SEAL Quarterly Round Up Q3 2023

INTERNATIONAL DEVELOPMENTS

1. The Hong Kong court affirms the immunity of arbitrators from judicial obligations to provide evidence. (Song Lihua v Lee Chee Hong [2023] HKCFI 1954)

In this case, the Court of First Instance delved into the issue of arbitrators’ obligation to provide evidence during proceedings challenging their awards. Specifically, the case involved an application to set aside an order granting leave to enforce an arbitral award from the Chengdu Arbitration Commission in Hong Kong. Acknowledging the quasi-judicial role of arbitrators, the Court affirmed that arbitrators should enjoy a level of immunity akin to that afforded to judges in their decision-making capacity. This immunity, it was ruled, encompasses protection from being compelled to testify as witnesses concerning their quasi-judicial functions, except in cases involving fraud or bad faith.

2. English Court Maintains Authority to Grant Costs Following Dismissal of Arbitration Challenge (Viking Trading OU v Louis Dreyfus Suisse SA [2023] EWHC 2160 (Comm))

Viking appealed under the English Act, alleging errors in the arbitration award. Initially, the respondent didn’t seek costs but later pursued them, resulting in a £20,000 judgment in their favor. Viking contested the order, citing the court’s lack of jurisdiction after dismissing the appeal permission and the general rule disallowing cost recovery without explicit mention.The English Commercial Court clarified its discretionary power to award costs for defending a section 69 application under the English Act despite the initial absence of a cost claim. This precedent serves as a valuable reference for the appropriate approach to cost recovery in similar arbitration-related claims.

3. The UK Supreme Court provides its interpretation of the “stay” regulations outlined in section 9 of the Arbitration Act 1996. (Republic of Mozambique (“RoM”) v. Privinvest Shipbuilding SAL (Holding) & Ors [2023] UKSC 32)

In a recent judgement, the Supreme Court has unanimously determined that the claims presented by the Republic of Mozambique, including allegations of bribery, conspiracy, and dishonest assistance against the defendants, constitute ‘matters’ beyond the scope of the arbitration agreements outlined in various connected supply contracts. This decision falls under the purview of section 9 of the Arbitration Act 1996. As a result, the claims filed in the English court will not be subject to a stay and will proceed to trial. This case marks the first instance where the Supreme Court has deliberated upon the interpretation and application of the stay provisions specified in section 9 of the Act.

4. English Court Declines Arbitral Award Enforcement Due to Public Policy Concerns Tied to English Consumer Protection (Payward Inc., Payward Ventures, Inc., and Payward Limited v. Maxim Chechetkin [2023] EWHC 1780 (Comm))

In a recent ruling, the English Commercial Court declined to enforce an arbitral award from an arbitration seat in California, citing conflicts with UK public policy under section 103(3) of the Arbitration Act 1996. The refusal was based on concerns that enforcing the award would violate English consumer protection laws and financial regulations, both of which hold the status of UK public policy. This stands as a rare instance of the English courts rejecting the enforcement of a foreign award on public policy grounds. This case is poised to become a leading reference on the intersection between consumer protection measures and standard dispute resolution provisions, with potential significant implications for international business-to-consumer enterprises.

5. Insolvency and Arbitration: Australian Court Rulings on Recoverability of Arbitration Costs Orders Against Companies in Administration (Bumbak v Dalian Huarui Heavy Industry Group International Co Ltd, in the matter of Duro Felguera Australia Pty Limited (Subject to a Deed of Company Arrangement) [2023] FCA 765)

The Federal Court of Australia addressed an application from administrators of a voluntarily administered company, seeking clarification on handling claims for costs and interests arising from earlier arbitrations. In this context, the Court concluded that the decisive factor in evaluating whether claims for arbitration costs and interests awarded by the arbitral tribunals fell under ‘circumstances leading to claims that arose before the Appointment Date’, was whether there was “certainty” that an arbitration award would be made. The court’s findings provide significant guidance and clarification in this area of law.

1. The Supreme Court stated that arbitration awards cannot be set aside on mere possibility of an alternative view on facts or interpretation of the contract. (Konkan Railway Corporation Limited vs Chenab Bridge Project Undertaking)

The Supreme Court of India clarified that arbitration awards should not be set aside solely due to the possibility of alternative interpretations of facts or contractual clauses. The Court emphasized that the jurisdiction under Section 34 of the Arbitration and Conciliation Act is limited to cases where the arbitral tribunal’s decision is manifestly arbitrary or perverse. The Court stressed that the scope of interference in Section 37 appeals is restricted and should follow the same grounds as Section 34 challenges. It made it clear that this jurisdiction is not equivalent to normal appellate jurisdiction and should not involve reinterpreting contractual clauses. The Court stressed that the scope of interference in Section 37 appeals is restricted and should follow the same grounds as Section 34 challenges. It made it clear that this jurisdiction is not equivalent to normal appellate jurisdiction and should not involve reinterpreting contractual clauses.

