SEAL Quarterly Round Up Q3 2022

By: Debjyoti Samaddar, Mansi Pandey, Nipun Sapru, Kyra, Prachi Jain, Sudhanshu Tewari.


INTERNATIONAL DEVELOPMENTS

  1. Injunctions and orders for specific performance are unavailable against states. (UK P&I Club N V and United Kingdom Mutual Steam Ship Assurance Association Ltd v República Bolivariana de Venezuela RCGS “Resolute)

In a recent decision of England & Wales High Court involving an application for an anti-suit injunction against the Bolivarian Republic of Venezuela, Sir Ross Cranston ruled that section 13(2)(a) of the State Immunity Act of 1978 (SIA 1978) prohibits the granting of injunctive relief against states. He also rejected the claim that the section should be read down on the basis of human rights. This case provides clarity on the doctrine of State immunity in England & Wales that gives important insight into the extent to which courts are willing to deal with States as they would with any other private party. Further, the judgment provides an illustrative example of how parties that have not entered into an arbitration agreement can find themselves bound by one.

  1. Hong Kong Court emphasises that high thresholds of irregularity are to be established before an arbitration award can be set aside. (LY v HW)

The Hong Kong High Court dismissed an application to set aside an award based on claims that the tribunal had failed to deal with the key issues and failed to provide sufficient reasons for its decision in the award. It held that the Tribunal’s failure to deal with these issues would at most amount to an error of law but that it was not sufficient ground for challenging the Award. Section 67 of the Arbitration Ordinance, which implements Article 31 of the Model Law and requires an award to state the reasons upon which it is based was considered by the court. It clarified that the reasons provided by a tribunal do not need to be elaborate and lengthy, since the object of the Arbitration Ordinance is to facilitate fair and speedy dispute resolution without unnecessary expense or delay.

  1. In counsel conflict of interest, a tribunal should balance the risk posed by the presence of the allegedly conflicted attorney against the likelihood of prejudice to the other party. (GSI v Canada)

The tribunal disqualified the counsel due to counsel conflicts of interest that could be prejudicial to the Claimant. The NAFTA and the UNCITRAL Rules also grant arbitral tribunals broad discretion to conduct the proceedings in a manner that will ensure the equal treatment of both parties and their right to fully present their case. The tribunal also relied on Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, reasoning that high standards have been established for the removal of counsel in International Arbitration. The tribunal formulated a test warranting disqualification only if there is clear evidence of a material risk that the Counsel and the team member have received confidential information from the Claimants about the dispute that could be of significance in the proceedings such that there would be prejudice to the fair disposition of the dispute in the arbitration if Respondent were allowed to continue being represented by them.

  1. The Supreme Court of New South Wales states that arbitral proceedings do not prevent a party from calling upon a bank guarantee in relation to the contract. (Daewoo Shipbuilding & Marine Engineering Co Ltd v INPEX Operations Australia Pty Ltd)

In a recent decision, the Supreme Court of New South Wales held that ongoing arbitral proceedings did not prevent a party from calling upon a guarantee in relation to the primary contract. Here, the Court decided to discharge the interim injunction which had restrained INPEX from making a call on the Guarantee. In making its decision, the Court noted its power to hear interim matters brought before it, as compatible with the parties’ wishes to have their disputes determined by arbitration, as confirmed by Articles 9 and 17J of the Model Law.

OTHER DEVELOPMENTS

  1. As the world began to emerge from the pandemic, the Russian invasion of Ukraine on 24 February 2022 triggered another large-scale humanitarian crisis. The immediate effect of Russia’s invasion of Ukraine on the arbitration landscape is a decline in the number of Russia-related arbitrations. The LCIA has already reported a sharp decrease in Russia-related cases. It is, however, still too early to predict the longer-term impact of the war in Ukraine.
  2. In the realm of commercial arbitration, several institutions concluded the revision of their arbitration rules in 2022. New rules that came into force in 2022 include the DIAC Arbitration Rules 2022, which included changes to articles dealing with multiple contracts and consolidation of claims, joinders, third-party funding and costs.
  3. In the realm of investor-state arbitration, the 2022 ICSID Rules and Regulations came into force on 1 July 2022. The changes introduced by the rules include new expedited arbitration rules intended to dramatically reduce case times.
  4. The ICCA, in collaboration with practitioners Giacomo Rojas Elgueta, James Hosking, and Yasmine Lahlou, launched the research project titled “Does a Right to a Physical Hearing Exist in International Arbitration?

