Arbitration an Instrument for International Commercial Disputes

Extract of a Seminar on International Commercial Arbitration Delivered by Hefin Rees on 13th May 2010.

1. In a globalised economy, the commercial world looks increasingly towards arbitration as the best method for international dispute resolution. Arbitration offers a neutral and flexible forum, tailored to the parties’ wishes and the nature of the dispute.
2. International commercial arbitration has a long history. The business community places trust in the arbitral process as it gives them the confidence to expand even into countries where the national court system may be seen as corrupt or to fail to meet basic standards of natural justice.
3. The LCIA has had the confidence to set up a satellite office in India. It is too early to say how successful LCIA India will prove to be; as it will only be after several years will we know how many businesses choose India as the seat of arbitration in their arbitration agreements that are currently being negotiated and drafted. Currently, India has got a chequered history in terms of international commercial arbitration, with past difficulties over enforcing international arbitration awards, but it may be that there has been a culture change and there are grounds for optimism in arbitration in India.
4. The big success story, which has proved to be the cornerstone of international commercial arbitration, has been the NYC. It is now over 50 years old, and has stood the test of time. The number of countries who have signed up to it is truly impressive, and way above any recognition treaties in the field of commercial litigation.
5. There will always be some tension between the national court systems of different countries and international commercial arbitration; that is only natural. But, it is hoped that with the greater harmonisation of arbitration Rules and laws, this tension can be reduced. The case of West Tankers, however, is an unfortunate set back on this road; but, thankfully, the decision is of limited scope. It is to be anticipated that the “relay race”, to which Lord Mustill once compared the relationship of arbitration and the support mechanisms of the national court system, will continue.
6. In short, international commercial arbitration has got a bright future.

HEFIN REES

Arbitration in India – the establishment of LCIA India

Extract of a Seminar on International Commercial Arbitration Delivered by Hefin Rees on 13th May 2010.

1. The establishment of LCIA India is the first time that any of the international arbitration institutions have opened a satellite office in India. LCIA India’s Arbitration Rules were published on 17 April 2010[1].
2. LCIA India will allow disputes involving foreign companies with interests in India to resolve contractual claims under London arbitration rules without having to go offshore. Prior to LCIA India being established in April 2009, parties were faced with the choice of arranging ad hoc arbitrations[2], or having to take their legal disputes to an established arbitration centre such as London, Paris or Singapore, or trusting the often-chaotic and unreliable Indian domestic courts.
3. At present, there is a backlog of 31.18 million cases in the Indian judicial system[3]. Some cases may take as long as 20 years to be resolved, with companies and individuals often inheriting them from the original parties. For India, arbitration has therefore long been seen as the solution to resolving India-related disputes for commercial parties. To support this movement, in November 2009, the London Chartered Institute of Arbitrators (“CIArb”) set up its India Chapter in Delhi.
4. It has to be recognised that the Indian courts have, in the past, come up with some controversial arbitration-related decisions. There have also been oddities in legislation, such as those provisions of the law in India (now repealed) which stated that where the governing law was that of India, the ensuing award was deemed to be a domestic award, even though the seat of the arbitration was in a foreign State[4].
5. Indian courts have previously adopted an interventionist approach towards the conduct of arbitration proceedings; and have assumed the power to grant injunctions restraining arbitration proceedings and to set aside awards that they consider to be contrary to Indian law. In two infamous decisions dating back to the 1980s and 1990s, the Indian courts set aside awards rendered elsewhere on the stated basis that the substance of the disputes was governed by Indian law[5]. There have also been three recent Indian court cases which have even placed in question the well-established principle of competence-competence, which is recognised in the vast majority of countries including under French law, German law and English law (Arbitration Act 1996 ss. 30 – 32) and in institutional rules such as LCIA Article 23, ICC Article 6, and UNCITRAL, Article 21[6].
6. These decisions cannot entirely be dismissed as a problem of the past; as is evidenced by the case of Venture Global Engineering v Satyam Computer Services Limited ((2008) 4 SCC 190) where the Indian Supreme Court held that an award rendered in London that was the object of enforcement proceedings in the United States could be set aside in India on the exclusive basis that the parties had chosen Indian law to govern the substance of their dispute. The Indian Supreme Court held that foreign awards may be challenged under Part 1 of the Indian Arbitration and Conciliation Act 1996, unless the parties have specifically agreed otherwise; and in considering any such challenge, the Indian courts can set the award aside on the grounds of public policy if it contravenes any substantive provisions of Indian law. This broad application of the NYC right to refuse to enforce an arbitral award on public policy grounds goes far beyond the interpretation applied by the national courts of most NYC signatories. .
7. However, a recent High Court decision in Max India Limited v General Binding Corporation (FAO 193/2009) has provided a little optimism that the interventionist approach of the Indian courts towards arbitration may now be shifting. In Max India, which involved an agreement to arbitrate in Singapore under the rules of SIAC, the Appellate Court of India held that Part 1 of the Indian Arbitration and Conciliation Act 1996 had been excluded and that the arbitration should continue in Singapore[7].
8. India also only currently enforces foreign arbitration awards from those countries it has “notified” (which encompasses only about 44 of the countries that are signatories to the NYC), which includes (amongst others) the United States, Singapore and England. In addition, before ordering enforcement and execution of a foreign award, Indian courts will test the enforceability of such awards under Indian law and may refuse enforcement on “public policy” grounds. The enforcement process in India can often be quite long, with enforcement periods ranging from 6 months to 3 years.
9. That said, there is reason to hope that India is on the road to establishing itself as a more arbitration-friendly jurisdiction for international disputes; and many consider that the Indian legal services sector could be a major source of revenue.

References

[1] The Rules include several new provisions aimed at expediting proceedings, including an express requirement that all prospective arbitrators confirm their ability to devote sufficient time to ensure the expeditious conduct of the arbitration

[2] These often resembled the very Indian court proceedings which they were meant to substitute and were considered to be procedurally cumbersome and time consuming.

[3] iGovernment, 17 August 2009, PM, Chief Justice Differ on Backlog of Cases.   The article breaks the 31.18 million down as Supreme Court, 52,592; High Court: 4,017,956; and subordinate courts: 27,119,092.

[4] Such an award is usually regarded as a foreign (or international) award under the NYC.

[5] Indian Organic Chemical Ltd v Subsidiary 1 (US) Subsidiary 2 (US) and Chemtex Fibres Inc (Parent Company) (US) (1979) IV Ybk Comm Arb 271; and Union of India and Ors v Lief Hoegh Co (Norway) (1984) IX Ybk Comm Arb 405

[6] See Oil & Natural Gas Commission v Western Company of North America (1987) All Indian Reports SC 674; and National Thermal Power Corporation v The Singer Corp et al 1992 (3) 7 Judgments Today SC 198; See also Paulsson, “The New York Convention’s Misadventures in India” (1992) 7 Intl Arb Rep 18; and Renasugar Power Co Ltd (India) v General Electric Co (US) (1995)  XX Ybk Comm Arb 681

[7] See A Ray and D Sabharwal, “Competence-Competence: An Indian Trilogy” (2007) Mealey’s Int Arb Rep Vol 22 Issue 4.

[8] To reduce the scope of intervention by the Indian courts, it is good practice to expressly exclude part 1 of the Act even when all the elements of an arbitration clause specify another law and jurisdiction besides that of India.