Vindobona Junction - 45 pages and 6 months

-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

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 of the biggest mooting events in the world, and brings law students from diverse legal traditions together to argue over, whether their client was right in what they did. The moot, now in its 19th year has been growing from strength to strength, and I am led to believe that it is one of the few moots (if not the only one), recognized by the United Nations. Although the teams and stature of the moot have only increased, there is a stark silence when it comes to open forum’s where participants, arbitrators and coaches can give out advice and discuss the moot, in an open manner that befits the globalized Vis Community. I think that’s why Lexarbitri's efforts in starting this section of the blog, goes a long way in making the learning process for the moot more democratic and open.

Through the course of 8 odd months running up to the moot, I hope to blog about various aspects of the moot, that participants may often overlook, and attempt to simplify, those issues that are often complicated by teams. I however do not intended to delve into substantive issues into the problem, as I believe that no team, however strong or weak, requires spoon feeding. Instead I hope that this space allows me to best communicate the mountain of knowledge that I gained last year in doing the moot, and hope that in the process participants are eased into a process that they are sure to remember for their lifetime.

I hope to be very regular with my blogging, and intend to give out some advice before the problem actually comes out. I look forward to an active debate on the blog, and I am sure with the collective expertise of the past bloggers, this space can indeed become an indispensable aspect of preparation.

At this junction I would like to offer a caveat. The views contained in this blog, are my personal view points about how to moot and moot practices in general. I do not profess to be an expert at moot, or that my word is the final word. Instead, what I have to say, is just one perspective, in a sea of conflicting and complementary perspectives.

Happy Mooting Everybody !!!! 

CIArb's Survey on Costs now Available.

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

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

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.

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

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

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

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.

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.)