Tuesday, July 1, 2014

Guest Post: Balance Between Conformity and Uniformity

Below is a guest post from Devansh Mohta. Devansh is a lawyer practicing in the Supreme Court of India. This piece was was first published in the journal Chartered Accountant Practice Journal 44 issue.

The first step towards formulation of NYC[1] was taken when ICC prepared the ‘Draft Convention on Enforcement of International Arbitral Awards on 13th March, 1953.[2]. Upon its presentation to the ECOSOC[3], it was changed to “Draft Convention on the Recognition and Enforcement of Foreign Arbitral Awards”.[4] The “widespread interest” in advancing international commercial arbitration led to “UN Conference”[5] which was held on 20th May, 1958 and NYC was signed and adopted on 10th June, 1958.[6]

NYC sought to guarantee uniform recognition and easy enforcement of an arbitral award obtained through the autonomous system of arbitration. NYC and UNCITRAL Model Law (MAL) alongwith Rules, constitute a fine framework for international commercial arbitration. Therefore, significance of NYC to International Commercial Arbitration will be considered with reference to MAL.

 Its relevance and application

NYC established an “international regime”[7] to facilitate ‘recognition and enforcement’ of both the arbitration agreement as well as arbitral award. Both are discussed hereinafter under separate heading.

 Arbitration Agreement

It was afforded recognition, by Article II, upon fulfilment of two conditions - of being written and of subject matter being arbitrable. And unless found “null and void, inoperative or incapable of being performed” Courts must enforce it upon request of one of the parties by referring them- sometimes even third parties[8]- to arbitration.[9] Failure of this obligation is breach of treaty.

An agreement is in writing if it satisfied the stated maximum standard.[10] An invalid arbitration agreement would render an arbitral award unenforceable.[11] This ‘maximum standard’ with passage of time became outdated. Therefore, MAL was used to widened its range by including modern means of communication that could constitute a written “arbitration agreement”.[12] Recent amendment to MAL has diluted this requirement.[13]

Arbitrability, which is usually the courts’ domain[14], except in some countries which have statutory provisions;[15] affects the validity of both the agreement as well as the award.[16]
           
Arbitral Award

 NYC applies, in relation to the place of enforcement, to the following: (i) foreign award: those made in a different territory; (ii) non-domestic award: those are not considered domestic. (NYC awards)

Category (ii) broadened the scope of NYC. The following awards fall under this category: (i) those made under arbitration law of another state; (ii) those involving foreign element;(iii) a-national award (rare)

According to the Guide[17] this provision conferred freedom to decide which award would be considered “domestic”. For instance, an award made in India will be considered “domestic”.[18] However, the oft-cited case of Bergesen v. Muller[19] dealt with the provisions of US Law which prescribed conditions rendering it non domestic.

Arbitral awards under NYC could be final, partial or preliminary and also of arbitral bodies, excluding procedural orders.[20] MAL specifies the ‘form and content’ of an award[21], and new Article 17H renders “interim measures” by the arbitral tribunal binding.[22] It is a reflection of changing trends.

It is pertinent to note that while NYC deals with the distinction between “foreign” and “domestic” awards, MAL is concerned with “international” and “non-international” arbitration.[23] However, an “interim measure” is distinguishable from “arbitral award” to which NYC apply.

Recognition and/or Enforcement

Both concepts are different. Recognition means respecting the binding nature of the award and res judicata, notwithstanding its “enforcement”, which is seeking judicial assistance to carry out the award, in which “recognition” is implicit.[24] Significantly, unlike Article V NYC; Article 36 MAL uses “or” instead of “and” differentiating recognition from enforcement

Article III NYC mandates recognition to an arbitral award as “binding”, however, this obligation arises when the arbitral award is brought to states territory and is limited to “NYC awards” only, whereas Article 35 MAL affords such recognition to any “arbitral award” irrespective of the place it is made. Article VI readwith Article V(1) (e) specify the effect of setting aside or suspension of award by competent authority of the country in which or under the law of which that award was made. Article 34 provides grounds for setting aside.

In BALCO v. Kaiser[25] the Court held that the underlined provision did not confer concurrent jurisdiction as arbitral award could be annulled only by one court.

Some debate exist about Courts’ discretion, under Article V NYC, to refuse enforcement because of the expression “may be refused”. There are two points:

(i) expression “or” in Article V(1) that the grounds for refusal are disjunctive; 
(ii) expression “may be” appearing both in Article V(i) and (2) must carry the same meaning and the yardstick applicable to refusal on the ground of public policy and arbitrability.

