Partial Setting Aside of Arbitral Awards

Thanks to Herbert Smith’s bulletin on arbitration, I came across a three month old decision of the Bombay High Court on arbitration which is a development worth noting. In RS Jiwani v. Ircon International, a full bench of the High Court of Bombay held that a court could partially set aside an arbitral award without nullifying the award in its entirety. The High Court overruled its previous decision on the point. Herbert Smith bulletin says that the “decision has been welcomed by practitioners in India and outside, in that it avoids the draconian outcome of losing the entire award if only part is defective” and the same “is a welcome demonstration of support for alternative dispute resolution by the Indian courts, and a boost for arbitration in the country.”

The main issue which the court had to decide on was whether court could set aside an award partially under Section 34 of the Act, notwithstanding the fact that the Act allows the court to do so expressly only with respect to Section 34(2)(iv) and not otherwise. The Full Bench held that a court could. On this issue the court overruled its previous decision in Pushpa P. Mulchandani v. Admiral Radhakrishnan Tahilani where the court had held that only under Section 34(2)(iv) could a valid portion of the arbitral award be severed from an invalid portion and in all other cases, where a part of the award is invalid, the entire award would fail. 

It may be noted that one of the prime justifications of the decision in Pushpa was that the Act did not contain a provision similar to Section 15 of the Arbitration Act, 1940 (1940 Act). Section 15 read:

15.Power of Court to modify award:-

The Court may by order modify or correct an award -
(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred ; or
(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision ; or
(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.

A similar provision enabling the court to partially set aside an award is not found in the 1996 Act, except under Section 34(2)(iv). Hence, it was decided in Pushpa that the court did not have jurisdiction to partially set aside an arbitral award, except when under Section 34(2)(iv).

Pushpa was overruled by the Full Bench of the Bombay High Court on the following grounds:

• There are seven grounds on the basis of which an arbitral award could be set aside. Out of these severability (of arbitral award) is permitted only under ground.However, it might be possible that even under the said six grounds, there is no need for the court to set aside the award in its entirety. For example, in an award, the tribunal might not have afforded an opportunity of hearing in respect of counter-claims but would have given the same with respect to the claims. Another example is a case where the arbitrator has, while allowing several claims of the Claimant, has also allowed a time-barred claim In such cases, it makes no sense to set aside the whole award.
• The doctrine of severability is a concept that is recognised universally. It is applied in the realm of contracts (to enforce parts of contracts that are not invalid) and even to statutes. Hence there is no reason why severability should not be applicable to arbitral awards
• Further, even the Act does not prohibit existence of the power of a court to partially set aside an award.
• Once award attains finality and vests a legal right on one of the parties, it would be unjust to deny such a party the vested right on the grounds that other portions of the award are invalid.
• When a party can challenge a part of the award while not challenging another part of the same, there is nothing to prevent a court from partially setting aside an award. 

Cornelis Carel et al, in their book titled "Law and reality: essays on national and international procedural law", note at p. 164 that in Austria, Belguim, France, Germany, Greece, The Netherlands, Spain and Switzerland a court could partially set aside an award.

Gillian Hadfield, Law for a Flat World: Legal Infrastructure and the New Economy

Gillian Hadfield has written an excellent article on the discordance between the nature of legal services  and the demands from the industry. Though Hadfield seeks to establish a broader thesis, his arguments mainly stem from the expectations of corporate clients vis-à-vis the law industry. It makes sense for Hadfield to adopt this approach because one would expect the industry to invest lots of money for receiving legal services. His Her thesis is simple: There has been a substantial shift in the nature of economic activity and the law industry has not kept up with the demands of this new economic order. The primary complaint is that knowledge, language and the culture of the law industry is that of law and not that of business. This “DNA gap” begins right from the law school.

