SEAL Quarterly Round-ups: Q1 2021

By: Archi Jain, Ayushi Singh, Christina D’souza, Gaurav Kumar and Sudhanshu Tiwari

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INTERNATIONAL DEVELOPMENTS

1. A failure to comply with an Escalation Clause is an issue of admissibility, and not of jurisdiction (Republic of Sierra Leone v SL Mining Ltd)

The English Commercial Court dismissed the jurisdictional challenge raised on the basis of non-compliance with the Escalation Clause which was given in the agreement. The Court noted that the basis of the challenge was an issue of admissibility, and not of jurisdiction. The Court further distinguished between an issue of admissibility and an issue of jurisdiction. The Court pointed out that the issue of jurisdiction relates to whether the forum in question is the correct one. In contrast, the issue of admissibility relates to whether the claim should be heard at all, or whether the claim has been brought prematurely or too late. 

2. The Hong Kong Court of First Instance reinforces its pro-arbitration position and gives prevalence to the principle of party autonomy (Lau Lan Ying v Top Hill Company and Anr)

The Hong Kong Court of First Instance held that where the arbitration clause states that “differences arising out of this Policy shall be determined by arbitration”, then the word “differences” confers the widest possible jurisdiction. Furthermore, in response to the contention raised by one of the parties that the claim should be excluded from arbitration due to public policy reasons, the Court noted that unless a high threshold is met, the claims cannot be excluded from arbitration. This threshold includes considerations of party autonomy and compliance with international treaty obligations (such as the duty to recognize and enforce an arbitration agreement under the New York Convention).

3.  After having signed the arbitration clause and consented to waiving off a statutory right, the plaintiff cannot contest the enforceability of the arbitration clause (Karina Janco v Bayridge Automotive Management Corp & Ors)

A US Court noted that the language of the agreement was unambiguous and it was clear that by signing the agreement, the employee gave up all rights to a jury trial. Furthermore, the agreement also provided a procedure for arbitration, which further clarified that there would be no jury trial but an arbitration process in case of any dispute. The enforceability of the arbitration agreement was contested on the basis of applicability of Doctrine of Unconscionability. In response to the same, the Court considered two aspects in evaluating whether a contract is unconscionable or not: (1) whether there is unfairness in the formation of the contract and; (2) whether the contract contains excessive disproportionate terms. The Court held that the doctrine of unconscionability was not applicable in the present case as the terms of the agreement were clear and the plaintiff consented to the same.

4.    US Court confirms an arbitral award despite the pendency of set aside proceedings in France and an anticipated preliminary ruling by the Court of Justice of the European Union (LLC SPC Stileks v Republic of Moldova)

In arriving at its decision, the Court looked into whether the “arbitration exception” under the Foreign Sovereign Immunities Act applied. The Court noted that the exception did apply, and there were sufficient facts in the form of copies of the arbitration agreement, the arbitration award and the Energy Charter Treaty produced by Stileks, to prove that the exception did apply. The Court rejected the assertion that stay should not be lifted while set aside proceedings continued in France. The fact that the set aside proceedings were going on since 2013 was the reason that led to the decision of lifting the stay.

OTHER NOTABLE DEVELOPMENTS

1. UNCTAD releases data on over 1,000 investor-state arbitration cases
2. Uzbekistan adopts Law on International Commercial Arbitration
3. The Australian Centre of International Commercial Arbitration unveiled revised Arbitration Rules due to enter into force in April 2021
4. New ICC Rules of Arbitration came into force from 1^st January, 2021.

JUDICIAL DEVELOPMENTS IN INDIA

Supreme Court

1. Overruling NV International, the Apex Court clarifies the limitation period governing appeals under Section 37 (Government of Maharashtra v M/s Borse Brothers Engineers & Contractors Pvt Ltd)

The SC set aside N.V. International v State of Assam, holding that for appeals filed under Section 37, a delay beyond 90 days, 30 days or 60 days under Articles 116 and 117 of the Limitation Act or section 13(1A) of the Commercial Courts Act, respectively, can be condoned. The Court however clarified that this should not be considered as a rule and should only be allowed in exceptional circumstances.

2. Discretion to allow judicial interference beyond the procedure established under the Arbitration Act should be exercised with prudence (Bhaven Construction v Executive Engineer, Sardar Sarovar Nigam Ltd and Anr)

“If the Courts are allowed to interfere with the arbitral process beyond the ambit of the enactment, then the efficiency of the process will be diminished” the Bench emphasized while overturning the decision of the High Court of Gujarat allowing a Letters Patent Appeal. The Court held that the power under Article 226/227 needs to be exercised as an exceptional rarity. The intent of non-obstante clause in Section 5 is to reduce excessive judicial interference which is not contemplated under the Arbitration Act.

