Role of Domestic Courts in the Settlement of Investor-State Disputes: The Indian Scenario [1st ed.] 9789811570094, 9789811570100

Table of contents :
Front Matter ....Pages i-xxxv
Introduction (A. Saravanan, S. R. Subramanian)....Pages 1-7
International Legal Framework Relating to the Protection of Foreign Investment (A. Saravanan, S. R. Subramanian)....Pages 9-32
Interactions Between Domestic Courts and Investment Arbitration Tribunals (A. Saravanan, S. R. Subramanian)....Pages 33-77
India’s Approach to the Protection of Foreign Investment (A. Saravanan, S. R. Subramanian)....Pages 79-152
Interactions Between Indian Courts and Investment Arbitral Tribunals (A. Saravanan, S. R. Subramanian)....Pages 153-180
Conclusions and Suggestions (A. Saravanan, S. R. Subramanian)....Pages 181-184
Back Matter ....Pages 185-187

Citation preview

A. Saravanan S. R. Subramanian

Role of Domestic Courts in the Settlement of Investor-State Disputes The Indian Scenario Foreword by George A. Bermann

Role of Domestic Courts in the Settlement of Investor-State Disputes

A. Saravanan S. R. Subramanian •

Role of Domestic Courts in the Settlement of Investor-State Disputes The Indian Scenario

Foreword by George A. Bermann

123

A. Saravanan Department of Humanities and Social Sciences Indian Institute of Management Indore Indore, India

S. R. Subramanian Rajiv Gandhi School of Intellectual Property Law Indian Institute of Technology Kharagpur Kharagpur, India

ISBN 978-981-15-7009-4 ISBN 978-981-15-7010-0 https://doi.org/10.1007/978-981-15-7010-0

(eBook)

© Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

To Family, Friends and Teachers

Foreword

Although the impetus for international arbitration—commercial and investor-state alike—is avoidance of national judiciaries, national courts are not without an important role to play in that arena. How national courts conceive of their role and the policies and practices they bring to it vary enormously from state to state. Attractive as generalizations on the subject may be, at bottom the subject must be addressed on a state-by-state basis. That is exactly what this outstanding book by A. Saravanan and S.R. Subramanian does for India, whose place in the international arbitration arena is pronounced and becoming ever more pronounced. There is no substitute for taking a granular look at the role of courts in any single jurisdiction. Mostly, we think about national courts in relation to their role in enforcing agreements to arbitrate, assisting arbitral proceedings and recognizing and enforcing arbitral awards. I think it is clear to all that international arbitration cannot be the effective dispute resolution it means to be unless national courts give effect to agreements to arbitrate, make arbitral proceedings effective where necessary, and enforce resulting awards. This book takes up these important issues. Focused as it is on investor-state arbitration, it is crucial to distinguish—and the book does—between ICSID and non-ICSID (and ICSID Additional Facility) disputes. The role of courts in non-ICSID arbitration is not fundamentally different than it is in international commercial arbitration. But, as we know, in ICSID arbitration, courts have a minimal role at the enforcement stage (though the European Union and the member states are trying in effect to bring a public policy defense to enforcement even of ICSID awards). During the arbitration, national courts cannot be asked to order measures of interim relief unless the parties have previously so agreed. They certainly have no role in appointing arbitrators, if need be, or in resolving conflict of interest issues. Very likely national courts will be unavailable for the production of evidence for use in ICSID arbitrations. One of the great merits of this book is that it does not focus exclusively on issues such as these. It looks at bilateral investment treaties themselves to probe more deeply into the role of national courts in investment arbitration. A highlight of the new Indian Model BIT is the requirement of exhaustion of local remedies, both administrative and judicial, prior to the initiation of arbitration. Personally, vii

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Foreword

I consider this as a modest welcome move on India’s part. Due to the silence on the matter of most BITs, and indeed most arbitration laws, there is great uncertainty over the impact of an investor’s decision to avail itself or not avail itself of available national remedies. If it does avail itself, does it walk into a ‘fork-in-the-road’ problem; if it does not, will it be deemed not to have acted fully in good faith. Needless to say, introduction of an exhaustion of local remedies requirement will heighten enormously the role of national courts in the resolution of investor-state disputes. The book takes due note of the fact that, increasingly, national courts are anything but bystanders, for it is their conduct that may or may not culminate in a claim of denial of justice that, depending on the merits of a case, may lead to heavy liabilities. Conversely, do state themselves have enforceable rights against investors under international investment treaties and, if so, is it only by way of a counterclaim or also by way of an independent cause of action? This masterful book fills a major void as a resource in Indian international arbitration law. But is also the prototype of what any serious inquiry into the judicial role in investor-state arbitration in any jurisdiction should look like. George A. Bermann Walter Gellhorn Professor of Law and Jean Monnet Professor of European Union Law Director, Center for International Commercial and Investment Arbitration Co-Director, European Legal Studies Center Columbia Law School, New York, USA

Preface

Over the years, the investment treaty arbitration has emerged as the chief means to resolve disputes between foreign investors and the host state. One of the major reasons for this development is that in case of invocation of investment treaty arbitration, the recourse to domestic courts is almost excluded. From the investor’s perspective, domestic courts are not usually considered as an effective forum to settle their disputes with the host state because of the perceived fear of home-court bias. However, in practice, domestic courts are making interventions in the resolutions on numerous occasions. More importantly, the ICSID Additional Facility and the non-ICSID awards are subject to review by domestic courts at the time of enforcement of awards or for purposes of grant of interim reliefs. There are also other instances in which judicial proceedings are pursued in parallel to investment arbitration, especially in cases of non-ICSID proceedings. In this situation, the Indian government has come up with the revised Model BIT in the year 2015. Hailed as the significant departure from the past international investment instruments, signed by India, it has introduced tremendous changes in India’s approach towards legal protection of foreign investment. One of the most important changes introduced by the instrument is that the investor, before resorting to international arbitration, must exhaust the local remedies available in the domestic legal system. Though, over the years, the investment tribunals have diluted the efficacy of the local remedies rule, India’s mandatory requirement of local remedies rule ignited the debate over the role of domestic courts in the settlement of investment disputes once again. Though India had continued to support the investor-state arbitration, as the leading mechanism to settle investment disputes, even when the world of investment arbitration itself is reeling under legitimacy crisis and backlash by governments, India had fortified the domestic controls and safeguards in the BIT mechanism, based on its limited experience with investment arbitration. Within India, this issue also assumes an added practical importance, as a sizeable quantum of investment awards and pending or contemplated investment disputes are associated with domestic judicial measures. In fact, in many of them, the judicial measures were themselves the causes of the complaints before the ix

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Preface

investment tribunals. In addition, the new development of grant of anti-suit injunctions/anti-arbitration injunctions, especially in the context of ‘international’ investment arbitration, further increases the interest in the subject. Moreover, as India was already in the midst of storms with regard to the enforcement of foreign (commercial) arbitral awards, especially before the BALCO decision, it is trying to position itself in investment arbitration. It is in this connection, this research provides a first-ever detailed study on the interactions between investment arbitral tribunals and domestic courts, especially in the light of Indian courts. In particular, it brings out the major differences between the countries following the International Centre for Settlement of Investment Disputes (ICSID) model of investment dispute resolution process and the non-ICSID model which is followed by India. This relationship is examined at various stages of the arbitration such as before the commencement of arbitration proceedings, during the arbitration proceedings, and after the rendering of investment treaty arbitration award. Indore, India Kharagpur, India

A. Saravanan S. R. Subramanian

Disclaimer: The views and opinions expressed in this work are entirely personal and not necessarily those of the institutions with which we are/were associated.

Acknowledgements

This book has benefited enormously from many of our friends and colleagues. As most of the research work for this book was carried out at the Rajiv Gandhi School of Intellectual Property Law (RGSOIPL), Indian Institute of Technology Kharagpur, we wish to express our gratitude to many members of the school. In particular, we wish to express our gratitude to Profs. N. L. Mitra and M. Padmavati (Dean, RGSOIPL). In fact, a special mention must be made for the following legal luminaries for their guidance, constant support, and encouragement: Profs. A. Lakshminath, Shashikala Gurpur, Aravind Chinchure, Rupal Rautdesai, David Ambrose, and L. Pushpakumar. We express our sincere gratitude to Professor George A. Bermann for having kindly agreed to write a highly encouraging Foreword for the book, despite his busy schedule. We also value very much our productive interactions with Profs. V. G. Hegde (JNU) and James Nedumpara (IIFT) on some of the nuances of the international dispute settlement process. We take this opportunity to express our gratitude to Dr. Prabhash Ranjan (SAU) who has encouraged and supported us in our endeavours. The work also very much benefited by the research support received from the International Academy for Arbitration Law, Paris; Indian Society of International Law; South Asian University; TERI School of Advanced Studies; West Bengal National University of Juridical Sciences; and Symbiosis Law School, Pune. Also, we sincerely thank and appreciate Ms. Nupoor Singh (Springer) and her publishing team for their constant support and encouragement in bringing out this volume. Yet, we take personal responsibility for our views and errors.

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Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Interactions Between Investment Tribunals and Indian Courts . 1.3 Chapterization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Scope and Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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2 International Legal Framework Relating to the Protection of Foreign Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Evolution of International Investment Law . . . . . . . . . . . . . . . . 2.3 The Rise of Bilateralism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Standard Provisions in Bilateral Investment Treaties . . . . . . . . . 2.5 The Limited Success of Multilateralism . . . . . . . . . . . . . . . . . . 2.5.1 ICSID Convention and Domestic Courts . . . . . . . . . . . . 2.5.2 ICSID Additional Facility Mechanism . . . . . . . . . . . . . . 2.5.3 The MIGA Convention . . . . . . . . . . . . . . . . . . . . . . . . 2.6 Other International Legal Instruments Relating to the Protection of Foreign Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6.1 New York Convention and Domestic Courts . . . . . . . . . 2.6.2 The UNCITRAL Arbitral Framework . . . . . . . . . . . . . . 2.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Interactions Between Domestic Courts and Investment Arbitration Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Domestic Courts’ Intervention in Arbitral Process . . . . . . . . . . 3.2.1 Domestic Courts Intervention at the Commencement of Arbitral Proceedings . . . . . . . . . . . . . . . . . . . . . . . .

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3.2.2 The Intervention of Domestic Courts During Arbitral Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 The Intervention of Domestic Courts at the Time of Enforcement of ITA Awards . . . . . . . . . . . . . . . . . . 3.2.4 A Comparison of ICSID Convention and the New York Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Investment Arbitration as a Remedy for Abuses by Domestic Courts Relating to Commercial Arbitration . . . . . . . . . . . . . . . 3.3.1 Crossover Cases Involving the Access of the European Court of Human Rights . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 Crossover Cases Involving the Recourse to Investor-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Impact of Crossover Cases on Future Claims . . . . . . . . . . . . . . 3.4.1 Question of Jurisdiction (Notion of ‘Investment’) . . . . . 3.4.2 The Question of Merits . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Investment Arbitration as an Overarching Mechanism . . . . . . . . 3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 India’s Approach to the Protection of Foreign Investment . . . . 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Protection of Foreign Investment in India Post-independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 The Scope of Investment Protection Under the Indian Bilateral Investment Treaties and Domestic Laws . . . 4.3 Protection of Foreign Investment Under International Law (BITs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1 BIT as an Instrument to Attract Foreign Investment . . 4.3.2 Features of the Indian Model BIT, 2003 . . . . . . . . . . 4.3.3 Analysis of the Indian BIT Programme . . . . . . . . . . . 4.3.4 The Period After ‘White Industries’ . . . . . . . . . . . . . 4.3.5 Changes Brought by the Revised Model BIT and Its Implication on the Future of Investment in India . . . . 4.3.6 Legal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Protection of Foreign Investment Under Indian Law . . . . . . . 4.4.1 Indian Judicial System . . . . . . . . . . . . . . . . . . . . . . . 4.4.2 Fundamental Rights . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.3 Applicability of the 1996 Act to the Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.4 Enforcement of ITA Awards Under Part II of the Act 4.4.5 Recent Policy Developments . . . . . . . . . . . . . . . . . . 4.5 Implication for Future Investment in India . . . . . . . . . . . . . . 4.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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5 Interactions Between Indian Courts and Investment Arbitral Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 ‘Attribution’ Under the Law of State Responsibility . . . . . . . . . 5.3 Judicial Acts and Investment Treaty Arbitration . . . . . . . . . . . . 5.3.1 Judicial Delay as Denial of Justice . . . . . . . . . . . . . . . . 5.3.2 Judicial Delay as a Breach of Effective Means Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.3 Fair and Equitable Treatment with Regard to Judicial Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.4 Judicial Conduct as Unlawful Expropriation . . . . . . . . . 5.4 Investment Treaty Awards Concerning India . . . . . . . . . . . . . . 5.4.1 Cancellation of 2G Licences by the Supreme Court: A Case for Judicial Expropriation and Breach of Fair and Equitable Treatment? . . . . . . . . . . . . . . . . . . . . . . . 5.4.2 Unlawful Annulment of Contract Amounting to Indirect Expropriation and Breach of Fair and Equitable Treatment Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.3 Retrospective Taxation—A Case for Breach of Fair and Equitable Treatment . . . . . . . . . . . . . . . . . . . . . . . 5.5 Indian Judicial Decisions Involving Investment Disputes . . . . . . 5.5.1 Indian Courts and Investment Treaty Arbitration—Some Lessons from Louis Dreyfus Case . . . . . . . . . . . . . . . . 5.5.2 Indian Court’s Approach on Anti-arbitration Injunction in Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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6 Conclusions and Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 Subject Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

About the Authors

A. Saravanan is Assistant Professor at the Indian Institute of Management (IIM) Indore. He has previously taught at the Centre for Post Graduate Legal Studies, TERI School of Advanced Studies, New Delhi. Before joining TERI, he was Senior Research Fellow at the Rajiv Gandhi School of Intellectual Property Law, Indian Institute of Technology Kharagpur, where he completed his doctoral research on international investment law. He has also served as a Research Assistant at the Symbiosis Law School, Pune, which selected him for its Best Researcher Award. He recently visited the Arbitration Academy, Paris, for research purposes. His broad area of research interests includes international investment law, intellectual property law, environmental law, and biotechnology law. S. R. Subramanian is Assistant Professor at the Rajiv Gandhi School of Intellectual Property Law, Indian Institute of Technology (IIT) Kharagpur. He is a recipient of the Erasmus Mundus Scholarship awarded by the European Commission, Brussels. He obtained his law education at the Universities of Leipzig (Germany), Vienna (Austria), and the King’s College, London (UK). He has previously worked at the West Bengal National University of Juridical Sciences, Kolkata, and the Hidayatullah National Law University, Raipur. He was also a Visiting Scholar at the University of Michigan Law School, USA. His areas of research interest are international law, international human rights law, and international investment law.

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Abbreviations

2G ASEAN BIPA BITs CEPA CERDS EC ECtHR EMS EU FCN FDI FEMA FERA FTA GAFTA GATS GATT IBA ICADR ICC ICJ ICSID IIA IISD ILA ILC ISDS ISRO ITA

Second generation Association of Southeast Asian Nations Bilateral Investment Promotion and Protection Agreement Bilateral investment treaties Comprehensive Economic Partnership Agreement Charter of Economic Rights and Duties of States European Commission European Court of Human Rights Effective means standard European Union Friendship Commerce and Navigation Foreign direct investment Foreign Exchange Management Act Foreign Exchange Regulation Act Free trade agreement Grain and Feed Trade Association General Agreement on Trade in Services General Agreement on Tariffs and Trade International Bar Association International Centre for Alternative Dispute Resolution International Chamber of Commerce International Court of Justice International Center for Settlement of Investment Disputes International investment agreements International Institute for Sustainable Development International Law Association International Law Commission Investor-state dispute settlement Indian Space Research Organization Investment treaty arbitration

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LCI LCIA MAI MFN MIGA MNC NAFTA NGO OECD PCA PCIJ PSI PSNR TRIMs TRIPs UAE UK UN UNCITRAL UNCTAD US VAT VCLT WTO

Abbreviations

Law Commission of India London Court of International Arbitration Multilateral Agreement on Investment Most-favoured-nation treatment Multilateral Investment Guarantee Agency Multinational corporation North American Free Trade Agreement Non-governmental organization Organization for Economic Co-operation and Development Permanent Court of Arbitration Permanent Court of International Justice Pre-shipment inspection Permanent Sovereignty over Natural Resources Agreement on Trade-Related Investment Measures Agreement on Trade-Related Aspects of Intellectual Property Rights United Arab Emirates United Kingdom United Nations United Nations Commission on International Trade Law United Nations Commission on Trade and Development United States Value-added tax Vienna Convention on Law of Treaties World Trade Organization

List of Figures

Fig. 3.1

Fig. 4.1

Fig. 4.2

Different interpretative approaches adopted by ITA tribunals to decide the question of jurisdiction in crossover cases. Sources Clasmeier (2016); Demirkol (2018); Kjos (2016); Michael Reisman (2011); Oliveira (2013); Radicati di Brozolo and Malintoppi (2010); Ray (2016); Van Harten (2014) . . . . . . . . 69 Evolution of law relating to the protection of foreign investment in India. Sources Krishan (2008); Rajput (2016); Ranjan (2014); Rao (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 ISDS clause under the Model BIT of 2015. Sources Article 15 of the revised Model BIT (2015); Saravanan and Subramanian (2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

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List of Tables

Table 3.1 Table 4.1 Table 4.2 Table 4.3

Analysis of crossover cases . . . . . . . . . . . . . . . . . . . . . . . . . . Dispute settlement provisions in selected Indian BITs . . . . . . List of pending investor-state disputes against India Post-White Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparison of 2003 Model BIT with 2015 Model BIT [In terms of the Draft Model BIT, 2015 and Law Commission of India, 260th Report]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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List of International Legal Instruments

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Abs-Shawcross Draft Convention on Investments Abroad, 1959 Agreement on Trade-Related Investment Measures, 1994 General Agreement on Trade in Services, 1994 Havana Charter, 1948 North American Free Trade Agreement, 1992 OECD Draft Convention on the Protection of Foreign Property, 1967 The Articles on Responsibility of States for Internationally Wrongful Acts, 2001 The Charter of Economic Rights and Duties of States, 1974 The Convention Establishing the Multilateral Investment Guarantee Agency, 1988 The Convention on the Peaceful Resolution of International Disputes, 1907 The Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 The Energy Charter Treaty, 1994 The General Agreement on Tariff and Trade, 1947 The IBA Guidelines on Conflicts of Interest in International Arbitration, 2014 The ICSID Additional Facility Rules, 1978 The ILA Draft Statutes of the Arbitral Tribunal for Foreign Investment and the Foreign Investment Court, 1948 The OECD Draft Convention on the Protection of Foreign Property, 1962 The Permanent Sovereignty over Natural Resources, 1962 The UNCITRAL Arbitration Rules, 1976 (as revised in 2010) The UNCITRAL Rules on Transparency, 2014 The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 The United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, 2014 The Vienna Convention on the Law of Treaties, 1969

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List of Statutes

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

The Arbitration Act, 1940 The Arbitration and Conciliation (Amendment) Act, 2015 The Arbitration and Conciliation (Amendment) Bill, 2018 The Arbitration and Conciliation Act, 1996 The Code of Civil Procedure, 1908 The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 The Constitution of India, 1949 The Foreign Exchange Management Act, 1999 The Foreign Exchange Regulation Act, 1973 The Geneva Conventions Act, 1960 The Income Tax Act, 1961 The Income Tax (Amendment) Act, 2012 (Retrospective Taxation)

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List of Reports

1. Law Commission of India Supplementary to Report No. 246, Amendments to Arbitration and Conciliation Act, 1996 2. Law Commission of India Report No. 170, Report on The Arbitration and Conciliation (Amendment) Bill, 2001 3. Law Commission of India Report No. 260, Analysis of the Draft Model Indian Bilateral Investment Treaty, 2015 4. Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, 2017

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List of Cases

1. AES v. Hungary, ICSID Case No. ARB/07/22, Award (September 23, 2010) 2. Agritrade International v. NAFED, (2012 (1) Arb. LR 405 (Delhi) 3. AIG Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. The Republic of Kazakhstan, ICSID Case No. ARB/01/6, Judgment of the English High Court of Justice on Enforcement (October 20, 2005) 4. Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award (20 November 1984) 5. Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction (February 1, 2016) 6. Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding v. The Republic of Kazakhstan, SCC Arbitration V (116/2010), Award (19 December 2013) 7. Anglia Auto Accessories v. Czech Republic, SCC Arbitration Case V (2014/181), Award (March 10, 2017) 8. Anglo-Iranian Oil Co. (UK v. Iran), 1952 I.C.J. 93 (July 22) 9. Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87/3 (June 1990) 10. ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award (May 2010) 11. Atlantic Triton Company Limited v. People’s Revolutionary Republic of Guinea, ICSID Case No. ARB/84/1, Award (April 21, 1986) 12. Attorney-General of Canada v SD Myers, Canada, Federal Court, January 13, 2004, 8 ICSID Reports 194 13. Avena and Other Mexican Nationals (Mexico v. US), 2004 I.C.J. 12 (March 31) 14. Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Decision on Jurisdiction (December 8, 2003) 15. Barcelona Traction, Light and Power Company, Ltd. (Belgium v. Spain), 1970 I.C.J. 3 (February 5) 16. BE Chattin (United States) v. United Mexican States, Decision (1927) IV RIAA 282

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xxxii

List of Cases

17. Bennett Coleman & Co. v. Union of India (1973) AIR 106 18. Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552 19. Bhatia International v. Bulk Trading case, (2002) 4 SCC 105 20. Bunge SA v. Indian Bank (2015) SGHC 330 21. Case Concerning Barcelona Traction, Light, and Power Co., Ltd (Belgium v. Spain), 1970 I.C.J. 1 (July 24, 1964) 22. Case of Kin-Stib and Majkic v. Serbia (Application no. 12312/05), Judgment (April 20, 2010) 23. CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telecom Devas Mauritius Limited v. Republic of India, PCA Case No. 2013-09 24. Centre for Public Interest Litigation and others v Union of India and others, AIR 2012 SC 3725 25. Chevron Corporation and Texaco Petroleum Corporation v The Republic of Ecuador, PCA Case No.2009-23 26. Chromalloy Aeroservices Inc. v. Arab Republic of Egypt, 939 F. Supp. 907 (D. D.C. July 31, 1996) 27. City of London Sancheti City v. Sancheti (2009) 1 LLR 117 28. CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction (July 17, 2003) 29. Compania de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Jurisdiction (November 14, 2005) 30. Consortium Groupement L.E.S.I.- DIPENTA v. Republique algerienne democratique et populaire, ICSID Case No. ARB/03/08, Award (10 January 2005) 31. Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (September 4, 2008) 32. Devas Multimedia Private Limited v. Antrix Corporation Limited, MANU/DE/0494/2017 33. Duke Energy v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (August 18, 2008) 34. EDFI v. Argentina, ICSID Case No. ARB/03/23 Award, (June 11, 2012) 35. El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award (October 31, 2011) 36. Elettronica Sicula SpA (ELSI) (USA v. Italy), 1992 I.C.J. (May 30) 37. Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Award (November 13, 2000) 38. Emmis International Holding and Ors. v. Hungary, ICSID Case No ARB/12/2, Award (April 16, 2014) 39. Enel Green Power S.p.A. v. Republic of El Salvador, ICSID Case No. ARB/13/18

List of Cases

xxxiii

40. Enron v. Argentina, ICSID Case No. ARB/01/3, Award (May 22, 2007) 41. Factory at Chorzow (Germany v. Poland), 1927 P.C.I.J. (ser. A) No. 9 (July 26) 42. Frontier Petroleum Services Ltd. v The Czech Republic, UNCITRAL Award (November 12, 2010) 43. GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award (March 31, 2011) 44. Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award (September 16, 2003) 45. Glamis Gold Ltd v. United States, UNCITRAL Award (June 8, 2009) 46. Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Award (July 7, 2004) 47. Inceysa Vallisoletana S. L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award (August 2, 2006) 48. KBR, Inc. v. United Mexican States, ICSID Case No. UNCT/14/1, Claimant’s Notice of Arbitration (Aug. 30, 2013) 49. LaGrand (Germany v. USA), 2001 I.C.J. 466 (June 27) 50. Libya v. UK, 1992 I.C.J. 3, 32 (April 14) 51. Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Award (March 26, 2008) 52. Maffezini v. Spain, ICSID Case No. ARB/97/7, Jurisdiction (January 25, 2000) 53. Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB (AF)/99/1, Award (December 16, 2002) 54. McDermott International Inc v Burn Standards Co Ltd. (2006) 11 SCC 211 55. Methanex Corporation v. United States, UNCITRAL Award (August 2005) 56. Micula v. Romania, ICSID Case No. ARB/05/20, US court decision, D.C., 2015 57. Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award (April 8, 2013) 58. Mr. Yosef Maiman and Others v. Egypt, UNCITRAL Award (confidential) 59. Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN 3467, Award (July 1, 2004) 60. Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11, Award (October 5, 2012) 61. Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd, (2003) 5 SCC 705 62. ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 63. Pan American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic, ICSID Case No. ARB/03/13, Decision on Preliminary Objections (July 27, 2006) 64. Phulchand Exports Ltd. v. O Patriot, (2011) 10 SCC 300 65. Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (February 8, 2005) 66. R. M. Investment Trading Company Private Limited v. Boeing Company, AIR 1994 SC 1136

xxxiv

List of Cases

67. Reliance Industries Limited and Anr v. Union of India, (2014) 7 SCC 603 68. Republic of Latvia v. SwemBalt Aktiebolag, Decision of the Svea Court of Appeal, Case No. O 7192-01 69. Robert Azinian, Kenneth Davitian, & Ellen Baca v. The United Mexican States, ICSID Case No.ARB (AF)/97/2, Award (November 1, 1999) 70. Romak S.A. (Switzerland) v. The Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280, Award (Nov. 26, 2009) 71. S.A.R.L. Benvenuti & Bonfant v. People’s Republic of the Congo, ICSID Case No. ARB/77/2, Award (August 8, 1980) 72. Saipem SpA v. the People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (June 30, 2009) 73. Saluka Investments BV v. Czech Republic (Partial Award), UNCITRAL (March 17, 2006) 74. Sempra v. Argentina, ICSID Case No. ARB/02/16, US court decision, New York, 2007 75. SGS Societe Generale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (August 6, 2003) 76. SGS Societe Generale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Procedural Order 2 (October 16, 2002) 77. Shri Lal Mahal Ltd v. Progetto Grano Spa (2014) 2 SCC 433 78. Societe Nationale Industrielle Aerospatiale v. Lee Kui Jak [1987] 1 AC 871 79. Societe Ouest Africaine des Betons Industriels (SOABI) v. Senegal, ICSID Case No. ARB/82/1; (Paris Court of Appeal Decision, 5 December 1989) 80. Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3, Award (May 20, 1992) 81. Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26, Award (December 27, 2016) 82. Stran Greek Refineries and Stratis Andreadis v. Greece [1994] 19 ECHRR 368 83. Suez, Sociedad General de Aguas de Barcelona S.A. and InterAgua Servicios Integrales del Agua S.A. v. Argentine Republic, ICSID Case No. ARB/03/17, Decision on Liability (July 30, 2010) 84. Tamil Nadu Electricity Board v Videocon Industries, (2009) 4 MLJ 633 85. Tata Engineering and Locomotive Co. Ltd. v. State of Bihar (1964) 6 SCR 885, 901–902 86. Tata Press Ltd. v. Mahanagar Telephone Nigam Ltd. (1995) 5 SCC 139 87. Tatneft v. Ukraine, UNCITRAL, Award on the Merits (29 July 2014) 88. Tecmed, S.A. v. Mexico (2004) 43 ILM 133 (ICSID) 89. Telenor Mobile Communications A.S. v. The Republic of Hungary, ICSID Case No. ARB/04/15, Award (September 13, 2006) 90. The Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS, MANU/WB/0695/2014 91. Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability (December 27, 2010)

List of Cases

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92. Union of India v. Dabhol Power Company, MANU/MH/1949/2002 93. Union of India v. Vodafone Group PLC United Kingdom and Ors., MANU/DE/2590/2017 94. United Mexican States v Feldman Karpa, Canada, Ontario Court of Appeal, January 11, 2005, 9 ICSID Reports 508 95. United Mexican States v. Metalclad, BCSC 664 (2001) 96. Venture Global Engineering v. Satyam Computer Services, (2008) 4 SCC 190 97. Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Decision of Spanish Court on Execution of Award (July 4, 2013) 98. Vivendi v. Argentina, ICSID Case No ARB/97/3, Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award (November 4, 2008) 99. White Industries Australia Limited v. The Republic of India, UNCITRAL, Award (Nov. 30, 2011)

Chapter 1

Introduction

1.1 Introduction and Background Over the years, investment treaty arbitration has emerged as the chief means to resolve disputes between foreign investors and the host state. One of the major reasons for this development is that the recourse to domestic courts is excluded in almost all such cases. From the investor’s perspective, domestic courts are not usually considered as an effective forum to settle their disputes with the host state because of the perceived fear of home-court bias.1 However, in practice, domestic courts, especially from certain countries, often intervene in the resolution of investment disputes under various pretexts. While the ICSID awards2 are protected under the shield of ‘exclusive remedy rule’ as they are not subjected to any appeal or challenge, except through a self-contained mechanism of review procedure,3 on the other hand, non-ICSID awards4 are subjected to a greater challenge. It may be noted that non-ICSID arbitral awards are not self-executing, and accordingly, they are subjected to judicial review by courts of forum State. There is a greater possibility that enforcement of such arbitral awards may be refused on any of the grounds listed in the New York Convention 1 Dolzer

and Schreuer (2008), Sornarajah (2010), Muchlinski et al. (2008), Schill (2009), Voss 2011), Van Harten (2007); also see Demirkol (2018). 2 The awards administered under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Mar. 18, 1965, 575 UNTS 159, Art 25.1 (hereafter the ICSID Convention). Also see Schreuer (2001). 3 See also the discussion in Delaume (1983). 4 The awards rendered by arbitral institutions such as LCIA, SCIA, SCC, or ICC, including ad hoc arbitration proceedings administered under the UNCITRAL Arbitration Rules [the UNCITRAL Arbitration Rules, Aug. 12, 2010, 49 ILM 1640]. It includes the ICSID Additional Facility awards [the ICSID Additional Facility Rules 1978, ICSID/11/Rev 1] as well, these awards are enforced through New York Convention [the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Jun. 7, 1959, 330 UNTS 3] and other applicable domestic laws; See, the critique on the system in Billiet (2016). © Springer Nature Singapore Pte Ltd. 2020 A. Saravanan and S.R. Subramanian, Role of Domestic Courts in the Settlement of Investor-State Disputes, https://doi.org/10.1007/978-981-15-7010-0_1

1

2

1 Introduction

as well as under other governing laws.5 There are also other instances in which judicial proceedings are pursued in parallel to investment arbitration, especially in cases of non-ICSID proceedings.6 Moreover, domestic courts may also a show a greater involvement in investment disputes, especially, when the applicable BIT incorporates the ‘local remedies’ rule in the investor-state dispute settlement (ISDS) clause.7 Similarly, the domestic courts under most national legal system enjoy the power to grant interim injunctions which are also used to make certain unjustifiable injunctions. These issues explain why the relationship between investment tribunals and domestic courts are increasingly becoming complex while deciding competing jurisdictional clauses in treaties and contracts. It is also observed that in the recent past, international courts and tribunals, primarily investment treaty arbitral (ITA) tribunals, and human rights courts have increasingly ruled on domestic courts’ conduct on recognition and enforcement of commercial arbitral awards.8 Generally, international commercial arbitral awards are enforced through the New York Convention and applicable national laws. Under that system, the domestic courts are said to be ‘executive partners’ to impart effectiveness of commercial arbitration proceedings. However, in practice, the court’s involvement in aid of arbitration in these countries becomes a major concern, as their involvement tends to impede the arbitral process rather than protecting it. Furthermore, it has also been seen in various jurisdictions in the recent past that domestic courts have abused their supervisory jurisdiction.9 Foreign investors too, on their part, have initiated investment arbitration as an optional detour route to enforce commercial arbitral awards, by invoking international legal principles of ‘state responsibility’.10 Accordingly, host states have been held responsible for violation of investor’s rights as out-of-turn action for acts of its courts.11 A group of recent cases12 concerning actions of domestic courts in the enforcement of commercial awards took a ‘second bite’ at the cherry in the form of investment arbitration. Prominent investment law scholar Michael Reisman called such cases as ‘crossover’ cases.13 It is noted that such crossover claims are appropriate tools to explore the unresolved questions in the field of international investment law. Another 5 See,

generally Van Den Berg (1981). (2010). 7 Lopez Ortiz et al. (2017). 8 Also see the discussion in Garnett (2011), Radicati di Brozolo and Malintoppi (2010). 9 Blackaby et al. (2009), Van Harten (2014), Oliveira (2013). 10 Bjorklund (2016), Park (2013). 11 Schreuer, supra note 6, at 88. 12 Saipem SpA v. the People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (Jun. 30, 2009); Romak S.A. (Switzerland) v. The Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280, Final Award (Nov. 26, 2009); Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Award (Nov. 12, 2010); GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award (Mar. 31, 2011); White Industries Australia Limited v. The Republic of India, UNCITRAL, Award (Nov. 30, 2011) [hereinafter the White Industries Award]. 13 Michael Reisman (2011). 6 Schreuer

1.1 Introduction and Background

3

investment law scholar Jose Alvarez noted that such crossover cases are ‘challenges to […] dichotomous public/private divide’.14 In this connection, question arises to what extent the host state can be made liable for an imperfect system.

1.2 Interactions Between Investment Tribunals and Indian Courts During the initial years after independence, India was very sceptical of foreign investment, thanks to the negative experience in the colonial era. India had denied adopting any international rules on foreign investment, including the doctrine of state responsibility,15 and doctrine of direct individual rights enshrined in the ICSID Convention.16 It seemed that Indian economic policies had focused on economic nationalism rather than internationalization. However, the economic nationalism did not work in the long run due to various domestic and international factors. The severe balance of payment crisis of the 1990s, the successive failures of monsoon and the consequent decline of agricultural production, and the impending oil crisis had forced India to choose the path of economic reforms. Therefore, all these reasons led government of India to adopt a New Industrial Policy in 1991, which liberalized foreign direct investment (FDI) inflows into India.17 As part of new economic policy, India had started signing bilateral investment treaties (BITs) to facilitate greater inflow of FDI and technology transfer. It had signed BITs and free trade agreements (FTA) with more than 80 countries, without much knowing the legal implications of the provisions of BITs.18 However, the sudden surprise came in the year 2011, when an investment treaty arbitral tribunal rendered an (adverse) award against India in the much-talked case of ‘White Industries’.19 Subsequently, several investment treaty arbitral notices have been served against India under different BITs. Significantly, most of them were served against the actions of domestic courts, for cancellation of second-generation (2G) telecom licenses,20 and the actions of issuing anti-arbitration injunctions.21 It is also contested that Indian courts liberally interpreted the term ‘public interest’, which might cause potential 14 For

a discussion on crossover cases, see Alvarez (2013). Roy (1961). 16 Rao (2000); also see Krishan (2008), Joy (1972). 17 Devashish Krishan analysed the development of BITs in India and also examined the India‘s commitment to various other international legal instruments which are witnessed in his book chapter, refer Devashish Krishan, id at 291. 18 Ranjan and Anand (2018). 19 Also see Ranjan (2014), Saravanan and Subramanian (2016). 20 Centre for Public Interest Litigation and others v Union of India and others, AIR 2012 SC 3725 (hereafter the 2G case Judgment). 21 Union of India v. Dabhol Power Company on 5 May 2004; Union of India v. Vodafone Group PLC United Kingdom and Ors., MANU/DE/2590/2017. 15 Guha

4

1 Introduction

conflicts between rights of foreign investors and protecting public interests of host State.22 Moreover, the foreign investors also question the Indian judicial system for excessive delays, and for issuing anti-arbitration injunctions. These actions have activated the discussion on the interplay between Indian BITs and domestic courts. It is in this connection, this book provides a first-ever detailed study on the interactions between investment arbitral tribunals and domestic courts, especially in the light of Indian courts. In particular, it brings out the major differences between the countries following the International Centre for Settlement of Investment Disputes (ICSID) model of investment dispute resolution process and the non-ICSID model which is followed by India. This relationship is examined at various stages of the arbitration such as before the commencement of arbitration proceedings, during the arbitration proceedings, and after the rendering of investment treaty arbitration award. This study analyses the scope of investment protection under the Indian Model BITs, and it undertakes comprehensive analysis on features of revised Model BIT and its implication on future investment in India. The research also examines various grounds under which India may incur responsibility for non-enforcement of arbitral awards. It mainly focuses on India’s (host State) liability due to undue delay in the domestic court’s process vis-à-vis BIT standards of treatment. It also attempts to evaluate the actions of Indian judiciary, executive, and legislature on investment disputes with the help of relevant Indian decisions. In the end, the study, considering both domestic and the investment arbitral decisions, is expected to contribute to the development of a better investor-state dispute settlement process in India.

1.3 Chapterization The current body of international investment law consists of principles of public international law, strong links to standards of international economic law and also applicable domestic rules. Therefore, it is pertinent to understand the scope of investment protection provided under the international legal framework before discussing similar protection rendered under the Indian BITs. Chap. 2 briefly describes the evolution of international law relating to the protection of foreign investment. The role of domestic courts under the major international instruments has been analysed in this chapter. Further, it positions the subsequent debate. The issues associated with domestic courts interference in investment arbitration are examined in Chap. 3. It critically examines the relationship between the investment treaty arbitral tribunals and domestic courts. In particular, it brings out the differences between practice in the ICSID and non-ICSID arbitral system in this aspect. The relationship is examined at different stages of the arbitration process. This chapter further examines the issue of review of domestic courts’ decision by international tribunals by way of crossover cases.

22 Rajput

(2017).

1.3 Chapterization

5

The changes brought by the revised Model BIT, 2015 and its implications on the investment treaty arbitration are critically analysed in Chap. 4. The scope of investment protection under Indian Model BITs is also examined in this chapter. The revised conception of public policy provided in Part I and Part II of the Arbitration and Conciliation (Amendment) Act, 2015, and its implication on investment treaty arbitration is an important area which requires further clarification. The application of the Arbitration and Conciliation Act to investment disputes and the issues related to enforcement of ITA awards under the Act also requires detailed examination. Therefore, these issues are identified and addressed in this chapter. Chapter 5 entails a detailed discussion on interactions between investment treaty arbitral tribunals and Indian courts. It examines various grounds under which India may incur responsibility for non-enforcement of arbitral awards. It mainly focuses on India’s (host State) liability due to undue delay in the domestic court’s process under BIT standards of treatment. The chapter also attempts to evaluate the actions of Indian judiciary, executive, and legislature on investment disputes with the help of relevant Indian decisions. Considering both domestic judicial decisions and the investment arbitral decisions, Chap. 6 contributes to the development of a better investor-state dispute settlement process in India. Currently, India does not have any dedicated legal framework or mechanism governing the recognition and enforcement of investment treaty awards. This work does not intend to propose a new legislation, as it is of the opinion that the provisions of Part II of the Indian Arbitration and Conciliation Act, 1996 will be more appropriate to deal with the issues of recognition and enforcement of such awards. The detailed suggestions are provided in this chapter.

1.4 Scope and Limitations This research work has certain limitations. Though this study uses the officially published awards and judicial decisions, it also relies upon the publicly available decisions, in cases where they are unavailable, especially in cases of ad hoc awards. Also, the ITA arbitral awards and Indian court decisions issued after August 2018 have not been largely examined in this study. Moreover, the mention of ‘domestic courts’ in this study refers to the courts of ‘host state’ unless it is specified otherwise. Hence, the reference to ‘domestic courts’ in this study may not mean the courts of ‘home state’ unless it is expressly mentioned otherwise.

References Alvarez, J. E. (2013). Crossing the “Public/Private” divide: Saipem v. Bangladesh and other crossover cases. In A. J. den Berg (Ed.), International arbitration: The coming of a new age? ICCA Congress Series (Vol. 17, p. 400). Kluwer. Billiet, J. (2016). International investment arbitration: A practical handbook (p. 175). Maklu.

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Bjorklund, A. K. (2016). The use of investor-state arbitration as a De Facto enforcement mechanism for arbitral awards. In S. Brekoulakis et al. (Eds.), The evolution and future of international arbitration, international arbitration law library (Vol. 37, pp. 97–118). Kluwer. Blackaby, N., et al. (2009). Redfern and hunter on international arbitration (p. 439). Oxford: Oxford University Press. Delaume, G. (1983). ICSID arbitration and the courts. American Journal of International Law, 77, 784, 785. Demirkol, B. (2018). Judicial acts and investment treaty arbitration (Vols. 1–3). Cambridge: Cambridge University Press. Dolzer, R., & Schreuer, C. (2008). Principles of international investment law (Vol. 214). Garnett, R. (2011). National court intervention in arbitration as an investment treaty claim. International and Comparative Law Quarterly, 60, 485, 487. Guha Roy, S. N. (1961). Is the law of responsibility of states for injuries to aliens a part of universal international law? American Journal of International Law, 55, 886–887. Joy, C. (1972). India and the international centre for settlement of investment disputes—A short critical study of official Indian view. International Law Report, 3(2), 15. Krishan, D. (2008). India and international investment law. In B. N. Patel (Ed.), India and International Law (Vol. 2, pp. 277–291). Brill. Lopez Ortiz, A., et al. (2017). The role of national courts in ICSID arbitration. In C. Baltag (Ed.), ICSID convention after 50 years: Unsettled issues (pp. 335, 340). Kluwer. Michael Reisman, W. (2011). Investment and human rights tribunals as courts of last appeal in international commercial arbitration. In L. Levy & Y. Derains (Eds.), Liber Amicorum En L’honneur De Serge Lazareff (p. 521). Pedone. Muchlinski, P., et al. (2008). The Oxford handbook of international investment law (Vol. 6). Oxford: Oxford University Press. Oliveira, T. B. J. (2013). The authority of domestic courts in adjudicating international investment disputes: Beyond the distinction between treaty and contract claims. Journal of International Dispute Settlement, 4(1), 175–179. Park, W. W. (2013). Convention violations and investment claims. Arbitration International, 29(2), 175. Radicati di Brozolo, L. G., & Malintoppi, L. (2010). Unlawful interference with international arbitration by national courts of the seat in the aftermath of Saipem v. Bangladesh. In Ballesteros & D. Arias (Eds.), Liber Amicorum Bernardo Cremades (pp. 993, 995). Kluwer. Rajput, A. (2017). Protection of foreign investment in India and investment treaty arbitration (p. 158). Kluwer. Ranjan, P. (2014). India and bilateral investment treaties—A changing landscape. ICSID Review Foreign Investment Law Jounal, 29(2), 10–12. Ranjan, P., & Anand, P. (2018). Investor state dispute settlement in the 2016 Indian model bilateral investment treaty: Does it go too far? In J. Chaisse & L. Nottage (Eds.), International investment treaties and arbitration across Asia (p. 582). Rao, S. (2000). Bilateral investment protection agreements: A legal framework for the protection of foreign investments. Commonwealth Law Bulletin, 26(1), 623–624. Saravanan, A., & Subramanian, S. R. (2016, September 16). Paradigmatic shifts in Indian bilateral investment treaties. The Indian Economist. Available at https://qrius.com/indian-bilateral-invest ment-treaties/. Last updated April 29, 2018. Schill, S. W. (2009). The multilateralization of international investment law (Vol. 2). Cambridge: Cambridge University Press. Schreuer, C. (2001). The ICSID convention: A commentary (pp. 351, 1120). Cambridge: Cambridge University Press. Schreuer, C. (2010). Interactions of international tribunals and Domestic Courts in investment law, in contemporary issues. In A. W. Rovine (Ed.), International arbitration and mediation: The Fordham papers (pp. 71, 72–73). MartinusNijhoff.

References

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Sornarajah, M. (2010). The international law on foreign investment (Vol. 18). Cambridge: Cambridge University Press. Van Den Berg, A. J. (1981). The New York arbitration convention of 1958 (pp. 264–275). Kluwer Law & Taxation. Van Harten, G. (2007). Investment treaty arbitration and public law (Vol. 5). Oxford: Oxford University Press. Van Harten, G. (2014). Judicial restraint in investment treaty arbitration: Restraint based on relative suitability. Journal of International Dispute Settlement, 5, 8. Voss, J. O. (2011). The impact of investment treaties on contracts between host states and foreign investors (Vol. 1). Martinus Nijhoff.

Chapter 2

International Legal Framework Relating to the Protection of Foreign Investment

2.1 Introduction It is generally considered that the importance of foreign investment was relatively low before the 1870s. It is the industrialization in Europe which has changed the paradigm of international economic theory and had brought in the first sign of globalization. Though there was an enormous economic growth due to foreign investment, on the legal aspect, no specific multilateral agreement governing legal protection to foreign investment currently exists.1 Accordingly, the protection and treatment of aliens were generally governed by the principles of customary international law.2 In other words, the protection of aliens on foreign territory was ensured through the general principles of state responsibility, considered as a longstanding rule of customary international law. It is in this connection, this chapter traces the evolution of international law in connection with the protection of foreign investment. This is followed by a discussion on the standard provisions in BITs, and the emergence of investor-state dispute resolution. For this purpose, the international instruments relating to investment protection such as the ICSID Convention, the MIGA Convention, the UNCITRAL Arbitration Rules, and the New York Convention, especially their dispute settlement provisions and the place of domestic courts envisaged in the rules are examined in this chapter.

1 Muchlinski 2 Schill

et al. (2008). (2009), Walker (1956).

© Springer Nature Singapore Pte Ltd. 2020 A. Saravanan and S.R. Subramanian, Role of Domestic Courts in the Settlement of Investor-State Disputes, https://doi.org/10.1007/978-981-15-7010-0_2

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2 International Legal Framework Relating to the Protection …

2.2 Evolution of International Investment Law The history of contemporary foreign investment law can be traced to the emergence of the Friendship Commerce and Navigation (FCN) treaties, generally known as the precursors to the modern Bilateral Investment Treaties. The FCN treaties mainly focused on the protection of business interests of aliens and the protection of their property rights, rather than the legal protection of investments as such.3 The first FCN treaty was signed between the USA and France on 6 February 1778.4 In the midst of American War of Independence, the USA also concluded a Treaty of Alliance with France on the same day. With the success of the first FCN treaty, the USA had negotiated a series of 22 FCN treaties between 1945 and 1968 (the last FCN treaty of USA was concluded with Thailand). These FCN treaties incorporated provisions for protection against expropriation, full protection and security, and fair and equitable standard of treatment.5 The main purpose of the FCN treaties was to establish a commercial and friendly relationship between contracting parties.6 It is relevant to note that these FCN treaties were negotiated when no international rules existed to govern specifically the protection of foreign investment. This implied that protection of investment was ensured principally through customary international law in the pre-FCN era, over which there were disagreements between the world blocks. A remarkable study was published in the year 1868 authored by famous Argentine jurist Carlos Calvo that gave a new perspective to the protection of foreign investors and their property. He opined that foreign investors should posit their rights before the domestic courts and they have no right to access international tribunals.7 The industrialized nations severely attacked the Calvo Doctrine, which led to the adoption of another standard in 1938 by Cordell Hull, then US Secretary of State. According to him, the right to expropriate foreign property can be allowed in international law provided that ‘prompt, adequate and effective compensation’ shall be paid to the foreign investors. It is generally considered that the Hull formula has later become the ‘international minimum standard’ which was strongly advocated by developed countries.8 The Calvo Clause and the Hull formula lead to a head-on battle between industrialized and developing countries with regard to the status of customary international law relating to foreign investment.9 Most of the developing countries were induced by strong ideological positions on the notions of sovereignty, as they were strong supporters of Third World rights, such as Permanent Sovereignty over Natural Resources (PSNR).10 This battle is later shifted to the United Nations (UN) General 3 Vandevelde

(1992), Alschner (2013). 6, 1778, 8 Stat. 12, T.S. No. 83; also see Vandevelde (2017). 5 Coyle (2013). 6 Vandevelde (2005), Herman Walker Jr., supra note 2 at 240. 7 Sornarajah (2010). 8 Subedi (2008). 9 See Fraga Lerner (2010), also see Stephenson et al. (2011). 10 Peter Muchlinski et al., supra note 1, at 526; Schrijver (2008). 4 Feb.

