Lengthy Law Reviews and their Usefulness; Chevron and Rise in Arbitral Power

Followers of the law blogsphere would be aware of the ongoing debates on the usefulness of law reviews. The recent debate really started off with a New York Times piece titled "The Lackluster Reviews that Lawyers Love to Hate". A lot of responses were written to this piece and some of these responses (chosen in random) can be found here, here, here and here.  Our short take on this debate is the subject of this post. An allied purpose is to bring to the attention of our readers a seemingly interesting article published in the Stanford Law Review on the rise of arbitral power.

 

This blawgger read a recent post in the Opinio Juris Blog on the Chevron arbitration and the rise of the power of arbitrators vis-a-vis domestic courts/ tribunals. The post contained a link to a recent Stanford Law Review article titled "The Rise of Arbitral Power over Domestic Courts" by Michael D. Goldhaber. The article's title seems extremely interesting considering the abstract of the same provided by the Opinio Juris post. However, as a practitioner, it is extremely difficult to read a forty four paged article on the topic.

 

This gives rise to the question- why are law review articles, especially by senior law professors, very very very long? Perhaps this is one of the factors which makes practicioners averse to reading law reviews. On the face of it, this phenomenon of publishing lengthy law review articles is more prevalent in USA than in UK. Is writing a lengthy article really necessary? In India, several law reviews do not encourage lengthy articles. I think this is good practice. If at all law reviews want to publish lengthy law reviews, there should be executive summaries summarising the paper in slight detail as a 250 word abstract might not be sufficient to encompass all the ideas stated in the paper.

Article Review: Fali S Nariman, Ten Steps to Salvage Arbitration in India: The First LCIA-India Arbitration Lecture

Fali S Nariman, Ten Steps to Salvage Arbitration in India: The First LCIA-India Arbitration Lecture, Volume 27, Issue 2, Arbitration International (2011)

It’s a joy to read the writings of Fali S Nariman (Nariman) on arbitration. His articles contain several never- -appeared-before information apart from insightful analysis and critique. In the First LCIA-India Arbitration Lecture, published in Arbitration International, Nariman’s complaint is that “we have not yet achieved what we initially set out to do when we enacted the Arbitration and Conciliation Act, 1996, which was to establish an efficient, competent and credible system of international commercial arbitration.” To remedy this situation and “salvage” Indian arbitration from the current mess it is in, Nariman suggests ten remedial measures, which are as follows:

1. Parties must develop the spirit of arbitration and should learn to honour an arbitral award.
2. Supreme Court should be the exclusive forum for enforcing foreign awards in India
3. Parties should try to resolve their disputes by mediation
4. To discourage frivolous petitions in India, the costs must not be ordinary costs but must be fixed on the basis of indemnity.
5. Establishment of an Arbitration bar
6. Necessity of good arbitrators.
7. Amendments suggested in the Arbitration Amendment Bill, 2003 regarding less strict scrutiny of international commercial arbitration awards and other suggestions should be re-introduced.
8. Bhatia International, Saw Pipes and Venture Global must be reversed.
9. Foreign parties must expressly exclude Part I
10. A new law of arbitration or the amendment of the existing one must incorporate principles like the one contained in the French arbitration law (2010) characterizing the  role of the courts as one supporting the arbitral process (juge d’appui)

The measures suggested by Nariman are broad and are meritorious as they do not only address the Legislature but also the other stakeholders such as the parties, courts etc. However, there is nothing phenomenally new in these recommendations. Several of these were already covered in Nariman's article in the George Washington International Law Review.

The suggestion that foreign parties should exclude Part I in its entirety may not be fully correct. If parties exclude Part I completely, there are chances they might not get any interim relief under Section 9 of the Arbitration and Conciliation Act, 1996. Therefore, it might be better to expressly exclude Part I, except for Section 9 and 27. This has been recognized even in Bhatia International  (“It must immediately be clarified that the arbitration not having taken place in India, all or some of the provisions of Part I may also get excluded by an express or implied agreement of parties.”).

