In the past few years, India has been ordered to pay over ₹22,000 crore in damages after losing large international arbitrations against foreign investors like Cairn, Devas, Vodafone and White Industries. Statistically, according to the United Nations Conference on Trade and Development (UNCTAD), States tend to win about fifty per cent more of their large investment disputes than they lose to investors (38% are won against 27% lost). India bats at a lower average.
These awards can lead to major losses for Indians and their exchequer. But what can be even worse is the reputation India gets abroad as a place to do business. That reputation can be of a risky place to do business, where asserting reasonable legal claims leads to a scorched-earth disputes with the Indian government.
Reputable judges in Canada, England and the US, to name a few, have recently been critical of India’s approach to disputes, perhaps with some justification.
I was a lawyer for Devas and its shareholders in proceedings against Antrix and India, where my clients were awarded hundreds of millions of US dollars. My firm, Volterra Fietta, has also represented other clients against India in important disputes. I have seen first-hand the consequences to India’s finances and reputation of its approach to dispute resolution. I know of high-level decision-makers at major investment funds who have decided to direct significant crores of investments away from India because of some of these practices.
Compare this to the approach of East Asian countries like China and Vietnam. Those countries avoid being known for asserting weak defences needlessly. They, therefore, consider the merits of each dispute with an investor early and attempt to settle meritorious investor claims before a major arbitration is filed. In one case where I was counsel, a multi-billion US dollar investment dispute was settled in just two weeks of discussions. Other examples abound. Indeed, according to UNCTAD, around the world, 26% of filed investment disputes are settled amicably.
As a result, major investment disputes in China and East Asia, and other jurisdictions, incur limited economic costs and those countries are seen as more favourable destinations for investment – without sacrificing honour or principle.
The approach in these countries reflects a legal reality. In foreign investment disputes, sometimes the government is right and should fight to protect its interests; sometimes it is wrong and has done legal wrongs and should pay damages; and sometimes the truth lies in the middle. Governments should analyse each dispute on its own merits. In certain cases, they could seek to limit damages and legal fees by settlement.
To foreign investors, it appears that India does not take this common-sense approach. Instead, it appears to fight virtually every international claim regardless of the claim’s merit. Such steadfastness might perhaps cause some foreign investors to forego certain valid legal claims. But it causes India to lose out on vital investment flows. This can be so even in regards to cases where India eventually concedes its position, such as when it withdrew retrospective tax assessments to settle arbitration awards in favour of companies like Vodafone.
India’s usual approach also causes the country to take on the risk of highly adverse and large awards against it. Sometimes with an all-or-nothing approach to litigation, you end up with nothing.
One approach India might take is to empanel highly regarded, neutral international practitioners, with actual and not academic experience in investment disputes, to consider India’s position on investment disputes early and make apolitical recommendations on settlement. This could also provide political cover to government officials who might be anxious that settlement is seen as capitulation or worse – and therefore do not agree to settle disputes.
India does not have to follow Duryodhana’s example: it does not have to insist on fighting every dispute without conceding a needlepoint as compromise. That hardly worked out well for the Kauravas at Kurukshetra. India can continue to spend many crores in legal fees to lose tens of thousands of crores fighting weak cases. Or it can, and should, start to consider seriously amicable resolution of at least some of its least defensible disputes.
Gunjan Sharma is an international disputes specialist and partner at the London-based law firm Volterra Fietta.