.png)
Digvijay Khatai and Zoya Farah Hussain*
I. INTRODUCTION
Arbitration is a dispute resolution mechanism in which parties to a commercial and legal relationship consent to submit the fate of their disputes to a neutral third-party arbitrator(s), the decision of whom is final and binding on the parties. Expediency, saving parties from getting involved in several rounds of futile litigation, convenience and finality are aspects that have attributed arbitration with international recognition in the commercial world.
Recently, the United Kingdom’s parliament introduced its latest Arbitration Bill 2024 (‘the bill’), which seeks to bring major legislative reforms in their existing provisions to re-establish the UK as an international hub of dispute settlement. The amendment focuses on clearing the air on complex legal issues by eliminating confusion added by previous judicial pronouncements.
The article, comprising two parts, focuses on a comprehensive analysis of two complex issues in the context of international commercial arbitration, which the UK’s amendment seeks to address. Then, it argues for a similar legislative intervention in India with respect to each of the issues for streamlining India’s arbitration landscape.
The first part concerns itself with the ‘conflict of laws’ issue. Serving as an explicable context for the analysis of Clause I of the bill, firstly, it puts forth a close observation of the UK’s judicial position in the Enka vs. Chubb ruling, which deals with an ambivalent choice between law of the seat and law of main contract governing the law of the arbitration agreement. Secondly, it analyses how the clause’s proposal of a seat-centric approach would play a vital role in eliminating the confusion arising from the Enka ruling. Lastly, it delves into analysing how a similar amendment will mitigate a confusingly divergent jurisprudence by Indian courts on the issue by universalising the seat-centric approach in the context of India-seated foreign arbitrations.
In the second prong of the article, we delve into the proposed amendment with regard to emergency arbitration in Clause 8, aiming to align its arbitrator's power with that of a normal arbitrator. Its analysis highlights how the same would reduce the intervention of courts and conflicting orders arising from it. It would also effectively deliver the urgency entailing a peremptory award required by the nature of the dispute in question. Then, we analyse how the Indian judiciary has tried to fill in for the lack of an express provision for emergency arbitration in its arbitration laws by exhibiting an ambivalence towards the same with divergent views.
In this light, we conclude by suggesting an express provision regarding emergency arbitration in India and how aligning its position with that of a normal arbitrator will expedite dispute resolution for India-seated international commercial arbitrations.
II. CONFLICT OF LAWS
In the international landscape, parties to a contract have the autonomy to mutually decide the jurisdiction that would govern the contract (‘law governing the main contract’). However, the law regulating the main contract may not necessarily regulate the arbitration clauses. As per the doctrine of severability, arbitration agreements are treated in isolation from the main contract, which grants the parties the autonomy to mutually choose the jurisdiction, that they wish to govern the procedure and substance of the arbitration agreement. While the ‘law of the seat’ refers to the set of rules that would govern arbitral proceedings, the ‘law of the arbitration agreement’ governs the substantive validity of the agreement between parties to arbitrate any dispute.
Recently, numerous commercial disputes have been witnessed where parties had to go through difficulties in enforcing foreign arbitral awards in domestic jurisdictions, due to lack of clarity in specifying the law of arbitration in arbitration clauses. Poor drafting of arbitration clauses leads to legal ambiguities in deciphering the true intent of parties to confer arbitral institutions with jurisdiction to govern different aspects of arbitration.
A. The Law of Seat extends to the Law of Arbitration Agreement.
UK’s Supreme Court in Enka Insaat Ve Sanayi A.S. v. OOO Insurance Company Chubb [Enka vs Chubb] has reserved somewhat of a debatable position on the said issue. In the first scenario, when parties to a dispute have explicitly chosen a jurisdiction to govern the law of arbitration agreement, regardless of what the law of seat or that of the main contract is, it was upheld the arbitration agreement would be governed by the same. Whereas in the second scenario, where no explicit choice has been made, the ‘law governing the main contract’ would also govern the arbitration agreement, except if it completely invalidates the arbitration agreement.
