White Industries v India: redefining the interface between..., Arbitration 2012, 78(4),...

Arbitration 2012, 78(4), 395-400

Arbitration
2012
White Industries v India: redefining the interface between commercial and investment arbitration?
Stephan Balthasar
© 2018 Sweet & Maxwell and its Contributors

Subject: Arbitration

Keywords: Arbitration awards; Australia; Bilateral investment treaties; Delay; Enforcement; India; International
arbitration; International investment disputes;

Legislation:

 Australia-India Bilateral Investment Treaty 1999

Case:

 White Industries Australia Ltd v India Unreported November 30, 2011 (Arbitration)

*395 1. Introduction

In Franz Kafka’s parable "Before the Law", 1 the protagonist waits his entire life, without success, to get entry to the Law,
guarded by a doorkeeper. White Industries, an Australian company, experienced a similarly frustrating situation when
trying to enforce an ICC award in India that it had obtained against its Indian client: in fact, White’s "expedited appeal"
to the Indian Supreme Court had been sitting in the court’s weekly list for over six years without a hearing date being
set. White then initiated an arbitration against the Republic of India on the basis that India had breached the bilateral
investment treaty between India and Australia (BIT). 2 In the investment arbitration, the tribunal held that the delay of
Indian courts in enforcing the ICC award was a violation of India’s obligation to provide "effective means of asserting
claims" and that White could claim to be restored to the position it would have enjoyed had the breach of the BIT not
occurred, i.e. had the award been enforced. It therefore awarded damages in an amount corresponding to the sums that
could have been enforced under the original award. 3

At least at first sight it may seem that this decision will improve the prospects of award creditors in international
commercial arbitration: in fact, the award in White confirms that arbitral awards ruling on rights from an investment
are themselves an investment and will therefore benefit from the protection of applicable investment treaties. This is a
fortunate development because the recent decision in GEA Group v Ukraine 4 had cast some doubt on whether arbitral
awards are protected at all under investment treaties. By adopting the opposite view, the White tribunal creates an
interface between commercial arbitration and foreign investment law: in fact, when an investor is involved in commercial
arbitration, the courts of the host state will be obliged to respect the relevant investment treaty guarantees in order to
avoid their state’s liability. 5 However, on closer analysis, the award is somewhat less spectacular. When it comes to
applying the substantive treaty guarantees, the tribunal adopted a restrictive approach which limits the scope of future
application of the decision in White. Ultimately, the award in White may do little to help investors.

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2. The Decision in White

In White, the original dispute was an ordinary international commercial arbitration which turned into an investment
dispute when White claimed that the Indian courts’ failure to enforce the original ICC award amounted to a breach of
the BIT between India and Australia. This development illustrates the increased importance of foreign investment law in
the international arena. The basis for the protection of foreign investments usually lies in BITs, 6 by which states provide
certain guarantees to investments 7 made by foreign investors from *396 the other treaty state(s). As to substantive
protection, most treaties contain guarantees relating to expropriation as well as fair and equitable treatment, and many
also contain a most-favoured-nation clause. 8 As to procedural protection, it is common for investment treaties to refer
disputes between an investor and the host state to arbitration, often before the International Centre for the Settlement
of Investment Disputes (ICSID). 9 The arbitration option is, in fact, one of the key elements of investment protection
because it enables the investor to enforce the substantive guarantees without being limited to recourse before the host
state’s court where the prospects of a foreign investor may be limited for a number of reasons. 10

Background and facts of the case

Given the general framework of foreign investment law, White had to overcome a number of hurdles in order to establish
a BIT claim against India. It had to show that its contractual rights against its Indian client and the original ICC award
amounted to an "investment" in India and that there had been a breach of a BIT guarantee. In order to obtain damages
in the amount corresponding to the original ICC award, it also had to show that it would have been able to enforce the
award had the breach of the BIT not occurred. The origin of the dispute was a contract of 1989 that White had concluded
with Coal India Ltd for the supply of equipment and technology for the development of a coal mine in India. A dispute
arose and both parties raised claims against each other. White demanded payment for its performance bonus, while Coal
India demanded a penalty based on poor quality products. In 1999, White filed a request for ICC arbitration in Paris,
and on May 27, 2002, the ICC tribunal awarded an amount of AU $4 million to White.

