SEAL Quarterly Round Up Q1 & Q2 2022

By: Avantika Singh, Ayush Kumar, Ishika Chauhan, Mansi Pandey, Priyanshi Bhageria, Snehil Balani, and Yash Bhatnagar

INTERNATIONAL DEVELOPMENTS

1. In a first instance, Hong-kong court refused to tighten the test and stayed a winding-up petition in favor of arbitration (https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=140345&QS=%2B&TP=JU)

The Hong Kong Court of First Instance stayed a winding-up petition in favor of arbitration on just and equitable grounds and refused to subject the applicant to the more onerous test that is applied to a case management stay. The court refused to apply the general principles of case management and held that The parties are not bound by any arbitration agreement, and the court is asked to stay the action in favor of another forum to which the parties never agreed. A stay should be granted only in cases where there are good reasons and compelling circumstances.

The court then decided that the substance of the disputes in the Petition were covered by the arbitration clause in the Agreements. This case upholds the arbitrability of winding-up proceedings as well as the pro-arbitration stance. It also serves as a timely reminder that matters other than the black letter of the contract do not always fall outside of the arbitration clause.

2. Singapore High Court upheld a pathological arbitration clause that selected a non-existent arbitration institution for the settlement of disputes. (Re Shanghai Xinan Screenwall Building & Decoration Co, Ltd)

In the present case, the arbitration agreement selected the “China International Arbitration Center” (a non-existent arbitral institution) for the settlement of disputes between the parties. Relying on the parties’ intention to settle disputes through arbitration, the court interpreted the non-existent arbitral institution to be the “China International Economic and Trade Arbitration Commission” (CIETAC). The court observed that “inaccuracy in the name used in the arbitration agreements does not nullify the parties consent to arbitration or their choice of CIETAC.”

3. Russian Supreme Court Says International San Ctions Are Sufficient To Ignore Dispute Resolution Clause (case No. А60-36897/2020)The Supreme Court ruled stating unequivocally that if international sanctions were imposed on an entity, the Russian courts would have jurisdiction over the disputes. to which the entity is a party. This will be the case regardless of any dispute resolution provisions offered to another forum. The sanctioned entity is not required to provide any evidence that the agreed dispute settlement provision is unenforceable due to the “barriers to justice” caused by the sanctions. . The fact that sanctions have been imposed is deemed sufficient to create obstacles to a sanctioned entity’s access to justice: therefore, the sanctioned entity may simply submit an adjudication. jurisdiction of the Russian courts.

4. Arbitral Tribunal Is “The Master Of Its Own Procedural Rules” And Compliance With Pre-Arbitration Conditions Should Not Be Reviewed By The Courts (T v B [2021] HKCFI 3645)

The High Court of Hong Kong remarked that “if the Court is the master of its own procedural rules, so should be the arbitral tribunal“. In doing so, the Court reaffirmed the principle that the satisfaction of the prerequisites for arbitration is a matter of admissibility, not jurisdiction, and that the arbitral tribunal’s decision to admit is not subject to arbitration. is a matter for the Hong Kong courts. The Court’s decision applies the principle set forth in the landmark decision of C v D [2021] HKCFI 147

5. English Court Of Appeal Says Law Governing Arbitration Agreement Determines If Non-Parties Are Bound By It (Lifestyle Equities CV and another v Hornby Street (MCR) Ltd and others [2022] EWCA Civ 51)

The English Court of Appeal considered which law should determine whether a non-party is bound by an arbitration agreement in the context of an appeal of a stay application. The Court upheld the stay of proceedings, concluding that the appellants were bound by the arbitration agreement as successors in title to the trademarks after applying Californian law, which was the arbitration agreement governing law. The decision demonstrates that a stay can be issued under Section 9 of the Arbitration Act of 1996 against non-parties to an arbitration agreement if they are bound by it. A trademark assignment is an example of a situation in which a third party can be bound by an arbitration agreement without their express consent.

6. English High Court Rejects Full And Frank Disclosure Challenge To Ex Parte Arbitration Order (General Dynamics V Libya (https://www.lexisnexis.com/uk/lexispsl/arbitration/document/412012/6337-8JB3-CGXG-03R9-00000-00/Supreme-Court-decides-process-for-service-on-a-state-%28General-Dynamics-v-Libya%29)-

In General Dynamics United Kingdom Ltd v State of Libya [2022] EWHC 501 (Comm) the Commercial Court, Mr. Justice Butcher refused to set aside an arbitration enforcement order against the State of Libya, which was challenged on the grounds that the applicant had failed to disclose all materially relevant facts in support of its ex parte application, including, in particular, that under Section 1(1) of the State Immunity Act 1978 (SIA 1978), a state is immune from the jurisdiction of the UK courts except as provided in the following provisions. The nature and effect of the non-disclosures, the court determined, did not justify setting aside the underlying order in circumstances where non-disclosure did not benefit the applicant or prejudice the opposing party.

