Presentation on the SIAC Proposal on Cross-Institutional Consolidation of Arbitration

Readers may please refer to yesterday's post in this blog on the recent proposal of the Singapore International Arbitration Centre on cross-institutional consolidation of arbitrations. For the ease of the readers, we have prepared a short 20-slide presentation on mechanics of SIAC's proposal. The presentation can be accessed from this link. Happy reading!

SIAC's Proposal on Cross Institutional Consolidation

Consider a complex set of transactions where a party proposes to invest in a country by entering into a joint venture with another company registered and functioning in that country. The investor enters into a series of transactions with its joint venture partner. One of such transactions could probably be a Shareholders Agreement,  which could provide for arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC). Another possible agreement that the parties could agree upon could be a technology licensing agreement. Consider that the parties agree, unwittingly, for arbitration under a different arbitral institution, say, the Singapore International Centre's (SIAC) arbitration rules. Assume that at a later point of time, a dispute arises between the parties and that the dispute relates to obligations under the shareholders agrement as well as the technology licensing agreement. 

Will the arbitration take place under the SIAC or the ICC Rules? Who decides the issue? What if one party takes a stance that the arbitration should be under the ICC Rules and the other party thinks SIAC Rules should govern? What happends if the tribunal under the ICC Rules comes up with a finding inconsisent with the tribunal under the SIAC Rules? The parties will spend thousands, if not millions, of dollars in deciding these questions, that too in various jurisdictions.

In order to save the trouble for the parties, the Singapore International Arbitration Centre has come up with a radically innovative proposal for consolidation of related arbitral proceedings but under different institutional rules. The proposal seeks adoption by international arbitration institutions of a protocol for this purpose. Acceptance of the proposal would entail amendment of the institutions' arbitration rules. 

The SIAC proposal for Cross-Institutional Consolidation is in effect two proposals: the first proposal is for a stand-alone mechanism for addressing the timing, the decision-making authority and the standards for such consolidation. Specifically, the SIAC recommends that a joint committee consisting of the representatives of the arbitral institutions whose proceedings are to be consolidated to decide on the applications for consolidation. The second, alternative, proposal calls for arbitral institutions to adopt objective criteria on the basis of which consolidations applications would be decided. 

SIAC thinks that the first proposal would be objective. But given that arbitral institutions which are very protective about their turf (see, for instance Article 1(2) of the ICC Rules), acceptance of the SIAC proposal would not be an easy task. Even otherwise, the SIAC proposal is a significant signal to the international arbitration market that the institution means business in making international arbitration efficient. 

SIAC's proposal can be accessed from this link. A summary of the proposal is available here.

Further Changes to Indian Arbitration Law in Line with the Report of the High Level Committee

News reports suggest that the Justice Sri Krishna Committee recommendations are going to be implemented through a slew of amendments to the 1996 Act. It appears that the Cabinet already has an amendment bill with it and the bill is likely to be tabled during the winter session of the Parliament. The bill could deal with the following aspects:

• Removal of typographical and other such errors in the Arbitration and Conciliation (Amendment) Act, 2015.
• Extending the time period of 12 months from the date when the tribunal enters reference to one year after the completion/ closure of pleadings.
• Immunity of arbitrators, except in bad faith.
• Model rules of procedure in conducting arbitrations 
• confidentiality of arbitral proceedings 
• Prospective applicability of the 2015 amendments.

For those interested, the report of the Justice Sri Krishna Committee is available here. For those who do not have the time, you could go through the key recommendations of the report, which are  reproduced below:

"1) Arbitration Promotion Council of India – An autonomous body styled the Arbitration Promotion Council of India (“APCI”) and having representation from various stakeholders may be set up by amendment to the ACA for grading arbitral institutions in India. (See Chapter VI, Section A) 

2) Accreditation of arbitrators – The APCI may recognise professional institutes providing for accreditation of arbitrators. Accreditation may be made a condition for acting as an arbitrator in disputes arising out of commercial contracts entered into by the government and its agencies. (See Chapter VI, Section B) 