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Assembly which had passed the Resolution 1803 that brought out a compromised situation.11 It provided that in the event of expropriation, the host state should pay ‘appropriate compensation’ and further observed that ‘foreign investment agreements freely entered into by or between sovereign states shall be observed in good faith’.12 However, this political controversy between the two world blocks gave rise to shaky foundations of the standards of customary international law. In 1974, the UN General Assembly had passed another resolution to establish the Charter of Economic Rights and Duties of States (CERDS).13 The CERDS affirms rights of host state to regulate foreign investment within their jurisdiction and further states that foreign investors are not to intervene in the internal affairs of the host state. The CERDS provides compensation for expropriation to be determined on the basis of domestic law, with no reference to international law or international minimum standard. The CERDS has no binding force, but it has made certain impact on state practice relating to foreign investment protection.14 After the decolonization, several efforts were made by developed countries to establish multilateral rules on foreign investment protection such as the establishment of the International Trade Organization (ITO) and the adoption of the Havana Charter in 1948. However, these attempts could not materialize due to the ideological rifts between the capital-importing countries and the developed countries. The failure of the Havana Charter foretold the fear of expropriation in the newly independent socialist and communist states. Hence, the capital-exporting countries continued to moot the formulation of international rules on foreign investment protection.15 The leading initiatives in this regard are the International Law Association’s Draft Statutes of the Arbitral Tribunal for Foreign Investment and the Foreign Investment Court (1948), the Abs-Shawcross Draft Convention on Investments Abroad (1959),16 and the Organization for Economic Cooperation and Development (OECD) Draft Convention on the Protection of Foreign Property, 1962 (reissued with amendments in 1967), for creation of separate multilateral framework on foreign investment law.17 But the effort remains unsuccessful up to date. Though the OECD initiative could not be successful, its members suggested the utilization of the draft as Model BITs. This draft mirrored the elements of the modern BIT, such as fair and equitable treatment, full protection and security, protection against expropriation, and investorstate dispute settlement clause. Though, this effort has also failed to gain much support among its Member States due to various differences. However, the OECD

11 See

GA Res. 1803 (XVII), 17 UN GAOR Supp. No. 17 at 15, UN Doc. A/5217 (Dec. 14, 1962). (2004), Kaushal (2009). 13 ‘Charter of Economic Rights and Duties of States’, GA Res 3281, 12 Dec. 1974, (1975) 14 ILM 251. 14 Newcombe and Paradell (2009); also see Doak Bishop et al. (2005). 15 Rajput (2016). 16 Andrew Paul Newcombe and Lluis Paradell, supra note 14, at 21. 17 Kammerhofer (2017). 12 Schwebel

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Draft Convention has influenced the Model BITs of France, the UK and USA, and several other countries.18 However, many countries started embracing BITs as a part of their economic liberalization soon after the World Bank had issued Guidelines on the Treatment of Foreign Direct Investment.19 It sets out the legal framework governing foreign direct investment. These Guidelines were not created as binding rules, but as a part of best practices with respect to treatment, expropriation, transparency, control corrupt practices in dealings with foreign investors, and settlement of investment-related disputes. The ITA tribunals also intermittently referred to the Guidelines while interpreting BIT obligations.20

2.3 The Rise of Bilateralism Several international forums had attempted to bring multilateral investment treaty after World War II, though they have largely resulted into failure. The primary objection from the developing and Third World countries to such initiatives is that such rules might infringe their sovereignty. This has contributed to the gradual decline of multilateralism and the rise of bilateralism in the investment sphere. The failure of multilateralism and the emergence and success of bilateralism are closely connected than it appears. Another interesting question arises here, whether BITs can constitute the entire functional substitute for features of multilateralism. While capitalexporting nations push for widespread multilateral rules on foreign investment, on the other hand capital-importing nations are interested in the BITs for promotion and protection of foreign investment.21 The area of BIT is considered to be one of the active areas of international lawmaking during the last three decades.22 Unlike the FCN treaties, the BITs had initially negotiated by the European countries for the purpose of creating a legal framework to govern foreign investments.23 In fact, a new and important era in the development of modern BIT program had started during the 1960s. In this regard, West Germany sowed the first seed of modern BIT by concluding its first BIT with Pakistan in 1959 which entered into force in 1962. While the main objective of this

18 Stephan

W. Schill, supra note 2, at 889. ILM 1379, this is better known as the ‘Washington Consensus’; also see Wendrich (2005). 20 Also see Fedax N.V. v. Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (11 July 1997), para 35; CME v. Czech Republic, UNCITRAL Award (14 March 2003), para 161. 21 Aniruddha Rajput, supra note 15, at 5. 22 R. Doak Bishop et al., supra note 75, at 31. 23 Unlike earlier commercial agreements, the modern BITs are negotiated by the European countries for the purpose of creating a legal framework to govern foreign investments; see Salacause (1990). 19 31

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13

BIT was to protect the German investors abroad,24 the substantial contents of this BIT resembled that of the 1967 OECD Draft Convention. The need for industrial capital for Third World nations prompted them to accept foreign investment and it led to conclusion of many BITs during the 1990s. Following Germany, Switzerland signed its first BIT in 1961 with Tunisia, and similarly, France with Tunisia in 1972.25 It is interesting to note that the European countries have signed more than 150 BITs till 1980s. The USA had launched its BIT program in 1982 with Panama, and similarly, China signed its first BIT in 1982. By the end of the 1990s, more than 1857 BITs had been signed and many were concluded between non-industrialized states.26 It is interesting to note that bilateral and sectoral agreements on foreign investment promotion and protection proliferated and continued to dominate even after the 1990s. Some legal scholars viewed that the bilateralism laid down a road to create uniform international investment rules rather than counteracting with multilateralism.27 Many developing states, such as India,28 Argentina, Brazil, and Chile concluded their first BITs during the 1990s. Surprisingly, the BITs are also concluded between developed nations on some occasions. For instance, the US–Canada FTA, especially its Chap. 16 which deals with the subject of foreign investment protection.29 According to one estimate, currently there is a total of 2952 BITs and out of them around 2358 BITs are in force, involving more than 180 countries.30 It is pertinent to note that though the primary purpose of BITs is to promote foreign investment, but there is no direct and clear evidence to show the strong relationship between investment treaty protection and the foreign direct investment (FDI) inflows.31 While some scholarly works agree that ‘signing investment treaties increases FDI’32 other studies qualify that investment treaties increase FDI only incrementally. However, in a significant study by Neumayer and Spess sought to prove that entering BIT increases the FDI inflows into the developing country.33 On the other hand, some observers have been pessimistic on the effects of BITs on FDI inflows.34 24 Ghouri

(2011). Kammerhofer, supra note 17, at 4–8. 26 Andrew Paul Newcombe and Lluis Paradell, supra note 14, at 48. 27 Stephan W. Schill, supra note 2, at 63–64; Wolfgang Alschner, supra note 3, at 463–46. 28 India signed its first BIT with the UK in 1994. It had signed around 83 BITs till the end of 2010. However, Indian government had unilaterally terminated more than 50 BITs due to the backlash after White Industries Case. 29 Jeswald Salacause, supra note 23, at 658–659; Paparinskis (2013). 30 Investment Policy Hub, International Investment Agreements, Unctad, http://investmentpolic yhub.unctad.org/IIA, this information is up to date till August 2018 (last accessed on Aug. 10, 2018). 31 See Bonnitcha (2014). 32 Id. at 105; Egger and Pfaffermayr (2009). 33 Neumayer and Spess (2005); For the first study from India which claims that BITs promoted FDI inflows in India, see Bhasin and Manocha (2016). 34 See generally, Kerner (2018), Wang (2017). 25 Jorg

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Many scholars35 have argued that historically BITs seems to be more closely connected to multilateralism than the form of bilateral investment treaties. Currently, BITs have become a ‘popular and accepted instrument’ of choice to promote and protect foreign investment, and it is frequently used by African, Asian and Latin American countries.36 Surprisingly, the number of BITs between developed and developing countries has gone down, though, it is increased between developing countries and countries in transition. For instance, one-fourth of all BITs signed till 2004 were concluded between developing countries, i.e. South–South BITs. It is pertinent to note that investment protection through BITs receives almost universal recognition, and only very few countries in the world have not signed any BIT.37 It is significant to note that, with the success of BIT negotiations, a considerable number of regional agreements have emerged during the 1990s with separate chapter on investment. The most prominent among them are the North American Free Trade Agreement (NAFTA) concluded between USA, Canada, and Mexico in 1992, the Mercado Comun del Sur (MERCOSUR), and the Association of Southeast Asian Nations (ASEAN) Comprehensive Investment Agreement. Another important sectoral agreement is the Energy Charter Treaty, 199438 which incorporates detailed provisions on the promotion and protection of foreign investment in energy sectors. Most of the above-mentioned regional and sectoral agreements have features and standards similar to standard version of BITs.39

2.4 Standard Provisions in Bilateral Investment Treaties The ICSID tribunal in case of AES Corporation v Argentina emphasized that ‘each BIT has its own identity’.40 However, as discussed earlier, most of the BITs follow a standard structure and have the same objectives and purposes, though their terminologies are not identical.41 Generally, BITs start with a preamble as objectives to the treaty, and they are usually reciprocal arrangements between host state and home state. This is followed by the scope of application of the BITs, which identifies different types of property which comes within the purview of the term ‘investment’. This definition part is followed by the general standards of treatment that sought 35 Stephan

W. Schill, supra note 2, at 41; Reich (2010), Schill (2010). Ali Ghouri, supra note 24, at 192. 37 Countries such as, French Guiana, Puerto Rico, Gibraltar, and Isle of Man, have not signed single BIT till to date; also see, Investment Policy Hub, International Investment Agreements Navigator http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu (last visited on Aug. 16, 2019). 38 Energy Charter Treaty, December 17, 1994, 2080 UNTS 95; 34 ILM 360 (1995) [hereafter the ECT Treaty]. 39 Escobar (1997), Bernardini (2001). 40 AES Corporation v. The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005, Paras 24–25 [hereafter the AES Case]. 41 Kenneth J Vandevelde, supra note 4, at 1–5; Salacuse (2015). 36 Ahmad

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to establish different standards of treatment provided to the host government. The expropriation and standards of compensation are asserted in the penultimate part of the treaty. The procedure of settlement of disputes is stated in the last part of the treaty.42 Each part is briefly discussed below. (a) Scope of Application The common terms such as ‘investment’, ‘nationals’, ‘returns’, ‘measures’, and ‘territory’ are defined in this part of the bilateral investment treaty. As there is no uniform definition for the term ‘investment’, it may be either ‘asset-based’ (that includes all kinds of property) or it may be ‘enterprise-based’ (by listing the specific type of property and investments). It has generally been the practice of the capital-exporting countries to adopt broad definition to protect all kinds of investments.43 On the other hand, capital-importing countries seek to impose certain limitations on the scope of the BIT so that the provisions of the treaty are not used for unintended purposes. The developing countries are encouraged to include portfolio investments in its definition for the purpose of free capital flows.44 A study by the United Nations Conference on Trade and Development (UNCTAD) in 2004 reported that majority of the world BITs have broad definition for investment.45 Such BITs ensure that unlimited rights and interests for the foreign investors, i.e. the term ‘every kind of assets’ includes not only tangible and intangible property but also investor-state contracts as well. Similarly, the BITs usually define the notion of investor (natural persons or legal entities or both) and the method for determination of nationality. (b) Standards of Treatment The substantive protection of investments includes a number of standard investor’s rights. Most of the BITs generally include non-discriminatory provisions, such as fair and equitable treatment, full protection and security, national treatment, mostfavoured nation treatment, umbrella clauses, protection against expropriation, and free transfer of capital. Fair and equitable treatment is a creation of international law, and there is no concise meaning for the term ‘fair and equitable’ treatment, it is subjected to different interpretations.46 It is often read with other standards like national treatment, mostfavoured nation treatment and full protection and security provisions. Generally, confusion arises as to the meaning of the fair and equitable treatment provisions and

42 M

Sornarajah, supra note 1, at 188.

43 see Article 1 of UK–Singapore BIT; also see US Model BIT 2012, Article 1 has a long list includes

shares, stock, bonds, debentures, IPRs, licences, authorizations, revenue-sharing contracts, tangible or intangible, immovable or movable property, and related property rights, such as leases, mortgages, liens, and pledges. 44 Jeswald W. Salacuse, supra note 41, at 80. 45 See UNCTAD, World Investment Report 8 (United Nations, 2004). 46 See Jeswald W. Salacuse, supra note 41, at 82.

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the international minimum standard.47 For instance, the NAFTA Free Trade Commission’s interpretative note declared that the notions of fair and equitable treatment and full protection and security do not require treatment more than that which is required by the customary international law minimum standard of treatment.48 On the other hand, the US Model BIT and the Canada Model BIT state that fair and equitable treatment is referred to as international minimum standard.49 National treatment is an obligation of the host state to treat foreign investments on par with domestic investments. Capital-importing countries generally include this provision with some derogation for the development of its own enterprises. On the other hand, capital-exporting states often claim this provision as a part of the minimum standard of treatment. The other principle of discrimination which is contained in the BIT is the most-favoured nation principle. According to this principle, if the host state is granting special favourable treatment to one foreign investor, the same treatment shall be extended to all the other investors without any discrimination. However, recently this principle is used in the context of dispute resolution clauses of BIT. As ruled in the case of Maffezini v Spain, in case any dispute arises, the investor can shop beneficial provisions from any other BIT concluded between the host state and a third party by invoking the most-favoured nation principle, a practice otherwise known as ‘treaty shopping’.50 (c) Expropriation and Compensation Expropriation is an act of the host state to disallow the foreign investor to gain profits from his property and investments. Almost all the investment treaties ensure the protection of important rights of investors including protection in the event of expropriation. In fact, compared to the other standards of treatment, the provisions as to the protection against expropriation are very similar in almost all the BITs, if not identical. It is also to be noted that this provision has attained uniform pattern not only because of provision of treaty law but also of the customary international law origins of expropriation.51 It is pertinent to note that the expropriation not only mean direct expropriation which involves the takeover of title from foreign investor to the host state, but it also covers indirect, creeping or de facto expropriations which involve host state’s measures that do not affect the ownership or title though it may affect their property’s substance or may declare the owner’s control over it as void.52 It is significant to note that the dividing line between the compensable indirect expropriation and 47 For example, Saluka Investments BV v. Czech Republic (Partial Award), UNCITRAL, 17 March 2006, Paras 279–309; Glamis Gold Ltd v. United States (Award), UNCITRAL, 8 June 2009, Paras 559–627; also See Schreuer (2010). 48 NAFTA (2019). 49 M Sornarajah, supra note 1, at 204. 50 Maffezini v. Spain (Jurisdiction), ICSID Arbitral Tribunal, Case No. ARB/97/7, 25 January 2000, Para 64; also see the discussion in Radi (2007). 51 Andrew Paul Newcombe and Lluis Paradell, supra note 14, at 321. 52 Brown (2014).

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the non-compensable regulations are not settled till today.53 But it is a well-settled principle in international investment law that both direct and indirect expropriations are legally valid if they ensure that (a) such actions are performed for the public purpose, (b) without any discrimination, (c) observing the due process of law, and (d) ensures compensation. It is also noted that the quantum of compensation is still a contested issue in investment law as different BITs follow different standards, ranging from ‘reasonable’ to ‘appropriate’ compensation. However, generally, BITs accept the Hull formula of ‘prompt, adequate and effective’ compensation. As discussed earlier, the issue with regard to standard of compensation for expropriation, whether to adopt Hull formula (prompt, adequate and effective compensation) or Calvo Clause (compensation is equivalent to national treatment) is still debated. Currently, there is no uniform practice for claiming compensation. While the BITs of developing countries, as well as the US Model BIT, support Hull formula, the Dutch BITs have adopted another alternative clause, i.e. ‘just’ compensation.54 Of late, the revised Indian Model BIT, 2015 offers different standard for compensation against expropriation: ‘compensation shall be adequate and be at least equivalent to the fair market value of the expropriated investment immediately on the day before the expropriation takes place’.55 (d) Emergence of Investor-State Disputes The disputes between the home states and host state for the expropriation of foreign property can be traced back to the end of eighteenth century. Traditionally, foreign investment disputes were settled through the ‘diplomatic protection’.56 It includes a variety of actions such as consular action, negotiation, mediation, judicial and arbitral proceedings, reprisals, retorsion, severance of diplomatic relations, economic pressure and at last resort, use of force.57 The scope of the diplomatic protection is very limited, as the foreign investor cannot directly approach international tribunals without the support of the home state.58 The jurisprudence of the early investment arbitrations was generally between the contracting parties to the treaty, i.e. State-to-State arbitration rather than investor-tostate arbitration. The most of the early known State–State disputes were referred to the erstwhile Permanent Court of International Justice and the International Court of Justice. The celebrated cases are Chorzow Factory Case,59 Anglo-Iranian Oil

53 Methanex Corporation v. United States (Final Award), UNCITRAL, August 2005, Part IV, Ch. D, para 7 [hereinafter the Methanex Award]. 54 Piero Bernardini, supra note 39, at 242. 55 Press Information Bureau, Model Text for the Indian Bilateral Investment Treaty, dated 16 December 2015, http://pib.nic.in/newsite/PrintRelease.aspx?relid=133411 (last accessed Mar. 10, 2018), Article 5 of the 2015 Indian Model BIT [hereafter the Model BIT, 2015]. 56 Singh and Sharma (2013). 57 Crawford (2013). 58 Ahmad Ali Ghouri, supra note 24, at 190. 59 Factory at Chorzow (Germ. v. Pol.), 1927 P.C.I.J. (ser. A) No. 9 (July 26).

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Company Case,60 Barcelona Traction Case,61 and ELSI Case.62 In Chorzow Factory case, the Permanent Court of International Justice ruled that injured party is entitled to restitution of their property in case of any unlawful expropriation.63 In AngloIranian Oil Company Case, the International Court of Justice ruled that concessionary contract cannot be called as an international treaty and accordingly, and it had no jurisdiction to decide this case.64 The International Court of Justice in Barcelona Traction Case addressed the issues and status of the nationality of companies in international law.65 The chamber of International Court of Justice had interpreted the provision for compensation and the local remedies rule in the FCN treaty between the USA and Italy in the most seminal ELSI Case. It is pertinent to note that the investment disputes has witnessed sharp rise as a result of investors reliance on BITs. Generally, BITs allow investors to bring direct claims in international arbitration against the host state.66 In many instances, investors have been given the direct access to approach international arbitral institutions. Subsequently, state-to-state disputes decreased and eventually Article 21(7) of the ICSID Convention curtailed the exercise of diplomatic protection.67 The developing countries started incorporating specific investor-state arbitration clause in their BITs, during the end of the 1970s. The first BIT of such kind was concluded between Indonesia and Netherlands in 1968, with a condition on mandatory state consent for investor-state arbitration.68 The first investor-state disputes were administered under the UK–Sri Lanka BIT in 1987 in the most celebrated Asian Agricultural Products Ltd v Sri Lanka (AAPL) Case69 in which jurisdiction had been assumed by the ICSID Centre. This dispute was an outcome an internal conflict between Sri Lankan government and Tamil rebels. After the successful conclusion of AAPL arbitration, the investment treaty arbitration has become an important method and effective tool for investors to resist host state’s regulation and seek compensation for unlawful expropriation.70 The ‘consent’ to international arbitration becomes most important element of the investor–state arbitration clause. It was mandatory in all the BITs signed during the

60 Anglo-Iranian

Oil Co. (U.K. v. Iran), 1952 I.C.J. 93 (July 22). Concerning Barcelona Traction, Light, and Power Co., Ltd (Belgium v. Spain), 1970 I.C.J. 1 (July 24, 1964). 62 Elettronica Sicula SpA (ELSI) (U.S.A v. Italy), 1992 I.C.J. (May 30). 63 Jeswald W Salacuse, supra note 41, at 82–84. 64 Nico Schrijver, supra note 10, at 194 and 436. 65 Id., at 437. 66 Chester Brown, supra note 52, at 401. 67 Dolzer and Schreuer (2008). 68 Article 11 of Indonesia and Netherlands BIT (1968); Andrew Paul Newcombe & Lluis Paradell, supra note 14, at 369. 69 Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87/3 (Jun 1990). 70 Van Harten and Loughlin (2006). 61 Case

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1970s and the 1980s.71 Also most BITs provide pre-arbitral settlement by way of negotiation, and conciliation. It is interesting to note that most of the older BITs72 tend to adopt ‘local remedies rule’, which means that investors have to exhaust all the remedies provided under host state’s domestic legal framework before resorting to international arbitration.73 But local remedies are hardly ever used in investment arbitration due to fear of home-court bias.74 It is mainly for this reason, the modern BITs bypassed the use of local remedies rules on condition of consent to international arbitration that is well established in the ICSID as well as in non-ICSID arbitral system.75 Arbitration may be administered under the rule of the ICSID Convention or under the UNCITRAL Arbitration Rules or through ad hoc non-institutional arbitration. But the scope of consent to arbitration may vary from BIT to BIT. For instance, some BITs allow for arbitration concerning the violation of ‘any substantive investor rights’, but some may limit the scope only to ‘expropriation’ or violation of ‘fair and equitable treatment’ or only for ‘contractual claims’.76 In this regard, more detailed discussions can be found in Chap. 4. In the recent past, number of states and other stakeholders raised their concerns on legitimacy of investment treaty arbitration.77 The low esteem on investor-state arbitration could be perceived through various reasons, such as ‘regulatory chill’ created by investment arbitration, lack of transparency in investment arbitration, conflict of interests, problems with parallel proceedings, and inconsistent decisions.78 It is also relevant to note that some countries expressed their interest to withdraw from obligations under international investment agreements. For instance, Bolivia, Venezuela, and Ecuador have denunciated from the ICSID Convention. It should also be noted that Australia had signed FTA with US, Malaysia, and New Zealand with no ISDS clause in its investment chapter. In 2015, India revised its Model BIT, which sought to impose mandatory five-year local remedies rule for investors before resorting to international arbitration. India also unilaterally terminated 58 BITs in 2017. In the light of above-discussed issues, some scholars and stakeholders started exploring alternative methods to resolve investor-state disputes.79 71 Eventually, the investment arbitration became an effective international adjudicative mechanism. Even several regional investment treaties such as the NAFTA, the ECT invoked a mandatory investment arbitration clause in their respective investment chapters; also see id. 72 For example, see Article 10 of Albania—Greece BIT (1991); Article 10 of Argentina—Netherlands BIT (1992). 73 Exhaustion of local remedies is well-established longstanding principles of customary international law; also see Schwebel and Wetter (1966), Trindade (1978). 74 Foster (2011). 75 For example, see Article 9(2)(b) of Malta–Serbia BIT (2010); Article 10(2) of Russian Federation– United Arab Emirates BIT (2010). 76 Ahmad Ali Ghouri, supra note 24, at 196; Alejandro Escobar, supra note 39, at 491. 77 Franck (2005); also see the authorities cited in Chester Brown, supra note 52, at 419. 78 Schram (2018); also see Andrew Stephenson et al., supra note 9, at 606. 79 Alternative methods such as negotiation, mediation, and conciliation; also see Salacuse (2008).

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2.5 The Limited Success of Multilateralism Two international conventions relevant to the protection of foreign investment were successfully negotiated under the aegis of the World Bank: Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID), 196580 and Convention Establishing the Multilateral Investment Guarantee Agency (MIGA), 1988. While the ICSID Convention provides detailed procedural rules for conducting arbitrations between host States and foreign investors, the second one aims at creation of a multilateral political risk insurance framework for foreign investment.81

2.5.1 ICSID Convention and Domestic Courts One of the then General Counsel of the World Bank, Mr. Aron Broches mooted the debate on the scope of the settlement of investment disputes within the World Bank framework. His design later became the International Convention on the Settlement of Investment Disputes in 1965, and it eventually paved the way for the establishment of the International Centre for Settlement of Investment Disputes (ICSID Centre) to settle the disputes between the host states and the nationals of other states.82 The main objective of the Convention is to promote international cooperation for economic development and to establish a better arbitral forum to settle the disputes arising in connection with foreign investment. It had laid down detailed procedure, rules and institutional support mechanism to conduct arbitral proceedings. The Convention is known for its salient features: foreign investors can directly raise a claim against the host state without involvement of their home state; international law can be applied to the disputes between the investors and host state, exclusion of local remedies rule before resorting to international investor-state arbitration, and automatic recognition of ICSID awards in all the Member States.83 The Convention while laying down the jurisdiction of the ICSID Centre in Article 25(1) provided that it shall extend to all the legal disputes directly arising out of the investment between a Contracting party to the Convention and a national of other Contracting State. It is mandatory for the parties to consent to the jurisdiction of the ICSID Centre.84 However, the parties’ recourse to the arbitration under the 80 Convention on the Settlement of Investment Disputes between States and Nationals of Other States art. 25.1, Mar. 18, 1965, 575 UNTS 159, Art 25.1 [hereafter the ICSID Convention]. 81 Asha Kaushal, supra note 12, at 505. 82 Preamble of the ICSID Convention; also see Schreuer (2001). 83 Peter Muchlinski et al., supra note 1, at 20. 84 Article 25 of the ICSID Convention has been interpreted several times, most of the tribunal have adopted ‘Salini’ test emerged from decision in Salini v. Morrocco Case to decide an existence of investment. This tribunal had identified four elements of investment such as certain duration, assumption of risk, substantial commitment, and host state’s development. It is also noted that

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ICSID Convention is on a voluntary basis, and the Member State’s ratification of the ICSID Convention per se does not entail the acceptance of the Centre’s jurisdiction for settlement of investment disputes in individual cases. Accordingly, host state and investors have to submit proof for explicit consent separately for the ICSID arbitration.85 The consent agreement need not be a document signed by both the parties, and it may be a general offer to all or certain investors which may be found in legislation or in a treaty to which the host state is a party and accepted by the investor. Another important feature of the ICSID arbitration is the finality of the ICSID awards and its automatic recognition in the Member States. Unlike ad hoc arbitrations, the arbitration administered under the ICSID Convention is not subjected to any scrutiny before the domestic courts. Instead, the ICSID Convention provides an internal procedure for review. As a part of internal review mechanism, the Convention provides four procedures for challenging the ICSID awards as stipulated in Articles 49–52 of the Convention. They are: the rectification of any clerical, arithmetical errors in the award, interpretation in case of an issue relating to the meaning or scope of an award, revision on the ground of discovery of new facts which might affect the award, and request for an annulment of award.86 Article 54 of the Convention ensures that the ICSID awards are ‘directly enforceable upon registration and without further jurisdictional control’.87 Member State has to recognize the ICSID award and enforce it as if it were a final judgment of a court in that State.88 In this connection, it is instructive to note the observation of the ICSID tribunal in Vivendi v Argentina: ‘one of the fundamental issues which the drafters of the ICSID Convention were keen to achieve was a total divorce from the recognition and enforcement system which prevailed under domestic laws or under the 1958 New York Convention’.89 However, the recognition and enforcement of the award90 takes place only before the courts of its Member State, though the awardcreditor can use his discretion to choose the place for enforcement, depending upon his capability to locate non-immune assets of award debtor.91

some tribunals added ‘regularity of profit and return’ as a fifth criteria under ‘Salini’ test; also see Schreuer, supra note 82, at 128. 85 Begic (2005), Burke-White and Von Staden (2010). 86 Annulment in different from an appeal, in case of ICSID system, an ad hoc committee decides the annulment application. It cannot review the decision of tribunal instead it can check the jurisdiction, whether tribunal had applied proper law or not; also see the discussion in Ding (2016). 87 CMS Gas v. Argentina, ICSID Case No ARB/01/08, Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award (1 September 2006), Para 40. 88 Article 54(1) of the ICSID Convention. 89 Vivendi v. Argentina, ICSID Case No ARB/97/3 (Second Annulment Proceeding), Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award (4 November 2008), Para 35. 90 Recognition and enforcement are two different but interrelated processes, discussed detail in Sect. 3.2.3 of Chap. 3. 91 Uchkunova and Temnikov (2014).

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It is pertinent to note that the enforcement regime provided under the ICSID Convention is highly ‘delocalized’, i.e. without interference of domestic courts wherever possible, and this is the distinguishing element between the enforcement of the ICSID awards and the New York Convention Awards. Accordingly, the enforcement state cannot refuse the execution of ICSID awards on the ground that the award is violative of ordre public or any other grounds provided under the New York Convention or under the domestic law. However, there is a possibility that such awards’ enforcement may be stayed on the ground of ‘state immunity’ provided under Article 55 of the Convention. Some states such as India, Brazil, Poland, and South Africa are not members of the ICSID Convention. In such situations, a question may arise as to whether the award-creditor may rely on the New York Convention to enforce ICSID awards in the territory of non-member states. However, Christoph Schreuer opines that the question of applicability of the New York Convention to ICSID awards is ‘not likely to arise’.92 Still, it is submitted that this question may be relevant in exceptional situations like enforcement of ICSID awards in non-ICSID States.93 The arbitration administered under the ICSID Convention was originally conceived as the self-contained and autonomous system which functions independently of the other judicial systems, especially without the participation of domestic courts. This specific autonomous independent character is enshrined in several provisions of the ICSID Convention.94 For instance, Article 26 of the Convention provides that the agreement as to the ‘exclusion of any other remedies’ is a part of the consent to arbitrate under the Convention. On other hand, the ‘exclusivity rule’ under Rule 39(6) of the ICSID Additional Facility Rules allows the domestic courts to order provisional measures, with a condition on the consent of the parties. However, over the years the practice of exclusion has undergone some but important changes. They are mainly examined in Chaps. 3 and 5. Recourse to ICSID arbitration enables the investors to settle their disputes in an independent and impartial forum. Many scholars stated that voluntary recourse to investment arbitration, depoliticizing the settlement of investment disputes, and apolitical approach to investor-state relations may be the key factors for the success of the ICSID Convention.95 It is for these and other related reasons the ICSID Convention is considered as one of the most successful multilateral instrument which governs most of the BIT-based investor-state disputes till date. Dolzer and Schreuer stated that the establishment of the ICSID was the boldest innovative step in the modern history of international investment law.96 It is to be noted that the ICSID Centre has remained largely inactive until the 1990s, and it had decided only a few cases. But, the ratio has drastically increased since the 1990s, and it has now become the main arbitral forum and Aron Broaches vision had 92 Schreuer,

supra note 82, at 1118. Subramanian (2013). 94 Lopez Ortiz et al. (2017). 95 Alejandro Escobar, supra note 39, at 491. 96 R Dolzer and C Schreuer, supra note 67, at 20. 93 See

2.5 The Limited Success of Multilateralism

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come into reality today. On the one side, the proliferation of BITs led to increase in the number of investor-state disputes, the number has been rising from 50 in 1996 to 1023 till date.97 On the other hand, some developing countries denunciated from the ICSID Convention. For instance, Bolivia became the first country to withdraw from the ICSID Convention in 2007. After two years, Ecuador also withdrew from the ICSID. Later, Venezuela became the third Latin American country to exit the Convention in 2012.98 The continuous withdrawals and threatened withdrawals mainly focused on the mandatory consent from host state to administer the ICSID arbitration.99

2.5.2 ICSID Additional Facility Mechanism The Administrative Council of the ICSID Centre has adopted the Additional Facility Rules100 in 1978 to cater the dispute resolution services in investment disputes between the contracting states of ICSID and non-members of ICSID. The Rules apply if at least one party is an ICSID Contracting State or a national of a Contracting State. This Facility is mainly used in two categories of disputes: (a) to settle legal disputes arising directly out of investment where at least one party to the dispute is not a party to the Convention or (b) where the dispute is between parties to the Convention but it was not directly arising out of investment.101 It may be noted that though Facility awards are rendered by the ICSID Centre, they are not governed by the ICSID Convention. However, some provisions of the administrative and financial regulations of the ICSID would still apply mutatis mutandis with respect to proceedings administered under the Additional Facility Rules.102 In addition, the Additional Facility mechanism assumes more practical importance in the case of NAFTA members103 as most of the NAFTA cases are administered under Additional Facility Rules.104 This is due to the fact that Article 1120 of the NAFTA provides that consent to arbitration would mean that (a) the dispute may be resolved under the ICSID Convention, if both the parties are members of the Convention or (b) under the Additional Facility Rules if any one of the disputing parties is a member of the Convention or (c) under the UNCITRAL Arbitration Rules. 97 Out of 1023, 343 cases are pending, 674 are Concluded and 6 are unknown, also see https://inv estmentpolicy.unctad.org/investment-dispute-settlement (last accessed June 20, 2020). 98 See Ginsburg (2014); also see Wolfgang Alschner, supra note 3, at 476. 99 Aniruddha Rajput, supra note 15, at 14–16. 100 The ICSID Additional Facility Rules 1978, ICSID/11/Rev 1, Art. 2 [hereafter the Additional Facility Rules]. 101 Article 2 of the Additional Facility Rules. 102 Article 5 the Additional Facility Rules. 103 Because, Mexico has signed the ICSID Convention only on 11 January 2018, deposited the instrument of Ratification on 27 July 2018. It will enter into force on August 26, 2018; also see https://icsid.worldbank.org/en/Pages/News.aspx?CID=285 (accessed July 29, 2018). 104 Asha Kaushal, supra note 12, at 492.

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Moreover, the Additional Facility proceedings have to be kept outside the jurisdiction of the ICSID Centre, and no provision of the Convention shall be applicable to the recommendations, awards, recognition, and enforcement of awards. Hence, the exemptions provided in the ICSID Convention such as domestic courts scrutiny and international review mechanism shall not applicable to the Additional Facility Awards.105 On the other hand, the recognition and enforcement of Additional Facility awards are subject to the New York Convention. Consequently, the awards rendered under these Rules can be challenged before domestic courts on the grounds mentioned in Article V of the New York Convention. Moreover, the Additional Facility mechanism expressly allows the party to apply to any competent judicial authority for interim or conservatory measures, and such judicial authority shall not be held to infringe agreement to arbitrate or affect powers of the tribunal. However, the proceedings conducted under these Rules shall receive the institutional support from the ICSID Centre in the same way as if it were the proceedings administered under the ICSID Convention.

2.5.3 The MIGA Convention The MIGA Convention106 is another successful multilateral instrument negotiated under the umbrella of the World Bank. The objective of the Convention is to ‘encourage the flow of investments for productive purposes among member countries’.107 This Convention offers insurance scheme for foreign investors in developing countries and covers currency transfer restrictions and inconvertibility, expropriation and similar measures, breach of contract, and damages from war and civil disturbances.108 Under this Convention, if a host state fails to comply with the arbitral award, the investor, who insured for political risk from MIGA, rather than attaching the assets owned by the host state, can claim under the MIGA.109 It is significant to note that this Convention, unlike the ICSID Convention, does not impose any direct obligations on the treatment of foreign investment upon its Member States. This might be one of the reasons why most of the developing countries have agreed to become member of this Convention.110 After the success of the ICSID and the MIGA Conventions, the developed countries have launched several attempts to bring back the issue of multilateral rules 105 See

Metalclad Corp v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (August 30, 2000) [hereafter the Metalclad award]; Helgeson and Lauterpacht (2002). 106 Convention establishing the Multilateral Investment Guarantee Agency, 11 October 1985, 1508 U.N.T.S. 99 (I-26012) (entered into force 12 April 1988), 24 ILM 1598 (1985) [hereinafter the MIGA Convention]. 107 Preamble of the MIGA Convention. 108 Article 11 of the MIGA Convention. 109 Baroudi (2017). 110 Asha Kaushal, supra note 12, at 505.

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to deal with the treatment of foreign investment. Even attempts are made to bring the investment issues under the ambit of the GATT/WTO system. This resulted in the successful negotiation of the Agreement on Trade-Related Investment Measures (TRIMs) during the Uruguay Round. However, TRIMs was not considered as a comprehensive multilateral framework as its scope was very limited. It merely focused on ‘investment measures related to trade in goods’ rather than dealing with ‘foreign investment protection’.111 It may be noted that the WTO members are unable to reach a consensus on the standards of investment protection within the WTO system. However, it may be noted that the General Agreement on Trade in Services (GATS) has achieved some success concerning the investment liberalization in the services sector, though it was limited by specific commitments and derogations.112 In summary, it may be stated that the WTO Agreements have only a limited role in the development of substantive standards of multilateral investment protection.

2.6 Other International Legal Instruments Relating to the Protection of Foreign Investment 2.6.1 New York Convention and Domestic Courts This Convention113 aims to provide common legal standards for recognition of arbitration agreements and enforcement of foreign arbitral awards. The scope of the Convention is limited only to the enforcement of ‘arbitration agreement’ coming within the purview of Article II.3 and enforcement of ‘foreign arbitral awards’ coming within the ambit of Articles I, III, IV, V, and VI of the Convention.114 Unlike the Article 54 of the ICSID Convention, Article III of the New York Convention has not specifically excluded the enforceability of non-pecuniary remedies. However, the difficulty of enforcement of non-pecuniary remedies such as injunction and order of specific performance raises sovereign prerogatives of the host states.115 Each member shall recognize arbitral awards as binding and enforce it accordance with the rules of procedure of the Enforcement State. In this connection, Article IV lays down the minimum requirements to be fulfilled by the petitioner at the time of application for enforcement. The party seeking enforcement shall submit original Convention award

111 Arie

Reich, supra note 35, at 275. Ali Ghouri, supra note 24, at 202. 113 The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, 330 UNTS 3, Entry into force on 7 June 1959, Article 1 [hereafter the New York Convention]. 114 Article VII.2 of the New York Convention. 115 Jonathan Bonnitcha, supra note 31, at 60. 112 Ahmad

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or certified copy and original agreement mentioned in Article II or its certified copy. However, they shall not impose any onerous conditions or higher fees or charges on enforcement of Convention awards.116 Article V is considered as the soul of the Convention as it lays down certain grounds for the refusal of enforcement of awards. These are invalidity of the arbitration agreement, violation of due process, disputes falling beyond the scope of the agreement, irregularity in the composition of the arbitral tribunal or arbitral procedure, and the award ‘has not yet become binding’ or ‘has been set aside’ or ‘has been suspended’ by competent authority. It also provides that the burden of proof is upon the party against whom the enforcement is sought (respondent).117 The Convention enables its members to adopt national framework in order to comply with the Convention. It is evident that the real implementation of the Convention is performed by the domestic courts and national system.118 Despite these provisions supporting the effective enforcement of arbitral awards, in practice it is found out that the arbitral awards rendered under the ICSID Convention can be easily enforced in domestic courts than enforcement of non-ICSID awards.119 The reason being, the New York Convention facilitates review by domestic courts, on the other hand the ICSID Convention excludes domestic review.120 Also, with reference to the issue of sovereign immunity exception, the New York Convention is silent as it was not intending to replace the local laws on sovereign immunity against the enforcement state.121

2.6.2 The UNCITRAL Arbitral Framework As discussed earlier, the ICSID Centre is generally considered as the default forum for settlement of investor-state disputes. However, there are other international arbitral institutions such as International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Stockholm Chamber of Commerce, Arab Centre, and Kuala Lumpur Regional Centre for Arbitration (KLRCA)/Asian International Arbitration Centre which have arbitrated certain number of investment disputes or

116 Article

III of the New York Convention; Also see, Billiet (2016). V of the New York Convention; See, generally Van Den Berg (1981); Gaillard and Bermann (2017). 118 Greenberg et al. (2011); Also see the discussion in Bermann (2017a). 119 However, the national legal framework for enforcement of the ICSID awards may also provide a mechanism without involvement of its domestic courts. 120 Gazzini and De Brabandere (2012); Bermann (2017b). 121 The Vienna Convention on the Law of Treaties (VCLT), and the Iran–US Claims Tribunal also greatly contributed to international investment jurisprudence. Articles 31–33 of the VCLT provide guidance on interpretation of investment treaties. It is also noted that the Iran–US Claims Tribunal’s jurisprudence has been extensively cited by ITA tribunals in various cases. See the discussion in Walde (2009); also see the detailed analysis in Gibson and Drahozal (2006). 117 Article

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they have not excluded the investor-state arbitration from their purview.122 These institutions generally conduct their proceedings either under their own institutional rules or under the UNCITRAL Arbitration Rules.123 The UNCITRAL Arbitration Rules has established a comprehensive and universal set of international arbitration rules.124 It does not establish any institution to administer arbitration proceedings. Outside the institutional arbitration, the second highest number of known investment treaty arbitrations are conducted under the UNCITRAL Arbitration Rules, which accounts for 26% of investment arbitration cases. The UNCITRAL Arbitration Rules has influenced international arbitration by way of setting proposal for national legislation.125 With reference to investment treaty arbitration, the substantive rules are provided in the respective BITs and not in the UNCITRAL Arbitration Rules. The UNCITRAL Arbitration Rules, 1976 provide comprehensive procedural rules for the conduct of arbitration proceedings, which is widely used in all types of ad hoc arbitrations. These Rules touch upon all aspects of arbitral process ranging from, appointment of arbitrators, conduct of arbitral proceedings, and the effect and interpretation of the award. The 1976 Rules were revised in 2010126 to meet the challenges in arbitral practice over the last three decades. The revised Rules seek to enhance the efficiency of arbitral process without fundamentally altering the spirit of the 1976 Rules. The revised Rules introduced a number of new features to enhance the efficiency of arbitral proceedings such as detailed provisions for interim measures. Article 26(9) of the UNCITRAL Arbitration Rules, 2010 allows parties to apply appropriate judicial authority for interim measures, and it provided that by doing so they shall not be deemed to have waived the agreement to arbitrate.127 The 1976 version of the Rules followed the most restrictive approach so far as the issue of transparency is concerned. For instance, Article 25(4) of the 1976 Rules provided that the hearings are to be held in camera and that the ‘award can be made public only with the consent of parties’ in terms of Article 32(5). However, the revised Rules did not establish any general rule on confidentiality of proceedings. Moreover, these Rules may also be read in the light of the recently adopted Mauritius 122 Gommel

(2015). United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, Apr. 28, 1976, U.N. Doc. A/31/17, U.N. Sales No. E. 77. U.6 (1976) [hereinafter the UNCITRAL Arbitration Rules]; also see Croft et al. (2013). 124 Caron et al. (2006). 125 The UNCITRAL Model Law, 1985; Ahmad Ali Ghouri, supra note 24, at 199–200. 126 The UNCITRAL Arbitration Rules 2010, came into effect on August 15, 2010, 49 ILM 1640 (2010); Preamble of the UNCITRAL Arbitration Rules (2010). 127 In order to bring the harmonization on definition and scope of interim measures in international arbitration, the UNCITRAL amended Article 17 of the UNCITRAL Model Law in 2006. It defines the tribunal powers to grant interim measures and also describes the role of domestic courts in enforcement of such interim measures. Article 17A of the 2006 UNCITRAL Model Law laid down certain conditions for granting interim measures such as irreparable harm and balancing of hardships, and reasonable possibility of success on the merits; also see UNCITRAL Model Law on Commercial Arbitration, art. 17, U.N. Doc. A/40/17, U.N. Sales No. E.08.V.4 (2008), Chapter IVA on Interim Measures. 123 The

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Convention, 2017,128 and the UNCITRAL Rules on Transparency, 2013129 which has sought to enhance the transparency through participation of amicus curiae, and mandatory publication of certain arbitral documents. The tribunal conducted under the UNCITRAL Arbitration Rules shall have the power to rule on its own jurisdiction.130 The award rendered under the UNCITRAL Arbitration Rules shall be made in writing, final and binding on the parties and the tribunal shall provide the reasons upon which the award is based. The parties have to comply with the awards without undue delay. The award may be made public with the consent of the disputing parties.131 The enforcement mechanism of the UNCITRAL award is not provided in the UNCITRAL Arbitration Rules as enforcement and recognition of such awards are provided in the New York Convention. In the case of India, as it prefers to resolve its investment disputes either under the ICSID Additional Facility Rules or under the UNCITRAL Arbitration Rules, the investment awards under Indian BITs are enforced through the New York Convention.132 It is relevant to note that Article 36 of the 2010 Rules prescribes various grounds for challenging the enforcement of foreign arbitral awards. These grounds include invalidity of the arbitration agreement, the incapacity of parties to present its case, award outside the scope of submission, non-arbitrable subject matter, and violation of public policy. Thus, it is clear that the investment arbitral awards under Indian BITs will also be subject to those grounds mentioned in the New York Convention.

2.7 Conclusion The study notes that bilateralism dominated over multilateral development in the area of international investment law, due to ideological rifts between developed and developing nations. The limited success of multilateral instruments has failed to create universally accepted international rules for protection of foreign investment. However, BITs have tried to establish some common rules for investment law. The existing literature also supports that international investment law is multilateralizing on the basis of BITs. In the case of ICSID Convention, the enforcement regime provided under it is highly delocalized and it does not expressly envisage any larger role for domestic courts, though the ICSID practice seems to contradict this in certain cases. It very much restricts the application of doctrine of sovereign immunity, local remedies rule, and diplomatic protection. On the other hand, under the New York 128 The

United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (Enter into force 18 October 2017) G.A. Res. 69/116 (also known as the Mauritius Convention on Transparency). 129 The UNCITRAL Rules on Transparency, 2013, G.A. Res. 69/116, U.N. Doc. A/RES/69/116. 130 Article 23(1) of the UNCITRAL Arbitration Rules, 2010; Ahmad Ali Ghouri, supra note 24, at 199. 131 Article 34(5) of the UNCITRAL Arbitration Rules, 2010. 132 S. R. Subramanian, supra note 93, at 207.

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Convention, the award (including investment arbitral award in non-ICSID context) is subject to challenge before the domestic courts on the grounds mentioned in Article V of the Convention. The legal practice and the jurisprudence arising out of this framework are examined in Chap. 3.

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Chapter 3

Interactions Between Domestic Courts and Investment Arbitration Tribunals

3.1 Introduction It is significant to note that investors prefer international arbitration as a preferred method to resolve their crossborder commercial and investment disputes. The reason could be arbitration is more flexible, and it allows party autonomy. Parties are reluctant to submit their disputes before domestic courts for various reasons.1 However, domestic courts involvement is inevitable for proper functioning of arbitration, especially at the time of annulment, recognition and enforcement of arbitral award. The enforcement of awards requires active co-operation from host states. Not all arbitral awards are self-executing, and it is not enforceable until domestic courts ruled to do so. For instance, international commercial awards are enforced through the New York Convention and the applicable national laws. Therefore, domestic courts are said to be an ‘executive partner’ to provide the effectiveness of the arbitration proceedings. However, the involvement of domestic courts in aid of arbitration seems to be a serious concern, because their involvement tends to impede the arbitral process rather than protecting it. It has also been witnessed in various jurisdictions in the recent past that the supervisory jurisdiction of domestic courts has been invoked without adequate grounds.2 In the case of investment disputes, one of the significant reasons for an investor to choose an international arbitral forum to settle their disputes with host state is to avoid the use of domestic courts: because of the fear of partiality and home-court bias. Even if there is no actual intervention by domestic courts, the host state has the 1 For

the detailed discussion of investment claims concerning commercial awards, see Schreuer (2010), Nigel Blackaby et al. (2009), Van Harten (2014), Oliveira (2013), Ortiz et al. (2017), Demirkol (2018). See generally Cheng (2018). 2 Sattar (2010).

© Springer Nature Singapore Pte Ltd. 2020 A. Saravanan and S.R. Subramanian, Role of Domestic Courts in the Settlement of Investor-State Disputes, https://doi.org/10.1007/978-981-15-7010-0_3

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potential to influence the outcome of the judicial proceedings.3 Moreover, even if the investor succeeds in the court proceedings, the national executive may fail to respect the judgement of the court. Moreover, the courts of investor’s home state may not be considered as a feasible forum, in view of the lack of territorial jurisdiction of such courts and the issues of state immunity.4 The choice of domestic courts over international arbitral tribunals has been questioned over the centuries. While some States advocated ‘party autonomy’, others favoured increasing the role of courts, some others supported international arbitration and denied ‘any role’ for domestic courts.5 The UNCITRAL Model Law also provides for a clear yet limited role for the local courts, especially the courts of the seat of arbitration. For instance, Article 5 states that ‘in matters governed by this Law, no court shall intervene except where so provided in this Law’.6 In some situations, parties seek the support from the court in the event of any need for assistance or supervision. Prof Margaret Moses suggests that a thin line should be drawn between ‘helpful assistance’ and ‘unhelpful interference’.7 Yet in some cases, it is difficult to draw the boundaries between these two. It is also observed that in the recent past, international courts and tribunals, primarily investment treaty arbitral tribunals, and human rights courts have increasingly ruled on domestic courts’ conduct on recognition and enforcement of commercial arbitral awards. These awards are subjected to the New York Convention and applicable national laws for such purpose. It is also plausible that investor may initiate international investment arbitration to seek an enforcement of the foreign commercial arbitral award, if domestic courts wrongfully refuse to enforce the foreign commercial arbitral awards or cause undue delay in enforcing such an award. This is due to the fact that the action of the judiciary can be attributed to the state itself.8 Investment arbitration is spreading its supervisory mechanism when domestic courts wrongfully refuse to enforce foreign commercial arbitral awards. This transformation challenges the traditional concept for various reasons. It challenges the understanding of overall ‘architecture’ of the international commercial arbitration. It is widely accepted that international commercial arbitration builds finality of arbitral awards, with courts at the seat of arbitration is competent to annul the award and courts’ at enforcement state to decide only the enforcement or non-enforcement of awards. This traditional architecture is ‘closed 3 Schreuer,

supra note 1, at 71–72. doctrine of sovereign immunity restricts investors to bring actions against the sovereign state before the courts of another state. It is clearly established in the ICSID Convention, for instance, Article 55 of the Convention provides, ‘nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution’. 5 Nigel Blackaby, supra note 1. 6 Id. at 441. 7 Sameer Sattar, supra note 2, at 51. 8 Priem (2013). 4 Because,

3.1 Introduction

35

one’ because there is no recourse against a final verdict of these courts. It is pertinent to note that the New York Convention does not provide any remedy to the aggrieved party, in the event of violation of the treaty by domestic courts. On the other hand, the recent practice shifts from traditional concept (i.e. last resort to domestic courts) to a new role for international tribunals to exercise a kind of ‘super-supervisory’ role over the conduct of domestic courts.9 It is in this connection, this chapter critically examines the relationship between the investment treaty arbitral tribunals and domestic courts. In particular, it will bring out the major differences between the countries following the ICSID model of ISDS process and the non-ICSID model. This relationship is examined at the various stages of the arbitration process such as, before the commencement of arbitration proceedings, during the arbitration proceedings, and after the rendering of ITA award. This chapter also discusses the review of domestic court’s decision by international tribunals by way of crossover cases.10 It also addresses certain issues relating to jurisdiction of ITA tribunal to hear crossover cases and also discusses as to what extent the New York Convention is relevant to decide on the question of merits in crossover cases. This study also identifies the possible avenues available for award-creditor to defeat the refusal of enforcement.

3.2 Domestic Courts’ Intervention in Arbitral Process The interplay between domestic courts and ITA is complex due to BITs revision of customary rule of investors to exhaust local remedies and due to diverse language in recent BITs on cooling-off periods and fork-in-the-road claims.11 The empirical study done by Gus Van Harten found that domestic court’s decision played a pertinent role in 71 out of 162 ITA cases, approximately 44% of total cases.12 The complexities arose in various levels, the first category, included cases in which domestic court decision was the direct or the ‘sole object of an investor’s complaint’.13 The second category arose from cases where domestic courts were involved in review of legislative or 9 Kaufmann-Kohler

(2013).

10 Investment arbitral tribunals review the actions of domestic courts in enforcement of commercial

awards by the way of second arbitration called ‘crossover’ cases. This chapter analyzed the crossover cases in detail in third section; also see Alvarez (2013). 11 Gus Van Harten, supra note 1, at 8. 12 For detailed discussion see Van Harten (2013); Gus Van Harten, supra note 1, this study up-to-date till 2014. 13 Most prominent cases fall under this category includes, Loewen v. US (Award, 26 June 2003) paras 3–7; Plama v. Bulgaria (Award, 27 August 2008) paras 68–72; Saipem v. Bangladesh (Award, 30 June 2009) paras 171–73 and 188–90; Chevron v. Ecuador (No 1) (Award, 30 March 2010) para 33; the other decision includes Romak S.A. v. Uzbekistan (Award, Nov 26, 2009); Frontier Petroleum v. Czech Republic (Award Nov 12, 2010); GEA Group v. Ukraine (Award, March 31, 2011); White Industries Australia Limited v. The Republic of India, UNCITRAL, Award (Nov. 30, 2011) [hereinafter the White Industries Award].

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executive actions of the host state, challenged by the investor.14 Lastly, some cases where domestic courts are involved in the resolution of disputes between the two private parties.15 Also, some rare occasions arose when investors initiate ITA claims after or along with the domestic judicial review. In this research, this intervention will be examined at the various stages of the arbitral process such as, before the commencement of arbitration, during the conduct of arbitral proceedings, and after rendering an award or during the enforcement.

3.2.1 Domestic Courts Intervention at the Commencement of Arbitral Proceedings There are three situations in which domestic court intervenes at the beginning of the arbitral process, (i) reference of the dispute to arbitration, (ii) establishment of the arbitral tribunal, and (iii) challenging the jurisdiction of the arbitral panel.16 The situation arises, when a party to the arbitration agreement administers legal proceedings before the domestic court for violation of arbitration agreement. There may be various reasons for not complying with arbitration agreement. However, it is generally accepted that, whenever the parties violate or attempt to violate an arbitration agreement, the domestic courts will refer the parties to arbitration by staying legal proceedings. This obligation is clearly enshrined in Article II of the New York Convention, and also in Article 8 of the UNCITRAL Model Law on International Commercial Arbitration, 1985.17 If parties fail to constitute an arbitral tribunal, and if there is no applicable rules, in such circumstances the domestic court may intervene and appoint the presiding arbitrator. In order to assess the authority of domestic courts concerning investment arbitration, it is indeed necessary to determine the different jurisdictional entitlements provided by international investment law.

3.2.1.1

Local Remedies Rule

It is significant to note that under customary international law, investors before resorting to an international forum, it is necessary for them to exhaust the remedies offered by host state’s domestic courts. However, it may be noted that the requirement

14 It includes Feldman v. Mexico (Award, 16 December 2002), paras 11, 16 and 22; Nykomb v. Latvia (Award, 16 December 2003) 16, 20 and 24–30; ADM v Mexico (Award, 21 November 2007), paras 83–4; BG Group v Argentina (Award, 24 December 2007) paras 66–9; Glamis Gold v US (Award, 8 June 2009) paras 146–47. 15 For instance, CME v Czech Republic (Award, 14 March 2003) para 22; Helnan v Egypt (Award, 3 July 2008) para 6; Itera v Georgia (Award, 4 December 2009) paras 17–18. 16 Nigel Blackaby, supra note 1, at 439–464. 17 Id. at 443.

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of exhaustion of local remedies tends to appear more frequently in case of the firstgeneration BITs signed during the 1970s. Even the recent investment treaty practice confirms that ‘local remedies’ rule is not insisted upon in contemporary investment dispute resolution. In fact, the modern investment treaties are circumventing the use of local remedies rule by way of consent to arbitration. It is strongly applied in both the ICSID and non-ICSID arbitral jurisprudence. For instance, Article 26 of the ICSID Convention reverses the common practice under customary international law. The first part of the Article 26 has two prominent features. The first is the ‘exclusive remedy rule’, which means that once the parties consent to ICSID arbitration, their right to seek remedies before another forum is ceased. The second feature is the ‘principle of non-interference’, which means that ICSID tribunal has to act independently without the interference of domestic courts.18 However, the latter part of the Article 26 clarifies that contracting States may require investors to exhaust the local remedies as a condition of consent to arbitration under the Convention.19 Local Remedies Rule in Investment Treaty Arbitral Tribunal Practice But in practice, the local remedies rules were hardly ever used, and they are found only in the older BITs. In the absence of such express requirement in the BIT, the investor can depart from the general rule, and they are entitled to initiate international arbitration proceedings without the need of prior exhaustion of local remedies.20 For instance, the ICSID tribunals in Amco v. Indonesia,21 and Generation Ukraine v. Ukraine22 confirmed that in the absence of express requirement by the state, the local remedies shall be ‘deemed to be have waived’.23 It is pertinent to note that some other BITs require the investors to exhaust local remedies within a certain period before initiating arbitration. The duration is varied under applicable treaties, generally from three months to five years adopted in Revised Indian Model BIT, 2015. In some cases, the investors have circumvented the use of local remedies rule by invoking the most-favoured nation clause. This situation arose most famously in the case of Mafezzini v. Spain24 administered under Argentina–Spain BIT, wherein 18 However, the domestic courts play pertinent role in the case of enforcement of ITA awards; see also the discussion in Schreuer (2001). 19 Thiago Braz Jardim Oliveira, supra note 1, at 179. 20 Alejandro Lopez Ortiz et al., supra note 1, at 333. 21 Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award (20 Nov. 1984) [hereinafter Amco Award]. 22 Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award (16 Sept. 2003). 23 Para 63 of the Amco Award. 24 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Award (13 Nov. 2000).

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the investor successfully eluded local remedies rule by relying upon the favourable provision in the Chile–Spain BIT, which contained no such requirement.25 However, subsequent cases circumvented the use of most-favoured nation clauses extending to ISDS provisions. The tribunal in Wintershall v. Argentina26 held that the most-favoured nation provision contained in Germany–Argentina BIT could not be extended to dispute resolution provisions, as it cannot serve as a reason to avoid the local remedies before initiating international arbitration.27 However, the ICSID tribunal in Telenor Mobile v. Hungary28 has adopted a narrow construction of mostfavoured nation clauses. Therefore, it should be applied only to substantive provisions and not to be extended to dispute resolution provisions.29

3.2.1.2

Competing Jurisdictional Clauses in Treaties and Contracts

However, a difficult problem might arise in the relationship between the investment tribunals and domestic courts in the context of competing jurisdictional clauses in treaties and contracts. Sometimes foreign investment can be made through a contract between the investor and an entity of the host state which contains ‘forum selection clauses’ that refers the disputes to host state’s domestic courts.30 It is often the case that the host state raises an objection that the case involves only contractual claims to access domestic courts, while the investors argue that the dispute essentially involves treaty claims paving the way for access to investment arbitral tribunals.31 The separation of treaty claims and contractual claims in the cases where a contract has jurisdiction clauses that refer the disputes to domestic courts is not always clear, and this situation gives rise to numerous practical problems.32 Because the actions of host state might constitute a breach of contract as well as a violation of international legal obligations. In case the BIT offers a broad definition of the term ‘investment’, as in the case of Article 8 of Sri Lanka Model BIT [‘any dispute between a Contracting Party and an investor of the other Contracting Party’], the broad category of the treaty claims might be interpreted to include contract claims as well. As the ICSID tribunal ‘shall be judge of its own competence’ and jurisdiction, domestic courts have no power to determine the jurisdiction of the tribunal.33 Even, 25 Alejandro Lopez Ortiz et al., supra note 1, at 335; For a general discussion, see Demirkol (2015). 26 Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/04/14, Award (8 Dec. 2008) [hereinafter the Wintershall Award]. 27 Para 160 of the Wintershall Award. 28 Telenor Mobile Communications A.S. v. The Republic of Hungary, ICSID Case No. ARB/04/15, Award (13 Sept 2006). 29 Alejandro Lopez Ortiz et al., supra note 1, at 335. 30 Id., at 340. 31 Saravanan and Subramanian (2017). 32 Rajput (2017). 33 Convention on the Settlement of Investment Disputes between States and Nationals of Other States art. 25.1, Mar. 18, 1965, 575 UNTS 159, Art 41(1) [hereafter the ICSID Convention].

