JUDICIAL INTERVENTION IN ARBITRAL AWARDS: MORE GUIDANCE LESS GATEKEEPING

Raghav Mudgal | October 29, 2020
judicial intervention

“Expeditious disposal, finality of arbitral awards, limited judicial intervention and limited review of awards can be defined as four pillars on which the edifice of law governing “Alternate Dispute Resolution Mechanism” is built. These four pillars are not exhaustive, but can be described as essential pillars”.1

INTRODUCTION

The independence from the sluggish and overburdened judicial system has made arbitration the preferred option for parties to resolve their high-stake and technically unique disputes discreetly, amicably and relatively expeditiously. The intention behind the Arbitration and Conciliation Act, 19962 (‘the Act’) wasto enable parties to independently deal with their disputes by giving them the tools to choose their own forum and arbitrators depending on what suits their needs the best. Role of the Court has been therefore purposefully confined to that of a supervisory authority. It is primarily to support the arbitral process and expedite it as much as possible and intervene in the process as little as possible. This does not mean that Courts do not have an important role to play. Whether court intervention is viewed as supporting or as interfering with the arbitral process depends upon a range of factors including the timing, manner and degree of such intervention. Much will also depend upon the relative importance of the competing concepts of party autonomy and due process. As a consequence the question of whether intervention supports or interferes with the arbitral process has been often hotly debated.

International Position

Consolidated in the New York Convention, 19583 , the international position has consistently been to encourage a pro-arbitration and pro-enforcement stand. The same has been reflected in the UNCITRAL Model Law4 as well which is in consonance with the New York Convention. It consists of a number of provisions which empower courts to assist and, if thought necessary, to intervene in aspects of the arbitral process. Article 5 of the Model Law expressly prohibits any court intervention beyond its provisions. It sets out the boundaries of judicial intervention, which inter alia includes Article 34 and 36 of the Model Law. This provision is a proof of the intention to have minimal intervention and has been interpreted strictly. There is no provision in the Model Law for any form of appeal from an arbitral award, on the law or on the facts, or for any judicial review of the award on its merits. If the tribunal has jurisdiction, the correct procedures are followed and the correct formalities are observed, the award whether good, bad or indifferent, is final and binding on the parties.5

Even before the English legislation of Arbitration and Conciliation Act, 1996 (‘UK Act’) came into force, Section 66 to Section 71 of which deal with Powers of the court in relation to award, the English Courts had already set precedents establishing boundaries for themselves beyond which they could not interfere with arbitral Awards. In the landmark case of Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd6, the Court was of the view that as a matter of general approach the courts should strive to uphold arbitration awards. The approach is to read an arbitral award in a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found in it. Once the UK Act came into force, the Courts only further defined the role they are to play with arbitral Awards, specifically confining the scope of ‘substantial injustice’ under Section 68 of the UK Act7 . It wasestablished that it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process8. It is wrong for the Court to allow a party to use Section 68 of the UK Act to challenge the decision on a question of facts and should exercise great care and circumspection to identify cases which genuinely give rise to a serious irregularity9. Section 68, which specifically deals withapplications to the court to challenge an award in the proceedings on the ground of serious irregularity, is concerned with due process and not with whether the tribunal has made the right finding of fact, nor is it concerned with whether the tribunal has made the right decision in law. It is pertinent for the Court to keep in mind that the assessment and evaluation of evidence is a matter exclusively for the tribunal and the Court therefore has no rights in that regard.10

Singapore which has emerged as a popular choice for Arbitration is an apostle of the minimal curial intervention policy and has only had a handful of decisions in which Courts have set aside arbitral Awards. The Model Law has force in Singapore and along with the International Arbitration Act, 1994 (‘IAA’)11 has led the Courts to take a very strong pro-arbitration position with respect to challenges against and enforcement of international awards as is evident insignificant decisions such as Astro Nusantara International BV v PT Ayunda Prima Mitra12 and PT Pukuafu Indah v Newmont Indonesia Ltd13 in which the Courts have strengthened the principle of avoiding curial interference of arbitral Awards.

