Investment Arbitration as a Method of Enforcing Arbitral Awards in India Anirudh Wadhwa Advocate

Investment Arbitration (Basics) Right of Direct Recourse to Foreign Investors usually under a BIT Ensures that claims are not subject to Political considerations Dramatic Rise in the number of BITs since creation of ICSID in 1965 380 BITs in 1980 - 2800 odd BITs today

BITs in India Most Foreign Investors in India are protected by Investment Treaties Since Liberalisation in 1991 – Indian Government has been signing up to BITs with other States First BIT was with UK in 1994 As of 31 July 2012 – India has signed BITs have been signed with 82 countries India is however not a party to ICSID

Typical BIT Claims Satisfaction of 2 Issues Jurisdiction Issues Substantive Issues Identify an Applicable Treaty “Protected Investors” “Protected Investments” Some other “jurisdictional issues” – cooling off period etc.

Typical BIT Claims (contd) Substantive Issues (Demonstrable “Cause of Action” under a BIT) “Fair and Equitable Treatment” – protection of legitimate expectations; stable and predictable framework for investment “Full Protection and Security” – Imposes positive obligations on the host State to protect investments (due diligence obligation) “No arbitrary or discriminatory measures impairing the investment” No expropriation without prompt, adequate and effective compensation MFN standard – additional gains by one State flow to other States

Typical BIT Claims (contd) Substantive Issues (Demonstrable “Cause of Action” under a BIT) (contd.) Free transfer of funds Umbrella Clause – observation of “any obligation entered into with regard to investments”

Using BITs to enforce arbitration awards Usual claim under a BIT – foreign investor seeks reparation from the host State for certain actions that violate existing standards. E.g. Illegal expropriation of protected investments in the host State. Issue is – How can BITs be used to enforce Arbitration Awards? Critical Issue in India – especially given the Indian realities

Using BITs to enforce arbitral awards (contd.) Enforceability of an award – backbone of the entire arbitration process (reason for the NYC) 2008 Survey, School of International Arbitration 84% people reported that 76% parties complied with an ICA award voluntarily Only 3% people reported that there was non-compliance with an award Over 90% of awards had been honoured by the losing parties “Lack of Assets” is the main reason for non-enforcement Realities in India much different Court intervention is routine – both pre and post-arbitration Delays are inherent Figures of voluntary compliance are much lower Resort to Execution proceedings are routine – especially against Government entities

Using BITs to enforce arbitral awards (contd) Issue - is it possible to use BITs to enforce arbitral awards? For that, one must show three things – First, demonstrate that the judgment creditor is a “protected investor”. Second, show that “arbitral awards” constitute a “protected investment”. Third, show that non-enforcement of an arbitral award is a breach of a relevant treaty standard.

Using BITs to enforce arbitral awards “Judgment Creditor as Protected Investor” This route is only available to protected “foreign investors” Indian parties and non-protected investors cannot utilise this Indo-France BIT – protects “indirect investments”, which includes investments through 51% owned subsidiaries wherever located

Using BITs to enforce arbitral awards “ Arbitral Award as Protected Investment” “Investment” is defined broadly in India BIT’s Usually cover “every kind of asset” followed by a non- exhaustive list of covered assets “’investment’ means every kind of asset established or acquired including changes in the form of such investment, in accordance with the national laws of the Contracting Party in whose territory the investment is made and in particular, though not exclusively, includes: … (iii) rights to money or to any performance under contract having a financial value; …” (Model India BIT)

Using BITs to enforce arbitral awards “ Arbitral Award as Protected Investment” 2.2. Arbitral Award as “Protected Investment” (contd) In Indian BITs - no limitation imposed regarding “characteristics of investment” “’Investment’ means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.” (Model US BIT 2012) Indian BITs also do not contain limitations regarding “judicial actions” “The term ‘investment’ does not include an order or judgment entered in a judicial or administrative action.” (Model US BIT 2012)

Using BITs to enforce arbitral awards “ Arbitral Award as Protected Investment” 2.3. Arbitral Award as “Protected Investment” (contd) No requirement to show “commitment of capital or other resources” (like in the Model US BIT) No limitation regarding “judicial actions” (like in the Model US BIT) Covers “every kind of asset” followed by a non-exhaustive list of covered assets “’investment’ means every kind of asset established or acquired including changes in the form of such investment, in accordance with the national laws of the Contracting Party in whose territory the investment is made and in particular, though not exclusively, includes: … (iii) rights to money or to any performance under contract having a financial value; …” (Model India BIT) Arbitral awards are just crystallisation of “rights… under contract having a financial value”.