3. Reference to Arbitration not maintainable if filed after satisfaction of Adjudicating Authority under Section 7 IBC petition (Indus Biotech Pvt Ltd v Kotak India Venture (Offshore) Fund)

The SC held that if a petition under Section 7 of IBC is yet to be admitted and, simultaneously, an application under Section 8 of the Arbitration Act is filed, the Adjudicating Authority shall first decide the application under Section 7 of the IBC. Any application under Section 8 made after admission of a petition under Section 7 by the Adjudicating Authority, will not be maintainable.

4.  Limitation Period for filing ‘Section 11’ application to be governed by Article 137 of the Limitation Act (Bharat Sanchar Nigam Ltd v Nortel Networks India Pvt Ltd)

The SC held that the period of limitation for filing an application under Section 11 shall be governed by Article 137 of the First Schedule of the Limitation Act, 1963 and will begin to run from the date when there is failure to appoint the arbitrator. The Court observed that the period of 3 years for filing an application under Section 11 is not in consonance with the legislative intent of the Arbitration Act, and that the Parliament should effect an amendment to Section 11, prescribing a specific period of limitation for moving to the court seeking appointment of arbitration. Further, the Court has the discretion to refuse to make reference, where the claims are ex facie time barred, and there is no subsisting dispute.

5.  Appeal under Section 37(1)(c) maintainable against an order declining to condone delay in filing an application under Section 34 (Chintels India Ltd v Bhayana Builders Pvt Ltd)

Distinguishing from BGS SGS Soma JV v NHPC Limited, the SC held that an appeal under section 37(1)(c) of the Arbitration Act, 1996 would be maintainable against an order refusing to condone delay in filing an application under section 34 of the Arbitration Act, 1996 to set aside an award.

High Courts

1.Jurisdiction can be supported by the fact of venue of meetings of committee constituted to amicably resolve dispute (Siddhast Intellectual Property Innovations Pvt Ltd v The Controller General Of Patents Designs Trademarks)

The Delhi High Court considered the question of jurisdiction in the absence of a clause specifying a seat of arbitration and held that what would be seen was the fact that the meetings of the committee constituted to amicably resolve the disputes, in terms of dispute resolution clause of the Contract, had taken place in Delhi. Thus, it was clear to the Court that in the present case, part of the dispute resolution clause has been performed in Delhi. In this light, the High Court of Delhi held that it would have the jurisdiction to entertain a petition for the appointment of an arbitrator.

2. Limitation period of three years for filing an application under Section 11 starts from the date of Order under Section 8 (Jones Lang Lasalle Building Operations Pvt Ltd v Techpark Maintenance Services Pvt Ltd)

The Delhi High Court held that in a case where the parties have been referred to arbitration under Section 8 referring the parties to proceed with arbitration, the period of limitation for filing an application under Section 11 would run from the date of the order referring parties to the arbitration instead of the date of the original legal notice invoking the arbitration clause.

3. In case the other party fails to choose an arbitrator, the residuary power to appoint an arbitrator out of a panel is hit by the Perkins judgment, rendering such a clause unenforceable (C S Electric Ltd v JOP Power)

The Delhi High Court held that a clause conferring residuary power to one party to appoint an arbitrator out of a panel is in teeth of the law laid down by the  Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd and TRF Limited v. Energo Engineering Projects Ltd read with Section 12(5) and Schedule VII to the Act and as such being contrary to the law laid down in Perkins, could not have been invoked, or enforced. Moreover, it was held that the time limit of 30 days provided in the clause was sacrosanct and the right of the petitioner to choose one name would be lost after 30 days.

4. Award of Interest in amount which is inclusive of interest and penal interest at the rate of 36% per annum is a case of patent illegality (R.O Palanisamy and Ors v Five Star Business Credits Ltd and Ors)

The Madras High Court held that an award where the future interest had been granted at the rate of 24% per annum on an amount including both interest and penal interest at 36% per annum is clearly in conflict with the public policy of India and it is in contravention of the fundamental policy of Indian law and is also a patent illegality. The Court held that such cases fall in the category of impugned awards shocking the conscience of the Court.

5. The question of Arbitrability is a jurisdiction issue, not subject matter of Section 32(2) of the Act (Medisprouts India Pvt Ltd v M/S Silver Maple Healthcare)

The Delhi High Court held that a challenge to the jurisdiction of an Arbitral Tribunal necessarily has to be decided by the Arbitral Tribunal itself in the first instance and the same is not a subject matter of Section 32(2)(c) of the Act. The Court further held that an order dismissing such an objection to the arbitrability of the dispute cannot be assailed by filing a petition under Section 14 of the Act as the recourse to this section is not available to challenge the decision of the Tribunal relating to the jurisdiction or arbitrability unless the issue is also related to the ineligibility of an arbitrator to act.