Thus, while Courts adopt a “pro-enforcement approach”, however, upon proof refusal must follow.[26]

Under MAL enforcement provisions are provided Article 36.which retains with slight modification, the disjunctive grounds of NYC for refusing enforcement. Thus, Article 35 and 36 preserves the essence of NYC.

A balance between conformity and uniformity

NYC permits two reservations: Reciprocity and Commercial[27]- these reservations limit the applicability of NYC and can be adopted by the Contracting State in their own way. With the list of countries ratifying the NYC increasing, “reciprocity” reservation is gradually becoming redundant.

The “commercial reservation” in NYC indicates its area of operation and was included to distinguish, for civil law countries, commercial transactions from the non-commercial.[28] The commercial character of the subject matter is retained both in MAL and NYC.

MAL was conceived to establish uniform arbitral procedure to better serve the interest of International Commercial Arbitration. However, MAL had to confirm with NYC. So a balance was struck. By removing the limitation of applicability NYC. Firstly by elaborating the concept of “commercial”[29], MAL brought it out of the confines of national laws as it existed owing to the commercial reservation of NYC.[30] Secondly, MAL was made applicable to all awards irrespective of the place it was made and therefore removing the difficulties posed by “reciprocity reservation”. MAL complemented NYC by making place relevant for conduct of arbitration and irrelevant for recognition and enforcement of award. Thus, meting out uniform recognition to all arbitral awards, without distinguishing between “foreign” and “domestic” awards.



[1] Convention on the Recognition and Enforcement of Foreign Arbitral Awards. (NYC)
[2] Report and Preliminary Draft Convention adopted by the ICC Committee on International Commercial Arbitration.
[3] United Nations Economic and Social Council
[4] Report of the Committee on Enforcement of International Arbitral Awards E/2704 (28th March, 1955).
[5] United Nation Conference on International Commercial Arbitration
[6] Recognition and Enforcement of Foreign Arbitral Awards Memorandum by the Secretary General E/2840 (22nd March, 1956).
[7] Julian D. M. Lew , Loukas A. Mistelis , et al., Comparative International Commercial Arbitration, (Kluwer Law International 2003) pp. 17 – 30 (para 2.18)
[8] Chloro Control v. Severn Trent (2013)1 SCC 641
[9] Article II (3) of NYC “…The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” .The text of Article II was adopted much later on 6th June 1958 (E/CONF. 26/L/59).
[10] Ibid Article II(2)-“The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”
[11] Article V (1) (a): “Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:(i) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made”
[12] Article 7 of MAL (1985 version) Definition and Form of the Agreement
[13] Ibid [option 1] Article 7(3) “….(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.” (As adopted by the Commission at its thirty-ninth session, in 2006) and [option II] “….is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”
[14] Booz Allen & Hamilton v. SBI (2011)5 SCC 532
[15] Section 1030 German Arbitration Law 1998 (1) Any claim involving an economic interest ("vermögensrechtlicher Anspruch") can be the subject of an arbitration agreement. An arbitration agreement concerning claims not involving an economic interest shall have legal effect to the extent that the parties are entitled to conclude a settlement on the issue in dispute.  (2) An arbitration agreement relating to disputes on the existence of a lease of residential accommodation within Germany shall be null and void. This does not apply to residential accommodation as specified in section 549 subs. 1 to 32  of the Civil Code. (3) Statutory provisions outside this Book by virtue of which certain disputes may not be submitted to arbitration, or may be submitted to arbitration only under certain conditions, remain unaffected.
[16] Article of II (2) and V(2) (a) NYC and Article 1(5) and Article 34 MAL
[17] ICCA’s Guide to Interpretation of the 1958 New York Convention (2012)
[18] Section 2(7) of the [Indian] Arbitration and Conciliation Act, 1996: “(7) An arbitral award made under this Part shall be considered as a domestic award.”
[19] 710 F2d 928
[20] Resort Condominiums v. Bolwel (1993)118 ALR 655. But see section 27 (i) of [Singapore] International Arbitration Act. (amended in 2012)
[21] Article 31 of MAL
[22] MAL Artice 17H (i): “An interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued, subject to the provisions of article 17 I.” (As adopted by the Commission at its thirty-ninth session, in 2006).
[23] ibid Article 1 (3).
[24] Redfern and Hunter International Arbitration (OUP 2009) para 11.22 to 11.24
[25] (2012)9 SCC 552 para 144 to 154 (5Judges) Supreme Court of India.
[26] Dallah Real Estate v. Ministry of Religious Affairs (2010) UKSC 46.
[27] MAL Article I (3).
[28] Herbert Kronke ,Patricia Nacimiento , et al. (eds), Recognition and Enforcement of Foreign Arbitral Awards:A Global Commentary on the New York Convention, (KluwerLaw International 2010) page 32.
[29] Footnote to Article 1 MAL.
[30] UN DOC CA/CN.9/168, para 11]

