Posts tagged: arbitration

Vis Pre-Moot in London

Pre-Moot in London:

On the weekend 27-28 February 2016 Fox Williams’ International Arbitration Group will be hosting a Willem Vis Pre-Moot in their new offices in the City of London.

The Pre-Moot will be on the official problem of the 23rd Vis Moot.

Teams and arbitration practitioners, lawyers and academics with interest in participating or judging are encouraged to register their interest in attending the Pre-Moot as early as possible.

Precise timings will be circulated nearer the time depending on the number of participants.


The Pre-Moot will be held at Fox Williams’ new offices at 10 Finsbury Square, London EC2A 1AF.


For further information and registration please contact Ms Sabrina Janzik at   (


We look forward to welcoming you to the 23rd Willem Vis London Pre-Moot !

Whether Request without Fee is Valid

The steps that must be taken to stop time for the purposes of a contractual time bar provision must be determined by construing the contract and, as the contract itself is unlikely to say much beyond incorporating institutional rules, that means construing the rules.  The Court so decided in Libero Commodities SA v Augustin [2015]

Bylaw 302 of the 2011 version of the International Cotton Association (ICA) provides:

“1. Any party wishing to commence arbitration under these Bylaws … shall send us a written request for arbitration …

2. When sending the request, the Claimant shall also send:

… such application fee as may be due …”

Disputes arose in relation to the price under a contract for the sale of cotton. By a further agreement the parties agreed to submit the pricing dispute to ICA arbitration. The latter agreement also provided that if the reference was not commenced by a specified day the price was to be fixed at a spcified price.

On the final date specified, the seller sent a fax to the ICA requesting arbitration, but did not pay the required fee. The arbitration did not proceed further until the fee had been paid.

The first tier tribunal decided that failure to pay the required fee at the time of  the request meant that the seller had not validly commenced arbitration by the required date. The seller appealed to an appeal committee of the ICA, which decided that arbitration had been validly commenced in time, and, further, reached a decision on the substantive pricing issue.

The buyer challenged theappeal committee’s award.

The Court dismissed the appeal against the award on the issue of the commencement of arbitration. However, it allowed the buyer’s appeal against the substantive decision.

In relation to the commencement issue,the Court held that, as a matter of construction, it was not a prerequisite to the effective commencement of arbitration that the request for arbitration should be accompanied by the relevant fee. This conclusion was borne out by four principal factors:

  • Bylaw 302 drew a distinction between the “request for arbitration” and other matters (including the payment of the fee) that should be sent “when sending the request”.
  • The Bylaws did not expressly provide that the matters specified in Bylaw 302(2) were preconditions to the effective commencement of arbitration.
  • A written request for arbitration could be a meaningful and effective document without the matters specified (including the fee).
  • There was no commercial absurdity in this interpretation, and, indeed, it was consistent with the TAC’s own views.

It should not be assumed that the position will be the same under all institutional rules. For example, Article 1.4 of the LCIA  Rules (2014) provides that “The date of receipt by the Registrar of the Request shall be treated as the date upon which the arbitration has commenced for all purposes (the “Commencement Date”), subject to the LCIA’s actual receipt of the registration fee.” Similarly, the issue in this case was decided under the provisions of the 2011 ICA bylaws: those bylaws have since been amended to make clear that an arbitration is not commenced until the requisite fee has been paid.  However, Article 4.4 of the ICC Rules (2012) provides: “Together with the Request, the claimant shall: …b) make payment of the filing fee …
In the event that the claimant fails to comply with … these requirements, the Secretariat may fix a time limit within which the claimant must comply, failing which the file shall be closed without prejudice to the claimant’s right to submit the same claims at a later date in another Request.”

The Court further held, obiter, that some of the matters, such as the other party’s identity, were prerequisites of a valid notice.  Accordingly, it remains the case that it is important to check any applicable rules carefully and ensure that all requirements are addressed when commencing arbitration.

English Court refuses to enforce ICC Award

One of the key attractions of international arbitration is the relative ease of enforcement by reason of the New York Convention (“NYC”). Furthermore, the ICC prides itself on the enforceability of its awards.  As Steyn J (as he then was) said in Bank Mellat v GAA Development Co [1988]: “it is regarded as the first imperative of the ICC system that the awards under it should be enforceable … The system of scrutiny of awards by the Court contributes to the enforceability of ICC awards.” That the English Court of Appeal declined to enforce an ICC award therefore raises, at the very least, an eyebrow.

