Sunday, November 2, 2014

A Wake Up Call to Speed up Arbitral Proceedings.

Below is a guest post from Vaisakh Shaji. In the post below Vaisakh discusses a judgment on the importance of giving a reasoned award as well as result of delaying rendition of an award. 

The Bombay High Court’s (‘The Court’) recent decision in Dirk India Private Ltd[1] (“Petitioner”) vs Maharashtra State Electricity Generation Company Ltd (“Respondent”) AND Maharashtra State Electricity Generation Company Ltd (as ‘Petitioner’) vs Dirk India Private Ltd (as ‘Respondent’) brings into focus certain important issues regarding the consequence of delay in rendering arbitral award and also the importance of stating reasons for the award.   

Note: The Court decided two different claims arising from the same arbitral award. In the second claim, Dirk India is the respondent and the issue therein is with respect to damages sought by the original Respondent. This part of the judgment will be discussed as second part of this note.

Part one

Brief Facts:
The dispute between the parties relate to Nashik Thermal Power Station (‘the plant’), which uses coal as fuel for generation of electricity. The parties entered into an agreement dated October 4th, 2000, according to which the Petitioner would use its technology to dispose of waste product that is generated at the plant. The Petitioner, a company based in United Kingdom specializes in recycling by-products generated by thermal power stations. Pulverised Fly Ash (‘PFA’) which is a waste product generated in coal fired thermal power stations, is used by the Petitioner to manufacture cement replacement material.

As per the agreement, there were two stages involved in disposing off PFA. In the first stage, the Respondent was to provide PFA from the plant and deliver the PFA to the Plaintiff by depositing the same in the Hoppers constructed by the Plaintiff and for this purpose a Dense Phase Conveying System was to be built by the Respondent.

In the second stage, the Plaintiff was to transport the PFA from the Hoppers to the PFA plant situated at the site at the Plaintiff’s own cost and is its sole responsibility. Accordingly there were two stages of transportation of PFA i.e. (a) ESP to Hoppers and (b) from Hoppers to the PFA Plant.

Plaintiff’s case:
A Dense Phase Conveying System was to be built by the Respondent at their cost to enable them to provide PFA to the Petitioner. Further, the Respondent was required to deposit the PFA in the Hoppers constructed by the Petitioner. However, as the Respondent did not construct the Dense Phase Conveying System, the Plaintiff had to resort to manual removal of PFA.  The Respondent terminated the agreement illegally by alleging that it was the duty of the Plaintiff to construct the Dense Phase Conveying System.

Respondent’s case:
The respondents alleged that as per the agreement, the Plaintiff was supposed to construct the hoppers and as they did not do so, the question of Respondents releasing PFA through the hoppers did not arise. Further they alleged that the Plaintiff was implementing the agreement at their own will by constructing only one hopper and the rest manually, resulting in spillage and causing pollution.

Arbitral Tribunal
To adjudicate the dispute between the parties, an Arbitral Tribunal of three Arbitrators, constituting senior retired Judges was formed in 2007. The Arbitrators initially framed twenty two issues, however modified them subsequently and narrowed it down to four issues and a final award was passed in 2011.
The decision of the Tribunal was challenged under section 34 of the Arbitration and Conciliation Act, 1996 (‘the act’) by the Plaintiff on the grounds that:
  •  the Tribunal did not adjudicate on the real issues between the parties;
  • Secondly, the award is without reason and did not consider the submissions made by the parties;
  • Further there was gross delay in making the award which resulted in abandoning the issues that were framed and the arbitrators consequently missing key issues to be decided.
On examining the reasoning by the Tribunal, the Court ascertained that during the process of adjudicating, the Tribunal intermixed the issues and kept referring to Phase two of the agreement which was never in dispute. The arbitrators brought onto themselves to decide an issue which was never in dispute.

For deciding the dispute in the first stage of the agreement, the arbitrators adjudicated by deciding the second stage and mixed up the issues such that it was not possible to divest the two from the Tribunals reasoning. The Court observed that the failure to distinguish between two stages is a fundamental flaw.