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Article 45(1) of the Additional Facility Rules and Article 23(1) of the UNCITRAL Arbitration Rules, 2010 provide exclusive powers to these tribunals to determine their competence and jurisdiction.34 However, in practice host states often sought to challenge the jurisdiction of the investment tribunals before the domestic courts by way of anti-arbitration injunctions as in the case of SPP v. Egypt,35 Soufraki v. UAE,36 Inceysa v. El Salvador,37 and SGS v. Pakistan.38 Societe Generale de Surveillance S.A. v. Islamic Republic of Pakistan39 It is pertinent to analyse the most seminal case of SGS v Pakistan for various reasons. It is the first arbitration case in which ICSID tribunal examined the legal effect of the BIT on contractual claims. The procedural order40 of the SGS tribunal had carefully balanced the rights and concerns of Claimants and Respondents. The claimant (i.e. SGS) is a Switzerland-based multinational corporation (MNC) which provides inspection, verification, testing and certification services worldwide. The government of Pakistan and SGS has entered into a pre-shipment inspection (PSI) Agreement on 29 September 1994. As per the terms of the contract, SGS had to provide pre-shipment inspection services for the goods exported to Pakistan. Accordingly, SGS had set up its local offices in Karachi and Lahore. The arbitral clause contained in Article 11 of the Agreement provided that: if any dispute arising out of this ‘agreement, or breach, termination or invalidity’ shall be settled by arbitration in accordance with the Arbitration Act, 1940 of Pakistan and the place of arbitration shall be at Islamabad.41 The contractual dispute broke out after two years, and the parties sued each other before different courts in Switzerland and Pakistan. 34 The UNCITRAL Arbitration Rules 2010, art. 23, came into effect on August 15, 2010, 49 ILM 1640 (2010); Preamble of the UNCITRAL Arbitration Rules (2010) [hereafter the UNCITRAL Arbitration Rules]. 35 Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3, Award (20 May 1992). 36 Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Award (7 July 2004). 37 Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award (2 August 2006). 38 Prof Sussman & Michael Hwang had referred anti-arbitration injunction as ‘arbitral terrorism’, and it also identified as ‘guerrilla in nature’. Because, it causes delay and derail the arbitration procedure which later becomes ineffective; see the discussion in Goldhaber (2004). 39 SGS Societe Generale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (August 6, 2003) [hereinafter the SGS Jurisdiction]. 40 SGS Societe Generale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Procedural Order 2 (16 October 2002) [hereinafter the SGS Procedural Order]. 41 Id. para 11–15; Douglas (2009).

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Initially, Pakistan gave notice to SGS for a termination of PSI Agreement. Eventually, SGS took this matter to the Swiss court, but the court refused to grant relief on the ground of ‘sovereign immunity’.42 On the other side, Pakistan initiated arbitration under the PSI Agreement before the Senior Civil Judge in Islamabad pursuant to Section 20 of the Arbitration Act, 1940. Therefore, SGS alleged that Pakistan had wrongfully repudiated the contract.43 SGS requested the ICSID tribunal for arbitration on 12 October 2001, on the ground that Pakistan had illegally expropriated their investment and failed to ensure adequate protection guaranteed under various standards of treatment under Articles 4(2) and 6(1) of Pakistan–Switzerland BIT. After initiation of ICSID arbitration, SGS had filed an injunction suit to stay the PSI arbitration until the ICSID tribunal decides the jurisdiction of the disputed issue.44 The Senior Civil Judge rejected SGS application and directed both the parties to settle the disputes through arbitration under the PSI Agreement. Therefore, SGS appealed the matter to Lahore High Court, which was later dismissed. Further, claimant appealed to the Supreme Court of Pakistan on 5 March 2002. The Supreme Court also dismissed the appeal and affirmed Pakistan’s request ‘to proceed with the PSI Agreement arbitration and restrained the Claimant from pursuing or participating in the ICSID arbitration’.45 After the Supreme Court’s verdict, SGS approached the ICSID tribunal for interim measures.46 The tribunal also provided interim measures to the claimant and stayed the PSI arbitration until the determination of jurisdiction over SGS’s claims. Respondent argued that the PSI Agreement took precedence over the BIT. But, the tribunal rejected respondent’s argument by relying on Lanco and Vivendi decisions, and affirmed that it had jurisdiction over SGS’s treaty claims, and held that the forum selection clause in the PSI Agreement was not considered to be no bar to the jurisdiction of ICSID tribunal.47 The tribunal had addressed two serious concerns to determine the jurisdiction. Firstly, whether contract claims can be purely transformed into treaty claims under Article 11 of the BIT. Secondly, whether dispute settlement clause provided under Article 9 of the BIT covered disputes relating to breach of contract. The claimant contended that the term ‘commitments’ enshrined in Article 11 of the BIT includes Pakistan’s contractual obligations. But, the tribunal requested for clear and persuasive evidence from the claimant to convince the intent of contracting parties in incorporating Article 11 of the BIT. However, SGS had failed to submit a corroborative ‘evidence of the necessary level of specificity and explicitness of the text’.48 Hence, the tribunal rejected investor’s claim on Article 11. The claimant further alleged that the tribunal has jurisdiction under Article 9 of the BIT to determine the contractual claims. To determine its jurisdiction, the 42 Para 43 Para

24 of the SGS Jurisdiction. 28–30 of the SGS Jurisdiction.

44 Id. 45 Para

39 of the SGS Jurisdiction. (2003). 47 Para 189 of the SGS Jurisdiction. 48 Para 173 of the SGS Jurisdiction. 46 Alexandrov

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41

tribunal interpreted the phrase used in Article 9 of the BIT and it observed that ‘disputes with respect to investments’ means ‘descriptive of factual subject matter of the dispute, … not relating to the legal basis of the claims, or the cause of action, asserted in the claims’. Hence, the tribunal did not find anything in Article 9 or any other provisions of the BIT which can provide the jurisdiction to this tribunal ‘over claims resting ex hypothesi exclusively on contract’.49 Therefore, the tribunal concluded that the contractual breaches ‘do not also constitute or amount to breaches of the substantive standards of the BIT’.50 After the SGS v. Pakistan case, the ICSID tribunal rejected its jurisdiction over contractual claims in subsequent cases such as El Paso v. Argentina,51 and LESI (Dipenta) v. Algeria.52

3.2.1.3

Fork-in-the-Road Provision

It refers to the possibility of submitting the ISDS adjudication before the domestic courts. This choice made by the parties to exclude the international forum, establishes a ‘finality’ of the choice of forum. For example, Article 10.5 of India–UAE BIT provided that, once the investor chose to select the forum to settle the disputes ‘that choice shall be final and binding on investor’. The ICSID tribunal in Maffezini v. Spain opined that the fork-in-the-road provision cannot be circumvented by invoking the most-favoured nation provision. In practice, it will be difficult to determine whether the investor has made an actual choice of the forum before domestic courts to prevent international arbitral tribunals from exercising jurisdiction. In case the investor forced to select local court proceedings, in this situation investor does not necessarily be barred from pursuing its claims before international tribunals. The scholars opine that not every action brought before domestic courts constitute a choice under this provision.53 When any issue arose concerning the invocation of the fork-in-the-road provision as a basis for objection to jurisdiction, the ICSID tribunals have resorted to the distinction between treaty and contract claims; it allows investors to choose local courts for the contractual claims.54 The ITA tribunal in the celebrated case of Chevron v. Ecuador 55 discussed the fork-in-the-road requirement provided in the US–Ecuador BIT. The tribunal firstly observed the ‘sameness’ of the dispute. Secondly, it noted that the ‘sameness’ depends upon a ‘triple identity test’ that consists of the identity 49 Para

161; Zachary Douglas, supra note 41, at 237–238. 162; of the SGS Jurisdiction. 51 El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15 (Award 31 Oct. 2011). 52 Consortium Groupement L.E.S.I.- DIPENTA v. Republique algerienne democratique et populaire, ICSID Case No. ARB/03/08, Award (10 Jan. 2005). 53 Aniruddha Rajput, supra note 32, at 342. 54 Vivendi v. Argentina, ICSID Case No. ARB/97/3, Award (21 Nov. 2000), paras 53–55. 55 Chevron Corporation and Texaco Petroleum Corporation v The Republic of Ecuador, PCA Case No. 2009-23 [hereafter the Chevron Award]. 50 Para

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of parties, object, and the cause of action. Finally, the tribunal observed that ‘strict application of the triple identity test would deprive the fork-in-the-road provision of all or most of its practical effect’.56 The investment arbitral jurisprudence confirmed this observation in a number of celebrated cases notably, CMS v. Argentina,57 Azurix v. Argentina,58 SGS v. Philippines,59 and Pan American v. Argentina.60

3.2.2 The Intervention of Domestic Courts During Arbitral Proceedings Domestic courts also play a ‘minimal’ role during investment arbitration proceedings, when the party makes the request either to national courts for provisional measures or any other reliefs before rendering an arbitral award. The domestic court’s involvement is necessary during this stage to ensure proper conduct of the arbitration.61 For instance, the court assists in taking evidence, or to order interim measures. Such reliefs are sometimes used to prevent or stop parallel court proceedings, mostly through anti-suit injunctions. The jurisdiction of the forum seems to be most appropriate for granting anti-suit injunction. Generally, anti-suit injunctions are considered as a well-known method in common law jurisdictions and are granted upon the request of a party that the other party be prohibited from initiating or continuing with a legal action in a different jurisdiction. For instance, the English court in the seminal case of Cohen v. Rothfield 62 order a party to withdraw an action commenced in Scotland, as foreign litigation was considered to be ‘oppressive or vexatious’. Further requirements for granting of such injunctions were later laid down by the Privy Council in the case of Societe Nationale Industrielle Aerospatiale v. Lee Kui

56 Also,

there is confusion between fork-in-the-road provision and principles of res judicata. The object of both does not overlap, for instance, res judicata concern only on disputes settled already. The fork-in-the-road clauses concern only on initiation of proceedings and not the settlement of the dispute; Thiago Braz Jardim Oliveira, supra note 1, at 191; also see the recent work Mengke Cheng, supra note 1, at 99. 57 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction (17 Jul 2003). 58 Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Decision on Jurisdiction (8 Dec. 2003). 59 SGS Societe Generale de Surveillance S.A. v. Republic of the Philippines, Decision of the Tribunal on Objections to Jurisdiction (20 Jan. 2004). 60 Pan American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic, ICSID Case No. ARB/03/13, Decision on Preliminary Objections (July 27, 2006); also see Thiago Braz Jardim Oliveira, supra note 1, at 181; Aniruddha Rajput, supra note 32, at 344. 61 Nigel Blackaby, supra note 1, at 443. 62 Cohen v. Rothfield [1919] 1 KB 410.

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Jak.63 The domestic courts in civil law jurisdictions are increasingly granting antisuit injunctions, in certain situations, to enjoin a party to suspend or bring an end to an action brought in another jurisdiction. For instance, in the context of bankruptcy, the French Court of Appeal in Banque Worms v. Epoux Brachot et autres case upheld the lower court’s decision to stop real estate proceeding brought in Spain.64

3.2.2.1

Provisional Measures Ordered by Domestic Courts in Support of Investment Arbitration

The parties are free to approach domestic courts for provisional relief anytime, including after initiation of arbitration proceedings before a tribunal. However, in practice, the parties would approach domestic courts in two circumstances, firstly in the case of any urgency, generally before constitution of arbitral tribunals; secondly when the tribunal lacks jurisdiction or power to grant requested measures.65 This problem could occur, if provisional measures are requested solely within the jurisdiction of a host state, such as criminal sanctions, or requested measures involves ex parte relief; or third parties. In these situations, it is improbable that ITA tribunals to have powers to grant such reliefs.66 In the case of Atlantic Triton v. Guinea,67 a claimant required an urgent relief before the constitution of tribunal. Therefore, claimant required an urgent relief for arrest of three Guinea state vessels docked in French port. Generally, investment tribunals lacks admiralty jurisdiction and hence arbitrators have no power to order arrest of vessels. Therefore, the claimant had to approach domestic courts for assistance. The provisional measures68 provided in Article 47 of the ICSID Convention are inspired from Article 41 of the Statute of the International Court of Justice. Article 47 of the ICSID Convention states that the ICSID Tribunal may recommend for provisional measures in order to preserve the rights of the parties with their consent. The task of the tribunals in this regard is very delicate, as they will grant such measures only ‘when the outcome of the dispute is still uncertain’. Moreover, it has to strike a proper balance between the urgency and need of the provisional measures.69 We have to note clear difference between practice in the ICSID and non-ICSID arbitral system in this respect. In case of non-ICSID tribunals, Article 26(9) of the 63 Societe Nationale Industrielle Aerospatiale v. Lee Kui Jak [1987] 1 AC 871; Also see the authorities cited in Gaillard (2006); also see Arkins (2001). 64 Emmanuel Gaillard, supra note 63, at 203; also see Lenenbach (1998). 65 Le Bars and Shiroor (2017). 66 Nigel Blackaby, supra note 1. 67 Atlantic Triton Company Limited v. People’s Revolutionary Republic of Guinea, ICSID Case No. ARB/84/1. 68 The terms like interim, provisional, interlocutory, and preliminary are often adopted without any distinction. For instance, the ICSID system adopted the term ‘provisional’ in Article 47 of the ICSID Convention, and the UNCITRAL Arbitration Rules, 2010 adopted as ‘interim’ in Article 26; Generally see Yesilirmak (2005); also see Sarooshi (2013). 69 Schreuer, supra note 18, at 759.

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UNCITRAL Arbitration Rules, 2010 allows a party to request to an appropriate judicial authority for interim measures, by doing so they shall not be deemed to waive the agreement to arbitrate. Similarly, Article 46(4) of the ICSID Additional Facility Rules empowers the arbitral tribunals to grant provisional measures; in addition to that the parties may also apply to competent domestic courts for such measures.70 In the case of the ICSID arbitration, Article 47 of the ICSID Convention empowers only the tribunal to grant provisional measures in the form of recommendations, but this provision is silent with respect to domestic courts. Whether domestic courts have the power to grant provisional measures in ICSID arbitration was a debatable subject, more specifically in the light of Article 26 of the Convention. This important question arose before the ICSID tribunal for the first time in the seminal case of Atlantic Triton Co. v. People’s Republic of Guinea, where the tribunal confirmed that the ICSID’s power provided under Article 47 did not exclude the power of domestic courts which are ‘traditionally and virtually universally recognized as having sole jurisdiction to order such measures’.71 After the Atlantic Triton tribunal’s observation, the issue on provisional measures by domestic courts was clarified through an addition to the Rule 39(6) of the ICSID Arbitration Rules in 1984.72 Therefore, the current position is clear that national courts are entitled to order provisional measures provided that parties have to expressly agreed to do so.73 Notable scholar Daniel Kalderimis opined that ICSID case law on anti-suit injunction fall into three different categories.74 Firstly, where the ICSID tribunals have issued anti-suit injunction based upon the ‘exclusive remedy rule’ provided under Article 26, in order to preclude the domestic court proceedings or non-ICSID arbitrations. The cases fall under this category includes SGS v. Pakistan, CSOB v. Slovak Republic, Zhinvali v. Georgia, Tokios Tokel’s v. Ukraine, and Millicom v. Senegal.75 Secondly, the ICSID tribunals issued anti-suit injunctions to forbid the continuance of ancillary proceedings (more often in criminal proceedings), which threaten the legitimacy and righteousness of the ICSID proceedings. The cases fall under this category includes Hydro v. Albania, Quiborax v. Bolivia and City Oriente v. Ecuador.76 The last category where such measures issued in order to prevent domestic courts 70 Muchlinski

et al. (2008). Triton Company Limited v. People’s Revolutionary Republic of Guinea, ICSID Case No. ARB/84/1, Award (Apr. 21, 1986), para 35. 72 Initially, the addition was numbered to the Rule 39(5), but it was later renumbered to 39(6) after the 2006 Amendment. 73 Brower and Goodman (1991). 74 There have been various instances where investors requested for provisional measures before domestic courts in connection with ICSID arbitration. It has often sought for the purpose of an urgency action, before constitution of arbitral tribunal. In order to protect the ‘exclusivity’ of the ICSID arbitration, the tribunals also grant provisional measures to prevent or stop any parallel court proceedings through anti-suit injunctions; also see Alejandro Lopez Ortiz et al., supra note 1, at 350–351. 75 Kalderimis (2016). 76 Id. at 563. 71 Atlantic

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45

interference, most celebrated case Chevron v. Ecuador is the best illustration for this category. On rare occasion, the ICSID tribunal also awarded the anti-suit injunction as a final relief, as it happened in ATA v. Jordan77 case. After analyzing differences between ICSID and non-ICSID practice regarding interim measures, it is worth mentioning that ICSID’s system provides less favourable circumstances to the parties when compared with non-ICSID mechanism. For instance, while the power of the ICSID tribunal is to ‘recommend’ interim measures, non-ICSID tribunal is to ‘order’ such measures.78 It is interesting to note that the UNCITRAL Arbitration Rules (Chapter IVA) better explains when interim measures are to be ordered. But the language used in Article 47 of the ICSID Convention remains ‘non-prescriptive and general in character’ even after the 2006 amendment.79

3.2.2.2

Anti-arbitration Injunctions

With the rise of international arbitration, anti-arbitration injunctions (AAI) are also equally becoming popular. It is an injunction to restrain the initiation or continuation of arbitration proceedings. Anti-arbitration injunction seems analogous to anti-suit injunction, which prevents the initiation or continuation of judicial actions. Anti-arbitration injunction is a flexible instrument, it may be issued against party or even against the arbitral tribunal, before commencement of arbitration, in the course of arbitration proceeding, or after conclusion of substantive hearing, but before rendering of final award.80 Anti-arbitration injunction also issued to restrain a party from enforcing an arbitral award.81 Notable scholar, Doak Bishop called anti-arbitration injunction as ‘arbitral terrorism’, as it contravenes the KompetenzKompetenz principle of international arbitration which mandates tribunal to determine its own jurisdiction. Also, Article 23 of the UNCITRAL Arbitration Rules, 2010 state that arbitral tribunal shall have power to rule on its own jurisdiction. It even prescribes that the arbitral tribunal shall have the powers to continue the proceedings and to render an award, though litigation is pending before domestic courts challenging its jurisdiction. Some scholars have also argued that anti-arbitration injunctions increases abuse of process.82 77 ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2 (Award May 2010) [hereafter the ATA award]. 78 It is pertinent to note that anti-suit injunctions in ICSID arbitration have received mixed reactions from domestic courts. It has become even more troublesome if the proceeding before domestic courts is criminal proceeding. For such cases, the ICSID tribunal required ‘high threshold’ before ordering provisional measures. (EuroGas and Belmont Resources v. Slovak Republic, Teinver v. Argentine Republic Case; Alejandro Lopez Ortiz et al., supra note 1, at 351. 79 Also refer similar provision is present in other non-ICSID arbitration rules such as the ICC Rules, Article 23; LCIA Rules Article 25; SCC Rules Article 32; also see Daniel Kalderimis, supra note 75, at 559; Alejandro Lopez Ortiz et al., supra note 1, at 349. 80 Poon (2013); also see Subramanian (2018). 81 Emmanuel Gaillard, supra note 63. 82 Born (2009); also read Strong (2014).

46

3 Interactions Between Domestic Courts and Investment …

Generally, anti-arbitration injunctions are sought in few jurisdictions in order to frustrate the arbitral system to support local companies or government entities.83 For instance, domestic courts in Bangladesh (Saipem), Pakistan (SGS, and Hub Power Cases), Indonesia (Persusahaan Pertambangan Minyak Dan Gas Bumi Negara v. Karaha Bodas Co), and recently Indian courts (Dabhol, White Industries, and Vodafone cases) also exhibited the tendency of issuing anti-arbitration injunctions. The Pakistan in SGS case requested its courts to suspend the ICSID proceedings, on the ground that PSI agreement provided for domestic arbitration in Pakistan. Therefore, the Supreme Court of Pakistan granted anti-arbitration injunction and agreed that BIT did not bind Pakistan.84 However, the arbitral tribunal disregarded the injunction order and further recommended the Pakistani Courts to stay injunction until the tribunal determined its jurisdiction. It is significant to note that recently the Delhi High Court in the case of Union of India v. Vodafone Group85 passed an ex parte order which restrained the Vodafone from pursuing investment treaty arbitration against India. It is pertinent to note that there has been some uncertainty among different jurisdictions regarding this issue.86

3.2.3 The Intervention of Domestic Courts at the Time of Enforcement of ITA Awards The domestic courts play a vital role in the recognition and enforcement of arbitral awards. Generally, ‘enforcement’ involves two different stages of proceedings in domestic courts. Recognition—the award is recognized as final, binding and to be enforceable within the context of Enforcement State’s legal system. Execution—to specifically identify the assets or equivalent amount of award, ordered to be transferred to award debtor. Depending upon the specific national procedure, it may be either made in the same or in different proceedings. In case the assets are located within the ICSID Member State, then Articles 54–55 of the ICSID Convention applies for recognition and execution of ICSID awards. In case the assets are located outside the ICSID Member State or awards administered under ICSID Additional Facility Rules, then the New York Convention applies for enforcement of such awards.87 Therefore, we have to make a clear demarcation between enforcement of ICSID awards and non-ICSID awards. Article 54(1) of the ICSID Convention provides that 83 Bansal

and Agrawal (2015). Gaillard, supra note 63. 85 Union of India v. Vodafone Group PLC United Kingdom and Ors., MANU/DE/2590/2017 [hereinafter the Vodafone case]. 86 For instance, the US courts have considered Anti-Arbitration Injunction as compatible with the New York Convention. In the same line, the UK Courts have also considered the same. Also see Sharad Bansal & Divyanshu Agrawal, supra note 83, at 619–620. 87 Alejandro Lopez Ortiz et al., supra note 1, at 354. 84 Emmanuel

3.2 Domestic Courts’ Intervention in Arbitral Process

47

the domestic courts in all the Member States to ‘recognize’ ICSID awards as if they were a final judgement of a court in that State, which are not subjected to any appeal. However, Article 54(3) highlights the difference between ‘execution’ and ‘recognition’. It states that the ‘execution’ of ICSID awards shall be governed by the laws of the State where execution is sought. The execution of final judgements shall be subjected to ‘sovereign immunity’ limitations. The recognition and enforcement can be sought in the territory of any contracting State by furnishing a copy of the ICSID award to a competent court.88 It is significant to note that the phrase ‘final judgement’ mentioned in Article 54(1) of the Convention is debatable because in many jurisdictions, final judgements can be challenged through their Civil Procedure Codes. For instance, in USA, Rule 60 (b) of Federal Rules of Civil Procedure empowers the Federal Court to refuse to enforce a final judgement.89 Similar to the USA, Article 595 of the French Code of Civil Procedure and Article 810 of the Chilean Civil Procedure Code provide various grounds to overturn the final judgements.90 The ICSID awards are protected under the shield of ‘exclusive remedy rule’ governed by Article 53 of the Convention. Article 53(1) states that ICSID award is ‘binding’ on parties and they have to ‘abide by and comply’ with the terms of the award. It shall not be ‘subject to any appeal’ or to pursue ‘any other remedy’, except the self-contained system of review procedure provided in the Convention, such as interpretation of the award (Article 50), revision of award (Article 51) and annulment of award (Article 52). It is pertinent to note that annulment procedure of the ICSID awards comes closest to detailed supervisory review. However, the scenario is different in case of non-ICSID awards, i.e. the awards rendered by other arbitral institutions such as London Court of International Arbitration, Swiss Chambers’ Arbitration Institution, Arbitration Institute of the Stockholm Chamber of Commerce or International Chamber of Commerce, including ad hoc arbitration proceedings administered under the UNCITRAL Arbitration Rules, and the ICSID Additional Facility awards. The review, recognition and enforcement procedure of these awards are governed by the law of forum state and other applicable treaties, such as the New York Convention.91 These awards are subjected to review by courts of Forum state, and the enforcement may be refused on certain grounds listed in Article V of the New York Convention. In certain occasions, the NAFTA Chapter Eleven awards are subjected to scrutiny by Mexican courts.92 There had been several instances, when domestic courts have reviewed NAFTA Chapter Eleven awards.93 88 Article

25.1 of the ICSID Convention. et al. (2006). 90 Id. at 12–13. 91 Schreuer, supra note 1, at 91. 92 Because, Mexico has signed the ICSID Convention only on 11 January 2018, deposited the instrument of Ratification on 27 July 2018. It will enter into force on August 26, 2018; also see https://icsid.worldbank.org/en/Pages/News.aspx?CID=285 (accessed July 29, 2019). 93 Such as: United Mexican States v. Metalclad, BCSC 664 [2001]; United Mexican States v Feldman Karpa, Canada, Ontario Court of Appeal, Jan. 11, 2005, 9 ICSID Reports 508; Attorney-General of Canada v SD Myers, Canada, Federal Court, Jan. 13, 2004, 8 ICSID Reports 194. 89 Baldwin

48

3.2.3.1

3 Interactions Between Domestic Courts and Investment …

Post-award Challenges in Investment Treaty Arbitration

It is relevant to note that neither ICSID awards nor ad hoc awards are be subjected to an appeal, which enables the complete modification of merits of the award. For instance, Article 52 of the Convention authorizes the parties to request the SecretaryGeneral to establish a second ICSID panel (ad hoc committee) to decide an annulment of award on various grounds set out in Article 52(1), such as the tribunal was not properly constituted, tribunal exceeded its powers, corruption, serious departure from fundamental rule of procedure, and award has failed to state reasons upon which it was based.94 It may be noted that the grounds listed in Article 52 to overturn ICSID awards are narrow in scope. On the other hand, Article 34(2) of the UNCITRAL Model Law also lays down six grounds for challenge procedure such as, the invalidity of agreement to arbitrate, lack of notice, award falls outside scope of the arbitration agreement, non-arbitrability of subject matter, irregularity in the composition of the tribunal, and violation of public policy. Out of these six grounds, exceeding the powers and public policy grounds are most commonly invoked by the losing party. Most common claims on public policy include contracts obtained by corruption, illegal agreements, or violation of due process of law in the conduct of the arbitration. However, in practice certain domestic courts set high standards to enforce awards. Therefore, losing parties have been largely pessimistic in seeking enforcement of awards through domestic courts.95 It is also relevant to note that unlike the non-ICSID investment treaty arbitration regime, ICSID Convention provides only limited grounds for post-award annulment. For instance, arbitrability and public policy defences are not available for annulment of ICSID award. Failure to state reasons is the most common ground invoked in ICSID annulment proceedings. On the other hand, applicants have rarely invoked this provision as a ground for refusal of recognition in the context of non-ICSID awards.96

3.2.3.2

Possible Avenues Available for Award-Creditor to Defeat the Refusal of Enforcement

Legal enforcement of ICSID awards are not always necessary; as usually they are voluntarily enforced. If a State does not voluntarily comply with enforcement of ICSID award, it would be a violation of international law under Article 27(1) of the Convention. It empowers the home state of an aggrieved investor to bring countermeasures against the host state or to initiate international claims before the International Court of Justice against host state, which is consistent with Article 64 of the 94 Edward

Baldwin et al., supra note 89, at 3. (2013).

95 Verhoosel 96 Id.

3.2 Domestic Courts’ Intervention in Arbitral Process

49

Convention. Notable scholar Schreuer also points that even third Country may also submit a dispute to the International Court of Justice in case they satisfy a ‘legal interest’ in compliance with the ICSID award.97 However, the effectiveness of such counteractions is yet to be tested by contracting states.98 It is also relevant to note that only on few occasions (around 15 cases till date), the award-creditors sought domestic courts’ assistance for enforcement of ICSID award. It reflects only a small number when compared with a total number of ICSID awards (approximately 230 till date) in general. The number has increased only in last two decades. Most prominent cases among them are Benvenuti & Bonfant v. Congo,99 Enron v. Argentina,100 Sempra v. Argentina,101 Victor Pey Casado v. Chile,102 and Micula v. Romania.103

3.2.3.3

Sovereign Immunity Exception

Sovereign immunity is a basic doctrine of international law, which derives its origin from the principle of sovereign equality. This doctrine restricts the investors to pursue a case against a sovereign state before the courts of another state.104 It can be invoked at two different instances, i.e. immunity from jurisdiction and immunity from execution. While submitting to arbitration, if a state gives its consent to suit and thus it waives right to immunity from jurisdiction. But, immunity from execution is a different issue. Benefits from immunity from execution depend upon the domestic law where execution is sought. Surprisingly, no consistent approach has been adopted in this regard, as some states have ensured ‘absolute’ immunity from execution, and some have adopted ‘restrictive’ approach, while making difference between assets used for ‘sovereign’ and ‘commercial’ purposes.105 In the context of foreign investment, as most assets of the sovereign states are located in foreign countries and serving public purpose, it is difficult for investors to successfully invoke execution of award against foreign state assets.106 It is significant to note that Articles 53(1) and 54(1) of the ICSID Convention ensure that there is no possibility of appeal of the ICSID awards in domestic courts. However, Articles 54(3) and 55 clarify that execution of award is subject to sovereign 97 Schreuer,

supra note 18, at 1090. and Lawry-White (2017); Edward Baldwin et al., supra note 89, at 2. 99 S.A.R.L. Benvenuti & Bonfant v. People’s Republic of the Congo, ICSID Case No. ARB/77/2, Award (Aug. 8, 1980) [hereafter the Benvenuti Award]. 100 Enron v. Argentina, ICSID Case No. ARB/01/3; US court decision, New York, 2007. 101 Sempra v. Argentina, ICSID Case No. ARB/02/16, US court decision, New York, 2007. 102 Victor Pey Casado v. Chile, ICSID Case No. ARB/98/2, Spanish court decision, 2013. 103 Micula v. Romania, ICSID Case No. ARB/05/20, US court decision, D.C., 2015; also refer the authorities cited in Alejandro Lopez Ortiz et al., supra note 1, at 356. 104 Bernardo Sepulveda-Amor & Merryl Lawry-White, supra note 98, at 52. 105 Id. at 53. 106 Schill (2011). 98 Sepulveda-Amor

50

3 Interactions Between Domestic Courts and Investment …

immunity limitation. The Awards rendered under the UNCITRAL Arbitration Rules do not enjoy the same challenge procedures as seen in ICSID system, though it shall be subject to limitations prescribed under the New York Convention. The New York Convention awards are also subject to applicable domestic laws on state immunity from execution where the execution is sought.107 Notable scholar Schreuer termed Article 55 of the ICSID Convention as the ‘Achilles heel’ of the ICSID system.108 It is pertinent to note that Benvenuti & Bonfant v. Congo109 is the first ICSID case appeared before the domestic courts on the subject of sovereign immunity limitations. During the enforcement of an ICSID award in Benvenuti case, the French Court of First Instance granted exequatur in favour of a claimant seeking enforcement against Congo on a condition stating that, without prior authorization of this court, no measure of execution would be taken in pursuant to the award on any assets located in France.110 The claimant subsequently appealed against the lower court’s decision on limiting condition on enforcement before the Paris Court of Appeal. The appellate court held that lower court’s recognition of award was limited only to the determination of authenticity of the award. But the court did not examine the issue of sovereign immunity, while deciding whether or not to recognize award. The execution of ICSID award against ‘specific assets’ of the State was a different issue, which needs to be addressed through a separate proceeding. Subsequently in a separate proceeding, the claimant identified specific assets (i.e. Banque Commerciale Congolaise) towards the execution of award, which was failed. Ultimately, the respondent state voluntarily paid the amount mentioned in the award.111 It is pertinent to note that since Benvenuti case there have been handful ICSID cases, where the contentious issue on sovereign immunity from execution against ‘specific assets’ have been raised before different national courts. However, no consistent standard has been evolved, each State applies different standards in accordance to their national laws. Interestingly, Societe Ouest Africaine des Betons Industriels (SOABI) v. Senegal 112 case also developed on similar lines of Benvenuti case. In this case, the court held that the State did not waive the sovereign immunity of execution of ICSID award against specific sovereign assets. The court also held that such assets remain protected under sovereign immunity until the claimant to prove that sovereign specific assets were performed for economic and commercial activity. However, as the claimant failed to prove it, the specific identified assets were continued to be protected from execution of sovereign immunity exception.113

107 Bernardo

Sepulveda-Amor & Merryl Lawry-White, supra note 98, at 53. Schreuer, supra note 1, at 1123; Coe (2002). 109 The Benvenuti Award. 110 Edward Baldwin et al., supra note 89, at 6. 111 Alejandro Lopez Ortiz et al., supra note 1, at 357–358. 112 Societe Ouest Africaine des Betons Industriels (SOABI) v. Senegal, ICSID Case No. ARB/82/1 (Paris Court of Appeal Decision, 5 Dec. 1989). 113 Alejandro Lopez Ortiz et al., supra note 1, at 358. 108 See

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51

In the case of AIG Capital Partners v. Kazakhstan,114 the claimant sought to execute the ICSID award against sovereign wealth fund located in London owned by National Bank of Kazakhstan. The respondent state intervened and invoked sovereign immunity limitation, they had contended that the primary purpose of specific sovereign wealth fund was to accumulate assets in the interest of public. The English High Court held that specific assets were immune from execution by citing Article 55 of the ICSID Convention. The court also found that the identified specific assets were involved in a sovereign activity.115

3.2.3.4

Beyond Sovereign Immunity Exception and Pey Casado v. Chile116

It is pertinent to note that ‘sovereign immunity’ may not be the only factor where national laws obstruct the enforcement of ICSID award. As Schreuer argued that final awards are not subject to ‘ordinary’ judicial review, there may be a question as to what would trigger extraordinary judicial review.117 Therefore, the full scope of remedies available against the ICSID awards remains contentious. Also, another question arises where the domestic courts apply ‘public policy’ and other exceptions provided in the New York Convention. Applicability of such review procedures for the enforcement of ICSID awards still remains as a debatable subject.118 The possible or viable options available for the disappointed contracting States are to employ before domestic courts to delay or to avoid compliance mechanism provided in the ICSID system. Disappointed contracting States may approach its domestic courts to annul the award or to declare that award has to meet some conditions for enforcement. For instance, after the wake of several measures taken against Argentina, they had suggested that national courts could review the substance of ICSID award in case if they ‘disturb public order because they are unconstitutional, illegal or unreasonable’. It has later become ‘Rosatti doctrine’,119 and the Argentine court later invoked this doctrine in the case of CCI v. Peru.120

114 AIG

Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. The Republic of Kazakhstan, ICSID Case No. ARB/01/6 (Judgement of the English High Court of Justice on Enforcement, 20 Oct 2005). 115 AIG Capital Partners v. Kazakhstan, 129 ILR 589, 623ff; [2005] EWHC 2239 (Comm). 116 Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2 (Decision of Spanish Court on Execution of Award, 4 July 2013) [hereinafter the Victor Pey Casado Case]. 117 See Schreuer, supra note 1, at 1142; also see Alejandro Lopez Ortiz et al., supra note 1, at 360. 118 Alejandro Lopez Ortiz et al., supra note 1, at 360. 119 Rosatti Doctrine was developed by Argentina’s former Minister of Justice, Horacio Rosatti. He claimed that ‘the decision of a tribunal cannot have higher legal significance than the domestic Argentine Constitution’; Also see the discussion in Goodman (2007). 120 Edward Baldwin et al., supra note 89, at 1–2.

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3 Interactions Between Domestic Courts and Investment …

It is pertinent to note that the enforcement proceedings of Pey Casado v. Chile121 case took another end of the discussion. In this case, the investor (award-creditor) attempted to use domestic courts and national laws to enjoy the benefit more than what had been provided for in the ICSID award. The award was annulled by the Spanish Courts in 2012. Execution of surviving part of the award was sought before the First Instance Court in Spain. The Court objected the execution of specific assets on the ground of sovereign immunity. However, Chile in September 2013 voluntarily agreed to pay the stated amount including the interests mentioned in the ICSID award.122 After voluntary payment, the investor brought another claim before the Spanish courts for payment of interests under Spanish procedural rules on the execution of national judgements. The Madrid Court of Appeal confirmed the previous ruling and dismissed the investor’s claims, and further observed that such interest was already included in the ICSID award. The court found that ordering Chile once again to pay under Spanish procedural rules would amount to a duplication of the interest paid by Chile.123 It is pertinent to note that the investors attempt in Pey Casado case proves that direct enforcement mechanism provided in the ICSID Convention goes beyond sovereign immunity exception provided in the Article 55. It is also noted that immunity from execution is still considered as a hurdle for award-creditors to recover what is due under an award.

3.2.4 A Comparison of ICSID Convention and the New York Convention When we compare the ICSID Convention with the New York Convention, the latter creates an additional risk in the context of non-recognition and refusal of enforcement of ITA awards. Irrespective of all the above-discussed disadvantages of the nonICSID system, it also offers some advantages that are unavailable under the ICSID system. Those advantages are enforcement of non-ICSID award that was previously suspended or set aside and seeking a freeze order (as interim relief) from domestic courts against the sovereign in pending arbitration. The ICSID tribunal has no role to play once the award has been annulled, the only remedy for the applicant is to resubmit the dispute before another tribunal. However, suspended or annulled award may be enforced under the New York Convention with

121 The

Victor Pey Casado Case, supra note 303. It is pertinent to note that this case is considered as a longest running investment case till today; it has been initiated in April 1999, tribunal rendered an award in May 2018, the case has been again resubmitted in June 2008. The claimants recently challenged the arbitrators on basis of conflict of interests, also see http://www.italaw.com/cases/829 (accessed 8 May 2019). 122 Alejandro Lopez Ortiz et al., supra note 1, at 361. 123 Id. at 362.

3.2 Domestic Courts’ Intervention in Arbitral Process

53

some limitations.124 For instance, the Svea Court of Appeals in SwemBalt case125 allowed the recognition and enforcement of ITA award, despite the fact that the same was still under annulment review before Denmark Courts. The court cited that lis pendens was not a valid ground for refusal of enforcement of the award.126 In the absence of annulment as a ground for non-recognition of an arbitral award, arbitration law of certain countries such as France, Luxembourg and Belgium, allows enforcement by invoking ‘more favourable right’ under Article VII (1) of the New York Convention. Similarly, the US Courts in the most seminal Chromalloy127 case has enforced an annulled award, though this rule was overruled in the subsequent case. The interim relief measures are also available under the New York Convention to freeze sovereign assets.128

3.3 Investment Arbitration as a Remedy for Abuses by Domestic Courts Relating to Commercial Arbitration The interaction between different fields of international law has attracted a scholarly debate in the last two decades. It is worth mentioning that recent judicial and arbitral decisions have given rise to the interactions between these two regimes, i.e. New York Convention and the international investment law.129 The New York Convention was aimed to promote the enforcement and recognition of foreign arbitral awards, with less interference of domestic courts. Pertinently, the Convention does not allow the enforcement court to review the merits of award. It is only the courts of the seat of arbitration have jurisdiction to review the merits of award.130 But, in practice these awards have been subjected to review of merits before the enforcement court of some jurisdictions. If such enforcement is frustrated, then the award has no value. The situation is even worse in case all of the debtor’s are assets located in one jurisdiction where the enforcement is sought. To overcome this shortcoming, investors have exploited the linkages between the New York Convention and international investment law regime. In such situations, investors have initiated ITA as an optional

124 Petrochilos 125 Republic

(1999). of Latvia v. SwemBalt Aktiebolag, Decision of the Svea Court of Appeal, Case No. O

7192-01. 126 Gaetan

Verhoosel, supra note 95, at 313. Aeroservices Inc. v. Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C. July 31,

127 Chromalloy

1996). 128 Gaetan

Verhoosel, supra note 95, at 314. and Rosenfeld (2016). 130 Also, the review of awards is decided in accordance with the law of the seat of the arbitration, i.e. lex arbitri; also see Stephenson et al. (2011). 129 Ferrari

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detour route to enforce commercial arbitral awards, by invoking international legal principles of ‘state responsibility’.131 Under the principles of state responsibility, a state may be held responsible for the actions of its organs, i.e. legislative, executive, and judiciary. It had been primarily established through judicial decisions, until the adoption of the Draft Articles on Responsibility of States for International Wrongful Acts, 2001. The International Court of Justice has also been broadly accepted and cited some of these principles in many of its cases. For instance, the International Court of Justice in an advisory opinion on difference relating to Immunity from Legal Process of a Special Rapporteur of the Commission on Human Rights stated that the conduct of any organ of a State must be considered as an act of that State and it is categorized as customary principles of international law.132 Therefore, host state can be held responsible for violation of investor’s rights as impermissible action of its courts.133 A group of recent cases concerning actions of domestic courts in the enforcement of commercial awards took a ‘second bite’ at the cherry in the form of investment arbitration, and few cases were before European Courts of Human Rights. Prominent investment law scholar Michael Reisman called such cases as ‘crossover’ cases.134 The crossover claims are considered as appropriate tool to explore unresolved questions in the field of international investment arbitration. Most acclaimed scholar Jose Alvarez noted that such crossover cases are looked upon as ‘challenges to that dichotomous public/private divide’.135 Another pertinent question arises as to what extent host state can be made liable for an imperfect system?136

3.3.1 Crossover Cases Involving the Access of the European Court of Human Rights Investors on few occasions have successfully enforced commercial arbitral awards by using the European Convention on Human Rights. Most notable cases such as Stran Greek Refineries v. Greece137 and Kin-Stib v. Serbia138 are evident of this line of reasoning. 131 Bjorklund

(2016), Park (2013). Also see the discussion in Garnett (2011), Radicati di Brozolo and Malintoppi (2010). 132 Claudia Priem, supra note 8, at 195; also see Sameer Sattar, supra note 2, at 64. 133 Schreuer, supra note 1, at 88. 134 Michael Reisman (2011). 135 Jose E. Alvarez, supra note 10, at 400. 136 Franck (2005). 137 Stran Greek Refineries and Stratis Andreadis v. Greece [1994] 19 ECHR 368. 138 Case of Kin-Stib and Majkic v. Serbia (Application no. 12312/05), Judgement, 20 Apr. 2010.

3.3 Investment Arbitration as a Remedy for Abuses by Domestic …

55

After Stran received an award in its favour in a contractual dispute, Greek Parliament enacted a law to revoke the contractual arbitration clause in a disputed contract. Thereafter Greek Courts quashed the award. The ‘Stran’ brought the matter before the European Court of Human Rights for violation of ‘fair and public hearing’ enshrined under Article 6 of the European Convention on Human Rights and Protocol I of the Convention, i.e. barring deprivation of one’s ‘possessions’ subject to public policy exceptions. The European Court of Human Rights held that quashing of award deprived the claimant’s right to a fair trial. It further stated that Greek’s new law constituted an ‘unjustified interference’ with Stran’s property rights.139 In the case of Kin-Stib v. Serbia, Yugoslav Chamber of Commerce had rendered an award in favour of Kin-Stib and ordered its partner Genex to pay compensation for breach of contract. However, the Belgrade court did not enforce the award. The European Court of Human Rights found that the actions of Belgrade Courts amounted to a violation of Article 1 of the Protocol of the European Convention on Human Rights.140

3.3.2 Crossover Cases Involving the Recourse to Investor-State Arbitration In fact, the major chunk of crossover cases belongs to the category of use of investorstate arbitration method. Recently, Enel Green Energy S.p.A, an Italian entity initiated investment arbitration against El Salvador for breach of obligations of the Italy–El Salvador BIT by interfering with enforcement of commercial arbitral awards.141 However, the dispute did not proceed further, as parties have reached a mutual settlement.142 In a similar line, KBR, an US entity initiated ISDS against Mexico for violation of NAFTA by interfering with enforcement of the commercial arbitral award.143 Interestingly, the tribunal dismissed the case for the ‘lack of compliance’ with the ‘local remedies’ waiver requirements provided in Article 1121 of NAFTA. Despite conclusions of these disputes, the fundamental question raised in these cases remains unanswered. When the courts ‘involvement’ becomes ‘intervention’ during the arbitral process, and when the ‘intervention’ of domestic courts becomes ‘interference’? To evaluate this question, it is necessary to critically analyze the crossover cases in detail (Table 3.1). 139 Also

see Jose E. Alvarez, supra note 10, at 405.

140 Article 1 of Protocol 1 to the European Convention on Human Rights which guarantees the right

to property, provided that every natural or legal person is entitled to the peaceful enjoyment of his possessions: ‘no one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law’. 141 Enel Green Power S.p.A. v. Republic of El Salvador, ICSID Case No. ARB/13/18. 142 Franco Ferrari & Friedrich Rosenfeld, supra note 38, at 298. 143 KBR, Inc. v. United Mexican States, ICSID Case No. UNCT/14/1, Claimant’s Notice of Arbitration (Aug. 30, 2013).

Case name (year of award) applicable BIT

Saipem v. Bangladesh (2009) Italy–Bangladesh BIT

Kaliningrad v. Lithuania (2009) Lithuania–Russian Federation BIT

S. No.

1

2

Table 3.1 Analysis of crossover cases

ICC rules

ICSID Convention

Procedural rules

Tribunal declined jurisdiction, because it is not considered as an appellate body to scrutinize the decisions of domestic courts concerning actual enforcement of arbitral award

‘Investment’ to be determined based on ICA award or agreement and also ‘entire operation’ of overall investment

Standards developed

Interplay between the New York Convention and BIT had been discussed

-N.A-

Abuse of rights • Abuse of power In extreme • Interference of circumstances, the domestic courts tribunal decides breach amounts to of expropriation clause Indirect expropriation

Ruling on merits

Disposition Ruling on jurisdiction

(continued)

The BIT cannot interpret to hold a host state liable for complying with obligations under the New York Convention

Most widely accepted approach to determine attributes of ‘investment’ in crossover cases ITA tribunals required high threshold to determine conduct of domestic courts as an expropriation

Other comments

56 3 Interactions Between Domestic Courts and Investment …

Case name (year of award) applicable BIT

Romak v. Uzbekistan (2009) Switzerland–Uzbekistan BIT

ATA v. Jordan (2010) Jordan–Turkey BIT

Frontier v. Czech Republic (2010) Canada–Czech Republic BIT

S. No.

3

4

5

Table 3.1 (continued)

UNCIRAL Arbitration Rules

ICSID Convention

UNCITRAL Arbitration Rules

Procedural rules

The extinguishment of the agreement was unlawful

The jurisdiction of ITA Czech Court did not tribunals in crossover commit an abuse of cases depends on the rights ‘characterization of the entire operation’ as investment

Annulment of the FIDIC award not considered as investment. However, the extinguishment of the arbitration agreement considered as investment

Supply of wheat -N.Acontract and commercial arbitral do not qualify an ‘investment’ The tribunal made a distinction between ‘investment’ and ‘purely commercial transactions’

Ruling on merits

Disposition Ruling on jurisdiction

-N.A-

Retroactive extinguishment of arbitration agreement amounts to violation of FET obligation

-N.A-

Standards developed

(continued)

Refusal is not breach of BIT if it was made in good faith and on the grounds of public policy

It is one of the few cases where the tribunal observed ‘right to arbitrate’ is a ‘distinct’ investment, because it had ‘financial value related to an investment’

Salini test may be equally applied to UNCITRAL Arbitration

Other comments

3.3 Investment Arbitration as a Remedy for Abuses by Domestic … 57

GEA v. Ukraine (2011) Germany–Ukraine BIT

White Industries v. Republic of India (2011) Australia–India BIT

6

7

UNCITRAL Arbitration Rules

ICSID Convention

Procedural rules

Standards developed

Undue delay can amount to breach of effective means standard

Findings of Saipem -N.Awere not appropriate in this case, therefore no expropriation in this case

ICC award qualified as EMS standard creates an investment distinct and seemingly less demanding test compared to ‘denial of justice’ standard

The tribunal held that it had jurisdiction only on basis of ‘conversion contract’ Further, tribunal declined to consider the ICC award as part of ‘bundle of assets’

Ruling on merits

Disposition Ruling on jurisdiction

Tribunal expressed dissatisfaction with the decision of GEA case Tribunal required high threshold level to determine delay as the ‘denial of justice’

For treaty breach, some serious ‘egregious’ conduct must be required

Other comments

Sources Cayre (2009); Michael Reisman (2011); Nigel Blackaby et al. (2009); Ortiz et al. (2017); Radicati di Brozolo and Malintoppi (2010); Ranjan and Anand (2017); Ray (2016); Saravanan and Subramanian (2017); Sattorova (2010)

Case name (year of award) applicable BIT

S. No.

Table 3.1 (continued)

58 3 Interactions Between Domestic Courts and Investment …

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3.3.2.1

59

Saipem SpA v. the People’s Republic of Bangladesh144

On the question of unlawful interference of courts in the enforcement of arbitral awards, the case of ‘Saipem’ merits an important attention.145 Saipem SpA, a company incorporated in Italy, and the Bangladesh Oil Gas and Mineral Corporation (Petrobangla) had entered into a contract on 14 February 1990, to build a gas pipeline of 409 km long to carry condense and gas on various parts of Bangladesh. The contract contained an arbitration clause that if any dispute arises, the same shall be referred to the International Chamber of Commerce (ICC) arbitration and the venue of arbitration shall be Dhaka.146 The project was delayed and completed on 14 June 1992 as against the scheduled date of 30 April 1991.147 The parties disagreed as to the reasons for delay. While Saipem contended that the delay was due to the severe opposition from the local population against the project, Petrobangla refuted the claim of Saipem. The Claimant also sought an extension of one year along with the compensation for delay. On the other hand, Petrobangla claimed compensation for the delay on the part of Saipem.148 On completion of the project on 14 June 1992, Petrobangla paid the first part of the retention money. However, differences arose as to the release of second half of retention money.149 Finally, Saipem referred the dispute to ICC arbitration on June 1993, while Petrobangla challenged the jurisdiction of the tribunal.150 Petrobangla approached the ICC tribunal and sought several reliefs. However, the tribunal had turned down all the requests,151 following the decisions of the ICC on these matters, on 16 November 1997, Petrobangla approached the First Court of Subordinate Judge of Dhaka to revoke the authority of the ICC tribunal over this dispute. Again on 17 November 1997, Petrobangla moved another petition before the High Court Division of the Supreme Court of Bangladesh to stay all the proceedings pending before the ICC tribunal. The Supreme Court granted an injunction and restrained Saipem to continue with the ICC Arbitration. In the meantime, the First Subordinate Judge of Dhaka also revoked the authority of the tribunal on the ground that the tribunal had misconducted the proceedings.152 However, despite the above judicial orders from national courts, the ICC tribunal decided to continue the proceedings on the ground that ‘ICC arbitration falls within the exclusive jurisdiction of the 144 Saipem

SpA v. the People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (Jun. 30, 2009) [hereinafter the Saipem Award]. 145 It finds support from the earlier decision in Salini v. Ethiopia, and Himpurna v. Indonesia, where domestic courts illegally exercised its supervisory powers. See the discussion in Luca Radicati, supra note 131, at 995. 146 Para 19 of the Saipem Award. 147 Para 2.2.1 of the Saipem Award; also see Sattorova (2010). 148 Para 2.2.2 of the Saipem Award; also see, the views expressed in Cayre (2009). 149 Para 2.2.4 of the Saipem Award. 150 Id. at para 2.3; Polasek (2007). 151 Para 31 of the Saipem Award. 152 Para 40 of the Saipem Award.