3) Creation of a specialist arbitration bar – Measures may be taken to facilitate the creation of an arbitration bar by providing for admission of advocates on the rolls of the APCI as arbitration lawyers, encouraging the establishment of fora of young arbitration practitioners, and providing courses in arbitration law and practice in law schools and universities in India. (See Chapter VI, Section C) 

4) Creation of a specialist arbitration bench – Judges hearing arbitration matters should be provided with periodic refresher courses in arbitration law and practice. These courses could be conducted by the National Judicial Academy and the respective state judicial academies. (See Chapter VI, Section D) 

5) Amendments to the ACA (See Chapter VI, Section E) 

• Applicability of the 2015 Amendment Act – Section 26 of the 2015 Amendment Act may be amended with retrospective effect to provide that unless parties agree otherwise, the 2015 Amendment Act shall apply only to arbitral proceedings commenced on or after the commencement of the 2015 Amendment Act and to court proceedings arising out of or in relation to such arbitral proceedings. 
• Amendment to section 2(2) of the ACA – Section 2(2) may be amended to provide that clause (b) of sub-section (1) of section 37 shall also apply to international commercial arbitrations, even if the place of arbitration is outside India, instead of clause (a) of sub-section (1) of section 37. 
• Amendment to section 17(1) of the ACA – Section 17(1) may be amended to delete the words “or at any time after the making of the arbitral award but before it is enforced in accordance with section 36”. 
• Timelines under section 29A of the ACA – Amendments may be made to section 29A: (a) to limit its application to domestic arbitrations only, and not international commercial arbitrations; (b) to provide for a 6-month period for the submission of pleadings; (c) to provide that the time limit for completion of arbitral proceedings 5 starts to run the aforementioned 6-month time period; (d) to provide for the continuation of the mandate of the arbitral tribunal during the pendency of an application to extend the time limit; (e) to provide that the application is deemed granted if it is not disposed of within the period mentioned in section 29A; and (f) to provide for sufficient opportunity for hearing the arbitrator(s) where the court seeks to reduce the fees of the arbitrator(s). 
• Amendments to Section 34 of the ACA – § An amendment may be made to section 34(2)(a) of the ACA substituting the words “furnishes proof that” with the words “establishes on the basis of the arbitral tribunal’s record that”. § An amendment may also be made to section 34(6) of the ACA substituting the words “in any event,” with the words “an endeavour shall be made to dispose of the application” so that the time limit specified therein is construed as being directory only. 
• Reference to arbitration under section 45 of the ACA – Section 45 may be amended to clarify that the court shall refer parties to arbitration on the basis of only a prima facie conclusion that the arbitration agreement is not null and void, inoperative, or incapable of being performed. o Enforcement of foreign arbitral awards – A new sub-section (4) may be inserted in section 48 of the ACA providing that an application for enforcement of a foreign award under section 47 shall be disposed of expeditiously and an endeavour shall be made to dispose of such application within a period of one year from the date on which the application is filed before the court. 
• Amendments to section 37 and 50 of the ACA – In sub-section (1) of section 37 of the ACA, the words “Notwithstanding anything contained in any other law” shall be added before the words “An appeal shall lie”. Similarly, in sub-section (1) of section 50 of the ACA, the words “Notwithstanding anything contained in any other law” shall be added before the words “An appeal shall lie”. 
• Costs in proceedings under Part II of the ACA – A provision akin to section 31A pertaining to imposition of costs in connection with court proceedings under Part II of the ACA should be incorporated. 
• Typographical error in the Fourth Schedule – The Fourth Schedule may be amended to provide that the model fee where the sum in dispute is above INR 10,00,00,000 and up to INR 20,00,00,000 is 12,37,500 plus 0.75 per cent of the claim amount over and above INR 10,00,00,000. 
• Immunity for arbitrators – A new provision may be inserted to provide for immunity for arbitrators for acts or omissions in the discharge or purported discharge of his functions as arbitrator except in case of bad faith. 
• Confidentiality of arbitral proceedings – A new provision may be inserted in Part I of the ACA providing for confidentiality of arbitral proceedings unless disclosure is required by legal duty, to protect or enforce a legal right, or to enforce or challenge an award before a court or judicial authority. 
• Default rules of procedure – Model arbitral rules of procedure as provided in Annexure 2 to this Report may be incorporated in the ACA to operate as the default rules of procedure for arbitrations, unless parties exclude its operation (wholly or in part) by mutual consent at any time. 
• Amendments to section 11 of the ACA – In order to ensure speedy appointment of arbitrators, section 11 may be amended to provide that the appointment of arbitrator(s) under the section shall only be done by arbitral institution(s) designated by the Supreme Court (in case of international commercial arbitrations) or the High Court (in case of all other arbitrations) for such purpose, without the Supreme Court or High Courts being required to determine the existence of an arbitration agreement. 
• Recognition of emergency awards – Amendments may be made to section 2 of the ACA to enable the recognition of awards given by emergency arbitrators. 
• Insertion of a separate chapter establishing the APCI – A new Part IA may be inserted after Part I of the ACA establishing the APCI and providing for its composition, and functions and powers. 
• Depository of awards – The APCI may maintain an electronic depository of all arbitral awards made in India and such other records as may be specified by the APCI. Courts may access the depository for getting a copy of an award. 
• Incorporation of arbitral institutions – An amendment may be made to the ACA providing that all arbitral institutions shall be incorporated as companies under section 8 of the Companies Act 2013, or registered as societies under the Societies Registration Act 1860 or the corresponding state legislation. 