For example, A and B undergoing a contractual relationship in India, have decided to arbitrate in the event of a dispute. Under the contract, ‘Singapore’ was explicitly mentioned as the ‘law of the Seat’ and the Indian Jurisdiction as the ‘law governing the main contract’. However, a sub-clause under the Dispute Resolution section also stated that the ‘validity of the arbitration agreement’ shall be governed by the law of the United Kingdom. In this case, the UK’s law would govern the ‘law of the arbitration agreement’ with no ambiguities whatsoever. However, in the same situation, if the contract did not explicitly choose the law of the arbitration agreement, Indian jurisdiction (the law of the main contract) would impulsively govern the law of the arbitration agreement under the Enka Vs. Chubb principle, provided that the arbitration agreement is not repugnant to Indian laws.
This is in furtherance of the popular validation principle that mandates the courts to prioritize the interpretation of an ambiguous clause in a contract in a manner that upholds the validity of the contract over any other interpretation. This automatic approach of extending the ‘law of main contract’ to the law of arbitration agreement, solely with the purpose of validating the primacy of the main contract fails to address the aspect of ‘implied consent’ of parties to submit disputes to certain jurisdictions while drafting the arbitration clause, further entailing two major implications.
Firstly, we need to look at the methodology utilised by Enka Vs Chubb to determine which choice shall apply to the law of the arbitration agreement, that is, by looking at what jurisdiction remains the most connected to the arbitration agreement. This necessitates a close examination of the main contract, facts and circumstances under which the agreement was formed and hence demands judicial application of mind. Contracting parties who have not incorporated an arbitration agreement that specifies the law of the seat, the arbitration agreement and that of the main contract, will have to rush to the courts in the event of a jurisdictional dispute, consequently adding to several rounds of litigation.
Secondly, it creates a complex possibility where it would be normal for arbitration to ‘procedurally’ be held in accordance with law of jurisdiction and the arbitration agreement ‘substantively’ being governed by a law of another jurisdiction. This will have significant ramifications during the enforcement of awards in the appropriate jurisdiction if the same does not find the arbitration agreement valid in accordance with its own domestic laws. For example, two parties might choose Russia as the law of the main contract and England as the law of the seat and finally seek to enforce the arbitral award in England. Applying the Enka vs Chubb logic, Russian laws would govern the arbitration agreement. However, England’s court might reject enforcement of such an award on the grounds that the arbitration agreement has no validity in the eyes of English Law. Such a scenario will be highly undesirable as it would result in the entire procedure along with the resources of the parties going in vain.
This is where the bill brings a sense of legal certainty. As per the sixth page of the draft, “Clause 1 would replace the common law position in Enka v Chubb (2020) with a statutory rule on the law applicable to arbitration agreements. This would mean the law governing an arbitration agreement would by default be the law of the seat of the arbitration, except in cases where an arbitration agreement arose from a treaty, unless the parties expressly agreed otherwise. This would occur regardless of where the arbitration was seated”
This shall significantly assist the courts in resolving jurisdictional disputes efficiently in a single proceeding and save the parties from those extra rounds of litigation. Further, the complexity of arbitration proceedings as pointed out above in ‘secondly’ stands eliminated. Lastly, with this bill, contracting parties who would think of arbitrating in the UK would have a guideline to draft their arbitration agreements in a way that would not necessitate them rushing to the courts in the event of a jurisdictional ambiguity.
B. India
Indian courts have preserved a divergent jurisprudence on the issue of conflict of laws. The two broader positions that remain are (i) law governing the main contract also extends to the law of the arbitration agreement (contract-centric approach), and (ii) law of the seat governs the law of the arbitration agreement (seat-centric approach).
