ABSTRACT:

In recent times, the White Industries - India Award1 (BIT Award) has created quite a stir. In short, it holds India liable for damages for judicial delays of over nine years in enforcing an ICC Award between White Industries Australia Ltd. (White) and an Indian Government company, Coal India. The delay in enforcement by the Indian courts was held to deprive the Australian investor of 'effective means of asserting claims and enforcing rights' - an obligation contained in the Kuwait-India BIT, which the Tribunal held the Australian investor could take advantage of, relying on the most favoured nation (MFN) clause in the bilateral investment treaty between Australia and India.

The BIT Award has far reaching implications. At one level, it is an indictment of the Indian judicial system (as one not affording 'effective means of asserting claims and enforcing rights'). At another, it opens the doors to disappointed foreign litigants to seek similar relief and make court delays and other judicial shortcomings actionable per se. The Award throws up jurisprudential issues of the role, responsibility and independence of national courts and brings into focus the future of BITs and BIT arbitrations.2

Some issues which come up are: if an arbitral award is an 'investment' under Bilateral Investment Treaties; does an MFN clause extend to incorporation of a third-party treaty; scope of the 'effective means of asserting claims and enforcing rights' clause - and more particularly if it furnishes a cause of action to an investor if the host country's judicial system and institutions fall short of an 'objective international standard'. This article presents a critical analysis of the BIT Award and my views as to why it is erroneous and ought not to become a precedent in investment arbitrations.

BACKGROUND FACTS:

On 28 September 1989, White entered into a contract with Coal India (a Government of India Public Sector Undertaking) for the supply of equipment and development of a coal mine in India. The contract was governed by Indian law and contained an arbitration clause requiring disputes to be settled as per the ICC Arbitration Rules. Disputes and differences arose between the parties and the same were referred to arbitration in London resulting in an award dated 27 May 2002 in White's favour (hereinafter 'ICC Award').

On 6 September 2002, Coal India applied to the High Court of Calcutta to have the ICC Award set aside.3 Unaware of this application, White moved the High Court of Delhi on 11 September 2002 to have the ICC Award enforced.4 When White became aware of Coal India's application to set aside the ICC Award, it applied to the Supreme Court of India to transfer the Calcutta High Court proceedings to the High Court of Delhi and also applied for an interim stay of the Calcutta proceedings.5 On 29 October 2002, the Supreme Court of India granted an ex parte order staying the Calcutta proceedings. On 2 January 2003, Coal India's application to have the ICC Award set aside came up for hearing before the Calcutta High Court but could not be heard in view of the Supreme Court's stay order. On 20 January 2003, the transfer petition was heard by the Supreme Court of India. The BIT Award records that the Supreme Court advised White that it was inclined to dismiss its transfer petition, whereupon White withdrew the same.6

It may be stated as an aside that White's transfer petition was misconceived to begin with. The law is clear that if an issue is 'directly and substantially in issue' between the parties in a previously instituted suit, then 'no Court shall proceed with the trial' of the subsequent suit.7 This principle rests on the rule of res sub judice i.e. courts of concurrent jurisdiction should not simultaneously try two parallel suits with respect to the same matter in issue. White's enforcement application in the High Court of Delhi was filed subsequent to Coal India's set aside application in Calcutta and therefore it could not have been proceeded with in a different forum. White could have of course sought a transfer of the Delhi proceedings to Calcutta and have both applications heard together. White instead lost time in trying to have the Calcutta proceedings transferred to Delhi (a move doomed to fail from the start). White's ultimate withdrawal of its transfer petition from the Supreme Court was a tacit admission that its legal move was misconceived. Upon withdrawal and dismissal of White's transfer application, the Calcutta setting aside of ICC Award proceedings should have re-commenced, and White should have sought a transfer of its enforcement application filed in the Delhi High Court to the Calcutta High Court (so that both could be heard together). However it did not happen like that. White instead applied to the Calcutta High Court on 10 March 2003 seeking rejection of Coal India's setting aside application (of the ICC Award), on the ground of lack of jurisdiction (i.e., a set aside proceeding is not maintainable in relation to a foreign award).

