Lex Arbitri - the Indian Arbitration Blog

India - Russia headed towards investment arbitration?

2012-03-04T14:10:00.003+05:30

Following the cancellation of the 2G licenses of Sistema Shyam TeleServices, the Russian conglomerate Sistema JSFC, majority shareholder in Sistema Shyam, has invoked Article 9.1 of the India-Russia Bilateral Investment Treaty ("BIT") to protect its investment.

The Russian investor has sent letters to the Ministry of External Affairs, the Finance Ministry and Ministry of Communications and IT, Government of India, apart from the Indian embassy in Moscow, informing them of its intention to commence arbitration proceedings if the problem was not resolved by 28 August 2012.

Sistema is of the opinion, according to a statement issued by the company, that the cancellation of Sistema Shyam's licenses following Sistema's investment of billions of dollars into the Indian cellular sector is contrary to India's obligations under the BIT, including obligations to provide investments with full protection and security and obligations not to expropriate investments.

The Indian company is also resorting to other kinds of legal recourse, more details on which may be found here.

More information on the status of this dispute will be put up as the story unfolds.

White Industries: Some interesting posts

2012-02-23T16:36:00.000+05:30

An interesting paper written by Mr. Prabhash Ranjan on the White Industries disptue can be accessed here.

Here and here you can find comments on the award by Badri of Practical Academic Blog.

International Academy for Arbitration Law.

2012-02-21T23:56:00.001+05:30

Thesecond edition of International Academy for International for Arbitration Lawtakes place this year in July. The Academy provides advanced Summer Courses inParis to students and young practitioners interested in internationalarbitration. The Curriculum is conceived by international arbitration academicsand practitioners to cover all aspects of international arbitration, and theCourses are taught by the most renowned experts in the fields of internationalcommercial arbitration and international investment arbitration. The Curriculumincludes a 15-hour General Course, alternating between international commercialarbitration and international investment arbitration, 5-hour Special Courses onspecific topics, as well as Workshops on institutional arbitration offered bydifferent arbitral institutions. The Courses will be preceded by an InauguralLecture given by a prominent arbitration figure. The Berthold Goldman Lecturewill be be an opportunity to revisit historic arbitration stories.The Academyis an initiative of the Comité français de l’arbitrage (CFA), and is chaired byProfessor Emmanuel Gaillard.

MoreInformation can be found here. The last for sending in applications is February29, 2012!

BREAKING: Award rendered against India in the White Industries Arbitration

2012-02-09T21:11:00.001+05:30

We have been covering the White Industries arbitration for a while. The much awaited award has been rendered. A panel of three arbitrators has found India in breach of her obligations towards White Industries, an Australian investor, under the India – Australia Bilateral Investment Treaty. The arbitrators found that the long delays experienced by White Industries, in the course of trying have its 2002 ICC arbitration award enforced, amount to a breach of India’s obligations to provide "effective" means for Australian investors to assert claims in the Indian courts.

Neither of the parties has made any official statements on the matter and the award has not been published. Following is a discussion with Mr. Luke Eric Peterson of Investment Arbitration Reporter, who has been following this case with interest. His news service revealed the existence of the BIT arbitration last year, and on February 7th it broke the news that a final award has been rendered in the case. Luke was kind enough to discuss the case with Lex Arbitri. He’s also agreed to make several articles discussed herein available for public-viewing on his news website – just click the links to access them.

Q: Luke, Thank you for sharing the information on the case with us. Could you please discuss briefly the line of reasoning adopted by the tribunal and the specific violations that the tribunal ascertained?

A: Hi Deepak. It’s a pleasure to talk with you again. As you mention, the award has not yet surfaced. Its very existence had not been reported prior to our news story on Tuesday. But, based on what we know at the present time, the tribunal found a single breach of the treaty. The tribunal held that the protracted delays in the Indian courts had led to a situation where the Australian investor was denied “effective means” of asserting claims and protecting its rights in India’s courts. This appears to mark the first instance where India has been held liable for breaching one of its 80+ bilateral investment treaties.

Q: The root cause of this dispute was the decision of Indian courts to subject the ICC Award, a foreign award, to an elaborate system of review. This stems from the controversial decision of the Indian Supreme Court in Bhatia International. Has the tribunal held this interventionist approach of Indian courts to be a denial of justice or a violation of any other treaty provision?

A: No, I don’t believe that there has been a denial of justice here. Instead, it appears that the arbitrators have found India liable for delays in rendering justice. It remains to be seen what they have said about the reasons for the delay (i.e. the fact that India’s courts have been so receptive to Coal India’s efforts to set aside a foreign arbitral award.) Many arbitration practitioners and commentators are annoyed that the Indian courts are so receptive to such applications. But, I don’t know that the tribunal has passed judgment as to whether India may be failing to live up to its obligations under the New York Convention on the enforcement and recognition of foreign arbitral awards. My understanding is that they have side-stepped this sensitive question – at least insofar as the treaty-breach has been grounded in delay, rather than a “breach of the NY Convention obligations. However, a fuller understanding of their reasoning can only come with the release of the arbitral award.

Q: Do you have any information on any damages awarded by the tribunal?

A: My understanding is that the arbitrators ordered that India should pay damages in the amount of the original arbitral award obtained by White in 2002 against Coal India, plus interest. I don’t have a precise figure, but the original 2002 arbitral award was for 4 Million Australian Dollars, plus interest.

Q: Is it common for investment arbitration tribunals to hold delays in domestic courts to be a violation of treaty obligations? If so, do you think this will have a positive impact on countries like India in terms of improving the efficiency of their domestic dispute resolution mechanisms?

A: Arbitrators are just starting to make such findings. Not all treaties contain an obligation to provide “effective means” of claims resolution. However, because India’s treaty with Kuwait has such an obligation, and White Industries was able to invoke that obligation through the use of the Most-Favored Nation clause in the India-Australia BIT, it appears that India was on the hook for not providing “effective means”. Given the notorious delays in India’s judicial system, you wonder if the government will find that it routinely falls afoul of this heretofore-ignored treaty obligation. In some sense, this is a remarkable watershed event: for the first time that I am aware of an international tribunal has held that extensive delays in the Indian courts breach international law.

In terms of background, as I wrote in our report earlier this week, the ruling in the White Industries arbitration follows in the footsteps of a ruling in another international arbitration. In the Chevron v. Ecuador case, arbitrators also ruled that extensive delays in the Ecuadorian courts had led to a breach of the “effective means” standard.

It’s much easier to make out a breach of this type of obligation than it is to prove a “denial of justice” under international law. And, moreover, investor-claimants don’t need to exhaust domestic remedies – they just need to show that domestic cases are going on … and on … and on without resolution!

So, my guess is that investor-claimants will seize increasingly on this previously underutilized obligation when they face lengthy judicial delays in their host countries. However, some governments, especially Ecuador, are not amused that tribunals are not merely finding that delays are breaching a BIT, and that arbitrators are then stepping into the role of local courts and purporting to rule on disputes that may have been languishing in local courts. So, Ecuador is trying to undo the 2010 ruling in the Chevron case via several avenues, including a set-aside of the award, and a new arbitration with Chevron’s home-state: the United States.

Indeed, many countries may find that their slow judicial processes place them on the wrong side of this “effective means” obligation. So, will that lead to a backlash from governments – and perhaps calls for more acceptance by foreign investors of the delays that plague everyone else, including local citizens and businesses, who uses local courts? I don’t know.

Q: I understand that the award in this dispute has been rendered in an unusually short span of time. Are you aware of any special factors which may have contributed to this?

Well, arbitrators issued their award a mere two months after hearings in the case. So, my guess is that they did not want to be open to the criticism that their own arbitration process dragged on for years and years. Certainly, this is one of the swiftest deliveries of a BIT award that I am aware of. The only other case that comes to mind is the Pantechniki v. Albania case at ICSID, where a sole arbitrator took only a couple months to issue a 27 page award. Otherwise, BIT tribunals can take up to a year – and sometimes more - to render an award once hearings are concluded. And the entire arbitration process can run for years and years. One claimant at ICSID recently got an award nearly 9 years after filing for arbitration against Argentina. Moreover, that ruling in the El Paso case may need to go thru a further 18 to 24 months of review by another ICSID panel before it is finalized. So, BIT arbitration is not always the swiftest form of justice either.

One can also speculate that the arbitrators might have wanted their award to be rendered before the Indian Supreme Court renders its own ruling in the cases which are re-examining the Bhatia International judgment. But, I have no way of knowing whether that was a consideration for arbitrators. I also don’t know if they were simply sympathetic with a claimant that has waited nearly a decade to collect on a 2002 arbitral award. Perhaps the arbitrators did not think that White should have to wait many years longer!

Q: To the best of my knowledge, this is the first investment arbitration that India has been a party to. From your experience, do you usually see a large number of claims being filed against a country immediately after one award is rendered against the country?

Well, there were a number of claims filed under various BITs by foreign investors and project-lenders in relation to the whole Dabhol Power Project controversy earlier last decade. However, those all got settled before they went terribly far.

Otherwise, there have not been reported cases against India until this one came along. Mind you, one never knows if a government is being forthcoming about claims that it is facing. As you know, the Government did not announce that it was facing a claim by White Industries. We at IAReporter caught wind of it and reported on it last July , and that led to a further flurry of press coverage inside and outside of India. You and your blog have been trying since then to get information out of India about the case, and they have not divulged anything. So, who knows if there are other cases pending without publicity.

I would suspect, though, that the result in this case could embolden others to test BIT claims against India. However, foreign investors may be reluctant to take such steps unless they find themselves in truly dire situations. Those who see their long-term future in India, may try to work out problems through other means before resorting to an investment treaty arbitration.

Q: As you note, the Government of India is yet to disclose any information about this arbitration to the public. The only public statement in this regard appears to have come from the Additional Solicitor General who was chosen to represent India. Is it standard practice among countries to keep such disputes under wraps?

A: The short answer is that it varies. However, one thing is constant: rumours of cases begin to circulate, or the investor reveals that it has filed some sort of claim, and then governments typically come under pressure to reveal more information about such cases, and this has sometimes had a salutary influence over the long term. For instance, in Canada and the United States, governments initially tried to hide such arbitrations from the public, but this only amplified media and public interest in such claims. After some resistance, both countries took policy positions in favor of openness, and it is now commonplace for them to post key documents related to such arbitrations on government websites like this one for Canada and this one for the United States.

Not all governments are as open, especially those that are closed-societies. But, even democracies can be very secretive, at least in the early days when the first cases are cropping up.

My own view is that governments should be open about these things, and I’m hopeful that India will come around to a position of openness. Certainly, there are powerful arguments for transparency rooted in concepts of human rights, good governance and economic efficiency.

Q: The department of Industrial Policy and Promotion of the Government of India recently recommended that India should discontinue the use of investor State dispute resolution clauses in its investment agreements. Do you think this is a direct reaction to the White Industries Award? Also, could you tell us if such a strategy would be effective or even desirable? If this is adopted, would it hurt Indian investors more than it will protect India from claims of foreign investors?

A: Well, from what I can tell, different Indian ministries take different views on these issues – and those views may be in flux as new developments and new information come to light. So, I don’t know if the White Industries result is coloring the DIPP’s views.

Ultimately, you would hope that governments were influenced by new information and new developments, and that they recognize that BITs don’t just protect outward investment, but that they also condition what the government can do to inward investors.

As you know, Australia has made a major policy shift , and they’ve decided that the risks of these agreements outweigh the benefits associated with them. So, Australia is telling its own investors to take out insurance for their investments abroad, and the Australian government wants to stop negotiating treaties that protect Australian companies (but which expose Australia to suits from foreign investors.)

Of course, in spite of this new policy stance, Australia’s BIT with India remains in force, and it was the very legal instrument that White Industries availed itself of in its fight with India. So, even if governments come to take a more skeptical policy stance, they may be bound by their old agreements – sometimes for many years. No doubt, some would say that the White case offers proof that BITs “work”, but I’m not sure that that will sway the Australian government which is more concerned about the legal claims that it is starting to see from foreign investors – including a hefty one brought by the Philip Morris tobacco company.

India will have to take its own assessment of the risks and benefits. But, the risks are starting to come into starker relief, and as BIT arbitration becomes more popular, governments are starting to grasp the downsides of treaties that may have been negotiated with much less care and craft than, say, a national constitution or other types of treaties – like those governing human rights. So, that’s why Canada – which learned certain lessons after agreeing investment protections with the United States – has developed a model investment treaty that runs to dozens of pages and is heavily caveated with all sorts of clarifications, exceptions and carve-outs.

Update: Financial Express also has a report on the outcome of this case.

Second Indian Premoot for Vis

2012-02-07T12:29:00.003+05:30

Following the success of the First Indian Pre-Moot for the Willem C Vis International Commercial Arbitration Moot held in 2011, the Moot Court Committees of NALSAR and NUJS are happy to announce the organization of The Second Indian Pre-Moot on 3rd and 4th March, 2012. The Pre-Moot will be held at NALSAR University of Law, Hyderabad, on the 3rd and 4thMarch, 2012. Participation in the pre-moot is open to all teams representing their respective Universities at the Willem C. Vis Moot Court Competition, Vienna, 2012 and also the Willem C. Vis (East) Moot Court Competition, Hong Kong, 2012.

The Pre-Moot will have a competitive format, with separate preliminary, semi-final and final 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. The Pre-Moot will conclude with an interactive session between the participating teams and the the arbitrators.

Interested teams may register by sending an email to indianpremoot@gmail.com, with the names of the participants by 20th February, 2012.Teams will be notified about the schedule of arguments, rules of the competition and details of accommodation thereafter. The Pre-Moot shall have a registration fee of Rs. 2000.

The need for practice before the actual rounds cannot be emphasised enough. The pre moot was conceptualised with the aim of improving the performance of Indian teams at Vis and to create a platform from which we can have teams actually challenging for the Best Team awards regularly. So, if you have any clarifications please write to us on the above mentioned email.

Regards,

Puneeth Nagaraj Karan Talwar Shreya Parikh,
MCC, NALSAR MCS, NUJS, Kolkata Mentor, Co-founder,
+919618877392 +91-9051528812 +91 9773596086

DIPP proposes exclusion of arbitration clause in Indian Investment Agreements

2012-02-07T12:27:00.001+05:30

Live Mint reports here that the Department of Indsutrial Policy and Promotion ("DIPP") has proposed that India should not include Investor - State Dispute Settlement Mechanisms in its future economic treaties. The timing of the suggestion is interesting given that the decision in White Industries Arbitration is expected to come out soon. This could be a reflection of government's expectations on how the award will go.

The Mint report quotes an official of DIPP who gives the following reasoning for the suggestion - “This is now the view worldwide that the state should not get drawn into private disputes”. This characterisation of investment disputes as "private disputes" is erraneous. What is being adjudicated upon in an investment arbitration is obligations undertaken by a sovereign State in its treaty relationship with another Sovereign State. Hence, while the dispute is with a "private party", the dispute itself is far from "private".

It is true that we have seen a few withdrawals from the ICSID investor-State dispute resolution mechanism in the recent past and that there are concerns about the impact of investor-State arbitration on regulatory freedom of States. However, given the number of BITs and other economic agreements currently in force with a dispute resoltution clause, this cannot possibly prevent India from being 'dragged into' investment disputes in the future.

Additionally, if adequate care is not taken in the redrafting of our BIT templates in accordance with this suggestion, there could be situations where investors claim a right to access such dispute settlement mechanisms, though not provided for under a BIT, relying on the Most Favoured Nation Clause in the BIT and the availability of such mechanisms to third State investors.

I will soon be back with more thoughts on this issue.

Thanks to Mr. Luke Eric Peterson for drawing my attention to the issue and discussing a few aspects in relation to the same.

On Amicus Curiae and Rights of Indigenous People in Investment Arbitration.

2012-01-13T02:04:00.001+05:30

Below is abstract of an article on Amicus Curiae ininvestment arbitrations in the context of indigenous people’s rights writtenby Patrick Wieland. The article has been published in the latest issue of"Trade, Law and Development" and the full text is available here.

Over the last decade, investor-state arbitration tribunalshave shown more willingness to provide non-disputing parties with somepossibility to participate through written amicus briefs. However, amicusparticipation is not a panacea to cure all of the existing shortcomings ininvestment law as regards transparency and access to justice. In fact, amicushas not yet been recognized as a right and is still subject to a series oflimitations, all of which restrict its effectiveness. This article argues thatsuch restrictions should be tempered in the case of indigenous peoples, in thelight of their distinct cultural identity and the right to self-determination.To avoid the defenselessness of indigenous peoples and potential areas ofoverlap with their human rights, this article proposes the incorporation intointernational arbitration of the procedural institution of “intervention”−asopposed to amicus−from municipal law.

Happy New Year!

2012-01-13T01:52:00.002+05:30

We hope that all our readers had a good time celebrating the new year and are back to mundane life! Lets hope the year is an eventful year in terms various commercial and investment arbitration awards.

Supreme Court to reconsider Bhatia

2011-12-22T12:08:00.001+05:30

The Hindu reports that the Supreme Court has constituted a five judge bench to reconsider the decision in Bhatia International v. Bulk Trading S.A. (Bhatia International). As we have discussed in several posts in the past, the Supreme Court's interpretation of Section 2(2) of the Arbitration and Conciliation Act, 1996 has been at the root of a chain of cases that have had severe adverse impact on the institution of arbitration in India. This decision, by making Part I of the Act (and the powers under it, like the power to set aside an award under Section 34) applicable to arbitrations held outside India, rendered the Indian approach to arbitration extremely parochial. Some problems arising out of the decision, especially in the context of investment treaty arbitration was discussed here. Also, we had reported here how a Calcutta High Court decision following Bhatia had resulted in India being dragged into its first ever investment arbitration by an Australian investor.

The decision to reconsider Bhatia is a welcome one. Recently, the Government proposed overcoming the effects of Bhatia through legislative action. However, now the judiciary appears to be willing to clean up the mess that is its own creation.

The decision of the constitutional bench in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., which will finally decide the fate of Bhatia (and with it, the fate of arbitration in India) is eagerly awaited.

PCA Rules on Arbitration of Disputes relating to Outer Space

2011-12-19T10:59:00.002+05:30

Earlier this month, the Permanent Court of Arbitration's ("PCA") Administrative Council adopted new rules of arbitration, called the PCA Optional Rules for Arbitration of Disputes Relating to Outer Space Activities ("Outer Space Arbitration Rules"). These Rules were formulated by the International Bureau of the PCA along with an Advisory Group of leading experts in air and space law, to address the need for specialised dispute resolution mechanisms in the field of outer space law, which is rapidly evolving.

The Advisory Group, among other distinguished scholars, includes Indian Dr. V. S. Mani.

Brief overview of the Rules:

The Outer Space Arbitration Rules are loosely based on the 2010 UNCITRAL Arbitration Rules,

- with emphasis on the public international law element that pertains to disputes that may involve States and the use of outer space, and international practice appropriate to such disputes;

- indicate the role of the Secretary-General and the International Bureau of the PCA;

- provide for establishment of a specialized list of arbitrators and a list of scientific and technical experts;

- aim to ensure confidentiality;

- emphasise flexibility and party autonomy.

The Rules are open to States, international organisations and private parties.

The Rules provide for submission of a document agreed to by the parties, to the arbitral tribunal, summarizing and providing background to any scientific or technical issues that the parties may wish to raise in their memorials or at oral hearings.

Standard clauses regarding statements of claim and defence and amendments thereto are present in these Rules, and the rule of Competence-Competence is spelt out in Article 23.

The tribunal is empowered to grant interim measures under Article 26.

There are specific rules for appointing 1, 3 or 5 arbitrators to form a tribunal. Other standard provisions such as challenge to, or replacement of, an arbitrator are also present. A key time-saving provision in Article 15 is the non-repetition of hearings in case of replacement of an arbitrator. It is, however, questionable whether this is an entirely useful provision from the perspective of getting a holistic view of arguments put forth by parties.

On the Interventionist Attitude of Indian Judiciary.

2011-12-07T16:19:00.001+05:30

Here is an interesting post on theKluwer Arbitration Blog on the interventionist attitude of the Judiciary inIndia in International Arbitrations. Thepost is written by Mr.Ankit Goyal who is South Asia head of SIAC and Mr. VivekanandaN. who is the deputy South Asia head.