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ICC Court and not the courts of Bangladesh’.153 Eventually, the tribunal rendered an award and ruled that Saipem is entitled to remedies.154 Again, in April 2004, Petrobangla moved a petition before the High Court Division of the Supreme Court of Bangladesh to set aside the ICC Award. The High Court Division considered ICC award as ‘no award in the eye of law’. It also opined that ‘a non-existent award can neither be set aside nor can it be enforced’.155 Accordingly, Saipem was unable to enforce the award before the Bangladeshi Courts. It was also not able to enforce the award in any other jurisdictions as Petrobangla has no assets outside Bangladesh.156 Subsequently, Saipem had approached the ICSID Centre and instituted an investment arbitration dispute. It had contended that the Bangladeshi Courts had illegally revoked the tribunal’s authority on ‘spurious grounds’.157 Further, Saipem requested the tribunal for a declaration that the Respondent had violated its obligations under BIT and international law, and also to order the Respondent to pay the entire compensation of USD 5,883,770.80 awarded by the ICC tribunal along with interest.158 On the other hand, the government of Bangladesh argued that the courts in Bangladesh had a supervisory jurisdiction to revoke the authority of the ICC tribunal under Section 5 of the Arbitration Act, 1940.159 The tribunal had to address, whether the dispute arose ‘directly’ out of an investment under Article 25(1). To assess the existence of ‘Salini’ elements, the tribunal considered ‘the entire operation’ into account, including contract, construction, retention money, warranty and subsequent ICC arbitration dispute.160 Therefore, the tribunal found that the award constituted an investment under Art 25(1). The tribunal also found that contract was an ‘investment’ set out in Articles 1(1) & 1(1) (c) of the relevant BIT.161 It is worth noting that the tribunal applied both BIT and ICSID Convention to assess the state liability to gain jurisdiction. The tribunal held that the Bangladeshi Court’s revocation of arbitrator’s power led to ‘abuse of the power’, which constitute a breach of international law.162 The tribunal also held that the Bangladeshi court’s interference in commercial arbitration was illegal. Hence, it constituted an expropriation defined in Article 5 of the BIT.163 The tribunal also explained that the actions of the Bangladeshi courts deemed ‘illegal’ 153 Kjos

(2016). 50 of the Saipem Award; Mavluda Sattorova, supra note 147. 155 Para 50 of the Saipem Award. 156 Para 130 of the Saipem Award; also see Richard Garnett, supra note 131 at 496. 157 Para 84 of the Saipem Award. 158 Para 85 of the Saipem Award. 159 Para 86 of the Saipem Award. 160 Para 110 of the Saipem Award; see also Luca Radicati, supra note 131, at 1005–1007. 161 Para 127 of the Saipem Award. 162 Luca Radicati, supra note 131, at 1005–1007. 163 Clasmeier (2016). 154 Para

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and it constituted a ‘substantial deprivation’. It is pertinent to note that requirement of ‘illegality’ was explained in a limited manner, and the tribunal reiterated that not every ‘illegality’ of courts amounts to an expropriation claim.164 The situation arises when the court applies the correct law but interprets it incorrectly, or court applies an improper law, in both the cases courts actions would be considered ‘illegal’. Hence, such judicial actions may not amount to expropriation. Notable scholar Martinez-Fraga opined that ‘Saipem’ case had opened a new venue for investment arbitral tribunals to act as supervisory institutions and it also transformed international arbitral tribunals into ‘second-guessing’ appellate body that assesses the domestic courts’ performance in the enforcement of foreign arbitral awards.165 On the other side, some scholars argued that providing ITA tribunals excessive powers to oversee the domestic courts raises serious concern. This might create apprehensions and uncertainties as to when the award will reach its finality. Also the agreement of appellate mechanism over commercial arbitration remains unclear.166

3.3.2.2

Kaliningrad v. Lithuania167

The fact of this case is entirely different with a ‘reverse’ scenario compared to the other investment cases discussed above. The claimant, in this case, challenged the enforcement of the London Court of International Arbitration award rather than the non-enforcement of the award.168 The main question, in this case, was whether the actual enforcement of the commercial arbitral award would amount to a breach of a BIT. A contractual dispute arose between Duke Investment Limited, a Cypriot company and the Region of Kaliningrad (a Russian territory located between Poland and Lithuania) for failure to reimburse a loan. Therefore, Duke Investment initiated arbitration before the London Court of International Arbitration, and the tribunal rendered an award against Kaliningrad. But the problem arose when the award was enforced in Lithuania against two buildings owned by Kaliningrad. The Lithuanian courts enforced the London Court of International Arbitral award and ordered to seize the building owned by the Region of Kaliningrad. Subsequently, in 2006 the Russian region of Kaliningrad commenced ICC investment arbitration against Lithuania under the Russian Federation–Lithuania BIT. The claimant alleged that

164 Claudia

Priem, supra note 8, at 199. see Sameer Sattar, supra note 2, at 65–66. 166 This cause of action also led host State to unnerve on investment arbitral tribunals for fear of the extensive use of supervisory powers; see the discussion in Claudia Priem, supra note 8, at 201. 167 Kaliningrad Region v. Lithuania, ICC Final Award (Jan 2009) [hereinafter the Kaliningrad Award]; also see, Government of the Region of Kaliningrad v the Republic of Lithuania (Paris Court of Appeal, Pole 1, Chambre 1, 18 November 2010 no 09/19535). 168 Gabrielle Kaufmann-Kohler, supra note 9, at 165. 165 Also

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Lithuania had unlawfully expropriated their property and thereby they had breached the obligations under Russia–Lithuania BIT. The question which arose was whether the conduct of Lithuanian courts amounts to an expropriation? Interestingly, the tribunal declined jurisdiction on the ground that if it accepts jurisdiction, then it would imply a role of an appellate body to scrutinize the decisions of domestic courts applying the New York Convention. After that, Kaliningrad approached French Court of Appeal to set aside the award. The Court had dismissed Kaliningrad’s claim and held that the enforcement of international award did not amount to expropriation enshrined under a Russia–Lithuania BIT. It is interesting to note that the BIT cannot be interpreted to hold a host state liable for complying with the obligations under the New York Convention.169 However, the notable arbitrator Gabrielle Kaufmann-Kohler seriously criticized the tribunal’s findings.170 It is pertinent to note that the ITA tribunals in above-discussed crossover cases have adopted different approaches on the breach of investment treaty obligations. Their approach is based on three different factors, firstly, whether the award in issue constitutes an ‘investment’. Secondly, to check the violation of specific standards of protection invoked by the claimant. Thirdly, the interpretative approach adopted by the ITA tribunal.171 It is pertinent to note that ‘finality’ is one of the distinct characteristics of arbitration. In practice mere possession of the award itself is not a remedy, an award does not end the arbitral process; as it has to be enforced to uphold the rights of the winning party. On certain occasions of non-compliance of award or refusal to enforce the award may result in international responsibility for States under both customary and treaty rules. In the recent past, the claims of non-enforcement of commercial arbitral awards have been initiated under different standards of investment treaty protection, such as effective means standard, full protection and security, and expropriation.

3.3.2.3

Romak v. Uzbekistan172

In ‘Romak’ case, an UNCITRAL tribunal declined to hear the non-enforcement of arbitral award as an ‘investment’ for the purpose of investor-state arbitration. Romak, a Swiss-based company, had signed a contract with three Uzbek entities to supply wheat to Uzbekistan. As a consequence of non-compliance with the agreement, 169 Claudia Priem, supra note 8, at 217; in a similar case i.e. Helnan Int’l Hotels A/S v. Arab Republic

of Egypt, ICSID Case No. ARB/05/19, Award (July 3, 2008) para 150, The ICSID tribunal held that mere enforcement of commercial award did not constitute a violation of the Denmark–Egypt BIT. 170 Gabrielle Kaufmann-Kohler, supra note 9, at 165. 171 Bernardo Sepulveda-Amor & Merryl Lawry-White, supra note 98, at 44. 172 Romak S.A. (Switzerland) v. the Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280, Award (Nov. 26, 2009) [hereafter the Romak Award].

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Romak initiated arbitration before the Grain and Feed Trade Association (GAFTA) and obtained an award in its favour. But, the Uzbek courts refused to enforce the award. Romak then commenced investment arbitration before the Permanent Court of Arbitration on the basis of Switzerland–Uzbekistan BIT.173 The respondent state challenged the jurisdiction of the tribunal and claimed that both wheat contracts and arbitral award not constituted elements of ‘investment’ defined under Article 1(2) of the applicable BIT. The tribunal found that it had no jurisdiction to decide the claim and had made a distinction between ‘investments’ and ‘purely commercial transactions’.174 The tribunal further explained that it would be indefensible to argue that every contract between Swiss investor and Uzbekistan entity, or every award rendered in favour of a Swiss national qualify as an investment under the BIT. The tribunal had applied ‘Salini test’ to determine whether the award would be considered as ‘investment’ within the meaning of the ICSID Convention. It is pertinent to note that this arbitration is administered under the UNCITRAL Arbitration Rules and therefore this tribunal found no basis to apply a different test to define ‘investment’ under BIT. Based on the objections and evidence produced before the arbitration, the tribunal found that ‘GAFTA Award merely constitutes the embodiment of Romak’s contractual rights’ arose from the wheat supply transaction. Therefore, the tribunal observed that ‘if the underlying transaction is not an investment within the meaning of the BIT, the mere embodiment or crystallization of rights arising thereunder in an arbitral award cannot transform it into an investment’.175 It is significant to note that the arbitral award did not qualify as an ‘investment’ as agreement to supply wheat contracts could not be considered as an ‘investment’ under the BIT. The tribunal’s findings would be entirely different in case if the tribunal did not apply the ‘Salini test’ to determine the scope of ‘investment’.

3.3.2.4

ATA v. Jordan176

In 2003, a FIDIC contract177 concluded between ATA Construction Company (ATA) and the Arab Potash Company (APC), a Government of Jordon enterprise. The contract was to build a dike on the Dead Sea. Eventually, a dike was collapsed at the construction site on the Dead Sea and subsequently led to a contractual dispute. The APC commenced FIDIC arbitration proceedings against ATA in 2003, but the tribunal dismissed APC’s claims and held in favour of ATA. Shortly after that, the APC appealed the matter to Amman Court of Appeal to annul the FIDIC award. The 173 Maximilian

Clasmeier, supra note 163, at 83. 185 of the Romak Award. 175 Para 211 of the Romak Award; Andrea K. Bjorklund, supra note 131, at 109. 176 ATA Construction, Industrial and Trading Company v. the Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2 (Award May 2010) [hereafter the ATA award]. 177 Agreement between the Hashemite Kingdom of Jordan and the Republic of Turkey concerning the Reciprocal Promotion and Protection of Investments (signed 2 August 1993, entered into force 23 January 2006). 174 Para

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Appellate court also annulled the FIDIC Award on the ground that the tribunal had misapplied Jordanian Arbitration Law, 2001. The court also extinguished the arbitration agreement pursuant to Article 51 of the Jordanian Arbitration Law. Subsequently, ATA appealed to Jordanian Court of Cassation, which upheld the judgement of Court of Appeal.178 In this situation, ATA initiated ICSID arbitration for alleged violations of Jordan–Turkey BIT. The ATA claimed that Jordan had ‘unlawfully expropriated’ their ‘claims to money and rights’ and failed to accord fair and equitable treatment. It argued that the actions of Jordanian courts amount to a denial of justice. In this case, the ICSID tribunal had to address two issues, annulment of the FIDIC award and the validity of extinguishment of the arbitration agreement.179 The real dispute arose, i.e. 06 September 2000 before the Jordan–Turkey BIT came into effect, i.e. 23 January 2006. Therefore, the tribunal found all claims in connection with the annulment of the award were per se ‘inadmissible’ due to lack of jurisdiction ratione temporis.180 After that, the tribunal analyzed the essential attributes of an award under Article 25(1) of the ICSID Convention. The tribunal by referring Saipem noted that it had jurisdiction only if the annulment claim has to be part of ‘entire operation’ (including FIDIC contract) which could be easily defeated.181 Therefore, tribunal moved to another claim, extinguishment of arbitration agreement. It observed that extinguishment of agreement amounts to destruction of ‘right to arbitrate’. Hence, the tribunal agreed that ‘right to arbitrate’ was a distinct ‘investment’ pursuant to Article 1(2) (a) (ii) of the BIT.182 Moving on to merits, the tribunal found that extinguishment of the agreement was unlawful. Therefore, Jordan had violated fair and equitable treatment accorded to the investors. The tribunal further ordered the Jordanian courts to ‘immediately and unconditionally’ terminate their interference and to allow the ATA proceeds to arbitration.183 It worth noting that, the ATA award further strengthened the Saipem decision as the States are liable for actions of domestic courts’ interference with arbitral rights. Both the ATA and Saipem tribunals considered award as an investment for ‘entire operation’ of the BIT. It is significant to note that ATA is one of the few cases where the tribunal observed that ‘right to arbitrate’ is a ‘distinct’ investment, because it had ‘financial value related to an investment’.184 It also opined that the retroactive extinguishment of arbitration agreement violates the fair and equitable treatment. This award stands

178 Andrea

K. Bjorklund, supra note 131, at 109. (2013); Maximilian Clasmeier, supra note 163, at 73–75. 180 Paras 95 and 103 of the ATA Award. 181 Para 113 of the ATA Award. 182 Definition ‘claims to money or any other rights to legitimate performance having financial value related to an investment’; Para 117 of the ATA Award; Maximilian Clasmeier, supra note 163, at 73–75. 183 Para 132 of the ATA Award; Claudia Priem, supra note 8, at 205; Loukas A. Mistelis, supra note 179, at 76–77. 184 Para 117 of the ATA Award. 179 Mistelis

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to differ from ‘Saipem’, where the tribunal opined that the interference of domestic courts in arbitration proceedings amounts to indirect expropriation.

3.3.2.5

Frontier v. Czech Republic185

In Frontier case, the ITA tribunal had to address whether Czech court’s refusal to recognize and enforce foreign arbitral awards on public policy grounds under the New York Convention amounted to a violation of international legal obligations enshrined in the Canada–Czech Republic BIT. Frontier Petroleum Services, a Canadian company, had entered into a joint venture agreement with Moravan-Aeroplanes, a Czech state-owned entity, to invest in aviation industry in the Czech Republic. A dispute arose with regard to performance of the joint venture. Therefore, the Frontier Petroleum commenced arbitration under the contract in Stockholm and also obtained an award in its favour. Meanwhile, the Moravan-Aeroplanes declared bankrupt. When the award came for an enforcement, the Czech courts refused to enforce the award on the ground of ‘public policy’ under Article V(2)(b) of the New York Convention. Following the refusal of enforcement, Frontier initiated investment arbitration against the Czech Republic under the Canada–Czech Republic BIT. The Frontier claimed that the Czech court’s refusal of enforcement amounted to breach of host state’s obligation to provide fair and equitable treatment, and full protection and security to the Claimant’s investment. For the purpose of jurisdiction, the ITA tribunal found that there was an ‘investment’.186 Moving on to the merits of the case, the tribunal had to decide whether the Czech Court’s refusal amounted to ‘abuse of rights’ contrary to the international principle of ‘good faith’. The tribunal opined that Article V(2)(b) of the New York Convention reference to ‘public policy’ to an ‘international public policy’.187 Also the host state can define its limitation and standards of what falls under the international public policy. In its observation, the ‘Frontier’ tribunal referred to French and German Court cases, where the courts found that equal treatment of creditors in bankruptcy proceedings to be part of international public policy. Therefore, the Frontier tribunal found that interpretation adopted by the Czech courts to be ‘reasonably tenable’.188 With respect to the allegation on breach of fair and equitable treatment standard, the tribunal also found that there was no proof that the Czech courts acted arbitrarily or in bad faith.189 The tribunal concluded that the respondent state did not violate its obligations provided under the Canada–Czech Republic BIT. It is significant to note that for the first time in investment arbitral jurisprudence, the ‘Frontier’ tribunal found that the refusal of enforcement of the commercial arbitral 185 Frontier

Petroleum Services Ltd. v the Czech Republic, UNCITRAL Award (Nov 12, 2010); also see Oxford Rep. Intl. Inv. Claims [IIC] 465 (2010) [hereinafter the Frontier Award]. 186 Para 231 of the Frontier Award. 187 Para 526 of the Frontier Award. 188 Para 529 of the Frontier Award. 189 Also see Claudia Priem, supra note 8, at 206.

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award is not considered as a breach of BIT on the condition that the refusal was made in ‘good faith’ and on the grounds of ‘public policy’.

3.3.2.6

GEA v. Ukraine190

In this case, Group Aktiengesellschaft (GEA) a German company and Oriana, a Ukrainian government-owned oil entity had entered into a contract in 1995 to supply naphtha fuel. The conversion contract provided that GEA would supply 200,000 tons of naphtha fuel to Oriana for conversion, and the converted product would be returned to GEA. In the meantime, one of the GEA officials was shot during the inspection of Oriana operations. Also, GEA found that substantial amount of naphtha fuel 125,000 tons was missing. However, the parties have entered into settlement agreement to settle their differences. It provided that Oriana would pay USD 2.6 million as compensation to GEA. Subsequently, difference arose between them, which was taken to the ICC arbitration in 2001. The ICC tribunal rendered an award in favour of GEA for USD 30,381,664.44. But difficulties arose when the award was sought to be enforced before Ukrainian courts. The Appellate Court rejected the GEA’s enforcement request on the ground that the repayment agreement was concluded by unauthorized persons and accordingly, held it to be invalid. GEA then appealed to the Supreme Court of Ukraine, which was also turned down by it.191 With no other option, GEA finally initiated ICSID arbitration in 2008 administered under the Germany–Ukraine BIT. The tribunal had considered three things to find the attributes of ‘investment’: conversion contract, property rights in the product delivered under the agreement, and the repayment agreement or the ICC award. This tribunal approach was markedly different from the previous cases of Saipem, ATA and White. The GEA tribunal found that it had jurisdiction only by ‘conversion contract’, which satisfies the definition of investment under both the BIT and Article 25 of the Convention. The tribunal further found that the conversion contract satisfied the ‘Salini’ requirement since the investors had assisted in the delivery of logistics, pay for domestic freight and resolved customs issues. Therefore, these rights conferred right to exercise ‘economic activity’. The investors also contributed Ukraine for three years, which assume several risks.192 Further, the tribunal rejected the claims based on settlement or repayment agreements because they were just ‘legal acts’ which cannot be treated as an actual investment.193 It held that ICC award ‘in and of itself’ cannot constitute an ‘investment’, the tribunal also declined to consider the award as part of ‘bundle of assets’.194 The tribunal further stated that the ICC 190 GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award (Mar. 31, 2011)

[hereafter the GEA Award]. K. Bjorklund, supra note 131, at 107. 192 Paras 151–152 of the GEA Award; Loukas A. Mistelis, supra note 179, at 78–80. 193 Para 157 of the GEA Award. 194 Para 161 of the GEA Award; also see Sameer Sattar, supra note 2, at 69. 191 Andrea

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award was not involved in any contribution to the economic activity in Ukraine, and therefore, it did not consider the award as an ‘investment’.195 However, the tribunal observed that settlement ‘conversion contract’ could satisfy the requirement of ‘investment’ within the meaning of Article 1(1)(e) of the BIT, and Article 25 of the Convention.196 Therefore, it had moved into the merits phase to analyse the claim on ‘expropriation’. Concerning expropriation claim, the tribunal noted that the findings of Saipem were not appropriate in this case.197 The tribunal also could not find any reasoning on claimant’s denial of justice claim, as GEA did not produce sufficient evidence. The tribunal also noted that refusal of enforcement of commercial awards can be considered as ‘expropriation’ only if the conduct of courts is ‘egregious’. The tribunal did not find any evidence that conduct of Ukrainian courts was ‘egregious’.198 It is pertinent to note that this decision faced serious criticisms from various quarters. For instance, the White Industries tribunal commented that the GEA decision was an ‘incorrect departure from the developing jurisprudence’.199

3.3.2.7

White Industries v. Republic of India

The Coal India Limited, a Government of India enterprise, had entered into an agreement with the White Industries (Australia) in September 1989 to develop an open-cast coal mine at Piparwar, Jharkhand.200 Under the agreement, the White Industries had to meet certain performance requirements with certain threshold bonus and penalty norms.201 Subsequently, differences arose between the parties on the determination of performance requirements. These situations led to the ICC Arbitration initiated by the White Industries in July 1999. Subsequently, in 2002, the ICC tribunal rendered an award in favour of White Industries with AUD 4.08 million.202 In the meantime, the Coal India Limited had initiated a proceeding before the Calcutta High Court to set aside the ICC award. Eventually, without the knowledge of Coal India Limited’s set-aside proceeding, White had approached the Delhi High Court for an enforcement of the ICC award in 2002. Surprisingly, in May 2004 the Single Bench of the Calcutta High Court ruled in favour of the Coal India Limited and set aside the award on the ground of public policy under Section 34 of the Arbitration and Conciliation Act, 1996. Moreover, the Division Bench of the Calcutta High Court 195 Paras

161 and 162 of the GEA Award. 153 of the GEA Award. 197 Para 234 of the GEA Award. 198 Para 236; Also see Andrea K. Bjorklund, supra note 131, at 108. 199 Claudia Priem, supra note 8, at 209. 200 For an authoritative discussion on the ‘White Industries’ case, see Kachwaha (2013), Sanan (2012), Ray (2012), Nacimiento and Lange (2012). 201 Article 13.3.3 of the Turnkey Agreement between White Industries Australia Limited and Coal India Limited. 202 Patricia Nacimiento & Sven Lange, supra note 51, at 275. 196 Para

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had also rejected the appeal of White Industries.203 In July 2004, White Industries approached the Supreme Court against the decision of the Calcutta High Court. The Supreme Court heard the appeal only in January 2008 for the first time, only to transfer the proceedings to another bench. Aggrieved by the inordinate delay, White Industries finally initiated investment arbitration against India under the India–Australia BIT.204 Before the investment panel, White Industries argued that the Respondent had expropriated its investment provided under Article 7 of the Australia–India BIT. It had also argued that the Respondent had failed to provide either fair and equitable standard of treatment or the ‘effective means’ standard of protection to the investments under Articles 3(2) and 3(1), respectively.205 The tribunal did not apply ‘Salini’ test to define ‘investment’ in this case as this test was developed to determine ‘investment’ for Article 25(1) of the ICSID Convention.206 Finally, the tribunal considered the ICC award as an ‘investment’ under Article 1 of the India–Australia BIT.207 The tribunal also expressed dissatisfaction with the decision of ‘GEA’ case, where the tribunal opined that ‘the ICC award in and of itself-cannot constitute an investment’. It had further commented that the ‘GEA’ findings as an ‘incorrect departure from the developing jurisprudence’.208 The detailed analysis of this case can be found in Chap. 5.

3.4 Impact of Crossover Cases on Future Claims It is pertinent to note that generally, there is no rule of stare decisis in international investment arbitration. However, in practice, the tribunals are in need of citing the previous decisions to support or clarify their holding.209 The question of authority of previous decisions was a contentious issue in some cases initiated against Argentina. It had repeatedly raised the same jurisdictional objection in various cases. For instance, Argentina in ‘Vivendi’ case objected to the question of whether participation of foreign shareholders in domestic company constituted an attribute of ‘investment’. The tribunal not only rejected the Argentina’s objection but also listed 18 previous decisions in an Appendix to its decision, which had rejected the

Ray, supra note 200, at 25. case has also been discussed detail in Chap. 4. 205 Loukas A. Mistelis, supra note 179, at 82. 206 On the contrary, the Romak Tribunal ruled that the Salini test could be equally applied to the UNCITRAL Arbitration to interpret the definition of ‘investment’ under a BIT; also see Loukas A. Mistelis, supra note 179, at 82–84. 207 Maximilian Clasmeier, supra note 163, at 69–71; also see Sameer Sattar, supra note 2, at 71–74. 208 Claudia Priem, supra note 8, at 212. 209 Also see Kaufmann-Kohler (2007). 203 Ashutosh 204 This

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Different Intepretative Approaches

69

Liberal approach

'Entire Operation' out of which award resulted quali ies as investment. Eg: Saipem, White and ATA Cases

Mixed Approach

Rights that are 'crystallized' in award. Eg: Frontier Case

Literal Interpretation- the award "in and of itself". Eg: GEA Case

Strict Approach Teleological InterpretationInvestment consists of "bundle of rights". Eg: Romak Case

Fig. 3.1 Different interpretative approaches adopted by ITA tribunals to decide the question of jurisdiction in crossover cases. Sources Clasmeier (2016); Demirkol (2018); Kjos (2016); Michael Reisman (2011); Oliveira (2013); Radicati di Brozolo and Malintoppi (2010); Ray (2016); Van Harten (2014)

same argument.210 Coming back to the similar discussion in crossover cases, the tribunal in ‘White Industries’ case cited ‘Chevron’, ‘ATA’ and ‘Saipem’ cases to decide whether the rights under a contract could qualify as an ‘investment’. Therefore, it is submitted that the ITA tribunals seem to be moving towards accepting the doctrine of precedent.211 Moreover, it is indeed necessary to discuss both the issues, i.e. the jurisdiction of investor-state arbitration to hear crossover cases and their powers to address the merits of those cases.

3.4.1 Question of Jurisdiction (Notion of ‘Investment’) Whether arbitral award or arbitration agreement considered as an Investment? It is difficult to agree how arbitration agreement or arbitral award could be investment even if the BITs have a broad definition of investment (‘any kind of asset’). It is necessary to identify the attributes of ‘investment’ in the dispute concerning commercial arbitration agreement or commercial award (Fig. 3.1).

210 Compania

de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Jurisdiction (14 Nov. 2005), para 94; also see Schreuer and Weiniger (2008). 211 Gill (2010).

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The most widely accepted approach adopted in the ‘Saipem’ case, in which the tribunal reasoned that ‘investment’ to be determined based on the commercial arbitration agreement or award, and also the ‘entire operation’ of overall investment. It is submitted that the Commercial arbitration agreement or award is just a legal instrument; it is not considered as an asset forming an investment. However, breach of that instrument would lead to investment dispute, because it might affect the residual rights of investors that remained of its original investment.212 It is interesting to note the ‘White’ and ‘ATA’ tribunals posed less jurisdictional obstacles when compared with other crossover cases discussed above. Both the tribunals looked at the literal meaning of the term ‘investment’ defined under respective BITs.213 For instance, the ‘White’ tribunal administered under the UNCITRAL Arbitration Rules, did not accept the application of ‘Salini’ test, and they were in favour of the literal meaning of the term ‘investment’. Similarly, the ICSID tribunal in ‘ATA’ case also applied the literal meaning of ‘investment’ referred to in Article 1(2) (a) of the Turkey–Jordan BIT.214 On the other hand, the ‘Frontier’ tribunal administered under the UNCITRAL Arbitration Rules adopted a ‘mixed’ approach. The tribunal had focused on the rights that are ‘crystallized’ in the award. It found jurisdiction in BIT, where the respondent state affected the management, use, enjoyment of Frontier’s original investment as ‘crystallized in the arbitral award’.215 However, the ICSID tribunal adopted ‘relatively strict’ interpretation of investment in the ‘GEA’ case. The tribunal found that Agreement to supply goods (conversion contract) constituted ‘protected investment’ under the Germany–Ukraine BIT (or the ICSID Convention). The tribunal differentiated the commercial arbitral award from ITA award and emphasized that the ‘award (which) rules upon rights and obligations arising out of an investment do not equate the award with the investment itself’.216 The tribunal further observed that even if the commercial arbitral award constituted an investment, the actions of Ukrainian courts did not constitute an expropriation, as the actions of Ukrainian Courts were not ‘egregious [and] discriminatory’.217 The ‘Romak’ tribunal’s interpretation of ‘investment’ implied that any business activities would qualify as an ‘investment’ for treaty protection purposes.218 This outcome would thus lead to a ‘new instance of review of State court decisions 212 Para

127 of the Saipem Jurisdiction. ITA tribunals in ATA & White Industries cases conceptualized that the term ‘investment’ as an ‘entire operation’. 214 Jose E. Alvarez, supra note 10, at 413. 215 Para 23 of the Frontier award; also see Franco Ferrari & Friedrich Rosenfeld, supra note 38, at 300. 216 Paras 161–162 of the GEA award. 217 Para 236; Bernardo Sepulveda-Amor & Merryl Lawry-White, supra note 98, at 48. 218 Para 186 of the Romak Award. 213 The

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concerning the enforcement of arbitral awards’.219 Therefore, the tribunal rejected the ‘literal’ interpretation of investment adopted in ‘Saipem’ and ‘White’ cases and observed such literal interpretation is ‘untenable under international law’. Accordingly, the tribunal justified the adoption of ‘teleological’ approach to define ‘investment’. It found that the sales contract to deliver wheat cannot be considered as ‘protected investment’ under the BIT.220

3.4.2 The Question of Merits Generally, BITs provides for jurisdiction on investment tribunals and the New York Convention on domestic courts. Once the issue of jurisdiction is settled, question arises as to what test to be adopted by the tribunal for evaluating the conduct of domestic courts to determine whether it amounts to a violation of BIT. It is also necessary to examine extent to which the New York Convention is relevant to decide the dispute on merits in crossover cases.

3.4.2.1

Abuse of Rights

It is significant to note that the interplay between the New York Convention and BITs are not theoretical. Also, rules of conflict are not enshrined either in BITs or in the New York Convention. Except Article VII, the New York Convention did not contain any conflict rule to resolve such issues. It is difficult to have recourse to Article 30 of the Vienna Convention on the Law of Treaties221 (successive treaties relating to the same subject): While the New York Convention deals with recognition and enforcement of arbitration agreement and arbitral awards, BIT aims to promote and protect foreign investment. Article 41 of the VCLT also appears to be inapplicable, as, BIT was not intended to modify the New York Convention. Notable scholar Gabrielle Kaufmann-Kohler observed that the useful rule in this regard is Article 26 of the VCLT (treaties must be performed in good faith).222 On the other hand some scholars argued that principles of abuse of rights constitute the general principle of law under Article 38(i)(c) of the Statute of the International Court of Justice. It is also well established in the practice of investment arbitral tribunals. The ITA tribunals relied on ‘abuse of rights’ principle to assess the conduct of domestic courts to restore investors’ rights. It is pertinent to note that ‘Frontier’ tribunal also examined whether the conduct of Czech courts’ amounted to ‘abuse of rights’ for refusing to enforce 219 The

Romak award, Para 186.

220 Paras. 211, 242; Jose E. Alvarez, supra note 10, at 415; see Franco Ferrari & Friedrich Rosenfeld,

supra note 38, at 302. 221 Vienna Convention on the Law of Treaties (adopted 22 May 1969, entered into force 27 January 1980); 1155 UNTS 331; 8 ILM 679; UN Doc A/Conf.39127 [hereafter the VCLT Convention]. 222 Gabrielle Kaufmann-Kohler, supra note 9, at 168.

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the commercial arbitral award on the ground of public policy. The tribunal found that no abuse was committed. The ‘GEA’ tribunal observed that a simple mistake made by enforcement court is not sufficient to consider it as treaty breach, as some serious ‘egregious’ conduct must required.223

3.4.2.2

Unlawful Expropriation

Alternatively, domestic courts’ interference with enforcement of commercial arbitral awards could amount to an unlawful expropriation. The ‘Saipem’ tribunal established the main precedent for this proposition. The tribunal also relied upon the New York Convention to check the legitimacy of Bangladeshi Courts. The tribunal held that actions of Bangladeshi courts were tantamount to substantially taking away the rights of ‘Saipem’. The tribunal’s reasoning was outlined by a ‘normative’ approach towards the New York Convention, rather than relying upon Bangladesh’s factual compliance.224

3.4.2.3

Fair and Equitable Treatment

Generally, fair and equitable treatment obligation protects investor’s legitimate expectations and guarantees certain due process. The tribunal in ‘White Industries’ applied ‘low degree’ of deference towards the New York Convention while interpreting the fair and equitable treatment obligations. Surprisingly, the tribunal rejected the fair and equitable treatment claims and accepted the effective means standard claims. The tribunal further observed that the investor legitimately expected to have known about the Indian judicial backlog and serious delays at the time of investment. It is also relevant to note that the ‘ATA’ tribunal adopted ‘high degree’ of deference towards the New York Convention. The tribunal had to examine whether respondent State had violated obligations of the Turkey–Jordan BIT by extinguishing an arbitration agreement. The tribunal’s reasoning was primarily relied on the obligation of Article II of the New York Convention. It is interesting to note that the tribunal failed to mention which provision of BIT had been violated, instead it merely found the violation under the New York Convention. The tribunal referred to obligation of fair and equitable treatment only in a foot note.225

223 Paras

236 & 319 of the GEA Award. Ferrari & Friedrich Rosenfeld, supra note 38, at 303–304. 225 Also see the authorities cited in Para 125 of the ATA Award. 224 Franco

3.4 Impact of Crossover Cases on Future Claims

3.4.2.4

73

Other Substantial Obligations

Considering the complexity of the proceedings in the ‘White Industries’ case, the tribunal rejected the denial of justice claim, because the investors have failed to prove the high threshold of the claim. However, the tribunal confirmed that undue delay amounted to a breach of effective means standard. The tribunal further observed that effective means standard creates distinct and seemingly less demanding test compared to the ‘denial of justice’ standard. The tribunal’s finding was fact-specific and without reference to the New York Convention.226 Generally, the tribunals require high threshold level to establish the denial of justice claims; therefore, it is unlikely for investors to challenge the judicial interference on this ground for future claims.227

3.5 Investment Arbitration as an Overarching Mechanism It is pertinent to note that in ‘GEA’ case, the respondent argued that investment arbitral tribunal’s reviewing of domestic courts’ decision on refusal to recognize and enforce arbitral award would create an ‘appellate jurisdiction’ for enforcement of commercial arbitral awards.228 In ‘Saipem’, also respondent brought the same argument before the ICSID tribunal. However, these arguments were not accepted as the claimant sought investment tribunal to rule on the allegation of treaty breaches by the host state. There is also no reason to reject ITA claims in crossover cases because the alleged breach involved the application of another treaty, i.e. the New York Convention.229 It is also noted that investment tribunals do not acquire the role of ‘enforcement court’. It is referred only to check whether the conduct of domestic courts (State’s conduct) amounts to a violation of applicable BIT. The ICSID tribunal in ‘Saipem’ case observed that this tribunal is a ‘treaty judge’ and it is called upon to rule on ‘exclusively on treaty breaches [and], whatever the context in which such treaty breaches arise’.230 The crossover cases discussed above have gathered both applaud and criticism. The ‘Saipem’ tribunal’s jurisdictional finding was praised by the ‘White Industries’ tribunal. However, ‘GEA’ tribunal criticized ‘Saipem’ in part.231 A group of scholars praised ‘White Industries’ decision on delay in domestic courts amounts to violation of ‘effective means standard’ clause.232 On the other hand, the other group of scholars criticize the practice of crossover cases, and note that ‘Saipem’ and other crossover 226 Franco

Ferrari & Friedrich Rosenfeld, supra note 38, at 308. Claudia Priem, supra note 8, at 219. 228 Para 485 of the GEA Award. 229 Gabrielle Kaufmann-Kohler, supra note 9, at 164. 230 Saipem Jurisdiction, para 156. 231 Saipem Jurisdiction, para 163. 232 Sameer Sattar, supra note 2, at 72; see Luca Radicati, supra note 131, at 1008. 227 See

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cases pose threat to the ‘architecture’ of the New York Convention and commercial arbitration. They consider it as the ‘supranational’ review over domestic courts. They cautioned that investor-state arbitration might become new vehicle for ‘de facto appellate review’ of domestic courts and opined that the finality of awards will be uncertain. This ‘second look’ threatens the primacy of domestic court system. In such situations, how and to what extent domestic courts will have a final say over the validity of commercial arbitral awards. The parties to commercial disputes might tend to lose faith on domestic judicial system for its inadequacy.

3.6 Conclusion The question of what is an ‘investment’ has been debated since the first ICSID arbitration, i.e. Holiday Inns v. Morocco.233 The existing investment jurisprudence is not consistent in this regard. This study found that no major trend has emerged where the investors often employ investment claims to support the enforcement of commercial arbitral awards. The case laws stemming from investment tribunals discussed above shows that this practice is inconsistent, but the ‘trend is creeping, if not emerging’, because Saipem, ATA, White Industries, and Chevron decisions go in one direction and, GEA, Romak and Frontier decisions go in another direction.234 This study also found that most of the challenges to the execution of the ICSID award against ‘specific sovereign assets’ have been more successful. The above discussion also confirmed that the direct enforcement mechanism of the ICSID award goes beyond the scope of ‘sovereign immunity’ exemption provided in Article 55 of the ICSID Convention. From the analysis of the crossover cases discussed above, it is reiterated that domestic courts have not completely accepted the subsidiary role of enforcement of ICSID awards. It has opened an avenue for review of enforcement of ICSID awards. However, challenging of ICSID awards before domestic courts have raised concern on the doctrine of ‘finality’ and the legitimacy of ICSID awards. Sparing all the challenges discussed above, the enforcement of ICSID awards is certainly less risky for investors, when compared with resistance to enforcement of the New York Convention awards. The study also found that a ‘mere dissatisfaction’ of the party challenging the action of domestic courts will not be sufficient for initiating investment arbitration. Due to the existing inconsistencies, the claimant has to support their claims through proper evidence to determine the scope of ‘investment’. It is reiterated that linking commercial arbitral awards with investment arbitration is not yet easy to decide. Domestic courts have to be more vigilant when they are interfering with party’s right

233 Holiday

Inns S.A. and others v. Morocco, ICSID Case No. ARB/72/1. scholar Wang also commented that ‘actually informatively confirms that there is hardly a trend or development to treat commercial awards as investments’, see Wang (2014); also see Loukas A. Mistelis, supra note 179, at 85.

234 Notable

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75

to international arbitration. Otherwise, the State might face the risk of attribution of State responsibility under international law.

References Alexandrov, S. A. (2003). Introductory note to International Centre for the Settlement of Investment Disputes (ICSID): SGS Societe Generale de Surveillance S.A. v. Pakistan. International Legal Materials, 42, 1285. Alvarez, J. E. (2013). Crossing the “Public/Private” divide: Saipem v. Bangladesh and other crossover cases. In A. J. van den Berg (Ed.), International arbitration: The coming of a new age? ICCA Congress Series 400 (Vol. 17). Kluwer. Arkins, J. (2001). Borderline legal: Anti-suit injunctions in common law jurisdictions. Journal of International Arbitration, 18(6), 603. Baldwin, E., et al. (2006). Limits to enforcement of ICSID awards. Journal of Arbitration International, 23(1), 1–9. Bansal, S., & Agrawal, D. (2015). Are anti-arbitration injunctions a malaise? An analysis in the context of Indian law. Arbitration International, 31, 613–618. Bjorklund, A. K. (2016). The use of investor-state arbitration as a De Facto enforcement mechanism for arbitral awards. In S. Brekoulakis, et al. (Eds.), The evolution and future of international arbitration. Kluwer. (International Arbitration Law Library, 37, 97–118). Blackaby, N., et al. (2009). Redfern and Hunter on international arbitration (p. 439). OUP. Born, G. B. (2009). International commercial arbitration (pp. 1049–1054). Kluwer. Brower, C. N., & Goodman, R. E. M. (1991). Provisional measures and the protection of ICSID jurisdictional exclusivity against municipal proceedings. ICSID Review Foreign Investment Law Journal, 6, 431. Cayre, J. (2009). Introductory note to the International Centre for Settlement of Investment Disputes: Saipem S.p.A. v. the People’s Republic of Bangladesh. International Legal Materials, 48, 996– 998. Cheng, M. (2018). Establishing a code of conduct for a balanced relationship between investment arbitral tribunals and national courts. Contemporary Asia Arbitration Journal, 11(1), 91–115. Clasmeier, M. (2016). Arbitral awards as investments: Treaty interpretation and the dynamics of international investment law (pp. 77–80). Kluwer. Coe, J. J. (2002). Domestic court control of investment awards: Necessary evil or archilles heel within NAFTA and the proposed FTAA? Journal of International Arbitration, 19(3), 185–208. Demirkol, B. (2015). Enforcement of international commercial arbitration agreements and awards in investment treaty arbitration. ICSID Review Foreign Investment Law Journal, 30(1), 57–63. Demirkol, B. (2018). Judicial acts and investment treaty arbitration (p. 199). CUP. Douglas, Z. (2009). The international law of investment claims (p. 236). CUP. Ferrari, F., & Rosenfeld, F. (2016). Bridging the gap between investment and commercial arbitration at the enforcement stage: Regime interactions between the New York convention and international investment law. New York University Journal of Law and Business, 12(2), 295–296. Franck, S. (2005). The legitimacy crisis in investment treaty arbitration: Privatising public international law through inconsistent decisions. Fordham Law Review, 73, 1521. Gaillard, E. (2006). Reflections on the use of anti-suit injunction in international arbitration. In L. Mistelis & J. Lew (Eds.), Pervasive problems in international arbitration (pp. 203–204). Kluwer. Garnett, R. (2011). National court intervention in arbitration as an investment treaty claim. International and Comparative Law Quarterly, 60, 485–487. Gill, J. (2010). Is there a special role for precedent in investment arbitration? ICSID Review Foreign Investment Law Journal, 25(1), 88–89. Goldhaber, M. (2004). Arbitral terrorism. Transnational Dispute Management, 3, 1–5.

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Goodman, C. L. (2007). Uncharted waters: Financial crisis and enforcement of ICSID awards in Argentina. University of Pennsylvania Journal of International Economic Law, 28(2), 449–453. Kachwaha, S. (2013). The White Industries Australia Limited—Indian BIT Award—A critical assessment. Arbitration International, 29, 275. Kalderimis, D. (2016). The authority of investment treaty tribunals to issue orders restraining domestic court proceedings. ICSID Review Foreign Investment Law Journal, 31(3), 549–562. Kaufmann-Kohler, G. (2007). The 2006 Freshfields Lecture—Arbitral precedent: Dream, necessity or excuse? Arbitration International, 23, 357. Kaufmann-Kohler, G. (2013). Commercial arbitration before international courts and tribunals— Reviewing abusive conduct of domestic courts. Arbitration International, 29(2), 153–154. Kjos, H. E. (2016). International law through the national prism: The role of domestic law and jurisprudence in shaping international investment law. In A. Reinisch et al. (Eds.), International Law and Jurisprudence in Shaping International Investment Law, Select Proceedings of the European Society of International Law (pp. 34–35). Hart. Le Bars, B., & Shiroor, T. (2017). Provisional measures in investment arbitration: Wading through the Murky waters of enforcement. Indian Journal of Arbitration Law, 6(1), 24–30. Lenenbach, M. (1998). Antisuit injunctions in England, Germany and the United States: Their treatment under European Civil procedure and The Hague Convention. Loyola of Los Angeles International and Comparative Law Journal, 20, 257. Michael Reisman, W. (2011). Investment and human rights tribunals as courts of last appeal in international commercial arbitration. In L. Levy & Y. Derains (Eds.), Liber Amicorum en l’honneur de Serge Lazareff (p. 521). Pedone. Mistelis, L. A. (2013). Award as an investment: The value of an arbitral award or the cost of non-enforcement. ICSID Review Foreign Investment Law Journal, 28(1), 64, 76–77. Muchlinski, P., et al. (2008). The Oxford handbook of international investment law (p. 695). OUP. Nacimiento, P., & Lange, S. (2012). White Industries Australia Limited v The Republic of India (Case Comment), 27 (2) ICSID Rev. ICSID Review Foreign Investment Law Journal, 27(2), 274–275. Oliveira, T. B. J. (2013). The authority of domestic courts in adjudicating international investment disputes: Beyond the distinction between treaty and contract claims. Journal of International Dispute Settlement, 4(1), 175–179. Ortiz, A. L., et al. (2017). The role of national courts in ICSID arbitration. In C. Baltag (Ed.), ICSID convention after 50 years: Unsettled issues (pp. 335, 340). Kluwer. Park, W. W. (2013). Convention violations and investment claims. Arbitration International, 29(2), 175–180. Petrochilos, G. C. (1999). Enforcing awards annulled in their state of origin under the New York convention. International & Comparative Law Quarterly, 48, 856–857. Polasek, M. (2007). Saipem S.p.A v The People’s Republic of Bangladesh (Introductory Note) (ICSID Case No ARB/05/7). ICSID Review Foreign Investment Law Journal, 22(1), 95–96. Poon, N. (2013). The use and abuse of anti-arbitration injunctions—A way forward for Singapore. Singapore Academy of Law Journal, 25, 244–246. Priem, C. (2013). International investment treaty arbitration as a potential check for domestic courts refusing enforcement of foreign arbitration awards. New York University Journal of Law and Business, 10, 189–190. Radicati di Brozolo, L. G. & Malintoppi, L. (2010). Unlawful interference with international arbitration by national courts of the seat in the aftermath of Saipem v. Bangladesh. In B. M. Cremades & D. Arias (Eds.), Liber Amicorum Bernardo Cremades (pp. 993–995). Kluwer. Rajput, A. (2017). Protection of foreign investment in India and investment treaty arbitration (p. 341). Kluwer. Ray, A. (2012). White Industries Australia Ltd. v. Republic of India: A new lesson for India. Journal of Arbitration International , 29(5), 623–625. Sanan, M. (2012). The White Industries award—Shades of Grey. Journal of World Investment and Trade, 13(4), 661–675.

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Saravanan, A., & Subramanian, S. R. (2017). Role of domestic courts in the investor-state dispute settlement process: The case of South Asian BITs. International Arbitration Law Review, 20(2), 42–46. Sarooshi, D. (2013). Provisional measures and investment treaty arbitration. Arbitration International, 29(3), 361–380. Sattar, S. (2010). National courts and international arbitration: A double-edged sword? Journal of International Arbitration, 27(1), 51. Sattorova, M. (2010). Judicial expropriation or denial of justice? A note on Saipem v Bangladesh. International Arbitrary Law Review, 13(2), 35–41. Schill, S. (2011). International investment law and the law of state immunity: Antagonists or two sides of the same coin. In R. Hofmann & C. Tams (Eds.), International investment law and general international law (p. 250). Nomos. Schreuer, C. (2001). The ICSID convention: A commentary (pp. 351–353). CUP. Schreuer, C. (2010). Interactions of international tribunals and domestic courts in investment law. In A. W. Rovine (Ed.), Contemporary issues in international arbitration and mediation: The Fordham papers (pp. 71, 72). Martinus Nijhoff. Schreuer, C., & Weiniger, M. (2008). Conversations across cases—Is there a doctrine of precedent in investment arbitration? Transnational Dispute Management, 5(3), 4–5. Sepulveda-Amor, B., & Lawry-White, M. (2017). State responsibility and the enforcement of arbitral awards. Arbitration International, 33, 35–51. Stephenson, A., et al. (2011). Interference by a local court and a failure to enforce: Actionable under a bilateral investment treaty. In C. Brown & K. Miles (Eds.), Evolution in investment treaty law and arbitration (pp. 429, 430). CUP. Strong, S. I. (2014). Anti-arbitration injunctions in cases involving investor-state arbitration-British Caribbean Bank Ltd. v. The Government of Belize Caribbean Court of Justice, Judgment, 25 June 2013, [2013] CCJ 4 (AJ). The Journal of World Investment & Trade, 15, 324–332. Subramanian, S. R. (2018). Anti-arbitration injunctions and their compatibility with the New York convention and the Indian law of arbitration: Future directions for Indian law and policy. Arbitration International, 34(2), 185–217. Van Harten, G. (2013). Sovereign choices and sovereign constraints: Judicial restraint in investment treaty arbitration. OUP. Van Harten, G. (2014). Judicial restraint in investment treaty arbitration: Restraint based on relative suitability. Journal of International Dispute Settlement, 5, 8. Verhoosel, G. (2013). Annulment and enforcement review of treaty awards: To ICSID or not to ICSID. In A. J. van den Berg (Ed.), International arbitration: The coming of a new age? ICCA Congress Series (Vol. 17, pp. 285, 301). Kluwer. Wang, G. (2014). Judicial independence in context of international investment law. In S. Shetreet (Ed.), The culture of judicial independence: Rule of law and world peace (p. 317). Brill. Yesilirmak, A. (2005). Provisional measures in international commercial arbitration (p. 8). Kluwer.

Chapter 4

India’s Approach to the Protection of Foreign Investment

4.1 Introduction The discovery of new maritime routes to India has brought India closer to European powers and colonialism, which has later flagged off trade and foreign investment into India. The battle fought between Indian King Zamorin of Calicut and Portuguese for market access issue has led to the establishment of the first permanent European settlement in India in 1503. Following the battle, the Portuguese brought foreign investment as there were no international rules governing the market access. They achieved market access to India by use of force.1 The Portuguese was succeeded by English East India Company in 1600 and established its new base at Fort St George, Madras, in 1639. The Company widely extended its investment throughout India by violating English law as well as domestic rules and regulations.2 It may be observed that the establishment of investment atmosphere in India undertaken by the Portuguese and the East India Company shows the closer linkages between investment and politics. During the 1670s, the Indian economy was severely affected due to the phenomenal success of the Company’s trade. In order to assert the investor’s rights, the Company had deployed expeditionary force in 1686. In 1689, the Mughal emperor, Aurangzeb, fought with the Company during the seizure of Bombay, but, later, he restored the Company’s right to trade. This remarkable event was considered to be the first investor-state dispute in the medieval history. On 1 November 1858, the power of the Company was transferred to the British sovereign by the Queen Victoria’s Proclamation. The Company rule was abolished, and the direct rule of Queen was introduced. This was claimed to be the first case of nationalization of foreign investment by a home government.3 1 Also

see the discussion in Anand (1987). at 58–59. 3 Krishan (2008). 2 Id.

© Springer Nature Singapore Pte Ltd. 2020 A. Saravanan and S.R. Subramanian, Role of Domestic Courts in the Settlement of Investor-State Disputes, https://doi.org/10.1007/978-981-15-7010-0_4

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The UK started signing the Friendship, Commerce and Navigation (FCN) treaties, in order to provide its nationals with a right of access to foreign territory. During the early years, UK incorporated the ‘automatic inclusion clauses’ in its Friendship, Commerce and Navigation treaties which was automatically applied to all its colonies. Therefore, India was also bound by the acts of the British government.4 In this connection, the pertinent question of the British Dominion’s prior accession rights on Friendship, Commerce and Navigation treaties was questioned at the Colonial Conference in Australia in 1902. It was later decided that Great Britain had to communicate the terms of the Friendship, Commerce and Navigation treaties to its Dominions before concluding such treaties. The conduct and establishment of foreign investment were made international through these Friendship, Commerce and Navigation treaties. India being a colonial state had not have right to question the substance of law enacted by these treaties.5 However, the scenario has changed after Indian independence as India has signed its first BIT in the mid-1990s and adopted its Model BIT in 2003. During the early phase of liberalization, India had experienced only two ITA claims: while the parties reached a mutual settlement in Dabhol case, India had lost in the White Industries case. Significantly after the ‘White Industries’, 19 ITA claims have been served against India. All these developments have gathered special interests in the subject of foreign Investment protection in India. The union government has later made changes to the then prevailing Model BIT and formally adopted the revised Model BIT in 2015. It is pertinent to note that various authors6 have already done the study on Indian BIT programme and the revised Model BIT. However, the study analyses the existing literature by conducting a detailed analysis and comprehensive study on the Model BIT, 2003, selected Indian BITs, and revised Model BIT from the standpoint of the following objectives, (a) to analyse the changes brought by the 2015 Model BIT and how it affects the investment consideration; (b) how the 2015 Model BIT achieves proper balance between investor protection and host state regulation; and (c) how interactions occur between domestic courts and investment arbitral tribunals; being a member of the New York Convention, India had enacted the Arbitration and Conciliation Act, 1996, to deal with recognition and enforcement of domestic (Part I) as well as foreign (Part II) arbitral awards. The legal issues on the scope of Parts I and II had been raised before the Indian courts on various occasions. However, due to the inconsistent court rulings and for various other reasons the country had to amend the Arbitration Act in 2015. For instance, the revised conception of public policy as provided in Part I and Part II and its implication on investment treaty arbitration is an important area which requires further analysis.

4 Ranjan

(2014). Krishan, supra note 3, at 291. 6 Rajput (2017a); see also Hanessian and Duggal (2015), Rajput (2016), Singh (2016), Ray (2016), Hanessian and Duggal (2017), Ranjan and Anand (2017). 5 Devashish

4.1 Introduction

81

In this connection, this chapter addresses the issues in the following manner. The first part discusses the protection of foreign investment in India after independence. The second part elaborates the protection of foreign investment provided under international law, with the help of Indian BIT programme. The study has made a demarcation of the era pre-White Industries and post-White Industries. This part begins with the discussion on the features of the 2003 Model BIT as well as some selected Indian BITs. It also examines the ISDS provision of selected Indian BITs in Table 4.1. Further, Table 4.2 places the detailed list of pending investor-state disputes initiated against India. The study also has done a comprehensive analysis on features of revised Model BIT and its implication on future investment in India. The last part of this chapter continues the discussion on protection of foreign investment under domestic arbitration law. It examines the application of 1996 Act to investor-state arbitration and elucidates the amendment to the 1996 Act and its implications on the future of investment in India. This section also reviews the revised conception of ‘public policy’ in Part I and Part II of the 2015 Amendment Act and its implications on investment protection.

4.2 Protection of Foreign Investment in India Post-independence During the early years after independence, India was more sceptical towards foreign investment. The probable reason could be the past experiences that she had encountered as a British colony. It was not willing to adopt the international rules on foreign investment. The first Indian Prime Minister Jawaharlal Nehru focused on economic nationalism and self-reliance rather than internationalization. However, the Nehru government had introduced the five-year (economic) plans in order to boost the domestic industries.7 The government of India adopted Industrial Policy Resolution in 1948, which stipulated that majority of ownership of joint ventures involving foreign participation should be in Indian hands. India had rejected the ‘doctrine of state responsibility’ for injuries to aliens and its property, as India had viewed it as Eurocentric. India has also refused to accept the ‘doctrine of direct individual rights’ to investors enshrined in the ICSID Convention. As this Convention grants international rights to individuals with respect to the arbitration agreements and awards, it was not considered to be in accordance with the Indian economic thoughts.8 In fact, even the direct investor rights provided in the ICSID Convention were not favourable to the post-colonial development. Notable Indian Judge, Guha Roy, observed that ‘this modernized law of responsibility does not completely eliminate the risk of ‘the

7 Rao (2000), at 623–624; Devashish Krishan, supra note 3, at 291; Also see the discussion in recent

work, Prabhash Ranjan, India, and Bilateral Investment Treaties: Refusal, Acceptance, Backlash (OUP, 2019). 8 Joy (1972); also see the critique in A. Rajput, supra note 6, at 470.