Thursday, March 13, 2014

Obituary: Pierre Lalive

Pierre Lalive, 1923-2014.
Professor Pierre Lalive, one of the founding fathers of the modern arbitration law is no more. The loss is heavy for the global arbitration community. His illustrious and elaborate professional experience is difficult to be described in few words. The International Academy of Arbitration Law on its webpage captures his professional experience as : “Expert or Counsel for several Governments before the International Court of Justice; Delegate of the Swiss Government to several international conferences. One of the 7 experts appointed by the Swiss Government to draft the new Code of Private International Law (adopted by Parliament on December 18, 1987). President of INTELSAT Group of legal experts; President of the UNIDROIT Diplomatic Conference on Stolen and Illegally Exported Cultural Property. Arbitrator or Counsel in many international arbitrations (ad hoc, ICSID, ICC, CAS, etc.) Editor-in-chief (and Founder) of the ASA Bulletin. Author of some 200 publications, mainly in the fields of private and public international law, international business law, arbitration and art law." 

A void remains after his departure. His theories and concepts will go a long way in the future to shape many successful arbitration practitioners. It was a privilege to have interacted with him during the International Academy of Arbitration Law.  May his soul Rest in Peace.

Picture Courtesy: International Academy of Arbitration Law Inaugural Lecture 2011. 

Miami Arbitration LLM Program.

This link has details about the arbitration LLM being offered by University of Miami. The course promises to be an exciting one! 

International Academy for Arbitration Law. Last Two Days to Apply!

The fourth edition of International Academy for International for Arbitration Law takes place this year in July. The Academy provides advanced Summer Courses in Paris to students and young practitioners interested in international arbitration. The Curriculum is conceived by international arbitration academics and practitioners to cover all aspects of international arbitration, and the Courses are taught by the most renowned experts in the fields of international commercial arbitration and international investment arbitration. The Curriculum includes a 15-hour General Course, alternating between international commercial arbitration and international investment arbitration, 5-hour Special Courses on specific topics, as well as Workshops on institutional arbitration offered by different arbitral institutions. The Courses will be preceded by an Inaugural Lecture given by a prominent arbitration figure. The Berthold Goldman Lecture will be an opportunity to revisit historic arbitration stories. The Academy is an initiative of the Comité français de l’arbitrage (CFA), and is chaired by Professor Emmanuel Gaillard.

More Information can be found here. The last for sending in applications is March 15, 2014!

Monday, February 17, 2014

Announcement: 4th Indian Vis Pre-moot


The National Law University, Delhi is happy to announce that the 4th Indian Pre-moot for the Willem C. Vis International Commercial Arbitration Moot will be conducted at NLU, Delhi from 7th to 9th March 2014. The Indian Vis Pre-moot has been successfully organized for the past three years by National University of Juridical Sciences, Kolkata, and NALSAR University of Law, Hyderabad. This year, NLU, Delhi is co-organizing the Pre-moot in collaboration with NALSAR and NUJS.

The Pre-moot will be held at NLU, Delhi from 7th to 9th March, 2014, with the rounds taking place on the 8th and 9th. Participation in the pre-moot is open to all teams representing their respective Universities at the Willem C. Vis Moot Court Competition, Vienna, 2014 and also the Willem C. Vis (East) Moot Court Competition, Hong Kong, 2014. The Pre-Moot will have a competitive format, with separate preliminary and knock-out rounds. The oral rounds of the competition will be judged by professional arbitrators, experts in the field of arbitration and international commercial law, and Vis alumni who have performed exceedingly well at previous editions of the moot.

NLU Delhi is charging a nominal registration fee of Rs. 1500 per team (for teams exceeding three members, an additional fee of Rs 500 shall be charged per person) to cover organisational costs. Food and accommodation for all teams is included within the registration fee and shall be provided within the campus premises.

