By: Vrinda Basu, Debjyoti Samaddar, Khushboo Sharma and Shubhendra Mishra.
1. Court of Appeal clarifies validity of underlying contract where that contract contains an arbitration clause. (DHL Project & Chartering Ltd v Gemini Ocean Shipping Co Ltd)
The court of appeal considered whether an arbitration agreement would be binding on the parties when a pre-requisite to the effectiveness of the contract had not been satisfied. In the present case, the issue was with “contract formation”. The Court of Appeal concluded that since a pre-condition of the contract was not fulfilled, no binding contract has come into existence. The Court of Appeal held that, as a matter of English law, where it is found that the parties have not entered into a binding agreement in the first place, the arbitration agreement will generally not be binding either.
2. ICSID Tribunal upholds the recoverability of success fees for counsel. (BSG Resources v Republic of Guinea)
The arbitral tribunal rendered its award in BSG Resources v Republic of Guinea in favour of the latter. While addressing the parties’ costs, the tribunal ordered BSG to pay 80% of ICSID’s costs and 80% of Guinea’s costs on a “costs follow the event” basis, noting that Guinea was successful in a few claims and unsuccessful in others. In respect of Guinea’s success fees due to counsel, the tribunal was of the view that Guinea was entitled to its recovery on the basis that “the success fee does not qualify as a “reward” and does not appear unreasonable, since the total amount of legal fees of both Parties are nearly identical if the Respondent’s success fees are taken into account.”
3. Canadian Supreme Court clears the question of the enforceability of arbitration clauses during insolvency proceedings. (Peace River Hydro Partners v Petrowest Corp)
In a recent decision, the Supreme Court of Canada (SCC) denied a stay on the receiver’s civil lawsuit in light of multiple arbitration proceedings to facilitate an orderly and single insolvency process. It was held that the court order made the arbitration inoperative. The majority rejected the Court of Appeal’s reasoning that the receiver was at liberty to unilaterally disclaim the arbitration agreement. It was reiterated that only a court can determine whether an arbitration agreement is void, inoperative, or impossible to perform.
4. The Supreme Court of Western Australia has clarified the use of ‘urgent relief’ clauses and given the green light to arbitration. (Power and Water Corporation v ENI Australia B.V )
The Supreme Court of Western Australia has clarified the use of ‘urgent relief’ clauses, which permit parties to an arbitration agreement to obtain urgent relief from a court. The Court observed that to grant urgent relief, it had to be objectively satisfied, among other things, that the relief sought was urgent. The decision exemplifies the consideration given by Australian courts to the arbitral process and the exceptional nature of requests needed to side-step arbitration agreements.
5. Hong Kong arbitration success fee regime fully in force.
In a recent development in the arbitration ecosystem in Hong Kong, lawyers can now offer success-based fee arrangements for work on arbitrations and related proceedings. On 16 December 2022, Hong Kong enacted the outstanding sections of Part 10B Arbitration Ordinance and sub-legislation to regulate the new agreements. Due to this, Hong Kong now boasts one of the world’s broadest legal success fee regimes for arbitration, giving parties the flexibility to cover legal costs while mitigating risk, aiding cash flow, and enhancing budget control.
6. Western Australia Supreme Court finds consent by conduct to Arbitration Appeal. (Golden Mile Milling Pty Ltd v Novus Capital Ltd)
In accordance with s. 34A of the Commercial Arbitration Act 2012 (WA), the Supreme Court of Western Australia has decided about a unique application to appeal arbitral awards. A court may only issue leave to appeal under this section if, among other conditions, the parties to the award consent to the appeal. The case demonstrates that a party may express its desire by conduct to appeal an arbitral award. According to the Court, one of the parties’ actions demonstrated that it had implicitly consented to an appeal proceeding when viewed objectively. In the absence of the respondent’s approval to the same, it was determined that the parties’ consent orders programming an application for leave to appeal would have been “pointless.”
JUDICIAL DEVELOPMENTS IN INDIA
1. An arbitral tribunal must provide justification when deciding how much interest to charge for a delay caused by the award holder. (Executive Engineer (R and B) v Gokul Chandra Kanungo)
The Supreme Court has declared that while an arbitral tribunal has the authority to award interest at a rate it considers fair, the arbitral tribunal is also bound to justify why it thinks the interest rate is acceptable. The bench of Justices B.R. Gavai and B.V. Nagarathna further held that a party is not allowed to claim interest for the period during which the proceedings were purposefully delayed by it because a party cannot gain from its own shortcomings. In such a case where the award holder delayed the proceedings, the Court can exercise its power under Article 142 to reduce the interest rate on the sum of the award.
