PCA Tribunal upholds jurisdiction over disputes under India–Japan Comprehensive Economic Partnership Agreement

Nissan Motor Co. Ltd. (Japan) v. India, PCA Case No. 2017-37

In a decision dated April 29, 2019, a PCA tribunal considered the objections to its jurisdiction over claims brought against India by  Japanese company Nissan Motor Co. Ltd. (Japan) under UNCITRAL rules. The tribunal rejected all objections except one, on which it deferred its decision due to a lack of sufficient information.

Background and claims

The dispute related to Nissan’s investment involving the establishment of a vehicle-manufacturing factory. It made the investment through a consortium that included a wholly-owned subsidiary company and a company jointly owned with its French partner Renault s.a.s.

The consortium entered into a memorandum of understanding (MoU) with the provincial government of Tamil Nadu in 2008 (GoTN). Pursuant to this MoU, the consortium agreed to invest a minimum amount to establish a vehicle-manufacturing factory and achieve a minimum production capacity within seven years. The GoTN agreed to provide various incentives to the consortium, including refunds of certain categories of taxes. The MoU also prescribed the eligibility criteria for claiming these benefits.

Nissan alleged that the GoTN failed to pay the aforementioned incentives in a timely manner, resulting in an outstanding amount of INR 2,057.36 crores (approximately USD 290 million). According to Nissan, this constituted a breach of CEPA’s FET (Article 87[1]) and umbrella (Article 87[2]) clauses. It sought full reparation for the non-payment of these incentives and applicable interest.

The tribunal was properly constituted

India objected that the arbitral tribunal was not constituted in accordance with Article 96 of CEPA and Article 9 of UNCITRAL Rules. It argued that the combined effect of Article 96(11) of CEPA and Article 9 of UNCITRAL Rules was that the PCA Secretary-General (default appointing authority under Article 96[11]) could appoint the presiding arbitrator only if the parties and the two co-arbitrators failed to appoint the presiding arbitrator within 30 days from the appointment of the second arbitrator.

According to India, the PCA Secretary-General failed to follow the proper appointment procedure in two ways. First, he commenced the list procedure as set out in Article 8(2) of UNCITRAL Rules without first giving the parties an opportunity to mutually appoint the presiding arbitrator as provided in Article 96(11) of the CEPA. Second, he proceeded with the list procedure without confirmation of appointment of the second arbitrator. India claimed that this contradicted Article 9 of UNCITRAL Rules because Article 9 implicitly requires confirmation of appointment of the second arbitrator before commencement of any procedure for appointment of the presiding arbitrator.

The tribunal rejected India’s arguments and held that it was properly constituted.  It observed that Article 96(5) of CEPA and Article 1(1) of UNCITRAL Rules envisaged that the appointment procedure set out in CEPA took precedence over the conflicting appointment procedure prescribed in UNCITRAL Rules.

The tribunal observed that Article 96(11) of CEPA contemplated that the parties shall appoint their respective arbitrators and jointly appoint the presiding arbitrator within 60 days from the date on which the dispute was submitted to arbitration. The assistance of the appointing authority could be sought by either party upon the expiry of this 60-day period. Therefore, Article 96(11) did not provide for a separate or different timetable for appointment of the presiding arbitrator.

The tribunal also observed that India missed the 60-day deadline for appointing its own arbitrator, and the parties had failed to reach an agreement on the presiding arbitrator, after which the PCA Secretary-General was permitted to act on Nissan’s request to appoint the arbitrators not appointed by the parties.

The tribunal held that the PCA Secretary-General acted consistently with CEPA procedure by proceeding in tandem for appointment of the second arbitrator and using the list mechanism to determine the mutually acceptable candidates for presiding arbitrator. It took note of the Secretary-General’s decision to defer the final appointment of the presiding arbitrator until the formal appointment of the second arbitrator.

The tribunal concluded that there was no need for the Secretary-General to suspend the list procedure before the appointment of the second arbitrator because his authority to appoint the presiding arbitrator under Article 96(11) was independent of his authority to appoint the second arbitrator under the same provision.

Nissan’s pending domestic proceedings did not affect the tribunal’s jurisdiction

India also argued that Nissan was barred from proceeding with this arbitration pursuant to Article 96(6) of CEPA because it initiated proceedings in a domestic court and failed to withdraw those proceedings within 30 days of filing this case.

The tribunal rejected India’s objection on the basis of the plain text of Article 96(6) of CEPA.