Teams may register by filling up the Registration Form available at the following link - https://docs.google.com/forms/d/1RVFPajJ0veBrh14kuNAdhkvEaDMtk3U8JQY9R9DUMjs/viewform. The deadline for registration is 24 February, 2014. Each institution must register only once. If there are two separate teams participating in the Vienna and Hong Kong rounds and both teams are interested in participating in the pre-moot, both teams should register together within the same form. 

The aim of the Pre-moot is to provide teams with valuable practice and experience to ensure that Indian teams can improve their performance as the Vis, especially considering our stellar performances at the Moot in the last few years. So, please take advantage of this opportunity, and feel free to contact the organizers at indianpremoot@gmail.com in case of further clarifications and queries.

Punya Varma ( +919910457914)
Mini Saxena ( +919818037230) 
Divya Srinivasan (+918527389970)

National Law University Delhi

Facebook: https://www.facebook.com/vispremoot2014

[This is probably short notice to book tickets to Delhi, but Lexarbitri strongly suggests that every Indian Vis team make an attempt to participate in the Pre-moot -- it really helps in preparing for the real thing!]

Saturday, January 25, 2014

Can Two Indian Parties Have a Foreign Seat for Arbitration?

Recently, during a discussion with few friends, a point came up whether two Indian parties can have arbitration seated outside India. This post is to put things in perspective as to how law stands as of today.  

In TDM Infrastructure Private Limited vs. UE Development India Private Limited, the court had in clear terms held that “The intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country.”  Thus, two Indian parties cannot use law of a different country so as to bypass the Indian law.

The ratio of the court was that "When both the companies are incorporated in India, and have been domiciled in India, the arbitration agreement entered into by and between them would not be an international commercial arbitration agreement." Doing so would mean going against the public policy of the nation.

NTPCv Singer also stated that the choice of law could be invalidated if it was against the public policy. The judgment stated that: “The concept of party autonomy in international contracts is respected by all systems of law so far as it is not incompatible with (...) any overriding public policy.

Even the revolutionary BALCO judgment has not changed this position of law where it was in fact discussed in a detailed manner by the counsel and it was also taken into account by the bench that:

“In other words, two Indian parties involved in a purely domestic dispute cannot contractually agree to denude the Courts of this country of their jurisdictions with respect to a legal dispute arising between them in India.”

…when both the parties are Indian, the substantive law governing the dispute must necessarily be Indian irrespective of the situs of the arbitration and irrespective of any provision in the contract between the parties to the contrary….the same principle applies with equal force to the arbitration law too, that is to say, that if it is not open to two Indian parties with regard to an entirely domestic dispute to derogate from the Indian laws of contract, evidence etc., it is equally not open to them derogate from the Indian arbitrational law either.” Reliance has been placed on TDM Infrastructure.

This question also came in as recently as in 2013 in the matter of: Antrix Corporation Ltd.Vs.Devas Multimedia P. Ltd. but was resolved before court could decide on it.

Only in the following two ways can this stance be changed now:
1) A new case on this point is decided by the SC, or 2) an explanation is introduced in the Act through an amendment. 

Wednesday, January 22, 2014

A BIT of a Secret: Op-Ed in The Indian Express.

The Indian Express today carried an Op-Ed piece written by me together with Anirudh Wadhwa.  It is on increasing transparency in Investment Treaty Arbitrations which arise out of Bilateral Investment Treaties. The piece argues the case for the need of transparency and in addition discusses introduction of the UNCITRAL’s Transparency Rules in Indian BITs . These Rules are slated to take effect from the 1st of April, 2014.  It also discusses other international developments that have ensued to increase transparency worldwide, such as by USA and Canada.
The link to the piece is here: http://epaper.indianexpress.com/c/2256799

Saturday, December 7, 2013

Call for Papers: IJAL

Below is the call for papers from Indian Journal of Arbitration Law (IJAL)


The Indian Journal of Arbitration Law is pleased to announce its upcoming issue (Volume 3: Issue 1), which is to be published in March next year on the following theme. 

“The Rise of Asian Arbitral Institutions and its Impact on International Arbitration” 

We would also be happy to review papers on contemporary international arbitration law in the Asia-pacific region, which are not specifically related to the above mentioned theme. 