2. When exercising powers under Section 11 of the Arbitration and Conciliation Act 1996, the Supreme Court stated that courts should conduct a preliminary inquiry into the arbitrability of issues. (Emaar India Ltd v Tarun Aggarwal Projects LLP)
The Supreme Court has ruled that if the respondent raises an objection to the arbitrability of the subject matter, the High Courts can undertake a preliminary investigation to decide the issue of “Excepted Matters” when choosing the arbitrator under Section 11. The bench of Justices M.R. Shah and Krishna Murari has observed that if any issue that is included in the list of subjects that are “excepted” from arbitration under the terms of the agreement between the parties, then such an issue is not subject to arbitration and cannot be resolved that way.
3. If the issue of arbitrability necessitates careful review by the Courts, then the Courts must refer the dispute to an arbitrator (VGP Marine Kingdom Pvt Ltd v Kay Ellen Arnold)
The Supreme Court ruled that the arbitrability of the issue shall be left up to the arbitrator to decide while evaluating an application under Section 11(6) of the Arbitration and Conciliation Act unless and until there is a prima facie indication of the dispute being non-arbitrable.
After referring to the decision of Vidya Drolia v Durga Trading Corporation, the Court further decided that if a dispute, whether arbitrable or not, warrants extensive review by the Courts. The subject of arbitrability should be left to the arbitrator to determine.
1. The Delhi High Court has held that the place of arbitration would not become the seat of arbitration when the parties have conferred exclusive jurisdiction on a Court other than the place of arbitration (Kush Raj Bhatia v DLF Power and Services Limited).
The court held that the mere expression ‘place of arbitration’ cannot be the basis to determine the intention of the parties that they have intended that place as the “Seat of Arbitration”. Subsequently, the intention of the parties to designate a place as the seat of arbitration is to be determined based on other relevant clauses. It cannot remain restricted to the venue mentioned in the arbitration clause.
2. The validity of an arbitral award is to be upheld if there was a decision by the arbitrator to pass the award before his death (M/s Shree Ram Junawa Industries v M/s Rounak Steels).
It was observed by the Rajasthan High Court that the third member of the Arbitral Tribunal had expired at the time of the passing of the arbitral award. However, all the members of the Arbitral Tribunal were present and had signed the proceedings on the day the award was decided to be passed. Therefore, merely because the detailed award was passed on the day when one of the members of the Arbitral Tribunal was not alive, it cannot be said that the award became contrary to section 10 of the Arbitration and Conciliation Act.
3. The disclosure by the arbitrator under section 12, read with the 6th schedule of the Arbitration and Conciliation Act, is not discretionary but a mandatory requirement. (Ram Kumar v Shriram Transport Finance Co Ltd FAO)
The Delhi High Court has held that the Court had observed that disclosure is a necessary safeguard to ensure the integrity and efficacy of arbitration. As a result, the same cannot be a mere direction and will be a mandate. The onus of disclosing the necessary information is on the arbitrator itself. A party cannot be precluded from challenging the award on the ground that it did not raise any such challenge before the arbitrator itself. Since the arbitrator was unilaterally appointed by the respondents, his appointment was in contravention of section 12(5) of the Act.
4. A clause does not constitute an arbitration agreement if it stipulates that the parties ‘may’ be referred to arbitration despite the fact that the clause conferred a binding nature upon the decision of the Arbitrator (GTL Infrastructure Ltd v Vodafone India Ltd (VIL)).
The Bombay High Court has ruled that referencing the relevant contract rather than any argument made to the court after the disputes have arisen will help determine whether an arbitration agreement exists. Correspondence between the parties will not supersede or override their express intentions, which are made clear by the terms of the agreement. Therefore, it was held that the mandatory nature of an arbitration agreement is violated once a party chooses to opt out of arbitration. The use of the term “may” did not result in an arbitration agreement; rather, it just anticipated the potential of referring the problems to arbitration in the future, even though the relevant provision gave the arbitrator’s ruling conclusiveness and binding nature.
5. The Bombay High Court has held that an insurance dispute is non-arbitrable if the Insurer disputes liability and the reference is limited to the quantum of the compensation (M/s. Mallak Specialities Pvt Ltd v The New India Assurance Co Ltd).