7. England and Wales High Court upheld the right of a non-participating party to challenge the jurisdiction of the arbitral tribunal under section 72(1) of the 1996 act even after the appointment of the arbitration under section 18 of the 1996 act. (National Investment Bank Ltd. v Eland International (Thailand) Co. Ltd. [2022] EWHC 1168 (Comm.))

Parties’ dispute resolution clause provided that “disputes may be referred to an arbitrator” and the same led to parallel proceedings being held between parties w.r.t. the same matter. Initially, Eland commenced court proceedings in Accra, Ghana. After the preliminary stages of the court proceedings, Eland sought to stay on court proceedings in order to commence arbitration proceedings. Even after the grant of stay application in favor of the arbitration proceedings and appointment of the arbitrator under section 18 of the 1996 act, NIB did not participate in the arbitral proceedings and challenged the same under section 72(1) of the 1996 act on the ground that the sole arbitrator does not have jurisdiction.

Section 18 provides that “an appointment under this section has effect as if made with the agreement of the parties”. This created conflict with the challenge of jurisdiction to be made under section 72(1). The EWHC upheld NIB’s right to challenge jurisdiction under section 72(1) even after the appointment of a sole arbitrator under section 18.

8. U.S. Supreme Court determines the scope of discovery as provided under section 1782 of the United States Code (F Automotive US, Inc. v. Luxshare, Ltd.)

Section 1782 of the United States Code provides for discovery and reads “assistance to foreign and international tribunals and to litigants before such tribunals”. The scope of the word ‘foreign or international institutions’ was considered in this judgment. The court combined two cases together, both of which posed the same issue regarding the scope of section 1782.

The court observed that “only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under §1782. Such bodies are those that exercise the governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.”

9. Hong Kong Court Favoured Arbitration Over Labour Tribunal In Employee Bonus Dispute (MAK v LA [2022] HKCFI 285)

In a recent decision of the Hong Kong Court of First Instance, the Court was presented with a dispute arising from a bonus letter that was silent on the dispute resolution mechanism, as well as conflicting dispute resolution clauses in related contractual instruments, including the employment contract. The Court eventually decided that the arbitration agreement applied to the bonus letter. When employment terms are contained in multiple agreements, the case serves as a timely reminder of the importance of express, clear, and consistent dispute resolution provisions. The Court also clarified the relationship between the Labour Tribunal’s and the arbitral tribunal’s jurisdiction. The decision serves as a helpful reminder that employers should include explicit and consistent dispute resolution provisions in employment terms, especially when those terms are spread across multiple documents. Arbitration should be complied with if it is agreed to be the dispute resolution forum for certain employment-related disputes.

10. Negotiations No Longer Possible, Arbitration It Is.

In a February judgment in Maisonneuve et al. v Clark et al., 2022 ONCA 113 (CanLII), the rulings of the first instance court were upheld by the Court of Appeal for Ontario, which held that the limitation period did not begin to run until it became or should have become known that one of the parties would no longer negotiate. The Court of Appeal, on the other hand, held that the parties were free to include any steps to settle disputes in their arbitration clause and that the appellants could notify the opposing party at any time that they did not wish to continue negotiations.

11. Arbitration Clause from the Underlying Agreement Applies to Cheques and Bills of Exchange

A Hong Kong court was asked whether arbitration clauses could be extended to cover cheques or bills of exchange. Cheques and bills of exchange( (T v W [2022] HKCU 233), in general, are regarded as obligations separate from the underlying agreement. The court ruled that the issue must be resolved by interpreting the agreement based on its exact wording and the presence of circumstances that supported arbitration at the time the agreement was made.12.