Arbitral award:
The Plaintiffs contended that, firstly there was inordinate delay in rendering the award, as a consequence of which the Tribunal lost its focus from the core issues of the dispute and secondly, that the award is not without reasons.

The Court observed that, even though an arbitral award need not be very detailed, unless the parties agree to the contrary, the reasons have to be given in the award. If the parties go to the Arbitrators with specific issues to be decided, not only they must be decided, but the parties must be informed why the dispute was decided in a particular manner.

Further, the Court held that, “they may choose an arbitrator with a judicial background if judicial expertise is what they want. Their choice reflects how they want the arbitration to be conducted. Once the parties choose an arbitrator with a judicial background, they expect that the arbitrator would apply judicial and legal expertise and resolve the dispute evaluating the veracity of assertions of both the sides. Parties expect the judicial mind will understand and appreciate the real dispute between the parties better and bring it into focus and give a just and reasoned decision”.[2]

On the issue of delay in rendering the award, the Court noted that the Tribunal took more than a year in rendering its final award and observed that had it been a lone consideration, it would not have been sufficient to set aside the award, however the perverse reasoning by the Tribunal coupled with the delay in its final decision would go in the direction of attributing the delay as one of the factors due to which the Tribunal side tracked from the real issues.

Applicability of Section 34:
The Court stated that it may not be possible to test the merits of the award, however if it is found that there exists a fundamental flaw and it is intermixed, the entire award will be vitiated.

The second aspect with the award is with respect to the issues that were framed. The Tribunal framed 22 issues initially and at the time of passing the award, it narrowed it down to 4 issues. The serious fall out of this was that the Tribunal lost its focus on identifying issues which are vital to the claims by the parties and ended up overlooking or divesting certain issues which had to be addressed together such as determining the Plaintiff’s liability for not collecting the PFA by overlooking the issue of installing Dense Phase Conveying System.

The Court did not lay down any further grounds on which a challenge can be brought under section 34 and relied on the decision in ONGC vs Saw Pipes on the applicability of section 34 of the Arbitration and Conciliation Act, 1996 for setting aside an award for error apparent on the face of it.

It relied on ONGC vs Garware Shipping Corporation to state that courts can interfere if the award by an Arbitral Tribunal contains perverse conclusions and finding on wrong basis.

This case once again brings into focus the conduct of arbitration proceedings in India. The facts of the case shows that, inordinate delays would lead to intermixing issues especially and a speedy remedy as contemplated by parties cannot be achieved through an alternate process. This will further, discourage foreign parties who make huge investments in India to shy away from going for an alternate dispute resolution process and comes in the way of making India a dispute resolution friendly nation.

As stated in the 246th Report of the Law Commission of India for reforms in the Arbitration and Conciliation Act, 1996 the arbitration proceedings are becoming a replica of court proceedings and frequent adjournments would lead to setting aside of arbitral awards.

In Ircon International vs Arvind Constructions, the Court the question of sufficiency is left with the arbitrator. And the duty of the court is to look into the nexus between the reasons and the material before the arbitrator. As long as the reasons lead to the conclusion made, it is sufficient. However in Ircon the arbitrator was an expert, being a retired Financial Commissioner of the Railway Board.

While appointing arbitrators from technical background sufficiency of the arbitrators reasoning might be not over-emphasised. However, in the present dispute, the three arbitrators were retired judges and though there is no onus to pronounce a judgment as that of a Court, the necessary nexus between the issue and the final adjudication is lacking.

Part two:

The second appeal decided by the Court is regarding the counter-claim  by Maharashtra State Electricity Generation Co. (‘Mahgenco’) against Dirk India which was dismissed in its entirely by the Tribunal.

The tribunal stated that Mahgenco did not provide enough documentary evidence and on the additional ground that Mahgenco did not challenge various orders passed by the High Court from time to time.

It was contended for Mahgenco that, it being a statutory body decided to comply with the orders of the High Court, and that cannot be a reason to deprive it form claiming damages.