The court opined that the parties’ intentions must be discerned to determine whether a particular clause is an arbitration clause. The court pointed out that the insurer’s unequivocal admission of the liability under the policy was a sin quo non for effectively triggering the arbitration clause; otherwise, the dispute between the parties would fall inside the excepted category, rendering the arbitration clause ineffective and unenforceable. Consequently, since the insurance company had disputed and not accepted its liability under the policy, the dispute was not arbitrable.
6. The Calcutta High Court has held that the overriding effect of section 24 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) is not an absolute bar upon the arbitrator to disclose impartiality in accordance with the Arbitration and Conciliation Act, 1996.(Security Hitech Graphics Private Limited v LMI India Private Limited)
The court held that the objectives of MSMED Act 2006 would not be defeated if the Arbitrator gave effect to the provisions of Section 12 (1)(2), read in conjunction with the 6th schedule of the Arbitration and Conciliation Act regarding disclosure of the arbitrator’s impartiality with regard to the subject of arbitration at any stage of the proceedings. Thus, section 24 of the M.S.M.E.D Act, which states that sections 15 to 23 will have an overriding effect over any other law in force at that time, cannot be deemed to be an absolute bar making section 12 of the Arbitration Act, 1996 inapplicable in case of arbitration, conducted under the M.S.M.E.D. Act, with the appointment of the arbitrator. Thereby not strictly prohibiting the arbitrator from disclosing his independence and impartiality to the arbitration proceedings in aid of Schedule 6th of the Arbitration and Conciliation Act.
7. A unilateral request made by one of the parties for setting the appointment procedure in motion would not constitute an agreement falling under the proviso to waive off the disqualification (M/s Osho GS & Company v M/s Wapcos Limited)
It was noted by the Delhi High Court that an express written agreement executed by the parties agreeing to the surrender of a nominated arbitrator’s right to disqualify under section 12(5) would plainly not be satisfied by a unilateral request made by one of the parties to initiate the appointment procedure. The court held that the arbitration notice issued by the claimant, calling upon the respondent company to appoint an arbitrator in accordance with the arbitration agreement, cannot be construed as an express agreement between the parties to waive off the disqualification contemplated under section 12(5). Conclusively, the court held that the unilateral appointment of the sole arbitrator by the CMD of the respondent company cannot be sustained, and the court terminated the mandate of the arbitrator before appointing a substitute arbitrator.
EDITOR’S PICK: FRESH LITERATURE
- 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)
- Peter Nahmias Reiss, Article: Into the Future With Eyes Wide Open: International Arbitration in the Digital Age (Volume 88, Issue 4, Arbitration: The International Journal of Arbitration, Mediation and Dispute Management 2022)
- Gustavo Favero Vaughn, Kabir Duggal, On international arbitration, choice of substantive law, and the CISG: a case law study, (Volume 38, Issue 3, Arbitration International, September 2022)
- Peter Sester , A Second Look on Kabab-Ji v. Kout Food or Promoting a Formalist Transnational Contract Law Theory, (Kluwer Arbitration Blog)
- Gary B. Born, Abigail Thompson, The New York Convention and Taiwan: It’s Time to Be Sensible, (Kluwer Arbitration Blog)
- Jose F. Sanchez, Kartik Rajpal, Open Letter to International Arbitration Institutions and Counsel: A Real-World Concrete Solution to Increase Diversity in International Arbitration Tribunals, (Kluwer Arbitration Blog)
- Joel Soon, Delimiting the Limits of an Arbitrator’s Mandate: Submission and Remission, (Kluwer Arbitration Blog)
- Ashutosh Kumar, Anjali Anchay, Keeping a Distance: India’s Approach towards Investment Treaties, (Kluwer Arbitration Blog)
- Timothy Tai, Harrison Chung, Hong Kong Arbitration Week Recap: Examining the Creditor’s Toolkit in International Arbitration, Cross-Border Insolvency and Enforcement, (Kluwer Arbitration Blog)
- Prakritee Yonzon, C v D: Hong Kong in Step with the Admissibility Versus Jurisdiction Debate, (Kluwer Arbitration Blog)
- Neil Kaplan, Chiann Bao, “So, Now You Are an Arbitrator: The Arbitrator’s Toolkit”, (Wolters Kluwer 2022)
- Pietro Ortolani, André Janssen, Pieter Wolters, “International Arbitration and Technology ”, (Wolters Kluwer 2022)