12. “Bailout of Prisoners” or Illegitimate Means of Achieving Legitimate Aims

The UK government has finally paid Iran nearly GBP 400 million in debt resulting from an ICC award issued two decades ago. The UK government was prompted to act after two British nationals were allowed to return home after being detained in Tehran for several years. The main dispute arose between Iran and a now-defunct UK Ministry of Defence organization called International Military Services (IMS), which had signed several contracts for the supply of tanks and armored vehicles to Iran worth GBP 650 million in the 1970s. The contracts were terminated in 1979 after the Iranian Revolution deposed the Sheikh, prompting the parties to seek arbitration, and IMS was ordered to pay GBP 141 million, plus interest and costs, under the award issued in 2001. However, in 2019, the Commercial Court in London ruled that IMS was not required to pay interest under the award made when Iran’s Ministry of Defense was sanctioned by the EU. The appellate court later upheld that position.

13. Sanctions for Non-Compliance with the Arbitration Schedule: Are They Acceptable?

The High Court of Singapore decided an interesting case involving an order issued in arbitral proceedings in which an arbitrator barred the respondent from raising any objections, including in the form of a counterclaim, if it failed to serve procedural documents by the specified date and hour. The Singapore Court had to decide whether the arbitrator’s peremptory order violated the principle of natural justice. Given that the arbitration was held in Singapore, the arbitrator was required to consider the UNCITRAL Model Law in determining whether he had the authority to issue such peremptory orders. The Court ruled that the arbitrator must consult with both parties before determining the time limit for filing objections in the absence of a written agreement between the parties to that effect If an arbitrator does not consult both parties and simply sets a time limit, he must be willing to reconsider.

OTHER DEVELOPMENTS

Independent arbitration institution Delos has created a free, open access database of arbitrators, in a bid to increase the pool of arbitrators and foster diversity in appointments.
The English Court has released the updated version of the Commercial Court Guide. Further revisions have been made to Section O to deter unmeritorious challenges to arbitral awards and confirm the court’s powers to act to dismiss such claims and sanction parties who bring them. Importantly, unlike the earlier revisions to Section O, many of the amendments relate to challenges for lack of jurisdiction under s67 of the Act by The English Court.
Hong Kong has officially published a Bill that would allow lawyers to agree on outcome-based fees for arbitration work in the territory. If, as expected, the Bill passes into law later this year, it will allow lawyers in and outside Hong Kong to agree on fees based on their client’s success in the arbitration. This is a sea-change for a jurisdiction that, until now, has prohibited such fees.
On 3 March, US President Joe Biden signed a law ending forced arbitration of sexual assault and sexual harassment. The law amends the Federal Arbitration Act (FAA)
Polish diplomat Marcin Czepelak has become the new Secretary-General of the Permanent Court of Arbitration in The Hague. It is the first time in the 122 years of this arbitral institution that this office has been taken by a person who is not a national of the Netherlands.
New York Convention enters into force in Iraq this week, making Iraq the 169th State Party to the Convention

JUDICIAL DEVELOPMENTS IN INDIA

Supreme Court

The Supreme Court has held that the existence of statutory arbitration under the Indian Telegraph Act will not oust the jurisdiction of a consumer forum. However, it mentioned that filing a case in the consumer forum is not a mandatory requirement. The parties only have an option to approach the consumer forum while also having the option of statutory arbitration under the Act.

2. The Apex Court directs High Courts to decide all applications for appointment of the arbitrator(s) (Shree Vishnu Constructions v. The Engineer in Chief, Military Engineering Service)

The Supreme Court has directed all the High Courts in the country to decide on the applications under Section 11(5) and 11(6) of the Arbitration and Conciliation Act which are more than a year old. The Apex Court has directed the High Courts to dispose of such petitions within a period of six months.

3. Supreme Court directs High Courts to decide all applications for appointment of the arbitrator(s) at the earliest.

Shree Vishnu Constructions v. The Engineer in Chief, Military Engineering Service

The Supreme Court requested all the High Courts to decide and dispose of applications under Sections 11(5) and 11(6) of the Arbitration Act which are pending for more than one year from the date of filing, within six months.

4. A court does not have an inherent jurisdiction when there is no designation of the seat of arbitration (Ravi Ranjan Developers Pvt Ltd v. Aditya Kumar Chaterjee)

The Supreme Court has held that there is a difference between the ‘seat of arbitration’ and ‘place of arbitration’ and both of them cannot be equated. The parties in the present case had only agreed to Tribunal sittings in Kolkata. Hence, the Supreme Court had set aside the order of the Calcutta High Court allowing an application for the appointment of an arbitrator because it lacked the inherent jurisdiction to hear the said matter.