The article is worth checking out.The abstract is as below:


In the last two decades, the economy has undergone fundamental transformation with the twin structural changes of a great increase in the size of global markets and the internet-driven development of a platform for global exchange and work processes. These changes have transformed the economic demand for law: the demand for legal inputs that will support the creation of value in economic relationships. Not merely the quantity but the type of legal inputs required by the new economy is significantly different from those required by the old economy. The economic demand for law in the new economy requires support for the much higher rates at which economic relationships now cross both firm and jurisdictional boundaries, the more rapid depreciation of legal solutions, the increased differentiation of legal problems, the reduced tolerance for legal transaction costs created by high velocity and global competition, and a greater need for integration of business and legal expertise in order to engage in the relatively constant innovative problem-solving that the new economy requires. In this paper I argue that our legal infrastructure - the socially available set of legal materials that economic actors can use to help govern relationships - has not kept up with this transformation in the economic demand for law. Empirical evidence for this claim includes the increasing levels of dissatisfaction in even the most elite corporate legal markets, the unprecedented impact of the Great Recession of 2009 on large law firms, and surveys and interviews conducted with corporate counsel. The primary basis for the claim of a mismatch, however, is theoretical: the attributes of our existing legal infrastructure - a heavy reliance on densely-worded and complex statutes, regulations and contracts; human-capital-intensive craft production methods; undiversified legal business models; almost exclusive reliance on mandatory legal rules imposed by public actors - are poorly suited to the nature of economic activity in the new economy. The reason our legal infrastructure has not adapted, I argue, is attributable to an even deeper level of legal infrastructure: the severe limitations on who may produce legal rules and other legal inputs (such as advice, document templates, norms and practices) imposed by our continued reliance on publicly produced rules and the excessively closed nature of our lawyer- and judge-controlled legal markets.

Recent Judgments

S. 10 (A)’s modified reading

Soumya Ann Thomas v. UoI. WP(C).No. 20076 of 2009(R). High Court of Kerala, Date of Judgment 25-02-10

This case raises interesting issues relating to; personal law, constitutional law, their interrelationship and judicial review of legislation. The HC of Kerala by this decision held a part of Section 10 (A) of the Indian Divorce Act, 1869 as violative of Articles 14 and 21 of the Constitution of India.

The case challenged the vires of Section 10 (A) as far as it stipulates a period of two years of living separate before filing a petition for dissolution of marriage by mutual consent mandatory. The content of this provision, which is a delayed bogie as Hindu, Parsi and Special Marriage Act already had provision for dissolution by mutual consent and it was in 2001 that the provision was added to Indian Divorce Act, is similar to all earlier specified laws but for the lock-in period. In other similarly placed enactments the period is one year.

The radical view on the constitutionality of personal laws

The court suggest reconsideration of Narasu Appa Mali as it “… find no reason, in a secular republic, to cull out "personal law" alone and exempt the same from the sweep of Art.13 and Part III of the Constitution.” Having said this, the court finds no reason to engage with this issue as the court categorises the personal law into two; traditional personal law - pure and simple and statutory law enacted by the Parliament. The court is of the opinion that a statutory law relating to personal law has to satisfy Part III and amenable to Art. 13 of the Constitution. This justification is drawn from Shri Krishna Singh v. Mathura Ahir ((1981) 3 SCC 689), wherein the court “observed that when personal law is altered, "modified or abrogated by statute", the same will have to satisfy the test of Art.13. This position is reiterated in another Kerala High court judgment, Mary Sonia Zachariah v. Union of India (1995 (1) KLT 644 (FB)). The courts sweeps away Narasu Appa Mali in the following words

“We do, in these circumstances, hold that even if the dictum in Narasu Appa (supra) is valid and binding and has been approved by a co-equal Bench of this Court as well as the Supreme Court, the same cannot in any way justify the contention that Sec.10A of the Divorce Act is not amenable to challenge under Art.13 of the Constitution. The said contention must, in these circumstances, fail. We hold that Sec.10A of the Divorce Act shall have to stand the test of Art.13 of the Constitution.”

Progressive it is, nevertheless, lacks legal reasoning to reach such a position. The inequalities generated by personal laws and the discrimination it perpetuates has been a matter of concern for long and the judicial stand in validating the objectionable Narasu Appa position has been under criticism. This court had very well begun raising its objection in this judgment but rather than taking it by the horn, avoided dealing with the issue. The incapacity of the court to overrule a holding position of the SC and the delay and injustice that could cause if the matter is referred might have prompted the judge to adopt the present course of action.