The post briefly traces the trend ofthe Indian Judiciary on its treatment to foreign awards arising frominternational arbitrations. Aninteresting read for all our readers!

National Seminar on Critical Issues in International Commercial Arbitration.

2011-12-06T15:43:00.000+05:30

Thefollowing is an announcement from the “Centre for Business and Commercial Laws(CBCL)” at National Law Institute University, Bhopal for a National Seminaron Arbitration .

TheCentre for Business and Commercial Laws (CBCL) at National Law InstituteUniversity, Bhopal is pleased to announce a call for papers for theUGC sponsored National Seminar on Critical Issues in International CommercialArbitration 2012 to be held on 3rdand 4th March, 2012.

In ourendeavor to encourage scholarship in the area of Corporate Law among lawstudents, CBCL is specifically looking forward to receiving scholarlyarticles on the subject of Critical Issues in International CommercialArbitration authored by students, faculties and academicians from Indianlaw schools. Further, CBCL will also publish select entries in a SpecialIssue dedicated to International Commercial Arbitration which wouldcontain views and opinions expressed by eminent personalities in the field ofArbitration law.

For furtherdetails, kindly visit our website here, where you can pursue our Submission Guidelines. Forany other queries, feel free to contact us at: cbcl.nliu@gmail.com . Alternatively, youcan also contact Albin George Thomas, Convener: (+91)989-335-4883 albin.georgethomas@gmail.com and Nikita Nehriya, Editor: (+91)999-377-6839 Nikita.nehriya@gmail.com

Supreme Court on existence of arbitration agreement

2011-12-06T14:31:00.001+05:30

Reva Electric Car Co. P. Ltd. v. Green Mobil, decided by the Supreme Court on 25 November 2011, was an application under sections 11(4) and (6) of the Arbitration and Conciliation Act, 1996 (the "Act") for appointment of arbitrator by the Chief Justice of India ("CJI").

Facts

Petitioner had entered into a Memorandum of Understanding ("MoU") with Respondent for marketing of cars by Petitioner. The term of the MoU was from 25 September 2007 until December 2007, but it was extendable at the sole discretion of Petitioner in terms of clause 2 of the MoU and, according to Petitioner, was in fact extended by acts of Parties. These acts were various requests in 2008 and 2009 by Respondent for supply of cars in terms of the MoU. In September 2009, according to Petitioner, disputes arose between the Parties, with Petitioner claiming that Respondent did not have necessary resources to build Petitioner's brand, since enough cars were not sold in the Belgium region. Via email on 25 September 2009, Petitioner asked Respondent to cease marketing on behalf of Petitioner, thus constituting termination of the MoU, according to Petitioner.

Petitioner received on 14 January 2010, a writ of summons of legal proceedings initiated by Respondent in the Commercial Court in Brussels, Belgium. Respondent claimed damages for termination of the MoU. An email from Respondent dated 15 March 2010 suggested a global settlement with Petitioner and the latter construed this as acknowledgement of the fact that the rights and obligation of both the parties were covered by the MoU, which stood duly terminated.

On appointment of a sole arbitrator by Petitioner, for confirmation by Respondent, under the terms of the MoU, Respondent denied existence of a contractual relation between Parties on 25 September 2009. A Section 9 application was thus filed by Petitioner in Bangalore, attempting to restrain legal proceedings in Brussels. On this being granted, the present section 11 application was filed, in terms of clause 11 of the MoU.

Contentions

Respondent claimed that the MoU expired on 31 December 2007, and claims made by Petitioner related to commercial distribution of cars, commencing in 2008 and the distribution agreement, entered into after expiry of the MoU in 2007. Respondent also contended that Petitioner had invoked arbitration proceedings only to avoid legal proceedings in Brussels, as evident from the arbitration clause being invoked after Petitioner was intimated of proceedings in Brussels.

Petitioner, on the other hand stated that it was Respondent’s intention to avoid arbitration by starting legal proceedings in Brussels. Moreover, Petitioner submitted that irrespective of the continued existence of the MoU, the arbitration clause would survive. Further, the Court, when acting under section 11 of the Act, is required to refer disputes without in-depth examination. It must only be satisfied that the disputes fall within the ambit of the arbitration clause.

Respondent contended that the arbitration clause in the MoU related only to the test and trial period when the MoU was subsisting. Thus, disputes pertaining to a period after this were outside the ambit of the arbitration clause and could not be referred for arbitration by the Court.

Decision

The Court, relying on Patel Engineering, National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., A. P. Tourism Development Corporation Ltd. v. Pampa Hotels Ltd. [(2010) 5 SCC 425], and Alva Aluminium Ltd., Bangkok v. Gabriel India Ltd., stated that while entertaining a section 11 application, the CJI was bound to decide on:

a) The existence of an arbitration agreement; and

b) Whether the party applying under such an agreement was a party to that agreement.

The issues which the CJI had the option of deciding are:

a) Whether the claim is barred by time; and

b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

Issues which are to be left for decision by the tribunal are:

a) Whether a particular claim falls outside the scope of the arbitration clause; and

b) Merits of any claim involved in the arbitration.

Therefore, existence of the arbitration agreement itself is a question which must be decided by the CJI in the first instance, since without the existence of an arbitration agreement, a reference under section 11 of the Act cannot be made.

The Court, in light of the material on record already stated above, ruled in favour of Petitioner that the MoU had been extended by actions of the parties. Therefore, the arbitration clause was in existence, and did merit appointment of arbitrators under Section 11 of the Act. The Supreme Court further observed, relying on Everest Holding Ltd. v. Shyam Kumar Shrivastava and Ors., that irrespective of continued existence of the MoU, the arbitration clause would survive. This is in view of section 16(1)(a) of the Act, which reiterates the independent existence of an arbitration clause in a contract, separate from the main contract. Invalidation of the parent contract does not automatically entail invalidation of the arbitration clause, as evident from Section 16(1)(b) of the Act. Since disputes arising between the parties clearly related to subject matter of the contract, they must be adjudicated upon, through the arbitration agreement in that contract.

Conclusion

Thus, although section 16 of the Act, incorporating the principle of Competence-Competence, empowers the arbitral tribunal to adjudicate on matters pertaining to its own jurisdiction, under Indian law it is well-settled that when the Chief Justice is approached (whether for a domestic or international arbitration) to appoint arbitrators, he holds the power of making a preliminary determination of whether there exists an arbitration agreement at all.

NLSIR Public Law Symposium

2011-11-23T22:38:00.001+05:30

The following is an announcement from the Editorial Board of National Law School of India Review. Though the symposium is not on arbitration or related issues, we thought some of our readers may be interested in the same:

The National Law School of India Review, the flagship journal of National Law School of India University, Bangalore is pleased to present the first NLSIR Public Law Symposium to be held on 10 December, 2011 at the National Law School campus. The theme of the symposium is "Adjudication of Socio-Economic Rights by the Indian Supreme Court", an issue which has seen significant legal developments in the recent past. The symposium will be attended by renowned legal luminaries including Justice Muralidhar, Mr. T. R. Andhyarujina, Mr. Shyam Diwan, Mr. Arun Kumar Thiruvengadam, Prof. U R Rai and Prof. B B Pandey amongst others.

The discussion will be divided into two sessions. In the first session (scheduled between 10.30 A.M.-12.30 P.M.) the panel will discuss the substantive adjudication of socio-economic rights undertaken by the Supreme Court concerning questions of the ever-widening ambit of Article 21 and the content of the new rights so evolved. The changing nature of the relationship between Part III and Part IV of the Constitution due to such expansion will form an important part of the session. The second session (scheduled between 1.30 P.M.-3.30 P.M.) will focus on the manner in which the Supreme Court has enforced these rights and consider the variety of procedural innovations employed for the same, including PILs and continuing mandamus.

The registration fee for the symposium is Rs. 500 for professionals. There is no registration fee for students. All those interested are requested to register their attendance here.

For any further details regarding the symposium, please contact Krishnaprasad K.V. (Chief Editor, NLSIR) at +91-9916589670 or Ashwita Ambast (Deputy Chief Editor, NLSIR) at +91-9986478265 or email us at mail.nlsir@gmail.com.

Supreme Court on definition of an arbitration agreement

2011-11-21T18:12:00.001+05:30

A three-judge bench of the Supreme Court, on 14 November 2011, in Powertech World Wide Limited v. Delvin International General Trading LLC, reiterated the law on existence of an arbitration agreement and also carved out an exception, in light of particular facts and circumstances of the case.

The petitioner was an Indian company, and the respondent, incorporated in Dubai. A purchase contract entered into between the parties had the following arbitration clause:

“Any disputes arising out of this Purchase Contract shall be settled amicably between both the parties or through an Arbitrator in India/UAE”

On disputes regarding payments arising between the parties, a series of letters and legal notices were exchanged. On 30 May 2008, the petitioner invoked arbitration proceedings in Mumbai, India and appointed a retired judge of the Bombay High Court as sole arbitrator. The respondent was required to concur with the above appointment or nominate another arbitrator within 30 days from receipt of the petitioner’s notice.

Respondent’s response on 27 June 2008 requested the petitioner not to approach or adopt legal proceedings for appointment of arbitrator as telephonically respondents were instructed to suggest some other name as an arbitrator subject to petitioner’s consent.

Receiving no response from the respondent thereafter, the petitioner filed the present petition for appointment of arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996 [the "Act"], (read with section 11(12)(a), for an international commercial arbitration) on 20 March 2010.

A question arose as to whether the arbitration clause quoted above was a binding arbitration agreement, enforceable under the Act.

The prevailing legal position on definition of an arbitration agreement was then discussed. "Arbitration agreement" is defined in section 7 of the Act. It 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. The agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and is mandatorily an agreement in writing. An arbitration agreement is in writing if it is contained in any of the clauses i.e. clauses (a) to (c) of Section 7(4) of the Act.

In the case of Jagdish Chander v. Ramesh Chander and Ors., (2007) 5 SCC 719, a similar clause, which mandated that a dispute "shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine", was held to be not a valid reference to arbitration. This was because there was an option given to the parties, to resort to arbitration.

According to K. K. Modi v. K. N. Modi, (1998) 3 SCC 573, a valid arbitration agreement –

- must contemplate that the decision of the tribunal will be binding on the parties to the agreement;

- must contemplate that substantive rights of parties will be determined by the agreed tribunal;

- must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal;

- jurisdiction of the tribunal to decide the rights of parties must be derived either from the consent of the parties or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration;

- the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides; and

- agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law.

Smitha Conductors v. Euro Alloys Ltd., (2001) 7 SCC 728 held that even where only certain correspondences indicated a reference to the contract containing arbitration clause for opening the letter of credit addressed to the bank, and no correspondence between the parties disagreed with terms of the contract or arbitration clause, it was a valid arbitration agreement.

As evident from Rickmers Verwaltung GmbH v. Indian Oil Corp. Ltd., (1999) 1 SCC 1 and Shakti Bhog Foods Ltd. v. Kola Shipping Ltd., (2009) 2 SCC 134, the Court has always striven to understand the true intention of parties and whether there existed consensus ad idem. Also, in VISA International Ltd. v. Continental Resources (USA) Ltd., (2009) 2 SCC 55, where the clause in question stated: "any dispute arising out of this agreement and which cannot be settled amicably shall be finally settled in accordance with the Arbitration and Conciliation Act, 1996", the Court held that in spite of the respondent contending that the arbitration would not be cost effective and will be premature, the Court held that there was an arbitration agreement between the parties and the petitioner was entitled to a reference under Section 11 of the Act, since no party could be permitted to take advantage of inartistic drafting of an arbitration clause when clear evidence of intention to proceed for arbitration was evident from the material on record.

In the present case, too, the Court held that there was consensus ad idem between parties to amicably settle their disputes or settle through arbitration in India or UAE. Notwithstanding the judgment in Jagdish Chander, the correspondence between parties dated 30 May 2008 and 27 June 2008 indicated that the petitioner had invoked arbitration and the respondent, not denying the existence of the arbitration clause invoked, had in fact referred to appointment of arbitrator.

Thus, the Court in this case, enumerated an additional factor to determine existence of an arbitration agreement – apart from the terms of the clause itself, the related documents indicating the intention of parties.

Interesting News article on Arbitration in India.

2011-11-19T02:54:00.001+05:30

Here is an interesting article in the Mint Newspaper on Arbitration in India.While the article recognises increasing use of arbitration and ADR methods, it also discusses the challenges faced by the Indian arbitration industry in a succinct manner. The article also contains data presented through pie-charts which can be viewed here.

India-Nepal BIT.

2011-11-17T21:15:00.001+05:30

All our readers would be familiar with Shashank who hadearlier written a guest post on the Kishanganga dispute. Below is a guest post fromhim on the India-Nepal BIT which was recently concluded in October. This post was first published here.

During the Nepalese Prime Minister’s recent state visit toIndia, Nepal’s Minister for Industries and India’s Minister ofFinance signed a bilateralagreement for the promotion and protection of investments between thetwo countries (“Nepal-India BIT”/”BIT”/”BIPPA”).

Possible Motivations

The underlying objective behind the BIT seems tobe the belief that the treaty would serve as a catalystin boosting investment flows between the two countries. India’smotivations, however, may well have been influenced by the problems facedby Indian investors in the recent past. For example, Colgate-Palmolive Indiawas forced to shut shop and sell its Nepalese subsidiary following harassementand extortion demands by rebels and Maoists. The company claimed thatthe local government officials in Nepal provided little support inresponse to its requests for greater security. In fact, a leakedUS Embassy cable from Kathmandu notes that:

“when he [the Colgate-Palmolivefactory manager] told the local Chief District Officer (CDO) (thecivil servant responsible for security in the district) that Colgate-Palmolivewas considering closing the plant, the CDO responded, ‘Maybe you should.’"

Drawing from the Colgate-Palmolive incident, on the generalclimate for foreign investment in Nepal, the cable goes on to conclude:

“This is not the first time that a major high-profileforeign investor has been targeted by the Maoists. Extortion is commonplace,but many businesses choose to pay for 'security.' Those who refuse to pay, likeCoca-Cola and Colgate-Palmolive, complain that they receive inadequate supportfrom the GON [Govt. of Nepal] in protecting their security and investment.During a period of economic and political instability and declining businessactivity in Nepal, this does not bode well for the future of foreign investmenthere.”

In a region marred by security and stability concerns,considering India’s economic growth and physical proximity to Nepal, suchfears may well have precipitated India’sdesire for an investment agreement.

Is Nepal Warming up to the use of BITs?

Historically, Nepal has not been overly active innegotiating BITs with other states. It signed a BIT with France in 1983,followed by one with Germany in 1986,the UnitedKingdom in 1993, and Mauritius in 1999.This was followed by a lull, broken only by the signing of a BITwith Finland in2009. The Nepal-India BIT makes it two treaties in less than three years. Iam no expert on Nepal’s economic and trade policy and, as such, wonder ifthese recent BITs suggest that Nepal has come to see BITs as a means ofattracting foreign investment, or, at the very least, improving its globalimage as a host state. Comments welcome.

Early Trouble for the BIT?

Meanwhile, the baby seems to have developedcomplications even before its birth (the BIT has only been signed, and notyet ratified, by the two countries). Newsreports indicate that a senior Nepalese lawyer, BalkrishnaNeupane, has filed a writ at the Supreme Court of Nepal,challenging the the India-Nepal BIT. The gist of the challenge seems to bethat the agreement is unequal and give undue benefits to India.Specifically, the report indicates thatthe challenge raises three issues:

“While the agreement mentions the “air space” of India, itdoes not mention that of Nepal, which, Neupane argues, is incorrect as Nepalseems not to have taken into account its own air space while signing theagreement. The deal, the writ contends, has given India the right ofuninterrupted use of Nepali air space while Nepal clearly does not have suchrights.

Similarly, the petitioner mentions that the term “republic”has been obliterated from the accord unlike in the case of India. This, Neupaneaffirms, might have happened either because India has not been able to take noteof the changes–republican set up in Nepal–or the Nepali side could not clarifyit to India.

Neupane has taken serious exception to the provision in theBIPPA that would allow Indian companies to bring in their own workers andstaff. This will not create additional job opportunities, as envisaged, for theNepalis but will have an opposite effect.

The deal is against Labour Act, which doesn’t permitnon-Nepalis to work, the writ argues. The petitioner has also challenged thecompensatory provision in the agreement in case the Indian companies incurnon-commercial losses.”

At least one Nepalese author (Sapkota), however, suggeststhat the opposition to the BIT is based on “misinformation and faultycomprehension of the scope and depth of the agreement”, and is politicallymotivated. In his opinion:

“While the private sector has openly welcomed BIPPA, selfishpolitical leaders are politicizing it just to make themselves heard. Forinstance, former Prime Minister Jhalanath Khanal rebuked the government forsigning BIPPA, which he thinks is not in our national interest. He seems to beso lost in the dirty political game that he forgot what was mentioned inEconomic Survey 2009/10 published by the Ministry of Finance during his tenureas PM.

It stated that “a Bilateral Investment Promotion andProtection Agreement is signed with India to promote Indian Investment inNepal, while preparation is being made to continue such agreements with othercountries as well” (page 187). This shows how poor our leaders like Khanal arein understanding economic issues and also remembering what they officiallyendorsed while at the helm of power. Similarly, some influential leaders have beenarguing that BIPPA is against the interest of our country and the workers.Their argument is that BIPPA will increase Indian dominance and erode rights ofdomestic workers.

These arguments are senseless, baseless and outrightillogical. If BIPPA is against our national interest, why did we not hear loudoutcry of this intensity when Nepal signed BIPPA with other countries?Importantly, the self-centered leaders opposing BIPPA should explain howexactly Nepal was dominated and workers’ rights eroded by signing suchagreement with five countries before it was done with India. In our investmentstrapped economy, more investment is definitely a good thing and is in ournational interest because it will lead to more jobs, revenue and potentiallystimulate growth.”

I will try to post an analysis of the BIT itself soon, butin the meanwhile would love to hear more on this from our Nepalesereaders.

The text of the India-Nepal BIPPA is availablehere.

Foreign awards that patently violate Indian substantive law are not enforceable: Supreme Court

2011-11-17T13:51:00.001+05:30

Phulchand Exports Ltd. v. OOO Patriot is yet another case of a foreign award being challenged before Indian courts for non-conformity with substantive provisions of Indian law, but this time with more disastrous consequences.

The case surrounded the enforceability of an award dated October 18, 1999 (yes, it has been 12 years!) given by the International Court of Commercial Arbitration at the Chamber of Commerce and Industry of Russian Federation, Moscow in a dispute between an Indian seller and a Russian buyer. The arbitral tribunal had found that the seller was in breach and passed an award directing the seller to make partial reimbursement under a contractual clause providing for reimbursement in case of breach. The seller challenged the enforcement of the award claiming that the reimbursement clause was in nature of a penalty and hence violated Section 74 of the Indian Contract Act.

The Supreme Court on October 12th passed its judgment in the matter. It relied on ONGC v Saw Pipes to hold that an award that patently contravenes substantive laws of India will be against the public policy of India. However, the Court refused to engage in detail with the submission that the Saw Pipes judgment dealt with the definition of public policy under Section 34 of the Arbitration and Conciliation Act and there was no reason to extend the same definition to Section 48. The only observation of the Court in this regard is, "There is merit in the submission of learned senior counsel that in view of the decision of this Court in Saw Pipes Ltd., the expression `public policy of India' used in Section 48 (2)(b) has to be given wider meaning and the award could be set aside, `if it is patently illegal'."

This is extremely unfortunate as the Court has pronounced a position that can have far reaching implications without giving reasons for the same or considering submissions on this point with the due consideration they deserve. This hurry on the part of the Court to dispose off the matter has is explained by the following sentences in the judgment: "At the first blush we thought of remanding the matter to the High Court, but on a deeper thought, we decided to hear the objections relating to patent illegality in the award ourselves as the award by the Arbitral Tribunal was given as far back as on October 18, 1999 and about 12 years have elapsed since then. We thought that the issue relating to enforceability of the subject award must be brought to an end finally one way or the other." The Court went on to examine whehter the impugned award in this case was patently illegal and held it was not, allowing the enforcement of the award. Thus, the hurried decision of the Court appears to be motivated by the good intention of allowing enforcement of the award without any further delay. But just like the well intentioned judgment in Bhatia (which was motivated by the consideration that if the Court took a different stance, interim measures in support of arbitration could not be granted), this judgment will have devastating effects on the enforceability of foreign awards and the institution of arbitration as a whole.