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Fig. 4.1 Evolution of law relating to the protection of foreign investment in India. Sources Krishan (2008); Rajput (2016); Ranjan (2014); Rao (2000)

old practice of diplomatic interposition’ being used as a device for securing economic or political domination or supremacy in the life of another State’.9 In the meantime, India had signed bilateral investment agreements with the USA in 1957 and with West Germany in 1964 and these agreements ensured some sort of investment protection.10 Both the agreements dealt with losses due to risk against expropriation, non-convertibility of currency, profits and capital repatriation. During the initial days after independence, nationalization of foreign property took place in some limited cases. Where the disputes arose, India preferred to settle the issues through negotiation and settlement. For instance, in cases of Nationalization of Imperial Bank of India (10% share with UK in 1955), life insurance industry (in 1956), India had paid huge compensation and settled the matters (Fig. 4.1).11 However, the receptive phase was later shifted to the protectionist phase during the 1970s. The Foreign Exchange Regulation Act (FERA) was enacted in 1973 to impose strict regulations on foreign investments. For instance, foreign companies will enjoy the benefit of national treatment only if they hold a minimum of 40% shares. India, being a supporter of the Charter of Economic Rights and Duties of States (CERDS), provided primacy to national law over international law, to regulate foreign investment.12 However, India’s economic nationalism practised during the 1970s did not work either. Several factors are usually cited for this situation including the repeated agricultural crop failure and the consequent food prices, oil crisis, and also the stoppage of American aid. Finally, the changed scenario has forced India to take a realist stance towards foreign investment.13 India’s successful adoption of the New Industrial Policy of 1991 was the groundbreaking event in the history of India and foreign investment law. Under the 1991 Policy, ‘automatic route’ was approved for foreign participation. Though this is a major change so far as India is concerned, in addition, several other changes were introduced to reduce the import tariffs and eliminate quantitative restrictions in order to promote foreign investment. It liberalizes foreign direct investment and foreign 9 Roy

(1961). the discussion in Sreenivasa Rao, supra note 7, at 624. 11 Jain (1983). 12 Sreenivasa Rao, supra note 7. 13 Devashish Krishan, supra note 3, at 295. 10 See

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83

institutional investment inflows into India. In this regard, several new economic legislations were enacted and also amended the existing laws relating to foreign investment. For instance, the Foreign Exchange Management Act (FEMA), 1999, replaced previous Foreign Exchange Regulation Act (FERA). The amendments to the Patents Act, 1999, and the enactment of the Arbitration and Conciliation Act, 1996, are other notable examples. In aftermath of the 1991 New Industrial Policy, India had adopted the international legal protection for foreign investments. India has signed the MIGA Convention in April 1992 and the 3rd Generation of Cooperation Agreement on Partnership and Development.14 As a part of liberalization programme, India had also started signing BITs to attract more foreign investment. In this regard, India embarked its first Bilateral Investment Promotion and Protection treaty (BIPA and BITs are homonymous) with the UK on 14 March 1994, which came into force on 6 January 1995.15 Subsequently, India had adopted its Model BIT in 2003 which was based on the India–UK BIT. The Model BIT serves as a template for future BIT negotiations. It is interesting to note that India took almost nine years to adopt its Model BIT after the conclusion of first BIT. In his detailed study on BIT regimes of India and China, Professor Sornarajah16 pointed out that China has adopted a liberal approach as compared to a strict regulation by India. It was found out that China had imposed fewer limitations on ISDS clause in its BITs and provided that its dispute resolution procedure was limited only to the question of compensation. This was considered to be the reason for large-scale investment inflows into China without threat of any ITA claims. However, when China became a capital-exporting country, it had made changes in the ISDS clauses of several BITs. Now it allows investors to sue the host state for violation of substantial standards of treatment. On the other hand, India had failed to adopt this kind of proactive approach and therefore India lags behind in the competition for foreign investment.17 Professor Sornarajah further claimed that concept of liberalization is just only in theory in Asia; but in practice, foreign investment has always been regulated by host states. He further pointed out that the Indian BITs are evasive when it discusses liberalization and that it protects investment only at the post-establishment stage.18

14 Id.

at 296. is worthy to discuss some pertinent features of the India–UK BIT. Unlike UK–Indonesia and UK–Vietnam BITs, this BIT applies to existing as well future investors. It assured significant substantial standards such as national treatment and most-favoured-national treatment. It provides ‘fair and equitable’ compensation for expropriation at ‘fair and equitable rate’. It also ensures the investors to resort to international arbitration for settlement of investment disputes. Also see Devashish Krishan, supra note 3, at 298. 16 Sornarajah (2010, 2011). 17 Aniruddha Rajput, supra note 6, at 197–198. 18 Sornarajah and Jiangyu Wang, supra note 16, at 45. 15 It

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4.2.1 The Scope of Investment Protection Under the Indian Bilateral Investment Treaties and Domestic Laws The present government has introduced and is planning to introduce several schemes in order to attract more foreign investment. The most prominent among them are ‘Make in India’,19 ‘Smart City’,20 and ‘Digital India’.21 It is significant to note that India has also improved its position in the index of ‘Ease of Doing Business’. It is ranked 100th out of 190 countries.22 It has improved the confidence among the foreign investors. Yet, the recent World Investment Report, 2017, published by the United Nations Conference on Trade and Development (UNCTAD) found that India was one of the ‘most frequent’ respondent states with a total of 19 pending investment disputes till date.23 In this background, it is necessary to discuss the legal framework governing protection of foreign investment.

4.3 Protection of Foreign Investment Under International Law (BITs) India’s international investment agreements (IIAs) portfolio includes stand-alone BITs and free trade agreements (FTAs) with investment chapters. At one time, India had investment agreements with 86 countries out of which 73 were already in force. Out of 73 agreements, 69 are BITs and 4 are FTAs.24 India’s BIT programme is 19 Make in India is a major programme of the government of India launched in September 2014. The main objective of the programme is to attract foreign investment and strengthen India’s manufacturing sector; also see http://www.makeinindia.com/about. (Accessed on 10 January 2020). 20 The Smart Cities Mission is a new initiative of the government of India to drive economic growth as well as to improve the quality of life of people. The objective of this mission is to promote Indian cities that provide core infrastructure and ensure decent quality of life; also see http://smartcities. gov.in/content/innerpage/what-is-smart-city.php. (Accessed on 11 June 2019). 21 A vision of the Digital India programme is to transform ‘India into a digitally empowered society and knowledge economy’. Also see http://www.digitalindia.gov.in/content/about-programme. Last visited 11 January 2020. 22 World Bank Group, Doing Business 2018 Reforming to Create Jobs 23 (World Bank, 2018) also available at http://www.doingbusiness.org/data/exploreeconomies/india. Last visited 10 August 2019. 23 See Unctad, World Investment Report: Investment and the Digital Economy 115 (United Nations, 2017). 24 The total of 73 BITs includes 69 stand-alone BITs and four FTAs containing a chapter on investment. India has entered into 17 FTAs. Out of 17 FTAs, only 4 FTAs (signed with Singapore, Malaysia, Japan, and Korea) have chapter on investment. For the complete list of Indian FTAs, see http://commerce.nic.in/trade/international_ta.asp?id=2&trade=i. Accessed on 13 December 2018. In India, FTAs are known as Comprehensive Economic Cooperation Agreement (CECA). Full list of India’s BITs is available at http://dea.gov.in/bipa. After adoption of the revised Model BIT of 2015, India had unilaterally issued termination of BIT notices to more than 58 Member States; also see Prabhash Ranjan, supra note 4, at 10–12; Aniruddha Rajput, supra note 6.

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considered as one of the biggest among the developing countries. However, Indian BITs had not been judicially tested until the decision of White Industries case in 2011. There was an instance in 1995, when the ‘Dabhol’ dispute was raised. However, it did not result into an award and it was concluded with mutual settlement.25 After the ‘White Industries’ case, the government of India put on hold all BIT negotiations and subsequently adopted a revised Model BIT in December 2015. Therefore, it is necessary to understand the scope of investment protection provided under Indian BITs.

4.3.1 BIT as an Instrument to Attract Foreign Investment The main objective of concluding BITs is to promote and protect the investment and investors on a reciprocal basis. It also provides confidence among the investors to attract more foreign investment. It is significant to note that the relationship between BIT and FDI inflows is highly contested. Some scholars agree that ‘signing investment treaties increases FDI’,26 while some others argue that investment treaties increase only a few types of FDI. However, in a notable work, Neumayer and Spess sought to prove that BIT increases the FDI inflows into the developing country.27 Another group of scholars take a negative approach towards the effect of BITs on FDI inflows.28 The same debate continues in India as well. While some argue that FDI inflows are not dependent on BITs, some other scholars are affirmative on this aspect. Two notable works deserve mention here, the first study by Rashmi Banga,29 examined this relationship in 15 Asian developing countries including India from 1980 to 2000. The study found that BIT signed in these countries with developed countries had significant impact on FDI inflows. However, the study found out that BITs signed with developing countries did not have much impact on FDI inflows. Interestingly, India had signed only 14 BITs till 2000, out of which, 9 BITs were entered with developed nations, and they all had significant impact on FDI inflows in India. Another significant work (Bhasin and Manocha) analysed this relationship during 2001–2012 and found that BITs signed during the said period have contributed to increase in FDI inflows.30 From the above discussion, we cannot come to any conclusion that BITs alone determine the FDI inflows into India. However, it is submitted that BITs could be one of the important tools to encourage investors to invest in India.31 25 With

US $2 billion; Bettauer (2009), Mathavan (2009). and Pfaffermayr (2009). 27 For example, see the views expressed in Eric Neumayer and Laura Spess (2005). 28 Escobar (1997); at 489; Bernardini (2001). 29 It is significant to note that FDI inflows rose from $393 mn in 1992 to $4029 mn in 2000. See generally, Banga (2003). 30 See Bhasin and Manocha (2016). 31 Prabhash Ranjan, supra note 4, at 11. 26 Egger

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4.3.2 Features of the Indian Model BIT, 2003 It is often criticized that India, being a ‘capital-importing’ nation, had adopted a Model BIT that has most of the features of ‘capital-exporting’ BIT. The Indian Model BIT has detailed substantive as well as procedural aspects for the protection of foreign investment. It has adopted broad ‘asset-based’ definition for the term ‘investment’.32 It recognizes both national treatment and most-favoured-nation treatment obligations.33 Indian Model BIT permits expropriation only (i) if it was undertaken for a public purpose (ii) in accordance with due process (iii) on a non-discriminatory basis’ and against ‘fair and equitable compensation’.34 Another interesting feature is that compensation for expropriation would be subjected to the respective BITs and the applicable national laws.35 This feature seems to be departing from the CERDS principle that gives primacy to the national laws. The Model BIT ensures both investor-state and state–state dispute mechanisms for settlement of investment disputes. If any dispute arises between any investor and India as a host state, the investor can choose any one of the methods of dispute resolution described in Article 9 to resolve the conflicts. Firstly, both the disputing parties can amicably settle the dispute through negotiations. If it is not settled within 60 days secondly, it can be resolved in Indian courts with the consent of investor or through international conciliation. Thirdly, it may be referred to the ICSID Centre under the ICSID Convention; or to the ICSID Centre in accordance with the Additional Facility Rules; or to an ad hoc arbitral tribunal in accordance with the UNCITRAL Arbitration Rules.36 India is not a party to the ICSID Convention so far, and therefore ICSID Additional Facility Rules or the ad hoc tribunals are the only options available to resolve their investor-state disputes.

4.3.3 Analysis of the Indian BIT Programme Generally, Indian BITs are designed to create favourable environment for ‘fostering greater investment by investors’ (2003 Model BIT).

4.3.3.1

Scope and Definitions

(a) Definition of Investment 32 Indian Model Text of Bilateral Investment Promotion and Protection Agreement 2003, Article 1.b. Available at http://www.italaw.com/sites/default/files/archive/ita1026.pdf. Last visited 10 June 2019 [hereafter the Indian Model BIT, 2003]. 33 Article 4 of the Indian Model BIT, 2003. 34 Article 5.1 of the Indian Model BIT, 2003. 35 Article 5.3 of the Indian Model BIT, 2003. 36 Article 9 of the Indian Model BIT, 2003.

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The term ‘investment’ may be of two types: ‘asset-based’ and ‘enterprise-based’. Most of the Indian BITs define ‘investment’ as list of assets including direct, indirect investments, IPRs, rights to money or any other performance and business transactions. It is significant to note that out of 72 BITs in force at one time, almost all the Indian BITs have adopted a ‘broad asset-based’ definition of investment.37 Interestingly, the definition provided in certain Indian BITs such as India–Columbia BIT (Article 2.3), India–Mexico BIT (Article 1.7), and investment chapters of 3 FTAs (namely, India–Korea BIT, India–Malaysia BIT, and India–Japan BIT) provided that in addition to the ‘every kind of asset’, they should have the characteristics of investment-like commitment of capital or other resources, the expectations of gains or profits or assumption of risk to be considered as ‘investment’. This implies that the scope of ‘investment’ will be limited to assets that possess the economic characteristics of investment. However, other BITs are silent on those issues.38 (b) Definition of Investors Generally, Indian BITs apply to all individuals and legal persons. While some BITs offer protection to both Indian ‘corporation, firms and associations’ and foreign ‘legal or juridical persons’,39 some other BITs apply only to the foreign companies. Still, other BITs impose limitation on particularly qualified companies. For instance, India–Belgium BIT mandates that 51% of company shall be owned by Belgians to fall within the purview of ‘investor’. Some other BITs40 restrict the benefit only to the company having ‘substantial business operation’ within the territory of its incorporation.41

4.3.3.2

Standards of Treatment

(a) Fair and Equitable Treatment

37 For instance, Article 1(1) of the India–Finland BIT defines investment as ‘every kind of asset established or acquired in accordance with national laws and regulations’. It provides an exhaustive list of assets including movable and immovable property, reinvested returns, shares in and stock and debentures, claims or right to money, intellectual property rights, and business concessions conferred by law. 38 Prabhash Ranjan, supra note 4, at 13. 39 See Indian BITs with Netherlands, Kuwait, Ukraine, Kazakhstan, Thailand, and Uzbekistan. 40 See Indian BITs with Switzerland, Philippines, and Argentina. 41 It is significant to point out that almost all the BITs apply to the disputes which were arisen prior to the entry into force of the treaty. Only few Indian BITs, for instance, signed with Portugal, Taiwan, Yemen, Sweden, and Croatia are not applicable to the disputes arose prior to entry into force. Pertinently, some BITs excluded certain regulatory measures from the scope of the treaty. For instance, Article 10.1 of the India–Malaysia FTA specifically excluded taxation measures, government procurement, and subsidies or grants from the application of the treaty. For instance, India–Russia BIT is not applicable to taxation matters.

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Out of 73 BITs, 71 BITs have adopted fair and equitable treatment principle. Interestingly, only 7 BITs defined the normative content of the fair and equitable treatment principle or provide meaning of the fair and equitable treatment principle. It is pertinent to note that investment treaty architecture found that most of the BITs show vague and expendable nature of the fair and equitable treatment and it suggests that investors can even challenge broad scope of host state regulatory measures including environmental protection, labour issues, monetary policy, etc. For example, Nissan, a Japanese automaker, recently served an investment treaty arbitral notice against India for reasons of non-refund of value-added tax’ under the India–Japan CEPA. In another case, Vodafone also challenged the Indian government for ‘retrospective taxation’ as violation of fair and equitable treatment provisions in India–Netherlands BIT.42 It is interesting to note that out of 73 BITs, only 5 BITs43 linked fair and equitable treatment standard to the ‘minimum standard of treatment’ provided under customary rules of international law. (b) National Treatment and Most-Favoured-Nation Treatment Obligations This provision can be seen in almost all the Indian BITs. It is offered in a broad language, though it is not applicable to the pre-establishment stage. Yet, India– Kuwait BIT is an exception in this regard as it extends national treatment obligations to both pre- and post-establishment phases. It is significant to note that only few BITs make reference to national treatment protection in ‘like circumstances’ (or similar) clause, such as India–Kuwait BIT, India–Slovakia BIT, India–Mexico BIT, and India–Columbia BIT.44 It is found out that except two BITs, all other Indian BITs have adopted most favoured nation principle. Some BITs are adopted with limited exceptions, such as exception from taxation or economic integration agreements.45 The broad and unqualified most favoured nation provisions can be found in most of the BITs. For instance, Article 4 of the India–Australia BIT ensures that ‘each Contracting Party shall accord to investors of the other Contracting Party treatment, with respect to the management, maintenance, use, enjoyment or disposal of investments, which shall not be less favourable than that accorded to investors of any third state’. The most-favoured-nation treatment may also enable the foreign investors to borrow the

42 Prabhash

Ranjan, supra note 4, at 14; see Prabhash Ranjan, supra note 7. FTAs with Korea, Malaysia and Japan, and India–Mexico BIT; for instance, Article 10.4 of the India–Korea FTA states that the concept of FET ‘do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens’. 44 See Article 3 of the India–Mexico BIT accord to investors [investments of investors] of other party ‘treatment no less favourable than that it accords, ‘in like circumstances’ to its own investors’; also see Azernoosh Bazrafkhan (2016); Prabhash Ranjan, supra note 4, at 16. 45 Article 4 of India–China BIT ensures that the provisions of this BIT shall not be applicable ‘any matter pertaining wholly or mainly to taxation’, and it shall be governed by the India–China Double Taxation Avoidance Agreement. 43 Indian

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89

beneficial provisions from other BITs, as evident in White Industries case, as this practice is commonly known as ‘treaty shopping’.46 (c) Full Protection and Security Full protection and security provision are found in 38 Indian BITs. Interestingly, no BIT (except few FTAs) defined the meaning of full protection and security. Some Indian FTAs, especially, the ones with Japan, Malaysia, and Korea, have provided some meaning of full protection and security and link this provision with customary principles of international law.47 For example, Article 10.5(2) of the India– Malaysia FTA provides that ‘full protection and security do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens’. On the contrary, three Indian BITs such as India–Australia BIT, India–Senegal BIT, and India–UAE BIT restricted this standard subject to the laws of host state.48 For instance, Article 4 of the India–UAE states that ‘investments by investors of either Contracting Party shall enjoy full protection and security in the territory of the other Contracting Party in a manner consistent with the provisions of domestic laws of the host Contracting Party’. (d) Umbrella Clause It guarantees the ‘observance of obligations assumed by the host state vis-à-vis the investor’. It also brings out the contractual and other commitments of treaty under a protective umbrella.49 It is interesting to note that only few BITs contain this provision (with some variations). For instance, Article 13(2) of the India–Germany stated that ‘Each contacting party shall observe any other obligation it has assumed with regard to investments in its territory by investors of the other contracting party with disputes arising from such obligations being only redressed under the terms of the contracts underlying the obligations’. There are two types of umbrella clauses prevalent in Indian BITs: unconditional obligation seen in India–Mauritius BIT50 and conditional obligation found in India–UK BIT; India–Switzerland BIT51 ; and India–Austria BIT. (e) Expropriation and Compensation All the 73 BITs have expropriation clause, it states that investment shall not be expropriated (directly) or subjected to measures having ‘effect’ equivalent to expropriation (indirect), unless there is any public purpose. It has to be carried out in 46 Prabhash 47 Article

Ranjan, supra note 4, at 14–15. 87.1 of India–Japan FTA; Article 10.5(2) of Malaysia FTA; and Article 10.4(1) of Korea

FTA. 48 See Azernoosh, supra note 44, at 251. 49 Dolzer and Schreuer (2008). 50 Article 11(1) of the India–Mauritius BIT: In addition to the obligations enshrined under this treaty, any rules of other contracting party provide more favourable than this treaty in such case those ‘rules shall, to the extent that they are more favorable, prevail over’ this treaty. 51 Article 13 of the India–Switzerland BIT observed that in relation to any dispute under this treaty shall however ‘only be applicable in the absence of normal local judicial remedies being available’.

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accordance with due process of law and shall be paid ‘fair and equitable’ compensation for such actions. For payment of compensation against expropriation, India had discarded the ‘hull formula’. As discussed earlier in the previous chapters, payment of ‘adequate’ compensation is still a debatable subject.52 But in practice a large number of Indian BITs have adopted ‘fair and equitable’ compensation for expropriation, while sometimes ‘market value’ or ‘fair market’ value is also seen in the Indian BITs. For instance, the BITs concluded with Russia, Sri Lanka,53 Uzbekistan, Morocco, Denmark,54 and Austria. The indication of how to identify indirect expropriation has not been provided in 57 BITs. It is pertinent to note that all the four Indian free trade agreements have specific exception for issuance of compulsory licence from the application of expropriation. (f) Monetary Transfer Provision All the 73 Indian BITs have monetary transfer provisions which guarantee the foreign investor the right to transfer funds. Interestingly, 58 BITs provide an ‘unqualified rights’ to investors, which are not subject to any exceptions while transferring the funds, provided that the transfer shall be ‘related to investment’. On the other hand, 15 BITs ‘qualify the right’ to transfer funds.55 Out of 15 BITs, 5 BITs subject this right to domestic laws. The regulatory state can adopt certain measures to stop transfer of funds in the event of balance on payment crisis or any other macroeconomic difficulties, provided the same should be consistent with the IMF Articles and domestic laws.56 However, India has made certain restrictions on fewer BITs signed after 2005, with Slovakia,57 Iceland, Mexico, Syria, and Columbia. (g) General Exceptions All the 73 Indian BITs have adopted a ‘general exception clause’ commonly known as ‘non-precluded measures’ provision which empowers the host state to temporarily deviate from the BIT obligations. However, certain other Indian BITs have allowed such exception only for situations of ‘extreme emergency’ or ‘essential security

52 Right of subrogation is also another contested issue. Being a member to the MIGA Convention, India had ensured the compensation for its citizens investing abroad suffered due to non-commercial risks; also see Sreenivasa Rao, supra note 7, at 625. 53 Article 5(1) of India–Sri Lanka BIT observed that compensation for expropriation ‘shall amount to the ‘market value’ of the investment expropriated immediately before the expropriation’. 54 Article 5(2) of the India–Denmark BIT stated that ‘such compensation shall amount to the ‘fair market value’ of the investment expropriated immediately before the expropriation’. 55 Prabhash Ranjan, supra note 4, at 16–17. 56 Id. at 17. 57 Article 6(3) of India–Slovak Republic ensures that host state ‘may prevent or restrict transfer through equitable, non-discriminatory and good faith application of its laws’ relating to safeguard measures in the event of any macroeconomic difficulties, bankruptcy, criminal offences, and ensuring satisfaction of judgements.

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interests’.58 More than 60 BITs have adopted such ‘narrow’ exception clause. Also, investment jurisprudence suggests that such BIT requires a ‘high threshold’ level to support such claims. Some BITs provide exceptions for measures relating to environment59 and public health.60 However, such measures require less threshold levels as compared to the previous one.61

4.3.3.3

Investor-State Dispute Settlement Clause

The dispute resolution clause is an important provision of any BIT. In the past, the application of common principles such as minimum standards of protection and local remedy rule has failed to convince even the minimum expectations of the developing countries. However, the current situation has changed, as developing countries have adopted a less ideological and more ‘pragmatic approach’ towards resolution of investor-state disputes in their BITs.62 It is pertinent to note that considerable amount of negotiations had committed to ISDS provisions. The early Indian approach on ISDS clause has been to adopt a flexible approach on dispute settlement provisions in order to attract more investment. It may be noted that this is a clear departure from the stand of the developing countries to refer to the customary international law standards as the treaty standards. Moreover, these BITs have also circumvented the local remedy rule till its revision in 2015. It is pertinent to note that foreign investors can directly initiate ITA claim against India before international arbitral forums, without exhausting any such local remedies. The only requirement under Indian BITs is that the investors have to exhaust pre-arbitral remedies such as negotiation, or/and conciliation before a certain time period, mostly within six months. Almost all the Indian BITs provide that all the disputes arising out of Indian BITs shall be submitted to the ICSID Centre as the first option. However, in practice investors cannot use this option as India is yet to become a member of the ICSID Convention. Therefore, investors can either use the ICSID Additional Facility Rules or an ad hoc tribunal administered under the UNCITRAL Arbitration Rules. The detailed analysis of ISDS provision of some selected Indian BITs is given in Table 4.1.

58 Article 12(2) of India–Thailand BIT is not applicable to host state’s actions for ‘protection of its essential security interests or in circumstances of extreme emergency’, however the laws applied on a non-discriminatory basis. 59 Article 15 of India–Australia BIT states that ‘nothing in this Agreement precludes… measures necessary for the protection of its own essential security interests or for the prevention of diseases or pests’. 60 Article 14 of India–UAE BIT. 61 See, generally, Sinha (2016); also see Raju (2016). 62 Sreenivasa Rao, supra note 7, at 626.

India–Germany BIT

3

Article 9

Article 9

Broad clause—‘any dispute … in connection with an investment …’

Broad clause—‘any dispute … in relation to an investment …’

(i) Negotiation within six months (submit notice of intention) (ii) Conciliation (only if both parties agree)

(i) Settled amicably within three months, but not mentioned any proper means N.A

N.A

(ii) Submitted N.A to the competent judicial, arbitral, or administrative bodies with consent of parties

(continued)

(iii) The arbitration shall be referred only to ad hoc tribunals under the UNCITRAL Rules

(iii) (a) ICSID (b) ICSID Additional Facility Rules (c) UNCITRAL Rules – Indemnification

(iv) Lastly referred to arbitration with consent in writing (a) ICSID Centre (b) ICSID Additional Facility Mechanism (c) UNCITRAL Arbitration Rules

India–Finland BIT

(ii) Submitted N.A to the competent judicial, arbitral, or administrative bodies with consent of parties

2

(i) Negotiations (within six months) (iii) International conciliation under UNCITRAL Rules

Article 9

Indian Model BIT, 2003

1

Broad clause—‘any dispute … in relation to an investment …’

Relevant Type of ISDS clause Jurisdictional requirements Arbitration procedure provision (term used)/scope and Pre-arbitral Exhaustion of Fork-in-the-road provisions consent remedies local remedies

S. No. Applicable BIT

Table 4.1 Dispute settlement provisions in selected Indian BITs

92 4 India’s Approach to the Protection of Foreign Investment

Article 9

India–Sri Lanka BIT (similar to 2003 Model BIT provisions)

6

Broad clause—‘any dispute … in relation to an investment …’

Broad clause—‘any dispute … in relation to an investment …’

(i) Negotiations (within six months) (iii) Conciliation

(i) Negotiations (within six months) (iii) Conciliation

(ii) Submitted N.A to the competent judicial, arbitral, or administrative bodies with consent of parties

(ii) Submitted N.A to the competent judicial, arbitral, or administrative bodies with consent of parties

(continued)

(iv) Lastly referred to arbitration with consent in writing (a) ICSID Centre (b) ICSID Additional Facility Mechanism (c) UNCITRAL Rules

(iv) Lastly referred to arbitration with consent in writing (a) ICSID Centre (b) ICSID Additional Facility Mechanism (c) UNCITRAL Rules

(ii) Arbitration procedure (a) Arbitration in accordance with the law of the host state (b) ICSID Centre (c) International conciliation (d) Ad hoc tribunal UNCITRAL

India–Nepal BIT Article 9 (similar to 2003 Model BIT provisions)

N.A

5

(i) Negotiations N.A (within six months)

Article 8

India–Mauritius BIT

4

Broad clause—‘any dispute … in relation to an investment …’

Relevant Type of ISDS clause Jurisdictional requirements Arbitration procedure provision (term used)/scope and Pre-arbitral Exhaustion of Fork-in-the-road provisions consent remedies local remedies

S. No. Applicable BIT

Table 4.1 (continued)

4.3 Protection of Foreign Investment Under International Law (BITs) 93

Broad clause—‘any (i) dispute … in respect of an investment …’ But this provision shall not apply: – To any contract/agreement, in which procedure specified that dispute shall be resolved in accordance with contract/agreement. – More than five years have been elapsed from the date of knowledge of the measure investor first acquired

Negotiations Not a after serving precondition ‘notice of rule dispute’ (settled within six months)

(ii) Provided in Art 10.5, once the investor made a choice to select the forum to settle the disputes, that choice shall be final and binding on the investor.

(continued)

Choice of the forum investor shall be given 90 days prior notice in writing to the host state of its intention to submit. (a) ICSID Centre (b) Ad hoc tribunal UNCITRAL Rules (c) Competent court of the host state

Article 10

7

India–UAE BIT

Relevant Type of ISDS clause Jurisdictional requirements Arbitration procedure provision (term used)/scope and Pre-arbitral Exhaustion of Fork-in-the-road provisions consent remedies local remedies

S. No. Applicable BIT

Table 4.1 (continued)

94 4 India’s Approach to the Protection of Foreign Investment

India–Singapore Article FTA Investment 6.21 Chapter

Dispute concerning an (i) (ii) Submitted N.A ‘alleged breach of an Consultations to domestic obligation’ under the and courts or investment chapter negotiations administrative that ‘causes loss or (within six tribunals damage to investor or months) (excluding its investment’ proceedings for interim measures)

(continued)

(iii) Lastly resorted to (a) the ICSID Centre for conciliation or arbitration under the Convention (b) The ICSID Centre under the Additional Facility Rules (c) Arbitration under UNCITRAL Rules

(iii) International arbitration procedure starts after submitting 90 days advance ‘notice of arbitration’ to the host state (a) ICSID proceedings (b) ICSID Additional Facility Mechanism (c) Ad hoc UNCITRAL Rules

9

(ii) After receipt (i) Firstly, N.A of ‘notice of investors dispute’, the have to parties have to exhaust settle the local disputes remedies amicably within five through years consultation, negotiations, or any other means within six months Place of such consultation or negotiations would be New Delhi

Article 15

Indian Model BIT, 2015

8

It does not explicitly mention the types of disputes But the term ‘investment’ excludes pure contractual claims

Relevant Type of ISDS clause Jurisdictional requirements Arbitration procedure provision (term used)/scope and Pre-arbitral Exhaustion of Fork-in-the-road provisions consent remedies local remedies

S. No. Applicable BIT

Table 4.1 (continued)

4.3 Protection of Foreign Investment Under International Law (BITs) 95

Article 96

India–Japan FTA

11

An investment dispute (i) Domestic (ii) No proceedings may be arising out of an Consultations courts or initiated before the alleged breach of ‘any and administrative domestic courts if the same obligation… With negotiations tribunals are is already referred to respect to the investor (for six also international arbitration or and its investments’ months) mentioned. conciliation [Art 96 (2) and (6)]

Conciliation or arbitration claim under, (a) ICSID Convention (b) ICSID Additional Facility Rules (b) UNCITRAL Rules (d) Any other arbitral institution agreed by parties (continued)

Arbitral mechanism (a) Under ICSID Convention (b) Under the ICSID Additional Facility Rules (c) The UNCITRAL Rules; or (d) Any other arbitral institution (with the consent of parties)

Article 10.21

India–Korea FTA Chapter Containing Investment

10

Dispute concerning an (i) Domestic (ii) Investor has a choice of alleged breach of an Consultations courts or submitting the dispute to obligation under the and administrative either the court or investment chapter negotiations tribunals are administrative tribunals or that causes loss or (for 6 mentioned any arbitral mechanism damage to investor or months), it It excludes the actions that its investment may include seek interim injunctive use of relief non-binding third-party procedures

Relevant Type of ISDS clause Jurisdictional requirements Arbitration procedure provision (term used)/scope and Pre-arbitral Exhaustion of Fork-in-the-road provisions consent remedies local remedies

S. No. Applicable BIT

Table 4.1 (continued)

96 4 India’s Approach to the Protection of Foreign Investment

(iii) Arbitration claim Also consent to arbitration waives the investor’s right to initiate proceedings before domestic courts (a) ICSID Convention (b) ICSID Additional Facility Rules (c) UNCITRAL Rules (d) Any other arbitral institution agreed by parties

Sources Department of Economic Affairs, Government of India https://www.dea.gov.in/bipa; Hanessian and Duggal (2015); Ranjan (2014); Ranjan and Anand (2017); Saravanan and Subramanian (2017)

‘Any dispute… arising (i) (ii) Domestic N.A out of an alleged Consultations courts or breach of any rights and administrative conferred under by negotiations tribunals are this Agreement with (for 180 mentioned. respect to investment’ days)

Article 10.14

12

India–Malaysia FTA

Relevant Type of ISDS clause Jurisdictional requirements Arbitration procedure provision (term used)/scope and Pre-arbitral Exhaustion of Fork-in-the-road provisions consent remedies local remedies

S. No. Applicable BIT

Table 4.1 (continued)

4.3 Protection of Foreign Investment Under International Law (BITs) 97

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4 India’s Approach to the Protection of Foreign Investment

4.3.4 The Period After ‘White Industries’ As discussed in the beginning of this chapter, the ‘White Industries’ award is practically very significant as it was the first adverse ITA award rendered against India.63 In the post-award scenario, India had experienced several ITA notices served against it by different investors under various BITs. This statement assumes further importance as the recent report of the United Nations Conference on Trade and Development (UNCTAD) addressed India as one of the ‘most frequent’ respondent states with a total of 19 pending investment disputes against it.64 Six foreign investors have served ITA notices against India after cancellation of 2G telecom licences by the Supreme Court. Five investors have served notices against India subsequent to India making amendments to Income Tax Act, 1961, with retrospective taxation provision. The detailed list of proliferation of ITA claims issued against India is illustrated in Table 4.2. To address the onslaught of these cases and the challenges posed by the flexible provisions in the Indian BITs, the government of India has decided to revise its Model BIT. After two years of negotiation, it had released the draft version of revised Model BIT in March 2015. Similarly, the Law Commission of India also undertook a study to analyse the draft Model BIT and suggested changes in its 260th report.65 Subsequent to the adoption of the revised Model BIT, the Indian government had issued notice of termination of BITs to 58 countries and requested them to renegotiate on the basis of revised one. India had also requested 25 countries to issue joint interpretative statements to resolve the stalemate.66

63 Saravanan 64 UNCTAD,

and Subramanian (2017). World Investment Report: Investment and the Digital Economy 115 (United Nations,

2017). 65 Law Commission of India (LCI) Report No. 260, Analysis of the 2015 Draft Model Indian Bilateral Investment Treaty, Aug. 27, 2015; however, it is still unclear to understand, whether LCI to examine the draft Model BIT, 2015 was within its scope. Because, the purpose of the 12th LCI was limited to review and repeal old (domestic) laws, to review the judicial administration in order to address the reasonable demands at times. 66 Government of India, Ministry of Finance, Department of Economic Affairs, Office Memorandum—Regarding Issuing Joint Interpretative Statements for Indian Bilateral Investment Treaties, (Feb. 8, 2016) http://indiainbusiness.nic.in/newdesign/upload/Consolidated_InterpretiveStatement.pdf. (Last updated Jul. 20, 2019).

4.3 Protection of Foreign Investment Under International Law (BITs)

99

Table 4.2 List of pending investor-state disputes against India Post-White Industriesa S. No.

Disputed BIT investor (with year of initiation)

Brief description

Current status

1

Tenoch Holdings India–Russia BIT Limited, Mr. India–Cyprus BIT Maxim Naumchenko and Mr. Andrey Poluektov (Bycell, 2012)

Withdrawal of security clearance given by Foreign Investment Promotion Board to grant frequency allocation licences

Administered before the PCA under the UNCITRAL Arbitration Rulesb current status in pending

2

Telenor (2012)

India–Singapore BIT (CECA)

Following the cancellation of 2G licences by Supreme Court

Withdrawn, because Indian government allowed it to set off its losses (Rs 16 billion) during new spectrum licences by the way of credit

3

Sistema JSFC (2012)

India–Russia BIT

Due to cancellation Withdrawn, for the of 2G Telecom same reason licences by the mentioned above Supreme Court of India

4

Children’s Investment Fund (2012)

India–Cyprus BIT India–UK BIT

For alleged breach Withdrawn of corporate governance practice enshrined under disputed BIT. Where the claimant has minority state in Coal India Limited

5

Axiata Group (2012)

India–Mauritius BIT

The claimant owns Pending (other details 20% of Idea not available) Cellular. It faces risk due to cancellation of its 12 second generation spectrum licences by Supreme Court

6

Capital Global and Kaif Investment (Loop Telecom, 2012)

India–Mauritius BIT

Two Mauritian-based entities filed a ITA notice of cancellation of their 2G telecom licences

Pending (other data not available)

(continued)

100

4 India’s Approach to the Protection of Foreign Investment

Table 4.2 (continued) S. No.

Disputed BIT investor (with year of initiation)

Brief description

Current status

7

CC/Devas India–Mauritius (Mauritius) Ltd., BIT Devas Employees Mauritius Private Limited, and Telecom Devas Mauritius Limited (2012)

Three entities initiated ITA arbitration for annulment of their contract over the use of S-band spectrum and lease of two satellites to broadcast high-speed Internet on mobile devices

The PCA tribunalc administered under the UNCITRAL Rules rendered an award on jurisdiction and merits in a first phase of arbitration on 25 July 2016. It had found India guilty for violation of expropriation and FET provisions. However, the precise quantum has yet to be determined in a second phase of arbitration

8

Deutsche Telekom (2013)

India–Germany BIT

Annulment of above-said S-band spectrum also resulted in another claim under India–Germany BIT who invested US$100 million in Devas

In an interim award, the PCA tribunal found that India violated FET standard. In January 2018, India challenged the interim award before the Swiss Federal Tribunal, which also agreed with the findings of the PCA tribunal. The PCA tribunal is yet to decide the quantum of liability

9

Khaitan Holdings Mauritius Limited (2013)

India–Mauritius BIT

The claimant holding 26% equity in Loop Telecom served notice against cancellation of its 21 telecom licences and seeking US$1.4 billion as compensation

It is still pending before the arbitral tribunal constituted under the UNCITRAL Rulesd

10

Vodafone International Holdings BV (I) (2014)

India–Netherlands BIT

Due to imposition of retrospective taxation by Government of India

Tribunal (PCA) has been constituted under the UNCITRAL Rulese (continued)

4.3 Protection of Foreign Investment Under International Law (BITs)

101

Table 4.2 (continued) S. No.

Disputed BIT investor (with year of initiation)

Brief description

Current status

11

Nokia (2014)

India–Finland BIT For withholding Pending (other details tax on royalty not available) payments worth Rs 21,000 crore

12

Louis Dreyfus Armateurs SAS (2014)

India–France BIT

13

Claimant challenging a series of actions taken by Indian government which allegedly prevented implementation of JV project to modernize Haldia Port in Kolkata, West Bengal

On 11 September 2018, the PCA tribunal dismissed all the allegations of LDA and ordered investor to pay $ 6,626,971 towards India’s legal expenses. This is the first ITA award rendered in favour of Indiaf

Cairn Energy India–UK BIT PLC and Cairn UK Holdings Limited (CUHL) (2015)

This claim initiated against the Income Tax Department’s action on withholding tax of US$1.6 billion (plus interests) retrospectively

The PCA tribunal has already been constituted under the UNCITRAL Rulesg . The tribunal issued Procedural Order no 4 on 19 April 2017 regarding decision on respondent’s application for bifurcation

14

Vedanta Resources PLC (2015)

India–UK BIT

It is also similar It is currently pending claim on tax before the ad hoc demand of arbitral tribunalh US$3.29 billion for failing to deduct withholding tax on alleged capital gains by its erstwhile parent company (Cairn) during period 2006-07

15

Astro All Asia Networks and South Asia Entertainment Holdings Limited (2016)

India–UK BIT India–Mauritius BIT

The claimants have been charged sheeted by CBI in relation to the suspected bribery in Aircel-Maxis deal

It was pending before the UNCITRAL administered tribunali and discontinued recently before decision on liability (continued)

102

4 India’s Approach to the Protection of Foreign Investment

Table 4.2 (continued) S. No.

Disputed BIT investor (with year of initiation)

Brief description

16

Strategic Infrasol India–UAE BIT and Thakur Family Trust with Ace Hospitality Management DMCC (2016)

The investors Tribunal is yet to be claim worth US $ constituted 85 billion against India over allegation of State cooperation in a fraud deprived in real estate development projects in Mumbai. It is largest ever claim made against Indiaj

17

Ras Al Khaimah India–UAE Investment Authority (2016)

Claimant (holding Tribunal is yet to be 13% shareholding constituted investment in Anrak Aluminium Limited) is seeking US $44.71 million in damages from India for allegedly cancelling the bauxite mining approvals in Visakhapatnam due to protest from tribal people from that areak

18

Vodafone Group PLC and Vodafone Consolidated Holdings Limited (II) (2017)

It is similar to the Vodafone (I) the investor initiated the second claim under India–UK BIT in connection with tax demand of Rs.11,000 crore through a retrospective amendment to the Income Tax Act, 1961 (in 2002)

India–UK BIT

Current status

Claimant has appointed an (DD Caron) arbitrator and the respondent is yet to appoint

(continued)

4.3 Protection of Foreign Investment Under International Law (BITs)

103

Table 4.2 (continued) S. No.

Disputed BIT investor (with year of initiation)

19

Nissan (2017)

India–Japan CEPA The claimant is seeking compensation of more than US$ 770 million from India for unpaid incentives and VAT refund by Tamil Nadu governmentl

However, the claimant approached the international arbitral tribunalm and sought for interim relief. In May 2020, both parties agreed to settle this dispute. But the settlement amount has not public yet

20

Korea Western Power Co. (KOWEPO) (2019)

India–Republic of Korea CEPA India–Republic of Korea BIT

Tribunal is yet to be constituted

a This

Brief description

Seeking compensation of US $400 million for not honouring fuel supply commitment to its power plant in Raigad, Maharashtra

Current status

list excludes list of cases initiated in the awake of Dabhol dispute (9 cases had settled), White Industries case (decided in favour of claimant), and the ITA notices served against India after January 2018; this list is compiled by authors from the UNCTAD IIA Database https://investmen tpolicy.unctad.org/investment-dispute-settlement/country/96/india and various other sources such as: ITA Law https://bit.ly/2OOslqY; Papa and Sarkar (2017); also see Prabhash Ranjan, supra note 4, at 25 b Sepulveda Amor as a president and C N Brower and B Stern as arbitrators c Presided over by PC Marc Lalonde and other arbitrators are David R Haigh and Justice Anil Dev Singh d Arbitrators are F Xavier and B Stern e F. Berman as a president, and L Y Fortier and R Oreamuno Blanco as arbitrators f Louis Dreyfus Armateurs SAS v. Republic of India, UNCITRAL, PCA Case No. 2014-26, Final Award (Sept. 11, 2018), para 378 (hereafter Louis Dreyfus Armateurs Award) g Presided over by Laurent Levy and Stanimir Alexandrov and J. Christopher Thomas acted as arbitrator h Constituted under chair of M Hwang and James Spigelman and Donald McRae as arbitrators i Headed by M J Moser, and P Leaver and L Reed as arbitrators j Also see Lacey Yong, India faces US$85 billion claim from UAE Investors, GAR News (Nov 11, 2015). http://www.indialegalhelp.com/files/globalarbitrationreview11nov2015.pdf. Last updated Mar. 20, 2019 k Bhutani (2017) l For the detailed analysis of the case, see Dutta and Saravanan (2017). m Constituted under the UNCITRAL Arbitration Rules, 2013, and the CEPA, the tribunal comprising Kaj Hober, former Chief Justice of India J.S. Khehar, and the presiding arbitrator Jean E. Kalicki; also see Aditi Shah and Sudarshan Varadhan, Nissan settles dispute with Tamil Nadu over unpaid dues: Report, Live Mint (28 May 2020). https://www.livemint.com/companies/news/nissan-settles-dis pute-with-tamil-nadu-over-unpaid-dues-report-11590674232734.html. Accessed on June 15, 2020 Sources ITA Law https://bit.ly/2OOslqY; Papa and Sarkar (2017); Ranjan (2019); Saravanan and Subramanian (2017); UNCTAD IIA Database https://investmentpolicy.unctad.org/investment-dis pute-settlement/country/96/india

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4.3.5 Changes Brought by the Revised Model BIT and Its Implication on the Future of Investment in India 4.3.5.1

Preamble

As already mentioned in the previous section, the revised Model BIT of 2015 has made sweeping changes in its structure and content. So far as the Model BIT of 2003 is concerned, the only goal was ‘to create conditions favourable for fostering greater investment by investors’. However, the 2015 Model BIT states both ‘promotion and protection of investments’ and ‘right of parties to regulate investment’ as its objectives. It was identified that only three recent IIAs (comprising both BITs and FTAs containing investment chapter) include this as balanced objectives in their preamble: India–Singapore CECA, India–Trinidad and Tobago BIT, and India–Malaysia FTA. After some consternation and lack of clarity in the recent past, India had adopted a revised Model BIT.67 It is generally observed that the various provisions in the Model BIT, 2015, are reactions to the ‘White Industries’ award and the series of ISDS disputes pending against India. The most contested issue in the revised Model BIT was the removal of the most favoured nation clause. Moreover, tax legislation or measures regarding taxation are removed from the purview of consideration of ITA tribunals,68 as investors have to comply with tax laws, including the payment of ‘tax liabilities’.69 Needless to say, these provisions are in response to the claims of Vodafone, Cairn, Vedanta, and Nokia ITA against the ‘retrospective tax’ amendment. Another contested issue was the removal of domestic court decisions or orders from the definition of investment.70 Also, the scope substantive standards of treatment have been narrowed drastically. The 2015 Model BIT has also introduced many important provisions for the first time: provisions for conflict of interest of arbitrators and challenges (Article 19); transparency in arbitral proceedings (Article 22); joint interpretations (Article 24); and exhaustion of local remedy rule for a period of five years (Article 15). A comparison of the 2015 Model BIT with the Model BIT of 2003 is given in Table 4.3. The ‘promotion of sustainable development’ is incorporated in the objectives of certain FTAs: India–Singapore CECA, India–Japan CEPA, and India-South Korea CEPA. Similarly, Article 12 of the 2015 Model BIT incorporates the ‘corporate social responsibility’ provision so as to support the social causes such as labour, environment, and human rights standards.

67 Why India has adopted a model BIT of such kind, there are different assessment on this aspect, (i) serve as a basis for negotiation (ii) state practice of ensuring protection to foreign investors and investment, and also to contribute development of CIL norms (iii) serve as an interpretative guide for tribunal (iv) to bring harmonization in rules governing protection of foreign investment. 68 Article 2.2(ii) of the 2015 Model BIT; also see Hanessian and Duggal (2015). 69 Article 11(iii); also see Sharma (2015). 70 Article 1.1(vii) of the 2015 Model BIT asserted that ‘order or judgment sought or entered in any judicial, administrative or arbitral proceeding’.

Fostering greater investment

Preamble

Definition of investor

1

2

Any national or company, including ‘mailbox companies’

Model BIT of 2003

S. No. Requirement

A natural person or legal entity conducting ‘real and substantial business operations’. No specific definition for ‘juridical person’

Right to regulate investments and right to change the conditions applicable to such investments

Draft Model BIT, 2015

Real and substantial business operations exclude certain types of business operations

To promote bilateral cooperation between parties concerning investments. Suggested to include environment, human health, and labour standards in the preamble

Law Commission of India Suggestions

(continued)

Natural or juridical person of the party having ‘substantial business activities in the territory of that Party’. It is also intended to deny protection to ‘mailbox companies’

It has adopted a centric approach to regulate investment, i.e. promotion and protection of investments. Also to promote sustainable development

Model BIT of 2015 (finally adopted)

Table 4.3 Comparison of 2003 Model BIT with 2015 Model BIT [In terms of the Draft Model BIT, 2015 and Law Commission of India, 260th Report]

4.3 Protection of Foreign Investment Under International Law (BITs) 105

Asset-based: ‘every kind of asset’ such as moveable and immovable, property, shares, debentures, financial contracts, IPRs, and business concessions

3

Definition of investment

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

Pure enterprise-based definition Did not list assets that would be considered an ‘investment’. Instead, it has to be made in good faith and subject to ‘real and substantial business operations’

Draft Model BIT, 2015 To adopt broad asset-based definition: ‘every kind of asset…’ with limited conditions

Law Commission of India Suggestions

(continued)

Hybrid of asset-based and enterprise-based Enterprise-based: apply only to a range of assets possessed by an enterprise that have been protected. The assets have substantial economic activity and are of significant financial value Enterprise carries out a minimal business operation in India that may not qualify as an investment Exclusions: It shall not apply to portfolio investments, debt securities, commercial contracts, the good will of the enterprise, and order or judgement of arbitral proceedings

Model BIT of 2015 (finally adopted)

106 4 India’s Approach to the Protection of Foreign Investment

It applies to all investments made before or after coming into force of this Model BIT

Scope of general provisions

Fair and equitable treatment obligations

4

5

Investments and returns of investors shall be accorded fair and equitable treatment

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

Denial of justice under customary international law. It includes un-remedied and egregious violations of due process, abusive treatment, unjustified coercion, or harassment

This treaty is not applicable to any measures adopted before the date of effect into force of this treaty. It also excluded commercial contract and disputes arising out under such contract

Draft Model BIT, 2015

Suggested for a broad fair and equitable treatment provision

Suggested to remove articles 2.4 (exclusion clause), 2.5, 2.6(i) and 2.6(iv)

Law Commission of India Suggestions

(continued)

No mention of fair, equitable treatment. But, it has adopted an alternative approach to address some core components of the fair and equitable treatment in Article 3.1. However, the component includes ‘duress’ as well

It covers only post-establishment phase of an investment Exclusions: It shall not apply to any measures taken by a local government, taxation matters, issuance of compulsory licensing in relation to IPRs, government procurement, State subsidies or grants and debt securities issued by a government

Model BIT of 2015 (finally adopted)

4.3 Protection of Foreign Investment Under International Law (BITs) 107

No such provision

Full protection and security obligations

National treatment obligations

Most-favoured-nation treatment

6

7

8

Contracting party shall not provide any less benefit of treatment, preference, or privilege resulting from any international agreement [Art 4(3)]

Contracting State shall not accord less favourable treatment to its investors and returns on their investment

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

Completely excluded

Model BIT of 2015 (finally adopted)

Recommended to adopt most favoured nation principle restricted only to the application of domestic measures

(continued)

Completely excluded

It has a narrow scope of national treatment obligations. For instance, qualifying the term ‘in like circumstances’ Sub-national government measures also included in Article 4.2

Suggested not to include Introduced in the final this provision in the final model. But, restricted text only to ‘physical security of investors’ and not applicable to ‘any other obligations whatsoever’

Law Commission of India Suggestions

It was restricted only to It is silent on this issue ‘intentional and unlawful discrimination…. on the basis of nationality’ It does not apply to law or measures of regional or local government. Also excluded the financial measures or assistance rendered for non-investment objectives

Absent in draft model

Draft Model BIT, 2015

108 4 India’s Approach to the Protection of Foreign Investment

Includes both direct and indirect expropriations

Expropriation

10

Permitted for a public purpose which should not be discriminatory

All investments shall be Not provided governed by laws of the country in which investments are made. If the international law provides more favourable than the 2003 model in that case former will prevail [Art 13]

Umbrella and stabilization clauses

9

Draft Model BIT, 2015

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

Suggested to include ‘permanent and complete or near complete deprivation of value of investment…… investor’s right management’ to determine the disputed measures equivalent to expropriation

Not mentioned

Law Commission of India Suggestions

(continued)

Adopted on case-by-case basis approach. Further clarifies that action taken by the government in a commercial capacity will not constitute expropriation Not constitute Expropriation: Also Art. 5.5 excludes certain measures taken in the interest of the public, such as public health, safety, and environment

No such obligations

Model BIT of 2015 (finally adopted)

4.3 Protection of Foreign Investment Under International Law (BITs) 109

‘Fair and equitable’ compensation

Compensation for expropriation

Transfers

11

12

Compensation for losses in the event of national emergency or civil disturbances. Payments shall be freely transferable. Repatriation of investment and returns also been provided in Article 8

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

It allows the investors to free transfer of all funds related to investment on a non-discriminatory basis. Provided a detailed list of such funds

In accordance with ‘procedure established by law’ and payment of ‘adequate compensation’. A detailed explanation has been provided for computation of compensation

Draft Model BIT, 2015

Suggested to delete balance of payment crisis under this provision, because it is already addressed in general exception clause

Not discussed

Law Commission of India Suggestions

(continued)

It permits freely transfer of funds related to investment into and out to host state Also provided a list of funds eligible for unrestricted transfer Temporary restriction of transfer on balance of payment crisis permitted

In accordance with ‘due process of law’ on payment of ‘adequate compensation’ and be at least equivalent to ‘fair market value’ of expropriated investment

Model BIT of 2015 (finally adopted)

110 4 India’s Approach to the Protection of Foreign Investment

Not provided in a separate provision

13

Investor obligations

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

Discussed in detail and also adopted broad investor obligation provision including obligation against corruption and taxation

Draft Model BIT, 2015 Article 8.2 may be deleted because it has already set out in the preamble. There is no clarity in the drafting language. Therefore, Articles 11 and 12 suggested to be redrafted. To specify the general requirement of compliance and to lay down an exhaustive list of areas in non-compliance with laws To ensure domestic courts of host state are not prevented from deciding cases related to civil liability for damages resulting from alleged acts, decisions, and omissions in relation to investments in the host state

Law Commission of India Suggestions

(continued)

Instead of broader provision seen in the draft model, it has adopted corporate social responsibility provision which has mentioned labour, environment, community relations, and anti-corruption issues Adopted new approaches to address the balance of rights and responsibilities of the investors. For instance, investors have to comply with host country laws related to taxation, the disclosure of information

Model BIT of 2015 (finally adopted)

4.3 Protection of Foreign Investment Under International Law (BITs) 111

Broad ISDS clause: ‘any Tribunal shall not have dispute’ arose between jurisdiction investor and host state ‘in • To re-examine any relation to an investment’ legal issue already settled by domestic courts of the host state • To review merits of the decision of domestic courts. • To review the applicability of exceptions mentioned under Articles 16 (ii) and (iii) and 17

ISDS clause Jurisdictional requirement Conditions precedent to submission of a claim for arbitration:

14

Draft Model BIT, 2015

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

Article 14.2(ii) (a) may be removed, and the scope of the tribunal mentioned in Article 14.2(ii) (d) may be restricted only to security exception and not extended to the general exception

Law Commission of India Suggestions

(continued)

Apply only to the disputes arising out of Chap. 2, but not apply to Article 9 (entry and sojourn of personnel) and Article 10 (transparency). However, investor shall not submit a claim if it is made through fraud, corruption, money laundering, or abuse of process (Article 13.4). Tribunal shall not have jurisdiction to review merits of the decision of domestic courts and also no jurisdiction subject to state–state arbitration

Model BIT of 2015 (finally adopted)

112 4 India’s Approach to the Protection of Foreign Investment

S. No. Requirement

Table 4.3 (continued)

Pre-arbitral remedies

Three years have elapsed from the date of knowledge of dispute, or also 18 months have elapsed from domestic court proceedings, or whichever is later 90 days prior ‘notice of arbitration’ to be transmitted to the respondent

Local remedy rule to be satisfied; however, maximum period has not been given

No local remedies rule. An investor can directly resort to international arbitration if the dispute has not been amicably settled within six months

No such additional conditions

Draft Model BIT, 2015

Model BIT of 2003

Six months have elapsed from the conclusion of pre-arbitral remedies. Also suggested to redraft Article 14.4(ii)

Non-compliance with local remedies and amicable settlement would constitute a jurisdictional bar from exercising claim to arbitration

Law Commission of India Suggestions

(continued)

Cooling-off period for six months to resolve the dispute through consultation or negotiation. Also, other conditions laid down in Article 15.5 also to be satisfied

The procedure provided in the draft significantly varied from the final one . Investor to submit a claim to domestic courts within one year from acquired knowledge of the breach. Mandatory exhaustion of local remedies for five years period

Model BIT of 2015 (finally adopted)

4.3 Protection of Foreign Investment Under International Law (BITs) 113

No mention of such requirement

15

Transparency

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

The host state shall be required to make publicly available on certain documents, such as notice of arbitration, pleadings and other written submission, transcripts of hearings, decisions, orders, and tribunal award subject to redaction of confidential information [Art. 14.8]

Draft Model BIT, 2015 Suggested to incorporate transparency and competition obligations Also suggested to protect confidential business information, national treatment obligation must take into consideration while drafting disclosure principles To remove the provision, this allows oral and written submissions from non-disputing parties Also to clarify at which stage documents are to be made public

Law Commission of India Suggestions

(continued)