5. Courts cannot adjudicate upon the inadequacy of stamp duty while exercising powers under Section 11 of the Arbitration and Conciliation Act (Intercontinental Hotels Group (India) Pvt Ltd v. Waterline Hotels Pvt Ltd)

The Supreme Court has held that once a party has paid the stamp duty, any objection regarding its sufficiency cannot be decided by a court exercising powers under Section 11 of the Arbitration and Conciliation Act.

6. The Supreme Court gives clarity over the application of Section 12(5) of the Arbitration and Conciliation Act on the tribunals set up before 2015 (Ellora Paper Mills Ltd v. The State of Madhya Pradesh)

On the issue of applicability of Section 12(5) of the Arbitration and Conciliation Act, the Supreme Court has held that by operation of law and in view of Section 12(5) read with the Seventh Schedule of the Act, the earlier Arbitral Tribunal constituted prior to the amendment of 2015 has become ineligible and therefore, lost its mandate.

7. Conducting arbitration proceedings at a new place owing to the appointment of a new arbitrator will not shift the ‘jurisdictional seat of the arbitration, confirms Supreme Court (BBR (India) Pvt Ltd v. SP Singla Constructions Pvt Ltd)

The Supreme Court has held that merely appointing a new arbitrator who has conducted arbitral proceedings at a different venue to what has been agreed between the parties, would not become the jurisdictional seat of arbitration fixed by the arbitrator exercising powers under Section 20(2) of the Arbitration and Conciliation Act. The Court clarified that a change of venue does not necessarily result in a change of seat.

8. Courts can send the matter to the same arbitrator after setting aside the award, confirm the Apex Court (Mutha Construction v. Strategic Brand Solutions Pvt Ltd)

On the question, if the Court, after setting aside an award, can send the matter back to the same arbitrator for fresh arbitration, the top court of the country has replied in the affirmative. However, it has been said the same could only be done if both the parties involved in the dispute mutually agree to it.

9. Whether conducting arbitration proceedings at a new place owing to the appointment of a new arbitrator would shift the ‘jurisdictional seat of the arbitration?

BBR (India) Pvt Ltd v. SP Singla Constructions Pvt Ltd

The Supreme Court held that merely because the newly appointed arbitrator has conducted arbitral proceedings at a different venue, the same would not become the jurisdictional seat of arbitration fixed by the arbitrator exercising powers under Section 20(2) of the Act. The Court held a change of venue does not result in a change of seat.

10. Arbitral would attract patently illegality if they failed to act in accordance with the terms of the contract (Indian Oil Corporation Ltd. v. M/s Shree Ganesh Petroleum Rajgurunagar 2022 SCC OnLine SC 131)

The Supreme Court has held that an arbitral award would attract patently illegality if the arbitrator fails to act in terms of contract or has ignored the specific terms of a contract. An award can be said to be patently illegal where the arbitral tribunal has failed to act in terms of the contract or has ignored the specific terms of a contract. However, a distinction has to be drawn between failure to act in terms of a contract and an erroneous interpretation of the terms of a contract.

High Courts

Time spent during negotiation and mediation is excluded from the three-year limitation period of three years for invoking arbitration (Alstom Systems India Pvt Ltd v. Zillion Infraprojects Pvt Ltd)

In this case, the computation of limitation period for the invocation of arbitration was the moot question before the Delhi High Court. Articles 55 and 58 of the Limitation Act, 1963 envisaged a limitation period of three years from the date of arising of the cause of action.

According to the Petitioner the claims of the Respondent were barred by limitation since the dispute arose in 2016 by the termination of the contract and the arbitration was commenced in the year 2021. The Petitioner challenged the award under Section 34 of the Arbitration & Conciliation Act, 1996. The Court in its judgment held that the contract between the parties provided for mandatory mediation before invoking the arbitration. Therefore, the cause of action arose only after the conclusion of mediation period, i.e., in 2020. The Respondent rightfully invoked arbitration the following year. Hence, the claims are not barred by limitation since the time spent by parties during negotiation is excluded from the limitation period for invoking arbitration.

2. Exclusive jurisdiction clause will prevail over the seat clause in an agreement.

( Hunch Circle Pvt. Ltd. v. Futuretimes Technology India Pvt Ltd )

In this case the parties filed a petition with the Delhi High Court under section 11(6) for seeking reference of the disputes to arbitration. The main agreement between the parties contained a separate “seat clause for arbitration” and an “exclusive jurisdiction clause”. The High Court held that the exclusive jurisdiction clause will prevail over the seat clause specified in the agreement. The Court observed that when an agreement confers exclusive jurisdiction on some other court, the arbitration seat court will not have the jurisdiction to preside over the disputes arising out of the arbitration agreement.

