SEAL Quarterly Round-ups: Q4 2020

By: Archi Jain, Devansh Rathi, Parimal Kashyap, Parnika Mishra, Snehil Balani & Vidhi Krishnan

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INTERNATIONAL DEVELOPMENTS

1. Law ‘most closely related’ to an arbitration agreement should govern it in the absence of express or implied choice-of-law by the parties (Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb)

The UK Supreme Court (3:2) settled the question regarding the choice-of-law rules to be applicable on an arbitration agreement in the absence of an express or implied choice-of-law governing the arbitration agreement or the underlying contract and held that the law most closely connected to the arbitration agreement should be applicable on the arbitration agreement. It was also held that if the parties have agreed (express or implied) to the choice-of-law rules applicable on the underlying contract then the same law will ‘generally’ be applicable on the arbitration agreement as it will promote certainty and consistency.

2. Bankruptcy proceedings (especially avoidance claims) related to foreign insolvency legislation are arbitrable under English Law (Riverrock Securities Limited v International Bank of St Petersburg (Joint Stock Company)

The English High Court granted an interim anti-suit injunction against International Bank of St. Petersburg to prevent the continuation of proceedings which were being held in St. Petersburg, Russia. The Court held that the substance of the claims in the bankruptcy proceedings (especially avoidance claims) was contractual in nature, thus, fell within the scope of the arbitration agreement which was entered between the parties. LCIA arbitration agreements were given a liberal approach and mentioned as “expansive terms” to pronounce the pro-arbitration decision.

3. In a common law action to enforce an arbitral award, remedies granted by the court can be of greater extent than that of the arbitral award (Xiamen Xinjingdi Group Co Ltd v Eton Properties Limited & Ors)

In the recent case concerning enforcement of award+, the Hong Kong Court of Final Appeal (CFA) pointed out that “the action to enforce an award is an independent cause of action” and thus, it is separate from the arbitration award and the Court can grant remedies which are greater in extent and wider than that of the arbitral award.

4. The UK Supreme Court provides clarity on the two basic duties of Arbitrators i.e. the duty of impartiality and the disclosure duty (Halliburton Company v Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd)

The Court mentioned that in dealing with an allegation of impartiality on the part of the Arbitrator, the test applied under English law is whether a fair-minded and informed observer having considered the facts, would conclude that there is a real possibility that the tribunal was biased. The observer should neither be complacent nor unduly sensitive or suspicious. The Court also emphasized that the Disclosure duty is a legal duty under English law and specified under Section 33 of the Arbitration Act and the failure to make disclosure in circumstances which might reasonably give rise to justifiable doubts as to his or her impartiality can, in and of itself, amount to apparent bias.

5. The Dubai International Financial Centre (DIFC) Court granted the first ever anti-suit injunction with respect to ‘onshore’ Dubai court proceedings (Multiplex Constructions LLC v Elemec Electromechanical Contracting LLC)

While deciding the case, the DIFC Court referred to the case of Brookfield Multiplex Construction LLC v DIFC Investments in which Justice Sir Jeremy Cooke held that “if the seat of the Arbitration is DIFC however, the position is different, because the primary responsibility for the enforcement of the arbitration agreement would lie on the courts of the seat, if relief was sought. This court would then be concerned, first to protect its own exclusive jurisdiction under the Judicial authority law and, secondly, as the court of the seat, to protect the agreement of the parties to refer their disputes to the determination of Arbitrators, if there was some infringement of the parties right to arbitrate their dispute”.

6. Swiss Federal Supreme Court (‘SFSC’) clarifies its stance on revision of an arbitral award (A v B)

SFSC rejected the revision of an arbitral award and mentioned that “only facts and evidence that could not be discovered in arbitral proceedings are entitled to a revision of an arbitral award”. The Court also clarified that “if a new fact is discovered after the arbitral award is made, it must be material to the outcome to entitle the arbitral award for revision”. This clarity was much needed as the Swiss Private International Law Act does not expressly mention the revision of an arbitral award and the SFSC infers it from Article 123 of the Federal Supreme Court Act.

7. Austrian Supreme Court assured the validity of Arbitral Tribunal’s ruling to conduct virtual hearing in spite of disapproval by one party (Case No. 18 ONc 3/20s)

The Austrian Supreme Court (Oberster Gerichtshof) ruled that the ruling by the arbitral tribunal would not violate due process as the arbitral tribunal has a broad discretion as to the organization and conduct of the proceedings. The Court further justified its ruling by mentioning that virtual hearing did not violate the fundamental principle of fair treatment to both the parties and the right to be heard. In relation to another allegation by the respondents, the court also highlighted that non-verbal expressions, ‘eye rolling’ in this case, by an arbitrator during the proceedings cannot be interpreted as a bias against a party and does not suffice to challenge the arbitrator.