In 2002, White applied before the High Court of New Delhi to have the award enforced in India, while Coal India had
filed an application before the High Court of Calcutta to have the award set aside. Despite the fact that the seat of the
arbitration was Paris, the Calcutta High Court and its Appellate Division assumed jurisdiction to hear the setting aside
application, 11 and the Delhi High Court stayed the enforcement proceedings pending the outcome of the setting aside
proceedings. In 2004, White appealed against the decision of the Calcutta courts to the Supreme Court of India. In 2010,
still no date had been set for the appeal and no reasonable estimate of when the appeal might be heard was available.
White then initiated arbitral proceedings against the Republic of India on the basis that the conduct of the enforcement
and the setting aside proceedings in India violated the guarantees contained in the BIT between India and Australia.

Contractual rights and arbitral awards as an "investment"

Under the Australia-India BIT art.1, investment covers "every kind of asset", including "(ii) right to money …,
contractual or otherwise". On the basis of that wording (which is *397 not uncommon in international BIT practice), 12
the arbitral tribunal held that the BIT did not provide that in order to be a covered investment, the investment must
be a right in rem. 13 It rather followed the general view 14 that rights arising from contracts (rights in personam) may
amount to investments for the purposes of investment treaties 15 and that the somewhat more restrictive requirements
under the Washington Convention, 16 namely the Salini Costruttori and Italstrade v Morocco test, 17 were inapplicable
in an investment dispute outside the scope of the Washington Convention—as was the case here. 18

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As to the arbitral award, the tribunal referred to the decision in Saipem SpA v The People's Republic of Bangladesh 19
treating arbitral awards as investments if and when the underlying rights were an investment. 20 More specifically, it
rejected the decision in GEA, where a tribunal had held that

"the fact that an award rules upon rights and obligations arising out of an investment does not equate the Award with
the investment itself". 21

Instead, the tribunal in White concluded that the rights under the award constitute part of White’s original investment,
being a "crystallisation of its rights under the contract". 22 As such, they are protected under the BIT just like the rights
under the contract. 23

Substantive guarantees under the BIT

In the investment arbitration, White had argued that the delay of the Indian courts in dealing with the enforcement and
the setting aside applications was a violation of various guarantees under the BIT. However, the arbitral tribunal held that
India had only violated the requirement to "provide effective means of asserting claims and enforcing rights with respect
to the investments": according to the tribunal, provisions granting "favourable conditions"—as does the BIT art.3(1)
—"lack sufficient content to be treated as a stand-alone, positive commitment giving rise to substantive rights". 24 As to
"fair and equitable treatment", the tribunal rejected the broad standard used in Tecnicas Medioambientales Tecmed v
Mexico, according to which a host state was prevented from affecting "basic expectations that were taken into account by
the foreign investor". 25 Rather, it adopted the narrower view that for there to be a violation of legitimate expectations of
the investor, there had to be *398 "specific and unambiguous" conduct by the host state and that encouraging remarks
by the host state, at the moment an investment decision was made, are in themselves not sufficient to create legitimate
expectations. 26 In the present case, legitimate expectations could not be made out because White knew or ought to have
known that Indian courts were prepared to entertain setting aside applications with respect to awards made outside India
and that the court system in India was overburdened. 27 The arbitral tribunal also held that there had been no denial of
justice: the test was "a stringent one" 28 and, while it was an objective standard that did not require an overt showing
of bad faith, it nevertheless required the

"documentation of a particularly serious shortcoming and egregious conduct that shocks, or at least surprises, a sense
of judicial propriety". 29

Whether a delay in judicial proceedings is a denial of justice depends on

"the complexity of the proceedings, the need for swiftness, the behaviour of the litigants involved, the significance of the
interest at stake and the behaviour of the courts themselves". 30

In White, the tribunal considered that there was little need to expedite matters given that the original award had awarded
interest, and that the question of whether Indian courts had jurisdiction to set aside an arbitral award made outside India
was sufficiently complex to conclude that there had been no "serious shortcomings". 31 According to the tribunal, there
was no case of expropriation either. While it held that the notion of expropriation covered any right, whether tangible
or not, 32 and also arbitral awards in which such rights are "crystallised", 33 the simple delay in the court proceedings
did not affect the rights or their value so that the case did not "sound in expropriation". 34

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However, the tribunal held that India had breached the requirement to "provide effective means of asserting claims and
enforcing rights with respect to investments". 35 The arbitral tribunal followed the decision in Chevron Corp and Texaco
v Ecuador, 36 stating that the test was "less demanding" than denial of justice, that undue delay may be a breach of
the effective means standard and that court congestion was no defence if it was "systemic". 37 While it held that the
conduct of the enforcement proceedings, albeit "less than ideal", was still appropriate until their stay, it considered that
the subsequent delay of the Supreme Court was a breach of White’s right to effective means of asserting its claim that
the Indian courts had no jurisdiction to set aside the ICC award made in Paris. *399 38