It interpreted Article 96(6)’s scope as imposing a bar on only those domestic proceedings that were commenced by a “disputing investor” as defined in Article 96(2) of CEPA for resolution of an “investment dispute.” It observed that CEPA defined an “investment dispute” as a dispute alleging loss or damage from a CEPA violation and did not include all disputes arising out of similar facts or involving measures motivated by similar policy concerns.

According to the tribunal, the fact that the domestic proceedings may have involved certain overlapping facts with Nissan’s CEPA claims did not change its analysis of Article 96(6)’s clear text. It also cautioned against a tribunal overriding the drafting choices of parties and undertaking what the parties did not undertake in the treaty provisions.

The tribunal ultimately concluded that Nissan’s initiation of the domestic court case did not fall afoul of Article 96(6) as these proceedings did not allege a breach of CEPA but rather challenged the constitutionality of Tamil Nadu’s amendments to its Value Added Tax legislation.

Nissan’s claims were not fundamentally contractual in nature

The tribunal next examined India’s objection that Nissan’s claims were fundamentally contractual claims under the MoU. According to India, the MoU’s dispute resolution clause required that the disputes under the MoU would be submitted to a domestic arbitral tribunal and excluded all other forums for adjudication of such disputes. It alternatively argued that even if the tribunal accepted jurisdiction over the FET claim, the umbrella clause claim would still be inadmissible because the umbrella clause required importing into the BIT all the parties’ obligations under the MoU, including the obligation to abide by the dispute resolution clause. In India’s view, Nissan could not approbate and reprobate in respect of the same contract.

The tribunal rejected India’s objection. It first held that Nissan was only required to show that the pleaded facts presented a treaty question for the tribunal to decide and not whether the facts as pleaded would definitively prevail on the merits. In the tribunal’s view, this formulation was consistent with the approach to preliminary jurisdictional questions articulated by Judge Rosalyn Higgins of the ICJ in her opinion in Case Concerning Oil Platforms (Islamic Republic of Iran v. United States of America).[1] The tribunal concluded that the facts pleaded by Nissan satisfied this standard.

Thereafter, the tribunal examined the implications of the dispute resolution clause in the MoU. It stated that it would focus on the content of the relevant arbitral agreement, rather than the formalism of its conclusion with Tamil Nadu rather than India.

The tribunal observed that the MoU dispute resolution clause was an exclusive forum selection clause in favour of domestic arbitration for the categories of disputes covered by it. However, it ultimately held that this clause did not foreclose resort to arbitration under CEPA. It noted 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. It found that there was no clear and convincing evidence to suggest that Nissan waived its rights under CEPA by agreeing to the dispute resolution clause in the MoU.

The tribunal also rejected India’s alternative objection relating to the umbrella clause and held that the treaty text did not suggest any such exception for the forum selection clauses in the provincial contracts.

Nissan’s claims were not time barred

India also argued that the tribunal lacked jurisdiction because Nissan failed to bring its claims before the expiry of the three-year limitation period imposed by Article 96(9) of CEPA. In contrast, Nissan argued that different time bars applied to its FET claims and umbrella claims which made it clear that none of its claims were time barred.

The tribunal dismissed India’s objection. It accepted Nissan’s pleaded facts arguendo only for the purpose of examining this objection and concluded that Nissan’s claims were not time barred.

Taxation measures deferred for further consideration

India also argued that Nissan’s claims related to “taxation measures” that were excluded from the tribunal’s jurisdiction pursuant to Article 10(1) of the CEPA. However, the tribunal deferred this objection for further consideration because it did not have enough information to make a finding on this issue at the preliminary stage.

(Editor’s note: Nissan has subsequently withdrawn its claims under the CEPA after reaching a confidential settlement with the GoTN in May 2020.[2])

Notes: The tribunal was composed of Jean E. Kalicki (president appointed by PCA, United States of American national), Kaj Hobér (claimant’s appointee, Swedish national) and Jagdish Singh Khehar (respondent’s appointee, Indian national). The decision is available at https://www.italaw.com/sites/default/files/case-documents/italaw10875.pdf. The parties have reportedly settled this dispute and withdrawn these proceedings.

Sarthak Malhotra is an Indian attorney based in New Delhi, India.


[1] https://www.icj-cij.org/en/case/90

[2] Shah, A. & Varadhan, S. (2020, May 28). Exclusive: Nissan settles dispute with Indian state over unpaid dues – sources.  Reuters. https://www.reuters.com/article/us-nissan-india-arbitration-exclusive/exclusive-nissan-settles-dispute-with-indian-state-over-unpaid-dues-sources-idUSKBN2342AR