8. Swiss Federal Supreme Court (SFSC) restricts the extension of an arbitration agreement to a non-signatory party (AA Co Ltd v C Pte Ltd)

The SFSC reasoned for the ruling that there was a lack of (implicit) consent on the part of the third party to extend the arbitration clause and make it applicable on it and also, the present case does not qualify as an exception to the general rule of non-applicability of arbitration agreement on non-signatories under Swiss law. This decision by the SFSC implies that the extension of arbitration agreement to non-signatories may not be seen as a general rule and can be applied only in certain exceptional circumstances.

OTHER NOTABLE DEVELOPMENTS

1. New ICC Rules of Arbitration in force from January 1, 2021.
2. Japan International Dispute Resolution Centre (JIDRC) launched its 2^nd hearing facility in Tokyo.
3. Sierra Leone became the 166th state party to The New York Convention.
4. Tan Sri Suriyadi Halim Omar appointed as the Director of Asian International Arbitration Centre (AIAC) based in Kuala Lumpur, Malaysia.
5. Mainland China and Hong Kong Special Administrative Region entered a Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards.
6. International Arbitration (Amendment) Act passed by the Singapore Government.
7. Brazilian Recovery and Bankruptcy Act amended in view of the COVID-19 pandemic situation and the alteration mentions that Bankruptcy or Judicial reorganization of a party does not suspend arbitration. To read more on this, click here.

JUDICIAL DEVELOPMENTS IN INDIA

Supreme Court

1. Proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 against a foreign award are not maintainable (Noy Vallesina Engineering SPA v. Jindal Drugs Limited and Ors.)

In this recent decision, the Supreme Court reiterated that a foreign award cannot be interfered with, even if the agreement entered into by the parties was prior to the BALCO decision. The Supreme Court set aside a Bombay High Court order and held that proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 against a foreign award were not maintainable. The court held that the intention of the parties to choose London as the seat of the arbitration will make Part I of the Act inapplicable.

2. Arbitrability of the dispute, existence and validity of an arbitration agreement can be examined in proceedings under Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996 (Vidya Drolia and Ors. v. Durga Trading Corporation )

The Supreme Court observed that the expression “existence of an arbitration agreement in Section 11 includes validity and arbitrability. The Court overruled the ratio in Himangini Enterprises v Kamaljeet Singh Ahluwalia and held that landlord-tenant disputes governed by the Transfer of Property Act, 1882 are arbitrable. The Supreme Court further concurred with the Avitel v. HSBC judgment and held that allegations of fraud when they relate to a civil dispute can be arbitrable. However, fraud which would vitiate and invalidate the arbitration clause cannot be arbitrated. Further, disputes adjudicated by the Debt Recovery Tribunal were also held to be non-arbitrable in nature. In relation to Section 8, the court observed that the negative language of the Section mandates that the party opposing arbitration has to establish a prima facie case of non-existence.

3. Lease/Tenancy matters governed under the Transfer of Property Act, 1882 are arbitrable (Suresh Shah v. Hipad Technology India Pvt. Ltd.)

The Supreme Court held that if special statutes do not apply to the lease/tenancy created and if the parties are governed by an arbitration clause; the dispute between the parties shall be arbitrable. The Bench also held that eviction or tenancy relating to matters governed by special statutes, where the tenant enjoys statutory protection against eviction whereunder the Court/Forum is specified and conferred jurisdiction under the statute alone can adjudicate such matters and in such cases the dispute is non-arbitrable.

4. The Supreme Court set aside the decision by the division bench of the Delhi High Court, calling it ‘flawed’ and restored the majority award (Anglo American Metallurgic Coal v. MMTC)

The Supreme Court found certain fact-based findings of the division bench flawed. The “patent ambiguity” principle contained in Section 94 of the Evidence Act was found to be non-applicable to the facts of the present case. The Court thus observed that when there are a number of documents exchanged between the parties in the performance of a contract, all of them must be read as a connected whole, relating each particular document to the “existing facts”, which include how particular words are used in a particular sense, given the entirety of correspondence between the parties.

5. Appellants cannot take a plea that is contrary to their stand taken before Arbitrator, in challenge to an award (Arun Kumar Kamal Kumar & Ors. v. Selected Marble Home & Ors.)

The Supreme Court observed that the appellants cannot be permitted to withdraw their own statement made before the Arbitrator, which is predicated to on a mode of calculation, the same not being disputed by the Respondent and agreed to by the Arbitrator. The SC further observed that the appellant cannot make a plea contrary to what was mentioned in their defence and statement of counterclaim.

