"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.

Tuesday, November 1, 2011

Further Confusion in the Law on Interim Measures in Non-Indian Arbitrations

Critique that Indian arbitration law is the whim and fancy of every High Court/ Supreme Court judge in India can be found in various places in this blog. Before dealing with a judgement of the Delhi High Court on interim measures in international commercial arbitration, we thought it fit to reiterate this point.

The judgement by Manmohan, J. was pursuant to an application for interim measures by Prima Buildwell Pvt Ltd (Buildwell) against Lost City Developments LLC (Lost), Cavern Hotels & Resorts FZCO (Cavern) and Dubai World. Buildwell, its affiliate, and its parent company entered into a Joint Venture Agreement in 2007. The JV Agreement provided for reference of disputes to arbitration in London under the ICC rules of arbitration.The Agreement also provided that the Governing Law would be English Law.

It was contended by Sr. Counsel Dr. AM Singhvi (for the respondents) that cause of action did not arise within the jurisdiction of the Delhi High Court and the respondents did not own assets or bank accounts in India. Further, it was contended that the petitioner had alternative forum for seeking relief and that the seat of arbitration was London and not India. Therefore, Indian courts did not have jurisdiction to entertain the application for interim measures.

The Delhi High Court held that the governing law of arbitration agreement was the English law When the parties agreed for London as the seat, the court held, the English courts had supervisory jurisdiction to grant interim measures. Shockingly, the court cited the case of Shashoua v Sharma (we had briefly discussed this case previously in this blog) and concluded that since the choice of seat operated as an exclusive jurisdiction clause, Part I was excluded . We say "shockingly" because the law as discussed in Shashoua does not prevail in India. In Shashoua, the English Court of Appeal held that designation of the seat of arbitration is akin to an exclusive jurisdiction clause- no other country except the seat has supervisory jurisdiction over the arbitration. It must be noted that after Bhatia International and a string of subsequent judgements applying Bhatia International, as per Indian law, designation of seat does not operate as an exclusive jurisdiction clause in case of international commercial arbitration held outside India. As aptly put by Mr. Niranjan of Indian Corporate Law blog, "[t]he seat of arbitration in Indian law has perhaps a more marginal role than it deserves in determining whether Part I has been impliedly excluded." The law in England and Wales is completely different from India on this issue. In accordance with Indian law, even if the seat of arbitration is outside India, Indian arbitration law would nevertheless apply unless parties excluded it expressly or impliedly. Therefore, citing Shashoua by the judge was wholly inappropriate.It must, however, be conceded that an agreement selecting the seat of arbitration should (but does not in India) operate as an exclusive jurisdiction clause. But Indian law does not recognise this. To recognise such a principle would be to overrule Bhatia International.

Further, the interim measures appear to be maintainable as Article 23 of the ICC Rules allow a party to approach a"competent judicial authority" for interim measures. The court disregarded this contention and held: 
"The question of what constitutes a competent court was also considered by a Division Bench of this court in re. Max India (supra), where it was held that courts of the country whose substantive laws govern the arbitration agreement are the competent court in respect of all matters arising under the arbitration agreement."
The Max India judgement that the Single Judge referred to was the judgement by the Division Bench of the Delhi High Court. In Max India, the substantive law of contract was Singapore; Singaporean courts were the competent courts; venue of arbitration was Singapore and the arbitration was to be conducted as per SIAC Rules. It is true that the Division Bench held that where the substantive law of contract and governing law of arbitration were Non-Indian Law and the seat was outside India, Part I was excluded. However, in Max India, no provision akin to Article 23 of the ICC Rules which allowed a party to approach any competent judicial authority was cited. In this context, it is relevant to cite certain portions of the judgement in Bhatia International:
"...Mr. Sen submits that, in this case the parties had agreed that the arbitration be as per the rules of ICC. He submits that thus by necessary implication Section 9 would not apply. In our view in such cases the question would be whether Section 9 gets excluded by the ICC Rules of Arbitration... Thus Article 23 of the ICC rules permits parties to apply to a competent judicial authority for interim and conservatory measures. Therefore, in such cases an application can be made under Section 9 of the said Act."
The distinguishing point between Max India and Bhatia seems to be that in the former case, parties had chosen Singaporean courts while in the latter there was no such choice. Parties by agreeing to ICC Rules agreed that they could approach any "competent judicial authority" for interim measures.

The judgement can be accessed from here

On a not-so-serious note, there are two aspects worth mentioning here. One, while Article 23.2 ICC Rules is the relevant provision, the Single Judge quoted Article 23.1 (which provides for application to the arbitral tribunal for interim measures). The reason why the judge quoted Article 23.1 instead of Article 23.2 is anybody's guess. Two, in Max India, Dr. AM Singhvi contended:
"Even when arbitral proceedings were to be conducted by SIAC at Singapore applying laws of Singapore, jurisdiction of Indian courts was not "specifically excluded" in Article 19 of the Agreement. In the absence of such specific exclusion, court in India for limited purpose of issuing direction for interim measures, to protect the property in India shall have the requisite jurisdiction..."

In this case, however, Dr. AM Singhvi contended:
"[T]he petitioners are not entitled for any relief sought and the petition is liable to be dismissed which is devoid of any jurisdiction, therefore, the court on its own should not exercise its discretion to grant any relief... The petitioners have alternative forum to seek the same relief and the appropriate and natural forum for the petitioners to seek interim relief is the Dubai World Tribunal at Dubai, where the obligations flowing from the JVA had to be ordinarily performed and is also the place where the respondents are domiciled as well as the situs of the funds which the petitioners are claiming are in a bank account or at the alternative place where the Arbitral seat exists as per the agreement which contain clause that the dispute shall be finally and exclusively settled by Arbitration in London."
In Max India, the counsel argued that an application for interim measures did lie while in this case, he contended otherwise.

No comments: