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India held liable to King & Wood Mallesons’ Australian client as a result of the failure of the Indian courts’ to promptly enforce an arbitration award

Bilateral investment treaties may offer important protections against a variety of risks faced by investors in foreign countries.  A team from King & Wood Mallesons has recently obtained for its client the first known investment arbitration award in favour of an Australian investor.

Introduction

On 30 November 2011, White Industries Australia Limited (White), represented by King & Wood Mallesons, won approximately A$10 million in an arbitration against the Republic of India under the Australia-India Bilateral Investment Treaty (Australia-India BIT).  The Tribunal held that India was liable to White as a result of the failure of the Indian courts to deal with an arbitral award in White’s favour against Coal India, which had languished in the Indian courts for over 9 years.  The tribunal held that this delay breached India’s obligations to Australian investors under the Australia-India BIT as India had failed to provide White with “effective means” of enforcing its arbitral award.

In this note we discuss: (i) the general nature of a BIT claim; and (ii) the facts of the White Industries v India case.

What is a BIT?

BITs are agreements entered into between two States, usually with the aim of encouraging and promoting trade between those States.  While each BIT is different, BITs generally provide that each State guarantees certain protections to investors of the other State.  If a State breaches a guarantee under the BIT, for instance by “expropriating” (or taking) the investment of the foreign investor, then most BITs provide that the investor may bring direct action against the State for that State’s conduct.  BITs generally provide that the investor does not need to bring such an action in the foreign States’ courts, but instead may bring the action in an international arbitration.  Where this is the case, the dispute between the State and the investor will usually be heard in a neutral venue, by international arbitrators appointed by each of the parties, or by an independent arbitral institution.  It is significant that there is generally no right of appeal on the merits from awards delivered by tribunals pursuant to BITs.

It is generally considered that a BIT award rendered in a foreign investor’s favour offers enforcement advantages over private commercial arbitrations, as a State may own commercial assets in a broader range of jurisdictions than a private commercial entity.  In addition, as a practical matter (in most cases) where a States is found liable for breach of a BIT, the State meets its obligations under the Award.

Australia is currently a signatory to over 20 BITs, including BITs with countries in South America (such as Argentina and Chile), Asia (such as China, Phillipines, Indonesia and Vietnam), Europe (such as Czech Republic and Poland) and Africa (such as Egypt). 

White Industries v India

In 1989, White entered into a contract with Coal India Limited (Coal India) under which White agreed to develop a mine for Coal India in Piparwar, India.  During the course of the project, disputes arose between White and Coal India and in 1999 those disputes were referred to an ICC arbitration, in accordance with the contract.  In 2002, the tribunal issued an Award in White’s favour.  From 2002, White attempted to enforce the Award in the Indian courts and Coal India attempted to have the Award set aside, on various grounds. 

Frustrated with the lack of progress in the India courts, in July 2010, White commenced an action against India under the Australia-India BIT, alleging that India had failed to provide White with “effective means of asserting claims and enforcing rights” as the Indian courts had failed to properly deal with White’s ICC Award.  White claimed the monies due to it under the original ICC award, plus interest and some costs. 

Ultimately, the tribunal agreed with White.  The tribunal held that India had breached the Australia-India BIT.  The tribunal noted:

..the Tribunal has no difficulty in concluding the Indian judiciary system’s inability to deal with White’s jurisdictional claim in over nine years, and the Supreme Court’s inability to hear White’s jurisdictional appeal for over five years amounts to undue delay and constitutes a breach of India’s voluntarily assumed obligation of providing White with “effective means” of asserting claims and enforcing rights.

The key issues in this case were whether White’s ICC award was an “investment” for the purposes of the Australia-India BIT, and whether the Indian judiciary’s 9 year delay was sufficient to constitute a breach of the BIT “effective means” standard.  The tribunal ruled in White’s favour on both issues, finding that the ICC award crystallised White’s original rights under the contract with Coal India, and that the 9 year delay constituted a breach of India’s obligation under the BIT to provide White with “effective means” of asserting claims and enforcing rights.  White was awarded the monies due under the ICC Award, plus interest, and the costs claimed by White.

White’s success is the first known award in favour of an Australian investor under a BIT. 

The King & Wood Mallesons’ team comprised Max Bonnell and Jason Clapham (who each acted as advocate), and Hernan Pintos-Lopez and Monty Taylor.

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