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.

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. 

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. 

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.