It is well accepted in statutory interpretation that the same word, when used in different parts of the same statute carries the same meaning. But this is not so, if the context requires the word to be accorded different meanings in different parts of the same statute.

Section 34 is located in Part I and is concerned with the setting aside of awards. Section 48 is located in Part II and deals with the enforcement of awards. Great harm has already been done by Indian decisions holding that 'public policy' under Section 34 includes patent illegality and even foreign awards can be set aside for non-conformity with Indian law. While extending this definition to Section 48 too, the Court appears to have forgotten its own earlier judgment in Renusagar, which drew a clear distinction between public policy considerations in setting aside an award before a domestic court and public policy considerations while enforcing a foreign award:

"The Foreign Awards Act is, therefore, intended to reduce the time taken in recognition and enforcement of foreign arbitral awards. The New York Convention seeks to achieve this objective by dispensing with the requirement of the leave to enforce the award by the courts where the award is made and thereby avoid the problem of "double exequatue'. It also restricts the scope of enquiry before the court enforcing the award by eliminating the requirement that the award should not be contrary to the principles of the law of the country in which it is sought to be relied upon. Enlarging the field of enquiry to include public policy of the courts whose law governs the contract or of the country of place of arbitration, would run counter to the expressed intent of the legislation."

Though Renusagar decision was passed under the Foreign Awards Act, not the 1996 Act, neither the staturtory language nor the legislative intention appears to have undergone a transformation after that decision in such a manner as to permit the stance taken by the Court in the present case.

The present decision will have the effect of subjecting every single arbitral award, irrespective of its country of origin, to Indian law. While this was already achieved by the Venture-Satyam decision which permitted challenge of a foreign award under Section 34, the position has been worsened by the present judgment as a challenge based on Indian substantive law will operate even in cases where the award debtor does not take the active step of challenging the award under Section 34.

Vindobona Junction - Industry Research: Myth or necessary evil ?

2011-11-17T11:49:00.001+05:30

by Smaran Shetty

Most people who are in a position to give out advice for merits speakers at the Vis moot, readily concede that some level of research must be undertaken to understand the realities of the industry of the good in question, be it squid, pipes, cars or wine. They advocate that such research, grounds legal arguments in commercial realities of the industry and therefore is far more reasoned and mature. In this post I examine this long standing (and almost universally accepted proposition) to discuss what is the true place of commercial knowledge in the moot.

Industry based research is an arduous and almost always a frustrating experience, as materials are not readily available. Additionally, materially that is actually available online is either not authoritative (credible enough to be used for arbitral proceedings and cite in a memorandum) or is far too technical to be comprehended by an average law student. But the effort in some senses is worthwhile, when material is eventually found that shapes the nature of the argument being made either for the memorandum, or while speaking.

If participants do decide to undertake industry specific research for the purpose of the moot, then I would advise caution and insist that the research is limited to certain predetermined questions. Teams must be careful not to spend weeks on trying to find obscure information, that may eventually have no bearing on the memorandum. Having said that, points of research that teams may focus on are: What is the nature of flow of capital in the trade ? What are the specific laws that impact the conduct of your client, by virtue of being part of the industry ? What are the acceptable norms or standard practices in the industry ? What is the nature the production line in the industry, i.e how many actors are involved ? What are the technical implications (if any) of the product ? All these questions help to limit the scope of research, yet focussing on the most relevant aspects of the commercial knowledge that may have a bearing on a legal argument.

Having said that, I must warn against excessive dependence on commercial knowledge in terms of facts and technical jargon. For instance last year when I was a participant, while arguing in the round of 32, the opposing team referred extensively to FAO Official Reports and Internationally recognized health regulations concerning the freezing and handling of squid. The information presented before the bench did not scare me, as I had come across all the information during my research and had used the same material, in a watered down manner in previous rounds. However the judges gave the verdict to our team. Later on, I approached the opposing merits speaker and asked him the reason for the judges decision (as I believed that the opposing team should have won). In response he told me that the judges did not appreciate the excessive dependence on external material, that undermined the confines of the moot problem. The judges although impressed with the thoroughness of research, were still convinced by innovative logic that was developed within the confines of the facts.

The lesson to take away from this, is that industry research has an important place in the moot, but often that importance is overstated and may not always have the desired results. Teams who decide to venture outside of the problem, should do so with caution and more importantly for a clearly defined purpose.

India to file counter-memorial in the Kishanganga arbitration.

2011-11-13T06:16:00.001+05:30

We have earlier discussed about theKishanganga Arbitration Dispute between India and Pakistan here,here,here,here,and here.

Accordingto the latest news coming in it is supposed that India is soon to file itscounter memorial before the Permanent Court of Arbitration (PCA) by end of thismonth in response to Pakistan's memorial seeking a complete moratorium on the330-MW Kishanganga Hydro Electricity Project, J&K.

Thereports speculate that India will base its argument on the provisions of the1960 Indus Water Treaty, which it claims, allows use of western rivers -Chenab, Jhelum and Indus - for hydro power projects, with certain restrictions.India thus, would base its arguments on not violating the treaty.

Itis also being thought that the Indian side would try convincing the court thatbecause Neelum-Jhelum Hydroelectric Project in PoK which Pakistan claims willbe affected is "India territory" occupied by Pakistan, Pakistancannot raise the Kishenganga project before the PCA.

Thematter was taken by Pakistan to the PCA claiming India had violated the 1960Indus Water Treaty and the dam would gravely put at risk Pakistan's interestand the Neelum-Jhelum Hydroelectric Project near Muzaffarabad, capital of PoK.Following this, an arbitration proceeding with seven-judge bench was started inJanuary. Later, in June Pakistan sought interim measures from the PCA asking Indiato stop all work on the dam.

We shall try and keep the readers updated of the events as they unfold.

CIArb's Alexander Lecture on the Dallah Case.

2011-11-11T16:44:00.001+05:30

Wehave earlier posted on the Dallah v Pakistan case here and here and there wassome discussion here too.

Inthis year's Alexander Lecture, President of the UK Supreme Court and CIArbPatron The Right Hon the Lord Phillips of Worth Matravers will analyse thejudgments made by the Supreme Court and the Paris Court of Appeal in thelandmark case of Dallah v Pakistan. LordPhillips will consider why the two courts came to different conclusions,exploring the possible implications for the arbitration community as a whole.

DallahReal Estate and Tourism Holding Company v The Ministry of Religious Affairs,Government of Pakistan is arguably a case which has been waiting to happen foryears. An award rendered in Paris to be enforced in London saw the Englishcourts seeking to determine whether a government could be liable to honour anarbitration award rendered against it in relation to a contract and arbitrationclause which did not name it as a party.

As aformer eminent arbitration practitioner and President of the Supreme Court,Lord Phillips had a unique front-row seat in the proceedings and is ideallyplaced to offer his observations on a case which has gripped the arbitrationcommunity in recent months.

The lecture takes place on November 16 in London. Moreinformation on the event can be accessed here.

Journal of Dispute Prevention and Resolution - Board of Editors

2011-11-06T11:11:00.001+05:30

The Journal of Dispute Prevention and Resolution, the new venture of the Lex Arbitri team, is happy to announce the composition of its Board of Editors as follows:

Editor in Chief:

Prof. Eric Bergsten

Advisory Panel:

Prof. George A. Bermann

Justice Clyde Croft
Emmanuel Gaillard

Lord David Hacking

Prof. Martin Hunter

Managing Editors:

Deepak Raju, Associate, Amarchand Mangaldas & Suresh A. Shroff & Co., Mumbai

Rukmini Das, Associate, PXV Law Partners, Kolkata

Ashutosh Ray, Gujarat National Law University

Dhruv Sharma, Associate, Amarchand Mangaldas & Suresh A. Shroff & Co., Mumbai

Puneeth Nagraj, NALSAR University of Law

Content Editors:

Diane Desierto, Yale Law School

Mario Micciché, Oxford University
Mark L. Rockefeller, Columbia University

Sumit Rai, Geneva Master in International Dispute Settlement

Rahul Dhonde, Geneva Master in International Dispute Settlement

Mihir Naniwadekar, Advocate, Bombay High Court

Citation Editors:

Souvik Kumar Guha, National University of Juridical Sciences, Kolkata

Shabdita Gupta, National University of Juridical Sciences, Kolkata

Anagh Sengupta, National University of Juridical Sciences, Kolkata

Pankhuri Agarwal, National University of Juridical Sciences, Kolkata

Editorial Assistants:

Prianka Mohan, National Law University, Jodhpur

Srishti Aishwarya Srivastava, National University of Juridical Sciences, Kolkata

Telma Raju, National University of Advanced Legal Studies, Cochin

Prateek Andheria, NALSAR University of Law, Hyderabad

Vidyullatha Kishore Reddy, National University of Juridical Sciences, Kolkata

Coordinator, Administrative Affairs:

Pankhuri Agarwal, National University of Juridical Sciences, Kolkata

Canadian investor devices novel strategy to fund its investment arbitration with Venezuela

2011-10-31T18:26:00.000+05:30

Canadian mining company Crystallex, which is engaging in a legal battle with Venezuela over the treatment of its investments in Las Cristinas gold project has announced a novel strategy to fund the investment arbitration. Unable to finance its outstanding debts and the costs of arbitration consequent to measures adopted by Venezuela, Crystallex is issuing securities worth US$120 million linked to the proceeds of a future ICSID win against Venezuela.

Further details of the securities, which are currently being sold through private placements, can be found here.

Vindobona Junction - Team formation: Some insights

2011-10-27T22:36:00.000+05:30

by Smaran Shetty

The Vis problem has been out for some time now and I am sure that teams have progressed well into the substantive issues concerning this years problem. In this post, I would like to offer some insights into how work must be divided amongst team members, and what skills would be required out of such roles.

Every Vis problem concerns two broad issues, namely questions relating to the legal propriety of the arbitral proceedings, i.e. essentially questions of jurisdiction and substantive questions relating to the breach of contract in question and resulting loss. Accordingly, any team, however big or however small will have to divide their work load along these lines. In this post I intended to outline the qualities need for each of these tasks, so as to enable teams to make the right choice, or review already decided team formations in light of my suggestions.

Jurisdictional questions every year relate to highly arguable legal issues concerning the Arbitral rules of a certain arbitral institution that is either newly formed, or whose rules have recently been revised. Keeping that in mind, those persons involved in jurisdictional research, drafting of the memo and eventual speaking at Vienna and Hong Kong, will be required to be competent with thorough and in-depth legal research. Considering little material is available on jurisdictional issues, team members who are doing jurisdiction related research, must learn how to read the fine print, cross reference sources and most importantly be patient in finding relevant material, as chances are it will take a substantial amount of time to be able to arrive at the final argument. Jurisdiction team members will also be required to properly understand both the basics as well as the nuances of International Commercial Arbitration and must also be prepared to do cross jurisdictional research concerning the practices of Arbitral Institutions around the world. Most importantly, jurisdiction team members must at all costs operate within the confines of the law they are dealing with and must base all arguments on recognized legal principles of some kind, arguments based on personal belief or intuition, have no relevancy to a jurisdiction team member. If you are currently a jurisdictional team member and doubt whether you have the requisite skills, I strongly urge you, to convene a team meeting to re-consider whether the appropriate roles have been assigned to team members.

On the other hand team members dealing with the substantial issues of the contract or the “merits”, will be required to posses a different set of skills to effectively execute their responsibilities. The merits of the dispute relate to certain provisions of the CISG every year, and in that sense involves the application of a static body of law, to dynamic and arguable facts of the present dispute. In terms of research, the effort involved relates to making sure all the authoritative and relevant authors/judicial decisions have been read, as opposed to finding the relevant material. Merits team members will hardly find any difficulty in research, but the task involved relates to the application of well settled legal propositions to fact situation that may or may not support the law in question. In that sense, a merits team member, unlike a jurisdictional member is not confined to merely the law. In fact merits team members are encouraged to look beyond the CISG into actual business practice and relevant data from the real world to buttress arguments based in principles of the CISG. The most convincing and compelling arguments from a merits team member, will often involve a healthy mix of law and logical assertions that fits well into the scheme of the problem (the nature of the business, character of dispute, position of parties, commodity in question). If any team member feels unsure of the ability to look beyond the law, then I suggest a reconsideration of team roles.

Another means of dividing up work amongst a team (mostly large teams) is to divide the work based on the sides of the dispute, implying that some members do jurisdictional research only from the perspective of the claimant and some do research for the merits only from the respondent’s side. I strongly advise against such an arrangement, and may lead to disastrous results in terms of team coordination. My principal objection to such an arrangement is that fact that this results in excessive compartmentalization, inhibiting a more balance perspective of the issues involved in the problem. The best way of making an argument is acknowledging its limitations and dealing with it effectively. However when you research only from one side, you fail to recognize the argument from the other side and accordingly start to believe in the false strength of a one sided argument.

I hope these observations help teams, and am happy to be told that I am completely wrong. I look forward to a healthy discussion in the comments section.

You may also want to read this earlier post on the same subject.

2012 ICC RULES OF ARBITRATION: ASIA LAUNCH

2011-10-21T09:45:00.006+05:30

Singapore witnessed the Asia Launch Conference of the New ICC Rules of Arbitration on 12 October, exactly one month after they were first released on 12 September this year. The ICC Rules of Arbitration, which are used worldwide to resolve hundreds of business disputes each year, have been newly revised to take account of current requirements and developments in arbitration practice and procedure since the last revision in 1998. The new vintage is the fruit of two years of active work within the ICC Commission on Arbitration, a think tank of 620 dispute resolution specialists from 90 countries. A core group comprising Commission members and representatives of the Secretariat of the ICC International Court of Arbitration have drawn on their own professional experience and feedback from a 200-member task force to draft the new Rules. This conference unveiled and explained the changes made to the Rules in its third revision and was a first hand opportunity for practitioners to acquire a comprehensive overview of the changes in readiness for the subsequent entry into force of the new Rules, and to have a direct exchange with several of the experts from the drafting group.

The Conference was organised at Maxwell Chambers which is the world's first integrated dispute resolution complex housing both best-of-class hearing facilities and top international ADR institutions.

The gathering was welcomed by Ms. Kim Kit Ow, Director, ICC Arbitration and ADR, Asia. Mr. Philip Jeyaretnam, Chairman of the Maxwell Chambers and Managing Partner of Rodyk & Davidson LLP and Mr. Alvin Yeo, member of ICC Commission on Arbitration, Senior Partner- WongPartnership LLP gave brief introduction to ICC Arbitration with their opening remarks.

The first session was on the General Provisions and Arbitral Tribunal. Mr. John Beechey, Chairman, ICC International Court of Arbitration, Paris and Mr W. Laurence Craig, Co-Chair of the Taskforce on the Revision of the ICC Rules of Arbitration gave the audience an overview of the same.

The focus of the first part of the session was on the opening provision of the Rules and the changes made to it seeking to provide clarification on the respective roles of the Court, its Secretariat and arbitral tribunals. It also clarified that ICC arbitration is available for a full range of disputes, including both commercial arbitration and treaty investment arbitrations. Other changes to the rules, which were presented in the session recognized the specifics of treaty investment arbitrations and arbitrations involving states or state entities. Articles 4 and 5 concerning the Request for Arbitration and the Answer are key provisions in the Rules, as these documents set the initial stage for the arbitration. The session addressed the revisions made to these provisions and explained the requirements which parties will have to meet when submitting the Request and the Answer. In addition, revisions to the rules explicitly allowing for tailor-made confidentiality orders as well as other modifications concerning confidentiality were presented.
An often used maxim says that "an arbitration is only as good as the arbitrator" and the provisions concerning the constitution of the arbitral tribunal are at the core of any set of arbitration rules. The session focused on the revisions made to those provisions, including the appointment of the arbitrators by the Court (Article 13), the arbitrators’ duty of impartiality and independence (Articles 11 and 14), and the notification of reasons for Court’s decisions concerning challenges, non-confirmation and replacement of arbitrators.

The question and answer session was moderated by Mr. Alan Thamiayah, independent Arbitrator at the Arbitration Chambers. An interesting question was posed by Mr.Nish Shetty, Partner, Clifford Chance on the fate of contracts which were entered into by virtue of decisions of the highest court of Singapore which allowed SIAC to administer arbitration under ICC Rules but are now in conflict with the new ICC Rules which specifically mention that only ICC can administer case under its rules. The answer to this given by the panel was that only time will tell how such cases are dealt but it would be advisable that such clauses were amended to avoid any problem.

The second session had Mr.Jason Fry, Secretary General, ICC International Court of Arbitration and Mr.Peter Wolrich, Chaiman, ICC Commission on Arbitration on the panel. The discussion was on Improving the Time and Cost efficiency.

One of the primary goals of the rules revision was to find ways to encourage the controlling of time and cost in arbitration. This effort was specifically requested and encouraged by the corporate users of ICC arbitration. The session presented the revisions in order to permit the Secretariat to constitute the arbitral tribunal more rapidly (Article 6(3)) and improve the turnaround time for draft awards (Articles 27, 31). The new provisions addressed to parties and arbitral tribunals concerning the conduct the arbitration proceedings in an expeditious and cost-effective manner and the corresponding cost provisions were also presented (Articles 22- 24, Appendix V, Article 36). Finally, a user’s perspective was presented by the panel.

The question and answer session was moderated by Mr. Chelva Rajah, ICC Court Member for Singapore. Interesting questions were put by the users of ICC Rules of Arbitration which were satisfactorily answered by the panel.

The third session was on a completely new area that has been introduced by ICC through its new Rules. It was on Emergency Arbitrator Provisions. The session was presented by Mr.Christopher Lau, Member of ICC Commission on Arbitration and Mr Vinayak Pradhan, President of the ICC Commission on Arbitration.

The 2012 ICC Rules for Arbitration includes provisions permitting parties to seek the appointment of an Emergency Arbitrator to decide upon urgent conservatory or interim measures that cannot await the constitution of the arbitral tribunal. The session presented the revisions made to the rules in this respect, as well as the wholly new Appendix which sets out the rules for emergency arbitrator proceedings (Article 29, and the Appendix).

The question and answer of this session was moderated by Ms.Kim Kit Ow, Director, ICC Arbitration and ADR, Asia. The presenters were asked all sorts of questions. There was an interesting discussion which ensued on the weight of "order” given by an emergency arbitrator as it is difficult to enforce under the New York Convention for not being an "award" but instead being an "order".

The fourth session which was presented by Ms. Francesa Mazza, Counsel, ICC International Court of Arbitration and Mr Andrew Foyle, ICC Court member, barrister, One Essex Court was on the new area of Multi-Party, Multi-Contract arbitration and consolidation.

The Court has seen a considerable increase in cases involving multiple parties or multiple contracts in the past decade, which reflects an increasing complexity of the transactions underlying the disputes giving rise to ICC arbitrations. The 2012 Rules of Arbitration contain for the first time a chapter devoted to arbitrations involving multiple parties or contracts and consolidation. This session presented those new provisions and related provisions concerning the fixing of the advances on costs in such situations (Articles 7, 8, 9, 10 and 36) and focused on how they will operate in practice.

The question and answer session was moderated by Mr.Yu-Jin Tay, Counsel, Sherman & Sterling. The questions asked by the audience touched various angles of such complex situations but were well answered by the presenters.

The concluding remarks were given by Mr. John Beechey and Mr.Peter Wolrich which was followed by cocktails.

I soon plan to come out with an analysis of the New ICC Arbitration Rules.

More on White Industries Arbitration: When did it start and who are the real players?

