"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.
Showing posts with label Arbitration Rules. Show all posts
Showing posts with label Arbitration Rules. Show all posts

Thursday, April 20, 2023

International Arbitration Practice: Mistakes to Avoid While Drafting Arbitration Agreements/ Pathological Arbitration Clauses (Lecture 2)

 This is the edited script of Lecture 2 of the Lecture Series on International Arbitration Practice. The lecture series can be accessed from here: 



This 2nd lecture of the lecture series on Introduction to International Arbitration Practice is titled Mistakes to Avoid While Drafting Arbitration Agreements a.k.a. Pathological Arbitration Clauses”. Pardon the lengthy title. Those who watched the first lecture might be wondering where “arbitration practice” was in it. Let me assure you: this course would not teach arbitration theory. But some theoretical discussion explaining key concepts and doctrines act as a springboard to understand practical aspects. For example, we discussed in the first lecture about the ingredients of an arbitration agreement as per the UNCITRAL Model Law on International Commercial Arbitration, 1985 and the Arbitration and Conciliation Act, 1996. One of the ingredients was that there should be a reference to arbitration. In other words, an agreement to constitute an arbitration agreement should provide that disputes that may arise would be referred to arbitration. In other words, the agreement should provide for reference of disputes to arbitration in order to call it an arbitration agreement.

In this lecture, we will see that if an agreement provides arbitration as an option for both parties to agree to refer disputes, such an agreement is not an arbitration agreement although parties might have, at the time of entering into the agreement, had that in their minds. Such clauses which although purport to be arbitration clauses have some defects that are grounds for not calling them as arbitration clauses are known in arbitration parlance as “pathological” arbitration clauses.  In other words, a pathological arbitration clause is a Defective or badly drafted arbitration clause. So, in order to discuss the common mistakes while drafting arbitration agreements, that is, pathological arbitration clauses, the theoretical prelude was necessary.

In this lecture and the next few, we will discuss some common mistakes parties make while drafting arbitration clauses. Arbitration practice is not only about representing parties in arbitrations but also about advising parties to draft proper arbitration agreements. In India, like in many other countries, this aspect of law practice is largely ignored. Through this lecture, we bring to the attention of lawyers about the importance of drafting good arbitration clauses. Before embarking on the exercise as to how to draft arbitration clauses, it would be better to understand how not to draft arbitration clauses, now that we are well-aware of what is meant by arbitration agreements from the first lecture in the lecture series. For your convenience, we have provided the link to the first lecture in the description to this video.

Coming back to the topic of pathological arbitration clauses, the term “pathological” was used in this context by Frederic Eisemann in 1974 and thereafter, the phrase has become quite popular in international arbitration parlance.

Courts have addressed pathological arbitration clauses with a set of tools, mainly with the intent of enforcing arbitration clauses, known popularly in arbitration parlance as pro-arbitration approach. Courts have generally been liberal in addressing such clauses, that is, resolving it in favour of referring them to arbitration, rather than rejecting reference, unless the clause in question cannot satisfy the ingredients of what constitutes an arbitration agreement.  

Now, you might wonder, why should I know about this topic? Why can’t this guy straightaway talk about invoking arbitration, pleadings, evidence, etc.? Well, a pathological arbitration clause may have huge consequences on enforceability of arbitral awards, and may entail substantial costs and efforts to be expended by your client. A badly drafted arbitration clause may ruin your reputation as a lawyer.

So, be very very careful- drafting arbitration clauses might sound simple but when you see the pathological arbitration clauses, you might wonder: how did this happen?! Without spending much time “about” pathological clauses, we will straightaway deal “with” such clauses.

Let us consider the below clause.

“30.2 In case of such failure, the dispute shall be referred to sole arbitrator to be mutually agreed upon by the Parties. In case the Parties are not able to arrive at such an arbitrator, the arbitrator appointed shall be appointed in accordance with the rules of arbitration of the Singapore Chamber of Commerce.”