The Court of appeal of Singapore in its judgment of Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd14 laid down two primary considerations to minimal curial intervention. First is to recognise the autonomy of the arbitral process by encouraging finality so that its advantage as an efficient alternative dispute resolution process is not undermined. Second is that by virtue of opting arbitration it must be acknowledged that parties have accepted to bound themselves to a very limited number of options before Court. It would be then unfair and inappropriate for a dissatisfied party to have Court intervene in the guise of appellate function except for in very specific situation provided for in the statute. The Court stated that,

“… It must always be borne in mind that it is not the function of the court to assiduously comb an arbitral award microscopically in attempting to determine if there was any blame or fault in the arbitral process; rather, an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied.”

It must always be borne in mind that it is not the function of the court to assiduously comb an arbitral award microscopically in attempting to determine if there was any blame or fault in the arbitral process; rather, an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied15. The High Court of Singapore in 2014 further narrowed down the scope of meddling with arbitral Awards in the judgment of BLC and others v BLB and another16. It held,

“…the review should not involve a re-argument or re-trial of the arbitration. I must emphasise that it is not the role of the court to rake through the award and the record fastidiously with the view to finding fault with the arbitral process. Instead, “an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied”

U.K. and Singapore are not the only nation-states that have taken steps to ensure a pro-arbitration ecosystem with a pro-enforcement bias for both domestic Awards as well as foreign Awards. States such as United States of America17, France18, Australia, New Zealand19 and even China have taken various steps to remove the various roadblocks that one may face when trying to get their Award enforced. India too has had a learning curve with respect to enforcement of Awards, domestic as well as foreign with recent Supreme Court judgments paving the way.

SECTION 34& 48: A BALANCING ACT

Section 3420 of the Act provides for recourse to a Court against an arbitral Award by making an application to set aside such Award.The Courts mayset aside domestic Awards if any of the five grounds in Section 34(2) (a) whichinclude if any party was under some incapacity, or agreement is not valid under the law it was subjected to, or if no notice was given the party making such an application, or if the dispute dealt in the Award was beyond the scope of the agreement or if the tribunal was not composed according to the agreement. There are two additional grounds as contained in section 34(2) (b) of the Act- Subject matter not capable of settlement by arbitration under the law or if the Award is in conflict with Public Policy of India.Section 48 on the other hand enables a party to make a request to the Court to refuse enforcement of a foreign Award. It provides that the Court ‘may’ refuse to enforce a foreign arbitral award in India. Compared to Section 34,Section 48 is a similarly worded provision, both sections being variations of Article 34 and Article 36of UNCITRAL Model Law respectively. Even though some of the grounds laid down may be similar to those laid down in Section 34, a successful proceeding under Section 48 does not amount to setting aside of the Award. It only means that enforcement of foreign Award may not take place within Indian Territory through process of Indian Courts.21

In the past few years, Indian Courts have taken a stand to narrow down the scope of their interference when it comes to setting aside or refusing an Award. In two recent landmark judgments, Ssangyong Engineering & Construction Co. Ltd. v National Highway Authority of India22 (‘Ssangyong’) and as Vijay Karia v Prysmian Cavi E. Sistemi Srl and others23 (‘Vijay Karia’), the Hon’ble Supreme Court of India has further defined and narrowed down the scope of intervention in Section 34 and Section 48 of the Act respectively. In the Ssangyong case, the Apex Court clarified the contours of Section 34 (2)(b)(ii) of the Act, which empowers the Courts to set aside an arbitral Award in conflict with the public policy of India. The Court elucidated that the phrase ‘to be in conflict with public policy of India’ means to substantially or procedurally, breach some fundamental principle of justice which shocks the conscience of the Court. It further laid out that,

“Under no circumstance can any Court interfere with an arbitral Award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the dispute which is contrary to the ethos of Section 34 of the 1996 Act.”

In case of Vijay Karia, the two judge bench judgment, authored by Justice R.F. Nariman, explained the grounds under Section 48. The judgment categorised the grounds into 3 categories namely-

  • Category I- Conditions that affect jurisdiction, such as invalidity or illegality of the arbitral agreement.
  • Category II- Grounds that affect party interest alone such as inability of a party to present its case.
  • Category III- Grounds that deal with public policy of India.

