The extent of Court interference in determining the jurisdiction of the Arbitral Tribunal depends on whether the Court of a particular country applies ‘complete review’ approach or ‘prima facie review’ approach. Such interference by the court can be sought to determine the jurisdiction of arbitral tribunal.
Griffin, a real estate company in Luxembourg, financed in White Star Property Group, a Polish Group of Companies which was holding perpetual usufructuary rights over some properties situated in Warsaw for 99 years. Griffin acquired the rights over these properties through its subsidiary.
To carry out construction work, there was a requirement to fulfill the specifications provided in a WZ decision issued by the City of Warsaw. The Polish Group proposed the expansion of the properties and sought a recommendation in this regard from Warsaw Monuments Conservator for approval of said expansion. The said recommendation was granted and based on the recommendation, Griffin proceeded with the expansion. But after granting the said recommendation, the Warsaw Monuments Conservator approached the National Centre for Monument Research and Documentation for its opinion. The Centre approved the expansion but with minor qualifications. Meanwhile after getting recommendation, Griffin started financing the Polish Group to acquire the properties for the said expansion.
The dispute arose when Monument Conservator, later on, issued two decisions refusing to proceed on with the expansion because the said expansion was now objectionable with regard to conservation. Meanwhile the demolition work on the properties was already commenced. Since the matter was going back and forth between Griffin the Warsaw authorities, Griffin defaulted in its loan payment due to delay in the said expansion. Griffin missed the deadline to complete the project due to this reason the Warsaw Regional Court terminated his contract which was later on confirmed by the Warsaw Court of Appeal. The appeal to Supreme Court was also set aside.
This led to arbitration and Griffin rose following claims:
- Violation of Fair and Equitable standard which was a part of BIT. The article was as follows:
“Each Contracting Party shall accord in its territory to investments by investors of the other Party fair and equitable treatment excluding any unjustified or discriminatory measure that could impede the management, maintenance, use or enjoyment or liquidation thereof.”
- Breach of indirect expropriation clause which was as follows:
“The investments made by investors of one of the Contracting Parties in the territory of the other Contracting Party shall not be expropriated or subjected to other measures of direct or indirect dispossession having a similar effect, unless the following conditions have been met:
“(a) the measures were in the public interest and in accordance with legal process;
(b) they are neither discriminatory, nor contrary to any specific commitment such as that described in Article 7, section 2;
(c) they are accompanied by provision for the payment of compensation, the amount of which must correspond to the real value of the investments concerned on the day before the measures were adopted or were made public…”
The arbitration clause of the BIT is as follows:
“… disputes relating to expropriation, nationalization or any other similar measures affecting investments, and notably the transfer of an investment into public property, placing it under public supervision as well as any other deprivation or restriction of property rights by state measures that lead to consequences similar to expropriation.”
The Tribunal concluded that it had jurisdiction to decide the expropriation claim but it lacked jurisdiction to rule on Fair and Equitable claim.
Griffin relied upon the combined effect of both the Warsaw Court of Appeal decision and all of the prior conduct of Poland (collectively referred to as “the Prior Measures”) highlighted earlier in the factual section that led to the termination of the its contract by the decision of the Warsaw Court of Appeal. Griffin argued that as a matter of legal principle, the Prior Measures combined with the Warsaw Court of Appeal Decision constituted a series of acts attributable to Poland and together constituted an indirect expropriation in the form of a creeping expropriation.
Decision of Tribunal
The tribunal concluded that Griffin’s claim falls outside the ambit of arbitration clause holding that Griffin’s reliance on Prior Measures is wrong and the sole reliance should be placed on the decision of Warsaw Court of Appeal Decision. The Prior Measures did not have effects similar to ‘expropriation’ within the meaning of arbitration clause.
Challenge against the award under Section 67
Section 67 of the Arbitration Act, 1996 is reproduced below:
67 Challenging the award: substantive jurisdiction.
A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—
challenging any award of the arbitral tribunal as to its substantive jurisdiction; or
for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
The arbitral tribunal may continue the arbitral proceedings and make a further award while an application to the court under this section is pending in relation to an award as to jurisdiction.
On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order—
- confirm the award,
- vary the award, or
- set aside the award in whole or in part.
The leave of the court is required for any appeal from a decision of the court under this section.
In challenging the award, Griffin advanced new arguments which were not raised before the arbitral tribunal with new evidences which included the drafting history of BIT and the “prior measures”. This was objected by Poland by calling it as ‘rehearing of case’.
After citing a plethora of cases, the Court concluded that challenge to the jurisdiction of an arbitral tribunal under Section 67 leads to rehearing of the matter. In other words, “section 67 is a re-hearing, and that is so whether the case involves a question of jurisdiction ratione personae (because of the nature or position of the relevant person) or ratione materiae (because of the nature of the relevant subject matter)”. Bryan J., held as under:
“In each case, where it is said the tribunal has no jurisdiction, it is on the basis that either there is no arbitration agreement between the particular parties, or that there is no arbitration agreement that confers jurisdiction in respect of the claim made. In each case if the submission is proved, the Tribunal has no jurisdiction as no jurisdiction has been conferred upon it by the parties in an arbitration agreement. In such circumstances it is for the Court under section 67 to consider whether jurisdiction does or does not exist, unfettered by the reasoning of the arbitrators or indeed the precise manner in which arguments were advanced before the arbitrators.”
Poland also argued that since Griffin failed to raise these new arguments before the arbitral tribunal, it should amount to waiver of its right to bring those arguments in Section 67 proceedings. Bryan J rejected this argument saying that “it is difficult to see how a waiver could arise in circumstances where it is well established that there can be a re-hearing under section 67, a fact parties are taken to know”
Conclusion of the English High Court
The Court concluded that the tribunal has jurisdiction to decide on direct and/or indirect expropriation issue. The Court held that “[i]t is well established in international law that an expropriation can be direct or indirect and that creeping expropriation is a form of indirect expropriation.” Court then referred to the principles of interpretation of international law provided in Article 31 of the Vienna Convention. The Article 31 is as follows:
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.”
The Court followed the ‘textual approach to interpretation’ and discarded to follow the presumed intention or purpose of the parties. Bryan J., observed that “[t]he good faith interpretation principle as set out Article 31(1) of the Vienna Convention brings within it the principle of effective interpretation. Under this principle, provisions of treaties are to be interpreted so as render them effective rather than ineffective and therefore meaningless, but without going beyond what the text of the treaty justifies.”
It was concluded that the tribunal have jurisdiction to decide claim of Fair and Equitable treatment and Prior Measures.
With regard to Fair and Equitable Treatment, the Court held that “claim based on measures involving a deprivation or restriction of property rights and which leads to/causes consequences similar to expropriation does fall within the scope of disputes that can be submitted to arbitration under Article 9.1(b) (the arbitration clause in this case) on the ordinary meaning of the words used”
The rehearing of dispute on merits by a Court or de novo standard of review adopted by Bryan J., in this case replicate the English law approach towards intervention of Court in deciding jurisdiction of arbitral tribunal. But, in my opinion, this is quite controversial positions. One of the features of arbitrations is that the award rendered by the tribunal is final. The entire concept of arbitration would be lost since a losing party may get another bite to the cherry through the Court. It will further add to the cost and prolong the proceedings.