Norm Creation in Arbitration and the Supreme Court of India:

Way back in 2010, we did a post titled "Norm Creation (ADR) and Arbitration", which noted the inability of ADR processes in helping norm creation and amplification of law. The post also noted the problem was exacerbated by by the lack of a thorough appellate process and review on possibility of a correct decision instead of review on substantive correctness. We request readers to go through the post. 

Thereafter, the issue gained prominence owing to a speech made by The Right Hon. The Lord Thomas of Cwmgiedd, Lord Chief Justice of England and Wales in the Bailii Lecture in 2016 titled "Developing commercial law through the courts: rebalancing the relationship between the courts and arbitration". The lecture highlighted how arbitration had the potential in bring about uncertainty in commercial law by taking away cases from national courts:

"22. The effect of the diminishing number of appeals compounds the problem that arises from the diversion of more claims from the courts to arbitration. It reduces the potential for the courts to develop and explain the law. This consequence provides fertile ground for transforming the common law from a living instrument into, as Lord Toulson put it in a different context, “an ossuary”.27 Here lies the irony. As I have explained reform was effected to promote the use of London as a centre for dispute resolution largely based on contracts based on the common law as developed in the Commercial Courts of London. However, the consequence has been the undermining of the means through which much of the common law’s strength – its “excellence” was developed – a danger not merely to those engaged in dispute resolution in London, but more importantly to the development of the common law as the framework to underpin the international markets, trade and commerce.

23. Quite apart from this major issue, there are other issues which arise from the resolution of disputes firmly behind closed doors - retarding public understanding of the law, and public debate over its application. A series of decisions in the courts may expose issues that call for Parliamentary scrutiny and legislative revision. A series of similar decisions in arbitral proceedings will not do so, and those issues may then carry on being taken account of in future arbitrations."

For a critique of this position, see, Susan L. Karamanian, COURTS AND ARBITRATION: RECONCILING THE PUBLIC WITH THE PRIVATE, 9 Arb. L. Rev. 65 (2017)

The issues raised by the judge are serious questions that requires deeper research and understanding in the Indian context, especially when Indian commercial law is evolving and getting more nuanced.

It is in this context that this blawgger was happy to see the decision of the Supreme Court in National Highways Authority of India v. Progressive-MVT (JV) 2018(2) Arb LR 111 (SC). The case related to interpretation of the price variation clause of the standard form contract of the National Highways Authority of India (Sub-Clause 70.3 of the Conditions of Particular Application-COPA). The sub-clause had received divergent constructions by different arbitral tribunals (which were ultimately upheld by the High Court and SLPs against these decisions were dismissed). The Supreme Court noted that these divergent views on the construction of the said clause were both possible interpretations and therefore could not be interfered with ordinarily. The court also pointed out the resultant anomalous situation that one clause would then have two interpretations. This, according to the court, would severely affect various agreements entered into all over the country by NHAI containing the clause. On this basis, the Supreme Court offered clarity on the proper construction of the price variation clause. In the words of AK Sikri, J. who authored the judgement on behalf of the Division Bench also consisting of Ashok Bhushan, J.:

"The NHAI has entered into multiple contracts with different parties containing the same clauses of price variation. Once we find that Arbitral Tribunals are taking different views, and the view taken in favour of the NHAI is also one of the possible interpretations, the effect thereof would be to uphold both kinds of awards even when they are conflicting in nature in respect of the same contractual provision. It may not be appropriate to countenance such a situation which needs to be remedied. Therefore, under this peculiar situation, we deem it proper to go into the exercise of interpreting the said clause so that there is a uniformity in the approach of the Arbitral Tribunals dealing with this particular dispute and a sense of certainty is attached in the outcomes."

The court held that such a review is to be made to pending cases that have not attained finality. The court also clarified that the ground of issue estoppel would not apply bar the court from so reviewing. 

It is submitted that the court was correct to amplify the law by opening doors for review of arbitral awards on the ground of affording commercial certainty to a particular contractual term that is widely used. The court opened the doors for review on merits in such cases. Therefore, even the High Courts could use this to provide definitive views of standard form agreements. Care should be employed so that this does not give an opportunity to review the award on merits when there is no such conflict of awards/ decisions involved.