courts not Complying with Section 11(8) of the Amended Arbitration Law?

Section 11(8) of the amended Arbitration and Conciliation Act, 1996 as it now exists in the statute book was inserted through the Arbitration and Conciliation (Amendment) Act, 2015. Sub-section 8 reads:

“(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to—

(a) any qualifications required for the arbitrator by the agreement of the parties; and

(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.” (emphasis supplied)

Section 11(8) provides that prior to appointing an arbitrator, the Supreme Court, the High Court or the designated institution should mandatorily seek a disclosure from the prospective arbitrator as mandated in Section 12(1) (disclosure per Schedule VI) and should have due regard to the qualifications of the arbitrators and importantly, the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrators.

It appears from a perusal of the decisions of the Supreme Court and the High Court that these are not being done post-2015. Take the case of National Collateral Management Services Ltd. v. Food Corporation of India, 2017(5) Arb LR 288 (Del.). The case was pertaining to reference to the CMD of one of the parties for resolution of disputes. The Delhi High Court held that since the CMD was an employee, he could not act as arbitrator owing to the bar in Section 12(5) r/w VII Schedule. Consequently, the High Court appointed an arbitrator with a statement that the arbitrator would decide his fees in consultation with the parties. The decision has nothing to state on whether Section 11(8) was complied or nor. Also, take the recent decision of the Supreme Court in Trans Asian Shipping Services (Pvt.) Ltd. v. Beacon Shipping Lines Ltd. MANU/SC/1014/2018, where the Supreme Court appointed the arbitrator and then directed the Registry to send a copy of the order to the arbitrator. 

With great respect, this procedure is in contravention of Section 11(8) of the 1996 Act as amended vide the 2015 Amendment Act. When the Parliament of India through the 2015 Amendments has laid down a procedure, it is for the High Courts and the Supreme Court to comply with the same in their letter and spirit. The judges of the Supreme Court and the High Court, even if they are acting in their judicial capacity, have to comply with the statute in full. The decision of the Supreme Court and the High Court noted above do not even disclose if the requirements in Section 11(8) were satisfied or not.

When a body is appointing an arbitrator, it is duty bound to ensure that the arbitrators appointed have the capability to decide a dispute and are independent and impartial as regards the dispute. Hence, such a power is endowed upon the Supreme Court and the High Court. The courts cannot shy away from such a duty.  

This blawgger has argued elsewhere:

"The question as to whether prior to appointing a person as arbitrator, consent from such person is taken by the Designate, was answered by six courts on merits. It appears that none of the courts obtain consent from the prospective arbitrator to be appointed in a particular dispute. It may be noted that the schemes made under Section 11(10) of the 1996 Act generally provide that the decision taken by the Designate to appoint an arbitrator shall be communicated to the arbitrator appointed pursuant to the request.This might lead to a few problems. 

One, it may lead to a conflict of interest situation involving the arbitrator and one of the parties. For instance, a person holding a substantial number of shares in a company may be appointed by the Designate as arbitrator in a dispute concerning the said company. Unless the Designate approaches a prospective arbitrator, it would not be possible for the arbitrator to disclose in writing such circumstances prior to appointment. In this regard, Section 12(1) of the Act mandates that when a person is approached in connection with his possible appointment as an arbitrator, he/she shall disclose in writing any circumstances likely to give rise to justifiable grounds as to his/ her independence or impartiality. Even if the arbitrator declines to proceed with the arbitration for that reason after the appointment is made by the Designate, the parties would be put in the same position as they were prior to the filing of the petition under Section 11, leading to delays of several months and, at times, several years (Srinivasan 2012: 27, 29).

Two, a person may make himself/herself available for being appointed as arbitrator. However, subsequently, at the time of appo intment by the Designate, the person might be unable or might not be ready to act as an arbitrator for reasons related to a particular dispute, or might not be ready to act as arbitrator in any dispute owing to illness or any other reason.

