Saturday, June 12, 2010

Revenge time: Arbitral tribunals strike back at national courts?

National courts in different jurisdictions have, for long, jealously guarded their monopoly in adjudication. In this process they have sought to keep private adjudication mechanisms including arbitration under their strict control. We have had some discussions on how Indian courts have interpreted the statute to give themselves larger powers over arbitral tribunals. Now, it seems the arbitral tribunals are striking back at courts by holding sovereign States liable under Bilateral Investment Treaties for anti-arbitration decisions taken by their courts.
It has been recognised for some time now that a violation of international law may arise, not only from the conduct of the executive branch of the government but also from the conduct of the judicial branch. The concept of denial of justice is one such example, though establishing denial of justice is not a sine qua non to hold a State liable for the acts of its judiciary. Liability was sought to be attached on Spain and Italy respectively in the cases of Barcelona Traction Light and Power Company and Elettronica Sicula S.p.A. Though it was accepted in both the cases that international liability can arise from the conduct of judicial organs of a State, it was held that the facts of these cases did not warrant such liability.

Recently in Sapiem S.pA. v Bangladesh [ICSID Case No. ARB/05/7], ICSID held that the refusal by the High Court Division of the Supreme Court of Bangladesh to enforce an ICC award in favour of Sapiem and against a government company amounted to expropriation. 

A similar award was rendered by an ICSID tribunal on May 18 in ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan. In that case, in a contractual dispute the Turkish investor had secured an award against the State in an arbitration in relation to a contract for construction of dike in the Dead Sea region. Courts in Jordan anulled the award and ruled that the arbitration clause in the contract stood annulled. ICSID held this decision to be arbitrary and violative of the Jordan - Turkey BIT.

Thus, a three stage serve and volley process of litigation and arbitration appears to be evolving in investment disputes - (i) arbitration under a contract to secure contractual rights of the investor, (ii) litigation to enforce/ set aside the award, (iii) arbitration under a BIT to hod the State liable for the setting aside/ non enforcement of the award by domestic courts.

This also brings to the fore another interesting question - what is the role of domestic courts in relation to investment treaty arbitrations? I will deal with that question in a separate post soon.

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