2011-10-21T08:05:00.001+05:30

In a previous post, I shared a piece written by Mr. Prabhash Ranjan and me on the White Industries investment arbitration. However, there is much that is not really known in India about this arbitration. For instance, I was surprised when Bar & Bench reported that Additional Solicitor General Mr. Vivek Tankha represented India at the proceedings, as investment arbitration is a complex area of law which cannot be handled by a lawyer specializing in domestic laws, however eminent he may be (Palkhivala's arguing before the ICJ on substantive points is an exception, like Palkhivala himself is). Further, no one really seemed to know when the request for arbitration was filed and who the arbitrators were.

Last night, I had the opportunity to have a chat with Mr. Luke Eric Peterson, a legal journalist reporting on investment arbitration proceedings at IA Reporter. Surprisingly, he had many more details on this case than that have been reported in India. It was he who first reported the existence of the dispute on July 7, 2011. He was kind enough to agree that he would remove the "pay wall" on that article and make it freely accessible here. The article discusses the complete details of the panel, the legal teams, etc. Please note that the article mentions Singapore as the venue which was subsequently shifted to London.

Thanks Luke!

This raises a larger question. In India is there any obligation on the government to inform the public or their representatives in the Parliament when the country is involved in an international dispute? Will cover that in a later post.

Supreme Court of India on Joinder in Arbitration.

2011-10-20T23:30:00.005+05:30

The Supreme Court (SC) of India has given an excellent example of its maturity to deal with complex arbitration matters. In the case of P.R Shah, Shares & Stock Broker (P) Ltd. (“Appellant”) V M/s. B.H.H Securities (P) Ltd. & Ors (“Respondent”) the SC has dealt with the issue of joinder in very straight forward terms. The SC held that a joinder is possible when facts and circumstances require so, more so when the claimant has arbitration agreements with both the other parties, the claims against them cannot be separated and when the party being joined is so inextricably linked to the other party in its function and management. The Judgement of the case is available here. It was decided by SC on 14 Octoer, 2011.

Relevant Facts:
The Appellant and the Respondent, both were members of the Bombay Stock Exchange (“Exchange”). The Respondent raised and referred a dispute against the Appellant and one another party (the Other Party) under the Rules, Bye-Laws and Regulations of the Exchange seeking an award. In the arbitration reference, the Respondent alleged that Appellant and the Other Party were sister concerns with a Common Director and that the Director of the Appellant approached the Respondent for a transaction on behalf of the Other Party. In respect of the transaction the Respondent issued and delivered the contract and bill in favour of the Other Party. When the amount was due towards the Other Party the Appellant issued a Credit Slip in favour of the Respondent. The said Credit Slip was rejected by the Exchange and so the Respondent approached the Appellant and the Other Party for a cheque for the said amount. The Appellant issued a cheque accordingly on behalf of the Other Party for a lesser amount though. Further, to settle the amount, the Director asked the Respondent to issue all the bills in the name of the Other Party. The Director accepted the Bills assuring payment and that both the Appellant and the Other Company were jointly and severally liable to pay the amounts due.

After several attempts by the Respondent when the money still remained due, the Executive Director of the Exchange permitted the Respondent to file arbitration claim against both the Appellant and the Other Party. Both the Appellant and the Other Party filed objections which had several common grounds with identical wordings. The Appellant denied that the transaction was done for the Other Party and contended that arbitration reference was bad in law on account of misjoinder of parties and misjoinder of causes of action. It was submitted by the Appellant that while it was a member of Exchange, the Other Party was not and hence different set of Arbitration Rules would govern each arbitration. The Dispute was heard by three member Arbitral Tribunal consisting of Justice D.B Deshpande, Mr.Hemant V. Shah and Mr. Sharad Dalal.

While the majority view of the tribunal was that both the Appellant and the Other Party (both were respondents in the arbitration proceedings) were liable for the amounts claimed, the minority view which was of Justice Deshpande who in spite of agreeing with the other two was of the opinion that the Tribunal as appointed by the Exchange had no jurisdiction to hear Respondent’s claim against the Appellant. The award was made as per the majority view that the Other Party shall pay the Respondent and in case of failure the Appellant shall do that. The Other Party neither contested the award nor paid the amount. The Appellant on the other hand filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act) challenging the award.

Single Judge Bombay High Court (HC) Bench:
The application was dismissed by the HC. The HC upon a contention placed by the Appellant held that if in a dispute between a member and non-member an identical or connected claim against another claim cannot be referred for a common arbitration and the Claimant is compelled to resort to two proceedings before different fora, then there is a possibility of multiplicity of findings at variance with each other.

Intra Court Appeal by Division Bench:

The Division Bench too dismissed the appeal filed by the Appellant.

Appeal by Special Leave to SC:
Three contentions were raised:
I. A single arbitration is not possible against both the parties because while one is a member of the Exchange, the other is not and both have different bylaws governing the arbitration.
II. The Arbitral Tribunal should have held that there was no contract between the Respondent and the Appelant.
III. The tribunal has passed the award by using their personal knowledge and not on the basis of record placed before them.
On the first contention, the SC held that it should be noticed that the arbitration was an institutional arbitration under the Exchange and not an adhoc arbitration. “As the Exchange has permitted a single arbitration against both, there could be no impediment for single arbitration.” Giving an example court held:
“If A had a claim against B and C, and there was an arbitration agreement between A and B but there was no arbitration agreement between A and C, it might not be possible to have a joint arbitration against B and C. A cannot make a claim against C in an arbitration against B, on the ground that the claim was being made jointly against B and C, as C was not a party to the arbitration agreement. But if A had a claim against B and C and if A had an arbitration agreement with B and A also had a separate arbitration agreement with C, there is no reason why A cannot have a joint arbitration against B & C. Obviously, having an arbitration between A and B and another arbitration between A and C in regard to the same claim would lead to conflicting decisions. In such a case, to deny the benefit of a single arbitration against B and C on the ground that the arbitration agreements against B and C are different, would lead to multiplicity of proceedings, conflicting decisions and cause injustice. It would be proper and just to say that when A has a claim jointly against B and C, and when there are provisions for arbitration in respect of both B and C, there can be a single arbitration.”
On second contention, the SC stated that it cannot sit in appeal over the award of an arbitral tribunal by re-assessing or re-appreciating the evidence.
On the last contention, the court held that:
“An arbitral tribunal cannot of course make use of their personal knowledge of the facts of the dispute, which is not a part of the record, to decide the dispute. But an arbitral tribunal can certainly use their expert or technical knowledge or the general knowledge about the particular trade, in deciding a matter. In fact, that is why in many arbitrations, persons with technical knowledge, are appointed as they will be well-versed with the practices and customs in the respective fields. All that the arbitrators have referred is the market practice. That cannot be considered as using some personal knowledge of facts of a transaction, to decide a dispute.”
Thus, the SC dismissed the appeal.

Comments:

This judgment is a welcome decision by the SC given with a very simple and crisp rational. This case also shows the benefit of an institutional arbitration which can be useful to overcome issues which might be problematic in adhoc arbitrations.
With regard to complex issues regarding multi-party arbitration and multi-contract arbitration involving issues of joinder, the New ICC Rules of Arbitration which come into effect from January 2012 are worth having a look at. I shall soon be posting about the New ICC Arbitration Rules, the Asia launch of which I had a chance to attend in Singapore.

On the White Industries investment arbitration

2011-10-17T11:06:00.001+05:30

Today's Financial Express has a piece co-authored by Mr. Prabhash Ranjan and me on the ongoing investment arbitration between India and the Australian investor White Industries. The piece, titled 'BIT of a problem down under' can be accessed here.

Vindobona Junction - 45 pages and 6 months

2011-10-08T19:53:00.000+05:30

-By Smaran Shetty-

The problem for the 19th Willem C Vis International Commercial Arbitration Moot Court Competition has finally released and may be accessed here. Although drastically shorter than the previous years problem, at 45 pages, the newest problem, promises to give participants a good deal of issues to grapple with. Although most people think there is nothing much to be said regarding how the problem is to be read, I disagree. With a little guidance, and the right approach, participants will be guaranteed to have a clearer understanding of the facts and issues involved in a much lesser period of time.

Considering the length of the problem, it is advisable to approach the problem with a little caution. In fact, due to its length (unlike most other moot problems) Judges in Vienna often refer to the problem as the “Case File” or “Record”, instead of the generic “Problem”.

The most valuable advice I received regarding reading the problem, was to ensure that in the first reading, you ensure that you read the entire problem, from start to the end. In fact I was advised that irrespective of your role in the team (arbitration or merits), the first few readings of the problem should be of the whole problem to get an holistic idea of the problem. I could not agree more, the first couple of readings should be of the entire problem, and participants should not stop to research certain points while reading. Make a note of the words you don’t understand, or acronyms that you are unsure about to look up later, but make sure that the first couple of readings are uninterrupted and focussed. In reading the problem in this manner, repeatedly, a participant is sure to understand the whole narrative, which will prove instrumental in the oral rounds. Another piece of advice which I found rather helpful was to ensure that you read the problem, multiple times in the first few days. This helps to ensure that the small details of the problem, like names and dates and other significant details of fact and law are cemented in the minds of the participants.

After you have read the entire problem multiple times, then you can get to work on research and analysis. But before you do so, make sure you do a few things. First, make sure that you make a profile of both parties involved in the dispute. This involves writing the down the names of the Claimant and Respondent, where they operate, what they do, who controls them, who their legal counsel are, what are they names of their employees etc ... Although these details seem peripheral, inevitably it’s the small details and obscure pieces of information that help in making innovative arguments.

It also proves immensely helpful to write out a time line of all the mentioned dates, from the first meeting of the parties to the filing of the request for arbitration. This process helps condensing an expansive problem into a matter of two pages. Also, a time line helps teams pin point when exactly things went wrong, or who was responsible, and how much time elapsed between important dates.

I hope with this seemingly irrelevant information, teams enjoy the process of working on the moot which will extend well into the next 6 month, and I wish all concerned the best of luck.

All that left to say, is happy reading.

PS: The length of the problem is sure to increase by a minimum of 10 pages, once Procedural Order Number 3 is released.

Vindobona Junction is back; It's coffee with Smaran this time

2011-10-08T15:00:00.002+05:30

This post is to introduce Smaran Shetty to our readers, who will be regularly contributing Guest Posts on Vindobona Junction for the duration of the 2012 Vis Moot (and, we hope, beyond that). Smaran is an undergraduate student, currently in the 3rd year at the National University of Juridical Sciences, Kolkata. He participated in the 18th edition of the Vis Moot in Vienna, last year and reached the octa-finals. Without more introduction, here is his introductory post.

The Willem C VisInternational Commercial Arbitration Moot Court Competition, is perhaps one ofthe biggest mooting events in the world, and brings law students from diverselegal traditions together to argue over, whether their client was right in whatthey did. The moot, now in its 19th year has been growing from strength tostrength, and I am led to believe that it is one of the few moots (if not theonly one), recognized by the United Nations. Although the teams and stature of themoot have only increased, there is a stark silence when it comes to openforum’s where participants, arbitrators and coaches can give out advice anddiscuss the moot, in an open manner that befits the globalized Vis Community. Ithink that’s why Lexarbitri's efforts in starting this section of theblog, goes a long way in making the learning process for the moot moredemocratic and open.

Through the course of8 odd months running up to the moot, I hope to blog about various aspects ofthe moot, that participants may often overlook, and attempt to simplify, thoseissues that are often complicated by teams. I however do not intended to delveinto substantive issues into the problem, as I believe that no team, howeverstrong or weak, requires spoon feeding. Instead I hope that this space allowsme to best communicate the mountain of knowledge that I gained last year indoing the moot, and hope that in the process participants are eased into aprocess that they are sure to remember for their lifetime.

I hope to be veryregular with my blogging, and intend to give out some advice before the problemactually comes out. I look forward to an active debate on the blog, and I amsure with the collective expertise of the past bloggers, this space can indeedbecome an indispensable aspect of preparation.

At this junction Iwould like to offer a caveat. The views contained in this blog, are my personalview points about how to moot and moot practices in general. I do not professto be an expert at moot, or that my word is the final word. Instead, what Ihave to say, is just one perspective, in a sea of conflicting and complementaryperspectives.

Happy MootingEverybody !!!!

CIArb's Survey on Costs now Available.

2011-09-29T12:18:00.001+05:30

We had earlier posted about the CIArb here. The results are out. CIArb's Costs of International Arbitration survey ran from November 2010 to June 2011 and was completed by lawyers and international arbitrators from five continents. Information on 254 international arbitrations conducted between 1991 and 2010 was considered to be useful for statistical analysis.

71% of respondents described themselves as party representatives, 25% as tribunal members and 4% did not identify with either category. Over 50% of respondents were from the UK (32%) and the rest of Europe (20%). The remaining 48% came from Asia, the Middle East, Africa, North America, Australasia and other locations.

The survey aimed to gather detailed data about the costs of international arbitration, how those costs are made up, the allocation of costs by arbitrators and the extent to which these may depend upon the nature of the dispute, the seat of arbitration, the amount in dispute, the composition of the arbitral tribunal and the costs incurred prior to, and during, the arbitration.

The survey results were presented at CIArb's Costs of International Arbitration Conference in London on 27 September 2011.

Doug Jones AM FCIArb, President of the Chartered Institute of Arbitrators (CIArb), highlighted the need for arbitrators to draw on a ‘toolkit of processes’ in order to control the rising costs of international arbitration.

Speaking at the end of the first day of CIArb’s Costs of International Arbitration Conference in London yesterday, Doug Jones said ‘After today there is no doubt that costs are an issue for users of international arbitration. This conference is a step on the right path. There is going to be an ongoing exercise in transparency in arbitration costs from now on, building on what we know already.

The key issue arising from the conference is the need for flexibility of process, designed to produce the most suitable process for each dispute. In doing so, international arbitrators need to have a toolkit of processes which can be deployed as appropriate. Various potential ‘tools’ have already been identified. For example, the evidence should be tailored to suit the resolution of the dispute; parties should concentrate only on the key information needed to resolve the dispute; experts should be efficiently deployed; and the hearing must be effectively organised.

Key to the process is a need to gain a deeper understanding of the issues early on in a particular dispute, in order to design processes to fairly and expeditiously resolve those issues.’

Amongst other findings, the survey results indicate that the costs of international arbitration vary depending on where the arbitration takes place, with the UK as the most commonly chosen arbitral seat for survey respondents. Claimant costs noted in this survey averaged nearly 10% higher in the rest of Europe compared with in the UK, while external legal fees were over 26% higher in the rest of Europe. Common costs, such as arbitrators’ fees, were reportedly over 18% higher in Europe than in the UK. Furthermore party costs were returned as around 13% higher in civil law countries than common law countries.

The survey results also showed that claimants spent 12% more than respondents, and that the average length of an arbitration was between 17 and 20 months.

According to the survey, 62% of arbitral proceedings were administered by an institution, with the ICC appearing as the most popular choice for institutional arbitrations.

Humphrey Lloyd FCIArb, Chair of the Conference Organising Committee said ‘CIArb’s survey has produced much needed data about international arbitration and its costs. It provides us with a better understanding of what is involved and should pave the way for further investigations, since, like many surveys, the results need to be studied with care and its limitations must be recognised.’

The conference which welcomed over 100 delegates from the UK, Europe, the US, China, Hong Kong, Singapore, and Australia, amongst others – brought experts in international arbitration together to explore the new data and to discuss how and why costs are incurred with a view to finding ways of making the international arbitration process more efficient and cost effective.

Key speakers include Peter J. Rees (Royal Dutch Shell plc); Michael Schneider (LALIVE, and President of the ASA); Constantine Partasides (Freshfields Bruckhaus Deringer LLP); and David Brynmor Thomas (Thirty-Nine Essex Street).

The Survey is available here.

To arbitrate or not? China and Taipei are deciding

2011-09-22T10:58:00.002+05:30

China and Taipei have been negotiating a bilateral investment treaty. Some of the major points of differences between the parties has been highlighted here.

The report states that China is vehemently opposed to the inclusion of a binding investor-State arbitration mechanism in the treaty. It suggests the alternative of mediation, which Taipei is not ready to accept. The report suggests that the reason for China's opposition to an investor-State arbitration with Taipei investors in the fear of "internationalization of cross-strait issues since it has long deemed Taiwan as part of China's territory".

I fail to comprehend how allowing investor-State arbitration will compromise China's claims of sovereignty over Taipei any more than the very entering into a treaty with Taipei and conferring substantive rights on Taipei investors does. A treaty, under Article 2 of the Vienna Convention on the Law of Treaties is, "an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation" [Though there are other categories of treaties involving international organizations, etc. this is the only definition that is relevant to an agreement between two geographic entities]. By entering into a treaty with Taipei, China concedes that Taipei is a State or at the very least a an independent subject of international law. Of course, China may try to word the "treaty" to say that it is without prejudice to its claims of sovereignty. It may even go a step further and state that the instrument in question is not a treaty at all.

In any case, the point remains that if there is a threat to China's claims it arises from the very act of concluding the instrument and not from including an arbitration mechanism within that instrument.

Arbitration services exempted from service tax

2011-09-15T00:37:00.001+05:30

The Central Government on September 12, 2011 came out with a notification exempting arbitration services provided by an arbitral tribunal to business entities from service tax.

Finance Act 2011 had amended Section 65(105)(zzzzm) of Finance Act, 1994 to read -

"(zzzzm) (i) to any person, by a business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner;
(ii) to any business entity, by any person, in relation to representational services before any court, tribunal or authority;
(iii) to any business entity, by an arbitral tribunal, in respect of arbitration.

Explanation.—For the purposes of this item, the expressions “arbitration” and “arbitral tribunal” shall have the meanings respectively assigned to them in the Arbitration and Conciliation Act, 1996"

Notification no. 45/2011 dated 12th September 2011 issued by the Central Government, has exempted taxable services referred to under item (iii) above. Thus services provided by arbitral tribunal in respect of arbitration to any business entity is now exempt from service tax.

It is pertinent to note that the notification exempts only the services provided by the arbitral tribunals in relation to arbitration from the tax liability. Any taxable services rendered by lawyers in relation to arbitration or any ancillary taxable services rendered by arbitral institutions are not affected by the same.

Guest Post on Rasiklal case.

2011-09-09T19:52:00.005+05:30

We have already covered the Rasiklal case in an earlier post. Below is a complete analysis of the same case by Mr.Debargha Basu where he has put his comments too. Mr.Basu is currently a Senior Associate at Hemant Sahai Associates. He is an alumnus of NUJS and in past has worked with Nishith Desai Associates and Paras Kuhad & Associates. The readers can direct their queries on this post to him on debargha.basu@hsalegal.com.

The Supreme Court of India (“SC”) recently held in the case of Bharat Rasiklal Ashra (“Appellant”) –Vs- Gautam Rasiklal Ashra (“Respondent no.1”) & Anr. (Civil Appeal No. 7334 of 2011) that while deciding an application u/Sec. 11 of Arbitration & Conciliation Act, 1996, Courts will have to decide the issue relating to the existence of an arbitration agreement before referring the disputes between the parties and towards this shall have to decide questions of fraud, forgery and fabrication of documents if these issues have been raised.

Facts:

A Deed of Partnership (“Partnership Deed”) was entered among one Kanji Pitamber Ashra and his two grandsons, being the Appellant and the Respondent no.1 in the year 1988 to carry a partnership business. One of the clauses of the Partnership Deed provided that death of any partner shall not dissolve the partnership firm.

In the year 1991, Kanji Pitamber Ashra died and the Appellant alleged that the Appellant and Respondent no.1 continued the business of the partnership firm. The Appellant further alleged that subsequently he came to know that the Respondent no.1 was claiming that fresh partnership deeds were executed by the Appellant and Respondent no.1 in 1991 and 2000 (“fresh partnership deeds’). The Appellant claims that he has not executed any fresh partnership deeds. Whereas, according to Respondent no.1, immediately after the death of Kanji Pitamber Ashra a fresh partnership deed was executed in 1991 and subsequently another deed was executed in 2000. It was alleged by the Respondent no.1 that as a result of execution of the fresh partnership deeds, the share of the Appellant was reduced to 10% with a further condition that if the Appellant did not attend to the business of the partnership firm, the entire profit and loss of the partnership business shall either belong to or be borne by the Respondent no.1 as the case may be.

