Recent Trends On Investment Treaties
By Kirit S. Javali
Posted: 22nd August 2014 08:51
Investment treaties nowadays have been popularised by the Bilateral Investment Treaties (“BIT”) of which India has signed 82 of them with 72 currently in force. The first one signed by India was with its traditional trading partner, the United Kingdom in 1994. India has since signed bilateral investment treaties with a number of countries and is in negotiations with several other countries to execute bilateral investment treaties, including the United States. However, India was a late entrant into the club of countries entering into bilateral investment treaties. The first BIT was entered into in the year 1959. The principal objective of BIT is to provide a stable investment climate, inter alia, by protecting investments from the arbitrary actions of a foreign government. The treaty provides for agreements on various issues and generally covers topics like, Applicability; Definitions of Investor and Investment; Fair and Equitable Treatment and Full Protection & Security; National treatment; Expropriation and Dispute settlement mechanisms.
Relevance of BIT to Indian Companies
International investors are increasingly sought after to provide funding for a wide range of infrastructure projects ranging from the construction and operation of power stations to the building of roads, airports, telecommunications networks and hospitals.
In such projects the international investor may not have a direct relationship with the central government of the host State. Instead his contractual counter-parties will typically be a provincial government, a public sector utility or even a private company.
A common misapprehension is that BIT protection is only available where there is a contract or relationship directly with the central government of the host State. In fact, the responsibility of the host State for performance of its obligations under a BIT is governed by well-established principles of international law, and this means that the host State can also be held liable for the acts of a wide range of lesser entities. These typically include provincial or regional authorities, the security services and police, courts of law and other judicial or quasi-judicial institutions, private companies working on behalf of the State, public sector utilities, corporations over which the State exercises de facto control and individuals working for or on behalf of the State.
The Government of the host State can therefore be held to account for the consequences of wrongful acts committed by entities over which in practice it exercises little or no control.
The host state has much to gain from investment protection as any other State party to BITs. At the same time, the host state is exposed to claims by investors under the bilateral investment treaty.
What many signatory States have failed to appreciate when they entered into such treaties was just how frequently a BIT could give a foreign private investor a right of recourse directly against the government of the State where he has made his investment. If the host State fails to provide an investment with the protection promised by the treaty, for example by expropriating assets without adequate compensation or by treating the foreign investor less favourably than domestic investors, an investor with BIT protection can commence arbitration proceedings against the government of the host State even though the investor himself is not a party to the BIT.
Recent decisions such as the White Industries award against India is relevant in this context. In 1989, White Industries Australia Limited, an Australian company, entered into a contract with Coal India Limited, a public sector undertaking, for supply of equipment and development of a coal mine at Piparwar, for a sum of about AUD 206.6 million. Disputes arose between the parties, and Coal India encashed the bank guarantee submitted by White under the Contract. In response, White Industries invoked arbitration proceedings against Coal India. Eventually, White Industries was granted damages for delays by the Indian courts in the enforcement of an earlier arbitration award which brought India’s Bilateral Investment Treaty (BIT) regime into focus. Though White Industries won the case in 2002, the award was not enforced even by 2010. Hence, it initiated an investment claim against the Government of India under the Australia-India BIT.
Investors are becoming increasingly aware of their rights under investment treaties, and there has been a rapid growth in the number of treaty arbitrations being initiated. The availability and scope of BIT protection is now an issue which is routinely at the forefront of the planning and structuring of international investment projects, and well advised investors appreciate that BITs can often provide greater protection and more effective rights of recourse than the project contracts themselves. It is also a rapidly developing area of law, in which new cases continue to define and extend the scope of the State’s liability to foreign investors doing business in its territory.
In addition to the bilateral investment treaties, there are multilateral investment treaties as well to which India is a party. India is also at present considering multilateral treaties such as the Trans Pacific Partnership.
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