THE arbitral tribunal of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), before which one of the international arbitration proceedings were ongoing in the Reko Diq case, has decided against Pakistan. According to preliminary news reports, the arbitral tribunal has rejected Pakistan’s final defence against liability and declared that Pakistan violated certain provisions of its Bilateral Investment Treaty (BIT) with Australia. The Australian BIT was applicable because the other party, Tethyan Copper Company (TCC), a joint venture between Antofagasta PLC and Barrick Gold Corporation, is incorporated in Australia.
TCC had argued that Pakistan abused its discretion in denying, without any legal basis, TCC’s mining application in the year 2011 after it had spent a substantial amount of money on mining exploration and feasibility studies for around 10 years. Subsequently, TCC initiated arbitration proceedings before ICSID against the Pakistan government under the BIT with Australia and also before the International Court of Arbitration (ICA) of the International Chamber of Commerce (ICC) against the Balochistan government on the basis of the Chaghai Hills Joint Venture Agreement (CHEJVA) between TCC and the Balochistan government.
ICSID’s decision comes around four years after the Pakistan Supreme Court declared the agreement with TCC illegal and void. In a previous article on this case, I argued that the SC’s judgement declaring the agreement illegal did not appear to be in line with the applicable international law as well as with Pakistan’s contractual obligations to foreign investors specifically under the BIT with Australia in this case. To me, the proverbial writing was on the wall.
The critical issue now is the amount Pakistan would be ordered to pay TCC. The arbitral tribunal will make this determination in the next phase of the proceedings. The liability and quantum of damages proceedings were bifurcated in this case. One of the objectives of bifurcation is to save time and costs involved in submitting evidence on the damages that one party is claiming. The idea is that the substantial costs involved in submitting evidence in the arbitration proceedings may turn out to be wasteful in the event the tribunal decides that the respondent, Pakistan in this case, had no liability in the first place.
In question is the amount Pakistan would be ordered to pay TCC.
In international arbitration proceedings, once the tribunal has determined liability, it has broad discretion in determining the quantum of damages. Although the parties can stipulate in their arbitration clauses certain limits on the amount of damages that may be awarded by the tribunal and also rule out the possibility of awarding consequential or punitive damages, such limits are generally uncommon in the case of BITs and there is no such reference in Pakistan’s BIT with Australia either.
The question now is what options Pakistan has, if any. Can it still try to reach a settlement with TCC to avoid paying a substantial amount, $10 billion by one estimate? One recent news report has indicated that the Balochistan government will try to settle the dispute by paying TCC around $350 million. There were similar reports about a possible settlement around two years ago also. Back then, TCC did not appear too keen on settling this matter because it was expecting the tribunal to decide in its favour. Now that the tribunal has done so, why would TCC want to reach a settlement? More importantly, even if TCC decides to settle, would it not have stronger bargaining power in view of the ICSID decision in its favour enabling it to demand an even higher amount from Pakistan or the Balochistan government?
A couple of factors that TCC would consider before deciding to reach a settlement are the costs and duration of proceedings related to enforcement of the arbitral award. Although the award on damages is expected next year, collecting on it will be a cumbersome and protracted process especially if Pakistan refuses to voluntarily comply with the award to pay TCC. TCC could then seek the award’s enforcement through Pakistani courts and the courts of countries in whose jurisdiction Pakistan owns assets.
Pakistan has enacted the New York Convention and the ICSID convention for enforcement of foreign arbitral awards but this does not ensure smooth enforcement. Besides the obstructive and dilatory tactics that could be adopted by the counsel representing Pakistan, Pakistani courts may also ultimately rely on the few narrow exceptions in these laws as grounds for refusing enforcement. This highly likely scenario may well be taken into consideration by TCC in deciding whether to reach a settlement with Pakistan or wait for the tribunal’s decision on the quantum of damages.
The writer is a lawyer and president of the Center for International Investment and Commercial Arbitration.
Published in Dawn, April 4th, 2017