By a letter dated August 19, 2010, the Respondent no.1 wrote to the Appellant raising several disputes in relation to the partnership firm and stated that such disputes needs to be resolved through arbitration in terms of the fresh arbitration deed of 2000. The Respondent no.1 therefore appointed his arbitrator and called upon the Appellant to appoint his arbitrator. The Appellant replied to the said letter stating that he had not signed the fresh partnership deeds and alleged that the fresh partnership deeds were forged documents and therefore appointing an arbitrator in terms of fresh partnership deed of 2000 cannot and did not arise.

Subsequently, the Respondent no.1 filed an application under Section 11 of the Arbitration & Conciliation Act, 1996 (“Section 11 Application”) for appointment of the person named in his letter dated August 19, 2010 as the sole arbitrator in terms of the arbitration agreement contained in the alleged fresh partnership deed of 2000. The Appellant resisted the Sec.11 Application on the ground that the fresh partnership deed of 2000 was forged and therefore the question of appointment of arbitrator in terms of such forged partnership deed did not arise.

When the Sec.11 Application came up for hearing, the designate of the Chief Justice made an order for appointment of a Commissioner for recording the evidence of the parties as it was necessary to decide whether the fresh partnership deeds were valid or not before a reference could be made in terms of arbitration clause contained in fresh partnership deed of 2000.

Subsequently, when the case was heard by another designate of the Chief Justice, the earlier order for recording of evidence was ignored and the Sec.11 application was allowed by appointing a sole arbitrator and by leaving the question of the validity of the fresh partnership deeds to be decided by such sole arbitrator (“impugned order”).

The impugned order was challenged before the SC by way of special leave.

Issue:

In the factual matrix of the case, the issue which was framed before the SC was whether the Chief Justice or his designate in deciding Sec.11 Application can appoint an arbitrator without deciding the validity of an arbitration agreement and by leaving such question open to be decided by the arbitrator.

Judgement:

The SC relied on its decisions in the case of SBP & Co. –Vs- Patel Engineering Ltd. [2005 (8) SCC 618] and National Insurance Co. Ltd. –Vs- Boghara Polyfab Pvt. Ltd. [2009 (1) SCC 267] and held that while deciding Sec.11 Application, it is for the Chief Justice or his designate to decide whether there is an arbitration agreement as defined under the Arbitration & Conciliation Act, 1996 and whether the party making such request is a party to such agreement as because, ‘… the question whether there is an arbitration agreement is a jurisdictional issue and unless there is a valid arbitration agreement, the application under section 11 of the Act will not be maintainable and the Chief Justice or his designate will have no jurisdiction to appoint an arbitrator under section 11 of the Act.”

The SC further held that where allegations of forgery and fabrication are made in regard to the documents, it would be appropriate for the Chief Justice or his designate to decide the issue.

Comments:

While deciding the issue in hand, the SC stated that where allegations of forgery and fabrication are made in regard to the documents, it would be appropriate for the Chief Justice or his Designate to decide the issue.

Though it was contended before the SC that if the Chief Justice or his designate is required to examine the allegations of fabrication and forgery made by a party in regard to the contract containing arbitration agreement before Sec.11 Application is decided, Sec.11 proceedings shall cease to be a summary proceedings and become cumbersome and protracted, the SC refused to accept this contention. The Supreme Court stated that, “Existence of a valid and enforceable arbitration agreement is a condition precedent before an arbitrator can be appointed under Sec.11 of the Act. When serious allegations of fraud and fabrication are made, it is not possible for the Court to proceed to appoint an arbitrator without deciding the said issue which relates to the very validity of the arbitration agreement. Therefore the fact that the allegations of fraud, forgery and fabrication are likely to involve some delay in disposal, are not grounds for refusing to consider the existence of a valid arbitration agreement.”

It was further contended before the SC that allegations of fabrication and forgery is likely to be raised very often with the ulterior motive to protract Sec.11 proceedings thereby defeating the very purpose of Sec.11 of the Arbitration & Conciliation Act, 1996. The SC rejected this contention, however, with a view to safeguard abuse of this process, it clarified that, “where agreements have been performed in part, allegations of forgery shall not be entertained. It is only in a very few cases, where an agreement which had not seen the light of the day is suddenly propounded, or where the agreement had never been acted upon or where sufficient circumstances exist to doubt the genuineness of the agreement, the Chief Justice or his designate will examine this issue….on the ground of termination, performance or frustration of contract, arbitration agreement cannot be avoided.” The Supreme Court also stated that, “if a party is found to have falsely contended that the contract was forged/fabricated, the Chief Justice or his designate may subject such part (sic) to heavy costs so that such false claims are discouraged.”

The judgment has expanded the courts scope to analyze the competence of the arbitrator to deal with the disputes before it. Earlier, the Supreme Court in the case of N. Radhkrishnan v. M/s. Maestro Engineers & Ors. (Civil Appeal No. 7019 of 2009), while deciding a case in the context of an application under Sec.8 of Arbitration & Conciliation Act, 1996 has held that allegations of fraud and serious malpractices “must be tried in court and the Arbitrator could not be competent to deal with such matters which involved an elaborate production of evidence to establish the claims relating to fraud and criminal misappropriation.”

Moreover, inspite of the safeguards put in by the SC, in practice it is not entirely inconceivable that some parties may make allegations fraud, forgery and fabrication of documents with an ulterior motive to prolong litigation and frustrate the legitimate claims of the other parties. This is quite apart from the inordinate delay to be caused in deciding Sec.11 Application which was envisaged to be a summary proceeding under the Arbitration & Conciliation Act, 1996.

For the full text of the judgment please click HERE.

Supreme Court on Implied Exclusion of Part I of the Arbitration and Conciliation Act

2011-09-08T12:04:00.003+05:30

On September 1, 2011, a two judge bench of the Supreme Court (Cyriac Joseph and Altamas Kabir) in Yograj Infrastructure Ltd v. Ssang Yong Engineering & Construction Co. Ltd., ruled that where the seat of arbitration was Singapore, rules governing the arbitration were of the Singapore International Arbitration Centre ("SIAC") and the substantive law of contract was Indian law, then Part I of the Arbitration and Conciliation Act, 1996 (the "1996 Act") was excluded by implication.

Background

The Appellant was an Indian company while the Respondent was a company incorporated in Seoul, South Korea with its registered office at Seoul and its project office at New Delhi. In 2006, the National Highways Authority of India ("NHAI") awarded a contract to the Respondent, for a project in the State of Madhya Pradesh. The Respondent entered into a Sub-Contract with the Appellant Company for carrying out the work in question.

Arbitration Clause

Clauses 27 and 28 of the Agreement provided for arbitration and the governing law agreed to was the the 1996 Act.

The arbitration clause contained in the Agreement in Clause 27 read as follows:

"27.1 All disputes, differences arising out of or in connection with the Agreement shall be referred to arbitration. The arbitration proceedings shall be conducted in English in Singapore in accordance with the Singapore International Arbitration Centre (SIAC) Rules as in force at the time of signing of this Agreement. The arbitration shall be final and binding.

27.2 The arbitration shall take place in Singapore and be conducted in English language.

27.3 None of the Party shall be entitled to suspend the performance of the Agreement merely by reason of a dispute and/or a dispute referred to arbitration."

Clause 28 of the Agreement described the governing law and provided:

"This agreement shall be subject to the laws of India. During the period of arbitration, the performance of this agreement shall be carried on without interruption and in accordance with its terms and provisions."

Issues

The issues involved in the instant case were:

(i) whether Indian Courts would have jurisdiction to entertain an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, against an interim order passed by the Arbitral Tribunal with its seat in Singapore;

(ii) Whether the "law of arbitration" would be the International Arbitration Act, 2002, of Singapore; and

(iii) whether the "Curial law" would be the laws of Singapore.

Dispute

In 2009, Respondent issued a notice of termination of the Agreement, inter alia, on the ground of delay in performing the work under the Agreement. Settlement talks having failed, the Respondent/claimant, invoked Clause 27 of the Agreement for reference of the disputes to arbitration in accordance with the SIAC Rules. Both the parties filed applications before the Sole Arbitrator seeking interim relief under Rule 24 of the SIAC Rules in June, 2010. The Arbitrator passed an interim order on 29th June, 2010 in favour of Respondent.

Before the lower courts

The appeal filed by the Appellant before the District Court, Narasinghpur, under Section 37(2)(b) of the 1996 Act, against the order of the Sole Arbitrator, was dismissed on the ground of maintainability and lack of jurisdiction, since the seat of the arbitration proceedings was in Singapore and the said proceedings were governed by the laws of Singapore.

The Civil Revision filed against the said order was dismissed by the Madhya Pradesh High Court in August, 2010. The High Court observed that under Clause 27.1 of the Agreement, the parties had agreed to resolve their dispute under the provisions of SIAC Rules which expressly or, in any case, impliedly also adopted Rule 32 of the said Rules which categorically indicates that the law of arbitration under the said Rules would be the International Arbitration Act, 2002, of Singapore. Against this decision of the High Court, the Appellant filed this Special Leave Petition.

Before the Supreme Court

Contentions of Appellant

Appellant contended that Indian law is the applicable law of arbitration, in terms of the agreement arrived at between the parties. This explicit agreement is evident from the wording of clause 28 of the Agreement, which provided that the Agreement would be subject to the laws of India and that during the period of arbitration, the performance of the Agreement would be carried out without interruption and in accordance with its terms and provisions. In other words, all interim measures sought to be enforced would necessarily have to be in accordance with Sections 9 and 37(2)(b) of the Act.

As per clause 27.1, SIAC Rules would apply only to the arbitration proceedings, but not to appeals from such proceedings. It was submitted that the right to appeal from an interim order under Section 37(2)(b) is a substantive right provided under the Act and was not governed by the SIAC Rules.

Reliance was also placed on Rule 1.1 of the SIAC Rules which provides:

"Where parties have agreed to refer their disputes to the SIAC for arbitration, the parties shall be deemed to have agreed that the arbitration shall be conducted and administered in accordance with these Rules. If any of these Rules is in conflict with a mandatory provision of the applicable law of the arbitration from which the parties cannot derogate, that provision shall prevail."

Rule 32 (of the 2007 Rules) provides:

"Where the seat of arbitration is Singapore, the law of the arbitration under these Rules shall be the International Arbitration Act (Chapter 143A, 2002 Ed, Statutes of the Republic of Singapore ) or its modification or re-enactment thereof."

However, Section 37(2)(b) of the 1996 Act being a substantive and non-derogable provision, providing a right of appeal to parties from a denial of an interim measure, such a provision protects the interest of parties during the continuance of arbitration and as a consequence, Rule 32 of the SIAC Rules which does not provide for an appeal, is in direct conflict with a mandatory non-derogable provision contained in Section 37(2)(b) of the 1996 Act.

It was then submitted that Part I of the 1996 Act was applicable in this case, since:

(i) it had not been excluded by Clause 27 of the Agreement (the Bhatia International and Venture Global decisions were relied on, as well as Citation Infowares Ltd. v. Equinox Corporation, wherein it was clearly held that where the operation of Part I of the 1996 Act is not expressly excluded by the arbitration clause, the said Act would apply); (ii) Clause 28 of the Agreement expressly provided that the Agreement would be subject to the laws of India and that during the period of arbitration the parties to the Agreement would carry on in accordance with the terms and conditions contained therein.

The International Arbitration Act of Singapore would have no application to this case, though the conduct of the proceedings of arbitration would be governed by the SIAC Rules.

It was thus argued that the High Court had made an error in its decision by not considering Clause 28 of the Agreement while arriving at such a conclusion. Moreover, the very fact that the Respondents had approached the District Court, Narsinghpur, in India and had filed an application under Section 9 of the 1996 Act, and even mentioned that the contract was within the jurisdiction of the court, indicated that the Respondent also accepted the applicability of the 1996 Act.

The Appellant further relied on section 42 in Part I of the 1996 Act, which states:

"Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court."

The concepts of 'proper law' of an arbitration agreement and 'curial law' were explained and distinguished. The proper law is the law which would be applicable in deciding the disputes referred to arbitration, it governs most aspects of the main contract, and the curial law governs the procedural aspect of the conduct of the arbitration proceedings.

Thus, the appellant argued, the proper law of the arbitration would be the 1996 Act, the curial law would be the SIAC Rules. This difference in the two concepts had been considered by the Apex Court in Sumitomo Heavy Industries Ltd. v. ONGC and NTPC v. Singer, in which the question for decision was what would be the law governing the arbitration when the proper law of the contract and the curial law were agreed upon between the parties.

Appellant contended that absent any express choice, the proper law of the contract would be the proper law of the Arbitration Agreement. In the instant case, admittedly the proper law of contract was the law of India and since the parties had not expressly made any choice regarding the law governing the Arbitration Agreement, the proper law of contract, namely, the 1996 Act, would be the proper law of the Arbitration Agreement.

The right to appeal, a substantive right under the 1996 Act would be governed by the said Act and the present appeal, was therefore, liable to be allowed, and the order of the High Court, impugned in the appeal, was liable to be set aside.

Contentions of Respondent

Respondent submitted that the parties had agreed that the seat of arbitration would be Singapore and that the arbitration proceedings would be continued in accordance with SIAC Rules, as per Clause 27.1 of the Agreement. It was also agreed that the proper law of the contract would be Indian law and the proper law of the arbitration would be Singapore law.

Respondent contended that an application under Section 9 of the 1996 Act was filed before the District Court prior to the date of invocation of the arbitration proceedings and before the curial law, Singapore law, became operative.The District Judge directed the applicant to submit its case before the Arbitrator in Singapore. The parties had expressly chosen the proper law of the contract to be Indian Law, the proper law of arbitration to be the Singapore International Arbitration Act, 2002 and the curial law to be Singapore law, since the seat of arbitration was in Singapore. Respondent relied on Sumitomo Heavy Industries Ltd. v. ONGC, where it was held that the curial law, besides determining the procedural powers and duties of the Arbitrators, would also determine what judicial remedies are available to the parties, who wished to apply for security for costs or for discovery or who wished to challenge the Award once it had been rendered and before it was enforced.

Next, it was submitted that choice of the seat of arbitration empowered the courts within the seat of arbitration to have supervisory jurisdiction over such arbitration.

The decision in NTPC v. Singer related to the applicability of the Indian Arbitration Act, 1940, and the Foreign Awards (Recognition and Enforcement) Act, 1961, to a foreign award sought to be set aside in India under the provisions of the 1940 Act. The said decisions have no relevance to the question raised in the present case which raises the question as to whether the Indian Courts would have jurisdiction to entertain an appeal under Section 37 of the 1996 Act against an interim order of the Arbitral Tribunal, despite the parties having expressly agreed that the seat of arbitration would be in Singapore and the Curial law of the arbitration proceedings would be the laws of Singapore. In the NTPC judgment, the Court had observed that Courts would give effect to the choice of a procedural law other than the proper law of contract only where the parties had agreed that the matters of procedure should be governed by a different system of law. In the above-mentioned case, the Court was dealing with a challenge to a domestic award and not a foreign award. Section 9(b) of the Foreign Awards (Recognition and Enforcement) Act, 1961, provides that the said Act would not apply to an award, although, made outside India, but which is governed by the laws of India. Accordingly, all such awards were treated as domestic awards by the 1961 Act and any challenge to the said award, could, therefore, be brought only under the provisions of the 1940 Act. The law of arbitration in the NTPC case was Indian law as opposed to the present case, where the parties had agreed that the law of arbitration would be the International Arbitration Act, 2002, of Singapore.

By virtue of Clause 27 of the Agreement, and by accepting the SIAC Rules, the parties had agreed that Part I of the 1996 Act would not apply to the arbitration proceedings taking place in Singapore. This was reiterated in the Terms of Reference that the arbitration proceedings would be governed by the laws of Singapore. Even in Bhatia International, relied upon by Appellant, the Court had held that parties by agreement, express or implied, could exclude all or any of the provisions of Part I of the 1996 Act. Consequently, in Bhatia International the Court had held that exclusion of Part I of the 1996 Act could be by virtue of the Rules chosen by the parties to govern the arbitration proceedings.

With respect to Section 42 of the 1996 Act, the High Court had held that by express agreement parties had ousted the jurisdiction of the Indian Courts, while the arbitration proceedings were subsisting. Accordingly, it was only the laws of arbitration as governed by the SIAC Rules which would govern the arbitration proceedings along with the procedural law, which is the law of Singapore.

Decision

The decision turned on Clause 27.1 of the Agreement between the parties. As evident from Clause 27.1, the procedural law with regard to the arbitration proceedings, was unambiguously the SIAC Rules. Clause 27.2 made it clear that the seat of arbitration would be Singapore.

To decide on the law on the basis of which the arbitral proceedings were to be decided, the Court looked to Clause 28 of the Agreement. Clause 28 indicated that the governing law of the agreement would be the law of India, i.e., the 1996 Act. While the proper law governed the agreement itself, in the absence of any other stipulation in the arbitration clause as to which law would apply in respect of the arbitral proceedings, it is the law governing the contract which would also be the law applicable to the Arbitral Tribunal itself. Clause 27.1 made it clear, according to the Court that the curial law, regulating the procedure to be adopted in conducting the arbitration, would be the SIAC Rules.

The question to be decided was whether in such a case the provisions of Section 2(2) of the 1996 Act, indicating that Part I of the Act would apply where the place of arbitration is in India, would be a bar to the invocation of the provisions of Sections 34 and 37 of the Act, as far as the instant arbitral proceedings, being conducted in Singapore, were concerned.

The Court distinguished Bhatia International, wherein while considering the applicability of Part I of the 1996 Act to arbitral proceedings where the seat of arbitration was in India, the Court was of the view that Part I of the Act did not automatically exclude all foreign arbitral proceedings or awards, unless the parties specifically agreed to exclude the same. In the present case, parties had categorically agreed that the arbitration proceedings, if any, would be governed by the SIAC Rules as the Curial law, which included Rule 32, requiring applicability of the Singapore International Arbitration Act, 2002.

Regarding Rule 1.1 of the SIAC Rules, the Court ruled that Section 2(2) of the 1996 Act indicates that Part I would apply only in cases where the seat of arbitration is in India. Although the Court in Bhatia International, while considering the said provision, held that in certain situations the provision of Part I of the aforesaid Act would apply even when the seat of arbitration was not in India, in the instant case, once the parties had specifically agreed that the arbitration proceedings would be conducted in accordance with the SIAC Rules, which includes Rule 32, the decision in Bhatia International and subsequent decisions relying on it, would no longer apply.

With regard to Section 42 of the 1996 Act, the Court held that the same was applicable at the pre-arbitral stage, when the Arbitrator had not also been appointed. Once the Arbitrator was appointed and the arbitral proceedings were commenced, the SIAC Rules became applicable excluding the applicability of Section 42 as well as Part I of the 1996 Act, including the right of appeal under Section 37 thereof.

Thus the appeal under Section 37 was not maintainable and the instant appeal was dismissed.

Supreme Court reiterates the Patel Engineering ruling on Competence - Competence

2011-08-29T12:54:00.000+05:30

On 25th August, the Supreme Court, in Bharat Rasiklal Ashra vs Gautam Rasiklal Ashra reiterated its previous position on what issues are to be considered by the Chief Justice or his designate in disposing an application under Section 11 of the Arbitration and Conciliation Act and what questions are to be left to the arbitrators to decide.

Relying on its previous decisions in S.B.P. & Co. vs. Patel Engineering Ltd. [2005 (8) SCC 618] and National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd. [2009 (1) SCC 267] the Court arrived at the following conclusions:

1. Issues to be necessarily decided by the Chief Justice or his designate before appointing arbitrators under Section 11:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such an agreement.

2. Additional issues that may be decided by the Chief Justice or his designate:

(a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

3. Issues that are to be necessarily left to the consideration of the arbitrators:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

Guest Post: Prelude to Introduction of Modern Arbitration Laws in Colonial India - a Brief Account

2011-08-22T22:52:00.004+05:30

Following is a Guest Post by Mr. Adithya Reddy, who needs no introduction for readers of this blog. He has posted on this blog in the past, and today brings us a brief but fresh look at the introduction of modern arbitration laws in colonial India.

It is now well recognized that the first attempt to codify arbitration practices in India was made by the British in the late 18th century through a series of regulations made applicable to the three presidency towns.