6. Other measures that can promote arbitration practice in India – Measures that promote access to the jurisdiction by permitting foreign lawyers to represent clients in international arbitrations held in India and promote India as a venue by easing restrictions related to immigration, tax, etc. may be adopted. (See Chapter VI, Section F) 

7. Role of the government and the legislature in promoting institutional arbitration – Measures to promote institutional arbitration such as facilitating the construction of integrated infrastructure for arbitration in major commercial hubs, adopting arbitration policies providing for institutional arbitration in commercial disputes involving the government, amending the ACA swiftly to keep abreast of developments in arbitration law and practice internationally, etc. may be adopted. (See Chapter VI, Section G) 

8. Changes in ADR culture – Measures may be taken to promote the use of ADR mechanisms, including requiring the provision of mediation facilities by arbitral institutions. The Government may also consider the feasibility of a separate legislation governing mediation. (See Chapter VI, Section H) 

9. The International Centre for Alternative Dispute Resolution – The ICADR should be taken over and be re-branded as the India Arbitration Centre in keeping with its character as a flagship arbitral institution. There must be a complete revamp of its governance structure to include only experts of repute who can lend credibility and respectability to the institution. (See Part II) 

10. Bilateral investment arbitrations involving the Union of India – Recommendations for effective dispute management and resolution, and dispute prevention include: (a) appointing the Department of Economic Affairs as the Designated Representative of the Government in existing BITs; (b) creating the post of an International Law Adviser, who shall advise the Government and coordinate dispute resolution strategy for the Government in disputes arising out of its international law obligations, particularly disputes arising out of BITs; (c) establishing a 5-member permanent Inter-Ministerial Committee in order to ensure effective management of disputes arising out of BITs entered into by the Government; and (d) tasking the Department of Economic Affairs with the preparation and implementation of dispute prevention strategies in order to prevent disputes from arising or escalating to formal dispute resolution proceedings. (See Part III)."

High Courts do what the Supreme Court did not: Decide on Choice of Foreign Seat by Indian Parties

Recently, the Delhi High Court has been in the news internationally for holding that two Indian parties can choose a foreign seat thereby making the arbitration a non-Domestic Arbitration and thereby sounding a death-knell for TDM Infrastructure v. UE Development as a binding precedent. The Madhya Pradesh (Sasan's case) and the Delhi High Courts have gone ahead and addressed the issue as to whether two Indian parties could choose a foreign seat, which the Supreme Court failed to do in the (Sasan Appeal). A perusal of the judgements concerning this issue would show only a textual analysis of the legislation and probably a policy argument that allowing Indian parties (especially where one of the party is an Indian subsidiary/ affiliate of a foreign parent) would give fillip to investments in India. There is a general lack of discussion of competing policy perspectives in these judgements, given the lack of a clear legislative guideline on the subject. The Delhi High Court's decision is a typical example.