The case was Dallah v Ministry of Religious Affairs, Government of Pakistan [2009].  The Court had to consider s.103 Arbitration Act 1996 that closely follows Article V of the NYC and which is in the following terms:

“(1) Recognition or enforcement of a [NYC] award shall not be refused except in the following  cases. (2) Recognition or enforcement of the award may be refused if the person against whom it is  invoked proves … (b) that the arbitration agreement was not valid …”

The court decided the following points:

Firstly, the interrelationship of the courts of the supervisory jurisdiction (here France) and those of the enforcing country – the court held that s.103 was only brought into play where the award was made in a seat of another jurisdiction.  In that context the right to try and ‘prove’ something involves a right to adduce evidence and the court was not constrained to merely to review the tribunal’s award.  The court had, in this context the same rights as the courts of the supervisory jurisdiction.

Secondly, whether the Government of Pakistan was a party to the relevant agreement and agreement to arbitrate was in issue.  The judge had found that the subjective intention of all parties was that the Government was not to be a party having applied French law.  The appeal court agreed.  The tribunal had applied transnational laws to reach a different conclusion

Thirdly, it was argued that the Government was estopped from denying that it was a party as the tribunal was a court of competent jurisdiction that had ruled on the matter and the Government had not challenged that in the courts of the seat.  The tribunal represented a court of competent jurisdiction if, and only if, the parties agreed to confer jurisdiction upon it.  As the Government had not agreed to be a party, no estoppel could arise.  The absence of challenge was not fatal as the very purpose of Article V of the NYC was to preserve the right to challenge enforcement on the grounds of fundamental validity and integrity.

Finally, the court held that as a matter of discretion (noting that enforcement may be refused) it would normally be the proper exercise of discretion not to enforce an award once it was found that the entity against whom enforcement was sought was not a party to the arbitration agreement.  There was a general requirement to enforce subject to specific defences.  The court said that it was difficult to contemplate a more complete defence than the absence of consent to arbitrate.  The court approved the statement in Kanoria v Guinness [2006]:

“ … the limited circumstances in which an English court can be persuaded to refuse  enforcement of a [NYC] award concern … the structural integrity of the arbitration proceedings.  If the structural integrity is fundamentally unsound, the court is unlikely to make a discretionary  decision in favour of enforcing the award.”

Interest Update

Two recent cases have discussed issues relating to interest.  Firstly, Sonatrach v Statoil looked at post-award interest and, secondly, Martrade Shipping & Transport GmbH v United Enterprises Corporation looked at the application of the Late Payment of Commercial Debts (Interest) Act 1988 to international arbitration.  It is convenient to use those cases as an opportunity to review some basic principles.

Most references are concerned with recovering damages. With damages there is normally an award of interest.  The general principle as stated in Panchand Freres SA v. R. Pagnan & Fratelli[1] is that “In a commercial transaction, if the plaintiff has been out of his money for a period, the usual order is that the Defendant should pay interest for the time for which the sum has been outstanding.”

A failure to award interest can cause substantial prejudice to a party and in CNH Global NV v PGN Logistics Ltd[2] an award that was corrected by the Tribunal so as to include interest (inadvertently omitted from the original award) and which was done when the tribunal was functus, was allowed to stand as whilst it was an irregularity in the reference it did not cause substantial injustice within the terms of s.68 Arbitration Act 1996.


In Europe and the U.S., an award of interest is common place.  Asian countries such as China, Taiwan, India, and Korea generally allow interest where there is default in the payment of money.  Interest is no more than the price of money (if borrowed) or the opportunity cost of money (if not borrowed)[3]. Rates at which interest should be awarded on damages may be heavily influenced by contractual terms on interest. The parties will often have stipulated a rate of interest for the late payment of invoices under the contract: should the same rate be used for interest on awards of damages?  Although awards of interest are matters of discretion for the Arbitral Tribunal, it seems right in principle that if the parties have agreed the price of money, that rate should be applied or at least considered in any award of damages. Of course, there may be good reason why the rate of interest on late paid invoices is higher than might be the case for damages. The parties might know that the product being sold was financed under especially expensive borrowing facilities and that interest on damages might not need to be compensated at the same rate.  Alternatively, there could be a coercive effect in setting a high rate to encourage payment of invoices.  It is suggested, however, that in normal circumstances a contractual rate should be applied to any award of interest on damages.