The rulings of Sumitomo Heavy Industries Ltd. v. ONGC, Union of India v. Reliance Industries Ltd, and Eitzen Bulk A/S v. Ashapura Minechem Ltd, have laid down a debatable line of reasoning advocating the first position. It holds that, in the context of international commercial arbitrations the main contract has to be seen as a whole of which the arbitration agreement is part. The choice of the parties to attribute a law and the jurisdiction to govern the main contract indicates their ‘strong implied will’ to submit the disputes relating to it to the same law; and to say that the parties chose a contrary approach shall be rare, exceptional and far-fetched.
Similarly, in Roger Shashoua v. Mukesh Sharma, with International Chambers chosen as the law of the seat, London as the venue and India as the governing law of contract, a sub-issue involved the crucial question of determining the law governing arbitration agreement. On this, the Supreme Court explicitly ruled ‘since the substantive law of the contract was Indian law and the arbitration law was part of the contract, the arbitration clause would be governed by Indian law and not by the Rules of International Chambers of Commerce.’
On the contrary, Bharat Aluminium Co vs Kaiser Aluminium Technical (‘Balco case’) strongly advocated for the second position by emphasizing on a ‘seat-centric approach’ while dealing with jurisdictional ambiguities of International Commercial Arbitration cases. It laid down that the seat of arbitration being the ‘centre of gravity’ of a foreign-seated arbitration, is the most convincing indicator of the implied consent of the parties to submit arbitration to the curial law of the same jurisdiction.
The reasoning laid down for the former approach clearly stems from the ignorance of the doctrine of severability. It fails to consider that the element of arbitration stands independent of norms of the main contract. This approach compels the parties to be bound by a single jurisdiction i.e., the law governing main contract at the event of a dispute, in case the law of seat and the arbitration remains unspecified. Whereas the latter approach, cognizant of the severability doctrine, reasonably derives the implied consent of parties to submit arbitration to the curial law of the same jurisdiction as the law of the seat.
However, the primary question that the Balco case was adjudicating was ‘whether Part I of the Arbitration and Conciliation Act 1996 (‘1996 Act’) applies to foreign seated arbitrations. Upon a close examination of the text of the Balco judgement, it is evident that the seat-centric approach is limited to certain conditions only. That is to say that the seat-centric approach has been held favourable (1) when the issue of validity of arbitration agreement is raised on the basis of an Indian seat of the tribunal; (2) when the seat of the tribunal is in India but the contract is governed by a different law; and (3) when solving disputes entirely of domestic nature with two different cities as the seat of the tribunal.
Therefore, since the context in which a ‘seat-centric approach’ was opted for was different than those of previous rulings, Balco did not go down the path to scrutinize the correctness of the ‘contract-centric approach’ to specify the law of the arbitration agreement. This simply means that although the Apex Court expressed a strong support for a seat centric approach for resolving the ambiguity of the ‘conflict of laws issue’, the same does not entail a universal application as it stays limited to certain conditions only.
While it is apparent that Indian Courts have evolved from a ‘contract-centric approach’ to a ‘seat-centric approach’ in dealing with disputes related to foreign-seated arbitrations, ambivalence still prevails regarding the question of jurisdiction of arbitration agreements. This is where an amendment to the 1996 Act like clause I of the London Bill can bring a significant sense of legal certainty. An amendment to opt for the law of the seat to act as the law regulating the arbitration agreement unless the contrary has been agreed upon by the parties, will clearly uphold the severability doctrine and eliminate the possibility of arbitration being governed by two different jurisdictions. In addition to arguments like legal certainty, eliminating multiple rounds of litigation etc, such an amendment will be a crucial step towards making India a desirable jurisdiction for parties to opt for a seat of arbitration.
III. EMERGENCY ARBITRATION
In this pursuit of recognising the aspects of the Bill that potentially can ease out the process of availing an arbitral award for parties involved in an International Commercial Arbitration, we delve into the aspect of ‘emergency arbitration’, an amendment to which in the Bill can act as a great inspiration for the Indian arbitral scenario.