Nariman's anecdote about Lord Denning’s speech habit was great and we quote it here:

“A great judge, Lord Denning, always began a pre-prandial speech with the reflection that a convivial evening fulfilled three distinct pleasures: first, the pleasure of eating with nice people; next, the pleasure of drinking with nice people; and third, the pleasure of sleeping with-complete peace of mind!”

Sports Arbitration and Other News, Links and Posts

A proposal was made by the Ministry of Youth Affairs and Sports in February this year on a comprehensive sports legislation in India to be known as the National Sports Development Act. The proposal was accompanied by a Preliminary Exposure Draft which contained the proposed statute. Some features of the proposed statute as it relates to arbitration are below:

• Every national federation is to be responsible for agreeing to the institution of an autonomous and impartial mechanism of arbitration and mediation through Sports Ombudsman to handle athletes’ grievances as well as other sports-related disputes between the National Sports Federation and other stakeholders
• The National Olympic Committee of India (known as the Indian Olympic Association) is to agree to facilitate through arbitration, conciliation and mediation mechanism, the resolution of conflicts or disputes within its own management or within the management of any National Sports Federation, which comes under its purview within fifteen days from the date of making such representation;
• A National Sports Ombudsman is to be appointed for resolving disputes relating to sports. The body shall be responsible to resolve all kinds of disputes pertaining to sports (The scheme of appointment of the said body is contained in the IX Schedule of  the Preliminary Exposure Draft).
• Appeals from the Ombudsman would be to an appellate authority.
• The awards of the Ombudsman and the Appellate Authority would be final and binding as per the Arbitration and Conciliation Act, 1996.
• Each sports federation is to have exhaustive provisions pertaining to arbitration in their written constitutions.
• One or more retired High Court judges with knowledge of sports law and international/ domestic arbitration would be appointed as the Ombudsman

Other Links:

The latest volume of Virginia Law Review has a post on the need for clarity in subject matter Jurisdiction. Access it from here.

Lewis and Clark Law Review has an article on the resilience of the ground of manifest disregard for setting aside arbitral awards.

The Arbitrajul in litigiile comerciale. Blog has a post informing about call for papers by the the University of Missouri School of Law on the topic “Border Skirmishes: The Intersection Between Litigation and International Commercial Arbitration”. The last date of submission is in August 2011. See here for details.

The Lex Arbitri Blog has a call for papers on for an edited book on arbitration. details are here.

 

UNCTAD has published its annual review on investor-state dispute settlement cases. Access it from here.

 

Indian Legal Space Blog has a post on the Penn Racquet case where the scope of public policy in the enforcement of foreign awards is discussed. We had earlier posted a descriptive comment on the case.

 

Check out the post in the Kluwer Arbitration Blog on appeals from arbital awards in Switzerland.

Links to Some Articles on Arbitration and Other Interesting Things

George Washington International Law Review had an India specific issue. The issue consists of the following articles:

Abhishek Singvi, India’s Constitution and Individual Rights: Diverse Perspectives

Sunit Khilani, The Constitution and Individual Rights: A Comment on Dr. Abhishek Singhvi’s India’s Constitution and Individual Rights: Diverse Perspectives

Prashant Bhushan, Sacrificing Human Rights and Environmental Rights at the Altar of “Development”

Srikanth Reddy, What Would Your Founding Fathers Think? What India’s Constitution Says—and What Its Framers Would Say—About the Current Debate Over a Uniform Civil Code

Now, before you arbitration readers conclude there is nothing in this post for you, do check out the following articles published in the said law review:

Fali S. Nariman, India and International Arbitration

Ronald J. Bettauer, India and International Arbitration: The Dabhol Experience

Interesting Arbitration Materials Published by UNCITRAL
UNCITRAL has done some astounding work on arbitration. UNCITRAL publishes monthly biography on several trade law topics, including on arbitration and conciliation. Do check out the monthly bibliography for
January 2011, and February 2011.