While the international arbitration community is appreciative of this development (see here), there are certain unanswered questions. Take, for instance, this scenario: a micro enterprise (as defined in the MSMED Act, 2006) enters into an agreement with an Indian subsidiary of a foreign company for supply of certain goods. The arbitration clause provides for Singapore arbitration. Disputes crop up and the micro enterprise sends a letter demanding payment of dues. In order to pre-empt the micro enterprise from availing favourable remedies under the MSMED Act, 2006, the buyer (Indian subsidiary of a foreign parent) invokes arbitration in Singapore. The micro enterprise files a claim before the MSE Facilitation Council. Would the Facilitiation Council compel the micro enterprise to go for arbitration? 

It is time the Supreme Court of India considers the issue in depth.

Conflict of Interest of Arbitrators under the Amended Indian Arbitration Regime- A Comment

Bias, like beauty, is in the eyes of the beholder. But whether such a subjective view is sufficient for a court to strike down the appointment of an arbitrator is moot. Courts have leaned in favour of upholding objections to appointments based on objective standards. The Supreme Court of India had the occasion to consider the issue in the case of HRD Corporation v. GAIL (India)Limited

The decision is significant on two counts. To begin with, India recently brought a sea change in its arbitration law through the Arbitration and Conciliation (Amendment) Act, 2015. These amendments were aimed at providing a pro-arbitration legal framework consistent with international standards. This decision interprets the amended provisions on the grounds of challenging arbitrator appointments for conflict of interests and provides significant guidance on how to deal with them. Secondly, the grounds of challenge have been adopted from the International Bar Association Guidelines on Conflicts of Interest in International Arbitration, 2014 (‘IBA Guidelines’) with a few changes. Therefore, the decision adds to the growing body of case law on how different jurisdictions have interpreted the IBA Guidelines or statutory instruments based on the IBA Guidelines. This post discusses the judgement and its implications. 

Facts

The appellant, HRD Corporation, and GAIL (India) Ltd., the respondent, entered into a long-term agreement for the supply of wax generated at the respondent’s petrochemical plant. Disputes arose between the parties, which led to invocation of four arbitrations by HRD Corporation. In the third arbitration, one of the members of the tribunal expired and Justice TS Doabia was appointed as the substitute arbitrator by an order of the court. The tribunal passed an arbitral award. Justice TS Doabia was once nominated by the respondent as a member of the tribunal in the fourth arbitration. The nominees of the appellant and the respondent appointed Justice RC Lahoti as the presiding arbitrator. At the time of his appointment, Justice RC Lahoti disclosed to the parties that he had given an opinion on a legal issue between the Respondent and another public sector undertaking and that he was an arbitrator in a dispute in which the Respondent was a party. 

HRD Corporation challenged the appointments of Justice TS Doabia and Justice RC Lahoti before the arbitral tribunal. Under the Indian Arbitration and Conciliation Act, 1996 (‘1996 Act’), challenges to arbitrator appointment on the ground of conflict of interest is to be brought made before the tribunal. Justice RC Lahoti and Justice TS Doabia passed an order rejecting the challenge. However, the arbitrator-nominee of the appellant passed a separate order holding that the appointment of Justice RC Lahoti was correct but the appointment of Justice TS Doabia was contrary to the provisions of the 1996 Act. Questioning the order passed by Justice RC Lahoti and Justice TS Doabia, HRD Corporation filed a petition in the Delhi High Court, which was dismissed. The appellant thereafter filed an appeal in the Supreme Court of India. 

Arguments before the Supreme Court

The appellant argued that the recent amendments introduced in the Arbitration and Conciliation Act, 1996 restricted the grounds on which an arbitral award could be set aside. As a consequence, appellant contended that the grounds of challenging an arbitrator have to be construed widely to ensure a heightened level of independence and impartiality. 

Further, HRD Corporation argued that Justice Lahoti had previously given a legal opinion to GAIL, which disentitled him from acting as the arbitrator. HRD Corporation challenged the appointment of Justice Doabia for the reason that Justice Doabia was a member of the arbitral tribunal in a previous arbitration between the parties on related issues. These appointments, according to HRD Corporation fell foul of various grounds of challenge contained in the Fifth and the Seventh Schedule to the 1996 Act. The appellant also alleged that since Justice TS Doabia did not disclose at the time of his appointment those circumstances which affected his ability to devote sufficient time for the arbitration, he was ineligible. 