Please pause the video and find out what’s wrong with this clause. On the first reading, you will ask: what is wrong with this clause? The clause seems to be fine. But on a closer reading and with a search engine, you will notice that there is no such institution called Singapore Chamber of Commerce. The parties here possibly got confused between the International Chamber of Commerce and the Singapore International Arbitration Centre.

So, this is a type of defect where parties agree to refer the dispute to a non-existent arbitral institution. If there is no such institution, how can the arbitration be conducted as per the rules of the non-existent institution? I will underline the defective portion for your convenience.  

“30.2 In case of such failure, the dispute shall be referred to sole arbitrator to be mutually agreed upon by the Parties. In case the Parties are not able to arrive at such an arbitrator, the arbitrator appointed shall be appointed in accordance with the rules of arbitration of the Singapore Chamber of Commerce.”

You might be wondering if this fact situation we discussed was real. This arose in the case of Pricol Ltd. v. Johnson Controls Enterprises Ltd., a decision of the Supreme Court of India in 2014, which arose out of a joint venture agreement between the said parties. We have provided the link to this decision in the lecture’s description. So the lesson that we learn is if you are opting for institutional arbitration, make sure that you refer to the institution’s name correctly.

This defect typically takes place when non-lawyers negotiate the arbitration clause. Nevertheless, such defects are common. For those supremely confident lawyers, let me tell you about this transaction, from a Press Release dated about ten years ago, that is, 27 March 2012.

“Johnson Controls, a global leader in automotive seating, overhead systems, door and instrument panels, and interior electronics, has formed a joint venture with Pricol Limited, a leading supplier of automotive instrument clusters in India…

About Johnson Controls:

Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 162,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles. Our commitment to sustainability dates back to our roots in 1885, with the invention of the first electric room thermostat…

…

About Pricol:

Pricol, which started its operations 35 years ago, is a well-known name in the Indian automotive component sector. Over the last 25 years, Pricol has been a leading supplier of automotive instrument clusters for two wheelers, cars, trucks and tractors in India. The company supports automakers and after-market customers across Europe, America, Middle East and Australasia and supplies instruments and other products including sensors, oil pumps, chain tensioners, fleet management solution products…”

Apologies for the lengthy quote. I am not trying to consume your time with an unnecessary quote but to drive home the point that such drafting defects take place even when global and well-experienced companies or sophisticated parties are involved in a transaction, which was probably drafted with legal advice. Link to the complete press release is provided in the link to the description below.

More on pathological arbitration clauses in the next lecture. Till then, adios y hasta luego.

References:

Lecture 1: Introduction to Arbitration Agreements, https://youtu.be/Q4MXe7Z__d4

Pricol Limited v. Johnson Controls Enterprise Ltd (SCI: 2014), https://indiankanoon.org/doc/168474344/ 

Press Release, Johnson Controls and Pricol Establish Joint Venture for Indian Automotive Market (27 March 2012), https://investors.johnsoncontrols.com/news-and-events/press-releases/johnson-controls-inc/2012/27-03-2012

Monday, December 21, 2020

Ad hoc Arbitration and Its Enemies: Paper Review

 Ad hoc arbitration and its Enemies is an interesting speech given in the International Congress of Maritime Arbitrators (ICMA XXI), Rio de Janeiro, 9 March 2020, published in the recent issue of Arbitration. The paper provides an overview of ad hoc arbitration in the international arbitration landscape but in terms of normative arguments in support of it, we do not see much. Notwithstanding that, in a country like India where ad hoc arbitration is the norm, the paper is a timely reminder that while institutional arbitration needs to be encouraged, ad hoc arbitrations should not be left out of the lens of reform. 

Saturday, August 22, 2020

Guest Post: Response of Arbitral Institutions to the COVID-19 Crisis– An Indian Perspective: Part II

  [Pranay Jaiswal, a fourth year student at the ILS Law College, Pune, writes on how well the arbitral institutions in India have responded to the Covid19 crisis. This interesting post is in two parts. The first part can be accessed from here. This is the second part of the post] 

Response of Arbitral Institutions to the COVID-19 Crisis–  An Indian Perspective: Part 1I

By Pranay Jaiswal, IV BA.LLB, ILS Law College, Pune.

