Third Party Intervention in International Investment Arbitration By: Harshit Sharma

INTRODUCTION

It is significant to quote in the beginning about a clear understanding of the term ‘Third Party’ which in plain sense clearly connotes to that party which at the time of any agreement was not directly involved, but has certainly at an advance stage have aroused interest in such commitment, or is affected from the same.

Thus, third party intervention specifically states about the party’s intervention either in enhancing global trade and investment activity or on the other hand have quality potential to aid in conflict resolution by helping the effective conduct of arbitration between the consenting or committed parties to the International Agreement.

Therefore, it is pertinent to quote here that a foreign investor's power to sue a host State plays a vital role in investment protection. Investment arbitration is undertaken to resolve disputes between a foreign investor and the host State and is also known as Investor-State Dispute Settlement (ISDS) and differs from an International Commercial Arbitration (ICA/s) dispute due to the nature of the claim and the parties involved. While the former deals with disputes arising under a public treaty between two contracting States, the latter deals with disputes arising out of a commercial contractual obligation.[i]

Under a Bilateral Investment Treaty (BIT/s), States ensure certain rights and protections to investors from the other contracting State.[ii] These include Fair and Equitable Treatment, National Treatment, Most Favoured Nation (MFN), Protection from Expropriation to name a few. Each of these are protections accorded under international law and are usually negotiated upon by the contracting States, such that any derogation from the protections accorded give rise to the investor's right to initiate an investment arbitration against the host State. Currently, there are 2,344 BITs and around 314 Treaties with Investment Provisions in force globally.[iii]

DIFFERENCE BETWEEN INTERNATIONAL INVESTMENT ARBITRATION AND INTERNATIONAL COMMERCIAL ARBITRATION

The legal frameworks governing the ICA and investment arbitration are different to the extent that, in an ICA, the only relevant treaty is the New York Convention,[iv] which deals with the recognition and enforcement of foreign arbitral awards, while in an investment arbitration, treaties of public international law provide the basic framework. The role of national law is also different in both. In an ICA, procedurally the legal system of the "seat" governs the arbitration and gives national courts of the seat supervisory jurisdiction on the arbitral procedure. Further, the substantive national law is applied by the arbitrators to decide the merits of the case.

However, in an investment arbitration, procedurally, mandatory provisions of national law are only relevant if the arbitration is not governed by treaties such as the International Centre for Settlement of Investment Disputes (ICSID) or the North American Free Trade Agreement (NAFTA), but is instead governed by non-governmental organisations such as the London Court of International Arbitration (LCIA) or the International Chamber of Commerce (ICC).

The substantive national law on investment treaties are by default the law of the host State. This also means that the investor will be bound by any future changes in the municipal law of the State, which happens to be an understanding that is highly disputed when a change leads to a breach of the BIT and fails to protect the foreign investor,[v] as can be seen in Indian cases such as Vodafone (2017)[vi] and Cairn (2016)[vii].

In an ICA, jurisdictional disputes mostly relate to the scope of the arbitration clause, consent and its signatories. However, in an investment arbitration, the extent of jurisdictional disputes is quite vast. The consent to arbitration arises under a treaty, and principles of interpretation as laid down in the Vienna Convention become relevant. The State's consent depends upon: (i) whether an "investment" existed as understood under the BIT; (ii) whether the claimant is a citizen of the home State; and (iii) whether the citizen actually owns and/or controls the investor company.

The MFN clause in the BIT may play an important role, as even if there is no such clause according certain protection to an investor under a BIT, the existence of such protection in another BIT links the impugned BIT to BITs entered into by the host State with other countries, according the same protection to the foreign investor.[viii] A simple example of the same would be the dispute between India and White Industries, where White invoked the Kuwait-India BIT to establish breach.[ix]

Confidentiality of the proceedings is one of the vital tenets of an ICA. However, in an investment arbitration, foundational instruments such as the ICSID Convention and most BITs are silent on confidentiality. Thus, little or no confidentiality is practiced in investment arbitrations, which is understandable given the disputes concern State interests. A connected attribute would be of precedential value in such awards, while in an ICA, as most awards are confidential there is little precedential value. But, in an investment arbitration, since most awards are available in the public domain, it allows for an analysis of how similarly situated cases may be decided.