The Orissa High Court in State of Orissa and Ors. v. Gangaram Chhapolia, gives a brief description of the sequence of legal developments leading to the formal codification of arbitration laws in the Code of Civil Procedure, 1859, as they occurred in eastern India -

"The first attempt at codifying the law was made by the Bengal Regulations of 1772 and 1780 where provision was made for submission of disputed accounts to decision by arbitration. In 1781, Sir Elijah Impey's Regulation included a provision that "the Judge do recommend, and so far as he can, without compulsion, prevail upon the parties to submit to the arbitration of one person, to be mutually agreed upon by parties." In 1787, regulation for the Administration of Justice was passed and it contained rules for referring suits to arbitration with consent of parties. There was no detailed provision, however, to regulate the arbitration proceedings. In 1793 Regulation XVI was enacted with a view to promoting reference of disputes of certain categories to arbitration and to "encourage people of credit and character to act as arbitrators". Regulation VI of 1813 made some improvement to the Regulation of 1793 and arbitration was available in cases of disputes in regard to land. Bengal Regulation VII of 1822 authorised the Revenue Officers to refer rent and revenue disputes to arbitrators and the Collectors were enjoined to induce parties to agree to such arbitration. Bengal Regulation IX of 1883 authorised the Settlement Officers to refer disputes to arbitration."

The various regulations framed by the East India Company touching upon arbitration were: Bengal Regulations I of 1772, 1781, 1787, XVI of 1793, 1795, 1893, etc.; Bombay Regulations I of 1799, IV, VI of 1827 and Madras Regulations I of 1802 and IV, VI, VII of 1822. The regulations introduced compulsory arbitration, prescribed the limits of judicial intervention, provided safeguards to ensure fairness and laid down the procedure for attendance and examination of witnesses. Many of these provisions were rudimentary and even inconsistent with each other. But there can be no doubt that they contained the first albeit unrefined versions of provisions that form part of modern arbitration law. A brief description of the notable features of these regulations can be found in the Law Commission of India's Sixth Report on the Arbitration Act, 1940.

The events preceding the introduction of these regulations offer an interesting account of how the Company not necessarily ensured progression from the pre-colonial era but only attempted to repair the functioning of a legal system that had never adapted itself to the parallel functioning of indigenous legal systems and colonial courts. While much has been written about the virtues of arbitration-like dispute settlement mechanisms in ancient India, it is more or less accepted among modern scholars that indigenous dispute management even in pre- and early-colonial India was centered on arbitration at various levels. A Jesuit missionary living in south India, Joannis Bouchet "described in 1714 the indigenous judiciary as consisting of three levels- the local headman who would determine local disputes. Appeals could be taken to the maiagar, who controlled a number of villages and finally to the king. In addition to this…caste leaders decided matters relating to the rules of the community. Bouchet praised the system for cheapness and efficiency…" (Niels Brimnes, Beyond Colonial Law: Indigenous Litigation and the Contestation of Property in the Mayor's Court in Late Eighteenth Century Madras, Modern Asian Studies, Vol. 37, No. 3 (2003), at p. 519). Another prominent scholar explains how the colonialists understood the efficacy of these systems, especially in communal matters- "…the superstitious fear which the caste Hindus had of excommunication or of anathema at the hands of tribunals…and the helplessness of a defeated litigant or delinquent who would not accept the decision of a tribunal entitled to apply a complete boycott, impressed Europeans with the notion that this system hardly required civil or criminal penalties in the western sense, and that it was grounded in immemorial usage and unalterable custom…" (J. Duncan. M. Derret, The Administration of Hindu Law by the British, Comparative Studies in Society and History, Vol. 4, No. 1 (Nov., 1961), at p. 19). The British therefore left dispute settlement amongst natives to the panchayats or Kacheri courts, which performed very much the same function as arbitral tribunals.

The establishment of the Mayor's Court, first in Madras in 1687 and later in Bombay and Calcutta, marked the first significant attempt to dispense justice to all inhabitants of the towns through colonial institutions. The Mayor's Court proved to be so popular with the natives that important residents of Madras, concerned primarily with the loss of authority, petitioned that "they might be restor'd to their former liberties and privileges of deciding all disputes and difference which may arise among them by their accustomary (sic) Method of Arbitration among themselves…"(Beyond Colonial Law, at p. 520) The popularity of the Mayor's Court with the natives appears to have stemmed partly from the "belief…that except for direct and downright bribery, an Englishman had no motive to hold the scales of justice evenly between Indian disputants." (P. B. Vachha, Famous Judges, Lawyers and Cases of Bombay, 2011 reprint, Universal Law Publishing Co., at p. 13) The other reason behind the Indian preference for the Mayor's Court over indigenous arbitrations was the tremendously effective albeit merciless methods of execution of judicial orders by colonial authorities (the Sheriff). A party facing an adverse order from the Mayor's Court had no chance of evading consequences. This coupled with the costs involved in litigation ensured that a mere threat of litigation before the Mayor's Court forced an erring party to settle or give-in. To put it crudely, the Mayor's Court emerged as an effective 'alternative dispute resolution mechanism' for the natives.

The Company, however, never intended to displace indigenous arbitrations nor did it expect its courts to assume jurisdiction over disputes between natives. Therefore in 1753, in response to petitions from locals, it expressly excluded from the jurisdiction of the Mayor's Court disputes between natives unless both parties submitted them to its determination. This however did not prevent natives from continuing to knock the doors of the Mayor's Court, sometimes even without the required mutual consent (See Beyond Colonial Law, at p. 533).

By and large the Company strived to maintain the dual system of having indigenous arbitrations for exclusively native disputes and Courts for the rest. This system left the natives in a 'precarious situation' because by the second half of the 18th century indigenous arbitration councils and mechanisms were no longer functioning in the same way as they used to in most parts of the Country, resulting in the domination of the system by native officials with little accountability. About the situation in Bengal it is written that though "military forces available for extorting land revenue and keeping the peace might be used to enforce compliance with decrees… Actual determination was in the hands of subordinate native officials who tried ineffectively to end disputes which would previously have been settled at leisure amongst the local leaders, or might never have arisen in the form of litigation at all. The results of this system spelt to Warren Hastings nothing but corruption. It became essential to dispose of disputes through well-qualified arbitrators or arbitrators chosen by the parties, to whose "award" the judges should give the force of a decree" (The Administration of Hindu Law, at p. 21). This perception led to the first major attempt at judicial reform through Hastings's Judicial Plan of 1772, which provided for arbitration under the supervision of the proposed judicial institutions. In Madras the situation appears to have been more acute. Stephen Popham, the Company solicitor and the first person to have warned the Court of Directors against leaving natives at the mercy of defunct indigenous arbitrations, wrote that "the references of arbitration are said to have been generally made under the immediate influence of the native Dubashes of the British Magistrates and carried into execution under their auspices, by which a door has been opened for the commitment of a multitude of frauds & impositions." The Dubashes were peculiar creatures of Madras colonialism whose primary job was that of translators to English officials. They are said to have acquired so much clout and disrepute for corruption that their hand was suspected "whenever land settlement plans in the neighboring districts were subverted, when low castes rebelled, when investigations into allegations of corruption involving Company officials were thwarted, or when the Mayor's Court's decisions seemed clearly biased against particular individuals." (Susan Neild-Basu, The Dubashes of Madras, Modern Asian Studies, Vol. 18, No. 1 (1984), at p. 3). Not only did they preside over and influence indigenous arbitrations, but even the Mayor's Court made them arbitrators if it chose to refer any dispute before it for arbitration or reconciliation. With the more equitable Mayor's Court kept out of their reach and traditional arbitrations having lost their original character, the situation was indeed precarious for native litigants.

To the credit of the Company the situation was taken note of and remedied to a large extent by introducing major judicial reforms that brought about a system more akin to modern ones. These changes were partly a result of the expansion of British power in India. "With the victories of Clive, Sir Eyre Coote and Lord Lake, and development of trade and commerce, the need for the establishment of a more regular and satisfactory system of civil and judicial administration became imperative. This was recognized by the Regulating Act, 1773 by which Warren Hastings was appointed Governor General of Bengal and the Supreme Court of Calcutta was established." (Famous Judges, at p. 19). The changes have also been attributed to the shift in British politics from an era of corruption and nepotism under Sir Robert Walpole and his ilk to one of benignity under ministers and parliamentarians of 'purer principles' like William Pitt the younger, Edmund Burke and James Fox. (Famous Judges, at p. 20).

The establishment of the Supreme Courts in Bengal and Madras and the Recorder's Court in Bombay through these reforms changed the entire landscape of the Indian judicial system, including the conduct of arbitrations, for the better.

The Essential Kishanganga Guest Post.

2011-08-06T12:01:00.008+05:30

We have earlier covered the arbitration between India and Pakistan on the Kishanganga Project which can be accessed here, here, here and here.

Below is a Guest Post on further development of the dispute from Shashank P. Kumar. Shashank recently completed his LL.M. from Yale Law School, with a special focus on international arbitration and dispute settlement. The post first appeared on Shashank's blog "International Law Curry" here.

Readers may be aware of an international dispute between India and Pakistan over the Kishanganga (var. Kishenganga) project under the Indus Waters Treaty (1960, available here) currently pending at the Permanent Court of Arbitration (PCA). (India is also involved in another arbitration with Bangladesh pending at the PCA [see here].) This is the first time a dispute under the Indus Waters Treaty (persistently surviving many wars for over 50 years now) has been referred to arbitration. From an international legal perspective (which is certainly not the only one, see below), the use of arbitration as a means for dispute settlement between India and Pakistan certainly seems quite promising. Earlier, in a dispute over the Baglihar project between the two countries, the matter was referred to a neutral expert under the Treaty, who, under the aegis of the World Bank and ICSID, issued his expert determination in 2007 (summary of expert report here).

Without getting into the merits of the dispute at this stage, this post notes some recent developments and resources on the Kishanganga arbitration:

1. The Tribunal (headed by Stephen Schwebel, composition here) conducted a week-long site visit in June, 2011. Arriving in Islamabad, they traveled to inspect the Neelum-Jhelum hydroelectric project, crossed the Line of Control and traveled to Srinagar, inspecting the Kishanganga project, before finally reaching Delhi. According to the PCA Press Release, the Tribunal observed “expert briefings and features” during the visit. The PCA Press Release is available here, and is accompanied by this photograph of the members inspecting the Kishanganga project (I quite like the transparency of the PCA on this thus far)

2. A wonderful summary of the dispute and the main arguments by both the countries is provided by Athar Parvaiz (available here). Parvaiz notes:

Pakistan has raised objections to a number of controversial projects undertaken by India in Kashmir in the past, including the Baglihar project on the Chenab River and the Wullar Barrage on the Jhelum River. But the Kishanganga dispute assumes a greater significance because Pakistan is also vying to construct its own project – the Neelum-Jhelum hydro scheme – on the Pakistani side of the Neelum River. The IWT states that the country that completes its project first will secure priority rights to the river.

…

The dispute over the Kishanganga project itself centres on the diversion of water from one tributary of the Indus River to another. Pakistan said this violates the IWT, while India argues the diversion is well within treaty provisions. India maintains that it will only divert the Neelum to join the Jhelum River, which also flows through Pakistan – and that therefore the water will ultimately reach Pakistan anyway.

3. A different, and essentially non-legal, perspective is offered by Maaz Gardezi of the LUMS Water Programme here. Gardezi argues that there is a “trust deficit” between the two riparians and that:

The difference between Kashmir and the water issue is that the latter is an existential issue. Therefore, the consequence of bringing water to a pedestal on India-Pakistan relations can have devastating effects on regional security and prosperity. We need to work closely with our neighbours in order to share this resource, rather than divide it.

4. There have been several reports about a domestic controversy in Pakistan over its legal representation in the dispute. Details on this can be found here (posted Jan. 18, 2011), here (posted Jul. 2010), and here (posted Jul. 7 2011).

5. Ramaswamy Iyer, a noted Indian expert on water, recently published an insightful opinion on the issue (available here). According to Iyer, water has the potential of becoming a new ‘core issue’ of even greater importance than Kashmir. He goes on to identify and analyze the common arguments raised by Pakistan against Indian actions. He concludes noting that:

Right or wrong, certain misperceptions on water persist and are widespread in Pakistan. This has serious implications for India-Pakistan relations and for peace on the subcontinent. Persistent efforts are needed at both official and non-official levels to remove misperceptions and to reassure the people of Pakistan that their anxieties are uncalled for.

(Interestingly, even after the matter was referred to arbitration, Iyer published an article in June 2010 (available here) arguing that despite the initiation of arbitration, India and Pakistan should settle the dispute by an agreement, as opposed to arbitration which is an expensive, time consuming and adversarial process.)

6. Meanwhile, in addition to the Kishanganga dispute, other reports indicate that a recent meeting between officials of India and Pakistan in May 2011 over the Wullar Barrage dispute also failed to resolve the deadlock. (report here.)

News from here and there

2011-07-29T11:43:00.000+05:30

Indian Court of Arbitration for Sports

Acting on the directives of the International Olympic Committee, the Indian Olympic Association has constituted the Indian Court of Arbitration for Sports (ICAS). All disputes relating to sports under the Indian Olympic Association will be decided henceforth by the ICAS. The ICAS will have eight members, all retired judges of the higher judiciary.

LCIA without LC

We had earlier posted about a petition by the Association of Indian Lawyers seeking to remove the phrase "London Court" from "London Court of International Arbitration". The Delhi High Court has directed the LCIA the file a written statement within four weeks. The matter is listed for September 9. Watch this space for more.

New Arbitration Centre

The Government of Mauritius, LCIA and a new Mauritian company, Mauritius International Arbitration Centre Limited (MIAC), have entered into an agreement for establishing a new arbitration centre in Mauritius, to be known as the LCIA-MIAC Arbitration Centre. The LCIA is really expanding its horizons! More on that here.

Are arbitrators 'employees'?

2011-07-27T21:25:00.003+05:30

A question that arose for consideration before the UK Supreme Court in Jivraj v. Hashwani, was whether a contract exists between the parties and arbitrators, such that the arbitrators may be considered 'employees' of the parties. This question was important to determine whether arbitrators are subject to the law prohibiting discrimination by employers and thus, whether a clause in the arbitration agreement requiring a particular religious belief for all arbitrators was discriminatory.

Whereas the English Commercial Court had held that the relationship between the parties and arbitrator was not a contract of employment, the Court of Appeal (CA), in 2010, held that such a contract does indeed exist, however, its precise nature is irrelevant. Arbitrators are 'employees' since they act under "a contract personally to do any work". The religion requirement was thus struck down as void.

This decision sparked off a debate, not so much as regards the religion requirement, but as to whether nationality requirements in arbitration agreements could be struck down as void by English courts.

The Supreme Court, today, overturned the CA's decision, holding that arbitrators are not employers within the meaning of the English anti-discrimination law. Since the statute defined employment as "employment under a contract of ...", the Court held that the role of an arbitrator is not naturally defined as one of employment. Arbitrators are independent providers of service, not subordinated to the person receiving the services, which is the case in employment.

Thus, arbitrators cannot be considered as employed by parties who appoint them, either directly, or through a designated arbitral institute.

Suits for declaration of nullity of arbitration clauses not maintainable, Delhi High Court

2011-07-25T19:32:00.001+05:30

Today, the Delhi High Court held in Dr. Devinder Kumar Gupta vs Realogy Corporation & Anr. that no civil suit seeking a declaration that an arbitration clause is void is maintainable.

It was argued before the Court that it was well settled that civil courts could go into questions of existence and validity of arbitration clauses. However, the Court rightly pointed out that this position would hold true only while disposing off an application under Section 8 or Section 45 of the Arbitration & Conciliation Act whereby a party to an already instituted suit requests reference to arbitration contending that an arbitration clause between the parties to the suit covers the subject matter of the dispute. The Court held that precedents that clarify the scope of examination under Section 8 and Section 45 cannot be extended to allow suits seeking declaration of nullity of an arbitration clause.

The relies on the decision of the Supreme Court in Kvaerner Cementation India Ltd. v Bajranglal Agarwal, 2001(6) SCC 265 while arriving its conclusion.

Registration, stamp duty and enforceability of arbitration clauses

2011-07-22T16:56:00.000+05:30

On 20th July, the Supreme Court came out with its decision in M/S Sms Tea Estates P.Ltd. vs M/S Chandmari Tea Co.P.Ltd. The decision clarified (i) that an arbitration clause in an unregistered, but compulsorily registrable, instrument can be enforced and (ii) that an arbitration clause in a document which is not duly stamped cannot be enforced till the stamp duty and the penalty thereon have been paid.

An application was filed before the Chief Justice of the Guwahati High Court seeking the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The same was dismissed on the ground that the lease deed that contained the arbitration clause was not registered and duly stamped and was hence unenforceable. A special leave appeal was preferred before the Supreme Court challenging this order of the Chief Justice.

The issues considered in this case were summarised by the Supreme Court in the following words:

"(i) Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable?

(ii) Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable?

(iii) Whether there is an arbitration agreement between the appellant and respondent and whether an Arbitrator should be appointed?"

The following paragraphs summarise the Court's reasoning and conclusion with respect to the first two of these questions.

i. Arbitration clauses in Unregistered, but compulsarily registrable instruments:

A yearly lease deed is a compulsorily registrable instrument under Section 17 of Registration Act, 1908 and Section 107 of the Transfer of Property Act, 1882.

The effect of non-registration of a compulsorily registrable instrument is provided in Section 49 of the Registration Act as follows:

"Effect of non-registration of documents required to be registered
No document required by section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall-

(a) affect any immovable property comprised therein, or

(b) confer any power to adopt, or

(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:

PROVIDED that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument."

The Court observed that the proviso to Section 49 clearly indicates that an unregistered (but compulsorily registrable) instrument may be used as evidence of any collateral transactions that may not require registration. Relying on the well established jurisprudence on severability of the arbitration clause, the Court reasoned that inclusion of an arbitration clause into a lease deed was like rolling a lease deed (which requires registration) and an arbitration agreement (which does not require registration) together. Hence, the arbitration clause is a collateral agreement in whose evidence the unregistered lease deed may be relied upon as per proviso to Section 49 of the Registration Act.

Therefore, the Court concluded that an arbitration clause in an unregistered, but compulsorily registrable, lease deed is enforceable.

(ii) Arbitration clauses in unregistered and not duly stamped instruments:

Section 35 of the Indian Stamp Act, 1899 provides:

"Instruments not duly stamped inadmissible in evidence, etc.

No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped :

Provided that--

(a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion."

Based on this clear statutory injunction, the Court held that an arbitration clause in an instrument which is not duly stamped can be enforced only upon the stamp duty and the penalty thereon being paid by the party relying on the instrument to establish the existence of the arbitration clause.

Happy Birthday, Professor Bergsten: Launch of Journal of Dispute Prevention and Resolution

2011-07-17T23:07:00.006+05:30

‘Lex Arbitri – The Indian Arbitration Blog’ has, for sometime, acted as a forum to bring together persons interested in arbitration and allied areas of law. We have discussed developments in India and abroad in the areas of our interest and have attained moderate success in becoming a preferred source of information and analysis in the areas we cover. The encouraging responses we received include those from the French Arbitration Committee, the Singapore International Arbitration Centre, the organizers of the Willem C. Vis International Commercial Arbitration Moot and several readers who left encouraging comments on the blog. This warm reception from our readers gives us the confidence and the sense of responsibility to embark on an expansion of our activities.

Today, on the ocassion of the 80th birthday of Professor Eric Bergsten, who, apart from being a professor at Pace University and former Secretary of UNCITRAL is primarily responsible for the Willem C Vis International Commercial Arbitration Moot, and in honour of him, the Lex Arbitri team would like to announce the launch of The Journal of Dispute Prevention and Resolution.

While blog posts offer several benefits like flexibility, immediate publication and accessibility, a journal comes with its own set of advantages – peer review, wider acceptance in academic circles, etc. We at Lex Arbitri seek to tap the advantages that both these mediums can offer. With the launch of the Journal, Lex Arbitri will move to a registered domain – http://dispute-resolution.in. Upon reaching the home page, the reader will be able to access the Lex Arbitri Blog or the journal. In interest of access, we plan to make all articles in the journal accessible online for free. Also, in interest of immediate publication, we will upload each article as and when it is approved for publication by the editorial board. Print issues will be taken out biennially.