1.      Pre-Existing rules of the Arbitral Institutions supporting the prevailing circumstances.

The Chartered Institute of Arbitrators (CIArb) is running an initiative known as Pandemic Business Dispute Resolution Service[1] in collaboration with the Centre for Effective Dispute Resolution (CEDR). This initiative aims at resolving business disputes, or disputes that may arise, as a consequence of the pandemic,whatever stage it is at, with cost-effective and expedite resolution of disputes.[2]

ICC has issued its 'Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic' dated 9 April 2020 ("ICC COVID-19 Guidance"),[3] intimating parties regarding the steps which the ICC is taking in this regard, and the considerations which are relevant to the conduct of arbitration in the prevailing circumstances.

Institutions like London Court of International Arbitration have also issued “Guidelines to Arbitrators”[4] adhering to the principle of arbitration i.e. flexibility and party autonomy.[5] It grants freedom to the arbitrators to adopt the flexible procedure as they may deem fit in order to remedy the circumstance, the arbitral proceeding is in. The Guidance Note reflects upon the existing rules that inherently support the circumstances in the pandemic.

"14.4 Under the Arbitration Agreement, the Arbitral Tribunal's general duties at all times during the arbitration shall include:

...(ii) a duty to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay and expense, so as to provide a fair, efficient and expeditious means for the final resolution of the parties' dispute.

14.5 The Arbitral Tribunal shall have the widest discretion to discharge these general duties, subject to such mandatory law(s) or rules of law as the Arbitral Tribunal may decide to be applicable; and at all times the parties shall do everything necessary in good faith for the fair, efficient and expeditious conduct of the arbitration, including the Arbitral Tribunal's discharge of its general duties."[6]

Similarly, The International Chambers of Commerce (ICC) have given due consideration to the protection of party autonomy and flexibility in arbitration. On the other hand, in order to maintain the uniformity and the structure of the arbitral proceedings, the ICC has shown the adaptability of the inherent rules that support the current situations. For instance, Rule 22(2) of the ICC arbitration rules reads as follows;

"In order to ensure effective case management, the arbitral tribunal, after consulting the parties, may adopt such procedural measures as it considers appropriate, provided that they are not contrary to any agreement of the parties."

a.      Concerns Specific to India

India is trying to pave its way towards an International Arbitration hub through introducing the 2015 and the 2019 Amendments in order to improve Indian Arbitration and empower Arbitral Institutions. However, no significant steps or norms have been adopted by Indian Arbitral Institutions to deal specifically with the COVID-19 crises, in comparison to other foreign Arbitral Institutions. This becomes an impediment to India, especially when it is trying to promote Institutional Arbitration.

Nonetheless, there are some instances of steps being taken in the COVID-19 crisis. For instance, the Indian Council of Arbitration (ICA), has issued a notice[7] on the manner in which the arbitration proceeding is to be conducted through video conferencing and is accepting the new arbitration matters through e-mail. But, it is still disappointing that the Institution has made the parties submit hard copies of the document post the lockdown orders,[8] whereas, the other Arbitral Institutions have accepted electronic submission of documents as mentioned above.

Similarly, Section 19 of the Indian Arbitration and Conciliation Act, 1996, provides that, the parties may decide upon the procedure or arbitral tribunal shall be free to determine the procedure with the consent of the parties. However, in the matter where the assistance of the Court is required in taking evidence or under Section 34 challenge gets hampered due to shutdown of the Court. Even so, the Hon’ble Supreme Court, through its order dated March 23, 2020 has provided for relaxation for such timelines laid down in the Act.[9]

2.      Significant reduction in the Costs of arbitral proceedings

The transition that is taking place in the nature of conducting arbitral proceedings from having a consensus on a neutral place, to participating in the proceedings sitting at their convenient venue, the costs of the proceedings have reduced in these terms. Parties no longer have to travel to the place of arbitration as all the proceedings are taking place in virtual forms. Similarly, expenses required for the infrastructure in support of the arbitral proceedings have considerably mitigated.