Upon the commission of a breach, most agreements provide for a cooling off period wherein the host State and the Investor are required to engage in negotiations to resolve the issue. This period begins upon serving the Notice of Intent to initiate arbitration against the host State. Once negotiations fail, which is often the case as the host State waits to see whether the Investor is willing to pay the high costs for an arbitration, the arbitration is initiated. Such a provision may or may not appear under an ICA agreement.

In some cases, the investor may be required to exhaust all domestic legal remedies prior to moving to arbitration, as is the case in India's 2015 BIT Model. On the contrary, investors under some agreements may have to decide whether they would like to sue either in domestic courts or by way of arbitration; such clauses are often referred to as the "fork in the road" clause.

Investment arbitrations and ICAs can be ad-hoc or institutional. The ICC, LCIA, and the Singapore International Arbitration Centre (SIAC) are some of the best-known arbitration institutions administering international commercial arbitrations, whereas for investment arbitrations ICSID is the preferred institution. Based out of Washington, the ICSID conducts arbitrations for European and Asian parties in Paris. The average duration of an investment arbitration, from the time the tribunal is constituted to the award, is a little over three years. A peculiar aspect of investment arbitration is the lack of an appellate mechanism, although the rules under which the arbitration is initiated may provide certain grounds for annulment or setting aside of the award.[x] Under the 2015 Model BIT, India prescribes an ad-hoc investment arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law or any other rules agreed upon by the parties in writing before the commencement of the arbitration.[xi]

The selection of an arbitral tribunal is considered as one of the most critical steps in the process of an arbitration. This is because some arbitrators are known for adopting a "pro-State" or a "pro-investor" approach. The ICSID provides for a panel of arbitrators from which the parties may select an arbitrator of their choice.[xii]The parties to an investment arbitration usually are extremely cautious about their choice of arbitrator. In an ICA, the parties may choose for the tribunal to be constituted of a sole arbitrator or three arbitrators. Where the parties have opted for a three-member tribunal, each party appoints an arbitrator of their choice, and the two arbitrators in consonance appoint the third arbitrator, who usually acts as the presiding arbitrator.

Due to the high costs of investment arbitration, as parties have to cover individual costs, institutional costs, tribunal costs and legal fees for the counsels, parties often obtain third party funding for the arbitration. Third party funding is the process by which a party who is not privy to the arbitration agrees to finance all or a portion of one party's legal costs in turn for an agreed percentage of any award or success fee provided that the party funded wins the case. However, the process of acquiring funding may be extensive, as third-party funders assess your claim before providing any monetary relief – should one need such assistance, we would advise a timeline for the same should be kept in mind.[xiii] In an ICA the costs vary depending on the place of arbitration, whether institutional or ad-hoc and the strength of the tribunal.

All parties to the ICSID Convention are required to adhere to Article 53 to 55 of the ICSID Convention for the enforcement of international investment arbitration awards. However, where the host State is not party to the ICSID Convention, the enforcement of the award is done under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.[xiv]

STATE INTERVENTION IN INTERNATIONAL INVESTMENT DISPUTES

Even though India has not acceded to the ICSID Convention, Courts in India have recognised the fundamental difference between the nature of the disputes between an ICA and investment arbitration, and have held “the cause of action (whether contractual or not) is grounded on State guarantees and assurances (and are not commercial in nature). The roots of Investment Arbitrations are in public international law, obligations of State and administrative law”. They have time and again reinforced the non-interventionist approach of Indian courts in relation to BIT arbitrations and limited the same to “rare and compelling circumstances”.[xv] Indian Courts have recognised their limitation in interfering in investment arbitrations, which leads their respective jurisdictions to shift closer to an investor friendly environment as promised under the BITs.

What Does Experience Tell Us? 

