A recent investment treaty arbitration decision highlights the potential value of bilateral investment treaties in supporting the enforcement of international arbitral awards.
Bilateral investment treaties
Bilateral investment treaties (BITs) are agreements between two States which are intended to promote trade between those two countries. All BITs are di! erent. However, they typically contain clauses protecting the rights of investors from one State when making investments in the other.
The types of rights which are typically protected include:
- the right to receive equal treatment to that given to local companies and to other foreign investors
- the right not to have your investment taken (or expropriated) the Government; and
- the right to insist that the Government honours its obligations under a contract.
BITs will usually allow an aggrieved investor to bring an action directly against the host State Government in international arbitration, rather than having to bring any action in the host State’s own courts.
BITs can be directly relevant to companies working in the construction and engineering sectors as investment treaty cases have found that construction contracts are an investment which can be protected. Therefore, if the actions of a host State (whether in its capacity as a project participant or in another regulatory or enforcement capacity) causes an ‘investor’ to su! er losses in connection with a project, a remedy may be available under a BIT (if one exists between the host State and the investor’s home State).
If you do have a claim under a Bilateral Investment Treaty, that claim is made not against your contract counterparty directly (unless that counterparty is the government) but against the central government, for failing to ensure that one if its subdivisions or agencies complied with their treaty obligations.
Claiming directly against a host State could obviously have serious commercial (and political) implications. However, this is becoming an increasingly popular method of protecting investor rights in foreign countries and the final awards are more easily enforced than private international arbitration awards.
When you are looking at business opportunities in a new country – or if you have a large value dispute which has proven difficult to resolve – it is worth investigating whether a BIT remedy may be available.
The India decision – White Industries Limited v Republic of India (UNCITRAL)
Cool India Limited ((CIL) and White Idustries Australia Limited signed an agreement in September 1989 for the turnkey development of the open-cast coal mine at Piparwar in Uttar Pradesh, India. The agreement contained an arbitration clause providing for ICC arbitration with Paris as the seat.
During the course of the project, disputes arose in relation to the deduction of penalties by CIL. Ultimately these were referred to arbitration. In March 2002 an ICC Tribunal issued a substantial award in White Industries’ favour. From 2002 onwards White Industries attempted, unsuccessfully, to enforce that award through the Indian courts. At the beginning of 2012, the action had reached the supreme court.
In July 2010, frustrated with the lack of progress, White Industries commenced an action against India under the Australia-India BIT, claiming that India had breached its treaty obligation to provide a foreign investor with “effective means of asserting claims and enforcing rights”. What was interesting here was that this obligation was not one which was within the Australia - India BIT itself, but in a BIT entered into between India and Kuwait. However, the Australia - India BIT did contain what is known as a “most favoured nation” clause which means that White Industries were also to make use of provisions in other BIT’s if the provisions of that other BIT gave investors of another nation greater protection. White Industries also claimed it had been denied justice in violation of the obligation to provide “fair and equitable treatment” to foreign investors.
Having decided that the ICC award was “an investement”1 which could be protected under the BIT, the UNCITRAL tribunal agreed with White Industries that the nine-year delay by the Indian courts in acting to enforce White Industries’ award amounted to a breach of India’s obligation to provide an effective means of enforcing its rights.
The Tribunal did not accept that India had breached its fair and equitable treatment obligation. This was because White Industries had not done everything it could to prevent the delay.
Therefore, White Industries was awarded the amount due under the original ICC award plus interest dating from 2002 and costs. In other words, White Industries was awarded the amount it would have been entitled to but for the delays it faced in the Indian courts.
Where there is a BIT in existence between the host State in which your project is located and your own country, the decision in White Industries v India will provide additional support in attempts to enforce arbitral awards. Where other attempts to enforce or negotiate payment against an award have been exhausted, the threat of direct action against the host State Government may very well introduce new pressures which could lead to a satisfactory result.