However, it is perplexing that the Arbitral Institutions make parties bear a huge amount of fee even if the parties are not using the infrastructure of Arbitral Institutions. No stand has been taken by Arbitral Institutions regarding the reduction of fees or adjustment of the fee already paid for proceedings postponed or cancelled due to the pandemic. Except for SIAC[10], which has explicitly mentioned that there would be no discount in the fees or any adjustment towards the same in future, no arbitral institution has come out clearly on the policy.

3.      Confidentiality during the Pandemic: A core principle of arbitration

Confidentiality and privacy are the core attributes of Arbitration. As arbitral proceedings are moving from physical to virtual hearings, ‘data confidentiality’ becomes a huge concern. Cyber threats such as breach of privacy and data, ransomware attacks and ransomware surround such technological steps. Preventive measures are required to be taken around this aspect.

Following are a list of precautions that can be applied:

·         Encryption of data/ files using password

·         Invitation link and restricted access

·         Secure Internet Connections

·         Secure storage of the recording of Hearings.[11]

Some Arbitral Institutions such as the American Arbitration Association, have come up certain guidelines regarding Ethical Principles.[12] Similarly, the International Chamber of Commerce has also taken up the measures by issuing the Cybersecurity Protocol for International Arbitration (2020)[13], which sets out the guidelines for the conduct of the proceeding and in order to maintain the confidentiality of arbitration.

In India, DIAC, in its guidance note, has prescribed that the arbitrator may take a binding undertaking related to confidentiality by the parties.[14] However, no procedure or remedy is mentioned in case of any breach of the data.

4.      Third-Party Host for the conduct of virtual hearings.

In order to ensure smooth conduct of virtual hearings, many Arbitral Institutions have collaborated with online dispute resolution platforms. For instance, the Singapore International Arbitration Centre has insisted parties to arrange for virtual hearing facilities with a service provider (Maxwell Chambers ADR Hearing Solutions, in this case) including services for real-time transcription. In the domestic arena, famous upcoming legal-Tech startups such as Centre for Online Resolution of the disputes (CODR) and Presolve360 are assisting the Arbitral Institutions for the conduct of virtual hearings.

5.      Conclusion

The manner in which disputes are resolved has undergone a sea-change because of the COVID-19 crises. However, the measures adopted by Arbitral Institutions are ambitious. Only time will prove the success rate of these norms.

There is a demand in the market for inexpensive and effective resolution of disputes, including those arising out of the COVID-19 crisis. Parties cannot afford to spend substantial time or money for dispute resolution. It is important that Arbitral Institutions answer to these demands by putting in place certain appropriate mechanisms. Unfortunately, Arbitral Institutions have hardly responded to this dire need of making dispute resolution more affordable.

Some Arbitral Institutions have not taken any effort to address the crisis and are still functioning with the existing rules/ procedures as though not much has changed. International arbitration’s success lies in adapting to the ever-changing times. Arbitral Institutions should do more for International arbitration to continue as an effective dispute resolution mechanism. 



[1] Pandemic Business Dispute Resolution Service, http://ciarb.org/disputes/pandemic-business-dispute-resolution/

[2]Ibid.

[3] ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19Pandemic. https://iccwbo.org/publication/icc-guidance-note-on-possible-measures-aimed-at-mitigating-the-effects-of-the-covid-19-pandemic/?dm=bypass

 

[5]COVID-19 and the global approach to further court proceedings, hearings, by Norton Rose Full bright, April 2020, https://www.nortonrosefulbright.com/en-in/knowledge/publications/bbfeb594/covid-19-and-the-global-approach-to-further-court-proceedings-hearings

[6]The "New Normal" For International Institutional Arbitrations, by Chakrapani Misra , Yashashree Munde and Rajeswari Mukherjee, June 17, 2020, https://www.mondaq.com/india/arbitration-dispute-resolution/954662/the-new-normal-for-international-institutional-arbitrations

[7] Indian Council of Arbitration, http://www.icaindia.co.in/Notice-for-ICA.pdf

[8]Supra note 6

[10] SIAC COVID-19 Frequently Asked Questions (FAQs), https://www.siac.org.sg/faqs/siac-covid-19-faqs