A new clause has been added to ensure the high degree of transparency in arbitral proceedings (Article 22). It further allows the written submissions (amicus curiae) from civil society groups for interpretation of this treaty

Model BIT of 2015 (finally adopted)

114 4 India’s Approach to the Protection of Foreign Investment

Referred to institutional rules or the UNCITRAL Arbitration Rules

The conduct of arbitral tribunal

Appeal facility

16

17

No such mechanism

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

No such mechanism

Referred only to the UNCITRAL Arbitration Rules

Draft Model BIT, 2015

Not discussed

It is silent on this issue

Law Commission of India Suggestions

(continued)

It allows the establishment of an institutional mechanism to develop an appellate body to review investment treaty arbitral tribunal awards

Provided detailed procedural rules on appointment of arbitrators, the conduct of arbitral proceedings. Arbitrators—impartial, free of any conflict of interest, strict disclosure norms. Discourage frivolous claims brought by investors

Model BIT of 2015 (finally adopted)

4.3 Protection of Foreign Investment Under International Law (BITs) 115

General exceptions and security exceptions Host state can take actions in the event of essential security interests or extreme emergency situations, but not provided any list of activities comes under this exception [Article 12(2)]

18

Exception clause

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

Chapeau kind of general exception exists in Article XX of GATT that may be incorporated Also suggested not to be self-judging To remove measures taken by the local authority

Law Commission of India Suggestions

Security exceptions Silent on this issue Protection of essential security interests not limited to actions related to fissionable materials, actions taken during the war, traffic in arms, and to protect critical public infrastructure

General exceptions It covers a detailed list of permissible objectives. It has adopted ‘necessary’ as a link requirement. It shall not be extended to measures taken by the local body Preliminary determinations on general exception have been provided in Article 18

Draft Model BIT, 2015

(continued)

A ‘self-judging’ security-based exception has been adopted [Articles 33] No security exceptions provided in the draft have been removed. However, the new clause on exception with respect to changes in ‘security clearance’ has been added

The permissible objective list has been narrowed and ‘non-self-judging’. Removed measures taken by the local authority

Model BIT of 2015 (finally adopted)

116 4 India’s Approach to the Protection of Foreign Investment

No provision on review and amendment of the treaty

Review and amendments in the treaty

Termination of the treaty

19

20

The term of the treaty—10 years; however, it can be terminated anytime, provided that party shall transmit six months prior written notice stating an intention to terminate the treaty It has ‘sunset clause’, continuing investment protection ever after termination of BIT for five years

At the request of parties on any issue regarding interpretation, implementation, application, or execution of this treaty shall be reviewed every five years It also allowed for amendment of the treaty at the written request of either party

Draft Model BIT, 2015

Model BIT of 2015 (finally adopted)

One-year prior written notice was suggested Also suggested to adopt ten-year-long sunset clause

The term of the treaty is ten years, which can be terminated anytime, provided that party shall render 12 months prior notice in writing Sunset clause—five years

Amended provision shall Adopted the same not apply to claims provided in the draft arising out of events model occurred, or claims arose before entry into force of the amendment

Law Commission of India Suggestions

Sources Department of Economic Affairs, Government of India https://www.dea.gov.in/bipa; Hanessian and Duggal (2017); Model BIT (2003); Model BIT (2015); Rajput (2016); Rajput (2017a); Saravanan and Subramanian (2017); Singh (2016)

The term of the treaty is ten years. It can be terminated by tendering one-year prior written notice Sunset clause—the treaty shall continue to be valid for a further period of 15 years after termination

Model BIT of 2003

S. No. Requirement

Table 4.3 (continued)

4.3 Protection of Foreign Investment Under International Law (BITs) 117

118

4.3.5.2

4 India’s Approach to the Protection of Foreign Investment

Scope and Definitions

(a) Definition of ‘Investor’ It includes both natural and juridical persons (Article 1.5). With regard to the definition of the term ‘juridical person’, the Model BIT included two sub-categories: (a) legal entities constituted, organized, and operated under law of the home state and have ‘substantial business activities in the territory of that party’, and (b) ‘directly or indirectly owned or controlled by a natural person’ of that party or legal entity (Article 1.5). It is relevant to note that a branch office or a representative office in home state, i.e. the so called mailbox companies, is not considered as investors within the scope of this definition.71 (b) Definition of ‘Investment’ The definition of investment plays a crucial role in determining the scope of rights and obligations provided under the BIT, as well as to determine the jurisdiction of the ITA tribunal. As already mentioned, the revised Model BIT has changed the basis of definition of investment from the broader ‘asset-based’ to ‘enterprise-based’.72 The threshold has been set very high so as to reduce the unwanted ITA claims.73 According to Article 1.4 of the 2015 Model BIT, investment means an ‘enterprise constituted, organized and operated in good faith by an investor’ in accordance with local laws of the country. The definition also provides the list of assets that an enterprise may possess. It includes shares, stocks, and other forms of equity instruments; debt instrument or security of other enterprise; loan provided to another enterprise; licences, permits, authorization, or similar such rights; rights conferred by contracts; copyrights, knowhow, and other IPRs such as patents, trademarks, and industrial designs; moveable or immovable property; and any other interests where enterprise possesses substantial economic activity.74 The existing investment arbitral jurisprudence suggests that enterprise has to fulfil certain characteristics as tests of investment, and these are certain duration, a substantial commitment, and assumption of risk and significance for host state’s development. It is also significant to note that from the above definition, it is not clear that whether the characteristics of investment (Salini test) are satisfied by an enterprise or also by its assets?75 It has also not specified the duration of how long the enterprise should exist to satisfy the investment definition. Further, no guidance has been provided in Article 1.4 on how to determine that the investment has contributed to the host state’s development. 71 Grant

Hanessian and Kabir Duggal, supra note 68, at 217. only one Indian BIT signed with Mexico has such enterprise-based definition; also see Azernoosh, supra note 44, at, 252. 73 Also see Mysore and Vora (2016). 74 Article 1.4 (a–h) of the 2015 Model BIT. 75 P Ranjan and P Anand, supra note 6, at 20–22. 72 Previously

4.3 Protection of Foreign Investment Under International Law (BITs)

4.3.5.3

119

Changing Landscape in General Standards

(a) Fair and Equitable Treatment Surprisingly, India has decided not to adopt fair and equitable standard in the revised Model BIT as ITA tribunals have often interpreted the fair and equitable treatment provision ‘too broadly’.76 Instead, it had adopted an alternative approach, i.e. ‘treatment of investments’ to address some core components of the fair and equitable treatment in Article 3.1: ‘No Party shall subject investments made by investors of the other Party to measures which constitute a violation of customary international law through: (i) denial of justice in any judicial or administrative proceedings; or (ii) fundamental breach of due process; or (iii) targeted discrimination on manifestly unjustified grounds, such as gender, race or religious belief; or (iv) manifestly abusive treatment, such as coercion, duress and harassment’. It is an attempt to ensure ‘normative content’ to international minimum standard77 without actually referring to it. (b) Full Protection and Security It is an obligation of host state to provide full protection and security to its foreign investment and investors. Generally, this protection is not only limited to physical safety but also other kinds of protection such as regulatory and legal security. However, revised Model BIT restricted its scope only to physical security. Article 3.2 specifically mentions that the provision does not extend to ‘any other obligation whatsoever’. It might be in response to the decision of certain ITA tribunals interpreting the full protection and security provision to include ‘legal security’.78 This provision adopts a balanced approach, as on the one side it provides security to foreign investment and on the other it does not allow expansive interpretation of ‘full protection and security’. (c) National Treatment and Most-Favoured-Nation Treatment Like most of the Indian BITs, the 2015 Model BIT also guarantees national treatment to foreign investors in post-establishment stage. The treatment is accorded to 76 Chimni

(2018). minimum standard is a principle found in customary international law that governs the treatment of foreign investors. It is based on the principle that State(s) have obligations to foreign investors independent of any obligations they have more generally under international law. This standard is in contrast to the Calvo Doctrine, which provides same rights to aliens as to nationals; also see Hollin Dickerson, Minimum Standards, Max Planck Encyclopedia of Public International Law. Available at: http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-978019923 1690-e845. Last updated 10 December 2018. 78 Total S. A. v. Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability (Dec. 27, 2010) Para 343. 77 International

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domestic investors ‘in like circumstances’ relating to ‘management, conduct, operation, sale or other disposition of investments’ (Article 4.1). It is significant to note that while the Law Commission of India has recommended including a most favoured nation clause, the revised model has completely removed the most favoured nation provision. (d) Expropriation Article 5.1 of the 2015 Model BIT empowers the host state to expropriate ‘directly or through measures having an effect equivalent to expropriation’, only for public purpose, by following the due process of law and by payment of adequate compensation.79 The direct expropriation happens when investment is directly nationalized or through formal transfer of title or outright seizure [Art 5.3(a) (i)]. The indirect expropriation occurs when host state imposes any measures that have an effect equivalent to direct expropriation, or where the actions might permanently deprive the investor’s property without any formal transfer of title [Art 5.3(a) (ii)]. This might fall under category of ‘sole effects’ doctrine to prove indirect expropriation.80 In order to determine whether the disputed measures have an ‘effect equivalent to expropriation’, the ITA tribunal might require a ‘case-by-case’ analysis and ‘factbased inquiry’. Take into account various considerations mentioned in Article 5.3(b) (i–iv). It includes not only economic impact of measures and duration of measures, but also the object and intent of the measures. It seems to be one step ahead of the sole effect doctrine and strides into proportionality analysis. However, it is difficult to reconcile in the event of any dispute. In case of any conflict, question arises as to whether the economic impact will be given more importance over object and intent or vice versa? It vests the power to the ITA tribunals to decide in such circumstances. It is important to note that Article 5.5 of the 2015 Model BIT empowers the host state to adopt any ‘non-discriminatory’ measures in order to ‘protect legitimate public interest or public purpose objectives such as public health, safety and the environment’, which shall not amount to expropriation. It may be considered as ‘police power doctrine’. However, the language used in Article 5.5 does not mention of the usual criterion adopted by the ITA tribunals to check the excessive use of regulatory powers in order to ensure ‘good faith’ and ‘due process’. This might lead to likelihood of regulatory abuse by host state. (e) Transfer of Funds Generally, the Model BIT of 2015 provides freedom to investors to transfer their funds related to investment and it covers both inflows and outflows of funds. Article 6.1 (i–v) recognizes the investors’ right to transfer ‘all funds’ related to investment. Such funds include contributions to capital, profits, dividends, capital gains, interest, royalty payments, payments made in pursuant to expropriation and compensation for losses. However, such transfer is subject to certain restrictions of Indian laws, such as Foreign 79 However,

India–Armenia BIT had a requirement of ‘in accordance with law of the host State’. sole effects doctrine requires that, when making this determination, reference be had only to the effect of the measure on the property allegedly expropriated”. Also see Mostafa (2008). 80 “The

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Exchange Management Act, 1999, and Reserve Bank of India Guidelines [Article 6(2)]. Article 6.3 (i–xi) guarantees that ‘nothing in this treaty shall prevent a party’ from transfer through a good faith including certain actions relating to bankruptcy, insolvency, compliance with judicial decisions and awards, compliance with tax legislation, severance entitlements, etc. Hence, the host state may temporarily restrict the transfer rights in the event of balance of payment difficulties and any other serious difficulties due to macroeconomic management.81

4.3.5.4

Exceptions

To preserve host state’s regulatory power, the revised Model BIT provides two kinds of exceptions: firstly, non-self-judging ‘general exceptions’ covering a wide range of issues including public order, health, public moral, protection of plant and animals, and conservation of the environment, and secondly, self-judging ‘security-based’ exceptions provided in Chap. 6 of the 2015 Model BIT. (a) General Exceptions (including Non-precluded Measures) BITs generally provide that on certain occasions, host state may deviate from the obligations of BIT, in order to protect the national interests, public health, security, environment, and other non-investment policy goals. The non-precluded measure provision has two important factors, permissive objectives (mentioned in the nonprecluded measure provisions) and the nexus requirement (it links adopted measures and objectives), and it is pertinent to note that the term ‘necessary’ refers to stronger link between adopted measures and permissible objectives when compared it with other words like ‘related to’. Unlike, 2003 Model BIT, the revised one has adopted a separate chapter on exceptions which includes general (Article 32) and security exceptions (Article 33). The general exceptions provide a long list of permissible objectives such as to protect public morals, maintain public order, protect human, animal, or plant life or health, conserve the environment, and protect natural treasures. It is significant to note that this provision adopted ‘necessary’ as a nexus requirement to satisfy the permissive objectives. The meaning of the term ‘necessary’ seems to have been adopted from Article XX of the General Agreement on Tariffs and Trade (GATT). However, the Model BIT does not provide any ‘Chapeau’ test that is found in Article XX of the GATT as this might interfere with the free exercise of host state’s regulatory powers.82 (b) Security Exemptions Generally, the ‘essential security’ interest exceptions were limited only to the actions of military and strategic considerations. However, the modern BITs had further extended its application to include environmental, health, and economic interests. In this context, India too had attempted a ‘self-judging’ approach to the essential 81 P.

Ranjan and P. Anand, supra note 6, at 33. (2008).

82 Newcombe

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security exceptions under Article 33 of the Model BIT, 2015, which seems to have been inspired from Article XXI of the GATT. It is relevant to note that in the recent case of ‘Antrix’ involving Indian space projects, the Permanent Court of Arbitration (PCA) while interpreting the India–Mauritius Bilateral Investment Promotion Agreements (BIPA) did not allow India’s contention on ‘strategic security’ concerns as a ground to annul the Antrix-Devas deal. The tribunal held that the expressions ‘strategic needs’ or ‘strategic requirements’ went far beyond ‘essential security interests’ of India and hence the ground cannot be pleaded.83 It is pertinent to note that the scope of the ‘essential security interest’ provision has emerged as contentious issue in various investment arbitral proceedings in the recent past. For instance, the ICSID tribunal in CMS v Argentina ruled that ‘economic interests’ amount to ‘essential state interest’ and LG&E 84 tribunal held that it did not. (c) Other Exceptions In addition to the above general and security exceptions, the Model BIT also provides exceptions for certain other regulatory measures such as taxation85 and compulsory licensing from the application of the treaty. (i) Taxation Article 2.4 (ii) of the Model BIT states that this treaty shall not apply to ‘any law or measures regarding taxation, including measures taken to enforce taxation obligations’. This exception is applicable to taxation measures made ‘before or after’ the commencement of ITA proceedings. The Model BIT also recommends that the invocation of this exception shall not be reviewed by any ITA tribunal. It is obvious that this provision has been inserted as a sequel to the current or pending tax-related investment treaty disputes against India such as Vodafone, Cairn, Vedanta, Nokia, and Nissan.86 It is pertinent to note that the regulation of tax in international investment law is a highly contested issue. The existing investment jurisprudence adopted different interpretative approaches to decide whether retrospective taxation amounts to expropriation. For instance, the Encana v Ecuador 87 tribunal held that the indirect expropriation claim could be made if the disputed tax measures are ‘extraordinary’ or ‘punitive in amount’. However, the tribunal in Feldman v Mexico88 refused to consider right to receive value-added tax refund on the basis of expropriation. Instead, it looked on the 83 For

detailed analysis of the CC/Devas case, refer Chap. 5. Energy Corporation v Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (Oct. 3, 2006). 85 Few Indian IIAs exclude taxation matters from its scope, such as: India–Russia BIT, India– Thailand BIT, India–South Korea CEPA, India–Japan CEPA, India–Malaysia FTA, and India–UAE BIT; also see Azernoosh, supra note 44, at 249. 86 Also see Dutta and Saravanan (2017). 87 Encana v. Ecuador, LCIA Case No. UN3481, UNCITRAL Award (Feb. 3, 2006). 88 Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award (Dec. 16, 2002). 84 LG&E

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basis of national treatment. It is pertinent to note that determination of expropriation in taxation is a fact-specific exercise, and the tribunal requires a higher threshold level to demonstrate that the harm amounts to expropriation.89 (ii) Issuance of Compulsory Licence Article 2.4(iii) specifically excludes issuance of ‘compulsory licences’ from the purview of 2015 Model BIT. It is relevant to note that issuance of compulsory licence is in compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) if the conditions given in Article 31 are fulfilled.90 Even if the host state excludes the issuance of compulsory licences, the contracting parties still have an option to challenge the measures before the WTO Dispute Settlement Body for violation of the TRIPs Agreement on the ground that conditions have not been fulfilled.91

4.3.5.5

Investor-State Dispute Settlement Clause

It is significant to note that the BITs of certain countries have altogether abandoned ISDS clauses, for instance, Japan–Philippines FTA (2006) and Australia–Malaysia FTA (2012). On the other hand, India had adopted broad and multiple-step investment dispute settlement procedure under Article 15 of the revised Model BIT 2015. The investors have to successfully fulfil various steps outlined in Fig. 4.2 such as jurisdictional restrictions, exhaustion of local remedies, and other additional claims before resorting to an investment arbitral tribunal. It seems that this tightened dispute resolution process is in response to the several adverse decisions against India by the ITA tribunals, such as White Industries v. India, CC/Devas (Mauritius) Ltd. v. India, Vodafone International Holdings BV v. India, Tenoch Holdings v. India, and Deutsche Telekom v. India. This assertion also finds support from the recent report of the United Nations Conference on Trade and Development (UNCTAD), which noted that India was one of the ‘most frequent’ respondent states with a total of 19 pending investment disputes till today. (a) Jurisdictional requirement Article 13.2 restricts the scope of ISDS as it is applicable only to disputes relating to ‘investment’ arising out of alleged breach of an obligation guaranteed under Chap. 2 of the Model BIT, 2015. However, this provision will not be applicable to any dispute arising out of breach of obligations concerning entry and sojourn of personnel (Article 9) and transparency. This provision restricts the tribunal’s jurisdiction only to disputes arising out ‘breach of this treaty’. It specifically excludes the disputes arising ‘solely’ out of 89 See,

generally, Park (2020). detailed study of the problem in the Indian context, Saravanan et al. (2014). 91 Gibson (2010). 90 See

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Fig. 4.2 ISDS clause under the Model BIT of 2015. Sources Article 15 of the revised Model BIT (2015); Saravanan and Subramanian (2017)

‘breach of contract’ between the investor and the host state. Such disputes shall be resolved only through domestic courts [Article 13.3]. It is observed that the revised Model BIT did not contain any ‘umbrella clause’. Therefore, investor may not get access to the ITA tribunal for contractual breaches by the host state. It is significant to note that ISDS tribunal shall not have jurisdiction to ‘review the merits of decision’ of the courts of host state [Article 13.5]. (b) Exhaustion of Local Remedies Local remedy rule is the well-recognized principle of customary international law.92 ‘Local remedy’ means that any forms of redress are available to an investor under host state’s domestic legal framework. Some BITs provide that this rule covers not only judicial remedies but also other administrative remedies. Articles 15.1 and 15.2 of the revised Model BIT, 2015, recognize the fundamental principle of exhaustion of local remedies.93 It strengthens the local remedy rule by making it mandatory for investors to take up their disputes or differences with Indian courts and wait for their decision for a minimum period of five years. It is submitted that the period of five years is too long. Given the levels and the delays associated with the Indian judicial process as evidenced by the enforcement process of the White Industries Award, 92 Canqado

Trindade (1978). three BITs adopted such requirement: India–Croatia BIT, India–Mongolia BIT, and India– Bahrain BIT. 93 Only

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therefore this requirement will be futile. Hence, it is submitted that it may not serve any purpose. It is significant to note that the ICSID tribunal in the case of Plama v Bulgaria had questioned the requirement of 18 months temporal limitation of local remedy rule and observed that such kind of provision is ‘nonsensical from a practical point of view’.94 (c) Pre-arbitral Remedies (Arbitral Appellate Mechanism) However, if no satisfactory resolution is arrived at even after exhaustion of local remedies, or the relief provided by the domestic courts is ineffective and futile, in that case, an investor can commence proceedings by transmitting a ‘notice of dispute’ (Article 15.2). After receipt of such notice, the parties shall try to resolve the disputes amicably through consultation, negotiation, or any other means within a period of six months (cooling period). It is provided that the place of such consultation or negotiation shall be New Delhi. If the disputes cannot be resolved amicably within six months, then the same can be submitted to international arbitration, subject to additional conditions mentioned in Article 15.5 (i–v).95 From the above analysis, it is opined that the ISDS process adopted in revised Model BIT is very cumbersome, if not impossible for investors to make effective use of the ISDS process.

4.3.5.6

Overarching Provisions Concerning Access to Domestic Courts

The model instrument, besides the above provisions, to respond to the concerns of ‘judicial expropriation’, etc., has included a number of provisions to protect the regulatory space of the host states.96 Most important of all, the BIT provides that the concept of ‘investment’ does not include ‘an order or judgement sought or entered in any judicial, administrative, or arbitral proceeding’.97 This was as a sequel to the White Industries’ decision, where the tribunal was of the opinion that the rights of White Industries under the contract will qualify as an ‘investment’ under the India–Australia BIT.98 94 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (Feb. 8, 2005) para. 224. 95 Not more than six years have elapsed from the date of knowledge of the dispute; not more than twelve months have passed from the conclusion of domestic proceedings; investor must waive right to initiate or continue with any proceedings under domestic laws; minimum 90 days prior ‘notice of arbitration’ shall be submitted to host state before resorting to international arbitral forum; also see Saravanan A and S. R. Subramanian, supra note 63, at 53. 96 Saipem v Bangladesh, for an understanding of the underlying issues, see Gharavi (2018). 97 Article 1.4 (vii) of the 2015 Model BIT. 98 White Industries Australia Limited v. The Republic of India, UNCITRAL, Award (Nov. 30, 2011) [hereinafter the White Industries Award]. The ‘White Industries’ argued that ‘tribunals have regularly found that the supply of services and equipment can constitute an ‘investment’ under a BIT’; also see Para. 4.1.9 of the White Industries Award.

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The Model BIT does not expressly incorporate the well-entrenched standards of treatment as found in the ‘international minimum standard’ or even the ‘fair and equitable standard of treatment.99 Instead, under the heading ‘treatment of investors’ it prescribes that [n]o party shall subject investments made by investors of the other party to measures which constitute a violation of customary international law, through (i) denial of justice in any judicial or administrative proceedings, or (ii) fundamental breach of due process, or (iii) targeted discrimination on manifestly unjustified grounds, such as gender, race, or religious beliefs, or (iv) manifestly abusive treatment, such as coercion, duress, and harassment.100 This demonstrates that denial of justice is one of the important grounds on the basis of which the investor may complain of breach of treaty standard. As already discussed,101 though this ground may possibly cover non-judicial actions, it mainly guarantees the remedies against the judicial actions. On the other hand, the other grounds in the provision, though they are mainly addressed against executive or administrative actions, in view of the rules of state responsibility,102 they may also very well cover the actions or omissions of domestic courts. However, the provision prescribes that the investment arbitral tribunal while ‘considering an alleged breach’ ‘shall take account of whether the investor or, as appropriate, the locally-established enterprise, pursued action for remedies before domestic courts or tribunals prior to initiating a claim under’ the BIT.103 This, in effect means that the tribunal shall give due weightage to the fact that the investor or his local subsidiary has availed the local remedies before resorting to investor-state arbitration. Similarly, the provision concerning expropriation also specifies that the tribunal before making any determination as to whether the requirements of expropriation is fulfilled or not shall consider whether the investor pursued remedies before domestic courts or tribunals prior to initiating a claim under the instrument.104 Moreover, the model instrument also excludes from the scope of expropriation ‘[n]on discriminatory regulatory measures by a Party or measures or awards by judicial bodies of a Party that are designed and applied to protect legitimate public interest or public purpose objectives such as public health, safety and the environment’.105 Even provisions relating to capital transfer stipulate that a party may impose restrictions on capital transfer relating to compliance with judicial or arbitral decisions.106

99 Rajput

(2017b). 3.1 of the India–Australia BIT. See, Paulsson (2005), Sattorova (2012) (‘the protection of foreign investors from mistreatment in the host state courts was the preserve of customary international law’). 101 Refer Sect. 4.3.5.5 of this chapter. 102 Demirkol (2018). 103 Article 3.4 of the 2015 Model BIT. 104 Article 5.6 of the 2015 Model BIT. 105 Article 5.5 of the 2015 Model BIT. 106 Article 6.3. (ii) of the 2015 Model BIT. 100 Article

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Similarly, by providing that the investor-state arbitration will only be available in respect of ‘alleged breach of an obligation of a Party under Chapter II of the BIT, it specifies that ‘disputes arising solely from an alleged breach of a contract between a Party and an investor’ ‘shall only be resolved by the domestic courts or in accordance with the dispute resolution provisions set out in the relevant contract’.107 The model instrument, under the provisions concerning submission of claim to arbitration, spells out the circumstances and the manner in which the local remedies may be exhausted before invoking investor-state arbitration. It specifies that ‘a disputing investor must first submit its claim before the relevant domestic courts or administrative bodies of the Defending Party for the purpose of pursuing domestic remedies in respect of the same measure or similar factual matters for which a breach’ is alleged.108 It further stipulates that [s]uch claim before the relevant domestic courts or administrative bodies of the Defending Party must be submitted within one year from the date on which the investor first acquired’ the actual or constructive knowledge of the measure in question with respect to its investment, had incurred loss or damage as a result’.109 In addition, the BIT specifies two vital conditions of waivers relating to domestic remedies before resorting to investor-state arbitration. It specifies that ‘[I]n the event that the disputing parties cannot settle the dispute amicably, a disputing investor may submit a claim to arbitration’, ‘only if he provides the waiver in the following terms. Firstly, ‘the disputing investor himself or the locally established enterprise have waived their right to initiate or continue before any administrative tribunal or court under the law of any Party’ with respect to the measure of the Defending Party that is alleged to be a breach.110 Secondly, ‘where the claim submitted by the disputing investor is for loss or damage to an interest in an enterprise of the other Party that is a juridical person that the disputing investor owns or controls, that enterprise has waived its right to initiate or continue before any administrative tribunal or court under the law of any Party’, with respect to the measure of the Defending Party that is alleged to be a breach.111 The Model BIT also imposes certain restrictions before accessing domestic courts for purposes of enforcement of investment treaty awards. It stipulates that a final award under the ICSID Additional Facility Rules or the UNCITRAL Arbitration Rules, ‘a disputing party may not seek enforcement of a final award until (i) 90 days have elapsed from the date the award was rendered and no disputing party has commenced a proceeding to revise, set aside or annul the award or (ii) a court has dismissed or allowed an application to revise, set aside or annul the award and there 107 Articles 13.2 and 13.3 of the 2015 Model BIT. For understanding the background of this reaction,

see Wong (2006). 15.1. 109 Article 15.1. For comparison of time limits for this purpose, see Exhaustion of Local Remedies in International Investment Arbitration, iisd best practices series, 12 (2017). 110 Article 15.5 (iii) of the 2015 Model BIT. For a critical comment on these clauses, see Paparinskis (2013). 111 Article 15.5 (iv) of the 2015 Model BIT. 108 Article

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is no further appeal’.112 It also provides that an investment treaty tribunal under the treaty shall not have the jurisdiction to ‘review the merits of a decision made by a judicial authority of the Parties’.113

4.3.6 Legal Analysis Irrespective of the new provisions introduced in the revised Model BIT, it still lacks on various aspects including clarity in drafting, the degree of redundancy, and many more.114 Another interesting question is whether the 2015 Model BIT is competent of achieving its purposes discussed above. Given the strong disapproval by its counterparts, it is unlikely that India will succeed in negotiation. Considering the existing criticism, most of the developed countries are hesitant to comply with new standards adopted in the 2015 Model BIT. It discourages investment and aggravates more regulatory risk by removing ‘most favoured nation’ clause and imposing a mandatory requirement of ‘exhaustion of local remedies’. It is pertinent to note that the USA, Canada, and the EU have raised serious concerns over these provisions and they are unenthusiastic to go for BIT/FTA negotiations on these conditions.115 Except few provisions (full protection and security, money transfer provision, and corporate social responsibility), most of the provisions (such as narrow definition for investment, narrow fair and equitable treatment clause, exclusion of most-favourednation treatment, umbrella clause, taxation measures, and compulsory licensing) in the revised Model BIT are inclined to favour host state rather than adopting a balanced approach between the investor protection and host state regulation. Irrespective of the issues discussed above, these disputes not only raise the question of the host state’s regulatory risk but have also failed to bring a ray of hope for the current government’s effort to make India, a preferred destination for foreign investors. Even after making revisions to the Model BIT, it is evidently becoming difficult for India to avoid new disputes. The recent controversy is that Korea Western Power Company (KOWEPO), a South Korea-based power company, has initiated a claim under the investment chapter of the India–Republic of Korea Comprehensive Economic Partnership Agreement (CEPA) and India–Republic of Korea BIT, seeking compensation of US $400 million for not honouring fuel supply commitment to its power plant in Raigad, Maharashtra.

112 Article

27.3 (b) of the 2015 Model BIT. The provision concerning the enforcement of ICSID award is not examined here as India is not currently a member of the Convention. 113 Article 13.5 of the 2015 Model BIT. 114 Prabhash Ranjan and Pushkar Anand, supra note 6, at 586. 115 Somesh Dutta and A. Saravanan, supra note l in Table 4.2.

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4.4 Protection of Foreign Investment Under Indian Law It is significant to note that Indian BITs does not specifically provide any procedure for enforcement of ITA awards. However, most of the BITs declare that the award is final and binding on the parties. Indeed, it is relevant to delineate the Indian judicial system in brief before proceeding to address the question of the arbitration legislation and its impact on investment arbitration mechanism in the country.

4.4.1 Indian Judicial System The Indian judiciary comprises three levels, the Supreme Court, the High Court, and the subordinate courts. The Supreme Court is the highest court of the law of the land, and it is the final Court of Appeal for all civil, criminal, and constitutional cases,116 With regard to its power in the dispensation of justice, it is significant to note that the Supreme Court also has the power to do ‘complete justice’ based on the principle of equity.117 This is widely believed to be one of the broadest powers given to any court of law. However, in practice, such powers are rarely exercised and always with caution. This is a potential issue when the interests of foreign investors may come into conflict with the actions of the Supreme Court.118 The different types of judicial actions which may affect the foreign investors are discussed in Chap. 5. The High Court is the highest Court of Appeal at the State (province) level. However, its decisions are subject to the final decision and authority of the Supreme Court.119 It acts as a court of appeal in civil, criminal cases and also as an original court for constitutional matters exercising writ jurisdiction under Article 226 of the constitution. Foreign investors could seek protection by invoking writ jurisdiction. The tertiary-level courts are known as the subordinate courts. They work under the supervision and control of the respective High Courts.120 The Indian Constitution also ensures the independence of the judiciary.

4.4.2 Fundamental Rights There is no specific law in India which grants protection to foreign investors. However, the interpretation and application of constitutional and other public law are applicable to commercial disputes. It is worth pointing out that the substantive 116 The

Constitution of India, Arts. 132–136; Choudhry et al. (2016). 142 of the Constitution of India. 118 Aniruddha Rajput, supra note 6, at 147. 119 Articles 214 and 225 of the Constitution of India; Aniruddha Rajput, supra note 6, at 148. 120 Articles 233–237; for general discussion, see Basu (2009). 117 Article

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protection for foreign investors is assured from the cumulative understanding of Articles 14, 19, and 21 of the Constitution of India.121 Article 14 is the most appropriate provision to ensure the protection of foreign investors. It states that ‘the State shall not deny to any person equality before the law or the equal protection of laws within the territory of India’. It ensures a sort of national treatment for investors once they have established their investments in India. On the other hand, Article 19 guarantees ‘fundamental freedoms’, including the freedom of speech and expression122 While the foreign investors might seek remedy under Articles 14 and 21 without any restrictions, Article 19 applies only to the citizens and hence, ‘incorporated bodies’ are not treated as citizens.123

4.4.3 Applicability of the 1996 Act to the Investment Disputes The investment arbitration is different from commercial arbitration on various aspects. The arbitration agreement is considered as the foundation of commercial arbitration, as it provides the details of the scope of arbitrable subject matter, applicable law, appointment, and removal of arbitrators. On the other hand, in the case of investment arbitration the individual investor not necessarily enters into any such agreement with the host state.124 The applicable BIT signed between the home state and the host state is sufficient for an investor to institute an investment dispute against the host state.125 It is noted that there is no dedicated legislation in India to deal with the enforcement of ITA awards. It is submitted that the Arbitration and Conciliation Act, 1996, is closely modelled for that purpose. However, such potential applicability is not without any problems. In the case of Agritrade International v NAFED126 the Delhi High Court clearly pointed out that in the case of enforcement of foreign arbitral award rendered under the ‘Palm Oil Refiners Association of Malaysia (PORAM) Rules of Arbitration and Appeal’, and the grounds listed in section 48 of the Arbitration and Conciliation Act are not the ‘only’ criteria for determination of enforceability of foreign arbitral awards. This would mean that the submission of arbitration agreement under section 7 of the Act is also an important requirement for establishment of 121 Article 19 states that ‘protection of certain rights regarding freedom of speech etc. (1) All citizens

shall have the right (a) to freedom of speech and expression; (b) to assemble peaceably and without arms; (c) to form associations or unions; (d) to move freely throughout the territory of India; (e) to reside and settle in any part of the territory of India’; Article 21 provided that ‘protection of life and personal liberty No person shall be deprived of his life or personal liberty except according to procedure established by law’; also see Aniruddha Rajput, supra note 6, at 213. 122 Tata Press Ltd. v. Mahanagar Telephone Nigam Ltd. (1995) 5 SCC 139, paras. 17–23. 123 Tata Engineering and Locomotive Co. Ltd. v. State of Bihar (1964) 6 SCR 885, 901–902; Bennett Coleman & Co. v. Union of India (1973) AIR 106. 124 Subramanian (2013). 125 Bhushan (2011), at 278. 126 Agritrade International v. NAFED, (2012 (1) Arb. LR 405 (Delhi).

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arbitrability of the subject matter. From the Agritrade International case, it is clear that for the enforcement of ITA awards in India the definitional criteria of arbitration agreement requirement provided in section 7 of the Arbitration and Conciliation Act, 1996, need to be satisfied.127

4.4.3.1

Evolution of Arbitration Law in India

The modern concept of arbitration was introduced in India during the British rule. Several regulations were introduced in three presidency towns, such as Bengal Regulations of 1772 and 1793; Madras Regulation IV of 1816; and Bombay Regulations IV and VII of 1827, providing for both adjudication of arbitral proceeding and the enforcement of the awards. The regulations in general permitted the court interference only in exceptional situations. These regulations were replaced by several versions of the Code of Civil Procedure (the Code of Civil Procedure, 1859; 1877; 1882; and 1908). In 1940, a dedicated legislation, namely the Arbitration Act, was enacted to deal with arbitration. The legislation had several deficiencies. Under Section 14– 17 of the 1940 Act, the award was not considered to be a decree of court once rendered. This has to be done by the party by taking up the arbitral award to the court. Also, domestic courts often intervened in the arbitral process at every stage.128 Subsequently, the Parliament had adopted a new legislation in 1996 with separate framework for international commercial arbitration, on the lines of the UNCITAL Model Law on International Commercial Arbitration, 1986. It also ensures minimum judicial intervention in arbitral powers (Article 5 of the Model Law).

4.4.3.2

The Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996,129 is a current legislation which governs the enforceability of foreign arbitral awards in India. Unlike the 1940 Act, this act covers both domestic and foreign arbitration. It comprises Part I (section 2– 43) dealing with domestic arbitration and Part II (section 44–60) dealing with the enforcement of foreign awards. The main objective of the act is to minimize the judicial intervention in arbitral process. However, in practice the courts have broadly interpreted its powers and extended it to enforcement of foreign arbitral awards as well.130

127 S.

R. Subramanian, supra note 124, at 231. and Raju (2011). 129 The Arbitration and Conciliation Act, 1996, Law No. 26 of 1996 (Aug. 16, 1996) [hereafter the Arbitration Act, 1996]. 130 P Ranjan and Deepak Raju, supra note 128, at 7. 128 Ranjan

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4.4.3.3

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Applicability of Part I to Foreign Arbitrations

(i) Textual Provisions Pre-amendment Section 2(1) of the act states that Part I shall apply to arbitration taking place in India. This part also confers various powers to domestic courts during arbitral process. In particular, section 8 confers power to refer parties to arbitration. The court can also order interim measures before or during arbitral proceedings for some situations prescribed in section 9. The Chief Justice of the respective High Courts and the Chief Justice of India can also appoint an arbitrator when the parties are unable to make such appointment.131 Section 16 incorporates the competence–competence principle. The arbitral tribunal may appoint expert for certain purpose listed in Section 26. The tribunal may apply to court for assistance in taking evidence.132 On the request of the party, the court may set aside the arbitral award on the ground of incapacity, agreement is not valid under law, not given proper notice, inapplicability of subject matters, and composition of tribunal is not in accordance with the agreement.133 In addition, the court may on its own motion can set aside the award in case the subject matter of the award is inarbitrable or for breach of public policy.134 (ii) Judicial Approach The issue of inconsistency between Part I and Part II of the Act came up before the Supreme Court in the celebrated Bhatia case.135 The issue was whether the domestic court has power to grant interim measures under section 9 for an arbitration held outside India. The appellant argued that no interim injunction was to be granted under section 9 (Part I) in respect of foreign awards, as section 2(2) restricts the applicability of Part I only to arbitration held in India. However, the court came up with the solution that Part I can be even extended to arbitration held outside India, but only on condition that arbitration agreement shall not specifically exclude the same. Therefore, the Supreme Court held that the District Court of Indore had power under section 9 of the Act to grant an interim injunction in respect of an arbitration proceeding held in Paris.136 This decision was confirmed by the Supreme Court in the case of Venture Global Engineering v Satyam Computer Services137 and thus confirmed the applicability of Part I of the Act to the foreign arbitration,138 which was quite unsatisfactory.

131 Section

11 of the Arbitration Act, 1996. 27 of the Arbitration Act, 1996. 133 Section 34(2) (a) (i–v) of the Arbitration Act, 1996. 134 Section 34(2) (b) (i–ii) of the Arbitration Act, 1996. 135 Bhatia International v. Bulk Trading case, (2002) 4 SCC 105 [hereafter Bhatia case]. 136 P. Ranjan and Deepak Raju, supra note 128, at 18. 137 Venture Global Engineering v. Satyam Computer Services, (2008) 4 SCC 190 [hereinafter Venture Global Case]. 138 S. Bhushan, supra note 125, at 289. 132 Section

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However, the Supreme Court in the Bharat Aluminium Co. (BALCO) v Kaiser Aluminium Technical Services Inc.139 had rightly adopted a ‘strict interpretation’ of the original language of section 2(2) of the Part I of the Act, which provided that Part I shall apply only to the arbitrations ‘seated’ in India. For this purpose, the court has adopted a ‘seat-centric’ approach rather than a ‘subject-matter-centric’ approach. It has expressly overruled the decision in Bhatia case and in effect reversed the Venture Global Judgment.140 This decision is viewed as a bold attempt to clarify and limit the scope of the Indian courts over foreign-seated arbitrations. In the pre-BALCO phase, there were many instances when courts have intervened in challenging the party autonomy and jurisdiction of foreign arbitral tribunals. Therefore, foreign investors viewed BALCO verdict as a welcome step.141 (iii) Position under the 2015 Amendment Act The direct impact of BALCO case was the interim measures provided in Part I of the Act made inaccessible to the foreign arbitration. Such difficulties spotlighted in the BALCO case have continued to be a serious concern for foreign investors and domestic parties. The Arbitration and Conciliation (Amendment) Act, 2015, attempted to address these concerns and to position India as an arbitration hub. The Arbitration and Conciliation (Amendment) Act, 2015, sought to address this issue by clarifying that: this Part [I] shall apply where the place of arbitration is in India: Provided that subject to an agreement to the contrary, the provisions of section 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognized under the provisions of Part II of this Act.142

Consequently, the amended provision [section 2(2)] clarified that Part I shall be applicable only to domestic arbitration. However, it is provided that this limitation shall not be applicable to interim measures issued by domestic courts under section 9, as well as in matters of court’s assistance in taking evidence under section 27, and appealable orders asserted under section 37 (1)(a) and (3). The amended provision affirms that court can issue interim orders even in foreign-seated arbitration disputes, subjected to certain restrictions mentioned in the amended provisions [section 9 (3)].143

139 Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552 [hereafter

the BALCO case]. R. Subramanian, supra note 124, at 237. 141 Constantin (2016). 142 The Arbitration and Conciliation (Amendment) Act, 2015 (No. 3 of 2016) sec. 2(2) (31 December 2015) [hereafter, the Arbitration and Conciliation (Amendment) Act, 2015]. 143 Section 9(3) of the Arbitration and Conciliation (Amendment) Act, 2015; also see Delphine Constantin, supra note 141, at 43. 140 S.

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Applicability of Indian Arbitration and Conciliation Act to Investment Treaty Arbitration

So far, Indian courts had handled three cases involving investment treaty arbitrations. They are: (a) Port of Kolkata v Louis Dreyfus Armatures,144 (b) Vodafone,145 and (c) Khaitan.146 As these cases are concerned with the issue of anti-arbitration injunctions, rather than enforcement of investment awards, they are only of very limited value.147 Yet, the judicial observations made by the court in these cases are examined as they will have greater influence in the evolution of the connected jurisprudence. As the first two decisions have already been examined in Chap. 5, only the relevant discussions are incorporated here. (a) Port of Kolkata v Louis Dreyfus Armatures In this case, Louis Dreyfus Armatures, the French entity, initiated an arbitral proceeding under the UNCITRAL Arbitration Rules, on the basis of India–France BIT. The subject matter of the dispute is relating to the ‘contract for the supply, operation and maintenance of cargo handling equipment at berth no. 2 and 8 of Haldia Dock Complex in West Bengal’. The entity submitted its investment claim against the government of India, state of West Bengal, and the Port of Trust. The petitioner, Port of Kolkata, prayed for an injunction to restrain the French company from taking further steps on the basis of notification of claim and the notice of arbitration. The High Court accepted the contention of the Port of Kolkata that the BIT’s offer to arbitrate was only between the investor and the Government of India, and as it is not a party to the arbitration agreement, passed an anti-arbitration injunction only in respect of Port of Kolkata. It allowed the continuance of the UNCITRAL arbitration by observing that: the bilateral treaty is between the two sovereign nations. An investor under the treaty has been given certain special rights and privileges which is enforceable under the treaty. Whether the notification of claim falls within such parameters and the defendant No. 1 could be treated as an investor is a matter to be decided by the arbitral tribunal duly constituted under the rules. (b) Union of India v Vodafone Group Plc United Kingdom In this case, the Union of India prayed for an injunction to restrain the Vodafone Group Plc from initiating or continuing arbitration under the India–UK BIT. With 144 2014

SCC OnLine Cal 17695 [hereinafter the LDA Judgment]. SCC OnLine Del 8842 [hereafter the Vodafone Judgment]. 146 2019 SCC OnLine Del 6755 [hereafter the Khaitan Judgment]. 147 The power to grant anti-arbitration injunctions in India is generally considered to flow from the Indian Code of Civil Procedure, 1908. See Subramanian (2018) (‘It is pointed out that the issue of anti-arbitration injunction in India has not been authoritatively resolved so far by any decision of the Supreme Court. In the absence of any binding decision of the Supreme Court, various High Courts have dealt with the question in a haphazard manner. It is found out that excepting a few decisions, most decisions of the High Court assume that the Indian law (including the Arbitration and Conciliation Act, 1996 and the Civil Procedure Code, 1908) confer on them the power to enjoin arbitration’). 145 2018

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regard to the defendant’s argument that the Indian courts do not have any jurisdiction to entertain any petition relating to the bilateral investment treaty arbitration being in the nature of international law, the court, after analysing series of domestic and foreign decisions, decided that the Indian courts shall have jurisdiction to entertain such proceedings. It had observed that ‘the jurisdiction of the Civil Courts in India is all-embracing except to the extent it is excluded by an explicit provision of law or by clear intendment arising from such law’.148 Accordingly, the ‘ouster of the jurisdiction of a civil court is not to be lightly inferred and can only be established’.149 It further noted that ‘[t]hough Article 253 of the Constitution empowers the Indian Parliament to make a law to give effect to International Treaties, yet the Parliament has not passed any specific legislation to give effect to BIPA Agreements’.150 Accordingly, the court concluded that there is no express bar for Indian courts to grant any remedy relating to an investment treaty. To further strengthen the stand of the court, it had analysed the position of India vis-à-vis ICSID Convention. It reasoned that though near about 161 states have signed the Convention and 153 have ratified it, India has not signed it, the main reason being the complete negation of role for national courts under the instrument.151 Moreover, the court noted the special nature of investment treaty in this respect and observed that: ‘that the agreement to arbitrate between an investor and the host state which results by following the treaty route is not itself a treaty but falls in a sui generis category.152 In the present BIPA Arbitration, a contractual obligation and a contractual right is involved’. Despite the above analysis, the judgement spoke in contradictory voices on the jurisdiction of the Indian courts to entertain issues relating to investment arbitration. On the one hand, it had emphatically remarked that ‘if the argument of lack of jurisdiction [as] canvassed by the learned senior counsel for Defendants is accepted, then this Court would be powerless to execute a BIPA award against the State, even if the foreign investor were to approach this Court for its enforcement and execution’153 and thereby asserted jurisdiction, it decided that: ‘ [investment arbitration] is neither an International Commercial Arbitration governed by the Arbitration and Conciliation Act, 1996 […] nor a domestic arbitration’.154 In this connection, it reasoned that ‘section 5 does not apply [to investment treaty arbitration] as this is not a Part I arbitration and similarly section 45 does not apply as section 44 makes it clear that Part II of the Act, 1996, will only apply to an arbitration considered to be commercial 148 Para.

76 of the Vodafone Judgment.

149 Id. 150 Para.

77 the Vodafone Judgment. However, this argument seems little far-fetched as the constitutional provision only emphasizes that ‘the Parliament’ rather than ‘states’ shall have the power to make implementing legislation in this respect, irrespective of the subject matter and fields of legislation. This provision is part of the union-state legislative relations. 151 Para. 78 the Vodafone Judgment. 152 Para. 83 the Vodafone Judgment. 153 Para. 87 the Vodafone Judgment. 154 Para. 89 the Vodafone Judgment.

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under the Indian law.155 Indeed, India, while acceding to the New York Convention, made a reservation that it will apply the Convention ‘only to differences arising out of legal relationship … that are considered commercial under the national law’.156 It is submitted that though the decision contended very much that the requirement of ‘commercial’ is very important both under the New York Convention and the Indian Act, and it did not spell out clearly that why ‘investment’ matters will not qualify as ‘commercial’. The only reason which is found in the judgement is that the ‘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).157 The roots of investment Arbitrations are in public international law, obligations of State and administrative law’.158 In this connection, it is submitted that the investment arbitration shall be considered to fall within the term ‘commercial’ and accordingly be amenable to the provisions of Indian Arbitration and Conciliation Act, 1996. It may be noted that under the revised Indian Model BIT, 2015, ‘[t]he consents given in Article 17.1 and the submission by a disputing investor of a claim to arbitration shall satisfy the requirement of […] Article II of the New York Convention for an agreement in writing’.159 (c) Union of India v Khaitan Holdings (Mauritius) The latest case in which the Indian courts had to consider some legal issues relating to investment treaty arbitration is the Union of India v Khaitan Holdings (Mauritius). In this case, the Union sought to restrain the arbitral proceedings under the India– Mauritius BIT in regard to cancellation of telecom licences by the Supreme Court of India through judicial orders. The factual background of the dispute was that the ‘Loop Telecom, an Indian company had applied for 21 Unified Access Services’ licences with the Government of India.160 Though letters of intent were issued, due to allegations of corruption and connected issues,161 the matter was taken up to the Supreme Court of India as a public interest litigation in the case of Centre for Public Interest Litigation v Union of India,162 wherein the court had scrapped the grant of all licences issued to Loop Telecom.163 The Indian government sought anti-arbitration injunctions on various grounds. In this connection, it is more appropriate to go through all the grounds canvassed by 155 Para.

90 the Vodafone Judgment.

156 Id. 157 Para.

91 the Vodafone Judgment. The court remarked that the legal issue of applicability of the Indian Arbitration and Conciliation Act, 1996, to BIT arbitration was neither argued nor considered by the Calcutta High Court in the Board of Trustees of the Port of Kolkata v Louis Dreyfus Armatures. 159 Article 17.2 of the Indian Model BIT, 2015. 160 Para. 5 of the Khaitan Judgment. 161 Id. 162 (2012) 3 SCC 1. 163 Id. 158 Id.

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the government to have a clear understanding why the government thought that the Indian courts will have the jurisdiction to grant the injunction: That Khaitan Holdings is not a genuine investor due to the clear link and control by Sh. Ishwari Prasad Khaitan and Smt. Kiran Khaitan of both Khaitan Holdings (Mauritius) and Loop Telecom; that the BIT cannot be invoked by an entity, though incorporated in Mauritius, but is actually controlled by Indian citizens; that there has been no expropriation as due process has been followed and the decision to cancel the licences was rendered by the Supreme Court of India in public interest; that the entire foreign investment, being through the automatic route, was subject to Indian laws under the UASL; that Loop Telecom has already availed of its remedies against the cancellation of its licences under Indian law and hence rights under the BIT stand waived; overlapping nature of the claims raised by Loop Telecom before TDSAT and defendant no.1 in the arbitral proceedings.164

However, after analysing the nature of investment treaty arbitration as well as antiarbitration injunction as already examined in the cases of Port of Kolkata v Louis Dreyfus Armatures165 and Union of India v Vodafone Group Plc United Kingdom166 the High Court held that it is for the arbitral tribunal to decide on these questions as they have the competenz-competenz.167 As the tribunal had already been constituted and it is seized of the dispute, the court opined that it is not proper for it to grant the solicited remedies. It remarked that the issues raised by the union should be more appropriately raised before the investment tribunal.168 It accordingly rejected the issue of anti-arbitration injunctions. With regard to the question of applicability of Indian Arbitration and Conciliation Act, 1996, to investment treaty arbitration, the court had just approvingly quoted the observation made in the earlier case of Union of India v Vodafone Group Plc United Kingdom: ‘arbitration proceedings under the BIT are not governed by the Arbitration and Conciliation Act, 1996 as they are not commercial arbitrations’.169

4.4.3.5

Powers of Courts/Tribunal to Make Orders for Interim Measures Under the 2015 Act

It is noted that section 9 of the Arbitration and Conciliation Act, 1996, allows the party to approach the court for interim measures before or during arbitral proceedings or at any time after making of an arbitral award, but before the enforcement of award. New provision has been added to section 9, which states that if the court passes an order for interim measures before the commencement of arbitral proceedings, now it has 90 days timeline within which the arbitration should be commenced. Further, 164 Para.

53 of the Khaitan Judgment. SCC OnLine Cal 17695. 166 2018 SCC OnLine Del 8842. 167 Para. 46. 168 Para. 54. 169 Para. 29 of the Vodafone Judgment. 165 2014

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sub-section (3) has been added to section 9, which states that once the tribunal has been constituted, the parties have to approach the tribunal under section 17 for interim measures. In certain cases, courts can entertain such application only if the order of the tribunal will not be productive. Currently, the arbitral tribunal has the same powers under section 17 to make orders for interim measures as that of the court. The order of the tribunal under section 17 shall be deemed to be an order of court, and it shall be enforceable under the Code of Civil Procedure, 1908.170 It is pertinent to note that the amended provision makes arbitral tribunal as a default forum for granting interim measures once the tribunal is constituted.

4.4.3.6

Public Policy

Among the various grounds available for refusal of enforcement of arbitral awards, the ‘public policy’ ground is the most contentious subject in many jurisdictions.171 The term ‘public policy’ is nowhere defined in the 1996 Act apart from the limited explanation provided in section 34(2)(b)(ii). It refers to the acts which are ‘induced or affected by fraud or corruption’ or ‘in contravention with fundamental policy of Indian law’ or in conflict with basic notions of ‘morality or justice’. Though section 34(2)(b)(ii) falls under Part I of the Act, it is significant to note that section 48(2)(b)(ii) also dealt with the same subject matter, which falls under Part II of the Act. The latter provision applies to the enforcement of foreign arbitral awards. Since 1996, the Indian courts have made several efforts to define the concept of public policy. The Indian courts were ambivalent on this issue and deliberating between narrow and broad interpretative approaches. If the courts adopt a narrow interpretation, then in such circumstances the court cannot create any new attribute of public policy. On the contrary, courts in few cases have adopted the broader approach which allows the court to create new grounds for such refusals.172 In this connection, it is necessary to discuss the Indian court practice in this regard. It is pertinent to note that the Supreme Court had interpreted the term ‘public policy’ in the context of enforcement of foreign arbitral awards even before enactment of the 1996 Act in the landmark case of Renusagar v General Electric.173 By relying upon the common law approach, the court had adopted the ‘narrow definition’ of public policy and held that not every violation of domestic law will offend ‘public policy’. The court considered that ‘foreign award’ was subjected to rule of ‘double exequatur’, i.e. two different levels of scrutiny, first in the seat of arbitration where award was rendered and second in the country where enforcement is sought. It held that while the country of the seat of arbitration has ‘wide scope’ of review, the 170 Economic Laws Practice, Arbitration & Conciliation Act, 1996: An Analysis of the Amendments,

Economic Laws Practice, 10–11, https://bit.ly/2LYcSrr. (Last updated on 29 June 2019). see Brunet et al. (2006), Asousu (2001). 172 S. R. Subramanian, supra note 124, at 218. 173 Renusagar v. General Electric, AIR 1994 SC 860. 171 Also

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enforcement state has ‘limited scope’ of review. Therefore, it was of the opinion that the enforcement state should adopt a ‘narrow definition’ of public policy. The court has also laid down a ‘triple test’ to determine whether the award would violate public policy; these are (a) opposed to the fundamental policy of India; (b) interests of India; or (c) justice or morality.174 This triple test was later followed in various other subsequent cases such as Glencore Grain Rotterdam BV v Shivnath Rai Harnarain Co,175 and Penn Racquet Sport v Mayor International Ltd.176 Interestingly, the Supreme Court in ONGC v Saw Pipes177 had adopted a ‘broad interpretation’ to define the term ‘public policy’ and added one more component of ‘patent illegality’ as a ground for setting aside of arbitral award under section 34 of the Act.178 The court held that non-compliance with any law in India would amount to a violation of public policy and the award not enforceable in India. The court stated that section 34 of the Act has to be conjointly read with other relevant statutory provisions of the act to understand the intent behind the legislation. The court also observed that it would be ineffective to provide a narrow meaning to the term public policy. Therefore, the court concluded that ‘wider interpretation’ is necessary to understand the patent illegality of arbitral award to set aside.179 However, the outcome of Saw Pipes was severely criticized for various reasons. Despite such criticism, the Saw Pipes verdict was followed in McDermott International Inc v Burn Standards Co Ltd.,180 and the Supreme Court set aside the award on the ground of being patently illegal. However, the court held that to constitute a violation of public policy, the ‘illegality’ must go into the root of the matter and if the violation is trivial then the award cannot be set aside for violation of public policy.181 (a) Differentiating the Concept of Public Policy in International and Domestic Arbitration The act listed the common grounds for setting aside and challenging the enforcement of domestic as well as foreign awards on the basis of public policy. The Supreme Court’s observation in Saw Pipes [to liberally interpret the term public policy under section 34(2)(b)(ii)] is confined only to the domestic awards without extending the same to foreign arbitral awards under section 48(2)(b). It is relevant to note that Article V(2)(b) of the New York Convention has been incorporated into section 48(2)(b) of the 1996 Act. Surprisingly, the Supreme Court in Phulchand Exports Ltd v Ooo Patriot 182 case held that ‘patent illegality’ test adopted in Saw 174 P.

