Introduction
The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter “New York Convention”) is among the most transformative instruments in the arbitration of international disputes. It provides a comprehensive framework for the enforcement of foreign arbitral awards, creating a reciprocal relationship among all the contracting States. The New York Convention is a cornerstone, yet its commercial reservation clause continues to generate complexities when States invoke sovereign immunity.
By signature and ratification subject to the commercial reservation, India’s international investment disputes are governed by the New York Convention, which is also a consequence of India’s decision not to jointheConvention on the Settlement of Investment Disputes. In Investor-State Arbitrations (ISAs), claims of sovereign immunity are often raised by States in enforcement proceedings. For the States that have invoked the commercial reservation, such enforcement must first satisfy the requirement of the relationship between the parties being of a commercial nature. This question of law emerged before the Federal Court of Australia (“The Court”) in Republic of India v CCDM Holdings, LLC.
In this case, the Court allowed an appeal by India, overturning the 2023 decision of a single judge of the Federal Court of Australia. The 2023 decision had permitted the enforcement of an arbitral award against India. The case involved an ISA under the India-Mauritius Bilateral Investment Treaty (BIT), where CCDM Holdings sought enforcement in Australia under the New York Convention. India opposed enforcement, arguing that the dispute did not fall within its commercial reservation under the Convention.
The Court framed the following issues for consideration:
- Is India’s submission to the jurisdiction of Australia in the enforcement and execution proceedings limited by its reservation?
- Is the award a non-commercial award?
While the Court hit the nail on the head concerning Issue 1 by ruling that ratification of the New York Convention does not constitute a waiver of sovereign immunity, there is a fundamental flaw in the application of principles under Issue 2. The Commercial Reservation to the New York Convention expressly stipulates that the definition of “commercial” is to be construed by the law of the Contracting State that makes the commercial reservation. Thus, the Court was bound to apply Indian law in this particular case. However, it interpreted it as per Australian law.
This blog explores the erroneous application in this case, with the first section outlining how international investment arbitration in general falls squarely in the sphere of public international law. The second section highlights the Court’s incorrect characterisation of certain aspects of the dispute at hand as being of a private international law nature. The final section examines the ramifications of such characterisation, by identifying the faulty rationale behind applying Australian law to ascertain whether the dispute was commercial.
Analysis
The Inherent Public International Law Character of ISAs
This section seeks to generally outline the existing position on the inherent public international law nature of ISAs. They are primarily governed by treaties and State obligations rather than private contracts, deriving their legitimacy from Bilateral Investment Treaties (BITs), Free Trade Agreements (FTAs), or multilateral treaties. These are negotiated by sovereign States and establish binding international obligations that regulate the treatment of foreign investors. The rights and obligations in ISAs are not based on private law doctrines but on State commitments under international law, making the framework inherently public in nature. The role of customary international law principles, such as fair and equitable treatment and protection against expropriation, further underscores the public law foundation of ISAs.
Many ISAs arise from legislative, administrative, or policy decisions taken by States in areas such as taxation, environmental regulation, public health, and economic policy. Investor claims under ISAs often challenge government regulations and public policy decisions, and arbitral tribunals assess whether such measures violate international investment agreements, reinforcing that ISAs are a public international law mechanism designed to adjudicate State obligations rather than private contractual disputes. Such distinction plays a key role in the present case, where the failure to characterise the dispute appropriately resulted in the misapplication of international law principles.
Mischaracterisation of the Dispute
The Court’s classification of the dispute played a crucial role in shaping its reasoning and ultimate conclusions. By framing key issues under private international law rather than public international law, the Court overlooked fundamental treaty obligations and principles governing ISAs. Catchwords are routinely employed in Australian judgements for referencing and indexing purposes. They are reflective of the approach adopted by a court in deciding the case, often by breaking down the rule and application. In this case, the Court delineated the catchwords under three major headings: arbitration, private international law and public international law.
The third heading explores the broader Issue 1 challenge, wherein the nexus between India’s ratification of the New York Convention and the waiver of sovereign immunity is analysed further. Under the second heading, the Court assesses the merits of whether sovereign immunity is applicable in the instant case by evaluating the nature of the dispute itself. There is an evident mischaracterisation of the issues under this heading, as they are essentially of a public law nature. Private international law is built on the three pillars of conflict of law, jurisdiction and the enforcement of foreign judgements (or awards, in the present case). The Court likely delineated these subjects under the “private” heading to align with its determination of jurisdiction, which was sought to be achieved through the lens of State immunity under domestic laws such as the Foreign States Immunities Act, 1985 and the International Arbitration Act, 1974. However, this rationale is not tenable as the analysis of these subjects does not fall within the realm of private international law.