[11]Arbitration Privacy and Confidentiality In the Age of (Coronavirus) Technology, David C. Singer,Wiley Online Library, https://onlinelibrary.wiley.com/doi/10.1002/alt.21849

[12] AAA Statement of Ethical Principles, https://www.adr.org/StatementofEthicalPrinciples

[14]Supra note 10

Guest Post: Response of Arbitral Institutions to the COVID-19 Crisis– An Indian Perspective: Part I

 [Pranay Jaiswal, a fourth year student at the ILS Law College, Pune, writes on how well the arbitral institutions in India have responded to the Covid19 crisis. This interesting post is in two parts. This is the first part of the post] 

Response of Arbitral Institutions to the COVID-19 Crisis–  An Indian Perspective: Part 1

By Pranay Jaiswal, IV BA.LLB, ILS Law College, Pune.

Excerpt

With advent of global pandemic, everything on this planet has come to a standstill creating hurdles in daily life. Dispensation of Justice is one of the crucial things which is witnessing significant impact due to the COVID-19 crises. Arbitration being the alternatve dispute resolution method to litigation is also facing the hurdles making it difficult to make it accessible for the parties. This piece analyses the problems that are being encountered in the prevailing circumstances and how the arbitral insitutions are tackling towards it or what are the measure that can imbibed to make the procedure party- friendly.  

1.      Introduction

In the prevailing circumstances arising from the COVID-19 pandemic, there is an increase in the number of disputes arising out of contracts, which are to be resolved. Parties are unable to find solutions to the crisis and an unforeseen situation that the pandemic has resulted in.

The conventional way of resolution of disputes through litigation is found to be cumbersome as the physical operation of the Courts has come to a standstill due to the lockdown restrictions. Even though the courts are phasing to new alternatives such as video conferencing, non-urgent matters remain in abeyance.

Parties are facing problems in performing their part of contracts leading to substantial difficulty in project completion. The defaulting parties are relying on the ground of force majeure and other defences such as incapacity to perform, change of law, delay in payment, etc. This has led to many unresolved issues which are likely to be referred to arbitration in the near future, thereby leading to a flood of references to Arbitral Institutions.

Arbitral Institutions will have to get these disputes resolved in an efficient, effective and in an expeditious manner in the backdrop of the COVID-19 situation. Some Arbitral Institutions have positively reacted to the pandemic situation by taking steps which set a benchmark for other Arbitral Institutions to follow. These measures are the subject-matter of this post.

2.      Virtual Hearings

Virtual hearings are becoming the norm in International Arbitration considering that proceedings cannot be conducted in person. Incubating the usage of technology during such times when parties cannot meet in person to resolve disputes, virtual hearings are certainly going to prove a definite alternative to the existing way of conducting proceedings. Hence, there are numerous benefits that virtual hearings provide, even outside the circumstance in which we currently find ourselves.[1]

At the same time, virtual hearings bring with themselves, certain problems. As is the human nature, parties tend to lose concentration in lengthy proceedings that could prove as a major drawback of virtual hearings. Nonetheless, this can be regulated by Tribunals with the consent of parties, by scheduling the hearings at specific time slots convenient to all the parties. This will be in consonance with the fundamental principle of arbitration: equal treatment of the parties.

Additionally, major issues arise out of cross-examinations held virtually. Evidence could be manipulated, putting one party at a disadvantage.

To mitigate this problem, tribunals could seek a 360 degree view of the witness. Another method to address this issue is to enable Arbitral Tribunals to focus/zoom on the witness’s image on the screen which will help in detecting cues that suggest that the witness is being coached. For instance, the fact that a witness is constantly looking away from the camera may indicate that another person is aiding the witness during cross-examination. Whispers and shuffling of papers may raise suspicions that something is afoot.

Another concern that virtual hearings attract is that of  “Seat of the arbitration”. Previously, the parties used to agree upon the seat expressly or impliedly or the tribunal would designate the seat. However, a decision on the seat would be a challenge in ‘online’ proceedings. Consider, for instance, a case where the sole arbitrator is located in India, one party is located in New Zealand and the other party is located in Sri Lanka. The party in New Zeland has to create a software as per the contrct for the Sri Lankan party. In this case, it would be extremely difficult for the tribunal to designate a seat, especially if parties have not agreed to any seat in the arbitration agreement. This is a grey area that needs further research and Arbitral Institutions should address to the earliest.

