International Arbitration Newsletter - July 2021 | Regional Overview: Asia Pacific

China

Award in favour of Chinese venture capital fund enforced in Australia

The Federal Court of Australia in Melbourne has enforced a CIETAC award in favour of Chinese investor Beijing Jishi Venture Capital Fund (Limited Partnership) (Jishi), against Australian businessman James Liu and his wife Elaine, two Australian companies in which they held directorships and three China-registered entities (Respondents). The award derives from a failed Initial Public Offering (IPO) of Shanghai-based Yidi Fur Technology (Yidi), which was established by James Liu and his wife in 1991, and its affiliates.

Jishi and several other investors paid in 2012 CNY 80 million for a 20% shareholding in Yidi, and a shareholders’ agreement based on the PRC law indicated that the parties planned to initiate an IPO in China by June 2017. Later on, Jishi launched CIETAC arbitration in December 2017 following the failure of the IPO, claiming for an option to purchase the shares back as well as compensation. The CIETAC tribunal issued an award valued at CNY 240 million plus interest and costs in 2018, holding that the Respondents shall be obligated to buy back Jishi’s shares in Yidi. Jishi applied to enforce the award in Melbourne in October 2020, and for summary judgment earlier this year.

The award valued at AUD 34 million (approximately USD 27 million) plus the payment to compensate Jishi’s costs was recently enforced by a Melbourne court judge. Elaine Liu had previously filed a public policy objection in the enforcement procedure, claiming that she had not been notified of the arbitration or received any communications from the tribunal. The judge accepted these claims and the enforcement of the award over her was therefore eliminated. In the meantime, Jishi’s summary judgment application was rejected.

INDIA

Air India faces enforcement of investment treaty award in New York

Scotland-based company Cairn Energy (Cairn) has commenced proceedings to enforce an UNCITRAL award issued in December of 2020 in favour of Cairn before the US District Court for the Southern District of New York. India was ordered by the UNCITRAL award to pay USD 1.25 billion plus interest to Cairn, in order to cover the latter’s loss in the equity transfer and cancel the tax assessment. Cairn has applied to implement the award in several countries and regions (including, the US, UK, Canada and France).

Cairn claimed that Air India shall be liable for the outstanding fees under the award since Air India is legally indistinct from the state, based on the fact that the Indian government has having functional, administrative, and economic control over Air India.

Cairn established Cairn India in 2006 and sold its equity in such subsidiary to the London-based Vedanta Resources in 2011. Subsequently, in 2015, based on a 2012 amendment to India’s tax legislation allowing retrospective tax on cross-border transactions, Indian tax authorities levied Cairn for the USD 1.4 billion owed thereby on the previously mentioned equity transfer, being Cairn eventually confronted with a total of USD 5 billion including the interest and penalties.

€20 million worth of India’s properties frozen by a Scottish energy company

About 20 properties in Paris belonging to the Indian government, worth more than € 20 million, have been frozen bythe Tribunal Judiciaire de Paris. The French court authorized the seizure of state-owned property in favour of Scotland’s Cairn Energy to enforce the award of the Permanent Court of Arbitration (PCA) issued in an arbitration seated in Hague.

As noted above, Cairn Energy and Indian government are in dispute arising from the sale of Cairn’s majority stake in its Indian subsidiary – Cairn India in 2011, after which Indian tax authorities demanded US$ 5 billion in total with interests and penalties. The tax demand was based on 2012 amendment of Indian tax law, which allowed retroactive taxation of cross-border transactions.

The PCA tribunal in its arbitration award based on the provisions of UK-India BIT found that the retroactive taxation was in breach of the BIT and ordered India to pay US$ 1.25 billion plus interest to Cairn. According to Cairn, the award currently amounts to US$ 1.7 billion.

Reliance and Shell defeat India in oil and gas field dispute

Indian oil giant Reliance has announced a favourable UNCITRAL award supporting its claim of USD 259 million in a dispute with India, which relates to two agreements executed by Reliance and Enron –predecessor of a subsidiary of Shell named BG Exploration–, with India for the operation of an oil field and gas field near Mumbai. As stipulated by the two agreements, the development costs that Reliance and BG could recover from India for the gas field would be capped at USD 545 million, while the oil field shall be at USD 580 million.

Reliance and BG Exploration initiated in 2010 an UNCITRAL arbitration valued at USD 5 billion against India, seeking for interpretation on the recovery provisions and on the costs incurred by them. The tribunal rejected in 2016 several claims made by Reliance and BG Exploration, rejections that were challenged by Reliance and BG Exploration, which were then partially upheld by the Commercial Court. The tribunal found a variety of costs recoverable by Reliance and BG in 2018.

Hearings on Reliance’s request to raise the cost recovery cap are set for 2021. India has petitioned the Delhi High Court to have the 2016 award enforced.