The Board of Editors cordially invites original, unpublished submissions for publication in the following categories: 
- Articles 
- Notes 
- Comments 
- Book Reviews 

Manuscripts may be submitted via email to editor.cartal@gmail.com latest by 31st January, 2014. 

Editorial policy and submission guidelines are available here.

Monday, November 25, 2013

Online ADR mechanism in India. Lessons from Mordia.

Below is an interesting guest post from Vaisakh Shaji online ADR mechanism. In this context, he also discusses  the Mordia model which is a virtual platform to resolve disputes. 

A recent trend in the Indian service sector has been the growth of e-commerce sites. Online retail shopping was largely restricted to eBay or Amazon, but online retailing has come a long way since then, with the rise of e-commerce companies such as Flipkart, Myntra, Jabong etc, with Flipkart being a pioneer in online shopping. 


Online Arbitration as a system of dispute resolution is largely unexplored in India, partly due to the inherent issue of judicial enforcement with respect to determining jurisdiction etc. However case studies and comparison with foreign models such as the one existing in the European Union shows online ADR mechanism getting developed into one of the preferred choices of dispute settlement as it is cost-effective and faster. 

In the Indian context, the mechanism is based on traditional Arbitration and Conciliation Act, 1996 (‘AC Act’) and some elements of the Information Technology Act 2000 (‘IT Act’). Electronic records and signatures can be submitted as evidence as is provided under sections 4 and 5 of the IT act, read with section 65 B of Indian Evidence Act. It could be initiated either through an online arbitration clause in a normal contract or in the alternative having an e-contract. This process was recognized by the Supreme Court in Shakti Bhog vs Kola Shipping Ltd and Trimex International vs Vedanta Aluminium Ltd. The essence of the agreement depends on compliance with section 7 and 12 to 18 of the AC act. The parties should be fully aware of determining the nature of dispute resolution and in selecting the governing law etc. 

In certain instances, dispute resolution on a Business2Customer model is constructed in a two level model. With one level concentration on a mediation and conciliation platform, assisted by technology and the second model to engage a mediator at a nominal fee. However in most jurisdictions, with respect to arbitration there have been issues relating to jurisdiction as it is in an online platform. 

However in the Indian context, there are enough provisions in the IT act as well as the AC act which can assist the parties in formulating an ADR clause. In-fact, less time consuming system of technology assisted mediation system with respect online claims can be used by e-commerce companies in India. The International Chamber of Commerce (‘ICC’) has enumerated certain guidelines for conducting online arbitration. These guidelines can be used by companies while framing an online ADR model. If the admissibility of e-documents is permitted under the law, the scope of the arbitral tribunal can be determined by engaging the parties through video conferencing and such similar interface. A detailed analysis of the functional aspects of Online ADR authored by Advocate Chenoy Ceil can be found here

The Mordia example: 

The largest investment in online dispute resolution model was granted to Mordia, a start-up, started by the Online Dispute Resolution (ODR) head of eBay. This was completed by the new rules formulated by the European Commission on ODR Regulation, which encourages and promotes ODR and allows customers to place complaints online. Mordi’s business model is based on diagnosing customer issues and with the help of legal experts, engages a platform through which dialogue in the form of mediation, arbitration or conciliation is explored before it becomes a litigation matter. 

Parties are given a hierarchical system of dispute settlement models and they can have a mutual agreement to determine the same; and if it fails to find consensus, they can engage a third party arbitrator. The technology involves a client interface which provides the different dispute settlement options and clients could use customized versions such as presenting of questionnaires, transparent discussions, uploading online “evidence” etc to make their claims. 

With respect to arbitration it allows customers to making online payments, select arbitrators, manage documents; all through a virtual platform. The success of Mordia has made them expand to other parts of the EU and companies involved not only in e-commerce but tax, real estate etc are approaching them as it is considered to be the most advanced platform available for handling tax assessment appeals, especially in United States and Canada. 

Given the scope of Online ADR mechanism under the existing legal framework in India, it is a viable model that could be used by companies. The issue of judicial pronouncements can be addressed by having a comprehensive arbitration agreement which specifically stipulates the nature of documents used, the governing law of arbitration and the curial law. As much as it can be argued that scope for judicial intervention essentially counters the purpose of an online ADR mechanism, the existing platforms shows that it provides much liberty and discretion on the part of the customer and the service provider before the matter reaches the courts. 