Compensation

As a result of the breach of the BIT guarantee, the arbitral tribunal concluded that White was entitled to be restored to
the position it would have enjoyed had the breach not occurred. 39 It held that in that case Indian courts would have
determined the award to be enforceable because

"an Indian court, acting reasonably and complying with India’s international obligations, would conclude that Coal
India had not established that the Award ought to be set aside and not enforced". 40

White was therefore entitled to the amount it would have enforced under the arbitral award (that is, AU $4 million plus
interest and costs awarded in the original ICC arbitration).

3. Analysis

The decision in White is certainly to be welcomed in that it requires host states to keep an eye on the functioning of their
judicial systems. It is, however, far from clear whether the award will lend itself to a more general application. First, there
is the question of jurisdiction: jurisdiction under BITs is conferred for investments located in a specific host country—
but if one considers contractual rights or rights in personam (and awards "crystallising" such rights) as an investment,
it may be difficult to determine where the investment is located. 41 It may be that such rights are an investment located
in the jurisdiction where the debtor is domiciled or resides 42 or with which the investment has the closest connection.
Either way, BIT protection would probably not be available when it comes to enforcing rights and awards elsewhere (for
example, White’s ICC award would not be an investment under BITs with third countries if White sought to enforce
the award there). 43

Secondly, the substantive guarantees protecting contractual rights and arbitral awards are somewhat limited. Under the
tests applied in White, existing defects of local court systems, of which investors could have been aware, will exclude any
legitimate expectations that could give rise to rights under fair and equitable treatment guarantees. The allowance the
tribunal in White made for the "complexity" of the case and the "need for swiftness" 44 will make it difficult to argue
that denial of justice and effective means standards have not been met unless one is confronted with facts similar to
those in White. More importantly, the scenario which is probably much more relevant in practice is the case where an
award is set aside or refused enforcement in breach of the New York Convention. 45 However, BITs do not confer
on investors a general guarantee that the host state will abide by all its international obligations, so the breach of the
New York Convention would in itself not be actionable under a BIT. The guarantee most likely to apply in such a case
is the prohibition of expropriation. However, on the basis of the approach in White, 46 such a scenario may well be
considered to fall short of expropriation because the setting aside of an award or *400 the refusal to enforce it does, at
least theoretically, not affect the underlying rights (nor their value). 47

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Thirdly, the decision in White is based on the tribunal’s finding that, without the breach of the BIT guarantees, the award
creditor would have enforced the award. In White, that conclusion was not problematic because both parties had agreed
that the tribunal should determine whether the award was enforceable in India. 48 Absent such agreement, it would be
difficult for an arbitral tribunal to come to conclusions of that sort because this would effectively pre-empt any decision
by the courts of the host state on enforceability or annulment. The arbitral tribunal would in fact determine the way the
local courts are to apply the New York Convention—and tribunals in investment arbitration may feel uncomfortable
with adopting such a role because there may be differing views about the contents of the convention and there is nothing
to suggest that the conclusions of an investment tribunal are any better than those of the local courts.

Fourthly, any award obtained in BIT arbitration will still have to be enforced against the host state. This does not only
require the investor to obtain the exequatur for the award (with the usual defences being available to the award debtor). 49
Rather, it requires the individual measures of enforcement to be compliant with the law of state immunity. 50 This leaves
room for the host state to escape enforcement of a BIT award in favour of foreign investors.

4. Conclusion

The decision in White is to be welcomed as it confirms that arbitral awards ruling on rights from investments also
enjoy protection under applicable BITs. However, the award is unlikely to have substantial effects on investment treaty
arbitration. On closer review, the award of damages in White is based on the exceptional facts of the case, namely the
failure of the Supreme Court to deal with an expedited appeal in six years, and it remains unclear what remedies are
available in the scenario where the host state sets aside an award or refuses to enforce it. If one takes into account the
fact that in White, the costs of the BIT arbitration (about AU $2 million) 51 were about 50 per cent of the principal sum
awarded in the original arbitration, it is clear that BIT protection will only be affordable in extraordinary circumstances.