Ranjan and Deepak Raju, supra note 128, at 20; Sathyapalan (2017). 4 Arb LR 497. 176 (2011) 1 Arb LR 244; also see Arjit Oswal and Balaji Sai Krishnan (2016). 177 Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd, (2003) 5 SCC 705 (the question on enforceability as fall under Part I). 178 Harisankar K Sathyapalan, supra note 174, at 508. 179 See Kumar et al. (2017), at 653. 180 McDermott International Inc v Burn Standards Co Ltd. (2006) 11 SCC 211. 181 Arjit Oswal and Balaji Sai Krishnan, supra note 176, at 654. 182 Phulchand Exports Ltd v. Ooo Patriot, (2011) 10 SCC 300. 175 (2008)

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Pipes case [section 34(2)] must also be extended to enforcement of the foreign arbitral awards under section 48(2)(b). This position was reversed in 2012 when the Supreme Court in BALCO case held that Part I of the Act (domestic arbitration) should not be extended to international commercial arbitration matters conducted outside India. The court further opined that there is no overlapping between Part I and Part II.183 However, the Supreme Court in Shri Lal Mahal184 case has turned down the Saw Pipes and Phulchand rulings on the broad interpretation of public policy and held that ‘broad interpretation of public policy’ could not be extended to the refusal of enforcement of the foreign arbitral award in India. The court further observed that the public policy defence should be interpreted ‘narrowly’ in international arbitrations, keeping in mind the spirit of the New York Convention. The court had made a clear difference between the standards applied in case of refusal of enforcement of foreign arbitral awards [under section 48(2) (b) (ii)] and setting aside of domestic arbitral award [under section 34(2)(b)(ii)]. The court refused to invoke the Saw Pipes test, instead followed the narrower interpretation adopted in the Renusagar case, and concluded that the enforcement could not be challenged on the ground of ‘patent illegality’.185 The Supreme Court once again differentiated the application of the 1996 Act to the international commercial arbitration in Reliance Industries Limited and Anr v Union of India.186 The court refused to extend the domestic conception of public policy to challenge the foreign award on the ground of the public policy.187

Current Position of Section 34 Under the 2015 Amendment Act As discussed earlier in previous chapters, the delay in Indian domestic court process led to first adverse ITA decision in the ‘White Industries’ case. However, after the unfavourable decision, the Indian judiciary had adopted international best practices

183 Arjit

Oswal and Balaji Sai Krishnan, supra note 176, at 656; Ashutosh Kumar et al., supra note 179, at 467. 184 Shri Lal Mahal Ltd v. Progetto Grano Spa (2014) 2 SCC 433. 185 Arjit Oswal and Balaji Sai Krishnan, supra note 176, at 656. 186 Reliance Industries Limited and Anr v. Union of India, (2014) 7 SCC 603. 187 Interestingly, the Supreme Court in ONGC v Western Geco International Ltd adopted a ‘broader interpretation’ of public policy. It is interesting to note that the court for the first time defined the term ‘fundamental policy of Indian law’ adopted in Renusagar and Saw Pipes. The court held that fundamental policy of Indian law includes three principles such as the principle of natural justice, the requirement to act judiciously, and reasonableness (Wednesbury principle). It is evident that the court is completely departed from the main objective of international arbitration by allowing the domestic courts to interfere in merits of the award and to modify the award. Opinions have been expressed that the liberal (wider) interpretation adopted by Indian courts in Saw Pipes and Western Geco might cause harm to the parties and such actions would be difficult to make India as a hub for international arbitration. The wider interpretation would open the door for domestic courts for fair chances of intervention. See generally Peiris (1987). Timothy (2016); at 62.

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and many pro-arbitration rulings had been witnessed during the period from 2012 to 2015. In advancement of recent developments, the Parliament has enacted the Arbitration and Conciliation Amendment Act in 2015,188 aimed to bring Indian arbitration law on par with the international standards and provide an effectual arbitral mechanism with less interference of courts. Some major changes were brought to section 34 and 48 of the 1996 Act, which deals with setting aside domestic awards and the conditions of enforcement of foreign awards, respectively. The amended provision now clarified that section 34 shall not be extended to foreign awards. It has adopted a ‘broad approach’ for setting aside the domestic arbitral award, as evident in ONGC v Western Geco, and Associate Builders v DDA, where the Supreme Court expansively interpreted the term ‘public policy’. The Explanation 1 to section 34(2)(b) clarifies that an award is in conflict with the ‘public policy’ only if the award was ‘induced or affected by fraud or corruption’, the award contradicts ‘the fundamental policy of Indian law’, or on the notions of ‘morality or justice’. Also, in order to avoid the judicial intrusion while testing the contravention of ‘fundamental policy’, Explanation 2 to section 34(2)(b) clarifies that courts ‘shall not entail a review on the merits of the dispute’. In addition to the triple test, the amended act provides an additional ground of ‘patent illegality’ to challenge the domestic arbitral award, only ‘on the face of the award’. While considering the patent illegality, the court shall not set aside the award ‘merely on the ground of erroneous application of law’ or by ‘reappreciation of evidence’ [section 34(2A)]. The judicial intervention is curtailed now.189 Also, in order to avoid inordinate delay, the amendment act [section 34(6)] also fixes one-year time limit for disposal of the application for setting aside of the arbitral award.190

4.4.4 Enforcement of ITA Awards Under Part II of the Act In the absence of any specific legal framework for recognition of enforcement of ITA awards, Part II of the Arbitration and Conciliation Act, 1996, which lays down rules governing the enforcement of foreign arbitral awards, is also applicable to ITA awards. The first requirement to enforce foreign arbitral awards in India is to satisfy section 44 of the Act which defines the scope of foreign arbitral awards. It requires that the award should be ‘commercial’ in nature. It is pertinent to note that India has made a specific reservation to the New York Convention that it will apply the Convention only for the disputes which are considered as ‘commercial’ under Indian law. It is significant to note that neither the New York Convention nor the Arbitration and Conciliation Act, 1996, defines the term ‘commercial’. However, Article 1 of the UNCITRAL Model Law on International Commercial Arbitration, 1985, defines 188 Act. No 3 of 2016; also see Law Commission of India Supplementary to Report No. 246, Amendments to Arbitration and Conciliation Act, 1996. 189 Ashutosh Kumar et al., supra note 179. 190 Moonka and Mukherjee (2017).

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‘commercial’ in Article 1(2) and it gives wider meaning for the term ‘commercial’ that includes ‘investment’ as well.191 The Madras High Court in TNEB v Videocon Case laid down certain parameters for enforcement of awards under Part II of the Act; these are (a) the award must be ‘commercial’ in nature; (b) it must be made in accordance with the agreement in writing; (c) it must be made only in Convention State.192 Therefore, the ITA could be enforced in India only through the Part II of the Act. It is also necessary to discuss the expansionary approach of section 48 and its implications on the enforcement of ITA awards in India. The Supreme Court in the case of R.M. Investment Trading Company Private Limited v Boeing Company193 explained the term ‘commercial’ in the same manner as provided under the Article 1 of the UNCITRAL Model Law. The court further observed that the term ‘commercial’ is to be interpreted broadly. Therefore, it is clear that investment disputes arising out of Indian BITs will be able to meet the requirements of ‘commercial’ relationship and hence the 1996 Act could be applicable for enforcement of ITA awards. Section 48 of the Act laid down various grounds to challenge the enforcement of foreign awards. It seems to be a reflection of Article V of the New York Convention. On an application, the court may refuse the enforcement on certain grounds listed under section 48(1)(a–e): invalidity of the arbitration agreement, violation of due process, disputes falling beyond the scope of the agreement, and irregularity in the composition of the arbitral tribunal. Also, the court itself may refuse the enforcement on the grounds mentioned in section 48(2)(a–b): arbitrability and public policy. The current law of the land is that the ground of patent illegality should not be extended to challenge the enforcement of foreign arbitral awards. The 2015 Arbitration Amendment Act through Explanations 1 and 2 to section 48(2) clarified that the Indian preference is for the ‘narrow concept’ of public policy. Explanation 1 clarified that an award will be considered to be in conflicts with the ‘public policy’ only if the award is induced or affected by fraud or corruption (interests of India); or in contravention with the fundamental policy of Indian law; or conflict with the basic notions of morality or justice. This explanation reflected the position adopted in the Renusagar case.194 Further, the Explanation 2 clarifies that to examine the challenge on ‘fundamental policy of Indian law’ the domestic courts shall not entail a ‘review on merits of the dispute’. This explanation has been made in the 2015 Amendment Act in response to the observation in ONGC v Western Geco International Ltd, where the Supreme Court reviewed the merits of the arbitral award under section 34(2)(b) on the basis of Wednesbury principles of reasonableness to determine whether the arbitral award 191 The footnote appended to the Article 1 of the UNCITRAL Model Law on International Commer-

cial Arbitration (with amendments as adopted in 2006), (UNCITRAL, 2008), Sales No. E.08.V.4, pg no 1; also see S. R. Subramanian, supra note 124, at 233. 192 Tamil Nadu Electricity Board v Videocon Industries, (2009) 4 MLJ 633; also see S Bhushan, supra note 54, at 290. 193 R. M. Investment Trading Company Private Limited v. Boeing Company, AIR 1994 SC 1136. 194 Ashutosh Kumar et al. supra note 179, at 469.

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is against the fundamental policy of Indian law. It is generally believed that the Explanation 2 is a clear reflection to nullify the basis of Western Geco case. It is significant to note that despite the amendment, the court’s supervisory power to test whether there is a contravention of public policy on grounds of ‘interests of India’ or ‘morality or justice’ is still open to review on the merits. However, this issue has not yet been addressed by the Indian courts, and this might result in a large number of refusals in future. It is submitted that out of these two grounds, the ‘interests of state’ seem to be the most difficult for an ITA award and therefore it requires further discussion. Interests of State In the context of investment disputes, the term ‘interests of India’ could be invoked in a large number of host states’ regulatory actions. While the investors consider that the disputed regulatory measures are a breach of BITs, the host state might contend that disputed actions are adopted to serve the interests of the country.195 The ‘essential security interest’ exceptions provided in BITs are also highly interlinked with this discussion. While until the late twentieth century, the ‘essential security’ exception was limited only to the actions of military and strategic considerations, in the recent investment arbitral jurisprudence, essential security exceptions were sought to be invoked broadly for the protection of environmental, health, economic, and other interests. While the ICSID tribunal in the case of Continental Casualty v Argentine Republic196 ruled that ‘economic interests’ amounted to ‘essential state interests’, the ICSID tribunal in Enron v Argentine Republic held that it did not. It is posited that this situation will further increase in future due to the proliferation of security concerns and economic uncertainty in the global scenario. It is pertinent to note that India also attempted a ‘self-judging’ approach to the essential security exceptions under Article 33 of the revised Model BIT, 2015, which seems to have been inspired from Article XXI of the General Agreement on Tariffs and Trade (GATT). Also, the Permanent Court of Arbitration (PCA) in its decision in CC/Devas v India rendered in July 2016 did not accept India’s argument on ‘strategic security’ concerns to justify the annulment of the Antrix-Devas deal. In fact, the tribunal had differentiated the notions of ‘strategic needs’ and ‘strategic requirements’ with ‘essential security’ exceptions. However, the Indian government could challenge the enforcement of Antrix ITA award on the ground of ‘national interests’ and hence it may be argued that it would be against the ‘public policy’ of India.

195 P.

Ranjan and Deepak Raju, supra note 141, at 23. Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (Sept. 4, 2008).

196 Continental

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4.4.4.1

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Challenging the Enforcement of Foreign Arbitral Awards Post-2015 Amendment

Section 36 of the 1996 Act required that mere filing of an application under section 34 amounted to default stay on the enforcement of award. However, the Amended Act removed this default rule. It provided that the party challenging the award required to file a separate application for stay of the award. The court may impose any conditions as it may deem fit, while granting stay of an operation of award. In case of enforcement of foreign arbitral awards, the jurisdiction shall be exercised by the High Courts in all cases involving foreign investors, whether the arbitration may be seated in India or outside. The Explanations in sections 47 and 56 have now made the High Court as the court of first instance for enforcement of foreign awards.

4.4.4.2

Provisions on Conflict of Interest Under the 2015 Act

Independence and impartiality of arbitrators are crucial for any system of arbitration. The ICSID Convention lays down a typical provision in this regard in the form of qualities required of arbitrators in general terms.197 While a verifiable and applicable standard is contained in the UNCITRAL Arbitration Rules,198 it prescribes that ‘the appointment of an independent and impartial arbitrator’ shall be secured. Both the revised Model BIT, 2015, and the BITs made thereafter contain detailed provision on conflict of interest for arbitration under the instrument. Moreover, the Indian Arbitration and Conciliation Act, 1996, also prescribe self-contained code on conflict of interest, generally based on the IBA Guidelines.199 The IBA Guidelines set certain standards with respect to ‘conflict of interest’ of arbitrators. Standard 1 of the Guidelines prescribes that every arbitrator, whether party-appointed or presiding, must be independent and impartial; he or she must decline an appointment if he or she has any doubt on his or her independence and impartiality set out in Standard 2(a). If such circumstances give rise to justifiable doubts as to impartiality or independence of the arbitrator, is to be applied objectively, i.e, a ‘reasonable third person’ provided under Standard 2(b). The doubts are justifiable under Standard 2(c) if the knowledge of reasonable person likely to influence the arbitrator’s decision by the factors other than merits of the case. Such doubts exist in the event of any situations described in the Non-Waivable Red List,200 such as personal or financial interest in the dispute.201 197 Article

14.1 of the ICSID Convention. 6.4 of the UNCITRAL Arbitration Rules. 199 The IBA Guidelines on Conflicts of Interest in International Arbitration, adopted by resolution of the Council of the International Bar Association Council on Oct. 23, 2014: http://www.ibanet.org/Document/Default.aspx?DocumentUid = e2fe5e72-eb14-4bba-b10d-d33dafee8918. Last accessed Mar. 10, 2020 [hereafter the IBA Guidelines]. 200 Standard 2(d) of the IBA Guidelines. 201 Also see Ball (2005). 198 Article

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Moreover, the Guidelines also set standards for disclosure by the arbitrator (Standard 3) and the waiver by parties (Standard 4). The practical applications are set out in Part II, which provides lists of situations that illustrate the application of the standards. For instance, Red List cites the situations where a conflict of interest exists and distinguishes between waivable and non-waivable conflicts. In case of Orange List, intermediate situations may or may not constitute conflicts depending upon the circumstances and it must be disclosed. The Green List enumerates situations where no appearance and no actual conflicts exist, and the arbitrator need not disclose. In certain circumstances, green may turn to become orange due to facts, or orange may turn to red and vice versa. The provisions introduced by the 2015 Amendment Act on Conflict of Interest are based on the IBA Guidelines on Conflicts of Interest in International Arbitration, 2014. While the contents of the Fifth Schedule incorporated the Red and Orange lists of the IBA Guidelines, the Seventh Schedule incorporated provisions in Waivable and Non-Waivable Red List of the IBA Guidelines.202 The Fifth and Seventh schedule of the 2015 Act provides detailed list of relationships which are deemed to disqualify a person from appointment of arbitrator. However, the unilateral right of appointment of arbitrator has not been addressed in section 12 of the 2015 Amendment Act.

4.4.4.3

Procedural Timeline

The 2015 amendment also attempted to provide some solution for the issue of excessive delay in the conduct of arbitration in India. It has laid down the strict procedural timelines to expedite arbitration proceedings. Section 9(2) mandates that arbitration proceedings must be commenced within ninety days from the date of the order for interim measures.203 The tribunal shall hold oral argument on a day-to-day basis and shall not grant any adjournments unless the parties show sufficient cause. If the parties failed to show such cause, they may be liable for exemplary costs.204 It is significant to note that the award shall be made within twelve months from the date of reference to the tribunal. However, it may be further extended by six months,205 though the 2nd Amendment Act 2019 made that that it will not apply to international commercial arbitration.206 The 2015 Amendment Act also encourages an incentive fee for the arbitrators. If the award is made within six months, the tribunal shall be entitled to receive additional fees with the consent of parties207 . Section 29A (4) empowers the arbitrators to terminate proceedings in case they are unable to render an award within eighteen months. The legislation stipulated that in such cases, only the court has power to further extend such temporal limitation 202 Kabra

and Kamran (2018). Constantin, supra note 141, at 47. 204 Section 24(1) of the Arbitration and Conciliation (Amendment) Act, 2015. 205 Section 29A (1)(3) of the Arbitration and Conciliation (Amendment) Act, 2015. 206 Revised section 29A of the Arbitration and Conciliation (Amendment) Act, 2019. 207 Section 29A(2) of the Arbitration and Conciliation (Amendment) Act, 2015. 203 Delphine

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after reducing five per cent of fees of an arbitrator for each month of delay. In order to expedite the set-aside proceedings, section 34(6) mandates the court to dispose of the application within a period of one year from the date of the notice of arbitration. It is pertinent to note that though the above-discussed time limitations are applicable to domestic arbitrations covered under Part I, they can also be applied to international commercial arbitrations seated in India.

4.4.4.4

Specialized Courts

Generally, an effective judicial system is considered as one of the crucial, decisive factors to attract foreign investment. When it comes to transnational commercial disputes, the Indian courts are often criticized for causing delays and backlogs. The White Industries case is the most living example for it. In that case, the ITA tribunal found India responsible for delaying the enforcement of foreign arbitral awards for nine years. On the other hand, the Singapore High Court in Bunge SA v Indian Bank,208 in a matter concerning choice of jurisdiction, refused to consider delays in Indian courts based on the evidence produced and also by taking into account the encouragement of reforms by the government to expedite the judicial process. Therefore, Indian courts were considered to be the most appropriate forum.209 Parallel to the reforms of Indian arbitration law, the Commercial Courts Act, 2015, was made,210 and it aims to establish specialized commercial courts to adjudicate commercial disputes. Under the law, the unnecessary adjournments in the conduct of judicial proceedings are ruled out and a strict timeline has been laid down. For instance, section 10(1) of the Act provided that jurisdiction in matters and appeals is related to international commercial arbitration of a specified value (one crore), and all the applications or appeals shall be subject to the jurisdiction of new commercial divisions constituted within such High Court. The same mechanism is also applicable in case of domestic seated arbitration, where the High Court gets the jurisdiction of the first instance.211 It is expected that if these specialized courts ensure speedy dispensation of justice, then foreign courts/tribunal will no longer be needed to adjudicate disputes involving Indian parties.212 Though it would be too early to

208 Bunge

SA v. Indian Bank [2015] SGHC 330. Varottil and Sriram Chakravarthi, Judicial Delays in India and Turning Tides— The Significance of the Commercial Courts Act to India’s Dispute Resolution Mechanism, Oxford Business Law Blog (14 April 2016) https://www.law.ox.ac.uk/business-law-blog/blog/2016/04/jud icial-delays-india-and-turning-tides-%E2%80%93-significance-commercial. Last visited Mar. 19, 2019). 210 The Commercial Division and Commercial Appellate Division in the High Courts, 2015, Act No. 4 of 2016 (effect into force 23 October 2015) [hereafter the Commercial Courts Act, 2015]. 211 Delphine Constantin, supra note 141, at 50. 209 Umakanth

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comment on the effectiveness of the commercial courts, the government could draw some experiences from similar such models in Singapore and Dubai and incorporate them in the execution of policies concerning them.

4.4.5 Recent Policy Developments The Government of India had constituted a High-Level Committee headed by Justice B. N. Srikrishna to review and reform the institutionalization of arbitration mechanism in India. The committee has submitted its report, with effective suggestions needed to improve upon the institutional system for arbitration in India.213 The committee has recommended the creation of the Arbitration Promotion Council of India (APCI) for grading arbitral institutions and accrediting arbitrators (similar to CIArb in London). It has also suggested the constitution of a specialized Arbitration Bench to deal with commercial arbitration matters pending before Indian courts. However, it is suggested that in view of the Commercial Courts Act, 2015, it might be a duplication of similar mechanism. The committee has suggested changing of various provisions in the Arbitration and Conciliation (Amendment) Act, 2015, to incorporate the international best practices. It also sought to promote arbitration through the ‘National Litigation Policy’ in Government Contracts. In order to bring a new life to the International Centre for Alternative Dispute Resolution (ICADR), the committee is of the opinion that the ICADR should be declared as an institution of national importance. The committee has also recommended BIT dispute resolution management strategy. This strategy assumes significance as currently, more than 18 investor-state disputes are pending against India. The committee has also recommended the creation of an ‘Inter-Ministerial Committee’ for better management of ISDS. It comprises officials from various ministries including finance, law, and external affairs. The committee has adopted other BIT management strategies including the creation of a separate fund to adjudicate BIT arbitrations, appointment of efficient counsels to defend India in investment treaty arbitration proceedings. The pertinent suggestion would be the creation of a separate post of ‘International Law Adviser’ to advise the government on international dispute resolutions, more specifically for disputes arising out of Indian BITs. This action plan is criticized for various reasons. It seems to be a replication of the existing arrangement, i.e. the Legal and Treaties Division

212 Umakanth

Varottil and Sriram Chakravarthi, Judicial Delays in India and Turning Tides—The Significance of the Commercial Courts Act to India’s Dispute Resolution Mechanism, oxford business law blog (14 April 2016) https://www.law.ox.ac.uk/business-law-blog/blog/2016/04/judicialdelays-india-and-turning-tides-%E2%80%93-significance-commercial. Last visited Mar. 19, 2020. 213 High-Level Committee on Making India Hub of Arbitration Submits Report, pib (4 August 2017) available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=169621; various suggestions of the HLC have been incorporated in the Arbitration and Conciliation (Amendment) Bill, 2018. The Cabinet also approved the same on March 7, 2018; also see http://pib.nic.in/newsite/PrintRele ase.aspx?relid=177128. Last visited Mar. 25, 2020.

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of the Ministry of External Affairs, which advises the government on various international legal matters including in BIT arbitrations. Instead of creating such new position, it is suggested that we can strengthen the existing mechanisms for dispute resolution advice. India has recently welcomed the European Union’s proposal to establish ‘World Investment Court’. The Srikrishna High-Level Committee also suggested that the ability of the World Investment Court would be assessed based on the experiences from other countries and then it would take a final decision.214 However, the question remains whether this World Investment Court proposal will completely replace the current ISDS arbitration mechanism or it will supplement to the ISDS system. It is relevant to note that the ISDS mechanism has also been severely criticized for various reasons including lack of consistency, transparency, and review mechanism. It is also highlighted that the ISDS provision is missing in the text of recently finalized India–Brazil BIT.215 The committee also suggested that the government of India should explore the options of dispute management procedures instead of dispute resolutions. It suggested that such strategies have prevented the disputes in countries like Peru, Costa Rica, and Columbia. These countries have incorporated dispute preventive mechanisms in their BITs. Even if the country wants to continue with the ISDS mechanism, in such a scenario, it may incorporate provisions for an ‘appellate mechanism’ in BITs. India may draw inferences from the other countries having such mechanisms in their IIAs. For instance, the USA allows appellate mechanisms in FTAs with Singapore, Chile, and Morocco. Based on the recommendations of Srikrishna High-Level Committee, the Arbitration and Conciliation (Amendment) Act, 2018, was passed.216

4.5 Implication for Future Investment in India India has unilaterally terminated 58 BITs and called upon its signatories to renegotiate the BITs with India based on the revised Model BIT. However, the capital-exporting countries such as USA, EU, and Canada have not shown much interest in the 2015 Model BIT. It is significant to note that the EU Member States such as Netherlands, Germany, Cyprus, and France are among top 10 countries from which India has got the maximum foreign direct investment during the period 2000–2016.217 As discussed earlier, BITs have a significant impact on foreign direct investment inflows in India. The EC Commissioner also stated that the EC Member States are not willing

214 Arun

(2017).

215 Id.; also see Investment Treaty News, IISD (Dec. 12, 2016) https://www.iisd.org/itn/2016/12/12/

brazil-and-india-initial-bilateral-investment-treaty-bit-text-yet-to-be-published/. Last updated Jul. 9, 2019. 216 The Arbitration and Conciliation (Amendment) Bill, 2018 (Bill No. 100 of 2018). 217 Arun (2016).

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to renegotiate the BITs with India based on 2015 Model BIT. Therefore, this would entail larger consequences on FDI inflows to India. With respect to the enforcement of New York Convention awards, the Law Commission of India has recommended imposing a three-month time limit to object to the application under section 48 of the Arbitration Act; it has also recommended extending further for 30 days on showing proper reasons and cause. However, the amended act did not include these suggestions which might favour host state rather than adopting balancing approach. It is pertinent to note that section 2(1)(e)(ii) of the 2015 Act amended the definition of ‘court’ concerning international commercial arbitration claims. It empowers only the High Court to exercise jurisdiction and completely excluded subordinate courts, and the recently enacted Commercial Courts Act also supports it. On the one side, it increases the investor’s confidence, and on the other side one-year time limit set out in section 34(6) may be seen to be unrealistic given the levels of delays as evidenced in White Industries case.

4.6 Conclusion It is observed that the 2015 Model BIT significantly departed from the treaty practice of its major trading partners. Due to strong disagreement on the level of flexibility in the 2015 Model BIT, it is likely that other countries may refrain from signing any BITs with India. The Model BIT also expected to have major effect on FDI inflows to the country. To ensure the sustainable development, it is necessary for Government of India to revise the Model BIT, 2015, to strike a balance between investor protection and host state’s right to regulation. The Arbitration and Conciliation (Amendment) Act, 2015, now made it clear that the domestic courts cannot expand the scope of ‘public policy’ to conduct a substantive review of international arbitral awards. It is also found that though some ITA awards have been challenged, a final decision on them is yet unavailable for enforcement in India under this provision, but it may arise in future. It is noted that public policy is still considered as a Trojan horse to challenge the enforcement of arbitral awards even after amending the 1996 Act. Therefore, it is suggested that an improved legal framework or mechanism218 to address the enforcement of ITA awards will remove all the misgivings, doubts, and unreasonable delays related to enforcement of arbitral awards and it might speedily dispose the enforcement proceedings in India. It is noted also that on the one side, Indian law and policy relating to international commercial arbitral practice are getting arbitration-friendly, and on the other it tightens the balance between the host state regulation and the protection towards international investment. It is also found that Indian government is not shifting its focus towards protection of Indian investors abroad at the cost of protecting its own 218 In line with the Board of Investment of Sri Lanka Law No. 4 of 1978 in Sri Lanka; The Arbitration

(International Investment Disputes) Act, 2011, Act IX of 2011 in Pakistan.

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regulatory powers. This could also be the reason where Indian investor, Spentex Industries, has bypassed Indian BIT and registered ICSID arbitration through its subsidiary Spentex Netherlands BV against Uzbekistan.219

References Anand, R. P. (1987). International law and the developing countries: Confrontation or cooperation? (pp. 55–60). Leiden: Martinus Nijhoff. Arun, S. (2016, November). Expiry of investment pacts will hurt FDI into India: EU. The Hindu. https://www.thehindu.com/business/Economy/Expiry-of-investment-pacts-willhurt-FDI-into-India-EU/article16442938.ece. Accessed February 20, 2020. Arun, S. (2017, October). A court to fix all investor-state rows? The Hindu. http://www.thehindu. com/business/Economy/a-court-to-fix-all-investor-state-rows/article19944869.ece. Last visited April 29, 2020. Asousu, A. A. (2001). International commercial arbitration and African states: Practice, participation and institutional development (pp. 198–199). Cambridge: Cambridge University Press. Ball, M. (2005). Probity deconstructed: How helpful, really, are the new international bar association guidelines on conflicts of interest in international arbitration? Arbitration International Law, 21(3), 323. Banga, R. (2003). Impact of government policies and investment agreements on FDI inflows (Working Paper No. 116). ICRIER. Basu, D. D. (2009). Commentary on the donstitution of India (Vol. v). New York: LexisNexis. Bazrafkhan, A. (2016). The (r)evolution of Indian model bilateral investment treaty: Escaping liability without mitigating risks. Jindal Global Law Review, 7(2), 245, 250. Bernardini, P. (2001). Investment protection under bilateral investment treaties and investment contracts. The Journal of World Investment & Trade, 2, 235–239. Bettauer, R. J. (2009). India and international arbitration: The Dabhol experience. The George Washington International Law Review, 41, 381–384. Egger & Pfaffermayr. (2009). In K. P. Sauvant & Sachs (Eds.), The effect of treaties on foreign direct investment: Bilateral investment treaties, double taxation treaties and investment flows (p. 262). Oxford: Oxford University Press Bhasin, N., & Manocha, R. (2016). Do bilateral investment treaties promote FDI inflows? Evidence from India. Vikalpa Journal Decision Makers, 41(4), 275–280. Bhushan, S. (2011). BIT arbitration in india: Exploring the applicability of 1996 act and the enforcement of resultant arbitral awards. Contemporary Asia Arbitration Journal, 4(2). Bhutani, S. (2017). Minefields in investment relations. Economy Policy Weekly, 52(27), 28–31. Brunet, E., et al. (2006). Arbitration law in America: A critical assessment (pp. 308–344). Cambridge: Cambridge University Press. Canqado Trindade, A. A. (1978). Exhaustion of local remedies in international law and the role of national courts. Archiv des Völkerrechts, 17, 333–335. Chimni, B. S. (2018). Customary international law: A third world perspective. American Journal of International Law, 112(1), 32. Choudhry, S., et al. (2016). The Oxford handbook of the Indian constitution (Vol. 349). Oxford: Oxford University Press. Constantin, D. (2016). India’s amended arbitration law: What’s new for foreign investors? Journal of International Business & Law, 1, 41, 42.

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Chapter 5

Interactions Between Indian Courts and Investment Arbitral Tribunals

5.1 Introduction The investor-state dispute settlement mechanism allows investors to challenge the measures of host state before the investment treaty arbitral tribunals. This practice has been in existence for a long period of time. It is significant to note that the number of investment treaty claims concerning supervisory jurisdiction of domestic courts over commercial arbitration has been significantly increased since 2000s. Foreign investors have invoked state responsibility in investment arbitration for the abusive actions of domestic courts such as not respecting arbitration agreements, for annulment of arbitral awards, and for failure to enforce commercial arbitral awards.1 Hence, these claims activated the discussion on interplay between national courts and investment tribunals. The Supreme Court of India has been liberally interpreting the term ‘public interest’, and this might have a direct impact on the interest of foreign investors. For instance, cancellation of 2G spectrum licences, granting compulsory licences for life saving drugs, and ban on selling Bharat Stage-III vehicles are evident of such actions. Such actions cause potential conflict between rights of foreign investors and protecting public interests of the State. It is also noted that foreign investors also question the Indian judicial system for excessive delays and grant of anti-arbitration injunctions. The excessive caseloads and poor case management of Indian courts have resulted into severe delays, which gave rise to several adverse ITA awards rendered against India.2 The Indian BIT programme has not attracted much attention until the emergence of the ‘White Industries’ case. Several investors have served ITA notices against India after the first adverse award. The case of foreign telecom companies, they served the

1 See

Demirkol (2018), Mizushima (2015), Bronckers (2015). (2017); See the discussion in recent work, Ranjan (2019).

2 See Table 4.2; also see generally Rajput

© Springer Nature Singapore Pte Ltd. 2020 A. Saravanan and S.R. Subramanian, Role of Domestic Courts in the Settlement of Investor-State Disputes, https://doi.org/10.1007/978-981-15-7010-0_5

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notices after cancellation of 2G licences by the Supreme Court.3 In this case, the government of India has adopted the policy of ‘first-come-first served’ instead of conducting an allocation of second-generation spectrum. The constitutional validity of this policy was under challenge before the Apex Court. The court held that the grant of 2G licences was ‘arbitrary and unconstitutional’, and therefore, the Court cancelled 122 2G licences.4 The foreign telecom companies were severely affected due to the cancellation of their licences. The investors, namely Telenor (Singapore), Sistema JSFC (Russia), Axiata (Mauritius), Capital Global (Mauritius), Deutsche Telekom (Germany), Khaitan (Mauritius) served ITA notices against India for actions of the Supreme Court for violation of the rights of their investments under respective IIAs. These ITA notices have activated a discussion on the interplay between Indian BITs and domestic courts. The then Attorney General of India Vahanvati opined that foreign investors cannot claim damages for any actions stemming from Supreme Court orders, as court verdicts do not establish a cause of action against the government. It is suggested that this argument is completely misleading and contrary to the international legal principles on State responsibility. The detailed list of pending cases is given in Table 4.2 of Chap. 4. A detailed study on the issues of international law thrown up by these interactions is undertaken in this chapter in the following manner. Section 5.2 discusses the ‘attribution’ under the law of state responsibility in the Indian context. Section 5.3 examines the grounds under which India may incur responsibility for non-enforcement of arbitral awards. It mainly focuses on India’s (host state) liability due to undue delay in the domestic courts process under BIT standards of treatment. Section 5.4 examines the investment treaty arbitral awards concerning India. It attempts to evaluate the actions of Indian judiciary, executive, and legislature on investment disputes with the help of relevant Indian decisions. Section 5.5 analyses Indian judicial decisions involving investment disputes, and Sect. 5.6 concludes the analysis.

5.2 ‘Attribution’ Under the Law of State Responsibility The then Attorney General of India, Vahanvati, in his opinion note (to the Department of Telecom) asserted that in the wake of cancellation of 2G licences, the foreign investors cannot claim compensation under Indian BITs because the decision to cancel 2G licences was made by the Supreme Court in its judicial capacity and not as the Government of India. In this context, it is indeed necessary to examine the scope of (Indian) judicial acts under international law. Under general international law, actions of organs such as legislative, executive, judicial, or any other functions are attributable to the State, whatever position it holds in the organization of the State stated under Article 4 of the International 3 Ranjan

and Raju (2014). for Public Interest Litigation and others v Union of India and others, AIR 2012 SC 3725, paras 90–93 (hereafter the 2G case Judgment).

4 Centre

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Law Commission (ILC) Articles on State Responsibility. The International Law Commission Commentary also confirms that the term ‘State’ in Article 4 is not only limited to organs of central government, but it also extends to organs at provincial or local level. Therefore, it is clear that a host state may be held responsible for violations of international law in case the decision of one of its state courts which is in breach of international law.5 This also finds support in several judicial decisions including Barcelona Traction6 and La Grand case.7 The position of domestic law within international law is an enchanting issue. The general norm is that no state can evade their liability under international law by referring to its municipal laws.8 Article 3 of the International Law Commission Articles clearly emphasized that the decision of such attribution has to be based on international law and the characterization of the same act as ‘legal’ under domestic law is irrelevant. It is pertinent to note that Article 27 of the Vienna Convention on the Law of Treaties states that ‘a party may not invoke the provisions of internal law as justification for its failure to perform a treaty’. Moreover, Article 32 of the International Law Commission Articles provides that a State may not rely on its provisions of domestic law to defend its actions under international law.9 This principle has been very well established in several decisions of the International Court of Justice including Lockerbie10 and Avena.11 Therefore, it is really difficult to accept the opinion of the former Attorney General of India, who claimed that foreign investors cannot claim compensation against India under BITs for actions of Indian courts.12

5.3 Judicial Acts and Investment Treaty Arbitration After setting a strong foundation on India’s responsibility under international law, it is now significant to discuss various grounds in which India may be held responsible for non-enforcement of arbitral awards. Judicial delay is very common in Indian courts.13 An aggrieved investor can challenge such judicial conduct under various bilateral investment treaty standards such as fair and equitable treatment, expropriation, and effective means standards.14 It is in this connection this part analyses India as a host state liability due to undue

5 Also

see Greenwood (2004), Ranjan and Raju, supra note 3. Traction, Light and Power Company Ltd. (Belgium v. Spain), 1970 I.C.J. 3 (Feb. 5). 7 LaGrand (Ger. v. U.S.), 2001 I.C.J. 466 (June 27). 8 Also refer Benvenisti (1993). 9 P Ranjan and Deepak Raju, supra note 3, at 819–820; Aniruddha Rajput, supra note 2, at 156. 10 Libya v. U.K., 1992 I.C.J. 3, 32 (Apr. 14). 11 Avena and Other Mexican Nationals (Mex. v. U.S.), 2004 I.C.J. 12 (Mar. 31). 12 P Ranjan and Deepak Raj, supra note 3, at 820–821. 13 For general discussion, see Ranjan and Anand (2020), Khaitan et al. (2017). 14 Biswas (2013). 6 Barcelona

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judicial delay under BIT standards as well as under including customary international law.

5.3.1 Judicial Delay as Denial of Justice Denial of justice is a form of inequitable treatment considered to be a violation of international law.15 Though denial of justice is an independent cause of action, the investment tribunals, in many cases, considered this claim along with the breach of fair and equitable treatment or full protection and security or effective means standard.16 It is generally observed that the claim of denial of justice cannot be established easily, as investors have to prove that the judicial wrong ‘amounts to an outrage, bad faith, and wilful neglect of duty’.17 In rare circumstances, judicial delays can be considered as a denial of justice, in case the level of delay is extremely high,18 so as to amount to wrongful, continuous, and unwarranted delay.19 The ICSID tribunal in the Robert Azinian and Others v United Mexican States20 cited that ‘a denial of justice could be pleaded if the relevant courts refuse to entertain a suit, if they subject it to undue delay, or if they administer justice in a seriously inadequate way’.21 However, in practice, it is difficult to identify when the delay in judicial proceedings amount to wrongful conduct and what is expected to be a high threshold. It is clearly evident in the ‘White Industries’ case, where the ITA tribunal rejected a denial of justice claim and agreed that assessment of denial of justice claims for judicial delay is ‘fact sensitive’, and the delay has not reached the phase where it constitutes a denial of justice.22 It is pertinent to note that there is no standard requirement to calculate the exact time duration that will amount to a denial of justice.23 Also, the existing literature suggests that judicial backlog may be considered as one of the relevant factors to determine the judicial delays though host state cannot make backlog as an absolute defence.24 Jan Paulsson also opines that ‘[t]here is no

Francioni (2004); generally, Paulsson (2005). (2015). 17 BE Chattin (United States) v. United Mexican States, Decision (1927) IV RIAA 282, 286–7. 18 Chevron Corporation and Texaco Petroleum Corporation v The Republic of Ecuador, PCA Case No. 2009-23, para 244 [hereafter the Chevron Award]. 19 Karreman and Dharmananda (2015). 20 Robert Azinian, Kenneth Davitian, & Ellen Baca v. The United Mexican States, ICSID Case No. ARB (AF)/97/2, Award of 1 November 1999 [hereafter the Azinian Award]. 21 Para 102 of the Azinian award. 22 Tushar Kumar Biswas, supra note 14, at 146–147; also see Goldhaber (2013). 23 Also see Saravanan and Subramanian (2017), Bjorklund (2005). 24 Tushar Kumar Biswas, supra note 14, at 148. 15 See

16 Demirkol

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authority supporting the proposition that backlog or congestion in a domestic court system operates as a general defence to a denial of justice claim’.25

5.3.2 Judicial Delay as a Breach of Effective Means Standard It is significant to note that effective means standard is distinct from other general standards of treatment, because it mostly pertains to ‘judicial function’.26 The term ‘effective’ in the ‘effective means standard’ denotes the basic features of protection being ‘systematic, comparative, progressive, and practical’ as explained in the seminal case of AMTO v Ukraine.27 However, it may be noted that Chevron v Ecuador I did not completely agree with AMTO tribunal’s observation on the definition of ‘effectiveness’. The analysis of effective means standard would remain unaccomplished without comparing effective means standard with protection against denial of justice. The question is whether threshold limit imposed by effective means standard is lower than the limit imposed for denial of justice. It is pertinent to note that neither the case laws nor the scholarly writings provide a satisfactory explanation with respect to difference between effective means standard and protection against denial of justice.28 This contested relationship was observed in the Duke Energy v Ecuador 29 wherein the tribunal clearly noted that the effective means standard guarantees the access to the courts and ‘it seeks to implement and form part of the more general guarantee against denial of justice’.30 The overlap between these two obligations was observed in Chevron v Ecuador I, wherein the tribunal ‘to some extent’ agreed with the observation of tribunal in the Duke Energy case.31 The Chevron tribunal noted that effective means standard as a lex specialis provision imposes a distinct and less rigid test compared to the denial of justice, which requires high threshold and egregious conduct. The tribunal further explained that ‘a failure of domestic courts to enforce rights “effectively”’ need not amount to denial of justice.32 However, as Chevron tribunal did not adopt any ‘helpful test’ in this regard, it is difficult to understand how the breach of effective means standard is different from denial of justice. 25 Opinion

of Jan Paulsson, in para. 174 of the Chevron Award. Demirkol, supra note 1, at 40–43. 27 Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Award (Mar. 26, 2008); also see Para 8 of the Chevron Award. 28 SeeAnnelise Karreman & Kanaga Dharmananda, supra note 19, at 120. 29 Duke Energy v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 Aug. 2008) [hereafter the Duke Energy Award]. 30 Para 391 of the Duke Energy Award. 31 Para 242 of the Chevron Award; Annelise Karreman & Kanaga Dharmananda, supra note 19, at 120. 32 Para 244 of the Chevron Award. 26 Berk

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The tribunal in White Industries v India relied on Chevron’s approach on the effective means standard without even discussing the applicability of other similar approaches adopted by the ITA tribunal such as Duke Energy v Ecuador. While the tribunal in White Industries clearly rejected denial of justice claim, it found out that a period of nine years delay constituted ‘undue delay’ in the context of effective means standard.33 It is pertinent to note that the tribunal in White Industries failed to explain why a delay of certain time-frame is considered as undue for one standard, while not for the other.

5.3.3 Fair and Equitable Treatment with Regard to Judicial Acts The debate on fair and equitable treatment, and international minimum standard provided under customary international law is already discussed in Chap. 2. The ‘fair and equitable treatment’ is a flexible term, and there is no precise meaning for this standard.34 The ICSID tribunal in Vannessa Venture35 case observed that the general term of fair and equitable treatment requires that ‘the treatment of investments not fall below a minimum standard of fairness and equitableness that all investors have a right to expect’. Due to uncertainty as to the limits of fair and equitable treatment standard, the ITA tribunals usually keep many considerations for the application of the above standard. It involves various aspects related to judicial functioning of host state.36 Generally, if the judicial conduct is not in compliance with domestic law, or where domestic courts provide an unreasonable interpretation, it would amount to breach of fair and equitable treatment standard.37 It is also noted that creating hurdles for an investment through abusive proceedings including judicial or administrative proceedings also amounts to breach of fair and equitable treatment. In case of Stati v Kazakhstan, sudden and duplicative inspection conducted by Kazakh agencies was held to be a breach of fair and equitable treatment.38 It is pertinent to note that the doctrine of legitimate expectations is not generally used to analyse the judicial conduct as a part of fair and equitable treatment.39 For instance, the ITA tribunal in White Industries case rejected the investor’s contention 33 White Industries Australia Limited v. The Republic of India, UNCITRAL, Award (Nov. 30, 2011), para 11.4.19 [hereinafter the White Industries Award]. 34 Berk Demirkol, supra note 1, at 33. 35 Vannessa Ventures Ltd v. The Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/04/6, Award, 16 January 2013, para 222. 36 Tatneft v. Ukraine, UNCITRAL, Award on the Merits (29 July 2014), para 394; See also YannacaSmall (2010). 37 Frontier Petroleum Services Ltd. v The Czech Republic, UNCITRAL Award, para 529 (Nov 12, 2010) [hereinafter the Frontier Award]; also see Para 382 of the Duke Energy Award. 38 Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding v. The Republic of Kazakhstan, SCC Arbitration V (116/2010), Award, (19 December 2013), para 1092. 39 Berk Demirkol, supra note 1, at 37.

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that they had legitimate expectations from domestic courts to apply the New York Convention in the manner it is applied in certain jurisdictions. However, it was later clarified that host state did not expressly assure the investors on timely enforcement of foreign arbitral awards or in the manner contended by the White Industries. Therefore, such acts cannot be considered as breach of fair and equitable treatment, though it may be a breach of other international norms such as the New York Convention.40

5.3.4 Judicial Conduct as Unlawful Expropriation In certain cases, judicial actions might also be considered as unlawful expropriation. It includes variety of judicial actions such as breach of international law, taking over of investment upon request of administrative officials, an abuse of domestic tax proceedings and discriminatory judicial conduct which might deprive investor’s assets. The ICSID tribunal in the popular case of Saipem v Bangladesh found that undue intervention of Bangladeshi Courts in the enforcement of international commercial arbitral award amounts to abuse of rights and contrary to international law. It is tantamount to expropriation.41 Followed by Saipem, the question on expropriation due to non-enforcement of arbitral awards was raised in the White Industries case. It was a difficult task for the tribunal to identify whether expropriation has occurred on ‘value of an investment’ or by ‘impact’ on rights of investor.42 The tribunal later found that neither the value of investment nor the rights of investors have been deprived by Indian courts. It is relevant to note that both set-aside application and enforcement proceedings were still pending before Indian courts. Moreover, as of now, the court did not express any opinion on the validity of award. Therefore, it was considered an expropriation.43 It is noted that tribunal’s findings on expropriation claim contradict the overall conclusion in the case. It is not clear as to how the ITA tribunal has awarded damages for the entire value of ICC award when the domestic court’s proceedings were not held to deprive the investors. Moreover, the expropriation claims also arise due to judicial actions in other aspects as well. For example, an unlawful termination of a contract by courts without compensating investors may also amount to an expropriation.44 It is also observed that ITA tribunals in a series of other cases have rejected the expropriation claims on judicial acts. For instance, investor’s non-compliance of a 40 Para

10.3.15 of the White Industries Award. SpA v. the People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (Jun. 30, 2009), para 167 [hereinafter the Saipem Award]. 42 Para 12.3.4 of the White Industries Award. 43 Para 12.3.6 of the White Industries Award. 44 Emmis International Holding and Ors. v. Hungary, ICSID Case No ARB/12/2, Award, 16 April 2014, para 169; also see the authorities cited in Berk Demirkol, supra note 1, at 57. 41 Saipem

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contract will not amount to expropriation. In a recent decision, the ITA tribunal in Anglia Auto Accessories v Czech Republic45 observed that the conduct of domestic courts is not considered as arbitrary, unlawful or discriminatory, as delay is not caused by courts, but due to investor’s own faults.46 This is also one of the reasons why the investor’s expropriation claim was rejected by the tribunal, as deprivation was not caused by courts. From the above analysis, no trend has emerged to consider all judicial misconduct as tantamount to expropriation, though the existing investment jurisprudence is inconsistent in this regard.

5.4 Investment Treaty Awards Concerning India As already mentioned in the introduction, following the adverse decision in ‘White Industries’, the government of India has been served with several ITA notices under different BITs. Significantly, most of these notices were served against the actions of Indian Judiciary for cancellation of 2G licences (six notices) and two notices against the actions of issuing anti-arbitration injunctions. It is pertinent to note that the Indian legislative and executive actions were also challenged by foreign investors under different BITs. For instance, five ITA arbitration claims have been initiated against India for actions of retrospective tax amendment to the Income Tax Act, 1961. It is in this connection this part identifies various ITA awards concerning India (rendered/pending) and examines whether such actions amount to breach of international legal obligations enshrined under Indian BITs. The clear details of these cases are highlighted in Table 4.2.

5.4.1 Cancellation of 2G Licences by the Supreme Court: A Case for Judicial Expropriation and Breach of Fair and Equitable Treatment? In a public interest litigation,47 the Supreme Court of India had cancelled 122 second generation (2G) spectrum licences granted by the Department of Telecom to eight telecom operators. By applying the ‘public trust’ doctrine, the court observed that the government is under obligation to protect natural resources for the benefit of public rather than allowing individuals to exploit such natural resources for their

45 Anglia Auto Accessories v. Czech Republic, SCC Arbitration Case V (2014/181), Final Award (10 March 2017) paras 291–297 [hereafter the Anglia Auto Award]. 46 Para 297 of the Anglia Auto Award; also see Demirkol, supra note 1, at 56–57. 47 Centre for Public Interest Litigation and others v Union of India and others, AIR 2012 SC 3725 (hereafter the 2G case Judgment).

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commercial gain.48 The Apex Court held that distribution of 2G licences was arbitrary and illegal.49 Observing that the invocation of first-come-first-served policy has inherently dangerous implications. Aggrieved by the actions of Supreme Court, six investors50 who had set up joint ventures with Indian telecom companies have initiated ITA claims under various BITs. Sistema was the first to invoke the ITA claim under the India–Russia BIT followed by Telenor, Axiata, Capital Global, Khaitan, and Astro All Asia Networks. The widened scope of investor’s rights under these BITs has provided impetus to these disputes. As most of the BITs have adopted a ‘broad asset’-based definition of ‘investment’, it could also be interpreted to include actions of domestic judiciary. Therefore, the outcome of Supreme Court decision in the ‘2G case’ also raised a question on the attribution of state responsibility as to, whether India can be held internationally liable for actions of its Supreme Court on the ground of judicial expropriation or breach of fair and equitable treatment. Generally, expropriation may occur directly or indirectly through imposition of measures on investors resulting in deprivation in value of investment. But there is no precise standard on what determines the acts constituting indirect expropriation. The investment arbitral jurisprudence considers wide array of measures as indirect expropriation. However, it varies from case to case, and there is no uniform standard practice in this regard.51 The ICSID tribunal had to decide in Metalclad case, whether cancellation of licence amounts to an expropriation. The tribunal was affirmative and found that actions of Mexico and its organs constituted an expropriation, as foreign investment is ‘inoperable without a licence’. In this connection, the tribunal also vividly explained the concept of indirect expropriation. It stated that expropriation under the NAFTA Agreement includes not only direct taking or transfer of title, ‘but also covert or incidental interference with the use of property which has effect of depriving the owner, in whole or in significant part …’.52 It is interesting to examine the previous investment arbitral awards, which holds prima facie case against India. The ICSID tribunal in Goetz and Middle East Cement held that revocation of an investor’s free zone certificate considered as a ‘measure having similar effect’ to expropriation. It is pertinent to note that in both cases, investor’s property was indirectly affected by the revocation. Hence, it was held to constitute indirect expropriation.53 It is further noted that operating licences are essential for economic use of foreign investments. Therefore, the revocation of such operating licences would ‘tantamount to expropriation’. In another landmark case, 48 Para

64 of the 2G Case Judgment. 69 of the 2G Case Judgment. 50 Namely, Sistema, Telenor, Axiata, Capital Global & Kaif, Khaitan, and Astro All Asia. Also see Papa and Sarkar (2017). 51 Malhotra (2013). 52 Para 103 of the Metalclad Award; also see Rogers and Alford (2009). 53 Goetz and Others v. Republic of Burundi, Award, September 2, 1998, 6 ICSID Reports 5, para 124; Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, Award (April 12, 2002) 7 ICSID Reports 17, para 114; also see Reinisch (2008). 49 Para

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the Saipem tribunal held that host state is liable for an indirect expropriation for intervention of domestic (Bangladeshi) courts in investment disputes. From the above discussed cases, one can consider that the cancellation of 2G licences would amount to indirect expropriation of foreign telecom companies’ investments. With respect to claim on breach of fair and equitable treatment standard, it is worth comparing the two ongoing ITA cases, the 2G case with another case of Franck Charles Arif v Moldova.54 In Arif case, the Moldavian courts cancelled the licence granted to French investor Mr. Franck Charles for the operation of duty-free shops at Chisinau Airport in Moldova. The measure was held to be illegal, as the government did not follow fair and competitive bidding, which prevent other investors from participating in the fair auction process. The distressed investor approached the ICSID tribunal under the France–Moldova BIT. The investor alleged that the respondent breached fair and equitable treatment, full protection and security provision, umbrella clause, and national treatment, and that the actions of courts amount to indirect expropriation. The tribunal rejected several claims; however, it found that the respondent state breached the fair and equitable treatment when it forestalled the Claimant’s legitimate expectations to open and operate duty-free shop in Moldova airport.55 The ITA tribunal also found that if host state cannot satisfy investor’s legitimate expectation in such a situation, it would amount to violation of the fair and equitable treatment.56 It is interesting to note that for the first time in investment arbitral jurisprudence, an ITA tribunal observed the principle of legitimate expectations as a part of fair and equitable treatment.57 The tribunal further observed that investor’s ‘legitimate expectations might be breached not only by a substantive change in policy, but also by the treatment of the investor during the process of the change of policy’.58 It is clear that there was an inconsistency between the viewpoints of different organs of the State to the investment. In the current case, the Airport authority and Civil Aviation have encouraged the investment in airport premises. However, the court found the same investment to be illegal. The tribunal strongly opined that ‘this type of direct inconsistency in itself amounts to a breach of fair and equitable treatment standard’.59 The tribunal noted that the actions of host state first paralysed and later destroyed the investment it had encouraged. It is also relevant to note that the tribunal strongly invoked the principles of state responsibility that the actions of host state cannot be resolved at international level by referring to its internal legal order. Similar kind of inconsistency between different organs of State was also noted in the cancellation of 2G licences. Therefore, if we invoke the Arif’s observation to the 2G spectrum

54 Mr.

Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award (Apr. 8, 2013) [hereafter the Arif Award]. 55 Potesta (2014). 56 Para 537 of the Arif Award. 57 Potesta, supra note 668, at 1013–1014; also see Bjorklund (2014). 58 Para 538 of the Arif Award. 59 Para 547(b) of the Arif Award.