Interest on What and from When

Interest is normally awarded on the entire amount awarded but care should be taken not to overcompensate a claimant by awarding interest on the entire amount from the date of breach[4]. For example, interest on lost profits might run from each of the relevant years of loss rather from the date of breach. Equally, interest should, in principle, not be awarded on tax on grossed up damages (the grossing up being necessary if the damges are taxable in the hands of the claimant).  The tax is not a loss to the claimant and the claimant will simply be obliged to account to the tax authorities upon receipt. Unless there is a liability to the tax authorities for interest, it should generally not be awarded on the tax element of the loss.

Simple or Compound?

The further issue is whether interest should be awarded on a simple or compound basis[5].  Again, if the point is dealt with elsewhere in the contract, the same principle might be applied to the award of damages.  If the issue is not covered elsewhere then, as ever, it is a matter of discretion for the Tribunal. The point was considered by the House of Lords in Sempra Metals Ltd v. Inland Revenue Commissioners[6].  The House held that the time had come to recognise that money had a value: the court had a common law jurisdiction to award interest, simple and compound, as damages on claims for the non-payment of debts as well as on other claims for breach of contract and in tort.  Furthermore, a Tribunal is entitled to take into account the prevailing commercial practice of borrowing and investing on a compound basis.


If no rate is mentioned in the contract, a margin over bank base rates is probably the right starting point. The base rates should be taken as those prevailing in the country where the aggrieved party has its main banking arrangements. The margin may depend on whether the aggrieved party is a net borrower or depositor. A net borrower might be better compensated by say a margin over base rates equivalent to the rate a comparable company would be expected to pay and likewise a net depositor the rate a similar company might command on its deposits. A rate of 1 or, perhaps, 2% over bank base rate might be appropriate.  Generally, the larger and wealthier an organisation the cheaper will be its borrowing costs and hence the lower the rate of interest it will be able to recover.  Equally, the larger and wealthier an organisation the more money it will have to invest / deposit and the more sophisticated its treasury function and hence the higher the rates of interest it will receive on deposits.

In England there is a useful statute for the victims of late payment: the Late Payment of Commercial Debts (Interest) Act 1988.  The Act prescribes interest that is not intended to be compensatory rather it is penal and aimed to act as a deterrent to late payment.  The Act applies to domestic transactions but also has limited international reach.  This is because s.12 provides that where parties to a contract with an international dimension have chosen English law to govern the contract, the choice of English law is not, of itself, sufficient to attract the application of the Act.  To do so there must be a “significant connection” between the contract and England or the contract must be one that would be governed by English law apart from the choice of law.  The application of the Act to international arbitration albeit seated in England was reviewed by Popplewell J in Martrade Shipping & Transport GmbH v United Enterprises Corportation[7]Popplewll J identified the sorts of factors that would amount to a significant connection are (a) where the place of performance of obligations under the contract is England; (b) one of the parties is English; (c) the parties carry on some relevant part of their business in England; and (d) the economic effect of non-payment may be felt in England.  A London arbitration clause alone is insufficient connection[8].

The Court held that although choice of London arbitratuon will generally be treated as a choice of English law under Article 3 of trhe Rome Convention, that choice was to be ignored for the purposes of s.12 due to words providing ‘but for that choice’.

Post – Award

Finally, it is appropriate to consider whether any and if so what interest should be awarded post-award. In principle, it would seem logical that nearly every award should carry interest post-award down to payment.  In some instances it may be difficult to conceive of circumstances that would make it appropriate to not award such interest. It is incumbent on the party claiming interest to seek such an award and for the arbitral tribunal to consider making an award in those terms. Failure to do so can create difficulties as any judgment entered so as to enforce the award can usually only be in the terms of the award.  For example, §66(2) of the 1996 Arbitration Act states “ . . . judgment may be entered in terms of the award.” If the award does not deal with post-award interest, there is nothing an enforcing court can do: Walker v Rome[9].  As Aikens J (as he then was) said in that case “Section 66 of the 1996 Act enables the court to embody an award made by the tribunal in a judgment of the court.  But it does not empower the court to add an extra judgment for post-award interest when the arbitrators have not made such an award … Any attempt by the court to add a judgment for interest would be an intervention by the court … and so would infringe the principle set out in s.1(c) of the 1996 Act.”

If an award does not provide for post-award interest and payment is not made promptly, it may be appropriate to enter judgment in the terms of the award; for judgments may, depending on the jurisdiction, carry interest—e.g., in England under the Judgments Act 1838 judgments carry interest at the rate of 8%[10] on a simple (non-compounded) basis.