On Equality

The petitioner challenged the two year stipulation in Section 10 (A) as violative of equality clause. The dual test of reasonable classification in this case, for the court, is not satisfied, though the Addl. Solicitor General argued that this is a law specifically for the Christians and such a classification is rational, and that it is the legislative wisdom that prescribed for a two years period of separate living before filing for a dissolution of marriage with mutual consent has a rational nexus to the objective.

The court makes a curious case of classification here to hold that the classification made in the Act in bringing all Christians within its fold and differentiating Christians from members of other religion is hit by Art. 14. From the whole of Christian community the court carves another classification, secular Christians who despite having got their marriage solemnised under Christian tradition and rites wish to avail the secular norms of divorce by mutual consent.

The rationale in court’s own words reads thus in para 31

“They [the class of people] are people who may have got their marriages solemnized in accordance with their respective personal laws; but want such marriages to be dissolved on the ground of mutual consent. That is the dominant principle of classification. To such class of persons benefits have been extended by amendment and incorporation of identical provisions in the statutory law relating to marriage. The beneficiaries do not primarily and dominantly belong to the class of Christians, Hindus or Parsis. They are not classified for the purpose of the amendment on the basis of their religion at all. They belong to the class of persons who notwithstanding the solemnization of their marriage under the personal law and notwithstanding the absence of such provisions in their personal law, want to claim the benefit of such dissolution of marriage by mutual consent as is available to those who have got their marriage solemnized under the secular law i.e., the Special Marriage Act.” (Emphasis supplied)

The court apparently bases its reasoning on the secular character of the nation and Art. 44, which is a lead to uniform civil code. For the court, it is unjustifiable to discriminate people on the basis of their religion when the legislature has extended the benefit to all the people whom the court has categorised as those who solemnised the marriage per personal laws but want such marriage to be dissolved on the ground of mutual consent. This rationale to me is rather fictitious.

Court finds the violation of equality and reasons that “[w]hen the legislature has perceived that the time is ripe to extend the benefit of the concept to a particular community, to further discriminate them on the basis of their religion is certainly anathema to law. It offends the principle of equality. The stipulation of the longer period of mandatory separate residence, the differential, has no rational relationship to the object sought to be achieved. In short, we agree that classifying persons into one group to extend the benefit of the secular concept of divorce by mutual consent to them by progressive amendment of the personal law though in stages and later discriminating among them on the basis of religion by prescription of a longer period of mandatory minimum separate residence clearly offends the mandate of equality under Art.14 of the Constitution.”

Right to life

The court found the stipulation of different periods for different religion as unjustified, unfair, unjust and wrong. Such a stipulation is unreasonable, arbitrary, fanciful and oppressive.

The anchor of this argument is in the earlier finding of classification of all persons belonging to all religions to whom the benefit of mutual divorce is extended. A stipulation which is more onerous to some, than the counter parts in other religion, for the court, offends the mandate of Art. 21. Here again the court left the entire jurisprudence of Art. 21 behind to come to a result oriented review of the legislation.

The judgment

Brushing aside the argument of the ASGI that the court while exercising its power under judicial review shall not question the legislative wisdom the court declared the stipulation of two years as violative of Art. 14 and 21. The rationale given by the court is that when legislative wisdom crystallises into a legislative Act, the same shall be reviewed to see its compliance with Part III of the constitution. The court employed the doctrine of severability in an atypical way to modify the language of the Section that two years shall be read as one year in the following words

“[R]ead down such an unconstitutional provision which is unrelated to the object sought to be achieved The stipulation of two years can be severed and can be read down to one year to bring it to be in conformity with the provisions of other laws to avoid the vice of unconstitutionality.”

P.S. You might be interested to read the judgment of the same bench, couple of weeks later, on the application of Section 125 Cr.P.C for Muslim women and talaq in KUNHIMOHAMMED v. AYISHAKUTTY , RPFC.No. 53 of 2006, Judgment dated 17/03/10

SSRN Articles

Patricia Grande Montana, Meeting Students’ Demand for Models of Good Legal Writing,

Abstract:     

This article explores the benefits and drawbacks of using model examples of good legal writing in the first-year writing curriculum and proposes a practical, hands-on approach to effectively integrating model examples into the curriculum to meet students’ high demand for them. 

