Reflecting on the Permanent Court of Arbitration’s Award on the Competence of the Court in the Indus Waters Treaty Arbitration (Pakistan v. India)
Part – I
I. Introduction
On July 6 2023, the arbitration tribunal constituted under the Permanent Court of Arbitration (“PCA”) rendered its Award on the Competence of the Court (“Award”) in an arbitration initiated by the Islamic Republic of Pakistan against the Republic of India under Article IX and Annexure G of the Indus Waters Treaty (“IWT”), as part of a preliminary phase of the arbitration proceedings. In these proceedings, Pakistan had requested the PCA to address the interpretation and application of the IWT to specific design elements of the run-of-river hydro-electric projects that India is permitted by the IWT to construct on the tributaries of the Indus, Jhelum, and Chenab, before those rivers flow into Pakistan. In the Award, the PCA rejected each of the objections raised by India (by way of correspondence to the World Bank) and determined that the PCA is competent to consider and resolve the disputes outlined in Pakistan’s Request for Arbitration.
While raising objections to the competence of the PCA via the World Bank, India argued [1] the Court was illegally constituted; [2] a “dispute” which can be taken to the PCA has not arisen; [3] the procedural requirements of Articles IX(3), (4), and (5) of the IWT had not been satisfied; [4] the tribunal has not complied with the procedural requirements of Annexure G of the IWT while constituting the arbitral tribunal; [5] Article IX(6) of the IWT lays down pre-requisites before the initiation of the arbitration which has not been followed; and [6] the formation of the Court was not “necessary”. This piece disagrees with the Award and argues that Article IX of the IWT constitutes a multi-tiered arbitration clause and builds on objections [2], [4], and [5] raised by India.
II. Facts Surrounding the Case
With a Request for Arbitration from August 19, 2016, Pakistan asked the PCA to start the current arbitration process. Then, on October 4, 2016, India asked the World Bank to appoint a neutral expert (a highly qualified engineer) under Article IX and Annexure F of the IWT to answer some questions about design and operation that were almost the same as some of the questions Pakistan asked in its Request for Arbitration. The IWT gives the World Bank a unique but primarily executive role. In December 2016, the World Bank chose to “pause” the process of selecting the Chairman of the Court of Arbitration and the Neutral Expert to prevent parallel proceedings. This “pause” ended in 2022, and the Chairperson of the arbitral tribunal and the Neutral Expert were then appointed.
III. Dispute Resolution under the IWT in the Past
A. Baghlihar Dam Project
Pakistan opposed this proposal in 1992 after seeing its designs. In 2004, the PIC declared this case unresolvable. After two rounds of discussions, governmental negotiations and diplomatic bilateral talks failed, and in 2005, a neutral expert was brought in to pursue the dispute. In 2007, the neutral expert reached a verdict after two more years and the issue was resolved.
B. Kishanganga Dam Project
In the case of the Kishanganga Dam, Pakistan objected to this project in 1998. In 2010, Pakistan determined that the PIC had been unsuccessful in resolving tensions over this project. Since Pakistan and India (partially) agreed that the dispute did not involve technical issues (per Article IX, the issue is referred to a neutral expert if it involved technical issues), it was directly referred to arbitration at the PCA. The PCA gave its final Award and resolved the dispute in 2013.
IV. Qualifying as a Multi-Tiered Arbitration Clause
A. Doctrine
Multi-tiered conflict resolution rules combine alternate dispute resolution (“ADR”) and arbitration procedures and set up a series of steps to settle a disagreement. These steps are usually conciliation, mediation, an expert’s decision, and then arbitration. By putting a “multi-tiered dispute resolution” language in their Treaty, the parties agree to settle any possible disagreements through these steps first, with the goal that arbitration procedures will only be started if the other steps fail. This framework entails a sequential progression of distinct stages, each characterized by specific procedures such as negotiation, mediation, or conciliation, followed by expert determination, and ultimately, if deemed essential, arbitration. When formulating such provisions, the parties aim to progress to the subsequent stage if their disagreement remains unresolved through the method outlined in the preceding stage (p. 446). Hence, arbitration represents the final recourse, to be pursued solely when the dispute cannot be effectively resolved through preliminary ADR measures.
