Fair Treatment Under BIT

Under the Bilateral Investment Treaty (BIT) between India and Australia dated 26th February 1999, Article 17.3 of the BIT allows the treaty to be applied to investments made by the parties even if the treaty is terminated for a period of 15 years after termination. A BIT allows certain rights of redressal to nationals and companies of one state party investing in the other state party. Bravo Wines being incorporated in Australia, would have the right to sue the government of India under the provisions of the BIT. Under BITs, the investor, that is, the national of one state party investing in the other state party, gets the right against the host state under the BIT, to enforce the provisions of the treaty or to demand reparation for the violation of the treaty provision. In other words, although the treaty is signed between India and Australia, the rights to reparation for the violation of treaty are owed by the host state (in this case, India) towards the investor, which is Bravo Wines. Bravo Wines is an investor as per the BIT definition of investor contained in Article 1(d).

Coming to the definition of investment under the BIT, Article 1(c)(iii), it specifically provides that investment includes the right to money or to any performance having a financial value, contractual or otherwise. In the present case, the remaining 37 months’ worth of income as per the contract (AUD $1.332 million) can be considered to be investment.

A dispute between the investor of one state and the host state is to be settled as per Article 12 of the BIT, which provides that failing the parties’ agreement on the method of dispute resolution, such dispute may be referred to arbitration.

The principal ground for action by Bravo Wines is that India introduced new legislation which has led to the host country leading to the breach of contract by Connoisseur Wines Ltd; this amounts to violation of fair and equitable treatment under the BIT, Article 3.

Article 3 of the India-Australia BIT provides that the contracting parties shall provide a fair and equitable treatment to investors and provide protection and security to investments. Fair and equitable treatment standard includes the protection of legitimate and reasonable expectations that the investor had prior to the making of the investment in the host country. Fair and equitable treatment standard may even include the right to due process be heard. The legitimate expectations that the investor may have in the host state comes from the legal framework and contractual undertakings. Therefore, Bravo Wines can claim that they made an investment in India, based on its legitimate expectations that the contractual obligations will be complied with and that the legal framework does not contain any such provisions that may go against the fulfilment of the legitimate expectation. On the other hand, one needs to also consider that Article 15 of the BIT does permit contracting parties to take reasonable and non-discriminatory measures for the purpose of protection of security interests or prevention of diseases. In this present case, the law passed by the Indian Parliament, which is, the Wine Safety Standards Act 2018, was passed as a response to health concerns of Indian consumers, including severe asthma attacks due to the use of sulphur dioxide in imported wines. Therefore, for its part, the Indian government may use Article 15 to justify its stance.

The knowledge of Wallace and others at Bravo Wines regarding the health scandal in India in September 2016 may have an impact upon Bravo Wines’ right to make a claim against India because it may go to show that the claim of legitimate expectation of contractual obligations and legal framework is not made out for Bravo Wines. This may affect their claim under Article 3 of the BIT for fair and equitable treatment as it goes to show that based on the media reports on consumer claims on sulphur dioxide content in foreign wines, there was lobbying for a change in law. This was known to Wallace before entering into the contract with Connoisseur Wines in India. Therefore, their claim of legitimate expectation may be affected by this knowledge.

Yes, the fact that the Indian court system is slow in India may provide an additional ground for action by Bravo against the government of India for a claim to arbitration proceedings under Article 12 of the BIT. This ground of delay may also be adequate to demand a resolution of dispute through arbitration instead of judicial settlement. Article 12 of the BIT may be referred to for this purpose as it allows the use of arbitral proceedings. As the previous case of White Industries Australia Ltd. v. India indicates, long delays in Indian courts for resolution of the cases may lead to additional compensation being granted to the company for losses caused due to the delay. Therefore, in case of longer delay in pursuing the dispute resolution, Bravo may have right to more compensation.

In an arbitration brought by Bravo Wines against the government of India, the procedure to be followed is provided in Article 12 of the BIT. As per this, the parties may agree to submit the dispute to the Additional Facility for the Administration of Conciliation, Arbitration and Fact-Finding Proceedings or to an ad hoc arbitral tribunal as per the Arbitration Rules of the United Nations Commission on International Trade Law, 1976. The Arbitral Tribunal is to consist of three arbitrators, with each party selecting one, and the third arbitrator being appointed by mutual agreement between the two selected arbitrators. The award is to be made as per the BIT provisions through the majority of votes in the tribunal. The award is to be final and binding. This means that the parties to the dispute are bound by the award. In case a contracting party fails to enforce the award or abide by the award, diplomatic channels may be used by both contracting parties for the purpose of ensuring that the award is complied with.