The real difference between an investment arbitration and an ICA lies at the very heart of each dispute. Factors such as parties, nature of the dispute, and the agreement from which the dispute arises play a determinative role in differentiating both arbitrations.

For investment arbitrations, in order to reduce the number of proceedings, especially since they are so cost heavy, it is imperative for States to:

(i) ensure coherence between the terms of existing BITs and their domestic legal system;

(ii) ensure protection to the foreign investor as long as it doesn’t violate domestic public policy; and

(iii) engage in effective negotiations once a dispute arises so as to avoid arbitration.

The best approach for an ICA is the arbitration-mediation-arbitration approach, where the flexibility to seek a quick resolution, once a party has been able to ensure that its interests are protected through injunctive reliefs, is one of its most innovative options.[xvi]

Ultimately, the approach to arbitration, whether investment or commercial, is similar yet different. Professionalism and experience count when advising in specialised arbitrations and therefore it is important to know the differences and similarities of these forms.

HISTORICAL BACKGROUND OF THIRD-PARTY LITIGATION & ITS POSITION IN INDIA

The earliest recorded instances of third-party litigation funding agreements, or pactum de quota litis in India date back to the 1800s, before the formal codification of contract law.[xvii] As with many English laws and practices that were imported into the Indian legal system during the colonial era, the restrictions on champerty and maintenance were thought to be applicable to litigation funding. However, conflicting decisions were handed down over time, which led to uncertainty regarding enforceability of such contracts.[xviii] Against the backdrop of other common law jurisdictions of Australia,[xix] and recently – Hong Kong and Singapore have taken steps to declare champerty and maintenance to be no longer applicable to third party litigation funding, it would be relevant to examine the jurisprudence in India on the subject.

The pendulum of judicial opinion in India regarding the applicability of champerty has oscillated between extreme positions. An unreported decision of Peel J in 1825 had held that the English prohibitions on champerty and maintenance did not apply to India.[xx] This was soon followed by a conflicting decision in Grose & Anr v Amirtamayi Dasi,[xxi] where Phear J, after embarking upon an exhaustive review of English and Indian authorities on the subject, concluded that laws declaring champerty and maintenance unlawful would be applicable to the Presidency Towns, and such agreements would be void on grounds of public policy.[xxii] The decision in Grose was followed by Holloway J determining that champerty and maintenance were applicable to the original side jurisdiction of the Madras High Court, and that transactions of such nature would be void.[xxiii]

Faced with such disparity in judicial treatment, the courts refrained from making any definitive pronouncements on the matter and left the question open for determination by their successors.[xxiv] The question was decided in 1876 by the Privy Council in Ram Coomar Condoo v Chandra Canto Mukherjee, turning judicial tide in favour of holding that the common law statutes of champerty and maintenance were laws specifically designed for England, to prevent the perverse practice of judicial officers oppressing the King’s subjects by maintaining vexatious suits or purchasing rights in litigation. More importantly, it was held that these laws were of a special character and the British statutes relating to them were inapplicable in India. It recognised that an agreement to supply funds to carry on an action as consideration for a share of the proceeds arising out of such action would not per se be opposed to public policy. Providing access to justice to impecunious parties clearly appeared to weigh with the Privy Council, and contracts in the nature of litigation funding by a third party were treated at par with other contracts.

Other decisions have also reaffirmed that the doctrines of champerty and maintenance are not applicable in India, and that champerties contracts can be struck down only if the object is contrary to public policy.[xxv] The position since then has remained uniform,[xxvi] viz. an agreement between a disputant and a third party to finance the cost of litigation in consideration for a share of the proceeds arising out of said litigation, was not per se illegal[xxvii] and could not be declared void on grounds of champerty and maintenance as these doctrines were not applicable to India and that third- party funding agreements do in fact provide access to justice.[xxviii]