The authorities on this area were reviewed by Flaux J in Sonatrach v Statoil[11]Flaux J observed that Aikens J had not overlooked the statutory interest in Walker v Rome for Aiken J had said a little earlier in the judgment: “If interest was payable at all after the date of the judgment, then it would be payable under the Judgments Act 1838 …”

Aikens J was to make the same point in Pirtek (UK) Ltd v Deanswood Ltd[12] in a case where the court held that an arbitrator had no jurisdiction to make an award on interest in respect of a previous award where no interest had been awarded.  He said: “ … the difficulty could have been avoided by a much earlier application to make the Award a judgment.  Judgment Act interest would then have run on the sum awarded.”

As the above cases demonstrate once judgment has been entered under s.66 (or s.101(2) in the case of a foreign New York Convention award) of the Arbitration Act 1996 that judgment has the same characteristics as any other judgment and carries interest accordingly: the obligation to honour the award merges into a judgment which carries interest: see Dalmia v National Bank[13] and Gater Assets Ltd v Nak Naftogaz (No. 2)[14].  In the latter case Beatson J (as he then was) said: “The essential difference is that the obligation to honour an award arises by virtue of the agreement of the parties, whereas in the case of a judgment it follows from the powers of the court.”


[1] [1974] 1 Lloyd’s Rep 394

[2] [2009] EWHC 977 (Comm).  As the judge described it “This was simply a howler which was sought to be corrected.”  The writer represented the award creditor.

[3] Care should, however, be taken not to over compensate by looking too closely at the opportunity cost.  For remoteness reasons a claimant should not usually be compensated for the actual use they might have put the money to i.e. it would have purchased stock that has significantly increased in value.  The normal measure will be lost interest that the funds would have attracted.

[4] In general terms interest should run from when payment was due in the case of debts and from when the loss was suffered in the case of damages.  In civil law systems (such as France, Germany and Switzerland) as it is not sufficient merely for the payer to be in breach and the innocent party must give notice of default for interest to accrue, it will generally run from the date of the notice.  Practice Guideline 13 of the Guidelines for Arbitrators on how to approach the making of awards on interest, suggests that a mid-point is taken when losses are suffered over a period.

[5] English law gives the tribunal discretion: Arbitration Act 1996 s49.  In contrast Swiss law provides that compound interest cannot be awarded (Swiss Code of Obligations Articles 105 and 314).

[6] [2007] 3 WLR 354.

[7] [2014] EWHC 1884 (Comm)

[8] The Court allowed an appeal against an award that granted interest under the Act.  The Court was plainly very conscious not to extend domestic policy to international parties and not to dissuade international parties from choosing English law and seat.

[9] [1999] 2 All ER (Comm) 961, [2000] 1 Lloyd’s Rep 116.

[10] A generous rate at the time of writing such that it may be beneficial NOT to seek post-award interest and rely upon this or similar provisions.

[11] [2014] EWHC 875 (Comm)

[12] [2005] EWHC 2301 (Comm); [2005] 2 Lloyd’s Rep 728

[13] [1978] 2 Lloyd’s Rep 223, 275

[14] [2008] EWHC 1108 (Comm); [2009] 1 ALL ER (Comm) 667

The Law of the Agreement to Arbitrate

In Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd [2013] the Court was faced with a dispute in relation to an alleged contract for the sale and purchase of steel.

Negotiations for the contract had involved Habas, its agents, and VSC.  Various drafts of the contract had suggested different governing laws of the underlying contract and arbitration clause.  Habas argued that its agents had known that it would only accept Turkish law and Turkish arbitration and that the agents did not have actual authority to agree to any other arbitration clause.  However, following further negotiations between the agents andVSC, the final contract did not provide an express choice of law, but simply provided for ICC arbitration in London.

VSC commenced arbitration proceedings, claiming damages.  The arbitral tribunal found that Habas’s agents, had ostensible authority to conclude the contract and arbitration agreement. It consequently found that there was a binding London arbitration agreement and awardedVSC damages.  Habas made various applications, including a challenge the tribunal’s jurisdiction and its award, under section 67 of the Arbitration Act 1996.

Habas acknowledged that, where there was no express law governing the underlying contract, it was clear on authority that the applicable law of the arbitration agreement should be that of the seat.  However, it argued that, in this case, there was good reason for departing from that principle, because the agents had exceeded their actual authority by agreeing to the London arbitration clause and it was only because of this, that it was possible to say that the arbitration agreement had its closest connection with English law.  Habas argued that English private international law should determine the proper law of the arbitration agreement without reference to the London arbitration clause. On that basis, the proper law of the arbitration agreement was Turkish law, being the law with the closest connection to the underlying contract.

The Court concluded that, even if it was the case that there was no actual authority for the agents to agree the London arbitration clause, the applicable law of the arbitration agreement was English law.