Stephan Balthasar

Footnotes
1 Part of the chapter "In the cathedral" of the well-known novel of Franz Kafka, Der Process (Berlin: Die
Schmiede, 1925) (The Trial, translation by Breon Mitchell (New York: Schocken Books, 1998)).
2 2116 UNTS 145; [2000] ATS 14.
3 White Industries Australia Ltd v The Republic of India, Award, November 30, 2011. All investment
arbitration awards cited in this article are available online at: http://italaw.com [Accessed August 28,
2012].
4 ICSID Case No.ARB/08/16, Award, March 31, 2011, paras 161ff.
5 For a detailed analysis of judicial shortcomings and investment law, see Mavluda Sattorova, "Denial
of justice disguised? Investment arbitration and the protection of foreign investors from judicial
misconduct" (2012) I.C.L.Q. 223.
6 Worldwide, there are now over 2,200 BITs in force: see R. Doak Bishop, James Crawford and William
Michael Reisman, Foreign Investment Disputes (The Hague: Kluwer Law International, 2005), p.1.
7 For the notion of "investment", see Bishop, Crawford and Reisman, Foreign Investment Disputes (2005),
p.9.
8 For an overview of the substantive guarantees, see Andrew Newcombe and Lluís Paradell, Law and
Practice of Investment Treaties: Standards of Treatment (The Hague: Kluwer Law International,
2009), pp.121–146 (promotion, admission and establishment obligations), pp.147–192 (national
treatment), pp.193–232 (most-favoured-nation treatment), pp.233–320 (minimum standards), pp.321–398
(expropriation), pp.399–436 (transfer rights, performance and transparency) and pp.437–480 (observance
of undertakings).
9 ICSID was created under the Washington Convention of 1965 (575 UNTS 159).
10 For an illustration of the differing levels of access to justice worldwide, see Mark David Agrast, Juan
Carlos Botero and Alejandro Ponce, Rule of Law Index (Washington: World Justice Project, 2011), p.111.

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11 White, Award, November 30, 2011, para.3.2.57. In doing so, the Indian courts followed established case
law according to which Indian courts have jurisdiction to set aside awards made outside India unless the
parties specifically exclude that power (Venture Global Engineering v Satyam Computer Services [2008] 4
S.C.C. 190; [2008] I.N.S.C. 40). That approach has been subject to strong criticism among legal scholars:
see, for example, Ben Steinbrück, "Jurisdiction to Set Aside Foreign Arbitral Awards in India—Some
Remarks on an Erroneous Rule of Law" (2009) 11 Yearbook of Private International Law 481.
12 See, for example, the French Model BIT (2006) art.1(1)(c), the German Model BIT (2008) art.1(1)(c)
and the Indian Model BIT (2003) art.1(b)(iii) (published online at: http://italaw.com/investment-treaties
[Accessed August 28, 2012]). The US Model BIT (2012) appears to be somewhat more restrictive in that
its art.1 does not contain similarly broad wording.
13 White, Award, November 30, 2011, para.7.3.8.
14 See the cases cited by the tribunal in White, Award, November 30, 2011, para.7.4.7 n.37. Cf. Monique
Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between
International Law and Municipal Law (The Hague: Kluwer Law International, 2010), pp.27–50.
15 White, Award, November 30, 2011, para.7.4.1.
16 575 UNTS 159.
17 Salini Costruttori and Italstrade v Morocco, ICSID Case No.ARB/00/4, Decision on Jurisdiction, July
23, 2001, (2003) 42 I.L.M. 609 at [50]–[58]. Cf Lucy Reed, Jan Paulsson et al., Guide to ICSID Arbitration,
2nd edn (The Hague: Kluwer Law International, 2010), p.68; Sasson, Substantive Law in Investment Treaty
Arbitration: The Unsettled Relationship between International Law and Municipal Law (2010), pp.41–42.
18 White, Award, November 30, 2011, para.7.4.9.
19 ICSID Case No.ARB/05/07, Decision on Jurisdiction, March 21, 2007, para.127. That approach
had already been followed in ATA Construction, Industrial and Trading Company v The Hashemite
Kingdom of Jordan, ICSID Case No.ARB/08/2, Award, May 18, 2010, paras 113–114.
20 White, Award, November 30, 2011, para.7.6.4.
21 GEA, ICSID Case No.ARB/08/16, Award, March 31, 2011, paras 161–162.
22 White, Award, November 30, 2011, para.7.6.10.
23 By contrast, the tribunal also held that the guarantee that White had issued and that Coal India had
drawn was no "investment" because it "did not grant or create any substantive rights in favour of
White" (White, Award, November 30, 2011, para.7.5.7). This approach is too narrow because it would
allow the host state to assert unlimited liabilities against the investor without having to abide by the
investment treaty standard. The better approach is to treat the entire operation as an investment,
including the investor’s alleged obligations.
24 White, Award, November 30, 2011, para.9.2.12.
25 ICSID Case No.ARB (AF)/00/2, Award, May 29, 2003, para.154.
26 Following Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of
Treatment (The Hague: Kluwer Law International, 2009), pp.281–282.
27 White, Award, November 30, 2011, paras 10.3.11 and 10.3.14.
28 White, Award, November 30, 2011, para.10.4.5.
29 White, Award, November 30, 2011, para.10.4.7, following Chevron Corp and Texaco v Ecuador, Partial
Award, March 30, 2010, para.244.
30 White, Award, November 30, 2011, para.10.4.10.
31 White, Award, November 30, 2011, para.10.4.23 (which reflects the facts that the Indian courts’ approach
has been subject to strong criticism, see Steinbrück, "Jurisdiction to Set Aside Foreign Arbitral Awards in
India—Some Remarks on an Erroneous Rule of Law" (2009) 11 Yearbook of Private International Law
481).
32 White, Award, November 30, 2011, para.12.3.2. Cf. Monique Sasson, Substantive Law in Investment
Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law (The
Hague: Kluwer Law International, 2010), pp.83–87, 95.
33 White, Award, November 30, 2011, para.2.3.3, following the decision in Saipem, ICSID Case
No.ARB/05/07, Decision on Jurisdiction, March 21, 2007, para.127.
34 White, Award, November 30, 2011, para.12.3.6.
35 There is no guarantee to that effect in the India-Australia BIT, which contains, however, a most-
favoured-nation clause (art.4(2)) and thus allows application of the effective means standard guaranteed
under the India-Kuwait BIT (art.4(5), see http://finmin.nic.in/bipa/Kuwait.pdf [Accessed August 28,
2012]).
36 Chevron, Partial Award, March 30, 2010, para.244.
37 White, Award, November 30, 2011, para.11.3.3.