Using BITs to enforce arbitral awards “ Arbitral Award as Protected Investment” Saipem v Bangladesh (2007); FIDIC v Jordan (2010) “Award” in and of itself is not an “investment” BUT, Award as part of the “entire operation” can be taken as an investment Further (FIDIC v Jordan) – “right to arbitrate” is a distinct investment. GEA v Ukraine (2011) “…the fact that the Award rules upon rights and obligations arising out of an investment does not equate the Award with the investment itself. In the Tribunal’s view, the two remain analytically distinct, and the Award itself involves no contribution to, or relevant economic activity within, Ukraine such as to fall – itself – within the scope of Article 1(1) of the BIT…”

Using BITs to enforce arbitral awards “ Arbitral Award as Protected Investment” White Industries v India (2012) Claim by White Industries against Republic of India under Indo-Australian BIT for delays in enforcing an ICC award HELD – “…rights under the Award constitute part of White’s original investment (i.e., being a crystallisation of its rights under the Contract) and, as such, are subject to such protection as is afforded to investments by the BIT.” FURTHER HELD - “The conclusion expressed by the GEA Tribunal represents an incorrect departure from the developing jurisprudence on the treatment of arbitral awards to the effect that awards made by tribunals arising out of disputes concerning ‘investments’ made by ‘investors’ under BITs represent a continuation or transformation of the original investment.”

Using BITs to enforce arbitral awards “Breach of relevant treaty standards” Whether non-enforcement of arbitral awards breach any relevant treaty standards? Expropriation – Arguable, if a party is deprived of the right to “arbitrate” or the fruits of an “arbitral award” by conduct that is expropriatory Fair and Equitable Treatment – Arguable. However, this is a stringent standard. Normally “an investor must take the host State (including its Courts)… as it finds it.”

Using BITs to enforce arbitral awards “Breach of relevant treaty standards” MFN Clause (“Effective Means” – Indo Kuwait BIT) “[Effective means standard is to be] measured against an objective, international standard, [which focuses on] whether the system of laws and institutions work effectively at the time the promisee seeks to enforce its rights/make its claim.” (White Industries) “The relevance of the State’s population or the current operation of its court system(s) (in assessing the undueness of a delay) is limited” (White Industries) 9 year delay (in Cal HC) in deciding “jurisdictional issues” in setting aside proceedings violation of effective means Delay in enforcement proceedings (in Del HC) not actionable – because all remedies not exhausted On facts – White Industries awarded value of awarded amount together with interest as reparation for delay in enforcement

Using BITs to enforce arbitral awards “Untested Issues” Number of interesting and as yet, untested issues – Since cause of action under BIT is separate – theoretically reparation need not match the quantum of the award What happens to existing Claims under the award Different where claim is based on delay in execution, and where claim is based on unjust setting aside of award? Subrogation? Unjust Enrichment? Is the enrichment ‘at the expense of the State’? There is a different cause of action

Conclusions Investment Arbitration provides an additional forum to investors where there is State interference with the arbitral process and/or award. Mere non-enforcement of commercial awards and/or dissatisfaction of a party with the local courts is insufficient If decision of national court is a possible view then no scope for Investment Arbitration There has to be evidence of unlawful conduct of the State (including the Judiciary) Assessments as to legality of State conduct will be done on the basis of applicable international law (i.e. denial of justice, unfair and inequitable treatment, absence of full protection and security or expropriation)

THANK YOU. QUESTIONS WELCOME. Investment Arbitration as a Method of Enforcing Arbitral Awards in India THANK YOU. QUESTIONS WELCOME. Anirudh Wadhwa Advocate