Firstly, this heading primarily revolves around determining whether the dispute at hand is commercial or not. In the instant case, the questions of choice or conflict of law do not arise as the New York Convention expressly delineates that the nature of the dispute is to be determined following the national law of the contracting State that makes such a reservation. Therefore, Indian law as the applicable law has already been delineated, without any need for determination. It is important to highlight that the mere application of foreign law in itself does not accord a private character to the dispute, as the private international law process necessitates the application of the conflict rule. In other words, the application of foreign law must be the consequence and culmination of the conflict rule to constitute private international law.
Secondly, while the determination of jurisdiction over cross-border disputes is typically a facet of private international law, it is not the primary focus of the private law heading. The examination in this case flows from the determination of two aspects, which are subject-matter jurisdiction and sovereign immunity. The former is addressed through the author’s argument on the determination of the commercial nature of the dispute. The latter is addressed under the public international law heading, hinging on the interpretation of treaty law and the New York Convention. In conclusion, the lack of jurisdiction necessarily has a direct effect on the enforceability and execution of the award. While the dispute may have procedurally posed a question of jurisdiction, such an issue could only be addressed under public international law.
While public and private international law interpretations do not exist in watertight compartments, such a mischaracterisation has impacted the proceedings to a large extent, with the largest ramification being the unwarranted invocation and application of the Neilson Presumption of foreign law.
The Erroneous Application of the Neilson Presumption
The Neilson Presumption traces its origins to a case pertaining to an international tort claim. This doctrine provides that in the absence of evidence to the contrary, the courts have the discretion to presume that foreign law is the same as Australian law and proceed with interpreting the latter to arrive at a decision. Most fundamentally, the Neilson Presumption was conceived in a case of double renvoi. This occurs when a court applies foreign law because a conflict of laws rule points to it, but that foreign law’s choice of law rules refer the matter back to the forum, or possibly to a third legal system.
In a 2013 decision of the New South Wales Supreme Court in Proactive Building Solutions v. Mackenzie Keck, the Neilson presumption was confined to tort-related disputes. Australian courts treat foreign law as a “question of fact of a peculiar kind”, placing the burden of pleading and proving on the parties. As mentioned above, the Neilson Presumption has been invoked in instances of the absence of such proof, leading the court to presume that the foreign law is materially identical to Australian law.
The factual matrix of this case aligned with this requirement, as none of the parties involved had adduced evidence of Indian law and its application in the present case. The lack of evidence led the Court to state that the determination of Issue 2 was a formality. This principle was invoked while determining whether the relationship between parties is commercial, thus examining Issue 2 on the threshold of Australian law. Apart from the evident absence of the prerequisite of a double renvoi situation wherein Indian law referred the matter back to the foreign court, the application of this principle is bad in law from several other standpoints:
Firstly, the Neilson Presumption is fundamentally a private law concept, as attested by its origin. Vesting the courts with such discretion is characteristic of the choice of law facet of private international law. Applying Australian law in the instant case essentially flouts the New York Convention, which was signed and ratified by Australia in 1975. The application of the Neilson Presumption, in fact, causes the Court to contravene a fundamental aspect of public international law by violating an international convention establishing rules that have been expressly recognised by Australia. The Neilson Presumption has no place in the realm of public international law, as it centres around the interpretation of conflict rules.
Secondly, the mere absence of evidence was uncritically taken as a basis to invoke the Neilson Presumption, without a second consideration as to whether it would be appropriate in a treaty-governed context. Such a rationale is reflective of a broader malaise in the Australian application of foreign laws, wherein the Courts often treat it as an insignificant procedural matter. This is especially pertinent in the light of the Court’s power to direct parties to produce evidence before the Court. Alternatively, there is precedent of Federal Court judges independently researching foreign law. Therefore, while the failure of the parties to adduce evidence is heedless, it does not warrant the invocation of Australian law.
Thirdly, the inconsistency in the application of the New York Convention sets a dangerous precedent for the enforcement of foreign arbitral awards in Australia. The stipulation of national law of the State making the reservation ensured a predictable and fixed outcome concerning enforcement in all jurisdictions. Deviation from this established standard increases unpredictability and could result in forum-shopping. Parties may choose to initiate enforcement proceedings in Australia due to a more favourable outcome through the application of the Neilson Presumption and the invocation of Australian law in deciding whether a dispute is commercial or not. Therefore, it defeats the purpose of the Convention, which achieved a form of standardisation of the definitional interpretation of a “commercial relationship”.
Conclusion
The legitimacy of international investment arbitration rests on the delicate balance of a pro-enforcement approach and the genuine need to uphold sovereign immunity. This case highlights the dangers of conflating private and public international law, demonstrating how a technical misstep can have far-reaching consequences. As investment arbitration continues to evolve, its classification as a matter of public international law must remain clear and consistent. The legal character of disputes should not be distorted by procedural shortcuts, especially when sovereign interests and treaty-based rights are at stake. Courts must engage with these complexities not just as an exercise in legal reasoning, but as a commitment to maintaining and upholding the integrity of the institution of international arbitration.
Author
Simone Avinash Vaidya is a third-year student at Maharashtra National Law University, Mumbai
