India held liable for breach of Bilateral Investment Treaty for judicial delay in enforcement of an international arbitral award

In a first of its kind development, the Republic of India was recently held liable for breach of its Bilateral Investment Treaty with Australia for judicial delays in enforcement of a foreign arbitral award. The order was passed on November 30, 2011 but has been made public only recently. It can be found here.

The UNCITRAL Arbitration between White Industries Australia Limited and the Republic of India was held in Singapore and will go down in history as the first ever investment arbitration against India. The previous one was concerning the Dabhol power plant in India but these multiple investment arbitration proceedings were settled before any award was made.

The dispute in this case concerned the excessive judicial delays suffered by White in enforcing its 2002 International Chamber of Commerce (ICC) award made against its JV partner Coal India. White sought enforcement of this award in Delhi High Court whereas Coal India sought to set aside the award in Calcutta High Court. The Calcutta HC held that it had the jurisdiction to consider setting aside the foreign arbitral award and appeals regarding the same were pending before the Supreme Court of India. The SC is currently considering the jurisdiction of Indian courts in setting-aside foreign arbitral awards. A summary of the award can be found here and here.

The UNCITRAL Arbitral Tribunal held that this excessive delay in local courts amounted to a breach of the India-Australia BIT. More interestingly, this was held to breach the treaty’s Most-Favoured Nation (MFN) clause. As India’s BIT with Kuwait contained an “effective means” clause, the Tribunal used the MFN clause to apply this “effective means” standard to the current dispute. The utility of this “effective means” clause was that this was invoked in a 2010 arbitral award to include court/judicial delays as being breaches of investment treaties (see Chevron v. Ecuador under the US-Ecuador BIT).

This investment award raises various unforeseen and unsettling questions regarding international investment law in India. Since, there have been no precedents to guide the legal system, a new niche area of investment arbitration will develop due to this award. Already, in the aftermath of the 2G judgment, Sistema JSFC, a Russian company has notified the Indian government of its inclination to invoke the investment arbitration clause in the India-Russia BIT. With the opening up of the FDI routes in India and various international investors entering into JVs, Indian bureaucracy will have to be aware of the obligations under the several BITs India has entered into with numerous countries across the world.