{"id":1878,"date":"2012-04-13T02:09:56","date_gmt":"2012-04-13T07:09:56","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=1878"},"modified":"2012-12-10T07:45:46","modified_gmt":"2012-12-10T13:45:46","slug":"awards-and-decisions-7","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2012\/04\/13\/awards-and-decisions-7\/","title":{"rendered":"Awards and Decisions"},"content":{"rendered":"

US court vacates award against Argentina
\n<\/strong>BG Group Plc v. Argentina
\n<\/em>Lise Johnson<\/p>\n

A US appellate court has vacated an award against Argentina in a decision that may give investors pause before attempting to bypass treaty provisions requiring that they first pursue their claims in the host state\u2019s courts.<\/p>\n

The long course of the dispute<\/em><\/p>\n

The January 2012 decision was issued in BG v. Argentina<\/em>, one of the many treaty claims that have been filed against Argentina due to measures it took during the financial crisis it suffered roughly ten years ago.[1]<\/a> The claimant, BG Group PLC, filed its Notice of Arbitration against Argentina in April 2003 under the Argentina-United Kingdom BIT<\/span>. In doing so, BG Group leapt over treaty provisions that require investors to first submit their claims to the host state\u2019s courts before being able to pursue international arbitration.<\/p>\n

BG\u2019s decision not to seek court relief before commencing arbitration has remained a contentious issue. Before the tribunal, Argentina had argued that the language of the treaty was clear: Article 8(1) required investors to seek relief in domestic courts, while Article 8(2) added that if 18 months had passed since the dispute was submitted to the courts and the dispute was still unresolved, the investor could then submit its claims to international arbitration. Argentina argued that BG\u2019s failure to comply with those provisions meant that the tribunal could not review its treaty claims.<\/p>\n

The tribunal, however, rejected that argument, asserting that Article 8(2) could not \u201cbe construed as an absolute impediment to jurisdiction.\u201d[2]<\/a> It then proceeded to determine Argentina had breached the fair and equitable treatment obligation in the Argentina-UK treaty and ordered Argentina to pay BG more than US$185 million in damages, plus some US$684,000 for fees and expenses incurred by BG and the arbitrators.<\/p>\n

Argentina then took steps to vacate the award \u2013 a move that, if successful, would effectively nullify it, preventing BG from enforcing it in any of the 146 countries that are party to the New York Convention.[3]<\/a> BG, in turn, took action to attempt to enforce and collect on the tribunal\u2019s judgment. The parties brought their respective claims for relief to the US court with jurisdiction over the matter. Before the US court, Argentina asserted that the 18-month requirement was a condition of its consent to arbitrate disputes, and because that condition was not complied with, it had not consented to arbitrate the dispute. Consequently, Argentina continued, this meant that the tribunal had arbitrated a dispute over which it had no power, which is one of the few grounds on which the US court could vacate the award under the New York Convention and US law.<\/p>\n

The US district court rejected Argentina\u2019s arguments, and granted BG\u2019s motion to enforce the award. Argentina appealed. Again, the parties argued the issue of BG\u2019s noncompliance with Articles 8(1) and (2) of the Argentina-UK BIT.<\/p>\n

The appellate court, the Court of Appeals for the District of Columbia Circuit, sided with Argentina. In doing so, it made three main proclamations.<\/p>\n

First it held that it is responsibility of courts, not arbitrators, to determine whether the dispute may be arbitrated in cases where: a treaty makes resort to local courts a condition to arbitration; the treaty is silent on whether arbitrators have the power to determine whether a dispute is arbitrable; and the local remedies condition is not complied with.<\/p>\n

Second, the appellate court determined that the lower court erred as a matter of law because it did not determine that there was clear and unmistakable evidence that, contrary to the rule espoused above, the parties to the treaty had wanted the arbitrators to determine whether they had jurisdiction over the dispute.<\/p>\n

Finally, the court decided that because \u201cthere could be only one possible outcome on the [question of whether] BG Group was required to commence a lawsuit in Argentina\u2019s courts and wait eighteen months before filing for arbitration,\u201d it would reverse the orders of the lower court and vacate the tribunal\u2019s award.<\/p>\n

The appellate court\u2019s ruling has drawn critique from some who assert that it is inconsistent with the fundamental principle that tribunals have the power to determine their own jurisdiction. Nonetheless, it remains that under the New York Convention and US law, courts do have power to vacate arbitral awards in certain limited circumstances, including when the arbitrators decided a matter that the parties had not consented to arbitrate.[4]<\/a><\/p>\n

India in breach of BIT for court delays
\n<\/strong>White Industries Australia Limited v The Republic of India, <\/em>UNCITRAL<\/span>
\nLarisa Babiy<\/p>\n

In an award dated 30 November 2011, an UNCITRAL tribunal found that delays by Indian Courts amounted to a breach of the \u201ceffective means\u201d standard, in what marks the first known investment-treaty ruling against India.<\/p>\n

Background <\/em><\/p>\n

The Australian claimant, White Industries, concluded a contract in 1989 for the supply of equipment and the development of a coal mine with Coal India, a State owned and controlled company. A dispute arose between the parties and was submitted to an ICC<\/span> tribunal seated in Paris, which in 2002 awarded White A$4.08 million.<\/p>\n