On the assumption, as argued by Habas, that as there was no choice of the law of the underlying contract, the law of the underlying contract would be Turkish law, being the law with which the underlying contract was most closely connected.

Referring to the conclusions reached in Sulamerica [2012] and Arsanovia [2012], the terms of the arbitration clause may themselves connote an implied choice of law.  Referring to the decisions in Cie Tunisienne v Cie d’Armement [1971] and Egon Oldendorff v Liberia Corp [1996],  the terms of the arbitration clause may operate as an implied choice of law for the underlying agreement.

The Court concluded:

  • There is no logical link between the issue of authority and the issue of the law with which a contract has its closest connection.  Determining the latter question involves a consideration of the terms of the contract as made, rather than the authority with which it was made.
  • It is well established that validity is determined by the putative proper law of the contract.  Furthermore, there is no reason why that principle should be limited to issues of validity arising out of lack of actual authority.
  • Habas’s argument involved English law giving special treatment to actual authority for conflicts of laws purposes. As a matter of English law, actual authority is not a stronger or more effectual form of authority than ostensible authority. As between the principal and the third party, there is no difference between actual and ostensible authority.
  • Habas’s argument would potentially affect the validity of many contracts which would otherwise be valid and binding because the agent had ostensible authority as a matter of English law as the putative applicable law, and for reasons outside the knowledge and control of the third party and contrary to the representations made to him as to that authority.
  • The first question that should be asked is: what is the applicable law of the putative agreement? All other questions then follow.
  • There is authority on agency principles which states that, whether an agent has ostensible authority is a matter for the law of the putative contract, and that law “also governs apparent authority to subject a contract, whether directly or indirectly, to a particular system of law” (Bowstead and Reynolds on Agency (Sweet & Maxwell, 19th edition, 2010) at paragraph 12- 016).
  • There are a number of decisions in which ostensible authority has been treated as being governed by English law as the result of putative agreement to a clause in a contract, without any consideration of actual authority to agree that clause and notwithstanding that it was being alleged that there was no actual authority to enter into the contract.
  • There are authoritative decisions in which arguments similar to that advanced by Habas had been rejected. In The Parouth [1982] (followed by the Court of Appeal in The Atlantic Emperor [1989] ) the Court of Appeal rejected an argument that, where the issue between the parties was whether a contract was made, it would be wrong to allow the English arbitration clause to be a factor pointing towards English law and that it should be treated neutrally.

 The case adds to the principles cited in cases such as  Sulamerica and Arsanovia on how to determine the applicable law of an arbitration agreement, in the absence of any express choice.  It highlights, in particular, that the terms of the arbitration clause themselves may suggest an implied choice of law.

The Court also distinguished between the ability of an agent to bind a principal to a choice of law clause when acting outside actual authority, and the ability to bind the principal to a clause which might affect the implied choice of a system of law, such as an arbitration choice of seat clause.

Award set aside where conditions precedent not complied with – no contract

In Hyundai Merchant Marine v Americas Bulk Transport [2013] the Commercial Court has set aside an award under section 67 of the Arbitration Act 1996 on the basis that no binding contract had ever been concluded. Disputes under a charterparty were referred to arbitration by the owners (O). The charterers (C) objected to the jurisdiction of the tribunal on grounds (broadly) that:

  • A “subject” or condition precedent had not been complied with.
  • There was no consensus between the parties.

The tribunal ruled that all conditions precedent had been complied with and that a binding contract therefore existed.

C challenged the award. Relying on dicta in UR Power v Kuok Oils & Grains [2009], it argued that, unless the parties had made it clear that the condition precedent also governed the arbitration agreement, the court should presume that the arbitration agreement was unaffected by any failure of the subject that might affect the underlying charterparty.  That might be thought to be an uncontroversial proposition and the judge did not disagree with it – rather he held the facts were sufficiently different and disagreed in the result.

Any conditions applied to the arbitration clause just like any other, and there was no evidence that the parties intended the arbitration clause to have effect independently of the charterparty.  Assuming that a binding contract otherwise existed, the judge would have held (like the tribunal) that the conditions had been lifted.  However, having reviewed the evidence, the judge held that there was no consensus, and no contract had ever come into existence.

Although the English courts have traditionally said that a jurisdictional challenge must “directly impeach” the arbitration agreement, this case illustrates that a complete lack of consensus will affect the arbitration agreement just as it affects the host agreement. The judgment also illuminates the evidential difficulties that can face a court when conducting a rehearing of a jurisdictional issue: the issues turned in part upon the proper effect of telephone calls which took place five years ago, and the contemporaneous documents were sparse.

