Zeyad Abouellail, Legal Content Officer at Jus Mundi
Introducing “Arbitration Aftermath” by Zeyad Abouellail: Your guide to the latest post-award developments in the evolving landscape of investor-State and commercial arbitration. Each week, Zeyad explores a range of post-award news involving sovereign States with a global perspective –– from post-award settlements, compliance with awards, to recognition and enforcement procedures, annulment, and more.
Federal Court of Australia upholds jurisdiction over India in enforcement proceedings of BIT award, rejecting the State’s immunity arguments
PCA Case No. 2013-09
Institution: PCA (Permanent Court of Arbitration)
Tribunal: Marc Lalonde (President), David R. Haigh (Appointed by the claimants), Anil Dev Singh (Appointed by the State, replaced Francisco Orrego Vicuña)
Seat of Arbitration: The Hague, The Netherlands
On October 24th, the Federal Court of Australia rejected India’s application to dismiss the Devas investors’ enforcement bid for lack of jurisdiction. The Court, applying the New York Convention and the 1985 Foreign States Immunities Act, found that India is not immune from jurisdiction.
The dispute stems from a contract signed in 2005 between Devas Multimedia Private Ltd (“Devas”) and Antrix Corporation, an Indian government-owned company, for the procurement of S-band satellites aimed at providing high-speed internet services.
After Antrix terminated the contract, citing essential security interests, Devas initiated ICC arbitration against Antrix in 2011. Simultaneously, three Mauritius-based shareholders of Devas (“the investors”) launched an arbitration against the State under the Mauritius – India BIT in 2012.
The ICC arbitration concluded with a 2015 award holding Antrix liable for more than USD 562 million, with the award today worth over USD 1.3 billion. The award was annulled by the Delhi High Court, a decision which was upheld by the Supreme Court earlier this month.
The BIT arbitration resulted in a 2016 award finding India liable for expropriating the shareholders’ investments. While the tribunal only partially upheld jurisdiction over the claim, finding that the State’s decision to terminate the contract was in part directed to the protection of essential security interests, it found that India’s actions amounted to unlawful expropriation and violated the BIT’s FET provision.
The partial award was upheld by the Supreme Court of the Netherlands in February this year.
In October 2020, the tribunal awarded the investors USD 111 million plus interest and USD 10 million in legal costs.
India applied to set aside the quantum award before the Hague District Court. The State also sought revocation of both the merits and quantum awards based on allegations of fraud before the Hague Court of Appeal. Both proceedings are still pending.
In parallel, Devas faced winding up proceedings in India. In 2021, the National Company Law Tribunal ruled that Devas was incorporated by the shareholders to enter into the 2005 contract for “unlawful purposes” and that the contract was “void ab initio”.
Dismissal of India’s application by the Federal Court of Australia
In April 2021, the investors sought enforcement of the BIT award in Australia. India filed an application to set aside the investors’ bid, arguing that it is immune from jurisdiction under the 1985 Foreign States Immunities Act (“FSIA”).
In this week’s judgment, Justice Jackman first ruled that the standard applicable to determine whether a waiver to jurisdiction by agreement has been made by India for the purposes of section 10(2) of the FSIA “requires either express words or an implication arising clearly and unmistakably by necessity from the express words used”.
He pointed out that prior analysis by the Federal Court of the proper approach to waiver in the context of the ICSID Convention does not represent “considered dicta that the signing of the New York Convention constitutes a submission to jurisdiction under s 10(2)” (on the ICSID Convention, see Infrastructure Services Luxembourg (Antin) v. Spain, Judgment of the Federal Court of Australia  FCA 157).
Jackman J observed that the Convention does not explicitly use the terms “waiver” or “foreign State immunity“, and proceeded to conduct a thorough analysis of the Convention applying articles 31 and 32 of the 1969 Vienna Convention on the Law of Treaties.
He clarified that Article III of the Convention lies at the “heart of the question” and requires Australia to recognize awards as binding and enforce them without imposing more restrictive conditions than those of the Convention.
Jackman J concurred with the investors that, at this stage, the structure of the New York Convention does not require more than providing the arbitration agreement and an authenticated copy of the award. According to Article IV of the Convention, the investors “need not establish that the apparent arbitration agreement is valid or applicable”. India’s contentions should be heard at a later stage, with article V giving “ample opportunity to the party against which the award is invoked to contest the question of whether there truly was a valid and applicable agreement to arbitrate“.
He further noted that the findings of the winding up proceedings in India are irrelevant at this stage and any questions of Indian law that may arise are to be dealt with later pursuant to Article V of the Convention.
Consequently, Jackman J concluded that the investors are not required to prove the existence of an investment at this stage of the proceedings, and that the Convention supports submission to jurisdiction by agreement “by way of clear and unmistakable necessary implication”.
