Power of National Courts to Injunct Investment Arbitration Proceedings: The Indian Position.
[Chandni Ghatak]
The author is a fourth-year student of National Law University, Jodhpur. The article has been authored under the guidance of Mr. Kartikey Mahajan, an Associate at Kirkland & Ellis LLP.
International arbitration works on a sentiment of non-restraint which domestic courts ought to exhibit in relation to such proceedings. However, parties to international treaties containing arbitration clauses often resort to domestic courts to obtain anti-arbitration injunctions, impeding the arbitration process. This post critically analyses one such judgment rendered by the Delhi High Court recently in the case of Union of India v. Vodafone Group PLC United Kingdom & Anr.[1] The Court granted an anti-arbitration injunction against arbitral proceedings initiated by Vodafone Group against Union of India in relation to the provisions contained in the India-UK Bilateral Investment Promotion & Protection Agreement [BIPPA]. These proceedings were initiated because of the retrospective application of taxation laws, causing huge losses to Vodafone. Vodafone International Holdings BV, a subsidiary of the Vodafone Group[2] had, prior to the proceeding being discussed, initiated arbitration proceedings on similar claims under the India and Kingdom of Netherlands BIPPA.[3]
In the forthcoming sections, the author shall illustrate the errors in the judgment and how such practice, if gone unopposed, could threaten India’s aim of emerging as a leading hub of international arbitration.
The Rarity of Anti-Arbitration Injunctions in matters concerning Bilateral Investment Treaties
International arbitration does not depend on national courts for legitimacy; this recourse is made as a matter of right based on the agreement of the parties.[4] In Maffezini v. Kingdom of Spain[5], the international character of the obligations in these treaties called for the Tribunal to retain the ultimate right to ascertain the scope and meaning of these obligations. Investment treaties are specifically worded, establishing unambiguously the intent of the parties to be bound by such terms.
To allow its frustration due to intervention by national courts would defeat the very purpose of such treaties.[6] Thus, as a matter of general practice, anti-arbitration injunctions are rarely granted.
The Occasional Recourse to Anti-Arbitration Injunctions
There are a common set of grounds based on which such an order may be passed, such as the existence of oppressive and vexatious arbitration proceedings,[7] extent of likelihood of parties suffering irreparable harm if such injunction is not granted, and the like.[8] These grounds have been accepted in India as well in the case of Louis Dreyfus[9] [LD] by the Calcutta High Court, which is the only other Indian case to discuss investment treaties at length.
The LD case also reinforces the principle of non-interference, which is enshrined even in Indian arbitration law under section 5 of the Arbitration and Conciliation Act, 1996.
Abuse of Process – What & How?
The Delhi High Court observed that the arbitration proceedings culminated into a type of abuse of process due to the presence of multiplicity of proceedings initiated by a single economic entity along with the emergence of parallel proceedings. Heavy reliance was placed on the case of Orascom v. Algeria[10] [Orascom] to argue that entities forming part of the same vertical chain, controlled by the same management could not proceed with multiple arbitrations for the same claim.[11]
However, this argument may be refuted by analysing the decision of the ICSID Tribunal inAmpal-American Israel Corporation v. Arab Republic of Egypt.[12] The Tribunal therein found that although the claims made by the parent company before one tribunal and the ones made by a 100% owned subsidiary in the parallel arbitration proceeding amount to a double pursuit of the same interest, this exercise is reasonable if the jurisdiction of both the approached forums is unclear. Once jurisdiction is confirmed, only then can the abuse of process argument be made.[13]
Therefore, it can be argued that not only has such form of proceedings been accepted to a certain extent, it certainly is not a ground to grant an anti-arbitration injunction.
Problems with the Delhi High Court Judgment
The risk of causing ‘due process’ paranoia
Due process paranoia is understood as a perceived reluctance by tribunals to act decisively in certain situations for fear of the award being challenged based on a party not having had the chance to present its case fully.[14] In SGS v. Pakistan[15], wherein after a series of adverse judgments rendered by the Pakistan Supreme Court, when arbitration proceedings ultimately continued, one of the arbitrators exited, considering his inability to ignore the past injunction passed on the said proceedings by the concerned national court.[16]
Even in the instant case, the arbitration had witnessed several procedural impediments such as resignation of the Indian arbitrators in the past,[17] and pleas made by the Indian Government to change the arbitrators[18]. Therefore, it may be argued that this intervention by the domestic court could lead to the tribunal adopting such an overly cautious approach.
Improper reliance on Modi Entertainment
A major argument used to justify the passing of such an injunction has been the proving of India as a ‘natural’ jurisdiction.[19] The case of Modi Entertainment Networks,[20] was relied on as a landmark Indian judgment laying down the principles on natural jurisdiction. This is an incorrect position, considering that in the aforesaid judgment, the Court did not have to ascertain such principle in keeping with the presence of an arbitration clause.[21] Despite an express arbitration clause in the India-UK BIPPA,[22] by using the aforesaid principles, the Hon’ble High Court is creating a license to disregard arbitration clauses.