UNCITRAL had its first Asia conference in November 2010. The following papers (topic-wise) pertaining to arbitration were to be presented in the conference:

Role of UNCITRAL
Jeffrey Chan Wah Teck, S.C, A Singaporean perspectiveSoogeun OH - Recursivity in Law Making

Recent work by UNCITRAL
Pyoung Keun Kang, The UNCITRAL Arbitration Rules as Revised in 2010

Current and future topics of UNCITRAL and their Implications on Asia
Jae Woo Lee, Transparency in Treaty-Based Investor-State Arbitration

Online Dispute Resolution
Qisheng HE, A Global Online Dispute Resolution System - Is China Ready to Join?

P.R. Swarup, An Indian Scenario

By the way, SSRN has specific content containing articles published in respect of the Indian Laws. Do check out the SSRN India laws eJournal

Some Very Interesting Reads on Contract Law and Arbitration

Recently, two interesting articles were published in SSRN on contract law

The first article titled “Contract Law, Party Sophistication and the New Formalism”, penned by Meredith Miller, criticizes the law as it exists on the impact of party sophistication in the interpretation of contracts. The author does not wholly discount the party sophistication concept. Rather, according to the author, the courts have not addressed the issue of party sophistication in a meaningful way. Do check this article out (44 pages).

In the case of Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44, the UK Supreme Court dealt with the law pertaining to whether “without prejudice” communications during negotiations would form a part of factual matrix that is relevant extrinsic aid to contract interpretation.

This article titled “Without Prejudice Interpretation – With Prejudice Negotiations” by Adrian A. S. Zuckerman critically analyses the decision. Do check it out. Extremely interesting and short (10 pages).

Also do check out this case comment in the UK SC Blog on the said case.
A few interesting articles on arbitration. (ideally these must be a part of the monthly roundup of arbitration articles but then these are very hot reads.

David Schwartz hates using the term “mandatory arbitration” to the situation where the party that solely drafted the contract enforces the arbitration clause contained in it against the other party which has weaker bargaining power and had no positive role to play in the drafting of the contract. He wants to call such arbitration as “claim-suppressing arbitration” in this article titled “Claim-Suppressing Arbitration: the New Rules”. Do check it out. He is in favour of the passing of the Arbitration Fairness Act (USA). Interesting read.

Empirical Legal Studies Blog has come up with links to a couple of empirical studies on arbitration. I have not read the articles but the description in the ELS blog post projects the articles to be very interesting. The links to the said articles are provided below (subscription required):

An Empirical Study of Employment Arbitration: Case Outcomes and Processes, 8 Journal of Empirical Legal Studies 1 (2011) by Alexander Colvin

Punitive Damages in Securities Arbitration: An Empirical Study, 39 Journal of Legal Studies 497, 518 (tbl. 4) (2010) by Stephen J. Choi & et al.

News, Links and Comments

Kumkum Sen has written this article in Business Standard on the Sumitomo v. ONGC case we had discussed previously in this blog. Do check it out.

State of Himachal Pradesh v. Himachal Techno Engineers & Anr. (MANU/SC/0524/2010) is about how limitation period for challenge of arbitral award under S 34 ought to be calculated. Two conclusions from the decision are stated below:

• The date of receipt by a government entity on a holiday cannot be taken as the date of receipt of the award. The date of receipt is the working day immediately after the said holiday. So, the date of receipt in S 34 is the date of effective receipt.
• A month is not equivalent to thirty days. It refers to the actual days in a calendar month. Thus, for example, February would consist of 28 or 29 days. Similarly January would consist of 31 days. Thus, "within three months from 1st January" would mean "prior to or on 1st April".

Added after posting: Also do check out this article in the Arizona Journal of International and Comparative Law  [27 Ariz. J. Int'l & Comp. L. 1(2010)] criticising the law as it stands on S 56 of the Indian Contract Act, 1872.