Hence, it would be prudent to seek consent prior to appointing a person as the arbitrator in a particular dispute." (See, Badrinath Srinivasan, Appointment of Arbitrators by the Designate under

the Arbitration and Conciliation Act: A Critique, vol xlix no 18, Economic & Political Weekly, p. 59-66- subscription required)

It would do well for the Supreme Court and the High Court to follow the below said procedure:

• Once the Court determines the prospective judge to be appointed depending on the requirements of the arbitration agreement and the nature of the dispute, the prospective candidate has to be informed by the court through the Registry.
• The Registry has to send a letter to the prospective candidate seeking the relevant declarations of independence, impartiality and availability.
• On receipt of the declarations, the High Court or the Supreme Court, as the case may be, should appoint the arbitrator.
• During this process, neither the Registry  nor the prospective arbitrator should interact with the parties or either party.

The Supreme Court and the High Courts should duly follow the law. If there is any difficulty in the above, the Registry could write to the Ministry expressing difficulties or problems with the law so that the same could be corrected. Already there is a Bill to amend the arbitration law pending in the Parliament. If the Ministry finds merit in the issue, it could very well amend the law. 

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... "

Further Updates on the Nissan- Government of India Treaty Arbitration

Readers would recollect that we had done a post on the invocation of investor treaty arbitration by Nissan against the Government of India for the default committed by the State of Tamil Nadu. In the presentation uploaded in the post, we had noted that the State of Tamil Nadu had filed a petition in the Madras High Court seeking an anti-arbitration injunction against Nissan from proceeding with the arbitration. Nissan had filed a counter in the Madras High Court stating, among other things, that the Government had filed the suit belatedly after 10 months from the invocation of arbitration (February 2017)

Nissan had also moved an anti-suit injunction seeking to restrain the Government from proceeding further in the suit. 

Newspapers report that Nissan is now mulling withdrawal of the application for anti-suit injunction. It appears that the application it filed with the tribunal, whose seat is at Singapore, could not be taken up by the tribunal owing to the Chinese New Year. These submissions were made in the Madras High Court in the recent hearing held in the matter. The Judge has posted the matter on 27 February to enable Nissan's counsel to obtain instructions from his client on the anti-suit injunction it sought from the tribunal. 

The newsreport from the Hindu can be accessed from here.

It also appears that against the arbitration notice, the Government had raised jurisdictional issues and had appointed Justice JS Khehar (former Chief Justice of India) as its nominee arbitrator. It also appears that Nissan had no objections to the tribunal bifurcating the arbitration by deciding the jurisdictional issues first. (See this newsreport)

We'll keep the readers posted on further proceedings in the matter.

Nissan v. Government of India- Investor-State Arbitration

The Nissan v. Government of India dispute has been in the news recently. In a nutshell, Nissan had invoked arbitration against the Government of India for the failure by the State of Tamil Nadu (an Indian province) to provide Investment based Subsidies it allegedly promised in an agreement between the State and Nissan. This presentation provides a bird's eye view of the dispute.

[Note: Of late, persentations are being provided in this blog on developments in arbitration rather than posts. Presentations convey salient points to the reader thereby substantially improving the reading experience and are at the same time simpler and quicker to make. In case readers would like to read posts instead of presentations, please feel free to let us know.] 

Garanti Koza v. Turkmenistan: Has the ICSID Tribunal Usurped Jurisdiction?

Recently, the popular website, Investment Treaty Arbitration (www.italaw.com) has published the majority and the dissenting awards on objection to jurisdiction for lack of consent in the case of Garanti Koza v. Turkmenistan conducted under the aegis of the ICSID Rules. The facts in short are that Garanti Koza invoked arbitration under the aegis of the ICSID against Turkmenistan under the bilateral Investment Treaty between the United Kingdom and Turkmenistan. Turkmenistan objected to the jurisdiction of the ICSID Tribunal on the ground that Turkmenistan never consented to an ICSID Arbitration. The relevant provision in the Treaty dealing with dispute resolution reads: “1) Disputes between a national or company of one Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement in relation to an investment of the former which have not been amicably settled shall, after a period of four [months] from written notification of a claim, be submitted to international arbitration if the national or company concerned so wishes. (2) Where the dispute is referred to international arbitration, the national or company and the Contracting Party concerned in the dispute may agree to refer the dispute either to: (a) the International Centre for the Settlement of Investment Disputes (having regard to the provisions, where applicable, of the Convention on the Settlement of Investment Disputes between States and Nationals of other States, opened for signature at Washington DC on 18 March 1965 and the Additional Facility for the Administration of Conciliation, Arbitration and Fact-Finding Proceedings); or (b) the Court of Arbitration of the International Chamber of Commerce; or (c) an international arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the Arbitration Rules of the United Nations Commission on International Trade Law. If after a period of four months from written notification of the claim there is no agreement to one of the above alternative procedures, the dispute shall at the request in writing of the national or company concerned be submitted to arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law as then in force.” 

