"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Thursday, September 8, 2011

Implied Exclusion of Part I: Yograj Infrastructure v Ssang Yong Engineering & Construction Co. Ltd.

In a previous post, we had mentioned a recent judgement of the Supreme Court on the implied exclusion of Part I of the Arbitration and Conciliation Act, 1996. In this post, we discuss the judgement in detail.

Court: Supreme Court of India
Bench: Altamas Kabir & Cyraic Joseph, JJ
Case: Civil Appeal No. 7652/ 2011 (arising out of SLP (C) No. 25624/ 2010)
Date: 01 September 2011

Facts:
12.04.06 National Highways Authority of India (NHAI) awarded a contract to Ssang Yong Engineering & Construction Co. Ltd. (Ssang), a Korean Company for converting an existing highway into a four lane highway.
13.08.06 Ssang sub-contracted (Contract) the entire work to Yograj Infrastructure (Yograj).

22.09.09 Disputes pertaining to delay in performance arose and Ssang terminated the Contract with Yograj. Yograj approached the District Court at Narsinghpur, Madhya Pradesh for relief under Section 9 of the Arbitration and Conciliation Act, 1996.

30.12.09 Another application under Section 9 was filed.

20.05.10 Disputes between the parties were referred to the sole arbitrator appointed pursuant to the arbitration clause in the agreement.

04.06.10 Yograj filed an application before the sole arbitrator for interim relief.
05.06.10 Ssang filed an application before the sole arbitrator for interim relief.

29.06.10 The arbitrator passed an interim order. Aggrieved by the order, Yograj filed an appeal under Section 37(2)(b) of the Act before the District Judge for setting aside the interim relief granted by the sole arbitrator under Section 17. Ssang contended before the District Judge that the appeal was not maintainable as the seat of arbitration was Singapore and the proceedings were governed according to the Singaporean laws.

23.07.10 The District Judge accepted the contention of Ssang and dismissed the appeal.

31.08.10 Yograj filed a Civil Revision Petition in the High Court, which was dismissed.

Yograj filed a Special Leave Petition before the Supreme Court against the decision of the High Court.

Relevant Extract of the Agreement:
27.1 All disputes, differences arising out of or in connection with the Agreement shall be referred to arbitration. The arbitration proceedings shall be conducted in English in Singapore in accordance with the Singapore International Arbitration Centre (SIAC) Rules as in force at the time of signing of this Agreement. The arbitration shall be final and binding.

27.2 The arbitration shall take place in Singapore and be conducted in English language.

27.3 None of the Party shall be entitled to suspend the performance of the Agreement merely by reason of a dispute and/or a dispute referred to arbitration.

28. This agreement shall be subject to the laws of India. During the period of arbitration, the performance of this agreement shall be carried on without interruption and in accordance with its terms and provisions
.”
Judgement:
Summary of the judgement is as below (we have quoted several portions of the judgement as it is so as to not misinterpret the judgement):
  • The arbitration proceedings were to be conducted as per the SIAC Rules. The seat of arbitration was Singapore. Consequently, “the procedural law with regard to the arbitration proceedings is the SIAC Rules.” (Para 33)
  • Clause 28 indicates that the governing law of the agreement would be the law of India, i.e., the Arbitration and Conciliation Act, 1996.” (Para 35)
  • The proper law is the law that governs the agreement. Where the agreement is silent as to the “law which would apply in respect of the arbitral proceedings” but the proper law of the agreement is provided for, the latter would also be the “law applicable to the arbitral tribunal”. (Para 35)
  • Clause 27.1 clearly provides that “the curial law which regulates the procedure to be conducted in conducting the arbitration would be the SIAC Rules.” (Para 35)
  • In Bhatia International (supra), wherein while considering the applicability of Part I of the 1996 Act to arbitral proceedings where the seat of arbitration was in India, this Court was of the view that Part I of the Act did not automatically exclude all foreign arbitral proceedings or awards, unless the parties specifically agreed to exclude the same.” (Para 36)
  • Bhatia International would not apply to the arbitration because parties have agreed that SIAC Rules would be the curial law. Rule 32 of the SIAC Rules provided: “Where the seat of arbitration is Singapore, the laws of the arbitration under these Rules shall be the International Arbitration Act [] or its modification or reenactment thereof.”
  • Once the parties have agreed that Singapore would be the arbitral seat, that the arbitration would be conducted as per the SIAC Rules and that the Singapore International Arbitration Act would be the law of arbitration, Part I would not apply.
  • The Petitioner’s contention that Respondent had previously approached the Indian court under Section 9 cannot stand because the application was prior to the commencement of arbitration. The curial law, the SIAC Rules, became applicable once the arbitration commenced and excluded the Applicability of Part I.
Critique:
Typographical/ Other Flaws in the Judgement:
1. While narrating the facts, at Para 3, the court stated:
Clause 27 and 28 provided for arbitration and the governing law agreed to was the Arbitration and Conciliation Act, 1996.”
Clauses 27 and 28 of the Agreement were silent on the applicability of the Arbitration and Conciliation Act, 1996. In fact, it was the court’s judgement that the governing law was the Rules of the Singapore International Centre and not the Arbitration and Conciliation Act, 1996.