The court held that the mere fact that interim order under section 9 of the act has not been challenged by Mahgenco were not challenged by it, is not sufficient reason to dismiss its claims.

Further it stated that the entire claim of Mahgenco was dismissed in two paragraphs and the Tribunal refused to look into the counter-claims. The Court agreed with the contention that such approach by the Tribunal is perverse. Additionally, even though Dirk India contested that Mahgenco is entitled to damages, they agreed with Mahgenco that the awards passed are perverse and hence the Court found it an additional ground to set aside the award.

[1] MANU/MH/1071/2014
[2] Para 45.

Saturday, August 23, 2014

Briefing on the Law Commission of India's Report on Changes to the Arbitration Law

I recently wrote a post for Kluwer Arbitration Blog on the 246th Report of the Law Commission of India on the "Amendments to the Arbitration and Conciliation Act, 1996". The post covers the suggestions and amendments proposed by the commission and can be viewed on this link

Friday, August 22, 2014

To Rein if Not Tame the 'Unruly Horse' of Public Policy

Below is a guest post from Garv Malhotra who is a final year student at GNLU, Gandhinagar.

A substantial amount of literature has been dedicated to the topic of the Scope of Public Policy as a ground for 'set-aside' of Domestic arbitral awards under Section 34 (2)(b)(ii) of the Arbitration and Conciliation Act, 1996, especially in the past decade since the infamous expansive interpretation of the term 'public policy' by the Apex court. The decision in the case of ONGC v. Saw Pipes[1] has attracted much flak from all quarters[2]. However, recent decisions of the Supreme Court in the McDermott[3], Sumitomo[4], Rashtriya Ispat[5] among other[6] cases among others that have attempted to water down the ONGC Doctrine without overruling the same. 

The Law relating set-aside of Domestic arbitral awards in India is laid down under Section 34 of the Arbitration and Conciliation Act, 1996. It is based on Article 34 of the Model Law and states that the grounds contained therein are the "only" grounds on which an award may be set aside. However in the Indian context the word "only" prefixing the grounds is a bit of a misnomer as two additional grounds have been created by the Act itself under Section 13(5) and 16(6). Besides another ground of fraud and corruption is found in an Explanation to the public policy ground in Section 34.[7]

The scope of challenge and set-aside of a final award of a tribunal is very restricted as there is a legal presumption in favour of the validity of an award.[8] The arbitrator's interpretation of the contract and his decision on the merits of the case cannot be re-examined by the court and it cannot substitute its own decision in place of the final and binding award.[9] Additionally, the reasonableness of the reasons given by the arbitrator cannot are not subject to challenge in a court of law.[10] The court cannot simply term the award on fact and/or law erroneous and substitute the award with their own judicial decision[11] and where the opinion of the arbitrator is plausible[12], the courts will not interfere. In effect, if the tribunal passes an award (as per Section 31) or an order under Section 16(2) or 16(3) after considering rival submissions on both fact and law, its decision cannot be interfered with unless the conclusion shocks the consciousness with a blatant error apparent from a prima facie perusal of the award. 

Though most other grounds of set-aside mentioned in Section 34 can be literally constructed, the most malleable among all grounds is the residuary ground under S. 34 i.e. the award can be set aside if found violative of the 'public policy' of India, leaving room for immense 'judicial legislation' on the point. It is known that the term 'public policy' is incapable of any precise definition, however, some light may be drawn from the Ministry of Law, Justice and Company Affairs, Government of India's attempt[13]- "A set of principles in accordance with which communities need to be regulated to achieve the good of the entire community or public" 

The reason why Public Policy is incapable of any precise definition is because it is a concept premised on the socio-cultural needs of every society as distinguished from the socio-political Policies. e.g. the consumption of alcohol, though ubiquitous in most countries may be against the Public Policy in some Gulf Countries. 