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38 White, Award, November 30, 2011, para.11.4.19.

39 White, Award, November 30, 2011, para.14.3.3.
40 White, Award, November 30, 2011, para.14.3.6.
41 That question was not addressed in Saipem, ICSID Case No.ARB/05/07, Decision on Jurisdiction,
March 21, 2007, para.127, ATA Construction, Industrial and Trading Company v The Hashemite
Kingdom of Jordan, ICSID Case No.ARB/08/2, Award, May 18, 2010, paras 113–114 and White,
Award, November 30, 2011, probably because these decisions deal with the jurisdiction where the
debtor was domiciled and with which the investment had the closest link so the point was not considered
problematic.
42 In international law there is, in fact, a general principle to the effect that a debt is located in the
jurisdiction where the debtor has its domicile: see, for example, the German Code of Civil Procedure
("Zivilprozessordnung") s.23, and, as to English law, Peter Kaye, "Situs of debts and jurisdiction to make
orders of garnishee" [1989] J.B.L. 449.
43 The raison d’être for BIT guarantees is the interest of the host state in the investment. The mere fact that
a debtor has assets in a jurisdiction may not be sufficient to treat an arbitral award as an investment of
the award creditor in that jurisdiction because the host state has little or no interest in the "investment".
44 White, Award, November 30, 2011, para.10.4.10.
45 330 UNTS 3.
46 White, Award, November 30, 2011, para.12.3.6.
47 For example, where an arbitral award is set aside, the claimant may, in principle, still pursue its claim
(either before the original arbitral tribunal or in new proceedings), and refusal of enforcement in a
specific jurisdiction does not prevent it from enforcing the award elsewhere.
48 White, Award, November 30, 2011, para.14.2.2.
49 While it is not possible to refuse recognition and enforcement of ICSID awards (Reed, Paulsson et al.,
Guide to ICSID Arbitration (2010), p.180), this remains an option for other investment awards.
50 For a general overview, see Karl M. Meessen, "State Immunity in the Arbitral Process" in Norbert Horn
and Stefan Michael Kröll (eds), Arbitrating Foreign Investment Disputes (The Hague: Kluwer Law
International, 2004), pp.387–397, esp. p.395.
51 See White, Award, November 30, 2011, paras 15.1.3 and 15.1.4.

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