JUDICIAL DEVELOPMENTS IN INDIA

Supreme Court

  1. The mere use of the word “arbitration” or “arbitrator” in a clause will not make it an arbitration agreement if it requires or contemplates further or fresh consent of the parties for reference to arbitration. (Mahanadi Coalfields Ltd v IVRCL AMR Joint Venture)

The question before the Court was whether clause 15 of the contract in the case was an arbitration agreement and whether the invocation of the jurisdiction under Section 11(6) was valid. The Court referred to the judgment in Jagdish Chander v Ramesh Chander and observed that while there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Further, clauses using the words ‘arbitration’ and ‘arbitrator’ merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when disputes arise.

  1. The Supreme Court observed that a court exercising power under Section 9 of the Arbitration and Conciliation Act is not strictly bound by provisions of CPC and should not withhold relief on a mere technicality.(Essar House Private Ltd v Arcellor Mittal Nippon Steel India Ltd)

The Court observed that in deciding a petition under Section 9 of the Arbitration Act, the Courts cannot ignore the basic principles of the CPC. However, the power Court to grant relief is not curtailed by the rigours of every procedural provision in the CPC. In the exercise of its powers to grant interim relief under Section 9 of the Arbitration Act, the Court is not strictly bound by the provisions of the CPC and the technicalities of the CPC cannot prevent the Court from securing the ends of justice. All that the Court is required to see is, whether the applicant for the interim measure has a good prima facie case, whether the balance of convenience is in favour of interim relief as prayed for being granted and whether the applicant has approached the court with reasonable expedition.

  1. The Supreme Court holds that an arbitrator has the discretion to award post-award interest on the part of the ‘sum’. (Morgan Securities and Credits Pvt  Ltd v Videocon Industries Ltd)

The issue considered was whether the phrase ‘unless the award otherwise directs’ in Section 31(7)(b) of the Act only provides the arbitrator with the discretion to determine the rate of interest or both the rate of interest and the ‘sum’ it must be paid against. The Court summarized that the phrase ‘unless the award otherwise directs’ in Section 31(7)(b) only qualifies the rate of interest and that according to Section 31(7)(b) if the arbitrator does not grant post-award interest, the award holder is entitled to post-award interest at eighteen per cent. Further, the section does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest and the arbitrator has the discretion to award post-award interest on the part of the sum. The arbitrator must exercise the discretionary power to grant post-award interest reasonably and in good faith, considering all relevant circumstances.

  1. Supreme Court holds that Arbitrators cannot unilaterally decide their own fees as that would violate party autonomy. (Oil and Natural Gas Corporation Ltd v Afcons Gunanusa JV)

The three-Judge Bench deciding on the power of the Arbitrators to issue binding and enforceable orders determining their own fees held that such determination would violate the principles of party autonomy i.e. a cardinal principle of arbitration. Justice Khanna authored a separate judgment differing on certain aspects from the majority. The majority reasoned that the arbitral tribunal while deciding the allocation of costs under Sections 31(8) read with 31A or advance of costs under Section 38 cannot issue any binding or enforceable orders regarding their own remuneration. This would violate the principle of party autonomy and the doctrine of prohibition of in rem suam decisions.

  1. Supreme Court lays down that Section 11(6A) of the Arbitration Act Does Not Prevent Courts from Considering the Issue of Arbitrability. (Indian Oil Corporation Ltd v NCC Ltd)

The Court held that despite the insertion of Section 11(6A) in the Arbitration and Conciliation Act 1996, the Courts are not denuded of the power to examine the issue of non-arbitrability and jurisdiction at the stage of considering the application of appointment of arbitrators under Section 11. The Court referred to the case, Vidya Drolia v. Durga Trading Corporation and was of the opinion that though the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability, the same can also be considered by the Court at the stage of deciding Section 11 application if the facts are very clear and glaring and in view of the specific clauses in the agreement binding between the parties, whether the dispute is non­-arbitrable and/or it falls within the excepted clause.