3.      Recourse to Emergency Arbitration

Emergency arbitration is witnessing a significant rise in International Arbitration in recent times, especially owing to the COVID-19 pandemic.[2] Access to emergency relief could preserve the status quo and protect cash flow to contractors executing projects.

Certain arbitral tribunals have digitized applications for emergency arbitrators.[3] Arbitral Institutions in India provide recourse to such procedure under their rules. For instance, the Delhi Centre for International Arbitration, Nani Palkhiwala Arbitration Centre and Mumbai Centre for International Arbitration have incorporated similar provisions in their respective arbitration rules.

However, it is pertinent to note that even if these institutions have incorporated the provisions of emergency arbitration, the position of the Indian Courts is very dicey regarding it. It can be seen from the judgement of HSBC PI Holdings[4] and of Raffels Design International[5] that there is no uniformity on the stand of the Indian Courts regarding the enforceability of the emergency awards.

4.      Electronic Correspondence

Many institutions have explicitly dispensed with the need for hard copy submissions. Requests for arbitration and evidentiary submissions can be made via email. Some institutions have already informed parties to ongoing arbitration that email would be the only mode of correspondence between the institution, parties and arbitrators. Electronic correspondence is something that presents very little concern for commercial parties.[6]

5.      E-filing – Written Submissions and Evidentiary Documents (Electronic Bundles)

Arbitral Institutions have been stressing upon the e-filing of written submissions. Even documents relevant to a case and of evidentiary nature are made to be submitted online.[7] Institutions like LCIA, ICC have already issued guidelines pertaining to initiation of the new arbitral proceedings through the online filing system of the institution.[8]

Similarly, in India, the ICA has issued a notice describing a procedure for filing of arbitration matters.[9] Even so, the ICA has forced the parties to submit the hard copies of documents post the lockdown orders, which may not be desirable.[10]

6.      Exclusion of Oral hearings.

Given the prevailing conditions of the pandemic, certain flexible steps have been introduced by Arbitral Institutions with the consent of the parties.  In some cases, parties have jointly requested for suspension of the proceedings to hold “without prejudice” settlement talks. In less complex cases, parties have requested the tribunal to dispense with oral hearings and decide the dispute based on documents alone.[11]

In India, the Delhi International Arbitration Centre (DIAC), has issued a consolidated guidance note[12] wherein it has mentioned that the arbitrator may prescribe a fast track procedure for expeditious disposal of disputes where the arbitrator may decide upon the documents alone, on the exclusion of oral evidence.[13]



[1] Key measures taken by Arbitral Institutions in response to the COVID-19 pandemic, Stephen Harwood,

https://www.shlegal.com/news/key-measures-taken-by-arbitral-institutions-in-response-to-the-covid-19-pandemic

[3]How COVID-19 might affect international arbitration, by Tola Adeseye, APRIL 8, 2020 http://arbitrationblog.practicallaw.com/how-covid-19-might-affect-international-arbitration/         

[4] MANU/MH/0050/2014

[5] MANU/DE/2754/2016

[6]IBID.

[7]COVID-19: Arbitrating in the Midst of a Pandemic, by Matteo Clarkson Maciel, 01 APRIL 2020

https://www.kirkland.com/publications/article/2020/04/covid19-arbitrating-in-the-midst-of-a-pandemic

[8]LCIA Online Filing, https://onlinefiling.lcia.org/

[9] Indian Council of Arbitration, http://www.icaindia.co.in/Notice-for-ICA.pdf

[10]Supra note 6

[12] GUIDANCE NOTE FOR CONDUCTING ARBITRATION PROCEEDINGS BY VIDEO CONFERENCE. http://dacdelhi.org/DataFiles/CMS/file/guidancenote.pdf

[13] Section 29B of the Arbitration and Conciliation Act, 1996.