SUPREME COURT

2. The Supreme Court restores the 1997 arbitral award passed under the 1940 Act and criticises HC & Trial Court for “appellate review”. (S.D. Shinde vs Govt. of Maharashtra & Ors.)

While restoring an arbitral award issued in 1997 that was overturned by the Trial Court and the High Court under the Indian Arbitration Act, 1940, the Supreme Court emphasised that the court’s jurisdiction under Section 30/33 of the 1940 Act never extended beyond determining whether the award discloses a “error apparent on the face of the award” or not. S.D. Shinde, the Contractor and Claimant, received a work order from the Government of Maharashtra. Disputes emerged between the parties, leading the claimant to seek the appointment of an arbitrator through a civil court, as specified in the contract. The arbitrator then issued an award in favor of the claimant. Upon reviewing the arbitral award, the court determined that the arbitrator’s decision was based on the evidence presented by both parties during the arbitration proceedings. Additionally, it was noted that the State did not challenge or question the contractor’s evidence and calculations during the arbitration process. The court also concluded that the interest rate set in the award was both reasonable and in accordance with the law.

3. The Supreme Court states that the dissenting opinion of an arbitrator cannot be treated as an award if the majority award is set aside. (Hindustan Construction Company Limited vs National Highways Authority of India)

The Supreme Court ruled that if the majority award is overturned, a dissenting opinion cannot be treated as an award. A three-member arbitration tribunal rendered an award in this case involving a dispute between Hindustan Construction Company Limited and the National Highways Authority of India. The award received unanimous agreement on many issues, but there was a difference of opinion among the arbitrators on some other matters. The Bombay High Court (Division Bench) invalidated the award, citing that the majority opinion of the tribunal and the resulting award were grounded in an unlikely interpretation of the contract. Upon appeal, a panel of Judges S. Ravindra Bhat and Aravind Kumar from the Supreme Court noted that awards, particularly those providing explanations and interpreting contract terms, should not be readily disturbed.

4. The Supreme Court explains scope of judicial interference in arbitral awards while stating that ‘Every arbitrator may not be legally trained, some decisions are based on equity’ (Batliboi Environmental Engineers Limited vs Hindustan Petroleum Corporation Ltd and Anr.)

While setting aside an arbitral award for violating Section 28(3) of the Arbitration and Conciliation Act, 1996, the Supreme Court bench of Justice Sanjiv Khanna and Justice M.M. Sundresh held that it must be considered that the Arbitrator is empowered to interpret the contract terms reasonably. The Court addressed the question of when it can intervene after the issuance of an arbitral award under Section 34 of the Arbitration Act. This section specifies the grounds for which a court can annul an arbitral award, including if it is “contrary to the public policy of India.” The judicial panel emphasized that an Arbitral Tribunal has the authority to determine the quality and quantity of evidence presented. An award cannot be invalidated solely due to its reliance on limited or minimal evidence. Not every arbitrator needs to possess legal training similar to that of a judge. Even if decisions are made based on principles of fairness and justice, rather than strict legal doctrine, such decisions cannot be overturned by claiming arbitrariness.

5. The Supreme Court stated that contractors claiming profit losses due to delayed execution must demonstrate that other works were lost as a result of the delay. (Batliboi Environmental Engineers Ltd vs Hindustan Petroleum Corporation Ltd & Anr.)

The Supreme Court Bench of Justice Sanjiv Khanna and Justice M.M. Sundresh ruled that in arbitral proceedings where the execution of a contract is delayed and the Contractor claims loss due to depletion of income, the Contractor must prove that there was alternative work available for him/her by placing on record invitations to tender, which were rejected by the Contractor due to incapacity to undertake other work. The Court reviewed the awarded damages and the rationale behind them for each category specified by the Arbitrator. The Court noted that when the employer’s breach is not a significant breach that allows the builder/contractor to stop work, or if it’s considered fundamental but not seen as a complete termination of the contract by the builder/contractor, the compensation or damages are calculated based on the loss of profit due to reduced profitability or additional expenses incurred during the ongoing work.