As you can imagine, starting a journal and making it a success requires a highly spirited, talented and dedicated team. Therefore, Lex Arbitri is currently looking to put together a Board of Editors for the new Journal. The Board will be selected by the Lex Arbitri team by a three pronged process – (i) evaluation of CVs and Statements of Purpose; (ii) Editing Test; (iii) telephonic/personal interview.

Applications are invited for the following positions

1. Content Editor – 3 positions

2. Citations Editor – 2 positions

3. Administrative Secretary to the Board of Editors – 1 position

The applications (with CV and Statement of Purpose) are to be emailed to deepakelanthoor[at]gmail[dot]com, on or before 23:59 hrs., August 5, 2011.

Transformation of Section 34 to a substantive appeal - yet another example

2011-07-15T12:17:00.001+05:30

We have discussed in several posts how the Supreme Court of India has carved out for itself and other courts infinite powers of intereference with arbitration. We have also discussed how the definition of public policy under Section 34 and how its expansive interpretation allows courts to review decisions allows courts to revisit questions of substantive law that arbitral tribunals have already decided.

Yesterday (14th July, 2011) the Supreme Court gave its decision in Shipping Corporation Of India ... vs Mare Shipping Inc. This decision is (at least in my opinion) not a significant one for a student of arbitration. But it provides yet another example of reconsideration of substantive questions of law by courts.

The decision quotes the appellant's counsel: "Mr. Gupta submitted that the scope of a petition under Section 34 of the 1996 Act had been considered by this Court in detail in Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd. [(2003) 5 SCC 705], and it was indicated therein that if the Award passed by the Arbitral Tribunal was contrary to any of the provisions of the Act or the substantive law governing the parties or was against the terms of the contract, the same could be set aside". This is the only reference in the decision to Section 34 and the permissibility and scope of intervention under that Section. Having made this passing reference, the Court proceeds directly to re-examine matters of substantive law that had already been decided by the arbitral tribunal.

While the omission of references to or discussion on the line of precedents on Section 34 is commentable on account of much needed brevity of Indian judicial decisions, it also shows how revisiting substantive questions in a Section 34 application (and appeals arising from such applications) has become an everyday affair which does not even merit elaboration upon.

Arbitrators cannot award interest where the contract prohibits it - Supreme Court's latest decision

2011-07-13T12:27:00.001+05:30

Yesterday (12th July, 2011), the Supreme Court came out with a decision clarifying the law on award of interest by arbitrators when the contract prohibits it. In Union Of India vs M/S.Krafters Engineering, a dispute that arose from a construction contract, the sole question before the Supreme Court was: "whether an arbitrator has jurisdiction to grant interest despite the agreement prohibiting the same?"

The contract between the parties stated: "Interest on Amounts - No interest will be payable upon the Earnest Money or the Security Deposit or amounts payable to the Contractor under the Contract but Government Securities deposited in terms of clause 1.14.4 will be repayable with interest accrued thereon". However, the umpire, who was called in to arrive at a decision as the arbitrators could not resolve the dispute within the stipulated time frame, awarded interest pendente lite. The Union of India challenged this award of interest before the Supreme Court. The respondent sought to argue that the arbtirators have power to award interests not-withstanding any stipulation in the contract to the contrary, relying on Board of Trustees for the Port of Calcutta vs. Engineers-De-Space-Age, (1996) 1 SCC 516 and Madnani Construction Corporation Private Limited vs. Union of India and Others, (2010) 1 SCC 549.

The Court started its discussion with a brief summarisation of the principles governing the award of interest where the contract is silent. These principles, as summarised in Secretary, Irrigation Department, Government of Orissa and Others vs. G.C. Roy, (1992) 1 SCC 508 are as follows:

"(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.

(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.

(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.

(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.

(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre- reference period). For doing complete justice between the parties, such power has always been inferred."

The Court went on to examine Port of Calcutta case on which the respondents heavily relied. In that case, based on the power of the arbitrators to interpret the arbitration clause, the Court had held that the bar on interest in the contract was a mere bar on the Government and departments against paying interest and it did not preclude the arbitrators from awarding interest. However, this very proposition was examined later in Sayeed Ahmed and Company vs. State of Uttar Pradesh and Others, (2009) 12 SCC 26 in which a similar argument was rejected stating: "Whether the provision in the contract bars the employer from entertaining any claim for interest or bars the contractor from making any claim for interest, it amounts to a clear prohibition regarding interest. The provision need not contain another bar prohibiting the arbitrator from awarding interest." Based on this, the Court held that reliance of the respondent on Port of Calcutta was misplaced as that case was overruled in Sayeed Ahmed.

Based on the above discussion, the Court arrived at the following conclusion: "We reiterate that where the parties had agreed that no interest shall be payable, the arbitrator cannot award interest for the amounts payable to the contractor under the contract. Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and the said dispute is referred to the arbitrator, he shall have the power to award interest pendent elite. As observed by the Constitution Bench in G.C. Roy's case (supra), in such a case, it must be presumed that interest was an implied term of the agreement between the parties. However, this does not mean that in every case, the arbitrator should necessarily award interest pendente lite."

Arbitration Act is a self contained code; No LPA against non-appealable orders - Supreme Court

2011-07-12T14:25:00.001+05:30

Section 50 of the Arbitration and Conciliation Act, 1996 states:

"(1) An appeal shall lie from the order refusing to -

(a) refer the parties to arbitration under section 45;

(b) enforce a foreign award under section 48,

to the court authorised by law to hear appeals from such order.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."

In Fuerst Day Lawson Ltd. vs Jindal Exports Ltd., (decided on July 8, 2011), the Supreme Court was faced with the question of whether this provision precludes Letters Patent Appeals.

Before the Court could move on to answering this question, it had to deal with an application placed before it by the petitioners for the transfer of this case to a larger bench. The petitioners referred to Orma Impex Pvt. Ltd. v. Nissai ASB PTE Ltd., (1999) 2 SCC 541, in which a two-judge bech of the Supreme Court had referred the same question to a three judge bench citing an apparent conflict in precedents. However, before the three judge bech could answer the question the matter was compromised. The Court held that Orma Impex was not a binding precedent as the matter was compromised before a decision could be reached. As to the conflict referred to in Orma Impex, the Court drew a distinction between the statutory schemes of Part I and Part II of the Act. While the opening language of Section 37 and Section 50 of the 1996 Act is similar to that of Section 39 of the 1940 Act, only Section 37 (and not Section 50) is similar in its statutory scheme and object and purpose to Section 39 of the 1940 Act. Hence, judgments rendered on whether Section 39 of the 1940 Act excluded Letters Patent Appeals was not relevant in interpreting Section 50.

Before going on to determine whether the current statutory framework excludes Letters Patent Appeals, the Court lays down several 'broad principles' gathered from precedents:

"1. Normally, once an appeal reaches the High Court it has to be determined according to the rules of practice and procedure of the High Court and in accordance with the provisions of the charter under which the High Court is constituted and which confers on it power in respect to the method and manner of exercising that power.

2. When a statute merely directs that an appeal shall lie to a court already established then that appeal must be regulated by the practice and procedure of that court.

3. The High Court derives its intra-court appeal jurisdiction under the charter by which it was established and its powers under the Letters Patent were recognized and saved by section 108 of the Government of India Act, 1915, section 223 of the Government of India Act, 1935 and finally, by Article 225 of the Constitution of India. The High Court, therefore, cannot be divested of its Letters Patent jurisdiction unless provided for expressly or by necessary intendment by some special statute.

4. If the pronouncement of the single judge qualifies as a "judgment", in the absence of any bar created by a statute either expressly or by necessary implication, it would be subject to appeal under the relevant clause of the Letters Patent of the High Court.

5. Since section 104(1) CPC specifically saves the letters patent appeal it could only be excluded by an express mention in section 104(2). In the absence of any express mention in section 104(2), the maintainability of a letters patent appeal is saved by virtue of section 104(1).

6. Limitation of a right of appeal in absence of any provision in a statute cannot be readily inferred. The appellate jurisdiction of a superior court cannot be taken as excluded simply because a subordinate court exercises its special jurisdiction.

7. The exception to the aforementioned rule is where the special Act sets out a self-contained code and in that event the applicability of the general law procedure would be impliedly excluded. The express provision need not refer to or use the word "letters patent" but if on a reading of the provision it is clear that all further appeals are barred then even a letters patent appeal would be barred."

Based on these 'broad principles' the Court goes on to hold that a Letters Patent Appeal would stand excluded under the present statutory scheme of Section 50.

For this proposition, the Court advances two independent reasons -

1. Under Section 6(2) the Foreign Awards (Recognition and Enforcement) Act, 1961, all appeals including LPAs were barred except where an enforcing court issued a decree which was in excess of the award which was being enforced. In the present statutory scheme, no decree in terms of the award is necessary for a foreign award to enforced. By doing away with this procedural requirement, the statute has also done away with the possibility that a decree in excess of the award can be issued and hence has removed the only limited ground on which a LPA could have been entertained under the 1961 Act. "It would be futile, therefore, to contend that though the present Act even removes the limited basis on which the appeal was earlier maintainable, yet a Letters Patent Appeal would lie notwithstanding the limitations imposed by section 50 of the Act. The scheme of sections 49 and 50 of the 1996 Act is devised specially to exclude even the limited ground on which an appeal was earlier provided for under section 6 of the 1961 Act."

2. The Arbitration and Conciliation Act is a self contained code. "It is, thus, to be seen that Arbitration Act 1940, from its inception and right through 2004 (in P.S. Sathappan) was held to be a self-contained code. Now, if Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self- contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done. In other words, a Letters Patent Appeal would be excluded by application of one of the general principles that where the special Act sets out a self-contained code the applicability of the general law procedure would be impliedly excluded."

Recent decision of the Supreme Court on existence of an arbitration agreement

2011-07-10T10:34:00.006+05:30

The Supreme Court, in a judgment last Monday, clarified the law regarding existence of an agreement to arbitrate under section 7 of the Arbitration and Conciliation Act, 1996.

In State of Orissa & Ors. v. Bhagyadhar Dash, contractors had applied under section 11, Arbitration and Conciliation Act, for appointment of arbitrators to decide disputes between them and the state government. Clause 10 of the 'Conditions of Contract', part of the series of agreements between the parties, was held to be an arbitration clause by the Chief Justice of the Orissa High Court and the same was challenged before the Supreme Court.

Grounds of Decision

The Supreme Court decided the case on two grounds: first, based on judicial precedent on the essentials of an arbitration agreement and second, by tracing the history of the Standard Conditions of Contract of the Orissa government.

The Clause in Question

Clause 10 of the contract, purported to contain an arbitration agreement, stated thus:

"The Engineer-in-Charge shall have power to make any alterations in or additions to the original specifications, drawings, designs and instructions that may appear to him necessary and advisable during the progress of work, and the contractor shall be bound to carry out the work in accordance with any instructions which may be given to him in writing signed by the Engineer-in-Charge and such alterations shall not invalidate the contract, and any additional work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work, and at the same rates as are specified in the tender for the main work. The time for the completion of the work shall be extended in the proportion that the additional work bears to the original contract work and the certificate of the Engineer-in-Charge shall be conclusive as to such proportion. And if the additional work includes any class of work for which no rate is specified in this contract, then such class of work shall be carried out at the rates entered in the sanctioned schedule of rates of the locality during the period when the work is being carried on and if such last mentioned class of work is not entered in the schedule of rates of the district then the contractor shall within seven days of the date of the rate which it is his intention to charge for such class of work, and if the Engineer-in-Charge does not agree to this rate he shall be noticed in writing be at liberty to cancel his order to carry out such class of work and arrange to carry it out in such manner as he may consider advisable.

No deviations from the specifications stipulated in the contract nor additional items of work shall ordinarily be carried out by the contractor, nor shall any altered, additional or substituted work be carried out by him, unless the rates of the substituted, altered or additional items have been approved and fixed in writing by the Engineer-in-Charge, the contractor shall be bound to submit his claim for any additional work done during any month on or before the 15th days of the following month accompanied by a copy of the order in writing of the Engineer-in-Charge for the additional work and that the contractor shall not be entitled of any payment in respect of such additional work if he fails to submit his claim within the aforesaid period.

Provided always that if the contractor shall commence work or incur any expenditure in respect thereof before the rates shall have been determined as lastly hereinbefore mentioned, in such case he shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the determination of the rates as aforesaid according to such rate or rates as shall be fixed by the Engineer-in-Charge. In the event of a dispute, the decision of the Superintending Engineer of the Circle will be final."

Attributes of an agreement to arbitrate

Relying on K. K. Modi v. K. N. Modi, Bihar State Mineral Development Corporation v. Encon Builders, Jagdish Chander v. Ram Chandra, State of U. P. v. Tipper Chand, State of Orissa v. Damodar Das and Bharat Bhushan Bansal v. U. P. Small Industries Corporation Ltd., the Court gleaned the following attributes of an arbitration agreement:

written consent to submit future disputes to arbitration, contemplation of a binding decision of an impartial Tribunal which will decide in a judicial manner, contemplation that substantive rights of parties will be determined by the agreed tribunal, enforceability of the decision of the Tribunal in a court of law, and intention that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the Tribunal.

Further, there is no specific form of an arbitration agreement, even absence of words like 'arbitrator' or 'arbitral tribunal' does not retract from the clause being an arbitration agreement if all requisite elements are present. Conversely, mere use of these words do not render it an arbitration agreement.

Where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.

If the purpose of the clause is only to vest in the named Authority, the power of supervision of the execution of the work and administrative control over it from time to time, it is not an arbitration agreement.

The Apex Court has laid emphasis on the distinction between adjudication of disputes and prevention of disputes, the latter not amounting to arbitration.

The clause under consideration in this case related to power of the Engineer-in-Chief to make additions and alterations in the drawings and specifications and execution of non-tendered additional items of work (that is items of work which are not found in the bill of quantities or schedule of work). The last sentence of the proviso to clause 10 was purported to be an arbitration agreement. It stated: "in the event of a dispute, the decision of the Superintending Engineer of the Circle will be final".

This, according to the Court, did not refer to arbitration as the mode of dispute resolution and it did not provide for reference of disputes between the parties to arbitration. There was no displayed intention to make the Superintending Engineer an arbitrator in respect of disputes that may arise between the Engineer-in-Charge and the contractor. It operated in a limited sphere.

It intended to avoid future disputes regarding rates for non-tendered items, not to refer future disputes for settlement. The decision of the Superintending Engineer was not a judicial determination, but a decision open to challenge in a court of law.

Thus relying on precedent alone, the Court held that clause 10 was not an agreement to arbitrate.

Amending History of Standard Conditions of Contract

Second, the Court analysed the history of the Standard Conditions of Contract of the Orissa government. Prior to 1981 there was a clause 23 in the Standard Contract which provided for binding arbitration. Since this was consciously deleted, according to the Court, therefore the intention was not to have any arbitration clause.

Furthermore, the Court relied on Executive Engineer RCO v. Suresh Chandra Panda, which held that even when the Standard Conditions of Contract contained a provision for arbitration (clause 23), clause 10 was considered to be a provision dealing with a matter excepted from arbitration. Thus, in the absence of the arbitration clause, clause 10 cannot be considered an agreement to arbitrate.

Thus, from prior history of the Standard Conditions of Contract, it became evident that the clause in question was not an agreement to arbitrate.

This judgment provides a useful recapitulation of the legal position regarding the existence of an arbitration agreement.

The Peculiar Case of Pakistan

2011-07-10T05:00:00.009+05:30

This April, Pakistan enacted the Investment Disputes Act to make awards under the ICSID Convention enforceable in Pakistan. This was following a ruling in SGS v. Pakistan before an ICSID Tribunal. The Bill was passed following an ordinance issued almost four years ago which has been renewed under successive regimes, before finding fruition in April. This puts Pakistan in a unique and unenviable position as it does not have a law to bring the New York Convention or the UNCITRAL Model Law into effect, but will now recognise ICSID awards.

Background

Arbitration in Pakistan is still largely governed by the 1940 Act which was enacted by the British for the undivided Indian colony. Though Pakistan has signed the NYC, the enforceability of foreign arbitral awards is unclear as the NYC has not been implemented. The first attempt to implement the NYC was made in 2005, when the new Arbitration Act was passed as an Ordinance (along with an Ordinance to implement the ICSID Convention in 2006, which is now the Investment Disputes Act) almost 50 years after they signed on the NYC.

Ordinances in Pakistan have a limited life under Article 89 of the Constitution and must be tabled before the Houses of Parliament within 4 months of issue. Owing to the declaration of Emergency, they never saw the light of day and in Sindh High Court Bar Association v. The Federation of Pakistan, they were repealed as they were not passed within the requisite period.

Enactment and Controversy

But, in April 2010 President Zardari controversially re-promulgated the repealed Ordinances along with 11 others while the National Assembly was still in session, in alleged violation of Article 89. On the expiry of successive 4 month periods, the Ordinances were granted further 4 month extensions until April this year when the Investment Disputes Act was finally passed.

However, there is no word on when the new Arbitration Act will be enacted, but it is expected to follow the Investment Disputes Act. Thus, Pakistan finds itself in a position where it has given full effect to the ICSID Convention while not bringing the NYC or the UNCITRAL Model Law into effect. In doing so, Pakistan is not only one of the few countries to have not implemented the NYC, but is probably the only country to have implemented the ICSID Convention, while not implementing the NYC.

Lessons for India?

Unlike Pakistan, India is not a party to the ICSID Convention. However, India still lacks a framework for the implementation of Investment Treaty Awards. The issues surrounding ITAs have been dealt with in some detail in this paper, co-authored by Deepak.

The enactment of the Investment Disputes Act in Pakistan is part of the larger trend of settling investment disputes through arbitration. It also underscores the need for a legislation or an adequate mechanism to deal with Investment Disputes in India.

On the Applicability of Part I- A Guest Post

2011-06-16T23:19:00.007+05:30

Anupama Kumar, a 4th year at NLS and member of the NLS Vis team that made it to the Round of 16 at this year's competition examines the question of implied exclusion of Part I of the Arbitration and Conciliation Act, 1996.

S. 2(2) of the Act provides that “this Part shall apply where the place of arbitration is in India.” In Bhatia International, this was read to mean that the application of Part I to international commercial arbitration had not been excluded. Nevertheless, parties to an international commercial arbitration would be free to derogate from even the non-derogable provisions of Part I, provided that such exclusion was express or implied in the agreement.

The question that follows here is, what exactly is an implied exclusion? According to Indtel Technical Services v. W.S. Atkins, merely designating a foreign law would not amount to an implied exclusion of Part I, notwithstanding the presumption that the proper law of arbitration follows the proper law of contract in NTPC v. Singer. A similar view was taken in Citation Infowares v. Equinox Corporation. Read together, it would appear that the only way by which parties could exclude the application of Part I would be to expressly specify the proper law of arbitration in the agreement.

Indeed, this appears to be the view of the Supreme Court in Dozco India v. Doosan Infracore, where it observed the specification of a seat of arbitration in the arbitration agreement would amount to an express exclusion of Part I. While Mr. V. Niranjan has noted – and I agree with this – that the treatment of this as an express exclusion may not be correct, it is nevertheless a positive step in clarifying the law on Part I.

Furthermore, the Court distinguished Citation and Indtel on the grounds that the seat of arbitration was not specified here, but appears to make a distinction between the seat of arbitration and the law governing the arbitration agreement itself. The Court analysed the interpretation of the seat of arbitration in some depth, referring to the discussion of this by Redfern and Hunter in considerable detail. Yet, the judgment appears to turn on the latter – that the law governing the arbitration agreement was stipulated in the arbitration agreement. Does specifying the seat of arbitration therefore amount to an implied exclusion of Part I? It is submitted that Dozco leaves this question unanswered.

It next remains to be asked whether the decision in Videocon served to shed some light on the matter. The question before the Supreme Court in Videocon related to the applicability of s. 9 of the Arbitration and Conciliation Act. The relevant provisions of the arbitration agreement read as follows:

33.1 Indian Law to Govern

Subject to the provisions of Article 34.12, this Contract shall be governed and interpreted in accordance with the laws of India.