Court entitled to grant injunction under SCA where AA not engaged

In Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] the Supreme Court has held that the English courts have jurisdiction to restrain proceedings brought in a state outside the Brussels Regulation or Lugano Convention regime and in breach of an arbitration agreement, even if no arbitration is on foot or contemplated.

The respondent had applied to the English court for a declaration that the arbitration clause in the parties’ contract was valid and enforceable and for an injunction restraining the appellant from pursuing proceedings commenced in Kazakhstan, in breach of the arbitration clause.  It had not commenced arbitration and had no plans to do so.  The judge granted an anti-suit injunction and a declaration, although limited to declare that specified claims could only be brought by London arbitration, so as not to usurp the arbitrators’ power to determine their own jurisdiction.  The Court of Appeal upheld that decision.

The Supreme Court unanimously rejected the appellant’s argument that the court had no jurisdiction to grant such relief where there was no arbitration on foot or contemplated. Lord Mance, giving the judgment of the court, held that there is nothing in the Arbitration Act 1996 that removes or limits the court’s general power under section 37 of the Senior Courts Act 1981 to restrain foreign proceedings commenced in breach of an arbitration agreement.


Incorporation of arbitration clauses 2

In Lisnave Estaleiros Navais SA v Chemikalien Seetransport GmbH [2013] the court set aside an arbitration award for lack of substantive jurisdiction: section 67(1)(a).

The claimant entered into an agreement with the defendant, under which the parties agreed commercial terms for repairs to the defendant’s fleet.  The agreement did not contain an arbitration agreement.  A dispute arose and the defendant referred a claim to arbitration.  The defendant’s case was that the arbitration agreement in the claimant’s general conditions was incorporated by reason of the parties’ prior dealing. Alternatively, it was the parties’ clear intention that the agreement was to be subject to an arbitration agreement.

The claimant’s general conditions contained a clause providing for arbitration, but also other dispute resolution provisions. Those general conditions were incorporated in individual ship repair contracts, the contracting parties being the claimant and the individual ship-owning companies (not the defendant).

By a majority award, the tribunal found that it had jurisdiction and that the agreement incorporated the general conditions.

The court set aside the award.  This was not a case of an informal contract followed by a more formal one, in which a set of terms had been incorporated.  Here, there was a formal detailed contract in which there was no reference to the general conditions.  Further, the defendants were not seeking to incorporate the general conditions as a whole, only the arbitration clause. The court should give priority to what the parties have expressly agreed and should not readily supplement such terms.   This is consistent with earlier authority (see Incorporation of arbitration clauses below on 15/7/2010)

I am pleased to announce the ‘birth’ of the Guide to the IBA Rules

I am pleased to announce the ‘birth’ of  “The IBA Rules on Taking Evidence in International Arbitration – A Guide”.  The Guide reproduces the Rules and the Commentary by the IBA Committee and I have added my own thoughts on how practitioners and arbitral tribunals might approach issues that arise from the Rules.

The IBA Rules are commonly used in international commercial arbitration (and investor – state arbitrations) and yet there are few guides to their use and interpretation.  I trust my thoughts benefit the discussion of their application.

The book is available from the publishers, Cambridge University Press, at (and other good bookshops!)



Indian Supreme Court overrules Bhatia

On 6 September 2012, the Indian Supreme Court delivered its much-awaited judgment in Bharat Aluminium Co v. Kaiser Aluminium Technical Services (‘BALCO’). The decision is likely to be regarded as a watershed.   Although the Indian Arbitration and Conciliation Act, 1996 (‘the Act’) is based on the UNCITRAL Model Law, on a clearly erroneous statutory construction of the Act, the Indian Supreme Court in the much-criticised Bhatia and Venture Global decisions assumed that, unless the parties expressly or implied agreed to the contrary, the Indian courts had jurisdiction with respect to foreign-seated arbitration akin to their curial jurisdiction with respect to arbitrations seated within India under Part I of the Act.  Based on this flawed analysis of the  Act, Indian courts had asserted jurisdiction to grant interim measures in aid of foreign-seated arbitrations (Bhatia) and even set-aside awards made pursuant to foreign-seated arbitrations (Venture Global).  The Indian Supreme Court in BALCO has now unequivocally overruled Bhatia and Venture Global on the basis that Part I of the Act does not apply to foreign-seated arbitrations. This conclusion principally stems from two fundamental propositions that the court underscored in its judgment namely (i) the application of the UNCITRAL Model Law was intended to be limited to the territorial jurisdiction of the seat of arbitration i.e. the territoriality principle and (ii) the seat of the arbitration is the ‘centre of gravity’ of the arbitration and therefore a choice of a foreign-seated arbitration by the parties ordinarily meant that the parties also agreed to the application of the curial law of that foreign country.  The court considered that an acceptance of the statutory construction of the Act espoused in the Bhatia and Venture Global decisions was tantamount to giving extra-territorial application to the Act, which was not the intention of the Indian Parliament when it enacted this law. 