HIGH COURTS:

1. A plea that the Claimant’s claim cannot stand in the absence of a third entity can be raised before the Arbitral Tribunal (M/s Wave Geo-Services Pvt Ltd v M/s Devi Engineering and Construction Pvt Ltd)

The Delhi High Court has determined that the argument questioning the viability of the Claimant’s case due to the absence of a third party in the arbitration proceedings pertains to the acceptability of the claims intended to be brought before the Arbitral Tribunal. The court has affirmed that this particular argument can be presented before an Arbitration Tribunal that has been adequately established and that raising this issue does not prevent the Claimant from pursuing arbitration as outlined in the agreement made between the parties.

2. Non-consideration of a clause in a concession agreement is not an error that goes into the root of the award, and it cannot amount to patent illegality (NHAI v GVK Jaipur Expressway Pvt Ltd)

The Delhi High Court noted that the concession agreement is not a statute or a law safeguarding the country’s national interests. Therefore, the mere omission of the arbitral tribunal to address an argument related to it does not render the arbitral award in violation of India’s fundamental legal principles. So, the failure to consider Clause 18.4 of the Concession Agreement cannot be deemed an error by the arbitral tribunal that contradicts the fundamental principles of Indian law, nor can it be considered blatantly illegal.

3. An arbitral award suffering from illegalities can be partially set aside (NHAI v Trichy Thanjavur Expressway Ltd)

According to the Delhi High Court, as per the proviso placed in Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996, partial setting aside of an arbitral award as per the principle of severance would still be covered under the power of ‘setting aside.’ In the context of whether utilizing this authority would contradict the precedent established in NHAI v M Hakeem, wherein it was held that the power to set aside does not include the power to modify, the court observed that exercising the power to set aside an award partially would not amount to a modification or variation of the award when the parts of an award are found to be unsustainable and severable.

4. A Party’s right to choose an Arbitrator cannot be revived once it is surrendered to the court under Section 11(6) of the Arbitration Act (Srei Equipment Finance Ltd v Seirra Infraventure Pvt Ltd)

The Calcutta High Court has ruled that if a party waives its right to appoint an arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996, it cannot later attempt to reinstate this right to replace a new panel of arbitrators when the existing arbitrator becomes de jure/de facto unable to discharge their duties. The court said that party autonomy becomes less significant once the court appoints the arbitrator. The court stressed that Section 11(6) intends to offer a legal method of resolving deadlock scenarios in the appointment procedure. Therefore, allowing parties to revive their privilege of selecting an arbitrator after using this provision would undermine the purpose of implementing a court-assisted appointment mechanism.

5. Application for removal of arbitrator must be made before the same ‘Court’ as specified in Section 2 (1) (e) and Section 42 of the Arbitration Act (M/s Gammon Engineers and Contractors Pvt Ltd v The State of West Bengal)

When dismissing an application filed by the parties above, the Calcutta High Court determined that the High Court could not entertain a request to challenge the withdrawal or removal of an arbitrator because a previous Section 9 application had already been filed before the Jalpaiguri District Court. The High Court also emphasized that the definition of ‘court’ in Section 42 is undeniably aligned with Section 2(1)(e) of the Act. An application made under Section 9 must likewise be submitted to a ‘court’ as defined in Section 2(1)(e) of the Act. Once such an application to a ‘court’ in line with Section 2(1)(e) is initiated, all subsequent applications under Part I must also be directed to the same ‘court’ where the initial application was lodged. This requirement is explicitly outlined in Section 42 of the Act. Therefore, it is abundantly clear that the ‘court’ to be approached under Section 14(1)(a) for the termination of an arbitrator’s mandate or for de jure or de facto reasons is the ‘court’ defined under Section 2(1)(e).

6. An arbitration clause cannot be incorporated by reference without the clear intention of parties (Kobelco Construction Equipment India Pvt Ltd v Lara Mining & Anr)

In dismissing a petition for interim relief filed by the above parties, the Calcutta High Court ruled that the petitioner’s argument lacked support in the statutory framework because there was no unequivocal intention from the parties to include the arbitration clause from one agreement into another. The court stressed that incorporation by reference must be explicit and consistent with the contract’s terms, which was not the case in this specific scenario. The court also emphasized that a request for interim relief under Section 9(1) of the Act was accessible exclusively to a “party” bound by an arbitration agreement. Since there was no apparent arbitration agreement between the petitioner and respondent, the court could not identify a foundation for providing interim relief.

7. Compliance with section 21 of the Arbitration and Conciliation Act, 1996 is a binding obligation, and issuing an invocation notice is imperative before approaching the court to appoint arbitrator(s) (Amit Guglani & Anr v L & T Housing Finance Ltd & Anr)

When addressing the situation where no notice was given per Section 21 of the Act, the Delhi High Court emphasized that a careful examination of this provision reveals that sending an arbitration invocation notice is both required and essential. The provision is mandatory and does not exempt a party from adhering to it, even when the agreement allows for the unilateral appointment of an arbitrator. The court ruled that, for a communication to qualify as a valid notice under Section 21 of the Act, it must, at the very least, reference the arbitration clause in the agreement. As a result of these considerations, the High Court dismissed the petition. 

