"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.

Saturday, June 23, 2012

Arbitration Clause Survives Death of the Named Arbitrator: SCI Rules

In ACC Limited v. Global Cements (MANU/SC/0489/2012), the Supreme Court considered the issue as to whether the arbitration clause would remain valid if the arbitrator named in the arbitration clause was no more. 
The arbitration clause in question stated:
"21. If any question or difference or dispute shall arise between the parties hereto or their representatives at any time in relation to or with respect to the meaning or effect of these presents or with respect to the rights and liabilities of the parties hereto then such question or dispute shall be referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the matter shall be final and binding on both the parties."
The agreement containing the arbitration clause was entered into in 1989. Arbitration was invoked in 2011. By that time, the arbitrators named in the arbitration clause had died. One of the parties had approached the High Court under Section 11. The High Court had held that since there was no indication that parties intended that arbitration clause would cease to be in existence. The court held that it was the policy of law to promote the efficacy of arbitration and therefore the efficacy of commercial arbitration must be preserved when dealings are based on agreement providing for recourse to arbitration when disputes arise. Consequently, the court appointed a retired Supreme Court judge as arbitrator.

A petition for Special Leave was filed in the Supreme Court challenging the order of the High Court. In the said petition, the petitioner argued that the arbitration clause specifically named two persons as arbitrators considering their connection with ACC Limited. Therefore, the argument was, on the death of the arbitrators, the arbitration clause ceased to exist.

Not convinced with the argument, the court held that an application would lie under Section 11 unless there is an agreement in the contract where parties specifically debar appointment of any other arbitrator in case it is not possible for the named arbitrator to so act. The court’s view was that the objective behind Sections 14 and 15 of the Act was to facilitate arbitration and therefore unless a specific agreement by parties, Sections 14 and 15 had to be interpreted “to promote efficacy of arbitration”.

The court opined that the phrase “at any time” expressed the intent of the parties that so long as any dispute arose between the parties, the same would be referred to arbitration. The court clarified:
Objection can be raised by the parties only if there is a clear prohibition or debarment in resolving the question or dispute or difference between the parties in case of death of the named arbitrator or their non-availability, by a substitute arbitrator.
Since the arbitration clause does not prohibit the parties from appointing a substitute arbitrator, the court refused to grant leave to appeal and dismiss the same. 

The position under the Old Act also appears to be similar [See, for instance, Prabhat General Agencies v. Union of India (1971) 1 SCC 79; Bijoy Kumar Swaika v. Shyamsundar Swaika AIR 1976 Cal 448; Amrik Singh Bhandari v. Uttam Singh Duggal AIR 1979 Del 81]. 

The judgement can be accessed from here

Friday, June 8, 2012

Arbitration Updates

In the past month or two there have been a few significant arbitration related developments, which are noted in this short post.

The Law of Arbitration Agreement in the absence of express choice of law
The English Court of Appeal has clarified the law on the determination of the law of the arbitration agreement in the absence of express choice by the parties. Comments on the judgement in Sulamérica Cia Nacional De Seguros S.A. v Enesa Engenharia S.A. [2012] EWCA Civ 638 can be accessed from Indian Corporate Law Blog (Part I & II), and Herbert Smith Arbitration News. We will do a detailed post on the case as a part of our Choice of Law series.

Supreme Court finds a Way to Circumvent IOC v. Raja Transport

Indian Oil Corporation v. Raja Transport is one of those decisions where the Supreme Court upheld the practice of Government agencies and Public Sector Enterprises of appointing its own senior personnel as arbitrators in dispute with their Contractors. The Supreme Court held that senior officers, usually heads of department or equivalent, of a government/statutory corporation/ public sector undertaking, not associated with the contract, are considered to be independent and impartial and are not barred from functioning as arbitrators merely because their employer is a party to the contract. The court also recommended discontinuance of the said practice considering the need for independence and impartiality of the arbitral process. In the recent case of Bipromasz Bipron Trading SA v. Bharat Electronics Limited MANU/SC/0478/2012, the Supreme Court held that “where there is material to create a reasonable apprehension that the person mentioned in the arbitration agreement as the arbitrator is not likely to act independently or impartially... then the Chief Justice or his designate may, after recording reasons for not following the agreed procedure of referring the dispute to the named arbitrator, appoint an independent arbitrator in accordance with Section 11(8) of the Act.” The arbitration clause provided for reference of disputes to the Chairman & Managing Director (CMD) of BEL or his nominee. The CMD appointed a General Manager as the arbitrator. Even so the court appointed a retired judge of the Madras High Court as arbitrator considering that (1) the CMD had directly dealt with the entire contract (2) the appointed arbitrator was a direct subordinate to the CMD (3) there was a reasonable apprehension of partiality as the CMD had dealt with the entire contract. Check out MJ Antony's article in the Business Standard on the case. The article also discusses a few past decisions on the topic.

The New Swiss Rules:
The Swiss Chambers of Commerce Association of Arbitration and Mediation and the Chambers of Basel, Bern, Geneva, Neuchâtel, Ticino, Vaud and Zurich have revised their Swiss Rules of International Arbitration in June 2012. The revised Rules can be downloaded from here (pdf). Comments on the revisions in the 2012 Rules can be found in Kluwer Arbitration Blog (here and here), Kluwer Mediation Blog and Transactional Notes blog.