India argued that the application of the New York Convention is limited to awards involving a commercial or private law dispute, as opposed to disputes concerning the conduct of the State acting in its governmental capacity.
Jackman J rejected this argument and found no textual basis for that limitation. Moreover, he underscored that reference to “private law disputes” in the preparatory works does not mean that the Convention was intended to be limited only to private law disputes but that it indicates “no more than that the use of arbitration in the settlement of private law disputes was a matter of primary focus at the Conference”.
However, Jackman J found that the 30 cases presented by the investors where the New York Convention has been applied to States do not constitute subsequent State practice pursuant to article 31(3)(b) of the Vienna Convention on the Law of Treaties as none of those occasions “involved India as the State whose courts were recognising and enforcing the arbitral awards”.
Jackman J was thus satisfied that there is a clear and unmistakable submission by agreement within the meaning of s 10(2) of the FSIA and that the investors fulfilled the requirements of articles III and IV of the Convention necessary at this stage of the proceedings. He dismissed India’s request and ruled that it was not immune from the jurisdiction of the Court.
Enforcement proceedings in the US and Canada
The investors are also pursuing enforcement in the US and Canada.
In Canada, the Superior Court of Quebec ruled in December 2022 that India is not immune from the jurisdiction of the Court. In March 2023, the Quebec Court of Appeal granted India leave to appeal the decision.
Earlier in September 2022, the Quebec Court of Appeal had unfrozen funds worth USD 17 million belonging to Air India, finding that the investors had not proven that it is an alter ego of the State under the Quebec Civil Code. The Court of Appeal later granted the investors’ application to stay the judgment pending appeal while dismissing Air India’s request for security.
In the US, the proceedings have been stayed upon India’s request until the conclusion of the quantum award set-aside proceedings and the revocation proceedings in the Netherlands.
Second BIT arbitration initiated by the Devas shareholders
Earlier this year, the Supreme Court of Mauritius issued an injunction against the investors prohibiting them from pursuing the second BIT arbitration. However, in the Statement of Claim, the investors disclosed that in a March 2023 Interim Award, the tribunal ordered India to refrain from taking any action that may interfere with the tribunal’s mandate, finding that the Mauritian anti-arbitration injunction “severely undermine the procedural integrity of this arbitration” and “have the clear purpose of impairing the Claimants’ right to access international justice under the Treaty by preventing them from presenting their case to the Tribunal”.
UK High Court finds that USD 11 billion award was obtained by fraud and contrary to public policy
Institution: Ad hoc Arbitration
Tribunal: Leonard Hoffmann (President), Anthony Evans (Appointed by the claimant), Christopher Bayo Ojo (Appointed by the State)
Seat of Arbitration: London, United Kingdom
On October 23rd, the High Court of Justice of England and Wales ruled that an award worth USD 11 billion against Nigeria is contrary to public policy as it was obtained by fraud. In a highly critical judgment, Justice Robin Knowles highlighted how individuals “driven by greed and prepared to use corruption” can greatly impact the integrity of arbitral proceedings.
Nigeria’s President Bola Tinubu said that this judgment proves that “nation states will no longer be held hostage by economic conspiracies between private firms and solitarily corrupt officials who conspire to extort and indebt the very nations they swear to defend and protect”. Nigeria’s Attorney-General also announced that this is a decisive victory for the people of Nigeria and a new milestone for the Nigerian administration in its “mission to challenge the scourge of corruption”.
Process and Industrial Developments Ltd (P&ID) is a BVI-based entity co-founded by two Irish businessmen, music producer Michael Quinn and his partner Brendan Cahill. In 2010, P&ID entered into a Gas Supply and Processing Agreement (“GSPA”) with the Ministry of Petroleum Resources of Nigeria. The aim was to establish gas processing plants, with the Ministry agreeing to supply wet gas to P&ID. P&ID, in turn, would process it into lean gas for use by Nigeria in power generation. This contract was concluded by Nigeria in response to an electricity shortage and was part of a new policy to address the issue.
The project, however, never materialized. Two years into the contract, Nigeria didn’t supply P&ID with the wet gas and P&ID did not construct the gas plants. P&ID then launched arbitration against the Ministry in August 2012.
After two awards on jurisdiction and liability, the tribunal rendered its Final Award in 2017, finding the Ministry liable for USD 6.6 billion, “a sum so vast that it is material to Nigeria’s entire federal budget”, as per Knowles J. The tribunal also ordered interest at the rate of 7%, an increase of roughly USD 1 million every day. The amount of the award has almost doubled, being now worth more than USD 11 billion.