Interest Rate under the Indian Arbitration and Conciliation Act, 1996

In this blog, we had three posts on the consultation paper (CP) released by the Ministry of Law and Justice (Ministry) proposing to amend the law of arbitration in India. One was a guest post that gave a descriptive analysis of what the CP was all about. The other two posts (which can be found here and here) were on the suggestions of the Ministry regarding the applicability of Part I of the Arbitration and Conciliation Act, 1996 to international commercial arbitrations held outside India. The aim of this post is to analyse the proposal relating to the rate of interest [readers may please note that we have not dealt with the CP in the same order as the CP does; For example, the aspect relating to the applicability of Part I of the Act was designated as (A) in the CP and the proposal relating to interest rate is (E) in the CP. Nevertheless, we will try to cover all the aspects of the CP].

Article 31(7) of the Act provides:

"(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen percentum per annum from the date of the award to the date of payment."

The rate of interest, by default, has been fixed at 18% per annum. The parties could, however, agree to the contrary, providing for a different interest rate.

The CP proposes that since the said 18% per annum rate of interest in this economic scenario is too harsh, the interest rate ought to be linked to the interest rate fixed by the Reserve Bank of India (RBI). Hence, the CP seeks to modify S 31(7)(b) as follows:

'(b) A sum directed to be paid by arbitral award shall carry interest at the rate of one percent higher then the current rate of interest from the date of award to the date of payment.

Explanation- The expression “Current rate of interest” shall have same meaning as assigned to it under clause (b) of Section 2 of the Interest Act, 1978.'

S 2(b) of the Interest Act, 1978 reads as follows:

'(b) "current rate of interest" means the highest of the maximum rates at which interest may be paid on different classes of deposits (other than those maintained in savings account or those maintained by charitable or religious institutions) by different classes of scheduled banks in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act, 1949 (10 of 1949).

Explanation.-- In this clause, "scheduled bank" means a bank, not being a co-operative bank, transacting any business authorised by the Banking Regulation Act, 1949 (10 of 1949);'

As per the RBI’s website, the Prime Lending Rates (PLR) of different banks are between 11-12%. This article in Business Standard describes the Benchmark Prime Lending Rates of various Indian Banks.

Effectively, the Ministry proposes to fix the interest rate at around 12%. The only justification it provides is the 'present economic scenario'. We are not sure whether this is an adequate justification. Three points are worth noting here. One, at the time when the CP was released (April 2010), the Indian economy had already started recovering (so did many countries in the world). Two, the amendments proposed are far-reaching amendments, meant to extend the longevity and usefulness of the Act. From this perspective, I am not sure if this provision has to be amended on the basis of a temporary phenomenon like economic crisis. What would happen once the economic crisis is over? cessante ratione legis cessat ipsa lex. Three, what was the basis of fixing the interest rate at 18% in Section 31(7)(b)? The CP does not discuss the reason for the law as it exists.

The point which we are making in this post is that before the said provision is amended as per the Ministry’s proposal, the following must be examined:

1. What was the basis for S 31(7)(b) to fix interest rates at 18%?
2. Why is the new proposal to fix it at the PLR?
3. Prudent basis/ bases for fixing interest rates must be determined and then incorporated in the Act.

Interest is the payment which would an entity would be entitled to (over and above the principal)* , had the principal amount been available to it for its use from a particular point of time in the past. The question is how is this sum to be determined? In general, an entity would be entitled to an interest rate which is equivalent to the interest rate which it would have obtained had it invested the principal amount in the least risky investment available in the market. However, the problem arises when an entity would have used the particular amount to obtain returns at a percentage that is far higher than the interest rate which the least risky investment would give. The ideal solution in such a case would be to link the interest rate to the performance of the entity. This would be the correct compensation that an entity would be entitled to had it been in possession of that principal amount.

We do not pretend to be experts on aspects relating to finance. However, readers may spare some time and read this well-researched thirty page (including end notes) article titled ‘Interest as Damages’ by Sénéchal and Gotanda, 47 Colum. J. Transnat'l L. 491 (2009). The authors have posted a draft of the said article in SSRN (though I am not sure if both are identical) which you can download from here. The authors discuss, inter alia, the bases on which interest rates should be determined and come to a conclusion that interest rates in respect of publicly traded corporations should be calculated by referring to the weighted average cost of capital and for privately held firms, interest ought to be calculated by adding up a risk–free rate (which is theoretically impossible) and risk premium.