The Court interpreted that the term ‘may’ is to be read as shall i.e. as a mandatory provision in case of Category I and Category III. This means that the Court must refuse the enforcement of the foreign Award when such grounds are established before the Court. As for Category II, the Vijay Karia judgmentallows the Courts to enforce a foreign award even when the party requesting the refusal of the enforcement of the foreign award successfully establishes the conditions enshrined in Category II, provided that the Court is satisfied that no prejudice has been caused to such party. The Apex Court also stated that,

“The Policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award in the extremely narrow grounds of Section 48.”

The Court has upheld the pro-enforcement principle by narrowing down the window in which the section applies and reaffirming the discretionary powers enshrined with the Courts to not refuse recognition.

CONCLUSION

It is often the most common opinion that Court intervention in matters of Arbitration is unwarranted interference. That this interference causes unnecessary delays and gives unfair opportunities to Award- Debtor to defer from performing the obligations or making payments as set out in the awards. But as Lord Mustill Observed, it is only a Court with coercive power that could rescue an arbitration which is in danger of foundering24. The fact of the matter is that it is through Courts’ support that expeditious arbitral proceedings are possible which culminate in Awards that are final and binding. As is evident, Courts through their various decisions have shepherded the arbitral system into becoming more self-reliant and dependable. The Courts have also started to appreciate the fact that the parties choose Arbitration being cognizant of the fact that the method they have chosen is a way to amicably and expeditiously resolve disputes between them which may not necessarily mean receiving an award which passes the litmus test of being a well written judgment. All that such an Award needs to pass is the narrow set of standards laid down in the legislation. What remains to be seen is whether this trend of pro-enforcement bias continues or not.

1GM Railways v Veeyar Engineers & Contractors, 2019(3) RAJ 664 (Mad)
2Arbitration and Conciliation Act, 1996
3Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
4UNCITRAL Model Law on International Commercial Arbitration (United Nations document Al40117, annex I), 1985
5Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (Sweet & Maxwell, 4th Ed, 2004)
6[1985] 2 EGLR 14
7Section 68, Arbitration and Conciliation Act, 1996, U.K.
8Vee Networks v. Econet Wireless International Limited,Para 90, [2004] EWHC 2909 (COMM)
9Schwebel v Schwebel, Para 23,[2011] 2 AER (Comm) 1048
10UMS Holding Limited, Energy Standard Fund Limited, Energy Standard Industries Limited v Great Station Properties S.A., Inter Growth Investments Limited, Stremvol Holdings Limited, [2017] EWHC 2398 (Comm)
11International Arbitration Act, Chapter 143A
12Astro Nusantara International BV and Others v PT Ayunda Prima Mitra and Others [2012] SGHC 212 (Belinda Ang Saw Ean J).
13PT Pukuafu Indah v Newmont Indonesia Ltd [2012] SGHC 187 (Lee Seiu Kin J).
14[2007] 3 SLR(R) 86
15Supra
16[2014] SGCA 40
17524 F. Supp. 2d 332 (SDNY 2007).
18B Hanotiau and O Caprasse, ‘Arbitrability, Due Process and Public Policy Under Article V of the New York Convention’, Journal of International Arbitration, (2008) Vol. 25(6) 712 at 735.
19UNCITRAL-MOJ-KCAB Joint Conference: Arbitration Reform in the Asia Pacific Region: Opportunities and Challenges, 11-12 November 2013, Seoul, Republic of Korea.
20Section 34, Arbitration and Conciliation Act, 1996
21HPCL v Videocon Industries Ltd, 2012 (3) Arb LR 194 (Del)
22Civil Appeal No. 4779 of 2019, Supreme Court of India, 08.05.2019
23(2020) SCC OnLine SC 177
24John Lurie, “Court Intervention in Arbitration: Support or Interference” (2010) 76(3) The International Journal of Arbitration, Mediation and Dispute Management 447.

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