P&ID applied to enforce the award in the UK and obtained leave to enforce it in 2019. Nigeria’s initial attempts to challenge the awards were unsuccessful. However, after obtaining new evidence, Justice Cranston of the High Court granted Nigeria’s application for an extension of time to challenge the award in September 2020. He found that the State had established a strong prima facie case that the GSPA was procured by corruption. The hearings were held between January and March this year.
Nigeria alleged that P&ID bribed government personnel both during the procurement of the contract and the arbitration proceedings. It also asserted that P&ID had access to leaked privileged internal legal documents and concealed this from the arbitral tribunal.
Set aside of the award on the basis of corruption and fraud
In this week’s judgment, Knowles J found that P&ID had bribed government personnel in the Ministry of Petroleum to bypass standard protocols for authorization. During the arbitration, P&ID also bribed a former legal advisor to the Minister of Petroleum “to buy her silence about the earlier bribery and to suppress the fact that the contract had been passed through with no [proper] scrutiny”.
However, he rejected Nigeria’s allegation that the P&ID “was of the sophistication to conceive at the contract stage a plan to extract large sums of money from Nigeria by means of an arbitration or a corrupt settlement”. He found that even though P&ID did not have the technical skills to oversee the project, it would bring in the expertise of specialist contractors.
Knowles J highlighted that the “choice” of P&ID’s counsel to retain Nigeria’s internal legal documents, which it had obtained from corrupted lawyers, “enabled P&ID to track Nigeria’s internal consideration of merits, strategy and settlement during the Arbitration”.
He found that Nigeria suffered “substantial injustice” and that P&ID had won the awards only by “practising the most severe abuses of the arbitral process”.
Knowles J noted that “in the Arbitration the Tribunal did what it did with what it had” but that this case shows that “a tribunal of the greatest experience and expertise is not enough”.
He said that he hoped this case would provoke “debate and reflection among the arbitration community”, as the arbitration process “needs further attention where the value involved is so large and where a state is involved”.
He argued that “the privacy of arbitration meant that there was no public or press scrutiny of what was going on and what was not being done” and that an open process would allow for greater public scrutiny of the proceedings.
He further emphasized the “importance of professional standards and ethics” in drafting major commercial contracts with States and the value of disclosure and discovery of documents which “enabled the truth to be reached in this case”.
Before he makes his final order, both parties are still to present their arguments after having considered the judgment.
Knowles J also referred the judgment to the Bar Standard Boards and the Solicitors Regulation Authority in relation to the conduct of two lawyers, Seamus Andrew and Trevor Burke, who had seen Nigeria’s privileged documents and had decided “not put a stop to it […] because of the money they hoped to make”. Andrew’s company, Cayman Islands based Lismore Capital, acquired a 75% stake in P&ID after the final award.
Investor fails to convince UK High Court to summarily dismiss South Korea’s challenge to treaty award
PCA Case No. 2018-51
Institution: PCA (Permanent Court of Arbitration)
Tribunal: Veijo A. Heiskanen (President), Oscar M. Garibaldi (Appointed by the claimant), J. Christopher Thomas (Appointed by the State)
Seat of Arbitration: London, United Kingdom
On October 19th, South Korea announced that a UK Court had dismissed Elliott Associates’ motion to summarily dismiss its challenge to a USD 48 million award that found it in breach of the Korea-US FTA.
Earlier in July, the State had announced in a press release it lodged an application to set aside the award at the seat of arbitration in London, arguing that the tribunal lacked jurisdiction over the dispute and that the conduct of the State-owned National Pension Service should not be attributed to the State. It also said that it filed an application for correction with the tribunal, contending errors in the calculation of damages and requesting clarification over the applicable currency.
South Korea has now disclosed that in August the investor filed a motion to dismiss without a hearing the challenge to the award. According to the State, the UK Court rejected the motion on October 18th, finding that the jurisdictional defense raised by the State is an important issue related to the interpretation of the treaty that warrants a hearing.
The dispute concerned government intervention in the merger between Samsung C&T and Cheil Industries. US hedge fund Elliott Associates, a shareholder in Samsung C&T, filed for arbitration in 2018.
In a June 2023 award, the tribunal ordered the State to pay Elliott USD 53 million in damages, plus interests and USD 29 million in legal costs. The investors were also ordered to pay South Korea USD 3.5 million in legal costs. In a Decision on Requests for Interpretation and Rectifications, the tribunal corrected the damages amounting to USD 48.4 million.
ABOUT THE AUTHOR
Zeyad Abouellail is a Legal Content Officer at Jus Mundi and a PhD candidate & teaching assistant at Paris-Saclay University. His research focuses on the post-award phase in investment arbitration, and he also lectures on civil and contract law. He holds two Master’s Degrees in International Business Law from Paris-Saclay University and Paris 1 Panthéon-Sorbonne University. Prior to joining Jus Mundi, Zeyad interned at several law firms in international arbitration and corporate law in Cairo, Egypt.