Coal India applied to the High Court of Calcutta to have the award set aside, while White Industries applied to the High Court of New Delhi to have the award enforced. The Calcutta High Court rejected White Industries\u2019 application to have Coal India\u2019s petition to set aside the award dismissed. White Industries appealed this decision in front of the Supreme Court. With the aim of avoiding conflicting decisions, in 2006 the New Delhi High Court decided to stay the enforcement proceedings until the decision of the Supreme Court was rendered. White Industries did not appeal to the stay. As a result, nine years after the ICC tribunal rendered its award in White Industries\u2019 favor, the investor was still waiting for the Indian Courts to decide upon its jurisdictional claims.<\/p>\n

On 27 July 2010 White Industries filed a claim against India under the Australia-India BIT. It contended that the Indian government, by the actions of its courts and of Coal India, breached its obligations to grant fair and equitable treatment (Article 3(2)) and effective means of asserting claims (Article 4(2)).<\/p>\n

ICC award considered part of the investment <\/em><\/p>\n

The tribunal considered that the broad definition of investment contained in the BIT encompassed the claimant\u2019s contractual rights. In relation to White Industries\u2019 rights under the ICC award, the arbitrators concluded that the award per se<\/em> could not be considered an investment, but the \u201crights under the Award constitute part of the original investment\u201d being a crystallization of its rights under the contract, and as such \u201care subject to such protection as is afforded to investments by the BIT.\u201d<\/p>\n

Court delays don\u2019t breach FET<\/span> provision <\/em><\/p>\n

In addressing White Industries\u2019 claim on the violation of the fair and equitable treatment provision, the tribunal considered that none of its allegations met the standard required to establish the frustration of legitimate expectations. In particular, White Industries knew, or ought to have known, that Indian courts regularly entertain applications to set aside foreign awards and could not have relied on any belief as to how India would apply the New York Convention. Moreover, the claimant or ought to have known that India\u2019s domestic court system is overburdened and thus it could not have expected a timely enforcement of its award.<\/p>\n

The tribunal found that a violation of fair and equitable treatment through a denial of justice was also not proven. It stated that \u201cwhile the duration of the proceedings overall as well as the delay by the Supreme Court (\u2026) is certainly unsatisfactory in terms of efficient administration of justice, neither has yet reached the stage of constituting a denial of justice.\u201d In deciding on this issue, the tribunal considered that the question of whether Indian courts can entertain an application to set aside a foreign award is hotly debated in the country, thus it was not particularly surprising that the Supreme Court had not disposed of the claimant\u2019s appeal.<\/p>\n

Tribunal imports \u2018effective means\u2019 standard via the MFN<\/span> clause and finds breach <\/em><\/p>\n

White Industries relied on the most favored nation clause to benefit from the obligation to \u201cprovide effective means of asserting claims and enforcing rights\u201d contained in the India-Kuwait BIT. In its analysis, the tribunal considered the enforcement and the set-aside proceedings separately. In relation to the former, it stated that although the procedural history has been \u201cless than ideal\u201d, the three and a half years of delay of the Indian courts did not violate the BIT, in particular because White Industries decided not to appeal the order to stay the proceedings.<\/p>\n

Conversely, with regard to the set aside proceedings, the tribunal found that the claimant had done \u201ceverything that could reasonably be expected of it to have the Supreme Court deal with its appeal in a timely manner\u201d. As a consequence, the tribunal stated that it had \u201cno difficulty in concluding [that] the Indian judicial system\u2019s inability to deal with White\u2019s jurisdictional claim in over nine years, and the Supreme Court\u2019s inability to hear White\u2019s jurisdictional appeal for over five years amounts to undue delay and constitutes a breach of India\u2019s voluntarily assumed obligation of providing White with \u2018effective means\u2019 of asserting claims and enforcing rights.\u201d<\/p>\n

The tribunal considered the grounds advanced by Coal India to resist the enforcement of the ICC award and found that the award was enforceable under the laws of India. It concluded that \u201chad India not failed to provide White with \u2018effective means\u2019 of asserting its claims, the Indian courts ought by now to have determined the Award to be enforceable in India\u201d.<\/p>\n

For these reasons, the tribunal awarded White Industries some A$4 million, plus interest, costs and legal fees.<\/p>\n

The tribunal was formed by J. William Rowley QC (chair), Charles Brower (investor\u2019s nominee) and Christopher Lau SC (Respondent\u2019s appointee).<\/p>\n

Tribunal declines jurisdiction over claimant\u2019s failure to litigate in Argentina\u2019s courts
\n<\/strong>ICS<\/span> Inspection and Control Services Limited v The Argentine Republic<\/em>, UNCITRAL
\nDamon Vis-Dunbar<\/p>\n

In a 10 February 2012 ruling, an UNCITRAL tribunal has declined jurisdiction in a claim against Argentina because the claimant neglected to first take its complaint to Argentina\u2019s courts for 18 months.<\/p>\n

The decision is part of a growing number to interpret provisions that call for disputes to be litigated in domestic courts before they can be tried in international arbitration under investment treaties. Arbitrators have reached diverging conclusions, and jurisdictional decisions have swung both directions as a result.<\/p>\n

The claimant, ICS Inspection and Control Services, won a contract to inspect goods bound for import into Argentina before they left port. In its claim, ICS outlines a number of grievances in its dealings with Argentinean authorities, and these were compounded when Argentina entered an economic crisis and severed the link between the Argentine Peso and the US dollar.<\/p>\n

ICS lodged an administrative claim in 2002, and eventually received payment for outstanding invoices in 2006, albeit for less that it claimed to be owed. The claimant sought relief under the UK-Argentina BIT in 2009, seeking some US$25 million in damages.<\/p>\n

Jurisdictional issues <\/em><\/p>\n

Argentina offered a number of arguments as to why the tribunal lacked jurisdiction:<\/p>\n