SEAL Quarterly Round-ups: Q3 2020

By: Christina D’souza, Parimal Kashyap, Ramachandran Balachandran, Shreya Shrivastava, Snehil Balani & Vidhi Krishnan

INTERNATIONAL DEVELOPMENTS 

1. ICSID Anulls an Award Based on Undisclosed Expert-Arbitrator Relationship (Eiser Infrastructure v Kingdom of Spain)

The ICSID annulment committee, invoking Article 52(1)(d) of the ICSID convention, annulled a 2017 award on the grounds that the tribunal was improperly constituted. This ruling came upon the discovery of an undisclosed relationship that had prevailed between the party appointed expert and arbitrator, which according to the committee had “material effect” on the award. The decision is believed to be a way forward in deconstructing the debatable role and independence of party-appointed experts in investor-state disputes. 

2. Shanghai No. 1 Intermediate People’s Court Reaffirms the Approval to Foreign Arbitral institutions in Mainland China (Daesung Industrial Gases Co Ltd v Praxair (China) Investment Co Ltd)

On September 3, the Intermediate People’s Court upheld the validity of an arbitration clause providing for a SIAC tribunal in Shanghai, making it a first for a PRC court to ex-facie recognise the operations of foreign arbitral institutions in the mainland. With this judgment, it is believed by many that the courts in China have officially recognised foreign arbitral institutions as “Arbitral Commision” prescribed under Art 20 of the PRC Arbitration Law. To know more on the standing of foreign arbitral institutions prior to this decision, click here.

3. English Court Upholds ‘Point of Law Appeal’ on the Basis of a Per Incuriam Award (Alegrow S.A. v. Yayla Agro S.A.)

The English High Court, in a rare decision, allowed an appeal brought forth under Section 69 of the Arbitration Act. Section 69 of the Act provides for an unique review mechanism, which enables the aggrieved party to seek an appeal in the courts on the basis merits of the dispute. While granting the leave of appeal in the present case, the court reaffirmed that the examination of the impugned award should be done in a “reasonable and commercial way”, with an inherent pro-arbitration bias. Taking into account the optional nature of Section 69, this judgment is perceived as a caveat for parties, which intend to arbitrate in the United Kingdom, to reconsider the arbitration clauses which might not provide for an explicit waiver of the Section 69 mechanism. 

4. PCA rules in favour of Vodafone in a Major Tax Dispute with India (Vodafone Group Plc v. Government of India)

The Permanent Court of Arbitration at the Hague, on deciding the claims arising out of a retrospective transaction tax imposed by the Indian government over Vodafone’s acquisition of India based Hutchison Essar telecoms business, has held the 2012 Tax amendment of the government to be in violation of “Fair and Equitable Treatment” under Art 4(2) of the Netherlands-India BIT. It is believed that this award could set a precedent for the ongoing arbitration between Cairn Energy and Government of India, which is yet again based on the problematic 2012 amendment. To know more on the history of this dispute, click here.@sne

5. Caster Semenya v. IAAF – Swiss Federal Supreme Court (SFC) Upholds the CAS award (Semenya v. I.A.A.F.)

In a much anticipated decision, the SFC by upholding the 2019 CAS award, has validated the controversial “testosterone rule” of the IAAF (also known as the DSD regulations). Under this regulation, a woman with a natural testosterone level of more than 5 nmol/l and XY chromosomes is held ineligible to participate in certain events, unless she consents to lower the hormone levels artificially. This decision has invited widespread criticism from the Human rights circle and it is also believed that the athlete might seek an appeal in the European Court of Human Rights. 