On 17 November 2003, a single Judge of the Calcutta High Court heard White's challenge on jurisdiction and by an order dated 19 November 2003 rejected the same. White appealed this to a Division Bench of the Calcutta High Court. The appeal was also dismissed on 7 May 2004. It may be mentioned that since the judgment of the Supreme Court in NTPC v. Singer,8 (NTPC) a view taken in India was that Indian courts would have jurisdiction to entertain an application to set aside a foreign award if the law governing the contract and the law governing the agreement to arbitrate were the laws of India. However this law was stated under the previous Arbitration Act of 1940.9 India promulgated a new Arbitration Act in 1996. The new Act is a composite piece of legislation providing inter alia for domestic and international arbitration and enforcement of foreign awards. It distinguishes between domestic and foreign arbitrations solely on the basis of the seat of the arbitration. If the place of arbitration is in India, it would be a domestic arbitration and governed by Part I of the Act and if the place of arbitration is outside India, it would be a foreign arbitration and governed by Part II thereof. Part I of the Act contains a provision for setting aside a domestic award,10 but there is no provision for setting aside an award in Part II - the only provision being to enforce (or refuse to enforce) a foreign award.11

Hence, subsequent to the 1996 Arbitration Act some High Courts started taking a view that a foreign award could not be set aside by Indian courts. An interesting development however took place in the year 2002, when a three-judge Bench of the Supreme Court, in the case of Bhatia International v. Bulk Trading S.A.12 held that the domestic law provisions (i.e., Part I of the Act) could be extended to foreign arbitrations as well, unless the parties have expressly or impliedly excluded application of the said Part. This judgment was in the context of Section 9 of the Act providing for interim measures of protection from courts. Bhatia furnished a basis for some High Courts (notably the High Court of Gujarat) to take a view (following NTPC) that where there is an express choice of Indian law, Indian courts could entertain applications for setting aside of foreign awards, applying the domestic law provisions for the same.13 The rulings of the Single Judge of the Calcutta High Court and thereafter of the Division Bench, rejecting White's jurisdictional challenge to the set aside application were in this scenario.

On 31 July 2004, White appealed the decision of the Division Bench of the Calcutta High Court to the Supreme Court of India14 and also sought interim stay of the Calcutta proceedings. The Supreme Court granted leave to appeal but refused to stay the Calcutta High Court set aside proceedings.15

In the meanwhile, White's enforcement application continued to come up before the High Court of Delhi from time to time. On 9 March 2006, following an oral hearing, the Delhi High Court directed that the enforcement proceedings be stayed sine die with leave to White to revive the same upon a decision of the Supreme Court of India or of the High Court of Calcutta. The decision of the High Court of Delhi rested on Section 10 of the Code of Civil Procedure, 1908 (referred to above)16 and the need to avoid conflicting decisions between two High Courts and also considered that the Supreme Court while granting White leave to appeal had refused to stay the Calcutta proceedings. White did not appeal the decision of the High Court of Delhi staying its enforcement proceeding sine die. White also did not avail of its alternative remedy of having the Delhi (enforcement) proceeding transferred to Calcutta (so that the set aside proceedings and the enforcement proceedings could be heard together and the matter proceed). Clearly White preferred to wait out the outcome of its Supreme Court appeal while the Calcutta and Delhi proceedings came to a standstill. It would seem that there was some forum shopping on the part of White in neither applying for the Delhi proceedings to be transferred to Calcutta nor proceeding with the Calcutta set aside proceedings on merits.

On 10 January 2008, an important development took place. The Supreme Court of India handed out a decision in the case of Venture Global Engineering v. Satyam Computer Services Ltd.17 (Venture Global). Here the Supreme Court settled the divergent views amongst the various High Courts of India and held ( applying Bhatia) that Indian courts had jurisdiction to entertain an application to set aside a foreign award on the basis of the domestic law provisions of the Act. This decision was no doubt controversial.