The term 'public policy' has been called an 'unruly horse'[14] as it is a dynamic concept, not being static at anytime, in any jurisdiction . It is a residuary ground that vests with the judges a powers analogues to a 'Henry VIIIth Clause' i.e. 'power to remove difficulties' in Administration Law. This power can also be compared to the common law canon of Justice, Equity and Good Conscience. Clearly, the term public policy is very open ended and is impossible to straitjacket[15]. However, unlike the two analogies hereinbefore mentioned, the interpretation of 'public policy' has to be done in the backdrop of the intervention-restrictive scheme of the Act as seen from the Statement of Objects and Reasons and Section 5.

The term public policy is capable of both a narrow and a broad interpretation depending upon the socio-cultural needs of the society[16] and the pendulum of the Apex Court's interpretation has oscillated between both these stands for decades without conclusive settlement[17]. However, in the ONGC case, the court disturbed the delicate balance between party autonomy and judicial supervision sought to be achieved by Section 34 and tilted the scales strongly in favour of the latter thereby setting the clock back to the old position where an award could be challenged on merits and indeed renders the court (testing enforceability of an award) as a court of appeal. It opened the floodgates to many previously barred challenges on vague assertions of statutory violations or interpretation of documents or the law. Invariably today, almost every dispute being arbitrated is further being litigated under the garb of challenge.

Recent Developments 

It has been over a decade since the highly criticised ONGC Judgement but no bench faced with a similar question has recommended the Chief Justice to constitute a review bench. ONGC still stands as the Locus Classicus on the interpretation of Public policy. However, a few recent decision benches of the Supreme Court of equivalent strength as ONGC have attempted to dilute its overtly expansive interpretation without sitting in review of the ratio.

In the McDermott Industries v. Burn Standard[18] the Supreme Court held-

"The 1996 Act makes provision for the supervisory role of courts for review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct the errors of the arbitrators...this can be justified as the parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."

In Sumitomo Heavy Industries Ltd. v. ONGC Ltd.[19] the Hon'ble Supreme Court, relying on another recent decision in SAIL v. Gupta Brothers Steel Tubes Ltd.[20] held that the umpire is legitimately entitled to take the view which he holds to be correct...hence if the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to intervene. The Court further reiterated the position that a 'perverse view' is not a finding against the weight of the evidence but against the evidence itself of the grounds of inadmissibility or irrelevance.

Further in the Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran[21], the Supreme Court upheld the interpretation of the court in Sumitomo Case and SAIL Case and opined that even if the decision of the arbitrator is possible if not plausible, the court would not be justified in interfering.

The author submits that the overtly expansive stance on Public Policy as laid down in the ONGC Case is defeating the main objectives of the Act. It renders the Arbitral Tribunal a mere forum at the bottom of the Court hierarchy subject to just as many actions as a traditionally litigated dispute. Invariably today, most of the arbitral awards are challenged on grounds of violation of public policy and patent illegality premised on vague assertions of statutory violations imploring the court to 're-adjudicate' issues of fact and law under the pretext of a challenge. The recent decisions of the Supreme Court and a few High Court decisions mark a welcome trend in watering down the ONGC Doctrine and upholding the restrictive sanctity of the Act. However, it is only up to the next bench faced with a similar question to request the Chief Justice of India to constitute a larger bench to review this position and salvage the Domestic Arbitration scenario in India. 