* Added after posting

KKV's Proposal to Set up Four Apex Non-Constitutional Appellate Courts

Yesterday's The Hindu contained the first part of Senior Advocate, KK Venugopal's proposal for divesting the Supreme Court of its ordinary appellate functions and instead make it solely the apex court on constitutional matters. KKV also proposes the establishment of four Non-constitutional final appellate courts in different parts of India.

Link to the first part of the article was given in yesterday's post. The second part of the article can be accessed from here. Law Resource India blog has posted KKV's RK Jain Memorial Lecture titled  "Towards a Holistic Restructuring of the Supreme Court of India", where KKV had mooted this proposal.

The Law Commission report in which similar proposal was made can be accessed from here.

Arbitration and Anti-suit Injunctions in the EU

One of the recent landmarks in international commercial arbitration is the decision of the ECJ in Allianz SpA v. West Tankers wherein the ECJ had held that issuing anti-suit injunctions was against the EC Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. The decision has invited  a great deal of commentary. One of such is a note  in the Cornell Law Review by Daniel Rainer titled "The Impact of West Tankers on Parties' Choice Of a Sea of Arbitration". The note can be found here.

I recommend readers to read the note. It is well researched and the main arguments are extremely convincing. The note also analyses the law on anti-suit injunctions in UK and USA.But for those who do not want to, I will try to briefly analyse the note.

The fundamental idea that Mr. Rainer tries to convey is this:

Anti-suit injunctions are effective tools in encouraging settlement of commercial disputes by arbitration. Anti-suit injunctions effectively make parties settle commercial disputes by arbitration instead of going to courts. The ECJ decision in West Tankers has considerably reduced the power (jurisdiction) of an EU court to issue anti-suit injunction. As a consequence, parties who generally chose an EU destination (like, say, France or London) as the forum for arbitration would now go for non-EU fora for the fear that anti-suit injunctions may no longer be available and that they might have to litigate the same disputes in multiple fora (which would, for obvious reasons, be costly). The author therefore advises, after analysing the US law (which is pro-anti-suit injunctions) that parties ought to choose US as their seat for arbitration so that the option of anti-suit injunctions would be available to the parties.

It must be noted, as Mr. Rainer rightly points out, that the ECJ decision would not affect the  power of the English courts to issue anti-suit injunctions enjoining parties from approaching a non-EU country court (See Shashoua v. Sharma). Anti-suit injunctions can be issued by the English courts enjoining parties from initiating/pursuing suits in non-EU courts. Hence, if an Indian party and, say, an English party enter into a contract and choose London as the forum of arbitration, and if there is a dispute between them, the English party can approach the English courts for obtaining an anti-suit injunction if the Indian party seeks to initiate proceedings with respect to the dispute in India.

Review of Basic Structure - A foiled attempt

T R Andhyarujina has written an article in (2009) 9 SCC (J) 34 ,brining into the light the probable causes of the foiled attempt to review the Basic Structure doctrine. Find here a piece written by Justice Krishna Iyer on the same issue in 2005 as a response to a demand to reveal the green room setting of the review. Andhyarujina's article is a reiteraton of Justice Iyer's narrative.

Andrew Tettenborn, Consequential Damages in Contract- The Poor Relation 42 Loy. L.A. L. Rev 177

In this Article, Andrew Tettenborn discusses the ways in which law treats direct and consequential damages differently. An interesting read.

The term "consequential damages" seems to be a misnomer as even direct damages are "consequential". Consequential damages are synonymous to indirect damages. Initially contracting parties used the term "direct and consequential" damages to refer to damages that arose as a natural consequence of the breach or which could be supposed to have been in contemplation of the parties at the time of signing of contract. contracting parties usually excluded "indirect and consequential damages". Drafting errors ("indirect or consequential damages") probably made the courts to construe "consequential" to mean indirect. Thus, the term "consequential damages" has come to refer to those categories of loss that were not in contemplation of the parties or that could not be supposed to have been in contemplation of the parties at the time of entering into the contract.