Such agreements would be tested on the anvil of equity, reasonableness, and legality of the object behind the contracts, and unconscionable terms would be hit by s 23 of the Indian Contract Act 1872. In the absence of express prohibitions on champerty and maintenance in India, objection to such contracts remained centred on public policy considerations.[xxix] Thus, contracts that would otherwise be considered champerties under English law, were not ipso facto unenforceable, and the rule developed by the courts in India deferred to the sanctity of the contract in being fair, equitable and just between the parties.[xxx] Where the transaction envisaged merely the acquisition of an interest in the subject of litigation entered into in good faith, it could not be regarded as being opposed to public policy. To the contrary, such contracts were thought to be in furtherance of justice, viz. affording a suitor, with a meritorious claim but insufficient resources, adequate facility to prosecute his/her claim. However, if upon its construction, a funding agreement was found to be based on an unconscionable contract (such as a wagering contract, recovery of a gambling debt, etc.) or extortionate bargain or affected by undue influence exerted by the funder over the suitor, it was declared unenforceable as it offended the principles of public policy.

The practicalities of routing third-party funding into and out of India pose a separate set of challenges. This process is subject to the Foreign Exchange Management Act 1999 (‘FEMA’), and the various rules and regulations thereunder. FEMA classifies all transactions involving foreign exchange and/or non-residents into two primary categories – current and capital account transactions. Since FEMA does not explicitly classify third-party funding as either a current or capital account transaction, it is uncertain as to how such funds would interact with the regulatory regime, especially since both these transactions are viewed very differently under FEMA rules and regulations. 

This uncertainty of classification is compounded by the nature of activities that are classified as current and capital account transactions under FEMA viz. (a) current account transactions include ‘payments due as net income from investments’– third-party funding is commonly considered to be an ‘investment’, thereby possibly rendering net income earned a current account transaction; (b) while capital account transactions include ‘borrowing or lending by whatever name called’, either in foreign exchange or from/to a non-resident and hence, here third-party funding can assume the form of a loan,[xxxi] and the expansive scope of this provision (through the use of the phrase ‘by whatever name called’) could potentially cover other forms of third-party funding that resemble a loan. Further, capital account transactions are also classified as ‘guarantees in respect of debts, obligations, and liabilities’ incurred by a resident to a non-resident, or vice versa. Guarantees (as well as insurance) could often be the mode through which a third-party supports a claim, although neither are explicitly covered under ss 3(j) or 6(3) of FEMA.

 The versatility of third-party funding and its potential to assume any of the above forms makes its classification a question with neither a clear nor a constant answer. The practical impact of this difficulty in classification manifests not only because regulations and requirements differ based on whether the activity in question is a current or capital account transaction, but also these vary for different types of current and capital account transactions. To put this in perspective, a single foreign funder could, by virtue of utilising its entire catalogue of funding mechanisms, end up attracting a vast range of FEMA-related regulations, making third-party funding in India both burdensome and prone to regulatory uncertainty. Thus, in the absence of legislative clarification and until such time as clarity is provided, it is necessary to seek alternative legally viable solutions that will not attract these concerns – these will be discussed later in the paper. The permissibility of third-party litigation in India is seen in the rules of civil procedure made by various High Courts in the country which expressly recognise litigation financing and make provisions for security for costs in such cases.[xxxii]

 In fact, a constitutional bench of the Supreme Court of India has acknowledged that the doctrines of champerty and maintenance are not applicable in India, and that ‘there is nothing morally wrong, nothing to shock the conscience, nothing against public policy and public morals’ in such transactions as long as lawyers are not involved by way of contingency fee structures.[xxxiii]

In a recent Execution Petition filed before the Hyderabad High Court,[xxxiv] the respondents have sought to oppose the execution of the arbitral award made by Sir Phillip Otto in a London seated arbitration subject to the International Chamber of Commerce (ICC) rules. One of the grounds for challenge are that the petitioners had entered into a third-party funding agreement, and that execution should not be permitted as the funding agreement is champerties in nature and therefore, against the public policy of India. Although the matter is sub judice, it is the authors’ view that in light of the Indian jurisprudence outlined above including provisions of the Code of Civil Procedure 1908, such agreements are not illegal and can be enforced in India, barring the public policy considerations highlighted above.