Damien Geradin & Roger G. Brooks, Taking Contracts Seriously: The Meaning of the Voluntary Commitment to License Essential Patents on 'Fair and Reasonable' Terms,

Abstract:     

The literature addressing the meaning of a commitment made by holders of patents ‘essential’ to a standard to licence such patents on ‘fair, reasonable, and nondiscriminatory’ (FRAND) terms and conditions is now substantial. While reaching quite different conclusions, a number of authors have addressed this as a question of economic theory: what limitations (if any) on the freedom of the parties negotiating a licence to essential patents will best ensure efficient outcomes?

On the basis of such analyses, authors have variously argued that, in order to satisfy a ‘fair and reasonable’ commitment, a patent holder:
• Must charge no more than the incremental value of his invention over the next best technical alternative;
• Must not negotiate for a royalty-free cross-licence as part of the consideration for a licence;
• Must set his royalty rate based on a mathematical proportion of all patents essential to the practice of a standard;
• Must set his royalty rate in such a way as to prevent cumulative royalties on the standardised product from exceeding a low percentage of the total sale price of that product;
• Must not raise requested royalty rates after the standard has been adopted, or after the relevant market has grown to maturity;
• Is not entitled to seek injunctive relief against a standard implementer should they fail to agree on licence terms.

The types of economic arguments relied on by these authors to justify these restrictive regimes may well be useful in debating public policy and the proper application of national competition law – although one of the present authors and others have elsewhere critiqued the merits of many of these calls for what is essentially government intervention in the private licencing process. But in this paper we step back to ask a different question: What do these arguments and proposed regimes have to do with the contract which is the source of the FRAND obligation? 

Chapin Cimino, Virtue and Contract Law,

Abstract:     

For years, legal theory scholars have been obsessed with two dominant normative accounts: law and economics and individual rights. Recently, however, an old normative theory has resurfaced. Virtue theory, grounded in Aristotelian practical philosophy, has begun to receive attention from both historians and legal philosophers. In the past year, a small group of theorists has made a dramatic move: they have attempted to apply virtue theory to problems in contemporary law, in the form of a new “virtue jurisprudence.” Thus far, virtue jurisprudence scholars have limited their work to public law subjects. This article makes a substantial new contribution by extending virtue jurisprudence to a central area of private law: contracts.

Why contract law? This article contends that several difficult challenges in contract jurisprudence remain unresolved because neither law and economics nor rights theorists have been successful in accounting for the actual desires of contracting parties. For example, current theoretical frameworks fail to fully explain contract’s duality as both an economic and social institution. They fail to account for parties’ interest in both wealth maximization and justice. Virtue jurisprudence accounts for these critical dualities better than either law and economics or individual rights. Accordingly, this article suggests that virtue jurisprudence may reframe how both theorists and courts think about “the parties’ intent,” which is a foundational concept in any contract case.

This article takes on several tasks. It explains virtue theory in ways that show its relevance to contract law. It lays out a historical case for the importance of virtue theory to political liberalism and free markets. It explores several sites where current theoretical approaches do not fully capture contracting parties’ intent. Finally, it shows how virtue jurisprudence may offer a superior descriptive, and normative, account of intent-based doctrines in contract law. 

Omri Ben-Shahar & Eric A. Posner, The Right to Withdraw in Contract Law, 

Abstract:      European law gives consumers the right to withdraw from a range of contracts for goods and services; American law, with narrow exceptions, does not. Yet merchants in the United States frequently provide by contract that consumers have the right to return goods. We analyze the right to withdraw in a model that incorporates a tradeoff between allowing consumers to learn about goods that they purchase and protecting sellers from the depreciation of those goods. The right to withdraw - at least, as a default rule - has a plausible economic basis. We identify a nascent version of it in the well-known, controversial case of ProCD v. Zeidenberg.