Six days later, on 16 January 2008, White's appeal (against the order of the Division Bench of the High Court of Calcutta) came up for hearing before the Supreme Court of India. Normally the Supreme Court should have made short work of the appeal in view of its very recent decision in Venture Global (following a three-judge Bench decision in Bhatia). However the two judges who heard the matter differed. The Court passed the following order:

In the midst of hearing of these appeals, learned counsel for the appellant has referred to the three-Judges Bench decision of this Court in Bhatia International Vs. Bulk Trading S.A. & Anr., (2002) 4 SCC 105. The said decision was followed in a recent decision of two Judges Bench in Venture Global Engineering Vs. Satyam Computer Services Ltd. & Anr. 2008 (1) Scale 214. My learned brother Hon'ble Mr. Justice Markandey Katju has reservation on the correctness of the said decisions in view of the interpretation of Clause (2) of Section 2 of the Arbitration and Conciliation Act, 1996. My view is otherwise.
Place these appeals before Hon'ble CJI for listing them before any other Bench.18

By this process,White's appeal (which normally should have been dismissed on 16 January 2008 itself) got a fresh lease of life, and this (as subsequent events would show) became a turning point in the case.

White knew or ought to have known that the process of constituting a larger Bench would take time. First the Chief Justice of India would constitute a special Bench of three judges and if they thought it fit, the matter would again be placed before the Chief Justice to constitute a five-judge Bench (Constitution Bench). This process was necessary as Bhatia was a decision of three judges, and in the first instance a three-judge Bench would decide if it warranted a review by a larger Bench.

On 1 November 2011,White's appeal came up for hearing before a three-judge Bench. The Court felt that the matter deserved to be referred to a Constitution Bench, and accordingly the matter was referred to and finally heard by a Constitution Bench of the Supreme Court of India on various dates beginning from 10 January 2012.19 However all this became academic as in the meanwhile White ran out of patience with the Indian judicial system. On 10 December 2009 (within less than two years of the Supreme Court agreeing to reconsider Venture Global and refer its appeal to a larger Bench20) White wrote to India contending that 'by action of its courts . . . it had breached the provisions of . . . the BIT' and asserted claims exceeding AUD 10 million towards loss and damages.21

It needs to be stated that White chose to wait out the entire period it took for the Single Judge; the Division Bench of the Calcutta High Court and the Supreme Court of India to decide its application as to the jurisdiction of Indian courts to entertain a set aside application. Once there were two concurrent decisions of the High Court against it, common sense would have dictated that it should in the meanwhile have proceeded with the matter on merits. White did ask the Indian Supreme Court to stay the Calcutta proceedings at the time of grant of leave to appeal (in July 2004), but the Court declined to do so. Further on 10 January 2008, the Supreme Court upheld the jurisdiction of Indian courts to set aside a foreign arbitral award.22 In such situation for White not to have proceeded with the case on merits was a decision of its own. White took this decision in a scenario when it knew or ought to have known that the process of referring the matter from two Judges of the Supreme Court to three and thereafter (if they so agreed) from three to five would consume time. Moreover, the usual practice in the Supreme Court in such situation is to move an application before the Chief Justice of India for constitution of a special Bench.23 White moved no such application.

In such situation, to my mind, White's complaint of delay loses its legitimacy and the dispute its factual foundation.

Considering that the entire cause of action rested on delay, one would have expected the BIT Tribunal to reflect in some detail if there was any legitimate reason for the same and if steps could have been taken by White to mitigate delay. The Tribunal did advert to early hearing applications made by White in 2006 and 2007 and held that having done so White had, 'done everything that could reasonably be expected of it to have the Supreme Court deal with its appeal in a timely manner'.24 The Tribunal did not advert as to why White did nothing to set in motion the process of setting up a special three-judge Bench and thereafter a Constitution Bench to hear the appeal. The Tribunal quoted the following passage from White's counsel's closing speech:

It (White) has already been granted the right to any early appeal. That happened, comically, five and a half years ago. The matter sits in the court's weekly list, which is where expedited appeals go.25

I do not see this as a fair comment. Whatever comic relief White derived could not have been a substitute for it not doing what is normally required to be done in such situation in India. The 2006 or 2007 early hearing applications had clearly become infructuous in view of the subsequent developments of 16 January 2008 referring the matter to a larger bench.26 It is also no answer as to why White did not get on with the matter on merits in Calcutta while its appeal was pending in the Supreme Court, (especially considering that a stay of the Calcutta proceedings was asked for from the Supreme Court but declined way back in 2004).