INVESTMENT ARBITRATION & THIRD-PARTY INTERVENTION

As with international commercial arbitration, there has also been a marked rise in third-party funding in investment disputes. The factors leading to the proliferation of third-party funding in investment disputes mirror those for international commercial arbitration. Increasing costs associated with pursuing high value claims[xxxv] and the need to manage the financial risks involved in such proceedings have contributed greatly to the surge of third-party funding in this field.

Third-party funding’s increasing relevance to investment disputes can be attributed to the investors involved in these proceedings who are forced to bear the full brunt of the economic might of a State. Obtaining funding for such disputes would go a long way towards providing a level playing field for all parties opting for investment arbitration. For funders, investment disputes are arguably more attractive[xxxvi] than international commercial arbitrations owing to the high value of the claims involved, resulting in far greater compensation and comparatively higher returns for the funder. With third-party funding becoming a widespread practice, tribunals have declared that the existence of funding does not in itself offer grounds for objection to the admissibility of requests to arbitrate.[xxxvii]

India’s foray into Bilateral Investment Treaties (‘BIT’) started in the early 1990s with the liberalisation movement, with BITs being signed with more than 80 countries.[xxxviii] However, a spate of investor claims including the infamous White Industries case, led to demands for a re-look at the Indian BIT programme. Consequently, India decided to review its BIT regime in order to recommend revisions to the draft Model BIT.[xxxix]

The revised Model BIT, released in December 2015,[xl] shall provide the template for negotiation of any future BITs that India may enter into as well as for re-negotiation of existing BITs. Interestingly, the revised Model BIT makes no mention of third-party funding as a mode of dispute financing, nor did the 260^th Law Commission Report recommend its inclusion into its text. With third-party funding gaining increasing attention in India and the process of negotiating BITs ongoing, the time is ripe for making provision for third-party funding in the texts of the BITs that India enters into. An investor initiating claims under the BIT would then be at par with a claimant in an international commercial arbitration, having the facility to avail of third-party funding. Absence of such provisions would otherwise result in creating an artificial distinction between a party in an international commercial arbitration having the benefit of dispute financing and an investor being denied the same in an investment arbitration. A public consultation conducted by the Law Commission of India, as recommended above for third-party funding in international commercial arbitration, could also include a discussion on the benefits of third-party funding in investment arbitration. These benefits would largely mirror those available in international commercial arbitration. Comments could be invited from the Ministry of Finance that would be at the helm of negotiating the BITs.

The Model BIT functions only as a template subject to specific negotiations between the contracting States. Therefore, India would have sufficient latitude to include provisions recognising third-party funding as a form of dispute financing at the time of its negotiations. Inclusion of these provisions would also be in line with the growing international acceptance of third-party funding as a legitimate tool for realising the public policy objectives of access to justice. An important point to be considered during the consultation process would be the disclosure of third-party funding arrangements.[xli] Various Investor-State arbitral tribunals have taken varying stances on such requirements,[xlii] and clarity in this regard would go a long way towards resolving questions of disclosure of the funder’s identity and its impact on the independence of arbitrators. Towards this, India could take a leaf out of other trade partnership agreements that are now taking steps toward recognising the importance of third-party funding. For instance, the draft Transatlantic Trade and Investment Partnership[xliii] has attempted to address this issue by defining third-party funding and providing for mandatory disclosure of the fact of such funding and the name and address of the funder.[xliv] This signals that States have now begun to acknowledge the surge of third-party funding in investment disputes and deem it better to be empowered to regulate the same.[xlv]

HOW THE RIGHTS OR INTERESTS OF THIRD PARTIES MAY BE AT STAKE IN ISDS

Investor-state disputes often affect the rights and interests of other actors that are not formally party to the dispute. This reflects the wide range of relationships that typically arise in the context of international investment. The factual configurations are very diverse, as are the type of actors involved. For illustrative purposes and based on existing investor-state arbitrations, affected third parties may include:

