International investment agreements (IIAs) typically provide not only for dispute settlement between the countries to such agreements, but also the mechanism for nationals and corporate entities of each contracting country to raise a dispute directly against the government of the other country (the ‘host state’, i.e., the state that ‘hosts’ its investments), in the event of any arbitrary or unfair state action that adversely impacts its investments.
Investor-to-State-Dispute Settlement (ISDS), as this mechanism is frequently referred to, is a sensitive issue for many countries. For instance, in the recently concluded agreement replacing the NAFTA, Canada has opted out of ISDS, whereas US and Mexico have agreed to a diluted version of ISDS than what previously existed under the NAFTA.
The investment chapters of India’s comprehensive economic partnership agreements with Singapore, Japan, Korea and Malaysia, as well as in bilateral investment protection agreements, provide for ISDS. So far, the claims against India by foreign investors, has far exceeded the exercise by Indian investors of IIAs with respect to their outbound investments. However, there have been reports of the ISDS by Indian investors as well.
Unlike the WTO and other international agreements, there is no secretariat of centralized repository of information on investor claims. Certain international organizations such as the UNCTAD provide a database of available information, along with privately managed ones such as the Investment Arbitration Reporter. With regard to claims by Indian investors against foreign governments, the Investment Policy hub of the UNCTAD records the earliest known claim as one brought against Germany in the year 2000, and another against UK in 2006.
A few relatively newer reported claims brought by Indian investors, seem to reveal an increased willingness to take advantage of the ISDS regime. For instance, in a claim brought under the India-Poland IIA in January 2014 by Flemingo DutyFree Shop Private Limited, the tribunal decided in favour of the Indian investor in an award rendered in August 2016. The tribunal held that the actions of a Polish state-owned company responsible for operating airports could be attributed to the state. The claims arose out of the Polish Airports State Enterprise’s termination of lease agreements for retail stores at Warsaw Chopin Airport entered into with BH Travel, a duty-free operator in which the claimant held indirect interests. Awarding the claimant approximately €17 million plus interest, the tribunal’s order illustrates the protection that IIAs can accord investors.
There are reportedly three more pending ISDS claims that have been brought by Indian investors against Indonesia (in 2015), Bosnia (in 2017) and Macedonia (in 2017). With respect to the case against Indonesia,
Indian Metals and Ferro-Alloys Limited (IMFA) vs. Indonesia, the tribunal has reportedly concluded hearing on merits. IMFA’s claims are that Indonesia’s policies negatively impacted IMFA’s investments in a coal based mining company.
While larger questions remain on the implications of ISDS, and whether governments need to take a more cautious approach, the instances of ISDS being used by Indian investors appear to indicate greater awareness of this mechanism to redress grievances. Investors from India need to ensure that they are obtaining the full benefits of the protection of IIAs entered into by the Government, and build in availability of ISDS as a viable risk mitigation strategy.
RV Anuradha is a Partner and Prithviraj Chauhan is an Associate at Clarus Law Associates, New Delhi.
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