GAIL, on the other hand, argued that none of the items relied on by the Appellant was applicable in the case and that the argument regarding Justice Doabia’s failure to disclose circumstances which affected his ability to devote sufficient time for the arbitration was an afterthought as it raised for the first time before the Supreme Court.

Decision

The Supreme Court acknowledged that the Fifth and the Seventh Schedules introduced into the statute book through the 2015 Amendments were based on the IBA Guidelines. The court went on to note the differences between the Fifth and the Seventh Schedules: the Fifth Schedule enumerated situations which led to justifiable doubts as to the independence and impartiality of the arbitrators while the Seventh Schedule listed out grounds which made persons ineligible to act as arbitrators. The court also recorded the distinction in the manner in which appointments could be challenged under these Schedules: challenges under the Fifth Schedule were to be brought before the tribunal at the first instance and in case of rejection of such challenge, the rejection could be brought before a court only after the award is passed. However, an arbitrator who falls within the Seventh Schedule becomes de jure unable to act as arbitrator and therefore the challenge could be brought directly to a court of law at the first instance. Given the aforesaid legal position, the Supreme Court rejected challenges based on the items mentioned in the Fifth Schedule and held that such challenges could be made only after the award was passed.

The court disagreed with the Appellant’s contentions that the grounds contained in the Schedules should be widely construed. The court held that as the Schedules were based on the IBA Guidelines, they had to be construed in the light of the general principles contained in the said Rules. The appropriate method of construing the relevant items in the Schedules was to afford them a ‘fair construction, neither tending to enlarge [nor] restrict them unduly’. The court was of the view that the relevant standard to ascertain if doubts as to independence or impartiality were justified was that of a ‘reasonable third person having knowledge of the relevant facts and circumstances’.

The court stated that merely because Justice RC Lahoti gave his legal opinion in one instance to the Respondent did not make him ineligible from appointment under the 1996 Act. According to the court, the term ‘advisor’ in item 1 of the Seventh Schedule (Item 1 of the Seventh Schedule to the 1996 Act reads: ‘The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.’) connoted the existence of a regularity of advisory relationship and that too in relation to the business of a party. The court took note of items 2, 8, 14 and 15 in the Seventh Schedule which contemplated relationships based on legal advice and ruled that since item 1 used the term ‘business relationship’ in contradistinction to a relationship stemming from legal advice, such advice should relate to the business of a party. On this reasoning, the court concluded: ‘Something more is required, which is the element of being connected in an advisory capacity with a party.’

The appellant had argued that item 16 of the Seventh Schedule (Item 16 of the Seventh Schedule reads: ‘The arbitrator has previous involvement in the case’.) debarred an arbitrator who had previously rendered an award between the same parties in an earlier arbitration concerning the same set of disputes. The court disagreed with this and held that item 16 was inapplicable as it concerned a situation where the prospective arbitrator had a prior involvement in the ‘very dispute contained in the present arbitration’. After noting the corresponding provision in the IBA Guidelines, which employed the phrase ‘in the dispute’ instead of ‘in the case’, and the title heading of the said provision (‘Relationship of the arbitrator to the dispute’), the court concluded that Justice Doabia was not involved in the very dispute that formed the subject of the arbitral proceedings although he might have been involved in a related dispute between the parties previously. In reaching the aforesaid conclusion, the court also resorted to items 22 and 24 of the Fifth Schedule. According to the court, if item 16 was to be interpreted in the manner suggested by the appellant, item 24 would be rendered nugatory as the latter item covered the exact situation which the which the appellant was canvassing. 

Item 24 of the Fifth Schedule provides: ‘The arbitrator currently serves or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties.’

It is of note that a provision similar to item 24 of the Fifth Schedule is not contained in the Seventh Schedule. The court also rejected the challenge to the appointment of Justice Doabia on the ground that there was nothing to indicate that Justice Doabia held a pronounced anti-claimant view.