In fact it is largely becoming a popular choice primarily due to its cost effectiveness, in bringing down litigation expenses, as well as providing a comprehensive list of claims that customers can choose from. And companies such as Mordia, SquareTrade has shown that online tools can be used with more precision than through a third-party. 

However, online ADR mechanism in India has its shortfalls with respect to not having adequate technology or infrastructure, and there is a general lack of trust in the public to such tools. Further, the lawyers themselves should be persuaded in suggesting online platform as a better alternative. Nevertheless, it is a model which has immense scope for growth, especially in light of the proliferation of e-commerce companies in India and invariably all transactions are done online.

Thursday, November 14, 2013

Young ICCA- LCIA India Workshop for Practitioners

Below is the notification for the Young ICCA-LCIA India one day Practitioners' Training Day on International Arbitration.

LCIA India will be joining hands with Young ICCA to host a training symposium for young lawyers in New Delhi. Young ICCA is a world-wide arbitration knowledge network for young practitioners, which aims to promote the use of arbitration by exposing practitioners from all corners of the globe to the international practice of arbitration.

This one-day event will be held at the India Habitat Centre, New Delhi on Friday, 22 November 2013. More information on the link here

Monday, November 4, 2013

Refusal to Mediate. When Silence is Not Golden.

Below is an interesting guest post from Vaisakh Shaji.

A recent UK Court of Appeal judgment in PGF II SA vs OMFS Company Ltd reiterated the Halsey principles, which essentially established the scope and permissible limits of court’s discretion in referring a matter to ADR mechanism. It enumerates situations under which a costs-sanction can be imposed in civil litigation by Courts, wherein a dispute which could have been settled through inexpensive and less-time consuming means was thwarted by the decree-holder.

What is The Hasley Principle?

The Court of Appeal in Halsey vs Milton Keynes General NHS Trust, for the first time addressed a situation in which it would be appropriate for the court to use its powers to encourage parties to settle their disputes outside court. The Court held that, it shall not compel the parties, rather encourage the parties to do so, in the most suitable cases. As summarized in this recent post in Herbert Smith ADR bulletin, Halsey established that:
  • the court should not compel parties to engage in ADR but may encourage them to do so in suitable cases ("robustly" where appropriate);
  • the court's power to have regard to the parties' conduct when exercising its discretion as to costs includes the power to deprive the successful party of some or all of its costs on the grounds of its unreasonable refusal to participate in ADR; and
  • for that purpose, the burden is on the unsuccessful party to show that its opponent's refusal was unreasonable (that is, there is no presumption in favour of ADR).

For further reading of the same, you can access the post here.

I decided to do a preliminary research regarding costs-sanctions or the reference to Halseys principles in India. The power of the court in this regard, is either largely unexplored or is lying in a grey area. Needless to state, judicial reforms over the last two decades gave us the Lok Adalat system, an improved Arbitration and Conciliation Act (‘AC act’), among such other amendments in the procedural laws with respect to court annexed mediation.

Reference to Supreme Court judgments and the AC act would show the permissible limits of judicial intervention in arbitration. The court’s discretion to refer parties to mediation even on its own motion under the Legal Services Act cannot be done without hearing out both the parties.

However, the emphasis here is not on the efficacy of referring parties to an ADR mechanism, rather on the costs of civil litigation. Section 35 and 35A of the Civil Procedure Code (‘CPC’) gives power to the courts to impose ‘costs’ on the parties to a civil litigation. Subject to statutory limits, and the rules framed by the respective High Courts, the SC through various judgments have reiterated that costs cannot be ‘fanciful’ or ‘whimsical’, rather it should be ‘actual’ and ‘realistic’ as was held by the Apex Court in Sanjeev Kumar Jain vs Raghubir Saran Charitable Trust.

For the present discussion, a review of SC judgments with respect to principles regarding awarding of costs is not necessary (those interested can read the Law Commission of India 240th report); rather, a situation where the Court can order a party to pay costs of litigation due to his unwillingness to enter into an ADR mechanism.

The Court of Appeal by applying the Halsey principles, held that what is paramount is the nature of the dispute, and whether an ADR mechanism would be better suited to bring finality to the dispute, among other factors. Lord Justice Briggs in PGF emphasized that, silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless of whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds."