[1] (2003) 5 SCC 705. 
[2] Sumeet Kachwaha, Arbitration Law of India: A Critical Analysis, Asia International Arbitrational Journal, Volume 1, Number 2, P. 105 ; Speech delivered by Mr. F.S. Nariman at the inaugural session of “Legal reforms in Infrastructure”. 
[3] (2006) 11 SCC 181. 
[4] (2010) 11 SCC 296. 
[5] (2012) 5 SCC 306. 
[6] SAIL v. Gupta Brothers Steel Tubes Ltd (2009) 10 SCC 63, Kwality Mfg. Corpn. v. Central Warehousing Corporation (2009) 5 SCC 142; Arulvelu v. State (2009) 10 SCC 206. 
[7] Sumeet Kachwaha, Enforcement of Arbitration Awards in India, Asian International Arbitration Journal, Volume 4, Number 1, PAGES 64-82. 
[8] Union of India v. Jai Narayan Misra AIR 1970 SC 753; Food Corporation of India v. Joginder Mahinderpal AIR 1989 SC 1263. 
[9] Union of India v. Jai Narayan Misra AIR 1970 SC 753; Francis Klein Pvt. Ltd. v. Union of India 1995 2 Arb LR 298. 
[10] Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar AIR 1987 SC 2316; Id. 
[11] Lakshmi Mathur v. CGM, MTNL 2000 (2) ArbLR 684 Bom. 
[12] Supra Note 4, 5, 6. 
[13] P Anklesaria, "Scope of the expression Public Policy in Domestic and Foreign Awards". 9 AIR (2005) at 310. 
[14] Burrough, J., Richardson v. Mellish (1824), 2 Bing. 252; (1824) 130 Eng. Rep. 294, 303. 
[15] O.P. Malhotra, The Law and Practice of Arbitration and Conciliation (New Delhi: Lexis Nexis Butterworths, 2002) at 768. 
[16] Supra Note 19. 
[17] For a narrow view refer- Gherulal Parekh v. Mahadeodas Maiya AIR1959 SC 781 and Renusagar Power Co. Ltd. v. General Electric Co. AIR 1986 SC 1571; For a Broad view refer- Central Inland Water Transport Corp. Ltd. v. Brojo Nath Ganguly1986 SCR (2) 278 and ONGC v. Saw Pipes AIR 2003 SC 2629. 
[18] (2006) 11 SCC 181 para 52. 
[19] (2010) 11 SCC 296 para 41-43. 
[20] (2010) 11 SCC 296. 
[21] (2012) 5 SCC 306 para 43-45.

The Panna-Mukta Arbitrations: The Indian Supreme Court Adopts a Pro-Arbitration Stance. Another Step In The Right Direction?

Below is guest post from Nimoy Kher who is a third year student at NLSIU, Bangalore. 

In what may be seen as yet another step towards a more arbitration-friendly atmosphere in India, the Supreme Court of India on 27th May, in the case of Reliance Industries and Anr. v. Union of India denied Indian courts’ jurisdiction over an ongoing foreign arbitration proceeding.

By way of context, the factual matrix surrounding the case is as follows. There were two Production Sharing Contracts (PSCs) between the parties to the dispute. These PSCs dealt with the exploration and production of petroleum from the Tapti and Panna-Mukta Fields located just off the western coast of Mumbai. In 2010, certain disputes arose between the parties with regard to these PSCs, and Reliance Industries referred the disputes to arbitration, in accordance with the contracts. The government argued that the claims before the tribunal were non-arbitrable on several grounds. The arbitral tribunal, however, passed a final partial award declaring that it had jurisdiction over the parties’ disputes.

Subsequently, the government sought to set-aside this partial award under S.34 of the Indian arbitration statute. Reliance Industries opposed the maintainability of the setting aside petition. Reliance Industries based their challenge to the setting-aside petition on the argument that S. 34 falls under Part I of Indian Statute, and would therefore apply only to domestic or Indian seated arbitrations. Further, Reliance Industries argued that the arbitration agreements in the PSCs expressly named England as the seat of the arbitration and as such, all challenges to the award would lie in England. The government, on the other hand, argued that S.34 would apply to the award since it was clear from parties’ agreement that they did not intend to oust the applicability of the Indian statute, and also since the disputes between the parties involved substantial questions affecting Indian public interest.

The High Court placed heavy reliance on judgments such as Bhatia International v. Bulk Trading S.A and Venture Global Engineering v. Satyam Computer Services to assert jurisdiction over the award under S.34. The court opined that S.34 would apply since there was neither an explicit nor implicit rejection of the domestic provisions of the Indian statute, as per the requirements of Bhatia International. To the contrary, the court gleaned a manifest desire to subject the arbitration agreement to Indian law, from parties’ choice of Indian law as proper law of the contract. The court reasoned that the fact parties had chosen the law of India to govern the substantive contract clearly indicated that parties did not intend to oust the applicability of Indian law. By choosing England as the seat, parties had merely desired that the English law would be the curial law, and would apply only to questions of the conduct of arbitral proceedings. For all other matters, including challenge of an award, Indian law would apply.

