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ARBITRATION AWARD DEFAULT

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ARBITRATION AWARD DEFAULT

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X infrastructure company, based in India, builds an airport in Y country.
There is a change in Government in Y country and the new Government breaches the contract and throws out X infrastructure company from that Country. The contract has an Arbitration Clause with seat of arbitration in Singapore.

X invokes arbitration and wins the arbitration award. Y Government refuses to honor the award. So, there is an arbitration award default.

Is there any insurance policy to cover such eventuality?

Yes- it is one of the covers available under “Political Risk Insurance”. This is called the “Arbitration Award Default” cover.

It protects the owner of tangible assets and Foreign Direct Investment against the risk of non-payment of an arbitration award obtained by a foreign investor against a host Government or a public sector enterprise of the host Government.

Will the full award be payable?

Yes- as long as it is lower than the Invesment made. If the award is higher than the investment made, then investment made is paid. Principle of indemnity followed.

Not only the infrastructure company can buy this insurance but also equity investors or debt providers can also buy this insurance.

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