The Supreme Court of India granted a rare indulgence to White by agreeing to reopen its recent decision (then barely six days old). In less than two years (on 10 December 2009) White invoked the Australia-India BIT contending that Articles 3, 4, 7 and 9 thereof stood breached.27

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Footnotes

1. Final award dated 30 Nov. 2011 (Award) in the matter of UNCITRAL arbitration under the Agreement between the Government of Australia and the Government of Republic of India on the promotion and protection of investment (Treaty). In this article, the Award is referred to as 'BIT Award' or the 'White Award'. The arbitral tribunal is referred to as the 'BIT Tribunal' or the 'White Tribunal', and the Treaty is referred to as the 'Australia - India BIT'.

2. See opening address by the Attorney General of Singapore, Mr Sundaresh Menon, Senior Counsel; ICCA Congress 2012: 'International Arbitration: the coming of a new age for Asia (and elsewhere).' The Attorney General stated that cases (like White Industries) 'illustrate that an entirely new source of State accountability has emerged' (para. 16).

3. This was under Section 34 of the Arbitration and Conciliation Act, 1996 (Act). Section 34 applies to arbitrations seated in India. Recourse by Coal India to this provision is explained hereafter.

4. This was under Section 48 of the Arbitration Act (enforcement of foreign awards, under the New York Convention).

5. The Supreme Court of India has jurisdiction if a transfer is sought from one High Court to another; Section 25 of the Code of Civil Procedure, 1908.

6. Paragraph 3.2.48 of the BIT Award at p. 21.

7. Section 10 of the Code of Civil Procedure, 1908.

8. (1992) 3 SCC 551.

9. (Act No. 10 of 1940).

10. Section 34 of the Act.

11. Section 48 and 49 of the Act.

12. (2002) 4 SCC 105 (Bhatia).

13. Nirma Ltd. v. Lurgi Energie Und Entsorgung Gmbh; AIR 2003 Guj 145.

14. Paragraph 3.2.59 of the BIT Award at p. 24.

15. Paragraph 11.4.4 of the BIT Award at p. 115.

16. Supra n. 7.

17. (2008) 4 SCC 190.

18. Supreme Court record of proceedings in Civil Appeal No. 7019 of 2005 dated 16 Jan. 2008.

19. Supreme Court record of proceedings in Civil Appeal No. 7019 of 2005 dated 1 Nov. 2011 and 10 Jan. 2012.

20. Supra n. 17.

21. Paragraph 3.2.64 of the BIT Award at p. 25.

22. Supra n. 17.

23. The Supreme Court of India has a sanctioned strength of thirty-one judges (though the actual strength may be lower). The Court normally sits in divisions of two judges each. From time to time, special Benches of three judges are constituted to take up matters where a two judge Bench may have differed, or there are conflicting views of the Court on a point. Similarly, from time to time, Constitutional Benches (comprising of five judges) are constituted to hear cases of grave significance. The constitution and timing of a three- or five-judge Bench is purely at the administrative discretion of the Chief Justice of India and also depends on the urgency demonstrated in a matter. It is usual for an appellant to move an application seeking urgent constitution of a special Bench (though such endeavours meet with mixed results).

24. Paragraph 11.4.18 of the BIT Award at p. 118.

25. Paragraph 11.4.18 of the BIT Award at p. 118.

26. Supra n. 18.

27. Article 3 provides for a 'fair and equitable' treatment. Art. 4 contains the MFN clause, on the basis of which White wished to import the 'effective means of asserting claims and enforcing rights' found in the Kuwait- India BIT. Art. 7 provides for exportation and Art. 9 for free transfer of funds.

Originally published by LCIA – Arbitration International; Vol. 29; Issue 2, 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.