The Effective Means Standard as an Alternative Proposal To The Enforcement Of Arbitral Awards
Novel problems usually require innovative solutions.
The rise in commercial activity in the global market space has provoked a litany of commercial litigation suits in recent times. With the traditional courts overridden with cases and the dilatory nature of court trials, litigation has become ill-suited to resolving select commercial disputes.
It has therefore become imperative that we “change the guard’’ in our choice of dispute resolution. At the forefront of this phenomenal development is Arbitration.
However, while arbitration has had a profound impact on the commercial community in effectively resolving complex commercial disputes that have defied litigation approaches, it is like most institutional systems riddled with a few defects.
The most notable hassle arbitration is confronted with is the procedural irregularities of the state courts that materialize in the enforcement of arbitral awards. This issue has been brought to the front burner in sundry cross-border arbitration cases.
In addressing this issue, it is important to examine the alternative approach of the ‘effective means’ standard as established in the watershed cases of ‘White Industries Australia Limited v Republic of India’ and ‘Chevron Corporation and Texaco Company v The Republic of Ecuador’, applicable in bilateral and multi-lateral treaty-based arbitrations between state-controlled entities as opposed to the traditional court’s mode of enforcement and how this affords foreign investors a better arbitral award enforcement option.
At this juncture, a voyage into the ‘effective means standard’ approach becomes apposite. The ‘effective means standard’ is a provision usually contained in Bilateral and Multi-lateral Investment Treaties between State-Controlled entities and corporations requiring a host state to orchestrate and establish laws, policies, institutional frameworks that would ensure effective enforcement of arbitral awards in its local courts.
This provision imposes strong obligations on a host state to adjudicate investors’ claims and enforce awards without undue delay. This obligation exists regardless of the fact that the host state routinely experiences delays in enforcing court judgements, while it also dispenses with the need to exhaust local remedies before commencing such proceedings.
The peculiarity of this provision was aptly captured in both White Industries Case and Chevron Corporation Cases. The next section therefore carefully sifts through both cases, providing a thoughtful analysis of this standard.
In White Industries Case, an Australian company (White Industries) entered into a Bilateral Investment Treaty (BIT) with an Indian company (Coal India Limited). The Claimant, White Industries alleged that the respondent, Republic Of India had breached its obligations under Articles 3,4,7,9 of the BIT, while the respondent denied these alleged breaches and further claimed that the Tribunal did not have jurisdiction.
White Industries consequently obtained an International Chamber Of Commerce (ICC) award and Coal India sought an application at the Calcutta High Court to set it aside. Furthermore, White Industries applied to enforce the award before the Delhi High Court in 2002, contending that the Calcutta High Court had no jurisdiction to set aside the award.
However, Coal India’s motion was granted and White Industries appealed this decision up to the Supreme Court of India in 2004, alleging that India’s inordinate tardy response in enforcing the ICC award against Coal India amounted to a breach of ‘the effective means’ provision and that although the BIT between India and Australia did not contain such provision, however by virtue ‘of a most favoured’ clause to which every member of World Trade Organization (WTO) is a signatory to, India was obliged to offer this same privilege they offered to Kuwait in the India-Kuwait BIT to Australia.
In 2011 therefore, an award was given in favour of ‘White Industries’ with the Arbitral Tribunal’s decision predicated on the notion that India’s undue delay in enforcing the arbitral award for a period of nine years was a breach of ‘the effective means’ provision.
However, in the Chevron Corporation Case, the Arbitral Tribunal adumbrated a few instructive notes on the purport of the effective means provision.
It held that ‘the effective means provision was a distinct and a potentially less-demanding text mandating host states to adjudicate investors’ claims without undue delay’ and that actions that would ordinarily not amount to a breach of justice would be caught by the ‘effective means’ provision in the relevant BIT.
Additionally, the tribunal held that it was no defence that the host state usually experiences delays in its court systems. Significantly, the tribunal held that the provision dispenses with the need to exhaust local remedies before commencing such proceedings.
From a thoughtful digest of these two landmark cases, it can be gleaned that the application of the effective means provision is limited to BIT and multi-lateral Investment Treaty agreements between state-controlled entities and somehow excludes private local arbitrations.
Nevertheless, a provision such as this is bound to positively change the overall design and structure of arbitral processes, particularly in the sphere of international arbitration.
Thus, foreign investors seeking award enforcements in a local court may rely on this provision, as a viable alternative to securing enforcement of arbitral awards.
While there are still concerns about the Nigerian courts’ parochial attitude to adopting international best practices, they have largely assuaged these fears in recent years as lucidly illustrated in the case of Stat Oil Nigeria Ltd and Texaco Nigeria Outer Shelf Ltd v NNPC.
Very importantly, adopting the usage of the effective means provisions would hugely boost Nigeria’s chances of arbitral seat selection in the international arena.
The effective means provision enunciated in the foregoing cases is a notable and welcome development in the global arbitration community, providing some sort of a panacea to age-long problems encountered by foreign entities in enforcing arbitral awards in the local courts.
This provision embedded in a treaty requires a host state to orchestrate laws and institutional frameworks that would ensure effective enforcement of awards. This particularly is of huge relevance to Nigeria, where foreign corporations operating businesses in Nigeria have had to deal with unnecessary protractions in enforcing arbitral awards in the law courts.
However, while this provision can be readily applied to treaty-based arbitrations, whether or not this provision would be favourably adopted in the local arbitration hemisphere remains a big question that must be answered in the coming years.
Samuel Dare is a final year student of the University Of Lagos and an Associate Member of the Chartered Institute of Arbitrators, UK. He has a keen interest and knowledge in arbitration and taxation. You can reach him on email@example.com