In a decision dated 7 May 2018, the Delhi High Court dismissed the Government of India’s application to declare Vodafone’s second BIT arbitration proceedings in relation to the retrospective tax liability imposed on Vodafone’s 2007 acquisition of Hutchison Whampoa’s Indian operations an abuse of process, and in so doing declined to grant a permanent injunction restraining Vodafone from continuing those arbitration proceedings. The Court granted liberty to India to bring the issue before the Tribunal in those second proceedings (under the India-UK Bilateral Investment Protection Agreement) for that Tribunal to decide on the alleged abuse of process on its own merits.
In Micula & Ors v Romania & Anor  EWHC 31 (Comm) the English High Court stayed enforcement of a 2013 ICSID award in favour of Swedish investors Ioan and Viorel Micula against Romania (the "Award"), but refused to set aside registration. Subsequently, in Micula & Ors v Romania & Anor  EWHC 1430 (Comm) the English High Court gave permission to appeal the stay of enforcement but refused to make the stay conditional on the provision of security by Romania.
The English Court’s decisions in this case consider interesting aspects of the interplay between potentially conflicting obligations of national, international and EU law. In particular, the Court found that:
- as a matter of English law read with Article 54 of the ICSID Convention, an ICSID Convention award achieves finality, and becomes res judicata, at the time of the award; and
- the English Arbitration (International Investment Disputes) Act 1966 (the "1966 Act"), which implements the ICSID Convention into English law, only requires that ICSID awards be treated in the same way as judgments of the English High Court. Therefore, as a judgment of the High Court is subject to EU rules as to state aid, the Court is restrained from taking a decision which conflicts with the European Commission's decisions on state aid.
The Court's decision represents the latest development in the long-running dispute between the parties arising out of Romania’s abolition of certain tax incentives in 2005 in order to comply with EU rules on state aid. Please see here for our blog post on the ICSID award.
The Award has been subject to decisions of the European Commission. In its final decision of 30 March 2015 (the "Final Decision"), the Commission found that payment of the Award by Romania would constitute new state aid incompatible with EU law, and was therefore prohibited. Please see here for our blog post on the Final Decision. The claimants in the case invited the Court to assume that the Final Decision was valid.
Given the Court's decision, the parties will now await the outcome of (i) the claimants' application to the General Court of the European Union ("GCEU") to annul the Commission’s Final Decision, which is expected to be heard before the end of the year; and (ii) the claimants' appeal, if brought, against the English High Court's stay of enforcement of the Award.
As the dust settles on a momentous General Election in India, many will also have noted a number of multinationals having commenced, or taken steps towards, arbitration claims against the Government of India under Bilateral Investment Treaties (BITs) in the last few weeks.
Perhaps the most high profile is Vodafone, whose long running dispute with the Indian tax authorities over its 2007 takeover of Hutchison Whampoa’s Indian operations has now resulted in an arbitration claim being issued against the Government. The tax authorities had claimed that Vodafone was liable for over US$2 billion in taxes as a result of that acquisition, which Vodafone successfully contested in the Indian Supreme Court, only for the Indian Parliament to pass new legislation which enabled it to impose the tax claim retroactively. Vodafone has claimed that such steps are in breach of India’s BIT obligations and, having attempted conciliation with the Government, has now filed for arbitration.
It is also reported that Nokia has notified the Government of a claim under the Finland-India BIT in relation to disputes concerning the application of withholding tax to royalty payments made by Nokia India to its parent. Reports suggest that the notification marks the start of a three-month pre-action period which is required before proceedings can be commenced.
Going against the grain, Norwegian telecom company Telenor has announced that it will not be pursuing arbitration claims against the Government following the cancellation of its previous mobile network licences that were quashed by the Supreme Court in 2012. Telenor had previously intimated an intention to bring claims under India’s Comprehensive Economic Cooperation Agreement with Singapore, but following the Government’s decision to allow it a set-off of Rs. 16 billion (US$260 million) on payments due under its new spectrum licences by way of credit for the previously cancelled licences, Telenor has decided not to pursue those claims.
The initiation of arbitration claims by Vodafone and Nokia, and Telenor’s approach, are reflective of a growing awareness of the availability of investment protections under BITs and other instruments available to international investors aggrieved by their treatment by national authorities. Such a phenomenon is not confined to India, nor indeed to emerging markets. What direction these Indian claims will now take will be an important early decision for incoming Prime Minister Narendra Modi.
Herbert Smith Freehills has extensive experience of advising clients regarding actual or potential investment arbitration claims involving India. For further information, please contact Nick Peacock, Partner, Donny Surtani, Senior Associate, or your usual Herbert Smith Freehills contact.