  1. The Supreme Court observed that under Section 34 or 37 of the Arbitration and Conciliation Act, a Court cannot modify the award passed by the Arbitrator. (National Highways Authority of India v P. Nagaraju @ Cheluvaiah)

The division bench allowing the appeal, observed that position of law is clear, that it would not be open for the court in the proceedings under Section 34 or in the appeal under Section 37 to modify the award. The appropriate course to be adopted in such an event is to set aside the award and remit the matter to the learned Arbitrator in terms of Section 34(4) of the Act. Further, the concept of just compensation for the acquired land should be kept in view while taking note of the award considering the sufficiency of the reasons given in the award for the ultimate conclusion.

High Courts

  1. The Arbitration Clause Contained In A Manual Issued By The Government As A Generic Guideline Is Not Binding (TBS India Telematic and Biomedical Services Pvt Ltd v Commissioner of Health and Family Welfare)

According to the Andhra Pradesh High Court, the parties cannot rely on a general arbitration clause found in a government manual. The Court further noted that in the absence of an initial binding agreement between the parties, there cannot be an arbitration clause in a subcontract or in a separate instrument.

  1. Section 29A Of The A&C Act Applies Prospectively, Does Not Apply To Arbitration That Commenced Before The 2015 Amendment (Meenanath Fatarpekar v MicroStrategy India Pvt Ltd)

According to the Bombay High Court, Section 29A of the A&C Act, which stipulates a 12-month deadline for passing an arbitral decision, does not apply to arbitrations that started before the Act’s 2015 Amendment. The 2015 Amendment Act incorporated Section 29A of the A&C Act into the original law. According to the Bench of Justice G.S. Kulkarni, the provisions of Section 29A would not apply to an arbitration proceeding started on February 3, 2015, because, according to Section 26 of the 2015 Amendment Act, the amendment took effect on October 23, 2015.

  1. Agreement Containing Arbitration Clause Not Signed By A Party; Parties Can Still Be Referred To Arbitration (Buildmyinfra Private Limited v Gyan Prakash Mishra)

According to the Delhi High Court, the parties can still be referred to arbitration even if the Agreement having an arbitration clause has not been signed by a party to the dispute. The Single Bench of Justice Prateek Jalan ruled that the existence of an arbitration agreement might be inferred from the exchange of letters or other forms of contact between the parties without each party’s signature being required on a written document.

  1. The Existence Of Arbitration Agreement Can Be Presumed If No Denial Is Made in the Reply (R Ravi v Karnataka State Tourism Development Corporation)

According to the Karnataka High Court, the phrase “statements of claim and defence” under Section 7(4)(c) of the A&C Act should be interpreted broadly and includes a reply to an arbitration notice. The Bench of Justice S.R. Krishna Kumar held in terms of Section 7(4)(c) an arbitration agreement is said to exist if the petitioner has asserted its existence in its notice of arbitration and the respondent has not denied its existence in its reply to the notice.

  1. Accepting Terms And Conditions on Website Containing Arbitration Agreement, Valid (Ingram Micro India Pvt Ltd v Mohit Raghuram Hegde, Proprietor Creative Infotech)

According to the Bombay High Court, a declaration made by a party in the KYC executed by it, accepting the terms and conditions provided on the opposite party’s website, which included an arbitration agreement, was sufficient for the incorporation of an arbitration clause between them.

  1. Commercial Court Cannot Be Regarded As A “Person Or Institution” Under Section 11(6) Of The A&C Act (Uttam Energy Ltd v M/s Shivratna Udyog Ltd)

According to the Bombay High Court, the jurisdiction and power of the High Court in relation to the appointment of an arbitral tribunal under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), has not been divested by the Commercial Courts Act, 2015. The Court added that the term “all applications or appeals arising out of such arbitration”, as provided under Section 10 (3) of the Commercial Courts Act, does not take within its ambit the application which is required to be filed under Section 11 (6) of the A&C Act before the High Court for seeking appointment of the arbitrator(s).