The refusal of a party to enter into mediation was prima facie, considered an unreasonable act by the Court. The emphasis was to show the growing support for ADR mechanism in civil disputes. In such a situation, the onus would be on the successful-party to justify his silence. Given that the nature and scope of arbitration is increasing in India, it would be hugely beneficial if the Courts in India take a more progressive stance. Most commercial agreements entered into today invariably have an arbitration clause and mediation as a tool is used only in a limited context.

The Court, within its permissible limits under CPC or under the AC Act could act in such a way that it encourages a constructive participation in the ADR process by civil litigants. Even if a dispute is not commercial and is a claim under tort, judicial precedence has shown that Courts in India are inclined to consider a matter to be resolved through arbitration; an English law proposition accepted by the SC in Renu Sagar vs General Electric. The PGF judgment is progressive in such regard, and re-emphasizes the importance of settling disputes by alternate mechanisms and a blatant refusal by a party could be at its own risk. 

Friday, November 1, 2013

Breaking: A New Treaty Claim against India. Yet Again!

This time it is Germany's Deutsche Telekom which has filed a treaty claim against India under the India-Germany Bilateral Investment Protection Agreement aka Bilateral Investment Treaty (BIT). The claim has been filed over the cancelled satellite venture which has earlier led to two separate arbitrations at ICC and PCA under the UNCITRAL Rules between Devas and Antrix which is the marketing arm of the Indian Space Research Organization. Interestingly, this latest development has not yet come to the knowledge of Indian media and hopefully shall be taken from here on. Is it lack of transparency by the government or has just been ignored by the media remains a question. The former seems to be more probable. 

Few months back Antrix had reached the Supreme Court to halt the earlier arbitration which was rejected. More on this here and here

The notice for this fresh treaty claim was filed on September 2, 2013. According to external sources, this arbitration is slated to use the ICSID additional facility rules since India is not a party to the ICSID Convention. The most intriguing point is that the India-Germany BIT does not stipulate resolving dispute through ICSID additional facility Rules at all. It is not clear how Deutsche Telekom would pursue it unless it is going to claim some sort of MFN treatment as other Indian BITs do carry a provision of dispute getting resolved through ICSID additional facility rules. Such measure, if taken would be quite interesting. 

According to an earlier report in the Mint which was released during the SC trial, Deutsche Telekom holds a 20% stake in Devas, while Columbia Capital and Telcom Ventures each hold around 17%. The rest is held by the founders of Devas including Ramachandran Vishwanathan, chief executive of the firm. 

The project was to give Devas bandwidth to offer broadband services to consumers in India. The newspaper reported that “The cabinet committee on security called off the deal in 2011 after questions arose on whether the procedure followed by Antrix to allocate the air waves was the most economically favourable possible for the exchequer. The committee scrapped the deal on the grounds that it was not in the security interest of the country.” 

Deutsche Telekom had written to India’s Prime Minister Manmohan Singh last year threatening arbitration but the amount was not disclosed. An indication of Deutsche Telekom filing an investment treaty claim before it actually did was reported in April (See here). 

Int' Arbitrations Hijacking Domestic Judicial System, Says FM.

According to this report  in Business Standard earlier this month, India’s finance minister P Chidambaram gave a statement to a very well-known think tank in the USA that international arbitration was hijacking the domestic judicial system.  He told that this opinion was also shared by the Australian Treasurer, Joe Hockey who he met during the annual plenary meeting of the International Monetary Fund and the World Bank. 

Following are the excerpts of what he said:

"We think that international arbitration is hijacking the domestic judicial system. There are two major concerns. Commercial arbitrations between Party A and Party B, sovereign is being dragged into quite unnecessarily and unjustified,"

"The second concern is that the judgments of the highest court in the country are being made subject to international arbitration,"

“We believe in efficacy of bilateral investment protection agreements. We want such international agreements. But we want to guard against the ingeniously interpreted to enlarge the jurisdiction of international arbitrations. And you would agree with me that there are numerous cases of jurisdiction hopping and jurisdiction shopping in international arbitration today"

I understand his statements are more in context of the White Industries Case where a commercial arbitration eventually turned into an investment arbitration. The worried tone also refers to the deluge of investment treaty claims that India faces today.  However, “hijacking the domestic judicial system” is not quite an apt phrase which should be used in this context.  On a policy level it only shows that the government is turning obstinate and defensive rather than taking active corrective measures. Anyone wanting to read my detailed analysis of White Industries Case in Kluwer's Journal of International Arbitration can let me know and I will be happy to share it. The abstract of the article at the end of this post
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