There are several consequences that flow fromthe Bhatia and Venture Global decisions being overruled by the BALCO decision. (1) It is now plain that Indian courts should not assert jurisdiction in matters concerned with, in particular, (i) the grant of interim remedies in aid of foreign-seated arbitrations purportedly pursuant to section 9 of the Act; (ii) the making of default appointment of arbitrators in foreign-seated arbitrations purportedly pursuant to section 11 of the Act; and (iii) applications to set aside foreign awards purportedly pursuant to section 34 of the Act.  (2) Insofar as the Indian court’s jurisdiction will no longer depend on its attempt to divine the express or implied intentions of the parties, it will accordingly not be necessary for parties to expressly exclude the application of Part I of the Act in arbitration agreements that provide for foreign-seated arbitration on or after 6 September 2012.  Following the Bhatia and Venture Global decisions, this had become a standard drafting practice for parties who wanted minimal intervention from the Indian courts with respect to their contracts that involved at least one Indian party and contained a foreign-seated arbitration clause.  (3) It has been made abundantly clear in BALCO that the Indian courts will also not have jurisdiction to entertain an ordinary civil suit filed under the Code of Civil Procedure for the purpose of seeking interim relief in aid of foreign-seated arbitrations.  This is because such interim relief is not a substantive cause of action so as to warrant the institution of a civil suit under Indian law.  Interestingly, the position under Indian law now appears to the same as it was under English law (see Siskina (Cargo Owners) v. Distos Compania Naviera SA [1979]) and Singapore law (see Swift-Fortune Ltd v. Magnifica Marine SA [2007]) prior to supervening legislation being enacted in those two countries to specifically redress this issue.  (4) Finally, Part I of the Act will continue to apply to all arbitrations (i.e. domestic and international) seated in India.  In arbitrations seated in India, the Indian courts, in their capacity as the supervisory courts at the seat of arbitration, will have broad jurisdiction under Part I of the Act to supervise and support the arbitral process (including the power to set aside an award made pursuant to such arbitration). 

Quite apart from the legal consequences discussed above, there is another important aspect of the BALCO decision that needs to be underscored. This is the refreshing manner by which the Indian Supreme Court has embarked on a direct inquiry as to the intention and purpose behind the relevant provisions of the UNCITRAL Model Law and the New York Convention, as discernible from the travaux préparatoires, in addition to appreciating how those operative provisions are understood in several other jurisdictions. This is an important development because it is a significant departure from its previous case-law and practice.  It’s willingness to do so, in fact, conveys the message that Indian courts will no longer hesitate to be directly guided by the terms of the relevant international conventions, as they are understood internationally, and, if the need arises, construe Indian legislation in conformity with the same.  This is all the more significant in view of the fact that, even now, one of the major hurdles that arbitration users face in India is the Indian courts’ difficulty in being able to adapt and transition to arbitrations governed by a law based on the UNCITRAL Model Law, despite it being enacted in 1996. For over five decades prior to 1996, Indian arbitration was governed by the Arbitration Act of 1940 (‘the 1940 Act’) which was based on even older English statutes of Victorian vintage.  The dilatory and inefficient conduct of arbitrations under the 1940 Act laced together with the excessive intervention of the courts made an Indian Supreme Court judge famously remark once that: ‘[The 1940 Act] has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the [1940] Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary.’  

Prior to the enactment of the 1996 Act, the Indian Supreme Court decided in National Thermal Power v. Singer Company [1992] (‘Singer’) that a foreign award could be set aside by the Indian courts in the event that the arbitration agreement between the parties was governed by Indian law.  Although this decision could have been narrowly based on a statutory carve-out under the pre-1996 arbitration regime (which has been expressly omitted in the Act), the court in Singer went much further.  It reasoned that though the contract, in that case, provided for ICC arbitration in London, the governing law of the contract was Indian law and therefore, in the absence of an unmistakable intention to the contrary, the law applicable to the arbitration agreement was Indian law as well.  The court considered that although the parties could in theory, either expressly or impliedly, make a choice as to the curial law, the jurisdiction of the Indian courts was concurrent with the jurisdiction of the English courts with respect to curial matters (including the determination of an application to set aside the ICC award made in London). This was on the mistaken basis that since the law applicable to the arbitration agreement was Indian law, it necessarily followed that Indian courts had ‘jurisdiction over all matters concerning arbitration.’ Instead of clearly departing from the erroneous analysis set out in Singer after the commencement of theAct, the Bhatia and Venture Global decisions took it to one step further by asserting that Indian courts had jurisdiction with respect to foreign-seated arbitrations involving an Indian party under Part I of the Act, regardless of the governing law of the contract.  