See, HOTEL SERVICES LTD. v. HILTON INTERNATIONAL HOTELS (UK) LTD.

Article: Wittgenstein and Contract Precedents

VAL D. RICKS, THE POSSIBILITY OF PLAIN MEANING: WITTGENSTEIN AND THE CONTRACT PRECEDENTS, 56 Clev. St. L. Rev. 767

While reading the above article, I was wondering why academicians are so obsessed by plain meaning rule, Ludwig Wittgenstein, HLA Hart, linguistic philosophy, Dworkin etc when they talk about contract interpretation when all they need to dois to think "pragmatically" (Posner?!!@%#$&^%) from the businessman's perspective for whom the contract was drafted...

Articles in Columbia Law Review

Alan Schwartz & Robert E. Scott, Market Damages, Efficient Contracting, and the Economic Waste Fallacy

Market damages are the best default rule when parties trade in thick markets: They induce parties to contract efficiently and to trade if and only if trade is efficient, and they do not create ex ante inefficiencies. Courts commonly overlook these virtues, however, when promisors bundle services that are not separately priced. When the cost of completion is large relative to the “market delta”—the increase in market value—courts concerned with avoiding “economic waste” limit the buyer to the market value increase. This concern is misguided. Since the buyer commonly prepays for the service, a cost-of-completion award actually has a restitution element—the prepaid price—and an expectation interest element—the market damages. Courts fail to see the restitution issue and thus deny these damages more frequently than they should.

Eric A. Posner, Human Welfare, Not Human Rights

Human rights treaties play an important role in international relations but they lack a foundation in moral philosophy and doubts have been raised about their effectiveness for constraining states. Drawing on ideas from the literature on economic development, this Essay argues that international concern should be focused on human welfare rather than on human rights because of three advantages.

Historical Imagery, Legitimation and Lex Mercatoria

The Current Issue of Law and Contemporary Problems contains an article on Historical Imagery, Legitimation and Lex Mercatoria. An interesting read.

NIKITAS E. HATZIMIHAIL, THE MANY LIVES—AND FACES—OF LEX MERCATORIA: HISTORY AS GENEALOGY IN INTERNATIONAL BUSINESS LAW

(Excerpt)

This article illustrates twin points. First, far from being an extrinsic display of erudition, historical imagery about the ancient law merchant is employed to legitimate modern notions as to what the governance of international business transactions should be. Second, such historical imagery is almost as diverse as the divergent conceptions and agendas within the mercatorist coalition. A close examination of mercatorist historical narratives will allow us to scrutinize the efforts at legitimation and to better understand the normative agenda and the structure of arguments employed in the lex mercatoria discourse.

[This article (and my previous readings on the subject) makes me wonder if there was a "lex mercatoria" in India in the ancient and the medieval times. India, as we have read in history, was famous for sea trade with many nations in the ancient as well as medieval times. Can anybody throw light on this aspect?]

Contract Law as Power-Conferring as well as Duty-Enforcing

Gregory Klass, Three Pictures of Contract: Short Version

Abstract:

This essay presents in short form the main argument in Three Pictures of Contract: Power, Duty and Compound Rule, 83 N.Y.U. L. Rev. (forthcoming 2008), available at SSRN: http://ssrn.com/abstract=1033116. The essay will appear in the online publication, The Legal Workshop.The article argues that contract law is unusual in that it is at one and the same time both, in Hart's terms, a duty-imposing and power-conferring rule. While most laws are of either one type or the other, an analysis of contract law shows how a single set of legal rules can be designed to both impose duties on persons and grant them the power to change their legal obligations. The analysis casts new light on contract law, supporting pluralist theories of the practice. It also adds to the general theory of normative powers, as it describes a new distinction between pure power-conferring rules and what I call "compound rules" like the law of contract.