1. Creditors of ISDS claimants;[xlvi]
2. Local government bodies or indigenous authorities with rights and powers over land, contracts, or regulatory spheres that are at issue in the ISDS case;[xlvii]
3. Local communities that are specifically affected by the investment in dispute – for example, where the investment is a natural resource or infrastructure project that impacts those communities, and/or where the investment is being contested by affected groups via domestic or other processes;[xlviii]
4. Users of utilities and other public services, who are affected by measures concerning those services, or by investment claims challenging those measures;[xlix]
5. Individuals or groups that have competing claims to property at stake in the dispute; and
6. Adverse parties in underlying or parallel domestic litigation.

Third-party rights or interests can be triggered or affected by ISDS disputes in a range of circumstances, including where:[l]

1. Disputes arise out of discrete competing claims advanced in different fora between nongovernmental actors, states, and investors. For example, when an environmental organization challenges before national courts a government agency’s issuance of an environmental permit to an investor, and the investor brings an ISDS claim to challenge the permit’s revocation;

NGO v Govt Agency ⇒ Investor v State (NGO not present)

1. Disputes in which ISDS is used to challenge aspects of the legal proceedings and/or outcomes of a dispute between the investor and other private litigants. For example, when individual plaintiffs secure a tort judgment against the investment, and the investor brings an ISDS claim to challenge the tort judgment as being arbitrary and disproportionate; or when a generics firm successfully challenges a pharmaceutical company’s patent, and an investor in that pharmaceutical company challenges the court decision in ISDS;

Tort Plaintiff v Investment ⇒ Investor v State (Tort Plaintiff not present) Generics Firm v Pharmaceutical Co ⇒ Investor v State (Generics Firm not present)

1. Disputes before ISDS tribunals involve competing rights and interests. For example, where affected communities challenge before national courts a government agency’s granting of a concession, arguing that consultation processes were inadequate, and the investor brings an ISDS claim to challenge a court injunction that stopped continuation of the project until consultation was complemented); and

Affected Communities v Ministry of Mines and Investor ⇒ Investor v State (Affected Communities not present)

1. Disputes in which the claimant seeks requests for relief (e.g. injunctive or declaratory) that affect non-disputing third parties.23 For example, an indigenous community and investor have competing claims over rights to a piece of land, and the investor sues in ISDS to secure an award ordering the state to provide it clear title to the disputed property.

Indigenous Community v Investor ⇒ Investor v State (Indigenous Community not present) It may be argued that, in ISDS disputes, the state represents the rights and interests of its citizens, and that, therefore, concerns regarding effects on third-party rights do not arise.

There are, however, a range of circumstances applicable to the international investment context where the interests and objectives of a respondent state and of affected third parties with discrete rights at stake may diverge, making the state unwilling or unable to make arguments to advance the rights or interests of third parties. States may, for instance, be unwilling to make concessions or advance arguments in ISDS that third parties could use against them in parallel or subsequent legal proceedings concerning harms suffered by those third parties. In addition, states may be unable to raise claims regarding relevant issues such as investor misconduct and violations of third-party rights.[li]

JUDGMENTS AND AUTHORITIES ON THIRD PARTY INTERVENTION IN INTERNATIONAL INVESTMENT ARBITRATION

In the recent case of Pricol v. Johnson Controls (Pricol Limited v. Johnson Controls Enterprises Ltd and Ors, Arbitration Case (Civil) No.30 of 2014), the Supreme Court of India declined to intervene in an international arbitration with the SIAC as appointing authority, upholding the parties’ chosen mechanism in a well-reasoned decision which was marked by a degree of judicial deference towards the arbitral process that is in keeping with current international best practices. To those familiar with Indian arbitration law, this is a progressive development and marks a welcome contribution to a growing canon of pro-arbitration Indian precedents that began with the Bharat Aluminium case (Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552).[lii]

Moreover, 2019 bore testimony to two investment treaty arbitration awards involving India. Of these, one related to decision on jurisdiction against India, and the other on merits against an Indian investor. Two investment arbitration claims have been withdrawn, and a new investment arbitration has been initiated against India. Additionally, two court decisions relating to investment arbitration involving India have been ruled in favour of the respective investors.