2. While recounting the case history, at Para 4, the court stated:
A similar application under Section 9 [] was filed by the Appellant before the [District and Sessions Judge, Narsinghpur, Madhya Pradesh] on 30th December 2009, also for interim relief’s.”
It was the Respondent which filed an application for interim relief on 30th December 2009. See this order of the Madhya Pradesh High Court.

3. At Paras 4 & 5 of the judgement, the court stated that the Appellant and the Respondent filed applications before the sole arbitrator for interim relief “under Section 17” of the Arbitration and Conciliation Act, 1996. How could have the parties applied to the sole arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996 if Part I was excluded? See Para 24, where the judgement states that “[b]oth the parties filed applications before the learned Arbitrator seeking interim relief under Rule 24 of the SIAC Rules…”

4. In Para 36 of the judgement, the Court stated:
In Bhatia International (supra), wherein while considering the applicability of Part I of the 1996 Act to arbitral proceedings where the seat of arbitration was in India, this Court was of the view that Part I of the Act did not automatically exclude all foreign arbitral proceedings or awards, unless the parties specifically agreed to exclude the same.”
The underlined portion above should have been “where the seat of arbitration was outside India”.

Notable Aspects
:

The judgement is notable for two reasons:

1. It states that even if the agreement is subject to the laws of India, if the seat is Singapore and the arbitration is to be conducted in accordance with SIAC Rules, Part I is deemed to have been excluded. This judgements overrule impliedly several judgements of the Indian court where the choice of substantive law of contract of Indian law was cited as the reason for the applicability of Part I despite a Non-Indian choice of seat.

2. The judgement partially brings the Indian law on interim measures in international commercial arbitration held outside India in tune with the UNCITRAL Model Law on International Commercial Arbitration, 1985 (Model Law). According to this judgement, even if parties choose to exclude Part I impliedly by choosing the SIAC Rules, parties could nevertheless approach the Indian courts before the commencement of arbitration for interim relief under Section 9 of the Act. This is significant because the original text of the Act (prior to the “voodoo” interpretation of the Act by Bhatia International) did not contain a provision for interim measures in arbitrations held outside India. Courts (see, Bhatia International, for example) considered this to be an unconscious omission. We have hypothesized elsewhere that this omission might have been deliberate. Article 1(2) of the Model Law provided that although the Model Law applied only if the place of arbitration was within the territory of the country adopting the Model Law, Article 9, which dealt with interim measures of protection by court, was applicable even if the place of arbitration was outside the territory of that country. This provision was not adopted in the 1996 Act. The absence of a provision for interim relief in Non-Indian arbitrations probably made the Supreme Court in Bhatia International to indulge in the interpretative adventure which the case is now notorious for. After Bhatia International, implied exclusion acted, mostly, in an all or nothing fashion (although Bhatia International stated that parties could impliedly exclude all or some of Part I)- either Part I applied or did not apply. Now, after Yograj Infrastructure, even if parties impliedly excluded Part I, nothing prevented them from approaching the Indian courts under Section 9 of the 1996 Act before the commencement of arbitration.

Ambiguous, Unclear and Irrational Choice of Law Rules?In this case, the Supreme Court probably got the analysis of the implications of choice of law and of forum completely wrong. It would seem that the court’s reasoning/ analysis on curial law, consequence of choice of the law of seat etc is erroneous.We had started a series of posts on Choice of Law in International Arbitration from an Indian perspective (the first post in the series can be accessed from here). As a part of that series, we will critique this decision on the implications by the parties of the choice of forum and of law.

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