While arbitrations arising out of complex commercial disputes are lengthy to conclude, some cases may require urgent actions to preserve the subject matter of dispute. Hence, to preserve the status quo, parties need to seek interim relief measures from the court until the main arbitral tribunal is constituted, to attribute a binding value to the relief. Since engaging in courts for such relief increasingly became time-intensive, the concept of emergency arbitration emerged, where an arbitrator or a panel of arbitrators are appointed by an arbitral institution specifically for the adjudication of the issue of interim measures. An award passed by such emergency arbitrator(s) generally presumes a binding character.
A. Aligning Emergency Arbitrators with Regular Arbitrators
Clause 8 of the bill seeks to align the powers of emergency arbitrators with those of normal arbitrators under the English Arbitration Act 1996 (‘EAA’) by stating, “if without showing sufficient cause a party fails to comply with any order or directions of the emergency arbitrator, the emergency arbitrator may make a peremptory order to the same effect, prescribing such time for compliance with it as it deems fit”. This stems from the power given to courts/tribunals to act in support of arbitral proceedings, i.e. generally to grant an urgent interim relief, thus, rendering emergency arbitrators powerless. Hence, the Law Commission: 14th Programme for Law Reforms suggested that if one of the parties disregarded the emergency arbitrators' interim orders, the court would enforce them in the same manner as it would have with regular arbitrators. Apart from that, Section 44(4), which already authorises the application for court orders on non-urgent issues only with the consent of both parties or the tribunal, shall be equally applicable to emergency arbitrators.
With these modifications, the emergency arbitrator will be able to guarantee that the order is followed in addition to having the authority to issue temporary remedies. This is due to the fact that under the status quo, only the tribunal was authorised to make such peremptory orders in the event of non-compliance [Section 41(5)]. As a result, the party would have to wait for the tribunal's formation and any ensuing rulings from the tribunal upholding the emergency relief. The emergency arbitrator's ability to make a peremptory order in the event of a party's default is retained by the proposed modification, thus retaining the urgency of the relief.
Furthermore, by having the emergency arbitrator issue relief and have it readily enforced by the relevant courts, the proposal might remove the burden on a party to approach courts in several jurisdictions in order to secure any swift remedy. It also eliminates the possibility of several courts in various jurisdictions issuing conflicting orders, which would only make matters complicated for the parties and eliminate uniformity in the order.
B. India
Till date, India has not attributed any legislative recognition towards emergency arbitration in the 1996 Act. However, Indian courts have recognised the validity of arbitral awards arising of emergency arbitration in several cases. India’s latest position on emergency arbitration has been enshrined in the Supreme Court Case of Amazon v. Future Retail Ltd (‘Amazon case’) wherein an emergency arbitral tribunal and an award arising out of it were considered under Section 2(d) and 2(c) of the 1996 Act which defines what an arbitral tribunal and an arbitral award is. The ruling also held that an award arising out of an emergency arbitration shall presume the same character as an interim relief passed by an arbitral tribunal under Section 17(2) and would have the same force of law as a decree by an ordinary civil court.
On similar lines, In Ashwani Minda v. U-Shin, the Delhi High Court noted that an emergency arbitrator's order carries the same weight as an interim order by an arbitral tribunal. As per Section 9(3) of the Arbitration and Conciliation Act (A&C Act), courts should refrain from intervening once an emergency arbitrator is appointed. The Division Bench of the Delhi High Court upheld this observation, further clarifying that if a party fails to secure relief from the emergency arbitrator, they cannot file a Section 9 application in court for the same relief. This effectively recognizes the emergency arbitrator as an alternative forum to court proceedings under Section 9.
This ruling enabled parties to arbitration to acquire an urgent interim relief with the force of law without rushing to courts, either by appointing an emergency arbitrator or from a regular arbitral tribunal. However such equating of the powers of an emergency arbitrator with those of normal arbitrators is only restricted to domestic arbitrations. Section 17(2) is only applicable to Part I of the Act which governs domestic arbitrations, which means that parties to an India-seated foreign emergency arbitration cannot take recourse to the same. For such parties, under Section 9, approaching courts for interim relief remains the only remedy.