High Court

1. Arbitration and Conciliation Act does not prohibit parties from obtaining emergency relief from an Emergency Arbitrator (Future Retail v. Amazon)

The Delhi High Court held that the appointment of Emergency Arbitrator was well within the scope of Section 2(1)(d) of the Arbitration and Conciliation Act. Relying on the judgement of Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius) Limited and Ors, the Court stated that the fact that the Parliament did not accept the recommendations of the 246th Law Commission’s report to include ‘Emergency Arbitrator’ as part of Arbitral Tribunal in section 2(1)(d) has no bearing whatsoever on the interpretation of the provision in the Arbitration and Conciliation Act. The court further held that SIAC Rules were expressly chosen by the parties as the law governing the arbitration agreement which provide an option for the aggrieved party to move to emergency Arbitrator for interim relief, and this is also recognized under Section 9 of the Arbitration Act. Therefore, the appointment of emergency Arbitrator in this case was held valid.

2. Judicial Intervention where the Arbitrator has proceeded with adequate examination and appreciation of the facts, would violate the ethos of Arbitration and Conciliation Act (Dinesh Gupta and Ors. v. Anand Gupta and Ors.)

The Delhi High Court emphasized on the principle of minimum judicial interference in the interlocutory order passed by the Arbitrator, under Section 17, where he has proceeded by adequate examination and appreciation of the facts, and the rival stands of the parties because such interference would violate the ethos of the Act and go against the avowed objectives of the legislation. The Court held that any attempt by the Court, to vivisect, microscopically, the order of the Arbitrator in order to find flaws, would be entirely inappropriate.

3. Delhi High Court laid down the criteria which are required to be satisfied, before interim protection can be granted under Section 9 (CRSC Research And Design Institute Group Co. Ltd. v. Dedicated Freight Corridor Corporation Of India Limited & Ors.)

Relying on the Judgement of Avantha Holdings Ltd. v. Vistra ITCL India Ltd. the Court laid down the following conditions to be fulfilled to grant protection under section 9:

• Existence of an arbitration clause and manifest intent of petitioner, to invoke the said clause, and initiate arbitral proceedings,
• the existence of a prima facie case, balance of convenience and irreparable loss, justifying such grant of interim relief to the applicant, and
• The existence of emergent necessity.

4. Mere allegations of siphoning off does not amount to fraud leading to invalidity of Arbitration agreement (Sai Guru Mega Solar Park Pvt. Ltd. v. Union of India)

The Bombay High Court relied on decisions in Rashid Raza and Avitel Post Studioz Ltd. and held that mere allegation of siphoning off does not reach the question of invalidity on the ground of fraud of the underlying the arbitration clause so as to render it a nullity since the matter was entirely civil in nature and had no criminal repercussions.

5. Arbitration agreement being a creation of contract, is destroyed by the novation of contract (Sanjiv Prakash vs Seema Kukreja & Ors.)

The Delhi High Court held that when a contract is superseded by another contract, the arbitration clause contained in the former contract, being a part of that contract, perishes as soon as that contract is replaced by another one. Therefore, the arbitration agreement also falls with such novation and it cannot be invoked.

6. Delhi High Court held that it has the power to modify the directions issued by Arbitral Tribunal under Section 37 (Edelweiss Asset Reconstruction v. GTL Infrastructure Limited)

Relying on the judgement of Tirupati Balaji Developers (P) Ltd. v. State of Bihar the Court held, that under Section 37, the High Court is conferred with appellate powers against the decision of the Arbitral Tribunal. Therefore, it be concluded that such appellate power under Section 37(2) also includes the power to modify the decision of the Arbitral Tribunal.

7. The stay of the money decree as per CPC, provided by the court while dealing with Award under section 36 of Arbitration and Conciliation Act, is not valid (M/S NHPC Ltd. vs M/S Hindustan Construction)

The Court opined that Code of Civil Procedure, 1908 and the Arbitration and Conciliation Act, 1996 contain certain provisions which can be equated on certain basic principles, but which are vastly different, since the Act is substantive and procedural on the subject of arbitration and the scope of interference under Section 34 thereof is a lot narrower. Secondly, the language of Section 36(3), lays down a guiding principle as to follow the precepts governing the stay of a money decree that the Court ought to pay due regard to it. In any event, Section 36(3) of the Act only deals with the power of the Court to grant a stay on an award directing money payment and does not deal with the parameters for releasing the deposited amount.  It held that the power of the Court to release the amounts obtained as a precondition for such a stay still retains a discretionary characteristic which can be exercised by the Court in a judicious manner according to the facts and circumstances of the case.

8. Award holding introduction of the GST regime as being a Force Majeure event, upheld by Delhi High Court (National Highways Authority Of India v. Sahakar Global Limited)

The Delhi Court applied the principle of limited interference in matters of Arbitration and upheld that the finding by the Arbitrator in holding the introduction of the GST regime as being an ‘actionable change in law’ and thus qualifying as a force majeure event is valid.