  1. Use Of The Word ‘Can’ In An Arbitration Clause Does Not Render It Ineffective, Intention To Be Looked Into (Panasonic India Pvt Ltd v Shah Aircon, ARB P 621/2021)

According to the Delhi High Court, the mere use of the word ‘can’ in an arbitration clause does not render it ineffective and the intention of the parties to go for arbitration is to be determined on a complete reading of the clause and relevant clauses. The Bench of Justice Prateek Jalan reiterated that an exclusive jurisdiction clause would override a venue clause, therefore, the court which has been conferred the exclusive jurisdiction will decide all arbitration applications arising out of the contract.

  1. The arbitrator cannot shun responsibilities and leave work of quantification to some other person (M/S Usha Martin Ltd v M/S Eastern Gases Ltd)

The Calcutta High Court recently set aside an order passed by the West Bengal State Micro & Small Enterprises Facilitation Council after noting that there was no effort to quantify the interest claimed or even the date from which that interest would apply. Justice Shekhar B Saraf found that the award passed by the Council in its capacity as an arbitrator fell within the scope of an “unreasonable award”.

EDITOR’S PICK: FRESH LITERATURE

Full-Length Articles

  1. Steve Ngo, Steven Walker, Impact and Effects of International Economic Sanctions on International Arbitration (Vol. 88(3), The Int’l Journal of Arbitration, Mediation and Dispute Management 2022)
  2. Maroof Rafique, Why Artificial Intelligence Is a Compatible Match for Arbitration (Vol. 88(2), The Int’l Journal of Arbitration, Mediation and Dispute Management 2022)
  3. Konstantin Voropaev, Religious Tribunals as ADR Mechanisms (Vol. 24(3) Asian Dispute Review 2022)
  4. Myriam Gicquello, Biased or Not Biased? Arbitral Decision-Making and Arbitrators’ Preferences (Vol. 13(3), Journal of International Dispute Settlement 2022)
  5. Paul E Trinel, Counterclaims and legitimacy in investment treaty arbitration (Vol. 38(1-2), Arbitration International 2022)
  6. William Blair, Gökçe Uyar, Grace Cheng, Yang Zhao, Arbitrating financial disputes—are they different and what lies ahead? (Vol. 38(1-2), Arbitration International 2022)
  7. Shouvik Bhattacharya, Saurav Rajurkar, What’s the Law? How Indian Courts Should Determine the Law Governing the Arbitration Agreement (Vol. 39(4), Journal of International Arbitration 2022)
  8. Olivier Caprasse, Maxime Tecqmenne, The Evidence of Corruption in Investment Arbitration (Vol. 39(4), Journal of International Arbitration 2022)

Blogs

  1. Shruti Sabharwal, Ujval Mohan, You, Me and Dupree: Indian Supreme Court Rethinks the Tenability of Using the Group of Companies Doctrine to Bind Non-Signatories to an Arbitration Agreement, (Kluwer Arbitration Blog)
  2. Shalaka Patil, Vishesh Bhatia, Beyond the Old Rule: Should Cavendish Come to India? (Kluwer Arbitration Blog)
  3. Edward Taylor, Jennifer Wu, Zach Li, Crypto Arbitration: A Survival Guide, (Kluwer Arbitration Blog)
  4. Max Bonnell, Arbitral Awards: How Long is Long Enough? (Kluwer Arbitration Blog)
  5. Maxi Scherer, Maria José Alarcon, Veronika Reisinger, The English Approach to the Law Governing Confidentiality in International Arbitration, (Kluwer Arbitration Blog)
  6. Priyanshi Bhageria, Prachi Jain, Tribunal Secretaries: Where Does India Stand? (RMLNLU Arbitration Law Blog)

Books

  1. Neil Kaplan, Chiann Bao, “So, Now You Are an Arbitrator: The Arbitrator’s Toolkit”, (Wolters Kluwer 2022)
  2. Bjorn Arp, Rodrigo Polanco, “International Arbitration in Times of Economic Nationalism”, (Wolters Kluwer 2022)
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