6. A specific ‘ouster clause’ or a clause granting ‘exclusive jurisdiction’ is necessary to oust the jurisdiction of Indian courts under Section 9 (Mewa Mishri Enterprises Pvt Ltd v AST Enterprises Inc)

The Delhi High Court has held that the mere fact of the seat of arbitration being outside India does not oust the jurisdiction of the Court to entertain an application under Section 9. To oust the jurisdiction of this Court, a specific ‘ouster clause’ or ‘exclusive jurisdiction clause’ is required. The Court opined that Section 9 grants wide powers to the Courts in granting an appropriate interim order based on the relevant facts of the case.

7. A clause making the arbitration agreement contingent on the discretion of any one party/authority violates the provisions of the Act (Technocrats Advisory Services Pvt Ltd v Ministry of Road Transport & Highways)

The Delhi High Court held that a clause which provides that the matter would not be referred to arbitration if it is not possible for a person appointed by the designated authority (IRC in the case) to act as an arbitrator is in violation of the provisions of the Act. The Court also held that such a clause would not control the operation of the arbitration agreement. It is because the parties having agreed, in unambiguous terms, to refer the disputes and differences to arbitration, cannot thereafter, include a term which makes the said agreement to arbitrate contingent at the discretion of any one party/authority.

8. Only an additional benefit of 15 days from the date of lifting of lockdown to be granted for Section 34 petitions where the limitation period has expired during the lockdown (New India Assurance Co Ltd v Rudraksh Laminates Pvt Ltd).

The Delhi High Court has held that the Order dated 23.03.2020 read with Order dated 06.05.2020 passed by the Supreme Court in In Re: Cognizance for Extension of Limitation extending the period of limitation, is to be taken to mean that the limitation for Section 34 petitions which has expired during the lockdown would only get an additional benefit of 15 days from 1.06.2020, which is the last date of lockdown in NCT of Delhi. It was further held that if the period of limitations expired after the lifting of lockdown on 1.06.2020, the aforementioned orders passed by the Supreme Court would not inure to the benefit of the petitioners.

9. For the award to be meaningful or even intelligible in legal terms, the broad premise on which the quantum is founded has to be discernible from the award itself (Hindustan Petroleum Corporations Ltd v Banu Constructions and Ors)

The Madras High Court has held that while it is not necessary for an arbitral award to justify every paisa or a rupee awarded to the claimant, the broad premise on which the quantum is founded has to be discernible from award itself for the award to be meaningful or even intelligible in legal terms. Finding the award in the case to be not acceptable and against the rudimentary tenets of the governing law established over the years, the Court held that the complete lack of reasons cannot be glossed over. Further, the Court held that the exercise undertaken to rewrite the arbitration award by ascribing reasons in support of the claims allowed and quantum awarded is not the business of the Arbitration Court and such an exercise could not have been undertaken in this jurisdiction or within the limited arena of operation permitted by Section 34 of the Act.

10. Jurisdictional objection under Section 16 has to be raised at inception with a sense of alacrity (Surendra Kumar Singhal & Ors v Arun Kumar Bhalotia & Ors)

The Delhi High Court held that a jurisdictional objection by its very nature would be one which has to be raised at the inception itself. The statute contemplates that the party raising the objection has to raise it with alacrity and hence, by an overall reading of Section 16 and especially Section 16(5) of the Act, the Tribunal also ought to decide the objection with a sense of urgency. The Court pointed out the reasoning that such dispensation would be favored especially in order to ensure that parties to whom the arbitral proceedings may not even be applicable are not entangled to long drawn arbitral proceedings with substantial costs being incurred.

11. An Emergency Arbitrator is an ‘Arbitrator’ for all intents and purposes of the Act (Amazon.com NV Investment Holdings LLC v Future Coupons Pvt Ltd & Ors)

The Delhi High Court allowed Amazon’s plea to enforce the emergency award against the Future-Reliance deal and held that an emergency award is enforceable under Section 17(2) of the Act. The Court rejected the contention of the Respondents that a legislative amendment was necessary to recognize ‘Emergency Arbitration’ and opined that the current legal framework for recognizing emergency arbitration under the Act is sufficient and no amendment is necessary in this regard. Further, the Court observed the status of the Emergency Arbitrator is based on party autonomy and held that the powers of the Emergency Arbitrator are the same as those of an Arbitral Tribunal to decide the interim measures. The order/award of the Emergency Arbitrator is binding on all the parties. However, they do not bind the subsequently constituted Arbitral Tribunal who can review or alter the award. It was also observed by the Court that the Emergency Arbitrator has the power to deal “only with emergency relief application” and has to decide such application within a fixed time frame of 15 days.