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related ITA cases, then India may be held liable for the breach of fair and equitable treatment, and legitimate expectations. The significant issue arises here is to what extent India may decline the interest of investors and their property by imposing strict measures which benefits the public, but without paying an adequate compensation. The investment arbitral jurisprudence has adopted inconsistent approach in this regard.60 However, customary international law allows the host state to impose such measures in the interest of public.61 It is also pertinent to discuss what could be a valid defence for India in 2G-related ITA disputes. The host state can justify that cancellation of 2G licences on the ground of ‘public interest’, a ground relied upon by the Supreme Court. It is interesting to note that so far as the domestic governance is concerned, the 2G verdict was welcomed for its taking strong stance on corruption and illegal practices.

5.4.2 Unlawful Annulment of Contract Amounting to Indirect Expropriation and Breach of Fair and Equitable Treatment Standard 5.4.2.1

CC/Devas (Mauritius) Ltd., and Others v. Republic of India

In 2005, Antrix Corporation Limited, the commercial arm of the Indian Space Research Organization had entered into a contract with Devas Multimedia Private Limited, a Bangalore-based company for a lease of two Indian Space Research Organization’s satellites working in the space band (S) spectrum to broadcast high-speed Internet on mobile devices. A Mauritian-based subsidiary CC/Devas (Mauritius) Ltd.62 had an indirect shareholding in Devas Multimedia. Devas Multimedia is operated by former Indian Space Research Organization officials. It is learned that ISRO has agreed to develop and launch two satellites (GSAT 6 and GSAT 6A) at the cost of Rs. 766 crore. Devas agreed to pay Rs. 167 crore to lease the transponders and 70 MHz of S-band spectrum provided by these satellites for a period of 12 years.63 In 2011, the Comptroller and Auditor General of India64 in its audit report pointed out serious financial irregularities and favouritism in the Antrix–Devas deal, which led to the annulment of the contract stating ‘national and strategic’ reasons. Subsequently, two international arbitration proceedings were initiated by Devas and its investors. The first one is commercial arbitration proceedings commenced before the ICC tribunal in Paris, which resulted in US $672 million award for and Schreuer (2008), Malhotra, supra note 51, at 347. (2013). 62 CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telecom Devas Mauritius Limited v. Republic of India, PCA Case No. 2013-09. 63 Also see Sathyapalan (2016), Prabhash Ranjan, supra note 2. 64 The Comptroller and Auditor General of India is a constitutional body which audits all receipts and expenditure of the Government of India, the state governments, and its entities. 60 Dolzer

61 Harisankar

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unlawful termination of contract. The Antrix Corporation mooted an application under Section 34 to set aside an ICC award before Bangalore Civil Court. However, Devas has successfully challenged the jurisdiction of the Bangalore Civil Court before the Delhi High Court.65 The second is investment arbitration by Mauritian investors of Devas under the India–Mauritius BIT before the Permanent Court of Arbitration instituted under the UNCITRAL Arbitration Rules.66 The Permanent Court of Arbitration found India liable for annulling contract between Devas and Antrix and held that it is tantamount to expropriation under Article 6 of the India–Mauritius BIT. Though the tribunal agreed that ‘direct taking’ of Devas investment did not take place, the unlawful termination of contract might amount to indirect expropriation. The government has not followed a proper procedure for terminating the contract and also not paid compensation for Devas. However, the tribunal is yet to determine the quantum of compensation for indirect expropriation, but it is estimated to be around US $1 Billion.67 The tribunal also held that India breached its BIT obligations to accord fair and equitable treatment to its foreign investors under Article 4(1) of the India–Mauritius BIT. Interestingly, the Government of India took a plea on ‘strategic security’ defence to justify the annulment of the Antrix–Devas deal. It is pertinent to note that claimants had successfully challenged the appointment of Professor Francisco Orrego Vicuna as an arbitrator due to his viewpoint on essential security interests in his previous ITA decisions and academic writings.68 Therefore, Justice Anil Dev Singh had been later designated as an arbitrator on the side of the respondent. At last, the Permanent Court of Arbitration did not accept India’s argument on ‘strategic security’ concerns. In fact, the tribunal had differentiated the notions of ‘strategic needs’ and ‘strategic requirements’ with ‘essential security’ exceptions.69 Multiple Claims The CC/Devas is the second investment treaty award rendered against India for violation of international investment treaty obligations. It is significant to note that the CC/Devas case is an illustration of how the claimant’s contractual claim can be transformed into a treaty claim against the host state. Paradoxically, in this case, foreign investors who were affected by government’s termination of contract have filed multiple claims under different BITs. While a group of investors (aggrieved by 65 Devas Multimedia Private Limited v. Antrix Corporation Limited, MANU/DE/0494/2017; Also the Delhi HC ordered Antrix to withdraw petition filed before Bangalore Court and file another one before this Court (Devas Delhi HC Order, para 55). 66 The tribunal had rendered an award on jurisdiction and merits on 25 July 2016. However, the award is not available to public; therefore, the arguments made here on the basis of newspaper report and the statement issued by Devas Multimedia and Antrix Corporation. 67 Also see Srivas (2016). 68 Generally Kim (2014). 69 Thomas (2018).

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the decision of same underlying annulment) have already got an ICC award in their favour,70 the present claim was filed by Deutsche Telekom71 in this case. It is one of the five investment treaty claims initiated by Mauritius-based investors against India. In this case, the annulment of Antrix–Devas deal administered by the German-Based telecom company, Deutsche Telekom AG was in dispute. The Deutsche Telekom indirectly held 20% stake in Devas through a Singaporean Subsidiary filed the present claim under the India–Germany BIT. Moreover, Deutsche Telekom also directly invested around $100 million in Devas Multimedia for providing technical advice and procurement power for building up the network.72 When the PCA tribunal has been constituted under the UNCITRAL Arbitration Rules, the Deutsche Telekom alleged that India had failed to provide fair and equitable treatment to it under the India–Germany BIT. In an interim award, the PCA tribunal found that India violated fair and equitable treatment provided in Article 3(2) of the India–Germany BIT for cancellation of spectrum allocation agreement.73 However, the tribunal is yet to determine the quantum of liability which will be heard during the later stage of arbitration. In the meantime, in January 2018, India challenged the interim award before the Swiss Federal Tribunal, which is the court of supervision of the arbitration. India contended that the PCA tribunal lacked jurisdiction to hear the dispute. The Swiss Federal Tribunal agreed to determine the jurisdiction of the investment treaty claim tribunal and considered three main arguments raised by India.74 Its main argument was based on ‘indirect investment’. It argued that Deutsche Telekom had invested into India not directly, but indirectly through a Singaporean subsidiary, which was not protected under India–Germany BIT. The main objective of the BIT was to protect only ‘direct’ investments and not ‘indirect’ investments. Further, India argued that India–Germany BIT grants protection to investor on establishments only after investment activity had become effective, and it specifically excluded ‘pre-investment activities’ from the scope of investment protection. In the current dispute, the Indian government annulled the contract when the project was still at pre-investment stage. To justify the annulment of the deal, India again took a defence on ‘essential security interests’ defined under Article 12 of the BIT.75 The Swiss Federal Tribunal agreed with the findings of the PCA tribunal in this regard and dismissed the majority of the arguments raised by India. It noted that invested assets located in host state are sufficient for the protection provided under

70 The

enforcement proceedings relating to the ICC awards are pending in different jurisdictions. Telekom AG v. the Republic of India, UNCITRAL, PCA Case No. 2014-10. 72 Deutsche Telekom AG v. the Republic of India, UNCITRAL, PCA Case No. 2014-10, Interim Award (Dec. 13, 2017), paras 66–70 (hereafter Deutsche Telekom Interim Award). 73 Deutsche Telekom Interim Award, para 424. 74 Peacock et al. (2019). 75 Also see, Kabra (2019). 71 Deutsche

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the BIT. The Swiss Court also noted that India had erred on procedural aspects with respect to arguments on pre-investment activity and essential security interest exception.76 The Swiss Court’s decision is the recent in a series of obstacles for Indian government with respect to the project for commercialization of Space band Spectrum. After the White Industries case, India’s policy concerning for investment protection is shifted from investor-friendly to host state’s right to regulate. It seems that CC/Devas and Deutsche Telekom rulings will only tighten Indian desire to follow more protectionist approach and inward-looking BIT strategy.

5.4.2.2

Nissan Motor v. India

Nissan Motor, a Japanese automaker, has initiated ITA arbitration against India under the Investment Chapter of the India–Japan Comprehensive Economic Partnership Agreement (CEPA), seeking compensation of US $770 million for unpaid tax incentives owed to them by the State of Tamil Nadu.77 In 2010, Nissan and its partner Renault, French carmaker, set up a manufacturing plant in Oragadam, near Chennai. To further promote the investment, the Tamil Nadu State government assured several fiscal incentives in the form of investment promotion subsidy and value-added tax (VAT) refunds. Over the period of seven years, the Nissan and Renault have invested around $946 million with an annual production of 480,000 cars. However, differences arose as to VAT refunds. Nissan claimed VAT tax credit benefits, worth Rs. 2900 crore VAT as well as damages, interest, and other costs. On the other hand, the State government asserted that the car manufacturer could only claim 14.5% VAT refund for car sold in Tamil Nadu. It has also contended that the refund would be permitted only till the ‘accruals’ reached the level of investment. Accordingly, the State government has rejected the Nissan’s claim to the extent that the VAT benefits claimed for the ‘exported’ cars, considering this is an attempt of claiming ‘double benefits’. Analysis of the Dispute78 There can be no denying the fact that the main objective of the CEPA Agreement is to support investment opportunities, strengthen protection for investments and investment activities between India and Japan. It was not difficult for Nissan to make its claim on the basis of a broad ‘asset-based’ definition for ‘investment’. 76 For

French text of the judgment, copy is available at https://www.italaw.com/sites/default/files/ case-documents/italaw10304_0.pdf. Last accessed on June 20, 2020. 77 Shah (2017). 78 See Shah and Varadhan (2020). In May 2020, both parties have agreed to settle this dispute. But the quantum of settlement has not public yet. However, we have analysed this case based on series of similar such ITA decisions.

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The main substance of the dispute revolves around the issue of tax credit. The regulation of tax in international investment law is contentious.79 It is worth noting that the ITA tribunals have adopted different interpretative approaches to decide the issue of VAT refund under different BITs. For instance, the ICSID tribunal in Occidental case found that failure to refund the VAT was not due to any deliberate action, but due to the incoherent tax structure. The tribunal also did not find any ‘substantial economic deprivation’ in that case, and accordingly, it reached that it was not expropriation.80 Similarly, the Encana tribunal focused only on tax refund right per se instead of looking at the overall economic activity of investment. The tribunal found that failure to refund VAT did not constitute any breach of the CanadaEcuador BIT. Interestingly, the ICSID tribunal in the case of Feldman, the ICSID tribunal refused to consider right to receive VAT refund as an act of expropriation. Instead, the ITA tribunal looked failure to refund VAT on the perspective of national treatment. Accordingly, considering the different interpretative approaches of the ITA tribunals on the issue of VAT refund, the examination of ‘Nissan’ case may not only be limited to expropriation but it should also extend to national treatment and fair and equitable treatment of the CEPA.81 The Indian government’s argument on fork-in-the-clause in Nissan case raised an issue of precedence between domestic courts and international arbitral forums. The comprehensive reading of Article 96(6) of the CEPA makes clear that fork-in-theroad clause leans towards international arbitration instead of national courts in the event of any dispute. Therefore, if Nissan fails to get any relief from Indian Courts, then it also has another option to pursue international arbitration.

5.4.3 Retrospective Taxation—A Case for Breach of Fair and Equitable Treatment The issue of host state’s liability for changes in the existing legal framework which could potentially affect investor-state relationship is a contentious one. Most of the BITs affirm that fair and equitable treatment protects ‘legitimate expectations’ of investors at the time of making an investment, if host state adopts new law or amending/interpreting existing legal framework which was not anticipated by investor at the time of making an investment. In that case, investor should be adequately compensated for the loss due to complying with those changes. Under the principles of state responsibility, a host state is liable for its legislative actions in international law. The same view is also confirmed in various decisions.82 For 79 Epps

(2013); See Generally Lazem and Bantekas (2015). Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11, Award (Oct. 5, 2012), Para 200. 81 See Dutta and Saravanan (2017). 82 See also, e.g. Suez, Sociedad General de Aguas de Barcelona S.A. and InterAgua Servicios Integrales del Agua S.A. v. Argentine Republic, ICSID Case No. ARB/03/17, Decision on Liability, 80 Occidental

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instance, the ITA tribunal in AES case83 observed that under the doctrine of legitimate expectations, investment treaties do not generally freeze the law, unless such changes are against a ‘specific commitment’ made by host state.84 Another question in this connection arises is whether host state is liable to pay compensation for such regulatory changes in the case of ‘specific commitment’. The ITA tribunals have ‘broadly’ interpreted the term ‘specific commitment’, as inclusive of non-revocable commitments.85 Therefore, in such cases, the host state should compensate for introduction of changes in the regulatory framework. It is in this connection, this section analyses India’s liability on retrospective amendment to tax legislation. It is significant to note that several ‘clarificatory’ amendments have been brought to the Income Tax Act, 1961 since its enactment. In 2012, the Parliament of India has amended the Income Tax Act to clarify the rule of taxation for non-residents in the country. It clarified that cross-border deals are to be taxed and the assessment shall be back-dated from 1962 to 1963 onwards. These amendments were introduced shortly after an adverse decision by the Supreme Court in the Vodafone case, wherein the Court held that company was not liable to pay tax on its acquisition of Hutchison Essar. The Court further held that offshore transactions are not being taxable in India. The purpose of the amendment was to collect Rs. 40,000 crore from the companies in question by way of retrospective taxation. Harish Salve, a counsel for Vodafone, commented that such retrospective measures amounted to ‘waging war on foreign investment’.86 On the other side, then Finance Minister, Pranab Mukherjee, stated that ‘India is a not a ‘no tax’ or ‘low tax’ or even a ‘tax haven’, it is a country where all taxpayers, whether resident or non-resident, will be treated on par’.87 These circumstances mooted Vodafone to initiate the ITA claim against India under Netherlands–India BIT for imposing tax retrospectively and contended that such measures amounted to an expropriation, denial of justice and breach of fair and equitable treatment provision. Subsequently, three other foreign investors such as Cairn, Vedanta, and Nokia also served ITA notices against India under different BITs in relation to the retrospective tax measures. Recently, Vodafone has initiated second ITA under the India–UK BIT.88 It is pertinent to understand that Article 4(4) of the India–Netherlands BIT expressly excludes taxation measures, but only limited to national treatment and most-favoured-nation treatment. However, claimants in Vodafone case raised their July 30, 2010, para. 207; Total v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability (Dec. 27, 2010) para. 122. 83 AES v. Hungary, ICSID Case No. ARB/07/22, Award, Sept. 23, 2010 [hereafter the AES Award]. 84 Para. 9.3.34 of the AES Award. 85 EDFI v. Argentina, ICSID Case No. ARB/03/23 Award, (June 11, 2012); Enron v. Argentina, ICSID Case No. ARB/01/3, Award (May 22, 2007); LG&E v. Argentina, ICSID Case No. ARB/02/1; Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN 3467, Award (July 1, 2004); also see Johnson and Volkov (2013). 86 See Salve (2019). 87 Dasgupta (2012). 88 Also see Mohan (2016).

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claims for expropriation on the ground of fair and equitable treatment. The determination of expropriation is a fact-specific exercise. However, in Vodafone case, the tribunal might consider the harm caused to the value of claimant’s shareholding. Another significant question arises here is, whether retrospective taxation amounts to substantial interference with claimant’s shareholding. In a complex case like Vodafone, it would be really difficult for claimant to justify the standard of interference required for finding of expropriation.89 The fair and equitable treatment is another breach alleged by claimant under Article 4(1) of the India–Netherlands BIT. However, the scope of the fair and equitable treatment clause in the disputed BIT does not refer to international law or customary international law. In this connection, what the claimant can legitimately expect, the same is addressed in the Tecmed case: ‘the foreign investor expects the host state to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rule and regulation that will govern its investments’.90 If we invoke the Tecmed principles in the present case, it seems that retrospective taxation measures violate doctrine of legitimate expectation. It is further observed that the existing inconsistency in host state’s action on amendment to section 2(47) of the Income Tax Act with retrospective effect seems to be violation of the fair and equitable treatment. It is evident from the above discussion that BITs are not only being used by investors to protect their investments against discriminatory actions of host states, but it can also be used against the risk of amending regulatory framework.

5.5 Indian Judicial Decisions Involving Investment Disputes When Indian policy makers are attempting to improve the BIT programme, the Indian courts have also changed its approach towards international commercial arbitration. The recent Supreme Court decisions showed that they have learnt hard lessons from the past experience. For instance, the BALCO decision is evident of this change, wherein the Supreme Court had clearly pointed out that domestic court should not extend its jurisdiction to the foreign-seated arbitrations except for ground of interim relief. This decision has overruled legal position in earlier decisions such as Bhatia and Venture Global. The other series of cases which supports this transformation is discussed in Chap. 4. The recent experiences of Indian courts on BIT arbitration also supported this transformation.91 It is relevant to note that recently, Indian courts have also become more active in dealing with investment arbitration agreement, as discussed in the case of Louis Dreyfus.

89 Yadava

et al. (2012). S.A. v. Mexico (2004) 43 ILM 133 (ICSID), para 154. 91 Papa and Sarkar, supra note 50, at 716; Sathyapalan (2017). 90 Tecmed,

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5.5.1 Indian Courts and Investment Treaty Arbitration—Some Lessons from Louis Dreyfus Case There are various reasons to discuss Louis Dreyfus case92 in detail. It provides some significant insights on whom to identify as proper respondent in disputes arising out of Indian BITs. Further, it establishes the applicability of Part II of the Arbitration and Conciliation Act 1996 to the ITA disputes. This case also mooted a discussion on interaction between ITA tribunals and Indian courts, by ensuring a new mechanism for actions of enforcement before Indian courts in investment arbitration seated abroad. In October 2009, Kolkata Port Trust and Haldia Bulk Terminals Private Limited, an Indian company entered into a contract to operate and maintain berth at Haldia Port near Kolkata in West Bengal. The Haldia Bulk Terminals is a parental company established for the purpose of performing activities related to the said contract. The Haldia Bulk Terminals has other subsidiary entity such as ALBA Asia Private Limited (ALBA). The French investor Louis Dreyfus Armatures holds 49% shares of ALBA and remaining 51% by the ABG Ports Limited, an Indian company. The Louis Dreyfus Armatures alleged that the West Bengal State government created severe hurdles to implement the project, and the government also failed to provide adequate protection and safety to the project; all these reasons led HBT to terminate this contract and initiated arbitration (contractual claim) against Kolkata Port Trust.93 In these circumstances, the Union of India, the West Bengal State government and Kolkata Port Trust received a notice of ITA claims from Louis Dreyfus Armatures under the India–France BIT for breach of fair and equitable treatment, failed to provide full protection and security for the disputed project, and it also amounts to indirect expropriation. Notice of arbitration is also served against Union of India in March 2014.94 Though it is relevant to note that Kolkata Port Trust and the State government were not mentioned as a party in the ITA dispute, ITA notices have also been sent to Kolkata Port Trust as well as the State government. Therefore, the Kolkata Port Trust initiated anti-arbitration injunction under Section 45 of the Arbitration and Conciliation Act, 1996 before the Calcutta High Court for restraining Louis Dreyfus Armatures to proceed with ITA arbitration. The Kolkata Port Trust alleged that there was no arbitration agreement between Louis Dreyfus Armatures and Kolkata Port Trust. From the notice, they have learnt that the arbitral tribunal treated Kolkata Port Trust as a party to the BIT arbitration. The Kolkata Port Trust further argued that the dispute was subject matter of contract arbitration, and therefore, BIT claims led to parallel proceedings.95

92 The

Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS, MANU/WB/0695/2014 [hereafter the LDA Judgment]. 93 Satish and Jayasimha (2015). 94 LDA (France) v The Republic of India (PCA Case no. 2014-26); the tribunal also ordered Louis Dreyfus Armatures to pay $6,626,971 towards India’s legal expenses. This is the first investment treaty award rendered which went in favour of India. 95 Paras 22–23 of the LDA Judgment.

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The court had adopted a restrictive approach to BIT and stated that the BIT was signed between two sovereign states, i.e. France and India, and hence, it does not include Kolkata Port Trust as a party to the BIT. However, the court observed that the actions of Kolkata Port Trust can be attributed to the Union of India under the principles of state responsibility by relying upon the English case of City of London Sancheti City v Sancheti.96 With respect to Kolkata Port Trust’s argument on contract arbitration, the court stated that existing investment arbitral jurisprudence makes clear the distinction between treaty and contractual claims. Therefore, this court also opined that the tribunal would stay treaty claims till the decision of contract claims. The court further pointed out that BIT is enforceable only against the Union of India and not against Kolkata Port Trust.97 The continuation of any proceedings against Kolkata Port Trust would amount to ‘oppressive’, and therefore, Kolkata Port Trust is not bound to participate in the ITA proceedings. The court concluded that Louis Dreyfus Armatures is restrained from continuing with the BIT arbitral proceeding ‘only against the petitioner [KPT]’ and that therefore it does not affect the proceeding against the Union of India. Perhaps this is the first decision of Indian courts on the dispute arising out of an investment treaty. It allows domestic courts to have jurisdiction over foreign-seated arbitration. The fact that the High Court had granted an injunction does not necessarily mean that the anti-arbitration injunction is successful. In fact, the ITA proceeding against Union of India is still continuing. The position of State of West Bengal as one of the co-respondent is also controversial part as Louis Dreyfus Armatures cannot bring actions against State government. The Union of India is internationally responsible for actions of its organs under Article 4 of the International Law Commission Articles on State Responsibility. It is significant to note that no question had been raised on whether Indian courts had power to issue anti-arbitration injunction in ITA disputes under the Arbitration and Conciliation Act, 1996. Also, no question is raised before this court on applicability of Arbitration and Conciliation Act, 1996 to the disputes arising out international treaties. However, this judgment acknowledges the supportive approach of Indian courts towards ITA. Recent Developments In a similar issue with respect to ITA claim,98 Louis Dreyfus Armatures contented before the PCA tribunal that the Indian government breached various substantive obligations provided under the India–France BIT, such as failure to provide investment with fair and equitable treatment, full protection and security, discrimination against their investment, and indirect expropriation. However, India disagreed with most of the contentions raised by the Louis Dreyfus Armatures. It reflected that the government had exercised ‘due diligence’ and taken all the reasonable measures to 96 City of London Sancheti City v. Sancheti (2009) 1 LLR 117; also see para 87 of the LDA Judgment. 97 Para

88 of the LDA Judgment. Dreyfus Armateurs SAS v. Republic of India, UNCITRAL, PCA Case No. 2014-26, Final Award (Sept. 11, 2018) [hereafter Louis Dreyfus Armateurs Award]. 98 Louis

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protect investor and their investment.99 With respect to expropriation claim, India argued that ‘reduction in value, even when significant’, is not the same as an expropriation.100 Also, it contended that the ‘partial expropriation’ claims are not allowed under international law. During the hearing, the PCA tribunal examined the Louis Dreyfus Armatures’s jurisdictional requirements before proceeding with substantive violations. On examination, the Tribunal decided that Louis Dreyfus Armatures lacked jurisdiction under the scope of the India–France BIT (Article 2). The BIT stipulated that investor in indirect investment shall hold a minimum of 51% ownership to get protection under the BIT. However, in this case, Louis Dreyfus Armatures was holding only 49% ownership of the ALBA Asia Private Limited (Indian intermediary company). The tribunal also noted that Louis Dreyfus Armatures’ indirect investment in Haldia Bulk Terminals was structured in a way that it is not qualified for protection under the India–France BIT. Accordingly, the Louis Dreyfus Armatures’ allegation on host state conduct fell outside the jurisdiction of the tribunal, and it has dismissed Louis Dreyfus Armatures’ claims in its entirety.101 The tribunal also ordered Louis Dreyfus Armatures to pay $6,626,971 towards India’s legal expenses. It is significant to note that this is one of the many investment arbitrations administered against India since 2011. However, this is the first investment treaty award rendered which went in favour of India.

5.5.2 Indian Court’s Approach on Anti-arbitration Injunction in Investment Disputes The use and abuse of anti-arbitration injunction have gained significant attention in international arbitral tribunals and Indian courts in the recent past. Analysing the situation in the light of investment arbitral jurisprudence, the ICSID tribunal in Saipem case held that issuance of anti-arbitration injunction is in violation of international obligations guaranteed under the New York Convention.102 It is worth mentioning that in SGS v Pakistan, the ITA tribunal exercised its jurisdiction irrespective of an anti-arbitration injunction order passed by the Supreme Court of Pakistan. It is essential to note that the compatibility of anti-arbitration injunction with the New York Convention is a contested issue, which has gained different opinions among international arbitration fora. These issues are already discussed in the previous chapter. The pertinent argument is anti-arbitration injunction transgress the principle of Kompetenz-Kompetenz which is considered as the cardinal principle of international arbitration. The notable scholar Gary Born also argued that issuance of anti-arbitration 99 Louis

Dreyfus Armateurs Award, para 378. Dreyfus Armateurs Award, para 407. 101 Louis Dreyfus Armateurs Award, paras 449 and 452. 102 Bansal and Agrawal (2015). 100 Louis

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injunction would intervene with the New York Convention structural regime.103 There has been uncertainty among common law courts with regard to the validity of issuing anti-arbitration injunctions. For instance, English courts believe that they can issue anti-arbitration injunction in ‘exceptional circumstances’.104 However, the scope of the term ‘exceptional circumstances’ remains unanswered under English laws. In summary, English courts are of the opinion that anti-arbitration injunction is compatible with the New York Convention.105 It is crucial to note that the Supreme Court of India in the case of Chatterjee Petrochem Co v Haldia Petrochemicals Ltd.106 held that granting anti-arbitration injunction in foreign-seated arbitration is barred under the Section 5 of the Arbitration and Conciliation Act, 1996 by relying upon the Bhatia and Venture Global decisions (Part I also applicable to Part II as well). It is also noted that the Apex Court disregarded the conflict between Sections 5 and 45 of the Act. The rule adopted in Chatterjee case would apply only to arbitration agreements signed before 6 September 2012 (a date of judgment in BALCO’s case). Subsequently, the Supreme Court in another case World Sport Group v MSM Satellite107 held that seeking an injunction to restrain arbitration in foreign-seated arbitration is maintainable, and it confirms that there is no bar on the same. This decision seems to be in accordance with objectives of the Arbitration and Conciliation Act, 1996. It is indeed necessary to discuss the Indian judicial approach on the same issue in the context of investment arbitration. It is in this connection, three pertinent ITA cases have been identified, namely Dabhol, Vodafone, and Louis Dreyfus Armatures with respect to anti-arbitration injunction. All of them had strongly connected to investment arbitration and hence deserves detailed examination. It is noted that the safeguard against the abuse of power to issue anti-arbitration injunctions in the international commercial arbitration proceedings later turned out as a possible BIT claim by way of crossover. It could result in denial of justice and breach of BIT obligations. As it happened in Saipem case, wherein the ICSID tribunal held that issuing anti-arbitration injunction is in violation of international obligations laid down under the New York Convention. The Delhi High Court in the Dabhol Power case granted anti-arbitration injunction in a contract arbitration which was later turned to be for BIT claims. Though debates on merits of anti-arbitration injunctions would probably to continue for years, more practical questions on this subject are precisely addressed in the recent Vodafone Case. In this case, the Delhi High Court in interim order restrained the foreign investor from pursuing ITA claims against India. It is pertinent to note that the Board of Trustees of the Port of Kolkata v Louis Dreyfus Armatures SAS & Ors is the first case where an Indian court (Calcutta High Court) delivered a judgment on a case directly arising from investment treaty arbitration. This case is mainly concerned with the anti-arbitration injunction against the French (2009). v. Anthony Julius [2006] EWCA ClV 218. 105 Sharad Bansal and Divyanshu Agrawal, supra note 102, at 620. 106 2013 (15) SCALE 45. 107 World Sport Group v. MSM Satellite, AIR 2014 SC 968. 103 Born

104 Weissfisch

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investor, Louis Dreyfus Armatures (LDA), who was restrained from proceeding with ITA arbitration against Kolkata Port Trust under the India–France BIT. Accordingly, these cases deserve detailed examination.

5.5.2.1

Anti-arbitration Injunction in Dabhol Case Involving Investor-State Arbitration

In 1990, the Dabhol Power Corporation a domestic set up jointly owned by Enron, General Electric, and Bechtel entered into an agreement with Maharashtra State Electricity Board for construction of power plants to generate electricity. This was considered to be one of the largest investment projects in India. In 1993, the Board also entered into power purchase agreements with the Dabhol Power Corporation. The government of India had given payment guarantees, and the State government has also assured full support to the project. However, after a State election in 1995, the newly formed government rescinded the contract on ground of corruption. These situations have led to commencement of several arbitration proceedings under different contracts and applicable BITs. In a first set of disputes, the Dabhol Power Corporation initiated arbitration proceedings against Maharashtra in London for breach of contract, though the parties have reached a settlement. After five years, the Board failed to perform the payment obligations under the contract. Therefore, in 2001, the Dabhol Power Corporation initiated arbitration proceedings against the Board, the State government, and the Government of India.108 In this situation, the State government approached the Bombay High Court to restrain the Dabhol Power Corporation from pursuing international arbitration against the government. The court also granted an injunction against the Dabhol Power Corporation. Subsequently, the Delhi High Court also restrained the Dabhol Power Corporation from pursuing international arbitration against the central government.109 In the meantime, in USA, several companies involved in the dispute initiated arbitration proceedings before the American Arbitration Association against the Board, the State, and Central governments for their failure to provide guarantee in the event of political risk. The panel found that Indian courts have taken away claimant’s international arbitration remedies which were considered as a violation of international legal principles enshrined under the New York Convention and India’s commitments under the Arbitration Act, 1996.110 Thereafter, the US Companies through their subsidiaries in Netherlands, UK, Mauritius, Switzerland, France, and Austria brought separate investment claims against India under applicable BITs. However, a little later, the parties had reached a mammoth settlement, and thereby, all the pending arbitration and court proceedings came to an end.

108 For

a discussion on Dabhol case, see Bettauer (2009), Van Harten (2011). of India v. Dabhol Power Company, MANU/MH/1949/2002. 110 Also, see the authorities cited in Ronald J. Bettauer, supra note 108, Kundra (2008). 109 Union

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The Dabhol debacle casts serious doubts among the foreign investors on the credibility of Indian government and its judiciary on its international commitments. Also, when a new government takes charge, instead of abiding by its commitment to support the project signed by the previous government, it was rescinded. In this case, both the Delhi and Bombay High Courts have granted injunctions precluding foreign investors to pursue international arbitration, which was a clear violation of the New York Convention. This was one of the early cases demonstrating the relationship between Indian courts and investment tribunals.

5.5.2.2

Authority of Indian Courts to Issue Anti-arbitration Injunction in Vodafone Case

The Vodafone Group PLC, UK (hereinafter Vodafone) is a parental company of several subsidiaries including Vodafone International Holdings BV (VIHBV), a Dutch affiliate of Vodafone group. In April 2014, VIHBV initiated BIT claim against India under the India–Netherlands BIT for imposition of tax under the retrospective amendment to Section 1 and Section 195 of the Income Tax Act, 1961 read with Section 119 of the Finance Act, 2012, with retrospective effect.111 The tax was imposed during the Vodafone International Holdings BV’s acquisition of Indian company, Hutchinson Essar Limited. The case is currently pending before the Permanent Court of Arbitration. In January 2017, Vodafone Group PLC along with Vodafone Consolidated Holdings Limited, the UK associate of Vodafone Group initiated second BIT arbitration against India for the same cause of action under the India– UK BIT. During the pendency of these BIT claims, the Government of India filed a suit before the Delhi High Court seeking an anti-arbitration injunction restraining Vodafone from proceeding with international arbitration under the India–UK BIT.112 On 22 August 2017, the Delhi High Court had issued an ex parte interim order by restraining the Vodafone Group by pursuing arbitration under the India–UK BIT. Further, on 26 October 2017, the Delhi High Court in an order clarified that both parties were free to participate in proceedings of appointment of the presiding arbitrator. The Union Government had challenged the order before the Apex Court. The Supreme Court affirmed the order of the Delhi High Court, but it did not make any observation on merits of the case, since the Delhi High Court is yet to pronounce its final verdict.113 After hearing final arguments, the Delhi High Court on 7 May 2017 dismissed Indian government’s anti-arbitration injunction suit and permitted Vodafone to 111 Union of India v. Vodafone Group PLC United Kingdom and Ors., MANU/DE/2590/2017, para

14. 112 For

facts see Rai (2017). of India v. Vodafone Group Plc United Kingdom and Ors. (07.05.2018), MANU/DE/1673/2018 [hereafter the Vodafone Judgment]; recently, Indian Government appealed against the single judge order before the divisional bench of the Delhi High Court. The Vodafone case, which is, at the time of writing this chapter, appeal is pending before the division bench of the Delhi Court.

113 Union

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continue with the arbitration proceeding administered under the India–UK BIT. It is significant to note that for the first time, Indian Court (Delhi High Court) dealt with several legal issues involving BIT arbitration which has not arisen before, such as jurisdiction of domestic courts over BIT arbitration, applicability of the Arbitration and Conciliation Act, 1996 to investment arbitrations, and powers of national courts to grant anti-arbitration injunction. With respect to the jurisdiction of the Delhi High Court over the investment treaty arbitration, the court held that there is no statutory bar for Indian courts to deal with an issue relating to BIT arbitration.114 It reasoned that while Article 253 of the Constitution of India empowers the Parliament to enact law to give effect to International treaty, no such law has been enacted to give effect to BITs. India has also not yet become member to the ICSID Convention. The court observed that the main reason seems to be that the ICSID Convention ‘completely negate the role of National Courts’.115 On a significant note, the Court found that the Arbitration and Conciliation Act, 1996 does not apply proprio vigore to BIT arbitrations.116 This Court had referred to Port of Kolkata v Louis Dreyfus case, wherein the Calcutta High Court assumed the applicability of the Arbitration and Conciliation Act, 1996 to BIT arbitration. However, the Delhi High Court did not provide any explanation for its reasoning. The Court concluded that domestic courts have inherent power to restrain BIT arbitration only if there are compelling reasons and no other remedy is available. Also, such restrictive approach and jurisdiction should be in compliance with international legal obligations. The Court also dismissed India’s contention on ‘abuse of process’ in BIT arbitration. The Court had also given full liberty to the Indian government to raise this issue before the ITA tribunal, without in anyway being influenced by the observation of the Delhi High Court.117 This case has made a detailed discussion on the role of domestic courts in the grant of anti-arbitration injunctions to enjoin BIT arbitration. It has clarified several legal issues. The Delhi High Court decision is hoped to bring serious reforms on adopting balanced approach on host state regulation and investment protection. Legal Analysis On the issue of anti-arbitration injunction, it is indeed necessary to examine the case of Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors, wherein Kolkata High Court refused to restrain the entire BIT arbitration. However, the court has restrained Louis Dreyfus from initiating arbitration against the Kolkata Port Trust, because they were wrongly identified as respondent instead of Union of India. The court also presumed that the principle of judicial non-intervention provided under Section 5 of the Arbitration and Conciliation Act can be extended to foreign arbitration as well (including BIT arbitration).

114 Para

77 of the Vodafone Judgment. 78–79 of the Vodafone Judgment. 116 Para 90 of the Vodafone Judgment. 117 Para 149 of the Vodafone Judgment. 115 Paras

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There is no doubt that filing multiple arbitral proceedings for the same dispute before various forums to confirm their possibility of success could amount to ‘abuse of process’. However, the issue on abuse of process in investment treaty arbitration is contentious and debatable.118 It is pertinent to note that the two BIT arbitrations were initiated against Egypt for prolonged interruptions of gas supply and also of host state’s failure to protect the gas pipeline during the Arab Spring. The first ITA claim119 was instituted under the US–Egypt BIT, and the second120 was filed under the Egypt–Poland BIT. Both the claims were initiated by different entities of the same group of companies. It is significant to note that the ICSID tribunal in the first claim found that there was an abuse of process in the multiple proceedings for recovery of loss. However, the tribunal allowed the investors to select any one between the two ITA arbitrations which they had initiated.121 Therefore, we cannot reach any conclusion in Vodafone case only on the basis of Delhi High Court verdict. It is significant to note that anti-arbitration injunction is a relief recognized in various jurisdictions, but the position in India remains unsettled. It is evident that ITA tribunal in Dabhol case had considered the issue, but it did not reach any conclusion. The Delhi High Court in Vodafone case rejected the anti-arbitration suit. Further, it is clear that the Delhi High Court decision that National Courts can grant anti-arbitration injunction only in compelling circumstances and in cases where no alternative efficacious remedy is available. However, the question of how the courts will decide ‘compelling circumstances’ remains debatable.

5.6 Conclusion The 2015 Model BIT is structured in a way to avoid certain difficulties arising from the ICSID jurisprudence. However, the contentious issue of enforcement of ITA awards still persists. Therefore, domestic courts will continue to play prominent role in determining the enforceability of ITA awards. It is a paradox that the domestic judicial measures when they are solidly grounded on domestic good governance seem to violate the international legal obligations, at least in respect of foreign investors.122 Though India is yet to enforce any investment treaty award, it had the chances to review the investment treaty awards so far. Investment jurisprudence establishes that the Indian judicial delays could contribute to the deprivation of ‘effective means standard’ as claims.

118 Generally

see, Gaillard (2017). Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction (Feb. 1, 2016), paras 331–334 [hereafter the Ampal Decision on Jurisdiction]. 120 Mr. Yosef Maiman and Others v. Egypt, UNCITRAL, PCA Case No. 2012/26. 121 Paras 331–334 of the Ampal Decision on Jurisdiction. 122 Robinson (2009). 119 Ampal-American

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Chapter 6

Conclusions and Suggestions

Domestic courts are not usually considered as an effective forum to settle investment disputes in view of the perceived fear of home-court bias. Accordingly, the ICSID system had series of provisions to make it exclusive: (a) once the parties consent to ICSID arbitration, their right to seek remedies before another forum is ceased; (b) ICSID tribunal has to act independently without the interference of domestic courts; (c) the award shall not be subject to any appeal or to any other domestic or international remedy; and lastly (d) each contracting State shall enforce the pecuniary obligations imposed by that award as if it were a final judgement of a domestic court in that State. However, the same investment architecture allows the BITs to specify that local remedies or judicial remedies shall be exhausted as a condition for consent to ICSID arbitration. Accordingly, when the applicable BIT incorporates a specific rule in this regard, in all investment arbitrations, domestic courts can play a specific role to settle investment disputes. While domestic courts can play a role in the settlement of investment disputes within the limits of BIT and the local remedies rule, a state may incur international responsibility for wrongful acts committed by them. The customary principles of international law and the decisions of international courts and tribunals adequately establish that the conduct of any state organ shall be considered an act of that state, irrespective of whether that organ exercises legislative, executive, judicial or any other functions or whatever position it holds in the organization of the state; accordingly, a host-state may be held responsible for violations of international law when the decision of one of its state courts is in breach of international law. One of the important grounds under which the state responsibility for domestic courts arises is the denial of justice. The concept of denial of justice, though well established in international law and is applicable to investment arbitration, sets out one of the high thresholds. It requires a demonstration of a serious shortcoming and egregious conduct that shocks or at least surprises a sense of judicial propriety. Moreover, international law has no strict standards to assess whether judicial delays are a denial of justice. Moreover, it is also highly fact-sensitive. As a result, investment © Springer Nature Singapore Pte Ltd. 2020 A. Saravanan and S.R. Subramanian, Role of Domestic Courts in the Settlement of Investor-State Disputes, https://doi.org/10.1007/978-981-15-7010-0_6

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treaty tribunals are reluctant to hold that even nine years of delay in the judicial disposal of the application to set aside arbitral award as constituting a denial of justice, without examining all the attendant circumstances. On the other hand, the conduct of the domestic judiciary may also be reviewed by investment treaty tribunals under the ‘effective means’ standard as a lex specialis rule when the applicable instrument provides for it. The content of this standard is far from clear other than it is relatively broader than the customary international law concept of denial of justice. The available investment treaty jurisprudence establishes that judicial system’s inability to deal with internal jurisdictional claims in over nine years, despite appeal to the highest court may amount to unjustified delay and constitute breach of ‘effective means of asserting claims and enforcing rights’. Moreover, judicial conduct itself may constitute an unlawful expropriation. In these cases, denial of justice is generally insisted as a core element of judicial expropriation. To consider judicial expropriation, the investment tribunals have generally insisted upon two major requirements: firstly, the factual and substantial deprivation of contractual rights, etc. and secondly, the illegality of the actions. In the case of Saipem, the tribunal was of the opinion that the investor not only suffered deprivation of his rights but by revoking the authority of the arbitral tribunal, the state had violated its obligation to recognize and respect the arbitration agreement, a violation of Article II of the New York Convention. To avoid such liability, even the courts of the seat of arbitration must exercise their powers of supervision ‘in good faith, in accordance with the rule of law, and with generally accepted principles of international arbitration’. In addition to the above, there is one more way in which the decisions of domestic courts are reviewed by international tribunals. In the recent past, investment treaty tribunals and human rights courts have increasingly ruled on the conduct of domestic courts; in some cases, even investors have successfully enforced commercial arbitral awards by accessing the European Court of Human Rights; though this has some positive influence and acts as a ‘remedial tool’ when domestic courts are abusive, this also has the tendency to upset the ‘finality’ of domestic courts under the New York Convention. The Convention embodies the principle that in cases of annulment and enforcement, the decisions of the courts at the seat of the arbitration and at the place of enforcement shall be considered final. On the issue of the power of the domestic court to issue provisional measures in matters concerning investment arbitration, now, it is well settled that in cases of both ICSID arbitration and UNCITRAL arbitrations, domestic courts of ‘appropriate jurisdiction’ have the power to order provisional measures. In the case of ICSID arbitrations, the exercise of such power is no longer a debatable subject, as the current position is that national courts are entitled to order provisional measures, provided parties have expressly agreed to such recourse for preservation of their rights and interests. Similarly, in the case of UNCITRAL arbitrations, a party is allowed to request an appropriate judicial authority for interim measures. However, the same clarity is not available in the case of anti-arbitration injunctions. Each jurisdiction has its own approach in so far as these controversial remedies are concerned, in particular regarding their existence and availability in their domestic

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law. Similarly, each signatory to the New York Convention has its own views on their compatibility with the Convention. The investment tribunals have acknowledged this ambivalence and generally remarked that ‘the issuance of an anti-arbitration injunction ‘can’ amount to a violation of the principles embedded in Article II of the New York Convention’. However, revoking the authority of arbitral tribunals by domestic courts was viewed differently rather than granting anti-arbitration injunctions targeting the arbitration or arbitration agreement, as it was contrary to international law, in particular to the principle of abuse of rights and the New York Convention. India started its journey with investment treaties in the year 1994 with the signature of India-UK BIT. Its first encounter with an investment dispute surfaced in the year 2011 with the ‘White Industries’ decision. As the investment arbitral decision was voluntarily complied with, it was left without complete judicial experience of enforcement of investment awards. On the other hand, a sizeable quantum of investment awards and pending or contemplated investment disputes are associated with domestic judicial measures. It is apparent that the Indian approach to ISDS/BIT can be seen to be more of a backlash rather than a contribution to the reform of ISDS with a nuanced understanding of the problems of investment protection or ISDS. Today, India is not merely an importer of capital, but it is also an exporter of the capital. As Indian investors are also increasingly investing in other economies and markets, India cannot afford to over-protect its host-state regulatory discretion. Accordingly, India should recalibrate its stand on investment treaty protection. This would necessarily mean that the current version of the Model BIT needs a comprehensive re-examination. However, so far as the revised Model BITs provisions relating to local remedies are concerned, the current prescription of five years may not be needed, if adequate provisions for the speedier resolution of such disputes through special mechanisms such as commercial divisions can be ensured. Also, the rules and regulations which may perpetuate the systemic bias towards the foreign investors need to be reexamined to assure effective access to all local remedies. It is submitted that the choice of local remedies, though it is available within the limits of international law, it does not stop with the provision in the BITs. The state should do more by creating appropriate legal mechanisms to translate this commitment into reality, without which such remedies may not attract the attention of foreign investors. On the other hand, so far as the instrument’s provisions concerning the jurisdictional waivers are concerned, they only target parallel and multiple proceedings and accordingly, they are very much needed. However, the question of how far they will be effective will be known only when actual disputes are brought before the investment tribunals. Currently, India does not have any dedicated legal framework or mechanism governing the recognition and enforcement of investment treaty awards. Nor it has developed any judicial decision or statutory measure to clarify that they can be treated as ‘commercial’ awards, other than the points discussed in the work. In such a situation, confusion as to which legal framework will be applicable in respect of their enforcement will arise, as illustriously demonstrated by the judicial decision of Union of India v Vodafone Group Plc United Kingdom. Moreover, in the absence of

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any domestic framework an investor may not be able to plead breach of investment treaty standards before the national courts and instead, he can bring only violations of domestic law before them which makes the access to domestic courts less effective. Moreover, there is a divergence in India’s approach towards international arbitration and investment arbitration. While India promotes liberally the international arbitration (and even endeavours to position itself as a leading hub of arbitration in Asia), it has attempted to impose more controls on investment dispute resolution. It is emphasized that such lack of adequate support to investment arbitration will not only hurt the efforts on the side of investment arbitration but will have its own repercussions on the front of promotion of international arbitration. This work does not intend to propose a new legislation in this regard, as it is of the opinion that the provisions of Part II of the Indian Arbitration and Conciliation Act, 1996 will be more appropriate to deal with the issues of recognition and enforcement of such awards. As India has been consistently reluctant to the basic tenets of the ICSID Convention since 1966 and would like to retain at least a minimal discretion to the national courts in matters relating to investment dispute resolution, bringing investment arbitration under Part II of the national arbitration legislation (i.e. New York Convention) will be more suited to the Indian needs.

Subject Index

A Abuse of rights, 56, 57, 65, 71, 159, 183 Antrix dispute, 122 Arbitration and Conciliation Act, 1996 (India) 1st Amendment Act, 2015, 133, 140, 141 2nd Amendment Act, 2019, 145

B Bangladesh, 2, 35, 46, 56, 59, 60, 72, 125, 159 Bilateral investment treaties 2003, features of, 81, 86 bilateral investment promotion agreements (BIPA), 83, 122, 135 definition of investment, 66, 69, 87, 104, 118 definition of investor, 87 exceptions, in Model BIT, 88, 90, 91, 121, 122, 143 Indian Model BIT, 4, 5, 17, 37, 86, 136 local remedies requirement under Indian Model BIT, 2015, 37, 91, 104 role of domestic courts under the Indian Model BIT, 2015, 4, 176 scope of investment protection under BIT, 4, 84, 85 Bilateralism, 12, 13, 28

C Calvo Clause, 10, 17 Capital-exporting, 11, 12, 15, 16, 83, 86, 148 Capital-importing, 11, 12, 15, 16, 86 CERDS

Charter of Economic Rights and Duties of States, 11, 82, 86 Commercial arbitration, 2, 27, 34, 36, 53, 60, 61, 69, 70, 74, 130, 131, 133, 135, 137, 140–142, 145–147, 149, 153, 163, 169, 173 Compulsory licence, Grant of, 153 Cross-over cases, 56, 57, 68, 71 Customary international law, 9–11, 16, 19, 36, 37, 88, 89, 91, 119, 124, 126, 156, 158, 163, 169, 182

D Definitions asset-based definition, 106 definition of public policy, 138, 139 enterprise-based definition, 118 investment, 15, 38, 66, 68, 69, 86, 87, 104, 118, 128, 166 investor, 87 juridical person, 118, 127 Denial of justice breach of effective means standard, 58, 73, 157 denial of justice in international investment law, 156 denial of justice in international law, 126, 156, 181, 182 effective means standard, 73, 156–158 judicial conduct as unlawful expropriation, 159 judicial delay as denial of justice, 156 Diplomatic protection, 17, 18, 28 Domestic arbitration

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186 enforcement of domestic arbitral awards, 140 evolution of arbitration in India, 131 in India, 81, 146 Domestic court domestic courts and arbitral tribunals, interactions between, 4 domestic courts and commercial arbitration, 2, 61, 153 domestic courts and investment arbitration, 2, 4, 33, 34, 36, 42, 43, 53, 54, 73, 74, 153, 181, 182 intervention after the rendering of the award, 4, 35, 36 intervention before commencement of arbitration, 4, 35, 36 intervention during arbitral proceedings, 36, 42, 104 role of domestic courts under Indian Model BIT, 2015, 4, 176 Domestic courts in India Calcutta High Court, 67, 68, 136, 170, 173, 176 Delhi High Court, 46, 67, 130, 164, 173–177 Supreme Court of India, 136, 137, 153, 160, 173 Domestic courts intervention in arbitral process, 36

E Enforcement of foreign arbitral awards. See New York Convention, 25 European Court of Human Rights (ECHR), 54, 55, 182 European Union (EU), 128, 148 Exhaustion of local remedies rule fork-in-the road provision, 92 local remedies requirement under Indian Model BIT, 2015, 37 local remedies rule, 36, 37, 104, 124 Expropriation, 10–12, 15–19, 24, 56, 58, 60– 62, 65, 67, 70, 72, 82, 83, 86, 89, 90, 120, 122, 123, 125, 126, 137, 155, 159–164, 167–172, 182

F Fair and equitable standard of treatment domestic courts, legitimate expectations from, 72, 158, 159, 162, 163, 167, 168 Foreign arbitration, 131–133, 176

Subject Index H High Level Committee, 147, 148 Hull formula, 10, 17, 90 Human rights and investment treaty arbitration, 2, 34, 182

I IBA Guidelines on Conflict of Interest, 145 ICSID system, 50, 52, 181 Intellectual Property Rights (IPRs), 87, 118, 123 International Bar Association (IBA), 144, 145 International Court of Justice (ICJ), 17, 18, 43, 48, 49, 54, 71, 155 International law commission (ILC) ILC Articles of State Responsibility for Internationally Wrongful Acts, 54, 181 judicial acts as wrongful acts (Section 5.3), 154 Investment arbitration, relationship between commercial arbitration, 53 Investor-state arbitration. See Investor-state dispute settlement, 18 Investor-State Dispute Settlement (ISDS), 2, 4, 5, 11, 19, 35, 38, 41, 55, 81, 83, 91, 104, 123–125, 147, 148, 153, 183

L Law Commission of India, 98, 120, 141, 149 Law of state responsibility attribution and law of state responsibility, 154 state responsibility for judicial acts, 154, 155 Lex specialis, 157, 182 Louis Dreyfus Armateurs, 171, 172

M MIGA Convention, 9, 24, 83, 90 Multilateralism, 12–14, 20

N New York Convention Article II, 36, 72, 136, 182, 183 Article V, 24, 26, 47, 142 comparison of the ICSID convention and New York Convention, 52 defences under New York Convention, 48

Subject Index introduction, 1, 9 New York Convention and international investment law, 53 public policy grounds, 65 public policy requirement, for enforcement of foreign awards, 51 violation of New York Convention, remedies for, 173–175, 182, 183 Non-ICSID arbitral system, 4, 19, 43 North American Free Trade Agreement (NAFTA), 14, 16, 19, 23, 47, 55, 161

O OECD Draft Convention for the Protection of Foreign Property, 1962, 11 Organization for Economic Cooperation and Development, 11, 13

P Permanent Court of Arbitration (PCA), 2, 41, 63, 122, 143, 156, 163–165, 170– 172, 175, 177 Permanent Court of Arbitration (PCA), 62 Permanent Court of International Justice (PCIJ), 17, 18 Permanent sovereignty over natural resources (PSNR doctrine), 10 Protection of foreign investment history of international investment protection in India, 10 in India, 81, 82 Provisional measures or interim measures anti-arbitration injunctions, 45 powers of arbitral tribunal to order provisional measures, 138 powers of Indian courts to order interim measures, 137

R Regulatory chill, 19

187 Regulatory discretion, 183

S Sovereign immunity exception, 26, 49–52 Supervisory role of domestic courts in international commercial arbitration, 34

T Tax and expropriation Nissan tax dispute, 122, 167 retrospective taxation, 88, 98, 122, 167– 169 taxation of foreign investor, 169 Vodafone tax case, 46, 122, 168, 169, 173, 175, 177

U UNICITRAL UNCITRAL arbitration, as distinguished from ICSID arbitration, 27, 141, 142, 182 UNCITRAL Arbitration Rules, 1976 (as revised in 2010), 27, 39, 44, 45 UNICITRAL Model Law on International Commercial Arbitration, 34, 36, 48, 141, 142 United Nations Conference on Trade and Development (UNCTAD), 13, 15, 84, 98, 123 United Nations General Assembly, 11 Unlawful expropriation, 18, 72, 159, 182

V Vodafone tax dispute, 46, 122, 168, 169, 173, 175, 177

W White Industries case, 13, 70, 80, 85, 89, 146, 149, 158, 159, 166