OTHER NOTABLE DEVELOPMENTS

1.  New LCIA Rules in Force from 1st October 2020

2.  ICC Publishes its Record Breaking Stats of the 2019 

3. Arbitration Foundation of South Africa (AFSA) Published its New Draft Rules

4. Meg Kinnear Re-elected as the Secretary General of ICSID for the 3rd Term

5. International Legal Finance Association (ILFA) – Synergy of 6 Major Third Party Funders Launched in Washington D.C. 

JUDICIAL DEVELOPMENTS IN INDIA

Supreme Court

1.  The Supreme Court (SC) Extends the Applicability of the Order of “Extension of Limitation” to Section 29A and Section 23(4) of the Arbitration Act (In Re Cognizance for Rxtension of Limitation)

The Supreme Court through a suo motu petition dated July 10, 2020, has extended the applicability of its earlier order dated March 23, 2020 to Section 29A and 23(4) of the 1996 Act. This clarification was made in light of the fact that the time stipulations provided under Sections 29A and 23(4) merely amounts to statutory obligations and not limitation periods.

2.  The Supreme Court upholds the validity of an arbitral award — holds “error in conclusion” not a ground for setting aside (B.B.M. Enterprises v. State of West Bengal)

The SC, disposing off an appeal to set-aside an arbitral award, held that an award cannot be set aside on the grounds that the arbitrator had arrived at a wrong conclusion or had failed to properly appreciate the facts and evidence, as these contentions fail to qualify as parameters under Section 34 . Further, relying upon the principle of party autonomy and Section 5, the Court reiterated that an award cannot be challenged unless the reasons given by the arbitrator are totally perverse or the award is wrong in law. 

3.     The Supreme Court Lays Down Detailed Test for Determining the Arbitrability of Fraud Allegations (Avitel Post Studioz v. HSBC PI Holdings)

The SC relying on its previous dictums, formulated a comprehensive test to adjudge the arbitrability of fraud allegations. Basing its rationale majorly on the judgments of  Ayyaswamy and Rashid Raza, it was held that the cases involving Serious allegations of fraud, 1) where the Court finds the arbitration agreement to be non-existent in light of fraud or 2) where allegations are made against the State or its instrumentalities, relating to arbitrary, fraudulent, or mala fide conduct, hence giving rise to in rem impact, will not be arbitrable. In simple terms the following equation can be used to deconstruct the arbitrability of fraud allegations in India: serious allegation + void agreement OR serious allegation + in rem impact = non-arbitrable.

 4.      Arbitrability of Disputes Arising From Specific Relief Act, 1963 — the Supreme Court Holds the Claims to be in personam (Deccan Paper Mills v. Regency Mahavir Properties) 

The Court, while ascertaining the arbitrability of relief seeking cancellation of instrument under Section 31 of the Specific Relief Act, 1963, affirmed that all actions which arise from SRA are arbitrable. To this extent, it read Section 4 of the 1996 Act in tandem with the in rem/ in personam test stipulated in the Booz Allen case. Also, the court through this dictum has widened the scope of its earlier judgment in Olympus Traders v. MV Khetan, which had limited the arbitrability under the Specific Relief Act only to the tune of specific performances. This decision has been welcomed by the arbitration community in India, as it has with much certainty, widened the scope of disputes which are arbitrable. It is also believed that this decision could potentially have an impact on arbitrability of property disputes, which still stands res integra.  

5.  SC Holds a Foreign Arbitral Award not contrary to the Public Policy of India (Government of India v. Vedanta Limited)

The Court, upholding the validity of the foreign arbitral award, entertained the question: “whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?”. It opined that the courts of Malaysia, being the “seat courts”, were justified in applying the Malaysian public policy. However, it also categorically stated that the same would not be an impediment, at the enforcement stage, to the application of Indian public policy as provided under Section 48. Through this judgment, the court has reiterated the segregation of Part I and Part II of the 1996 Act, while also affirming that it shall not be hesitant to avoid enforcement of an award, if the award contravenes the Indian public policy.

6.  Case of multiplicity of Arbitration Agreements? — The Supreme Court propagates the rule of “Harmonious Construction” (Balasore Alloys Ltd v. Medima LLC)

The Court, while hearing a Section 11 application, was faced with the question as to which arbitration clause will prevail in the event of existence of two agreements, referring a common dispute to two distinct tribunals. Answering the same, the court relied upon Olympus Traders v. MV Khetan, to hold that, in such cases both the clauses should either be reconciled or harmonized to arrive at a solution which shall be relevant to the instant facts of the dispute.