Two members of the the Tribunal constituting the majority relied on Maffezini v. Spain and CSOB v. Slovakia and held that the MFN clause would apply to the dispute resolution provisions as well. Since Turkmenistan had entered in a Bilateral Investment Treaty with Switzerland wherein the investor had the right to submit the disputes to the ICSID or a Tribunal constituted under the UNCITRAL Arbtiration Rules. The tribunal held that since this clause in the said BIT was more favourable considering that the Investor had the option to choose between these two Tribunals/ Rules and that since the Turkmenistan-UK BIT did not provide for any option, consent to the ICSID is deemed to have been granted. The MFN provisions (Article 3) were made appliable to even the dispute resolution provisions. Considering this, the tribunal held that consent was given to ICSID. The dissenting member, an appointee of Turkmenistan, held otherwise. The majority and the dissenting opinions can be downloaded from the bracketed link (http://www.italaw.com/cases/2176). This case presents an important development in Investor-State arbitration wherein consent is deemed to have been granted through an indirect means. 

On the face of it, this blawgger is of the view that such a development does not bode well for the legitimacy of Investor-State arbitration and ICSID Arbitration. Access the below links for further readings on the issue.

• Concurring and Dissenting Opinion of Professor Brigitte Stern in Impregilo v. Argentina on the issue.
• Zachary Douglas, The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails [J Int. Disp. Settlement (2011) 2 (1): 97-113
• Stephanie L. Parker, A BIT at a Time: The Proper Extension of the MFN Clause to Dispute Settlement Provisions in Bilateral Investment Treaties (arguing in favour of the approach employed by the majority in the above case.

Notice of Dispute Issued Against the Retrospective Amendments by Vodafone International Holdings BV

News reports suggested that Vodafone International Holdings BV (Vodafone) invoked arbitration under the Agreement between the Republic of India and the Kingdom of the Netherlands for the Promotion and Protection of Investments (India-Netherlands BIT-pdf) in relation to the proposed amendment in the Income Tax Act, 1961 to retrospectively alter the law pertaining to capital gains through indirect transfers of Indian assets  (Livemint).

Vodafone has served a Notice of Dispute invoking Article 9(1) of the India-Netherlands BIT, which reads:

"Any dispute between an investor of one Contracting Party and the other Contracting Party in connection with an investment in the territory of the other Contracting Party shall, as far as possible, be settled amicably through negotiations between the parties to the dispute. The party intending to resolve such dispute through negotiation shall give notice to the other of its intentions."

The purpose of the said Notice of Dispute as it suggests is to settle the dispute in an amicable way. Further, it states that the failure of the Government to respond to the Notice of Dispute or to withdraw the complained amendments to the Act “would establish that the Government of India is not interested in amicable resolution…”

In the Notice, Vodafone has complained that the retrospective amendment to the Income Tax Act, 1961 violated the following provisions of the India-Netherlands BIT:

• Breach of obligation to accord fair and equitable treatment and fill protection and security to the Investment [Article 4(1)]
• Breach of obligation to accord to the Investment treatment not less favourable than that accorded either to investments of its own or investments of investors of any third state, whichever is more favourable to the investor concerned [Article 4(2)]
• Breach of obligation not to subject the Investment to expropriation or measures having the effect equivalent thereto except in the public interest in accordance with law, on a non-discriminatory basis and against compensation [Article 5(1)]

The Notice of Dispute dated 17.04.2012 can be accessed from here.

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 standard… Article 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).

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).