Indian Metals & Ferro Alloys Limited vs. Indonesia

In 2015, Indian Metals & Ferro Alloys Limited (IMFA), an Indian investor, initiated investment arbitration against Indonesia under the India – Indonesia BIT. The dispute arose out of overlaps in the coal mining permits granted to IMFA as well as to other companies in the same territory. This resulted in a conflict of rights to mine coal in the territory. The award is not public but reports suggest that all claims of IMFA were dismissed at the merits stage in favour of Indonesia.

Nissan Motor Co. Ltd. vs. India

Nissan Motor had acquired 70 per cent share in Renault Nissan Automotive India Private Limited, a consortium that built an industrial automotive facility in Chennai, the capital of State of Tamil Nadu in India. In 2008, Nissan signed an agreement with the State of Tamil Nadu for building a car plant. As per the Agreement, Nissan was promised incentives in nature of output VAT incentives and/or CST Incentives, input VAT incentives and Capital Goods VAT Incentives by the State government. These went unpaid / non-refunded by the State Government. Nissan Motor initiated arbitration against India under the India-Japan EPA seeking USD 770 Million as compensation for the unpaid incentives and damages due to delay.

In April 2019, a Singapore-seated arbitral tribunal rejected India's objection to jurisdiction under the India – Japan Economic Partnership Agreement (EPA), in a case initiated by Japanese auto-maker giant Nissan Motor Co. Ltd. in 2017. A key objection related to fork-in-the-road clause involved an interesting analysis by the tribunal on interpretation of an "investment dispute" under the Vienna Convention on law of Treaties. This interpretation informed the subsequent requirement of withdrawal of court proceedings before initiating investment arbitration. While interpreting the dispute resolution clause under the relevant Memorandum of Understanding, the tribunal held that the language of the clause confined to such disputes as arose out of the MOU. It held that international treaty obligations, and the right to enforce them by procedures specified in such treaties, exist on a different level of the international legal order than domestic law rights. As such, an agreement by an investor to submit international law claims to a forum other than that offered in the treaty must be clearly manifested and not simply inferred. This was coupled with the temporal aspect of the treaty and the prior signing of the MOU.

Another interesting objection combined an evaluation of the fair and equitable treatment standard with jurisdictional requirement under the BIT. The tribunal assessed the extent to which it should evaluate the sufficiency of the pleaded allegations on fair and equitable treatment to confirm its jurisdiction to move forward to the merits. It held that the jurisdictional question is whether the facts as pleaded present a treaty question for the Tribunal to decide, and not whether the facts as pleaded would definitively prevail on the merits. Accordingly, it held that Nissan had alleged facts sufficient to help the Tribunal to assume jurisdiction to consider the merits.

Across several objections such as fundamental basis of the dispute resting in a contract (and not treaty) between the Parties, admissibility of umbrella clause claims, triggering of fork-in-the-road clause and time-bar on claims, the tribunal appears to have meticulously interpreted the relevant provision and often with the lens of the Vienna Convention on Law of Treaties. The tribunal finally accepted jurisdiction over the dispute. India has challenged the award on jurisdiction before the Singapore International Commercial Court.

India vs. CC/Devas and Others

Close on the heels of the Swiss Federal Supreme Court decision in 2018 in the Deutsche Telekom vs. India case under the India – Germany BIT, in early 2019, the Hague District Court set aside India's challenge to the arbitration award in the CC/Devas vs. India case initiated by Mauritian investors in Devas under the India-Mauritius BIT. The judgment has not been published in English. However, reportedly, India's key ground for challenge circled around the tribunal's treatment of the 'essential security interest' exception to treaty obligations under the India – Mauritius BIT.

