An UNCITRAL tribunal in Singapore has held that the Republic of India breached its obligation under the India-Kuwait bilateral investment treaty (“BIT“) to provide investors with an “effective means of asserting claims and enforcing rights” through undue delay in the Indian court system. White Industries Australia Limited (“White“) had spent nine years attempting to enforce an ICC Award in India, but was subjected to prolonged delays. It therefore brought a claim under the Australian–Indian BIT but successfully relied on the BIT’s “most-favoured nation” clause to take advantage of the more favourable investor protections in the India-Kuwait BIT.
The UNCITRAL award adds to the developing jurisprudence suggesting that an arbitral award may be treated as a continuation of an investment and, as such, may be subject to such protections afforded to investments by a BIT. The jurisdictional aspect of this case is also particularly topical given the consolidated appeal in Bhatia International v. Bulk Trading that began in the Supreme Court of India on 10 January 2012, which is considered likely to limit the ability of Indian courts to intervene in arbitrations seated outside India.
- White obtained a majority ICC Award in its favour in 2002 (the “ICC Award“) after a contractual dispute with Coal India (an Indian state-owned mining company) over the supply of equipment and development of a coal mine.
- In 2002, Coal India applied to the High Court at Calcutta to have the ICC Award set aside. White applied to the High Court at New Delhi to enforce the Award. The enforcement proceedings were eventually stayed, pending a decision on the set-aside proceedings.
- Meanwhile, White applied to have Coal India’s set–aside application dismissed on the basis that the Calcutta High Court lacked jurisdiction. Eventually White took this appeal to the Indian Supreme Court. More than five years later, in June 2010, the Supreme Court appeal was still at number 93 on the court’s weekly list, with no set date for the appeal to be heard.
- White commenced UNCITRAL arbitration proceedings against India alleging that the judicial delay caused: (i) a denial of justice, in breach of India’s obligation to accord “fair and equitable treatment” to investors under the India-Australia BIT; and (ii) its investments to be treated less favourably than those of investors of a third country, namely Kuwait, contrary to the “most-favoured nation” clause of the India-Australia BIT. Article 4(5) of the India-Kuwait BIT contained an obligation for India to “provide effective means of asserting claims and enforcing rights with respect to investments“.
- The UNCITRAL tribunal held that the court delays did not reach the high standard required to constitute a denial of justice, but they did breach the less demanding “effective means” standard in the India-Kuwait BIT. It awarded White damages under the ICC Award plus costs and interest.
“Effective means of asserting claims and enforcing rights”
White was able to invoke the “effective means” standard in the India-Kuwait BIT by relying on the “most-favoured nation” clause in the India-Australia treaty.
White had interests in two sets of court proceedings in India: (i) it was acting to “enforce [its] rights” under the ICC Award through the enforcement proceedings in New Delhi; and (ii) it was “asserting claims” that the Calcutta court lacked jurisdiction to set aside the award.
In determining whether the BIT had been breached, the tribunal followed the application of the “effective-means” standard in Chevron-Texaco v. Ecuador. In this case, the tribunal held that:
- whether or not “effective means” were provided should be measured against an objective, international standard (lower than that required to prove denial of justice in customary international law);
- indefinite or undue delay in the host state’s courts dealing with an investor’s claim could amount to a breach of the standard; and
- court congestion and backlogs were relevant but not a complete defence (and regular delays could evidence a systematic problem with the court system which would also constitute a breach of the standard).
India argued that, as a developing country, it should not be held to the same standards as e.g. Switzerland, the United States or Australia. The tribunal, however, noted that the operation of India’s court systems could have only limited relevance in terms of assessing whether the “effective means” standard had been breached. The tribunal considered that Article 4(5) in the India-Kuwait BIT is whether the system of laws and institutions work effectively at the time when the investor seeks to enforce its rights or make its claims. This approach contrasts with the tribunal’s reasoning in relation to the “denial of justice” claim, where the nuances of India’s legal system were deemed relevant by the tribunal when assessing whether the length of time taken to process the claims was excessive.
On the facts, the tribunal did not consider the delays in the enforcement proceedings to breach the “effective means” standard. In respect of the jurisdictional claim, however, the tribunal held that White had “done everything that could reasonably be expected of it to have the Supreme Court deal with its appeal in a timely manner“. Consequently, although not a denial of justice, it was held that White’s nine year jurisdictional claim (including a delay of over five years for the Supreme Court to set a date for the appeal) constituted undue delay, which fell short of the “effective means” standard.
Enforcement of international arbitral awards in India
The award in White v. India highlights once again the difficulties that investors may face when trying to enforce international arbitral awards in India. Whilst the Indian judiciary is professional and independent, delays in the national court system are endemic, with extended timelines causing considerable difficulties for international parties. In White v. India, the tribunal accepted that the three and a half year enforcement proceedings (before they were stayed) were “less than ideal” but also noted that “India is a developing country with a population of over 1.2 billion people with a seriously overstretched judiciary“.
Indian court intervention in international arbitrations
The question of whether an Indian court is able to set aside an arbitral award rendered outside of India is one of the central issues in a consolidated appeal that began in the Supreme Court of India on 10 January 2012. A five judge “constitutional bench” is considering whether, among others, the case of Bhatia was correctly decided. The highly-criticised judgments in Bhatia and cases that followed it have been relied on to extend the Indian courts’ ability to intervene in international arbitrations. These cases suggest that Indian courts may exercise their powers under Part 1 of the Indian Arbitration Act, even when the seat is outside India (unless Part 1 is expressly disapplied by the parties). The tribunal in White v. India concluded that the ICC Award was enforceable under the laws of India, but did not rule on whether India was in breach of its obligations under the New York Convention for failing to uphold the ICC award. Herbert Smith is following the consolidated appeal with interest and will report on the outcome in due course.
A growing trend?
White v. India is the latest case in a growing trend of international investors using BITs to try to recover sums owed under international arbitral awards. However, such cases depend on the courts accepting that an arbitral award falls within the definition of ‘investment’ under the respective BIT, which is an issue of some debate. In White v. India, (following Saipem S.p.A v. The People’s Republic of Bangladesh) the tribunal held that the ICC award fell within this definition, not as an investment in itself, but as a “crystallisation of White’s rights and obligations” under the original contract with Coal India. The ICC award was therefore a constituent part of White’s original investment. This decision may be encouraging to foreign investors who have difficulties enforcing arbitral awards against state entities. However, launching a BIT arbitration is not a quick or easy route to obtaining enforcement of a commercial award, and will be an option in only a limited number of cases. In addition, some states have recently shown signs of wanting to limit investor protections, with Australia announcing last year in a trade policy statement that it will no longer include investor-state dispute resolution procedures in trade agreements with developing countries. Similarly, there are questions over whether India will agree to an arbitration clause in the bilateral trade and investment treaty it is negotiating with the EU after an official from India’s department of industrial policy and promotion was reported saying that “the view worldwide [is] that the state should not get drawn into private disputes“.
White Industries Australia Limited v.The Republic of India, UNCITRAL
Emily Blanshard & Briana Young, Hong Kong, and Joanne Greenaway, London
A version of this Herbert Smith briefing has been published by Practical Law Company.