8. Within the limited scope of Section 11 of the A&C Act, the court can evaluate if claims are frivolous or lacking merit (22Light v OESPL Pvt Ltd)

The Bombay High Court dismissed an arbitration petition by observing that the claims raised by the petitioner were frivolous and meritless. The court ruled that even within the confines of the restricted judicial scrutiny allowed by Section 11 of the A&C Act, it would decline to designate an arbitrator if, after a prima facie review of the available evidence, it determines that the claims to be arbitrated are baseless and lacking in merit.

9. The security furnished by an award-debtor for stay of an arbitral award must be “clean, unblemished and with good exchange value” (Sarat Chatterjee and Co (VSP) Pvt Ltd v Sri Munisubrata Agri International Ltd (Formerly known as LMJ International Ltd) and Anr)

In the given case, the Calcutta High Court held that the security provided by an award-debtor should instill confidence in the court that the party against whom an award is made will honor the security and fulfill the award if their attempt to set it aside is unsuccessful. In simpler terms, the security should have substantial value and should not undermine the purpose of Section 36(3) in conjunction with the first proviso to the 1996 Act and Order XLI Rule 5 (3) and (5) of the CPC. In this case, the petitioner, the award-debtor Sarat, was presenting a form of security that did not meet the initial requirement for staying an award: a security with a clean track record and good future prospects.

10. Section 42 bars petitions in different courts, fraud or collusion allegations can only be examined by the first court (Liberty Footwear Company v Liberty Shoes Limited)

In the case above, the Delhi High Court decided that if a Section 9 petition is filed in a court other than the one where the original application was lodged, Section 42 of the A&C Act will act as a deterrent. This section confers exclusive authority to the initial court for matters related to arbitration. The initial court refers to the court where the arbitration application was originally initiated. Section 42 establishes that if someone has initiated an application with the Delhi High Court, any subsequent application filed by them before a court other than the Delhi High Court, such as the Calcutta court, would be barred by limitation.

EDITOR’S PICK  

JOURNAL ARTICLES

Emmanuel Gaillard, “Seven dirty tricks to disrupt an arbitration and the responses of international arbitration law” Arbitration International (Oxford University Press 2023, Volume 39, Issue 3).

Andrew Ling, “Neither express nor implied: rethinking governing law of the arbitration agreement” Arbitration International (Oxford University Press 2023, Volume 39, Issue 3).

Raphael Ren, “Shareholder reflective loss: a bogeyman in investment treaty arbitration?” Arbitration International (Oxford University Press 2023, Volume 39, Issue 3).

Gordon Blanke “Economic Sanctions and How to Deal with Them: The Arbitrator’s Perspective” Indian Journal of Arbitration Law (Centre for Advanced Research and Training in Arbitration Law, Volume 11, Issue 2).

Raúl Pereira de Souza Fleury, “Carbon Credits and Carbon Markets: Future Challenges for ISDS” Journal of International Arbitration (Wolters Kluwer, Volume 40, Issue 4).

Blogs

Yue-Zhen Li, “A Case For Diversity in the Seat of Arbitration” (The American Review of International Arbitration).

Yue-Zhen Li, “Metaverse’s First Arbitration Proceedings” (The American Review of International Arbitration).

Raghav Bhatia, “SC Expands Scope of Enquiry under Section 11 of the Arbitration Act”(IndiaCorpLaw).

Dhruv Kohli and Dharmvir Brahmbhatt, “Analyzing the Delhi HC ruling in Union of India v. Reliance Industries” (RMLNLU Arbitration Law Blog).

Payel Chatterjee, Shuchita Choudhry, Bharatt Goel, “Stuck in Time and Law: Arbitral Appointments and the Post-CORE Conundrum in India” (Kluwer Arbitration Blog).

Books

Fabian van den Ven, Insolvency in Commercial Arbitration: A German and International Perspective, Wolters Kluwer

Giovanna E. Gismondi, International Environmental Law and International Human Rights Law in Investment Treaty Arbitration: The Contribution of Host States’ Argumentation in Re-Shaping International Investment Law, Wolters Kluwer

Cavinder Bull SC, Loretta Malintoppi, Constantine Partasides KC, ICCA Congress Series No. 21 (Edinburgh 2022): Arbitration’s Age of Enlightenment?, Wolters Kluwer