33.2 Laws of India Not to be Contravened

Subject to Article 17.1 nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India

34.12. Venue and Law of Arbitration Agreement

The venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia, and shall be conducted in the English language. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be governed by the laws of England. (Emphasis mine)

Would this amount to an implied exclusion of Part I of the Act?

The Supreme Court answered this in the affirmative, approving the view of the Gujarat High Court in Hardy Oil and Gas Limited v. Hindustan Oil Exploration Company Ltd., (2006) 1 GLR 658 that

...in cases of international commercial arbitrations held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case laws or rules chosen by the parties would prevail. Any provision, in Part-I, which is contrary to or excluded by that law or rules would not apply. Thus ... if the parties have agreed to be governed by any law other than Indian law in cases of international commercial arbitration, same would prevail. In the case on hand, it is very clear... that the parties' intention was to be governed by English law in respect of arbitration. ... It can be interpreted only to mean that in case of any dispute regarding arbitration, English law would apply. When the clause deals with the place and language of arbitration with a specific provision that the law governing arbitration will be the English law, such a narrow meaning cannot be given. (Emphasis mine)

It is my submission, that Hardy Oil does not apply in the circumstances. The curial law in Hardy Oil was English law.

But in Videocon, English law was the law governing the arbitration agreement, and not the arbitration itself, as pointed out here. The implication of this is that, where a foreign law governing the arbitration agreement is provided for, Part I of the Act is excluded. It is submitted, with respect, that this conclusion would be incorrect – the law governing the arbitration agreement is distinct from the curial law.

Where does that leave us? One may argue that, as per Dozco, the curial law is presumed to be that of the seat of arbitration chosen by the parties, and that in facts such as those in Videocon, the specification of a seat of arbitration would in turn amount to an implied exclusion of Part I. However, this would not be a correct reading of Dozco, nor indeed, is it the implication of Videocon. One may also argue that the law in Videocon is clear enough – that the parties must specify a foreign law of arbitration for Part I to be excluded, and the judgment simply overlooked the wording of the arbitration clause. This conclusion isn’t a particularly comfortable one, however, it leads to a far less absurd result.

So when is Part I excluded, and what amounts to implied exclusion? The answer remains as hazy as ever. It is submitted that a close reading of Videocon leads us to the same result, and that the decision itself is the result of incorrect reading of facts. We are therefore left where we started- if Part I of the Act is to be excluded, a foreign law of arbitration mus be specified n the arbitration agreement.

If you had a real life arbitration experience, fill the survey and help the arbitration community.

2011-06-13T17:43:00.010+05:30

The Chartered Institute of Arbitrators (CIArb) has launched a major survey into the costs of international arbitration. The ‘Costs of Arbitration’ survey will gather data to inform parties, legal representatives and arbitrators about the overall costs of international commercial arbitration and how these are incurred at each stage.

The results will be analysed and presented at an international conference organised by CIArb and sponsored by Alvarez & Marsal on 27 - 28 September 2011 in London, aimed at uncovering ways in which costs might be reduced and the process streamlined to become more cost-effective and efficient. International arbitration has a justifiable reputation as the preferred method of dispute resolution for international commercial disputes. The worldwide economic downturn has accelerated a rising trend in favour of the use of international arbitration, where the enforceability of awards under the New York Convention gives it a major advantage over litigation in national courts. Globally, governments have invested in bringing their arbitration laws up-to-date and building modern arbitration centres to capitalize on this growing market.

However, as the size and complexity of disputes referred to international arbitration has increased, so too have concerns about the growing complexity, cost and time involved in the process, diminishing some of the very factors that make it preferable to the courts for commercial dispute resolution.

CIArb’s Costs of Arbitration survey will play a key role in understanding the present position and, together with the international conference on the Costs of International Arbitration, finding ways of tackling the problem and reducing the costs of arbitration.

Doug Jones SC FCIArb, Vice President of CIArb, a leading Chartered Arbitrator and a member of the organising committee for the conference said: “We invite all legal representatives, in-house counsel and arbitral tribunal members to contribute to this major survey into costs in international arbitration. The survey report and conference will provide an invaluable contribution to the debate on costs, helping to generate proposals to restore speed and cost-effectiveness to the arbitration process. This is essential if international arbitration is to maintain its position as the commercial dispute resolution method of choice.

“To make the survey effective, we need corporate counsel, party representatives, arbitrators and tribunal members to give us as much data as possible on arbitrations in which they have been involved.”

All participants in the survey will receive a report of the survey findings and a discount on the cost of attending the conference.

The launch of CIArb’s survey reflects the sustained growth of international arbitration worldwide and its importance to global corporations. Last month Queen Mary University of London released the findings of its 2010 survey exploring the factors that influence corporate choices about arbitration. CIArb’s survey will focus specifically on the crucial aspect of costs, a factor not specifically examined in the Queen Mary survey but one which is becoming ever more critical to all businesses, especially in the present economic climate.

The conference will assemble an array of distinguished speakers to discuss the impact of costs in different jurisdictions and sectors. It will include contributions from all those involved in the process, from in-house counsel in the commercial, construction, maritime and oil and gas sectors to lawyers, arbitrators and expert witnesses.

It will be an essential date in the diary for all practitioners, corporate counsel, chief executives, commercial and finance directors, international trade lawyers, investment advisers, policymakers and contract drafters.

To complete the Costs in Arbitration Survey (party representatives or arbitral tribunal members) please visit www.shape-the-future.com/costsurvey

To find out more information about CIArb’s Costs of International Arbitration conference or to register your interest, please visit CIArb’s conference site: www.ciarb.org/conferences/costs

The Vis Experience

2011-06-08T17:30:00.005+05:30

An arbitrator who judged the memos and the oral rounds at this year's Vis moot shares his experinces here.

I would recommend it to anyone planning on doing the moot this year,as it gives you a complete picture of the goings on in Vienna during the period of the moot. Also recommended for those who wish to relive what many describe as the best week of their student life.

Hannover invites applications for the position of Vis coach

2011-06-05T09:34:00.000+05:30

Leibniz Universität Hannover, Germany has invited applications for the post of Coach to the university teams for Willem C. Vis International Commercial Arbitration Moot, Vienna and Willem C. Vis (East) International Commercial Arbitration Moot, Hong Kong. The position is to be held for three years. The communication circulated by email is reproduced below:

Job Posting for the position of the Coach for the Hanover Vis Moot Team

The Institute for Procedural Law and Attorney Regulation is seeking for a Research and Teaching Associate (wissenschaftlicher Mitarbeiter; 50 % E-13). The position will be available from 1 September 2011 and will be limitedfor a time period of three years. The position is allocated at the Chair for Civil Law, International, European and German Civil Procedure (Professor Dr. Christian Wolf). The job holder will have the opportunity to do his/her Ph.D.-thesis (Doktorarbeit). The thesis can be written in Englishor German.

Job description

The Research Assistant will be in charge of the universities Willem C. Vis program including the participation in Hong Kong and Vienna. In addition to that s/he has to teach a one hour course per term in English language (in the field ofInternational Sales or Trade Law). Furthermore the job holder has to assist faculty members with their English publications.

Profile of Qualification

The job applicant must have a degree in law comparable to the First State Exam in Germany. His/her law degree mustenable him/her to do a Ph.D. at the university at which s/he received his/her law degree. Experience in the Vis moot asformer Participant or as Coach/Arbitrator is essential. Excellent English skills are mandatory (native or comparable).German language skills are not required.

Salary

The offered position is a part-time position (half time). The salary is approximately 20.000 € a year.

Contact

Please send your application including CV, list of publications, list of teaching experience and copies of qualifications to: Institut für Prozess- und Anwaltsrecht; Herrn Professor Dr. Christian Wolf; Königsworther Platz 1; D- 30167Hannover or wolf@jura.uni-hannover.de

Anti arbitration injunctions - A guest post by Puneeth Nagraj

2011-06-04T10:05:00.001+05:30

The following is a guest post by Mr. Puneeth Nagraj of NALSAR University of Law, Hyderabad. Mr. Nagraj was a member of the NALSAR team that reached the round of 16 in the Willem C. Vis International Commercial Arbitration Moot this year.

The New York Convention (NYC) and the UNCITRAL Model Law (UML) have certainly come a long way in creating a framework within which international arbitrations can proceed with minimal interference from courts. However, certain jurisdictional issues sometimes act as roadblocks for the smooth resolution of such disputes. One such issue is that of anti-arbitration injunctions. The main purpose of anti-arbitration injunctions is to prevent parallel proceedings which are against the will of the parties. By issuing such injunctions, courts 'preserve' their jurisdiction over the dispute.

By putting a stop to an arbitration, the court would be encroaching on the power of Kompetenz-kompetenz (a well-accepted principle in arbitration as also recognised by Article 16 of the UML) of an arbitral tribunal. I will attempt to examine this issue in greater detail by examining case law from across jurisdictions.

Common Law Jurisdictions

INDIAN POSITION

The Kompetenz-Kompetenz rule is codified in Section 16 of the Arbitration and Conciliation Act and is the same provision as Article 16 of the UML. This rule allows an arbitral tribunal to rule on its own jurisdiction.

However, Section 9 allows a court to grant interim injunctions during the pendency of the proceedings. Section 45, which deals specifically with foreign arbitrations requires a court to refer a party to arbitration unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed. Section 45 contains a non-obstante clause and a court may entertain an application to be referred to arbitration if there exists a valid arbitration clause. This provision is in line with Article II (iii) of the NYC which deals with the validity of an arbitration agreement. Section 45 is different from Section 48 in that an injunction is granted under Section 45 before the commencement of the arbitral proceedings.

So, Indian courts are vested with the discretion of granting an interim injunction to stop the arbitral proceedings if any of the grounds of Section 45 are satisfied. Though there already exists a provision to set aside arbitral awards not in accordance with Indian law in Section 34, the provisions of Section 45 is aimed at reducing the costs that a party may incur in resorting to a foreign arbitration where the tribunal reaches the same finding as the court.

But this does not mean that the discretion given under Section 45 overrides the right of a tribunal under Section 16. In the case of Bharti Televentures v. DSS Enterprises, it was held that the intention of the legislature in Section 45 was to oust the jurisdiction of a court to intervene during an arbitral proceeding. Further, in Cultor Ford Science v. Nicholas Piramal, the Andhra Pradesh High Court refused to grant an injunction against arbitration under the LCIA Rules as the parties had willingly entered into the agreement and had spent a considerable amount of money in participating in the proceedings. In Union of India v. Dabhol Power, the Delhi High court held that the Section 45 does not oust the jurisdiction of the court from issuing an injunction if the proceedings are found to be oppressive.

On the flipside, Section 45 also empowers a court to stay court proceedings in favour of arbitration.

ENGLISH POSITION

The English position on anti-arbitration injunctions seems to follow a similar scheme as that of India. The courts have the power under Section 37 of the Supreme Courts Act, 1981 to issue anti suit injunctions, but it remains to be seen if this is in accordance with the Arbitration Act, 1996.

The 2007 case of Elektrim v Vivendi Universal has addressed this question. The petitioner claimed that the provisions of Section 37 are wide enough to enable the court in case of arbitration proceedings as well. Further, the case of Intermet FZCO v Ansol Ltd, the principles in Section 37 were applied to an anti-arbitration injunction.

In response, the court laid won a 2 pronged test to grant such injunctions. Firstly, a party must prove that the court has a power to grant an anti-arbitration injunction under Section 37 in the specific case. Secondly, they should also prove that such a power is consistent with the scheme of the Arbitration Act, 1996.

While the court does have such a power under Section 37, it is has been used very rarely. Further, the scheme of the Arbitration Act is such that the intervention of courts is limited as much as possible. The case of Fiona Trust and Holding Corp v Yuri Privalov the Court of Appeal upheld the principle of Kompetenz-kompetenz by stating that the first right to determine the issue lies with the tribunal.

Hence, though there is provision to grant anti arbitration injunctions, they are granted only in exceptional circumstances.

CIVIL LAW JURISDICTIONS

Anti-arbitration injunctions are seen as a common law oddity and Civil law countries do not have a practice of interfering with arbitral proceedings, in view of a strict application of the Kompetenz-kompetenz principle. This is confirmed by recent experiences in the area from France and Switzerland.

FRANCE

Section 809 of the Code of Civil Proceedings empowers the Tribunal of First Instance to order protective or conservatory measures to prevent imminent harm or to put an end to manifestly illegal trouble. However, two recent judgments of the Tribunal de Grande Instance of Paris have confirmed the idea that courts in France cannot intervene in arbitral proceedings.

In the January, 2010 case of S.A. Elf Aquitaine and Total v. Mattei, Lai. Kamara and Reiner, the petitioners asked the court to intervene in the arbitral proceedings on the ground that the tribunal was improperly constituted. However, the court held that the principle of Kompetenz-kompetenz means that the arbitral tribunal has exclusive jurisdiction to decide upon their own jurisdiction and that the court can step in only once the award is challenged.

In the March, 2010 case of Republic of Equatorial Guinea v Fitzpatrick Equatorial Guinea, de Ly, Owen and Leboulanger, the partial award of an ICC tribunal upholding its own jurisdiction was challenged on the grounds that if the award was set aside at the enforcement stage, the claimants could not recoup the advance paid to the ICC. However, the court held that despite the provisions of Section 809 an order to stay the proceedings could not be made as it would interfere with the arbitral proceedings and national courts do not have such jurisdiction.

These judgments are in line with a 2004 judgment of the Paris court which held that the court does not have the right to stay legal proceedings no matter what the grounds invoked.

SWISS POSITION

In the only precedent on anti-arbitration injunctions in the country, a Geneva Court of First Instance ruled in 2005 that Swiss courts cannot stay arbitration proceedings and such injunctions from foreign courts cannot be enforced in Switzerland.

The case involved a European aviation company entering into two contracts with a Namibian carrier which provided for arbitration as per IATA rules. Since the agreement did not nominate a place of arbitration, the Namibian party obtained an anti arbitration injunction from its domestic court.

The European party petitioned the Geneva Court of First Instance challenging the above injunction. The court held that while such injunctions are not opposed to international policy, they are against the principle of Kompetenz-kompetenz which the Swiss courts embrace. Hence, the court refused to enforce the injunction issued by the African court.

ARBITRAL TERRORISM?

Despite the obvious benefits in stopping arbitration that is oppressive; often, recourse to such injunctions can defeat the very purpose of choosing arbitration as a dispute resolution process. Bishop and Houston take exception to such methods and go to the extent of labelling it Arbitral Terrorism.

They point to three immediate effects of resorting to such recourse. Firstly, the delay caused by such a prolonged process defeats the most obvious advantage of expediency that arbitration offers. Secondly, going forward with the proceedings in the country where such an injunction is granted can prejudice one the party against whom the injunction was granted as the proceedings will now have to take place in the same court that granted such an injunction. Finally, parties who have agreed to arbitration use injunctions as a tactic to delay the process indefinitely or use the delay to leverage their interests during the proceedings.

To combat this trend, they propose four measures. Firstly, the parties should choose a forum where the arbitral law is considerably developed like Switzerland where the courts will refuse to grant or enforce such injunctions. Secondly, parties should look to insure their awards from political risks so that even if the award is not enforced, they can claim the money from the policy. Thirdly, parties involved in arbitrations with government or government owned companies should insist on ICSID arbitration, where a framework is such that states find it hard to refuse enforcement or issue injunctions. Finally, they propose a radical step of pinning liability on the state so as to discourage the trend of using anti arbitration injunctions as a delaying tactic.

CONCLUSION

It is an established proposition that national courts can intervene in international arbitral proceedings. But injunctions pose a unique challenge as they are issued even before the proceedings commence before a tribunal.

This is directly in conflict with the principle of Kompetenz-kompetenz which grants the tribunal the sole discretion to decide upon its jurisdiction. Though it is acknowledged that this is in accordance with public policy, the nature and manner of such intervention varies across jurisdictions. While Civil law jurisdictions refuse to grant injunctions even before the arbitration commences, Common law countries use this as a means to stop proceedings that obviously lack merit. The threshold to implement such measures also varies. While English courts refuse to grant such relief except in exceptional circumstances, Indian courts use it as a means to reduce the expenses incurred by the parties in order to protect their interests.

However, exercising such discretion carelessly can lead to discounting the interests of one of the parties. To overcome this difficulty, the measures proposed by Bishop and King can be handy.

LCIA without LC?!

2011-05-31T20:48:00.004+05:30

According to the latest reports coming, LCIA India has been issued a notice by the High Court of Delhi, thanks to the petition filed by Mr.Chandrashekhar Pal on behalf of Association of Indian Lawyers (AIL). The petition seeks to remove the word “London Court” from “London Court of International Arbitration”.

Senior Counsel Ranjan Mukherjee is appearing on behalf of AIL .It has been alleged that:
• LCIA-India has tried to create an impression that it is part of English Legal machinery.
• LCIA-India is trying to create a parallel system of administration of law which is against the existing judicial system in India
• LCIA-India has formed its own justice delivery system which goes against the Indian Constitution.
• LCIA-India is introducing foreign lawyers deceitfully through arbitrations.
• The majority of arbitrators on the LCIA -India Panel are from UK.
• LCIA is acting biased and is rendering awards that are against Indian Parties.

However, it is interesting and pertinent to note that in the case of Venture Global Engineering v Satyam Computer Services, LCIA was the arbitral institute involved and the award was passed in favour of the Indian party. Later, it was the Supreme Court of India which obliged to the objections of the foreign party, thus making the case infamous.

The petition is rather amusing as LCIA in London also is in no way associated to the Municipal Court System. It is just an arbitral institution (rather a famous one around the world) having its “name” as “LCIA” due to the history attached to it. It is believed that no reasonable person in the arbitration field would confuse LCIA to be part of the English Municipal Law. Also, as the petition specifies, even if litigants are mislead in the first instance, the rules of LCIA will make things clear.

It is sad to see such developments on the Indian Arbitration canvas. On one hand the Law Minister wants to develop India into an International Arbitration Hub and on other hand the Indian Arbitration scene is witnessing such petitions. It is a warning sign amidst all fanfare as it can set the Indian Arbitration on a retrograde motion. Such uncalled petitions will only deter reputed arbitral institutions to enter into India as it would only add to their “Operational Costs of operating in India”! There is also news that the Singapore International Arbitration Centre (SIAC) is planning to establish a centre in India. Will it face a similar opposition if it comes, to remove the “S” from SIAC? Will it at all consider stepping on Indian soil if this thing with LCIA gets worse?

Notices have been also issued to Central Government, BCI and Bar Council of State of Delhi. Replies have to be submitted by July 25.

We shall keep the readers informed of any new developments that happen in this regard.

Enforceability of Investment Treaty Arbitration Awards in India

2011-05-27T22:46:00.002+05:30

The latest issue of the Asian Journal of Comparative Law (Vol. 6, Issue 1, 2011) contains an article critically reviewing the enforceability of investment treaty arbitration awards in India. The paper is titled "The Enigma of Enforceability of Investment Treaty Arbitration Awards in India" and is co-authored by Mr. Prabhash Ranjan, Assistant Professor at National University of Juridical Sciences, Kolkata (currently on leave to read for PhD at King's College, London) and Mr. Deepak Raju, my co-blogger on lexarbitri.

This paper first discusses relevant provisions of arbitration law in India and its interpretations by the Indian judiciary to understand the ramifications of Indian law for the enforcement of investment treaty arbitration awards against India. Further, the paper discusses proposed amendments to Indian arbitration law and its effect on investment treaty arbitration.

This issue of enforcement of investment treaty arbitration awards is of importance today due to India's large international investment treaty programme wherein each treaty provides for investor-state treaty arbitration to settle disputes between India and individual investors. There is also a growing observation that enforcement of foreign commercial awards has become increasingly difficult in India especially after the case of Venture Global v. Satyam Computers. For this reason, too, India is seeking to modify its arbitration law, so as to alter this perception. The above paper puts forth the proposition that in spite of proposed amendments, enforcement of investment treaty arbitration awards may nevertheless face several hurdles.

In conclusion, the paper suggests that India must address the issue of enforceability of investment treaty arbitration awards give its large investment treaty arbitration programme aimed at attracting foreign investment.