EDITORS PICK: FRESH LITERATURE

Books

1. Ferrari and Rosenfeld, Autonomous Versus Domestic Concepts under the New York Convention, (Wolters Kluwer 2021)
2. Dave, Hunter, Nariman, Paulsson,  Arbitration in India, (Wolters Kluwer 2021)

Full length Articles

1. Aryan Mohindroo & Harshil Manchanda, Mediating the Irish Way: Taking an Alternative Approach to Alternative Dispute Resolution in India (Vol. 87(1), The Int’l Journal of Arbitration, Mediation and Dispute Management 2021)
2. Edwin Teong Ying Keat, Calling a Spade a Spade: Making the Case for Construing Exclusion Agreements in Arbitration as Exclusion Clauses (Vol. 87(1),  The Int’l Journal of Arbitration, Mediation and Dispute Management 2021)
3. Jan Paulsson, Omnipotence Fantasies: The Kaplan Lecture 2020 (Vol. 23(1) Asian Dispute Review 2021)
4. Esmé Shirlow, E-Discovery in Investment Treaty Arbitration: Practice, Procedures, Challenges and Opportunities, (Vol. 11(4), Journal of International Dispute Settlement 2020)
5. Angshuman Hazarika & Kirti Bhardwaj, Investor-State Arbitration is Dead: Long Live Investor-State Arbitration in India, (Vol. XIX (2), Indian Journal of Arbitration Law 2020)
6. Mel Andrew Schwing, Don’t rage against the machine: why AI may be the cure for the ‘moral hazard’ of party appointments (Vol. 36(4), Arbitration International 2020)
7. Gerhard Wagner & Jan Philipp Koester, Originalism Meets International Arbitration: The US Supreme Court’s Interpretation of the New York Convention (Vol. 38 (2), Journal of International Arbitration 2021)
8. Sundaresh Menon, Arbitration’s Blade: International Arbitration and the Rule of Law (Vol. 38 (1), Journal of International Arbitration 2021)
9. Kseniia Soloveva, Customary Environmental Law in Investment Arbitrations: Can the Systemic Integration Principle Offer a Guidance? (Cambridge International Law Journal 2021)

Blogs

1. Jane Jenkins & Elizabeth Forster, Bid Challenges: What Role Can Arbitration Play in Tender Disputes?, (Kluwer Arbitration Blog)
2. Abhisar Vidyarthi, Applying Vidya Drolia’s “Four-Fold Arbitrability Test” to Antitrust Disputes in India, (Kluwer Arbitration Blog)
3. James Morrison & Erika Williams (Peter & Kim), Facebook (temporarily) Un-Friends Australia: Arbitration as a Tool in Online Media Regulation, (Kluwer Arbitration Blog)
4. Abhi Udai Singh Gautam, Future Retail v. Amazon – Legality of Emergency Arbitrators in India, (RMLNLU Arbitration Law Blog)
5. Tanya Antony, Mediation of Investment Treaty Disputes: New Steps Forward, (RMLNLU Arbitration Law Blog)
6. Dr. Max Oehm & Elias Klodt, New Inter-State-Arbitration Mechanism under the EU-UK Trade and Cooperation Agreement, (Global Arbitration News)

IN MEMORIAM: EMMANUEL GAILLARD

In April 2021, the arbitration community lost a gem, Prof. Emmanuel Gaillard, a renowned arbitrator, arbitration counsel and academic. From providing us a deep practical understanding of the law through his arguments as a counsel in some of the landmark arbitration cases to a holistic academic exposure to the law through his publications, Prof. Gaillard has left an indelible mark in our lives as arbitration law enthusiasts. We hope that his work and legacy continues to serve as a source of knowledge and inspiration for lawyers generation after generation. As a token of tribute we are listing some of his works below:

1. The emergence of transnational responses to corruption in international arbitration (Vol. 35(1), Arbitration International 2019)
2. Sociology of international arbitration (Vol. 31(1), Arbitration International 2015)
3. The Representations of International Arbitration (Vol. 1(2), Journal of International Dispute Settlement 2010)
4. Interim and Emergency Measures of Protection (Vol. 4(2), BCDR International Arbitration Review 2017)
5. A Black Year for ICSID (TDM 5 (2007), Transnational Dispute Management)
6. Transnational Law: A Legal System or a Method of Decision Making? (Vol. 17(1), Arbitration International 2001)