Further, the court reasoned that S.34 would apply since the parties in the instant case did not wish to exclude the applicability of Indian public policy. The court relied on Art.15 (1) of the PSCs which stated that “the companies and the operations under this Contract shall be subject to all fiscal legislation of India” to support this conclusion. In any case, irrespective of the parties’ intention, the High Court declared that it would retain jurisdiction over the award, since the question of the arbitrability of certain kinds of disputes must not be decided just against the touchstone of the lex arbitri. It stated that:

“Since the question of arbitrability of the claim is a larger question effecting public policy of State it should be determined by applying laws of India.”

It must be bourne in mind, that in Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical Service Inc., a 2012 Supreme Court judgment, the court has overruled the judgments in Bhatia International and Venture Global. The Supreme Court has clearly stated that Part I of the Indian arbitration statute would not apply to foreign-seated arbitrations. However, as the High Court correctly recognized, the holding in the Bharat Aluminium Case applies prospectively, to arbitration agreements executed after 6th September 2012. Since the arbitration agreements in the present case were entered into before that date the High Court relied upon the ratio in Bhatia International and Venture Global to come to the aforementioned conclusions.

Fortunately, in appeal the Supreme Court comprehensively overruled the High Court on both issues. In light of the High Court judgment, the first issue that had to be determined was whether the choice of seat in the instant case, amounted to an implicit exclusion of the provisions of the arbitration act, and excluded the award from the ambit of S.34, as per the requirements laid down in Bhatia International. The Supreme Court found that in the instant case the choice of seat did, in fact, amount to an implicit exclusion of the Indian statute. The court concluded that a ‘meaningful reading’ of the terms of the contract clearly indicated that parties understood the distinction between the proper law of the contract and proper law of the arbitration agreement, and parties intended both to be different. The court opined:

“In our opinion, it is too late in the day to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause”

The court relied on a number of previous judgments such as Videocon Industries Ltd. v. Union of India and Anr. and Dozco v. Doosan Infracore Co.Ltd  to find that the choice of seat clearly amounted to an ouster of the jurisdiction of Indian courts. Further, in clear contrast to the High Court ruling, the court held that the mere fact that Indian law applied to the PSC would not indicate that parties intended Indian law to be the proper law of the arbitration agreement.

With regard to the second issue – whether the Indian statute would apply by virtue of the fact that substantial questions of Indian interest involved - the court found that the applicability of the provisions of the statute would not depend on the nature of the challenge of the award. For the standard of public policy laid down in the Indian statute to apply, it would first have to be proved that the statute applied to begin with. Since, in the instant case the arbitration agreement fell outside the scope of the statute by virtue of the seat of the arbitration being England, an award passed thereunder would not be subject to setting aside proceedings under S.34. The mere fact that question of Indian public interest were involved was not sufficient to attract the applicability of the statute.

This judgment is commendable, since despite being forced to rely on the ruling in Bhatia International, the court still carved out a niche, which excluded the applicability of Part I of the Indian statute to the arbitration proceedings. This judgment clearly indicates the change in the attitude of Indian courts towards international arbitration. It indicates that the Indian judiciary is increasingly hesitant to exercise control over international arbitrations. Further, the Supreme Court has correctly identified the inconveniences that are likely to be caused to parties by allowing the applicability of the Indian statute to international arbitration. Finally, this judgment is significant because it explicitly recognizes the need to follow international trends embodied in other UNCITRAL Model Law and New York Convention. Post the holding in Bharat Aluminium Co Ltd. v. Kaiser Aluminium Technical Services Inc., this judgment will no doubt help bolster the confidence of the international arbitration community in India.  The question remains, though: are these cases just flashes in the pan, or are they representative of a true change in the Indian arbitration landscape?

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 ("verm√∂gensrechtlicher 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]
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