Taxation as a subject is not excluded under the India-UK BIPPA
A ground for granting such injunction has been that taxation as envisaged under the Indian Constitution is a subject of sovereign concern, thereby disallowing its arbitrability.[23] This is erroneous since the scope of the concerned BIPPA has not laid down any express exclusion as to matters concerning taxation being out of the scope of the Treaty.[24] If India wished to exclude such matter, it would have been done by way of the provisions of the BIT itself as it has done in the past in, for instance, the India-Austria BIT. The arbitral claims in the instant case deal specifically with the breaches of the provisions in the BIPPA itself [25], which uses the retrospective application of certain tax laws as an indication of an unamenable investor climate rather than a direct address to constitutional questions. Therefore, the Court’s acceptance of such argument appears to be incorrect.
Conclusion
On the one hand, India wishes to join the league of international arbitration hubs in Asia, while on the other, its courts still harbour a hostile attitude towards this process. If Indian courts continue to adjudicate on matters which must ideally be resolved by the tribunals concerned, it would threaten the autonomy surrounding arbitration proceedings, besides causing failure of such investment treaties.
[1] Union of India v. Vodafone Group PLC United Kingdom & Anr., 2017 S.C.C Online Del 9930 (India) [Vodafone].
[2] Id at ¶ 17.
[3]Vodafone moves ICJ over tax arbitration with India, The Hindu, available at http://www.thehindu.com/business/Industry/Vodafone-moves-ICJ-over-tax-arbitration-with-India/article14181636.ece (Oct 18,2016).
[4] Julian D M Lew, Does National Court Involvement Undermine the International Arbitration Processes? American University International Law Review 24 (2009).
[5] Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7 (2000).
[6] Salini Costruttori S.p.A. and the Federal Democratic Republic of Ethiopia, Addis Ababa Water and Sewerage Authority ICC Arbitration Case No. 10623/AER/ACS.
[7] British Caribbean Bank Limited v. The Attorney General of Belize, ¶ 32, [2013] CCJ 4 (AJ) (Belize).
[8] Sky Petroleum v. Ministry of Economy, Trade, and Energy of Albania, National Agency of Natural Resources of Albania, ¶ 9- 11, Case No. A-12-CA-023-SS (US).
[9] Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS, 2014 S.C.C. Online Cal 17695 (India).
[10] ICSID Case no. ARB/12/35; Vodafone supra note 1 at ¶ 19.
[11] Ridhi Kabra, India Citing Orascom BIT Award as Authority on Abuse of Process, secures a Temporary Injunction restraining new BIT Arbitration by Vodafone, IAReporter, available at https://www.iareporter.com/articles/india-citing-orascom-bit-award-as-authority-on-abuse-of-process-secures-a-temporary-anti-arbitration-injunction-restraining-new-arbitration-by-vodafone/ (Aug 23, 2017).
[12] Ampal-American Israel Corporation and others v. Arab Republic of Egypt, Decision on Jurisdiction, ICSID Case No. ARB/12/11.
[13] Id at ¶ 331.
[14] White & Case, 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, available at http://www.arbitration.qmul.ac.uk/docs/164761.pdf.
[15] SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13 (2003).
[16] Elodie Dulac, My First Anti-Arbitration Injunction, Young ICCA Blog, available at http://www.youngicca-blog.com/my-first-anti-arbitration-injunction/ (2014).
[17] Vodafone says arbitration may be delayed as 2 arbitrators quit, Business Standard, available at http://www.business-standard.com/article/pti-stories/vodafone-says-arbitration-may-be-delayed-as-2-arbitrators-quit-115051901462_1.html (May 19, 2015).
[18] ICJ rejects India’s plea for change arbitrator in Vodafone case, The Hindu Business Line, available at http://www.thehindubusinessline.com/info-tech/icj-rejects-indias-plea-for-change-arbitrator-in-vodafone-case/article9340758.ece (Nov 13, 2016).
[19] Vodafone, supra note 1 at ¶ 23.
[20] Modi Entertainment Network and Anr v. W.S.G Cricket Pte, (2003) 4 S.C.C. 341.
[21] Id; See Aditya Swarup, The Vodafone Anti-Suit Injunction, Commercial Law Blog, available at http://commerciallawblog.in/2017/08/25/the-vodafone-anti-suit-injunction/#comment-262 (Aug 25, 2017).
[22] Art.10, India – United Kingdom BIPPA (1994).
[23] Vodafone, supra note 1 at ¶ 20.
[24] Art 5(2), Argentina-New Zealand BIT (1999).
[25] Art.3(1), India-United Kingdom BIPPA (1994).