7. Accessing Writ Jurisdictions Against a Jurisdictional Award — The Court Holds “Patent Lack of Jurisdiction” to be a sine qua non (Punjab State Power Corporation v. EMTA Coal  Ltd)

The Supreme Court in a recent decision ruled that the writ jurisdiction under Articles 226 & 227 against an interlocutory award on jurisdiction can be invoked only if the aggrieved party proves that the tribunal acted in light of a “patent lack of inherent jurisdiction”. Further, to this effect, the Court went on to state that the leeway for invoking writ jurisdictions provided by the 2019 dictum of Deep Industries v. ONGC, should be invoked only in “extremely exceptional” situations.

High Court

1. The Delhi High Court Clarifies the Operability of Section 9(3) vis-a-vis Foreign Seated Arbitration (Ashwani Minda v. M/s U-Shin Ltd.)

The Delhi HC, while hearing an appeal on a Section 9(1) application, clarified that the operability of Section 9(3) is limited to the extent of arbitrations seated in India. It opined that, Section 9(3) being intertwined with section 17, a provision restricted to part I, shall limit the operability of Section 9(3) to domestic arbitration. However, the court, relying upon the legislative intent of the 2015 amendment, categorically stated that, regardless of an absence of specific reference to foreign seated arbitration in Section 9(3), it shall in any case (domestic as well as foreign seated arbitration), not entertain a Section 9(1) application, post the constitution of tribunal, unless the applicant proves the remedy extended by the tribunal to be inefficacious. 

2. The Delhi High Court Denies Jurisdiction Claimed through “Exclusive Jurisdiction Clause” (Aarka Sports Management Pvt. Ltd. v. Kalsi Buildcon Pvt. Ltd.)

On July 3, the Delhi HC held that it shall not assume jurisdiction over arbitrations, unless the test provided in the Indus Datawind decision is complied with. In this case, the petitioners had sought a Section 11 plea in the Delhi HC on the basis of an “exclusive jurisdiction clause” provided under the heading of “Governing law, Jurisdiction and Dispute Resolution” of the underlying agreement. The court opined that it did not have nexus to the arbitration in any manner as the agreement did not explicitly provide for a seat and was drawn at Ranchi, signed at Lucknow and executed in Patna. In light of this, reiterating the SC dictum (Indus Datawind), it concluded that, for it to ascertain jurisdiction either (i) the arbitration agreement must have specifically provided for Delhi as its seat or (ii) the cause of Action under Sections 16-20 of CPC read with Section 2(1)(e) of ACA, should’ve been in Delhi.

3. The Delhi High Court Holds “Exclusive Jurisdiction Clause” tied to arbitration to be an indicator of seat of arbitration in absence of an explicit designation (Hamdard Laboratories (India) v. Sterling Electro Enterprises)

The Delhi HC, in an interesting turn of events, while hearing a Section 11 application with the factual matrix similar to that of Aarka Sports (refer above), assumed jurisdiction over arbitration proceedings on the basis of an “exclusive jurisdiction clause”. The court reasoned out its contradictory approach on the ground that, in the current case the petitioners were able to establish a nexus between the court’s jurisdiction and the arbitration proceedings, while the same was not proved in Aarka Sports. Besides this, it also opined that an exclusive jurisdiction clause provided in an arbitration agreement shall amount to an implicit election of seat. The court though has provided for contradictory ends through the aforementioned cases, it has clarified the underlying confusion vis-a-vis the applicability of exclusive jurisdiction clauses in absence of explicit provision for seat. 