This is to say that assume ‘X’ is a party based in the US and ‘Y’ is an India-based party and they enter into a contract that includes an arbitration clause specifying India as the arbitration seat. Due to a sudden dispute, ‘X’. seeks urgent interim relief. It appoints an emergency arbitrator under the terms of their arbitration agreement to secure a temporary injunction against ‘Y’ However, because this is a foreign emergency arbitration (involving an international party and governed by Part II of the A&C Act), Section 17(2) does not apply, meaning that the emergency arbitrator's order does not carry the same enforceability as in domestic arbitrations.
In this scenario, ‘X’ cannot enforce the emergency arbitrator's decision directly in India. Instead, if it needs enforceable relief, it must turn to the Indian courts under Section 9 to obtain the interim protection it seeks. Thus, for parties like ‘X’ in international arbitrations seated in India, going to court remains the only practical and legally enforceable option for urgent relief, unlike domestic arbitrations where an emergency arbitrator's decision would be immediately enforceable. This is further buttressed by the Raffles Design case wherein due to lack of express provision of emergency arbitration in the A&C Act its award was held unenforceable.
Hence, in light of the cases mentioned and the lacuna highlighted in the realm of emergency arbitration in India, taking inspiration from the Bill, this section intends to recommend two broad things, firstly, the process of easing out arbitral process for International Commercial Disputes seated in India would start by having an express provision regarding emergency arbitration in the A&C Act. Secondly, the problem elucidated by the above-mentioned illustration will be reduced if the positioning of the emergency arbitral award with Section 17 is extended through another provision to Part II of the A&C Act in order to reflect its recognition not just in domestic arbitration but outside of it as well.
Hence, while the progress of India’s emergency arbitration landscape has been dawdling compared to foreign jurisdictions, the lack of legislative prescription compelled the judiciary to provide an ounce of certainty regarding its enforcement. The facet where an emergency arbitrator shares the same podium as the regular arbitrator does not sufficiently fill the void when it comes to foreign arbitrations, thus highlighting the long path that India needs to tread to meet its expectations of being an emerging arbitration hub.
In light of the above enunciation, the exigency for a robust emergency arbitration mechanism for India cannot be more stressed given its high volume of litigation and backlogged cases wherein emergency arbitration provides a faster alternative for parties needing urgent relief, especially in matters where assets or evidence may be at risk of being altered or destroyed. This mechanism ensures that parties do not have to wait for the constitution of a formal tribunal or go through prolonged court processes to protect their interests. Moreover, as India increasingly positions itself as an arbitration-friendly jurisdiction, especially after amendments to the Arbitration and Conciliation Act, emergency arbitration enhances the country's attractiveness for international and domestic arbitrations, potentially helping the nation align with its arbitral goals.
IV. CONCLUSION
The two-pronged approach taken by this article has attempted to bring out the shortcomings of two major facets revolving around the process of arbitration i.e. the law governing the arbitration agreement and the position of emergency arbitration. These concepts have not just been introduced but delved deeper into and solidified as legal suggestions or laws in foreign jurisdictions, like in the UK as elucidated and in Singapore through SIAC Emergency Arbitrations Rules as well. But in India, while SC rulings have tried to fill the void wherever the legislature has fallen behind in addressing the same, the role reversal glaringly shouts the failure to cover it adequately.
Even the amendments of 2015 and 2019 tried to expedite the process but the key aspects mentioned in this article were ignored. Chimeric projections for making India a global arbitration hub would barely fortify if infrastructural processes were lacking in such fundamental aspects. India must take lessons from England, which introduced amendments after recognizing that International Commercial Arbitration contributed a substantial 2.5 billion dollars to the UK economy. These reforms should be implemented with consideration for the unique challenges and shortcomings within the Indian arbitration landscape.
*Digvijay Khatai is a 3rd year BA.LLB student at National Law University Odisha. Zoya Farah Hussain is a 3rd year BBA.LLB student at National Law University Odisha.
Comments