Commentators have argued that in cases where parties have entered into a binding multi-tiered dispute resolution clause, it is anticipated that a tribunal presented with a dispute prior to the completion of preliminary measures, such as negotiation or mediation, would decline to adjudicate the matter. Hence, in the event that the involved parties have reached a consensus on a legally binding and unambiguous multi-tiered mechanism for resolving disputes, wherein the procedural stages are clearly delineated, and there exists no uncertainty regarding the parties’ intentions, an arbitration tribunal ought to deem a request for arbitration as impermissible. The proponents of this perspective additionally contend that the enforcement of agreements to engage in negotiation or mediation is imperative for ADR. This is because the primary objective of ADR is to foster cooperation between parties rather than fostering opposition, achieved through the utilization of procedures specifically designed to facilitate compromise. In relation to the matter of expert determination, which is recognized as a conclusive process, the agreements to refer the dispute to experts prior to arbitration are regarded as enforceable.
B. Case Law
Due to the lack of PCA jurisprudence concerning multi-tiered arbitration clauses, this piece has analyzed case law from International Chamber of Commerce (“ICC”) arbitral tribunals to showcase jurisprudence for the same in international arbitration. Further, this piece acknowledges that there exists no doctrine of stare decisis in arbitration, however awards or decisions by other arbitral tribunals are illustrative of the implications of a standard form of treaty wording.
Arbitrators have determined that in cases where the language of the dispute resolution clause allows for the voluntary use of ADR, a party has the right to initiate arbitration proceedings at any time it deems necessary. The utilization of the term “may” (not mandatory) in the arbitration clause of ICC Case 10256, and the inclusion of the term ‘however’ (not mandatory) in the arbitration clause of ICC Case 4229, unequivocally indicate the intention of the involved parties to not having any binding requirement to participate in conciliation before the initiation of arbitration proceedings. The presence of ambiguous language in contractual clauses has also resulted in arbitral tribunals determining that the involved parties did not intend to be compelled into reaching a mutually agreeable settlement. Conversely, when a term denoting a sense of duty is employed in conjunction with amicable methods of resolving conflicts, arbitrators have determined that this renders the stipulation legally obligatory for the involved parties. This concept is exemplified in ICC Case 9984, wherein the utilization of the term “shall” (mandatory) necessitates that the involved parties initially endeavor to attain a mutually agreeable resolution. In instances where the arbitrators deemed the amicable dispute resolution provisions to be obligatory, they conducted a factual examination prior to assuming jurisdiction in order to ascertain whether sufficient endeavors had been undertaken to amicably resolve the dispute.
Part – II
V. Status of Article IX of the IWT
A. Wording of the Treaty
From Part – I (Section IV), it can be derived that in order to understand whether Article IX constitutes a multi-tiered dispute resolution clause, the wording of the clause must be given prime importance.
Article IX(1) of the IWT establishes the PIC, which consists of a commissioner from each State, in order to facilitate its implementation. The wording states: “shall first be examined”, which mandates the PIC to be the first body to look into the issue. Article IX also establishes a hierarchical system for resolving disputes, which would therefore be classified as a multi-tiered dispute resolution clause. A “question” between the Parties pertaining to the elucidation or implementation of the IWT or the presence of specific facts, if not resolved by the PIC, results in a “difference” per Article IX(2) which has two sub-parts. Sub-part (a) states:
“Any difference which, in the opinion of either Commissioner, falls within the provisions of Part 1 of Annexure F, shall, at the request of either Commissioner, be dealt with by a Neutral Expert.”
Sub-part (b) states:
“If the difference does not come within the provisions of Paragraph (2) (a), or if a Neutral Expert, in accordance with the provisions of Paragraph 7 of Annexure F, has informed the Commission that, in his opinion, the difference, or a part thereof, should be treated as a dispute, then a dispute will be deemed to have arisen which shall be settled in accordance with the provisions of Paragraphs (3), (4) and (5):
Provided that, at the discretion of the Commission, any difference may either be, dealt with by a Neutral Expert in accordance with the provisions of Part 2 of Annexure F or be deemed to be a dispute to be settled in accordance with the provisions of Paragraphs (3), (4) and (5), or may be settled in any other way agreed upon by the Commission.”
Part 1 of Annexure F refers to technical issues that might arise. Keeping in mind the use of the word “shall”, this means that differences pertaining to technical aspects outlined in Part 1 of Annexure F must be resolved through the involvement of a Neutral Expert at the first instance. In the event that a distinction does not pertain to the specified technical aspects, or if the Neutral Expert deems it suitable, a “dispute” emerges, which can be referred to arbitration per Article IX(5).