4. The Delhi High Court Confirms the Retrospective Application of the Amended Section 29A  (ONGC Petro Additions Limited v. Ferns Constructions Company INC)

The Delhi HC, by upholding the retrospective application of the amended section 29A, has finally settled the dust which had stemmed from the divergent dictums in  Shapoorji Pallonji and Co. v Jindal India Thermal Power Limited and MBL Infrastructures Ltd. v. Rites Ltd.. While clarifying the applicability of this provision to an international arbitration tribunal, the court relying upon the ratio of BCCI v Kochi Cricket, stated that, “Section 29A being a procedural obligation, does not confer new rights or liabilities on the parties”, and hence confirmed its retrospective applicability. Further, the court clarified its stance in MBL v. Rites by holding the same to be a per incuriam decision, as the same failed to consider the procedural nature of Section 29A. 

5. The Court cannot usurp the jurisdiction of the arbitral tribunal, even at a pre-arbitration stage — The Delhi HC lays down principles to invoke Section 9  (Avantha Holdings Limited v. Vistra ITCL India Limited)

On August 14, the Delhi HC, while passing orders under Section 9, observed that, for granting interim reliefs prior to the constitution of tribunal, it should satisfy itself that the (i) the applicant, before it, manifestly intends to initiate arbitral proceedings, (ii) the criteria for grant of interim injunction, stands fulfilled, and (iii) circumstances renders the requirement of ordering interim measures an emergent necessity, which cannot await a Section 17 relief. The court while laying down these principles, made it a point to reiterate that, while exercising jurisdiction under Section 9 of the 1996 Act, even at a pre-arbitration stage, it cannot usurp the jurisdiction of the arbitral tribunal. This observation, especially in light of the Supreme court’s dictum in EMTA Coal, has iterated the non-interventionist approach of the Indian judiciary. 

6. Even number of Arbitrators — Not a Ground for Invalidating an Arbitration Agreement (Jmc Projects (India) Limited vs South Delhi Municipal Corporation)

In a recent decision, the Delhi HC while relying on M.M.T.C. Limited v. Sterlite Industries (India) Limited, held that the validity of an Arbitration Agreement does not depend on the number of Arbitrators. The Court also held that an Arbitration Agreement specifying an even number of Arbitrators cannot be a ground to render the Agreement invalid under the 1996 Act. Thus, the Court can appoint a Sole Arbitrator where the Parties fail to provide an odd number of Arbitrators under Section 10(1). It is pertinent to note that a similar observation was upheld by the SC in the Quippo Constructions case. This judgment thus settles the proposition that the requirement provided in Section 10 to be merely discretionary and not obligatory on the parties. 

7. Civil Courts in India have the Power to Grant Anti-Arbitration Injunctions Against a Foreign Seated Arbitration — Calcutta High Court (Balasore Alloys Limited vs Medima LLC)  

On August 12, the Calcutta HC held that the civil courts in India do have the power to grant anti-arbitration injunctions against a foreign-seated arbitration, however, this power is to be used with abundant caution. In addition to this, the Court also held that in a case where more forums than one are available, the court will examine as to which is the appropriate forum having regard to the convenience of the parties and may grant anti-suit injunction in regard to proceedings which are found to be oppressive or vexatious or in a forum non-conveniens.

8. Signature Not a Prerequisite – The Delhi High Court Upholds the Validity of a Draft Arbitration Agreement (Chaitanya Construction Company v. Delhi Jal Board)

In the recent decision, the Delhi HC, while ascertaining the validity of an arbitration agreement held the “signature” requirement under Section 7(4)(a) to be one of optional nature. The facts of the case were such that the petitioner, at the instance of the respondent, had signed and dispatched the copies of the agreement to the respondent, subsequent to which, the respondent issued work orders in favour of the petitioners. In the due course of this transaction, the respondent failed to sign the agreement and further went on to claim the agreement to be invalid when the proceedings under the same were initiated. The Court, holding in favour of the petitioners, clarified that, for an arbitration agreement to be valid in India it a) must be in writing and b) such instrument should be substantiated with the consensus of the parties. 