Whilst the BALCO decision enables the Indian courts to make a fresh start, there are several serious issues that still need to be dealt with.  The foremost concern arises from the fact that the BALCO decision will apply prospectively i.e. only to arbitration agreements which are concluded on or after 6 September 2012.  This effectively means that Part I of the Act will continue to apply to foreign-seated arbitrations with respect to arbitration agreements concluded prior to that date, unless the parties have either expressly or impliedly agreed otherwise.  The doctrine of prospective overruling is a tool that has been applied on several occasions in the past by the Indian Supreme Court but normally only where the court has decided to invalidate a constitutional amendment or a statutory enactment but the Bhatia or Venture Global decisions enabled Indian courts to assert jurisdiction with respect to foreign-seated arbitrations involving an Indian party, unless the parties had expressly or impliedly agreed to the contrary. Seen in that light, it is important to note that these decisions did not affect the validity of foreign-seated arbitration clauses involving an Indian party.  The consequence is that the only past transactions that were susceptible to being invalidated in the wake of the BALCO decision were court proceedings (either pending or those having attained finality) commenced in India on the basis of the Bhatia or Venture Global decisions.  Accordingly, the BALCO decision should have been applied if applied at all prospectively only to the commencement of any proceedings in India rather than the execution of any new arbitration agreements.  This is likely to become a contentious issue in the future.  Given the significant delays in court proceedings in India and the fact that it is not uncommon to obtain a final decision only after litigating there for at least 7 to 10 years, the BALCO decision effectively means that despite Bhatia and Venture Global being expressly overruled, those precedents will ironically continue to guide the Indian courts for another decade or so with respect to arbitration agreements entered into prior to 6 September 2012.  Unless the Indian Supreme Court subsequently backpedals on this issue, there is likely to be a lot of confusion created in any attempt made by the Indian courts to maintain two parallel regimes for the next decade or so.  Another major issue arises from the fact that, besides the Bhatia and Venture Global decisions, there are still several other previous decisions of the Indian Supreme Court that remain good law and which can potentially create problems in international arbitrations involving Indian parties. For example, the BALCO decision did not have occasion to consider the broad ‘public policy’ doctrine enunciated in ONGC v. Saw Pipes9 and its applicability as a standard to challenge the enforcement of foreign awards in India.  Significantly, the Indian Supreme Court recently applied this standard whilst deciding a case concerning the enforcement of a Russian Chamber of Commerce and Industry award made in Moscow.   Although the challenge did not succeed on the merits of the case, this ruling does create a disconcerting precedent.  The BALCO decision also does not affect the judicial rule, endorsed by the Indian Supreme Court, to refuse to refer a matter to arbitration where either a serious allegation of fraud has been made or there are complicated questions of fact or law that require extensive oral or documentary evidence.  The Indian courts consider that, in such circumstances, it is inappropriate to refer the disputes to arbitration and will accordingly retain jurisdiction to decide such cases. Although, there are no known reported cases where an Indian court has refused to refer matters to international arbitration on the basis of such a rule, nothing prevents a court from refusing to do so in the future unless this rule is overruled or deemed to be not applicable to international arbitration.  Finally, even after the BALCO decision, it remains arguable on the basis of the decision of the Indian Supreme Court in TDM Infrastructure Private Limited v. UE Development India Private Limited that it is inconsistent with Indian public policy for an Indian incorporated entity to contract out of the application of Indian substantive law in a contract that it enters into with another Indian incorporated entity.  This is despite the fact that such a contract may contain a foreign-seated arbitration clause.  Accordingly, in the event that two Indian incorporated entities wish to enter into a contract that provides for a foreign-seated arbitration, it still remains prudent to stipulate Indian law as the governing law of such a contract.

These decisions make it plain that the BALCO decision, whilst welcome, is not the panacea for all the ills associated with arbitration in India.  It is hoped, however, that the BALCO decision is the beginning of a new dawn for arbitration in India.

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