Pakistan has themselves mentioned in their Request for Arbitration, that the current issue pertains to technical questions, especially questions concerning the method for calculating the maximum Pondage and for determining the design and placement of the power intakes, sediment outlets, and spillways for passage of floods (para. 19) which come under the technical issues listed in Annexure F of the IWT.
B. Reasoning of the PCA to Accept Competence
In objection [2], India has argued that Pakistan cannot unilaterally seek recourse of the court when it has not exhausted the “first stages of dispute resolution” (para. 156). Further, only an independent expert can determine that a “difference” has risen to the stage of a “dispute”, incorporates the engagement of the neutral expert as a “seminal component” of the dispute resolution process (para. 157). Pakistan has argued that the neutral expert is not required to determine the existence of a “dispute” based on the Kishanganga Dam Arbitration (para. 480); wherein the PCA had taken up competence based on the fact that both parties agreed there was a “dispute” and neither party requested for the appointment of a neutral expert. The PCA started their analysis by stating that the same issue has come up in the Kishanganga Dam Arbitration, wherein this issue was rejected (para. 187), notwithstanding the different circumstances which existed during that dispute as mentioned in the aforementioned statement. The PCA agreed that Article IX of the IWT constitutes a “graded dispute resolution mechanism”, however not in a “rigid sense” (para. 199). For making this determination, the PCA again relies on the Kishanganga Dam Arbitration. The PCA’s second argument for accepting jurisdiction is that the wording of Article IX(2) states that, “shall, at the request of either Commissioner, be dealt with by a Neutral Expert.” The PCA emphasizes on the requirement of the request for appointment of the neutral expert coming from either commissioner; and states that India’s objection “fails on the face of factual record” since India did not respond to Pakistan’s commissioner when they requested for the appointment of a neutral expert. This reasoning does not follow considering that the PCA is insisting that the request of either commissioner is required for the setting up of a neutral expert and the same was present. Pakistan’s commissioner had made the request for the appointment of a neutral expert. The time taken by India to respond to this request (1 year, 1 month and 8 days), has no consequence mentioned within the treaty terms. The PCA has gone against their own assertion of the requirement of a request from either commissioner not being present (para. 203). The PCA argues that India has assumed a commissioner cannot withdraw their request for appointment of a neutral expert, however even the PCA assumes that arbitration can be initiated before the settling of disputes by a neutral expert, basing their reasoning on the Kishanganga Dam Arbitration, which dealt with different circumstances (para. 206).
VI. Conclusion
Both India and Pakistan accept that the PIC has failed to resolve the current issue and formal diplomatic talks have not yielded any solution. Since the current issue involves technical aspects under Annexure F of the IWT, it should first be referred to a neutral expert and only after that be referred to arbitration if the dispute still remains unresolved. Both countries had followed the same procedure during the Baghlihar Dam issue and had resolved the same through a neutral expert. In the previous Kishanganga Dam Arbitration, an arbitral tribunal was directly constituted bypassing the neutral expert since Pakistan and India (partially) had agreed that the dispute did not pertain to matters under Annexure F of the IWT. In this case, since the World Bank has already appointed a neutral expert and Article IX of the IWT mandates technical aspects to be considered by a neutral expert before referring the dispute for arbitration, that should be the manner in which the dispute resolution process moves ahead.
The main aim of dispute resolution mechanisms within treaties, as the name suggests, is to resolve disputes. India has already declared in their letter to the World Bank that it will not accept any award given by the PCA in this case. This brings us to the dangerous trend in international law wherein nations are refusing to accept the jurisdiction of international adjudicatory bodies. With China refusing to follow the PCA ruling in Philippines v China and multiple African nations refusing to accede to the jurisdiction of the International Criminal Court, it is a time wherein international adjudicatory bodies must be careful while exercising jurisdiction or have their order serve as dead letters of the law. Especially in this case, wherein there exists a multi-tiered arbitration clause, the PCA should have had the neutral expert examine this issue and declined to accept jurisdiction before that. In such an instance, if the neutral expert could not solve the matter and then it was referred to arbitration, India would have accepted the jurisdiction of the PCA and adhered to their awards, which would have led to the settlement of the dispute.
Author
Ahan Gadkari is a Final Year BA LLB Candidate at Jindal Global Law School.
Read more on this topic in the Asian Journal of International Law.