9. The mandate of an Arbitrator cannot be terminated on the ground that he has recused himself in another arbitration between the same parties (Himachal Pradesh Power v. Hindustan Construction Company)

The Court held that since this case does not fall in any of the 19 categories mentioned in the VII Schedule of the Arbitration and Conciliation Act, the Arbitrator’s eligibility is not barred as per section 12(5) of the Act.

Legislative development

The Government of India passed the Arbitration and Conciliation (Amendment) Ordinance 2020 on 4^th November, 2020 whereby the enforcement court is now mandated to grant an unconditional stay on the enforcement of an award, if a prima facie case exists that the award is tainted by fraud or corruption. The Ordinance also omitted the Eighth Schedule to the Act which dealt with the qualifications of an arbitrator. Commentary on the ordinance can be found here and here.

EDITORS’ PICK: FRESH LITERATURE

Books

1. Gary B. Born, International Commercial Arbitration (3^rd edn., Wolters Kluwer 2020)
2. Simon Klopschinski, Christopher Gibson, and Henning Grosse Ruse-Khan, The Protection of Intellectual Property Rights Under International Investment Law (Oxford University Press 2020)
3. Alan M. Anderson & Ben Beaumont, The Investor-State Dispute Settlement System: Reform, Replace or Status Quo? (Wolters Kluwer 2020)

Full length Articles

1. Clemens Treichl, The Singapore Convention: Towards a Universal standard for the Recognition and Enforcement of International Settlement Agreements, (Vol 11(3), Journal of International Dispute Settlement 2020)
2. Anirudh Hairani, Indian Arbitration and Shifting Sands of Public Policy, (Vol 16(2), Asian International Arbitration Journal 2020)
3. Brenden Casey, Lea Defranchi, Josephine Kaiding & Hamish Lal, Multi-Tiered Dispute Resolution Clauses in International Arbitration – The Need for Coherence, (Vol 38(4), ASA Bulletin 2020)
4. Gary Born & Dharshini Prasad, Joinder and Consolidation, (Vol 5(1), BCDR International Arbitration Review 2020)
5. Darius Chan & Claire Neoh, To Boycott Proceedings or Not? Recourse Against Arbitral Awards on Jurisdictional Grounds by Different Categories of Respondents under the Model Law, (Vol 36(4), Arbitration International 2020)
6. Carlos Molina Esteban, Hybrid (institutional) arbitration clauses: party autonomy gone wild, (Vol 36(4), Arbitration International 2020)
7. Ritunjay Gupta, Res Judicata in International Arbitration: Choice of Law, Competence & Jurisdictional Court Decisions, Vol 16(2), Asian International Arbitration Journal 2020)

Blogs

1. Shivani Singhal, Ramifications of two Indian Parties Choosing a Foreign Seat of Arbitration (Kluwer Arbitration Blog)
2. Smitha Menon, Charles Tian, Joinder and Consolidation Provisions under 2021 ICC Arbitration Rules: Enhancing Efficiency and Flexibility for Resolving Complex Disputes (Kluwer Arbitration Blog)
3. Ansh Desai and Hetashri Khajanchi, Public-Private Arbitrations in India: Are Democratic Norms Protected? (RMLNLU Arbitration Law Blog)
4. Saniya Mirani, Due Process Concerns in Virtual Witness Testimonies: An Indian Perspective (Young ICCA Blog)
5. Galo M. Marquez Ruiz, Uber v. Heller: Can Third-Party Funding Limit Unconscionable Arbitration Agreements? (Kluwer Arbitration Blog)
6. Colin Cherian, Cryptocurrency and Arbitration: Exploring the Frontiers of Arbitrability in India (RMLNLU Arbitration Law Blog)
7. Aarohi Chaudhari, Systemic Integration: Resolving the Dichotomy of Competing Obligations in International Investment Law (The American Review of International Arbitration Blog)

EDITORS’ PICKS: VINTAGE LITERATURE

K.D. Kerameus, Waiver of Setting-Aside Procedures in International Arbitration (Vol. 41(1), The American Journal of Comparative Law 1993) doi: 10.2307/840507

Excerpt:

In reality, the very existence of setting-aside remedies is suffi- cient evidence that, despite all declarations about the equivalence of arbitration to adjudication, the former still lags behind insofar as reviewability is concerned. The reason for this unequal treatment and for the partial subjugation of the one to the other seems to me to derive from the fact that arbitration, dogmatically rather than historically, has not independently fought its way to an autonomous status but rather was to a varying degree tolerated by the state and tentatively incorporated into a somehow cohesive system of the overall administration of justice. Any hesitantly and gradually granted autonomy tends to be supervised autonomy. By providing for setting-aside procedures, legislators try to reserve to the judges, for the benefit of the defeated party, the final word on the validity and enforceability of arbitration.