3. Delhi High Court discusses the scope of invoking Section 9 at a post-arbitral stage. ( Zostel Hospitality Private Ltd v. Oravel Stays Pvt Ltd)

In this case the Delhi High Court deals with the invocation of Section 9(1)(ii) of the Arbitration & Conciliation Act, 1996, at post- arbitral stage. The parties had entered into a contract wherein Zostel agreed to transfer the hotel business to Oravel, against which Oravel was equired to transfer 7% of its shareholding to Zostel. Subsequently, Oravel defaulted in fulfilling its obligations under the contract due to which Zostel initiated arbitration proceedings.

After the award was passed, Zostel filed a petition for seeking interim protection under Section 9. The Court primarily relied on the judgment of Dirk India Pvt Ltd v. Maharashtra State Power Generation Co. Ltd for determining the scope of interim protection at a post-award stage. The Delhi High Court while re-affirming the position laid down the case of Dirk India, held that a Court cannot revisit the findings and conclusion of the award, and the same is final and binding upon the parties. It also held that the party is not entitled to claim interim relief beyond what was granted in the award.

4. Inordinate and unexplained delay in rendering arbitral awards is against public policy. (Director General Central Reserve Police Force v. Fibroplast Marine Pvt. Ltd)

In a case where the award was passed in favour of the Respondent, which eventually led to the Petitioner filing an application under Section 34 of the Act against the award before the Delhi High Court. The Court considered the issue of whether the impugned order of the tribunal was valid or not? The Court came to a conclusion that there was an inordinate delay in rendering the award. The hearing spanned over two years, and the award was rendered only after that.

Consequently, the Court explained that delay in the rendering of an award would debilitate the purpose of resorting to arbitration for expeditious adjudication of the disputes. The Single Bench of Justice Vibhu Bakhru was of the view that inordinate and unexplained delay in granting an arbitral award goes against the public policy of India and is eligible for a challenge under Section 34(2)(b)(ii) of the Act.

5. Kerala High Court held that the principle of res judicata will not apply to the subsequent arbitration ( Bativala and Karani v. KI Johny)

The appellant approached the court under Section 37 of the Arbitration & Conciliation Act, 1996 by being aggrieved by the order passed under Section 34 of the Act to set aside the award. In the backdrop of this appeal two arbitral awards were set aside by the Court under Section 34. The first award was set aside because the constitution of arbitral tribunal was improper. Subsequently, the arbitral tribunal was reconstituted and impugned award was passed thereof. However, the Respondent challenged the impugn award by stating that the arbitral proceedings were hit by res judicata.

The Court set aside the award under Section 34 by accepting the Respondent’s contentions. After which the Appellant approached the Kerala High Court under Section 37. The Court held that the principle of res judicata would not apply. The Court also observed that the scheme of the Act is that if the court finds an error in the award, the award is to be set aside, however, it is upon the parties to start fresh proceedings.

6. Arbitrators cannot alter agreement terms because they are contrary to business common sense. (Union of India, Ministry of Railways v. Jindal Rail Infrastructure Limited)

Petitioner had filed a petition before the Delhi HC under Section 34 challenging an award on the ground that the arbitrator had re-written the terms of the agreement between the parties and re-worked a bargain reached between the parties, among others.

A Single Judge Bench ruled that it is not permissible for the arbitral tribunal to review a party’s business judgement and re-write the agreement in light of the difficulties it would encounter in carrying out its responsibilities. Further, the Court held that an arbitrator could not disregard an agreement’s clear language only because it goes against common sense in business.

The Court also noted, “All contracts do not always result in a profit; some do; others do not. This does not exclude a party from its contractual responsibilities.”

7. Bombay High Court held that the Courts do not have the adjudicatory powers under Section 27 of the Act. ( Dilip v. Errol Moraes)

The Bombay High Court in this case decided upon the issue whether the Court can scrutinize the order of the tribunal to examine a witness under Section 27 of the Arbitration & Conciliation Act, 1996.

The High Court held that a Court cannot perform adjudicatory functions under Section 27. It also stated that as per the Section 5 of the Act, there should be no judicial interference unless specified and as per Section 19 of the Act, the tribunal is not bound by the rules of CPC and Evidance Act. Therefore, if the tribunal makes a pima facie opinion, the court cannot scrutinise the same.

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