On the argument that Justice Doabia did not make a complete disclosure indicating that he would devote sufficient time to complete the arbitration within 12 months as required by the recent amendments. The court dismissed this argument as an afterthought considering that the appellant raised it for the first time before the Supreme Court.

Comment

When India decided to take steps to establish a pro-arbitration regime, the Law Commission of India considered that it was appropriate to adopt the objective standards laid down in the form of the IBA Guidelines considering its acceptability in international arbitration. At the same time, the IBA Guidelines were not to be adopted as they were. Considering the criticism that the presence of non-waivable red list was against the party autonomy doctrine (see, Para 60 of the 246th Report of the Law Commission and W Ltd v M SDN BHD [2016] EWHC 422 (Comm), para. 35-41) the Law Commission recommended that grounds under the non-waivable red list should be treated as waivable but after the dispute has arisen. These recommendations were accepted and the 1996 Act was amended to incorporate these changes. The amendments present an appropriate model for those countries which are intending to adopt objective standards in addressing bias of the arbitrators. 

The judgement is significant because it provides clarity on the manner of construing various grounds or items in the Fifth and the Seventh Schedules to the 1996 Act. The Supreme Court rightly resisted the temptation to read the grounds broadly and don an activist mantle. The court held that the fundamental principle in interpreting these items would be to look at it from the perspective of a reasonable man having full knowledge of the circumstances surrounding the appointment. The Supreme Court affirmed the view that these grounds should to be construed in a “common-sensical” fashion.

Since the items in the Seventh Schedule were also reflected in items 1 to 19 of the Fifth Schedule, the court noted their interconnectedness and clarified that the manner in which the Fifth Schedule was structured had a bearing on the interpretation of various items under the Seventh Schedule. Further, the court also held, rightly, that the same treatment should be afforded to the corresponding items in the Seventh Schedule. Therefore, it appears that the first step in construing the grounds under the Seventh Schedule would be look at the wordings of the corresponding item in the Fifth Schedule. The second step would be to find out related items and the last step would be to construe the related items harmoniously to ensure that there is no conflict.

The court adopted a prudent stance in holding that only if a professional, such as a legal professional, offered advice with an element of ‘regularity’ would that professional be barred from arbitrating a dispute involving a party which received the legal advice. It is possible that a successful legal professional would have advised prominent companies and clients at some point of time in her career. It is unreasonable and unrealistic to impute possible bias on the basis of such distant professional advice. Also, barring such a person from acting as an arbitrator would make arbitration appointment a cumbersome task. 

The court also recognised that unless the challenging party was able to show that the arbitrator was holding a prejudiced view, appointment of such arbitrator between the parties in a related dispute and the award rendered thereunder did not affect the present appointment. Although the decision fails to explain the reason behind employing the phrase ‘in the case’ in item 16 instead of ‘in the dispute’ which was used in the IBA Guidelines, the court’s conclusion that the Appellant failed to show that Justice Doabia would not have brought an open mind to the arguments of the Appellant, which might or might not be different from those made in the previous arbitration is a practical one. 

It is common in arbitration, domestic and international, to have the same tribunal adjudicate different arbitrations arising out of the same or similar transactions. If the arguments of the Appellants in this case were to be accepted, it would be difficult to constitute a different tribunal for each such arbitration. Also, what would happen in a case where the arbitral tribunal is appointed simultaneously to deal with different disputes arising out of multiple agreements? It would not be a good argument to suggest that the moment the tribunal makes a determination in one of the disputes, the tribunal would be debarred from acting in the other arbitrations merely because the latter arbitrations involved similar issues.

The manner in which India resolved the absence of relatively predictable standards in addressing conflict of interest of arbitrators by adopting the IBA Guidelines with suitable modifications is commendable and is in line with international practice. The Supreme Court’s decision in this case preserves the delicate balance between fairness on the one hand and reasonableness and predictability on the other. Although the Supreme Court did not examine the reasons for differences in the usage between certain items of the Schedules (such as item 16 of the Fifth Schedule) and the IBA Guidelines, the overall approach of the Supreme Court in clarifying the legal position augurs well for the future of international arbitration in India.