In a legal ruling with implications that could reverberate for years to come, the government of India has been held liable by a panel of arbitrators for failing to provide an adequate legal system to an Australian mining company.

As fDireported last year, White Industries dragged India to arbitration after spending a decade trying to collect on a debt owed by a local joint-venture partner (Coal India).

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The Australian miner hit pay dirt in November of 2011 when arbitrators held that India’s complicity in the matter put that country in breach of a bilateral investment treaty between India and Australia. The arbitral ruling was kept under wraps until February of this year, but when it finally surfaced, it was clear that White Industries had made legal history.

Arbitrators held that India bears legal and financial responsibility for the parlous state of its legal system, and should compensate White Industries for its long-delayed pay day. Just as important, the Australian firm demonstrated that foreign investors need not prove that a host country has engaged in an outright “denial of justice” – a notoriously difficult legal task – and that merely failing to provide “effective means” for resolving foreign investment disputes can be enough to put a host state in breach of a bilateral investment treaty.

In India’s case, arbitrators ruled that the government must shoulder the blame for the fact that the Indian courts had dithered for nearly a decade in resolving a challenge by White Industries’ local business partner to the 2002 debt.

International law firms have been galvanized by the ruling – and by the prospect that frustrated foreign investors may be able to sue their host countries before international tribunals when local legal systems fail to deliver justice within a reasonable time-frame. Thus, there may now be dozens of copycat cases filed in the coming years, as foreign investors look to extricate themselves from protracted local lawsuits and put the heat on governments to do something about such delays.

For governments, the recent developments may be more alarming. Indeed, the arbitrators in the White Industries versus India case have made clear that poorer countries cannot plead poverty as an excuse for the woeful state of their domestic legal systems. If other arbitration panels are prepared to follow the no-nonsense approach blazed in the White Industries case, a number of developing countries may need to invest heavily in efforts to improve the performance of local courts – or simply see those same public funds used to pay off foreign investors that are harmed by those underperforming local courts.

Luke Peterson is the editor of Investment Arbitration Reporter (http://www.iareporter.com) an online news and analysis service tracking FDI legal disputes.