EDITORS’ PICKS: FRESH LITERATURE 

Books

1. Crina Baltag & Ana Stanić, The Future of Investment Treaty Arbitration in the EU: Substance, Process and Policy (Wolters Kluwer 2020)
2. Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab, International Arbitration and the COVID-19 Revolution (Wolters Kluwer 2020) 

Full-Length Articles

1. Gracious Timothy Dunna, Keeping with the Times, Revisiting the UNCITRAL Model Law on International Commercial Arbitration (Vol. 11(3) Journal of Int’l Dispute Settlement, 2020)
2. Gracious Timothy Dunna,  Recognition and Enforcement of Foreign Interim Measures Under the Indian Arbitration and Conciliation Act 1996 (Vol. 22(3) Asian Dispute Review 2020)
3. Ilias Bantekas, Equal Treatment of Parties in International Commercial Arbitration (Vol. 69(3), Int’l & Comparative Law Quarterly 2020)
4. Lim Siyang Lucas, Rules of Procedure and the Blurred Lines of the 1958 New York Convention (Vol. 86(3), The Int’l Journal of Arbitration, Mediation and Dispute Management 2020)
5. Maria Laura Marcedddu & Pietro Ortolani, What Is Wrong with Investment Arbitration? Evidence from a Set of Behavioural Experiments (Vol. 31(2), European Journal of Int’l Law 2020)
6. Maxi Scherer, Remote Hearings in International Arbitration: An Analytical Framework (Vol. 37(4), Journal of International Arbitration 2020)
7. Richard Garnett, Anti-arbitration injunctions: walking the tightrope (Vol. 36(3), Arbitration International 2020)

Blogs

1. Augusto Garcia Sanjur, Born v. Born: The Battle of Scholarly Citations in the Canadian Supreme Court’s Uber v. Heller Decision (Kluwer Arbitration Blog)
2. Dilini Pathirana, Sovereign Rights to Natural Resources as a Basis for Denouncing International Adjudication of Investment Disputes: A Reflection on the Tanzanian Approach (AfronomicsLaw)
3. Marco Eliens, Document Production: Quality Over Quantity (Kluwer Arbitration Blog)
4. R. Harikrishnan, Enka Insaat: A Seat Centric Approach to International Arbitration & its Impact on Indian Arbitration Law (Parts I & II) (RMLNLU Arbitration Law Blog)
5. Seung-Woon, States’ Right to Interpret a Treaty and Whether It Should Be Binding in a Pending Case (Kluwer Arbitration Blog)
6. Tania Gupta, Intersectionality in Appointment of Arbitrators: The ‘Grey’ Approach to Highlighting Invisibilities in Feminism (RMLNLU Arbitration Law Blog)

EDITORS’ PICKS: VINTAGE LITERATURE

1. Fali Nariman, East Meets West: Tradition, Globalization and the Future of Arbitration (Vol. 20(1) Arbitration International 2004) doi: 10.1093/arbitration/20.2.123

Excerpt:

At an ICCA Conference in Seoul in 1996, Professor Whitmore Gray from the United States mentioned the case of a young Thai lawyer seeking enforcement of a foreign award in a court in Thailand, a state party to the New York Convention. Professor Gray was present during the hearing. The judge said to the lawyer that it was his legal duty to satisfy himself about the substantive fairness of the award. The lawyer decided, on his feet, that any attempt to ‘educate’ the judge at this time about the court’s limited role under the New York Convention would prejudice his client’s chances of enforcement, so he deliberately, albeit reluctantly, went through the process of proving the award’s substantive fairness, and fortunately for this client he succeeded. I had a similar experience many years ago in the Western Triton case (1988) when it was being argued in the Bombay High Court. I had to ‘persuade’ the judges that the award (in that case made in London) was not ‘perverse’. Such persuasion is not only unnecessary, it is contrary to the plain language and spirit of the Convention. And yet this is the on-the-ground reality in many countries around the world.