India vs. Khaitan Holdings Mauritius Limited

Khaitan Holdings Mauritius Limited had investments into Loop Telecom and Trading Limited in India. In 2008, Loop was awarded a license of 21 Unified Access Services ("UAS / 2G License") by the Government of India. However, in 2012, the 2G License was cancelled by the Supreme Court in the case of Centre for Public Interest Litigation v. Union of India owing to alleged irregularities in the license granting process. Loop approached TDSAT for refund of license fees. Its request was dismissed.

Owing to the license cancellation, one Kaif Investments Limited ("Kaif Investments") and Capital Global Limited ("CGL") that held substantial interest in Loop issued a notice to India under Article 8.1 of the BIT. Thereafter, Kaif Investments merged with Khaitan Holdings. In 2013, Khaitan Holdings issued a notice of arbitration under Article 8.2 of the BIT on the ground that it held 26.95% equity in Loop and is entitled to claim compensation in relation to the cancellation of the 2G License. Subsequent to proceedings by the Central Bureau of Investigation against Loop and its shareholders, India filed a suit before the Delhi High Court seeking anti-arbitration injunction to restrain Khaitan Holdings from continuing arbitration proceedings under the India-Mauritius BIT.

Relying on its decision in Vodafone Plc. case, the Court declined to grant the anti-arbitration injunction against India at the interim stage. It held that the tribunal has the power to determine whether Khaitan Holdings was a genuine investor in Loop. Accordingly, the Court decided not to interfere with the ongoing arbitral proceedings at this stage and ruled that anti-BIT arbitration injunctions should be granted only in rare and compelling circumstances.

Korea Western Power Co. vs. India

In 2012, Korean Western Power Co. (KOWEPO), a South Korean state-owned utility, decided to invest in India in the natural gas sector based on investments invited by India. KOWEPO acquired approximately 40% stake in Pioneer Gas Power Plant Ltd. (PGPL) which operated a gas-based power project in the State of Maharashtra. India made a commitment to supply fuel for the project. However, due to India's failure to meet its commitment, KOWEPO issues a notice to India in 2018 seeking resolution within six months. Despite best efforts at attempting to meet its commitment, India failed to resolve the issue. In December 2019, KOWEPO issued a notice of arbitration to India. The notice is not public. Investment relations between India and South Korea are governed by the India-South Korean BIT and the Comprehensive Economic Partnership Agreement (CEPA). The compensation claim is estimated to be about USD 400 million.

IMAGE 1: Cases relating to International Investment Arbitration in India.[liii]

CONCLUSION

India has been at the forefront of policy making in the FDI arena. Maximum governance minimum government does reflect on India's commitment to ease business in its corridors. Its Bilateral Investment Treaties landscape, like FDI inflows and outflows, has been dynamic in the last 5 years. However, what appears to be most dynamic is the investment disputes landscape. For detailed analysis of the investment treaty landscape in India and the India Model BIT 2016, please see our paper here.

While India has reacted to erstwhile and existing investment treaty disputes by terminating several BITs, the seemingly burnt out comet of BITs continues to leave a tail of disputes in the arbitration universe, thanks to sunset clauses. The resultant awards pave way to post-arbitration litigation in relevant courts through challenge, or resistance to enforcement. While arbitrations and post-arbitration proceedings involving India continue to rise, we are increasingly witnessing the growth of another species of disputes in courts. India has been uneasily attempting to restrain investment arbitrations through anti-arbitration injunctions, where India stands as a Respondent. And yet, in the midst of this myriad universe, it is heartening to note that India's independent judiciary has been a beacon of hope as it compels the Indian Government to honour the kompetenz kompetenz principle.[liv]

However, uneasy does lie the head that wears the crown. India's massive population, macro and micro-economic factors, national security and public interests, in addition to a strongly guarded Constitution, seem to encourage certain state and judicial measures at the cost of foreign investment. On the other hand, the crown cannot wield unbridled and unchecked powers that result in arbitrary and unfair measures on the plane of international law, at the cost of the public exchequer. We hope that 2020 will witness effective dispute resolution that draws a fine balance between foreign investment and State regulation.

References: