public policy in international arbitration
TRANSCRIPT
-
8/7/2019 Public Policy in International Arbitration
1/25
-
8/7/2019 Public Policy in International Arbitration
2/25
-
8/7/2019 Public Policy in International Arbitration
3/25
A form of Alternative Dispute Resolution
Specifically, it is a legal alternative to litigation
Parties to a dispute agree to submit their respectivepositions (through agreement or hearing) to a
NEUTRAL third party called the Arbitrator (s) or
Arbiter (s) for resolution
-
8/7/2019 Public Policy in International Arbitration
4/25
Ad-hoc Arbitration
Institutional Arbitration
Statutory Arbitration
Domestic or International Arbitration
Foreign Arbitration
-
8/7/2019 Public Policy in International Arbitration
5/25
The Geneva Protocol on Arbitration Clauses of 1923
The Geneva Convention on the Execution of Foreign
Arbitral Awards, 1927 and
The NewYork Convention of 1958
-
8/7/2019 Public Policy in International Arbitration
6/25
The governing arbitration statute in India
Based on the Model Law on International Commercial
Arbitration adopted by the United Nations
Commission on International Trade Law (UNCITRAL)in 1985
Applies to both domestic arbitration in India and to
international arbitration
-
8/7/2019 Public Policy in International Arbitration
7/25
Arbitration where at least one of the parties is:
An individual who is a national of, or habitually resident inany country other than India; or
A body corporate which is incorporated in any countryother than India; or
A company or an association or a body of individualswhose central management and control is exercised in any
country other than India; or
The Government of a foreign country
-
8/7/2019 Public Policy in International Arbitration
8/25
Minimise the supervisory role of courts in the arbitralprocess and
Provide that every final arbitral award is enforced in
the same manner as if it were a decree of the Court
-
8/7/2019 Public Policy in International Arbitration
9/25
-
8/7/2019 Public Policy in International Arbitration
10/25
Foreign PartyGeneral Electric Co., a company incorporated under the laws
of State of NewYork in USA
Terms of Contract GE to supply equipment and power services to Renusagar
power for setting up a thermal power plant Items to be delivered in 15 months from the effective date
Completion of the plant to be done within 30 months Payment to be made in installments Execution of unconditional negotiable promissory notes
for all the installments
-
8/7/2019 Public Policy in International Arbitration
11/25
Arbitration Clause
Any disagreement which the parties are unable to resolve bysincere negotiation shall be finally settled in accordance with
the Arbitration Rules of the International Chamber ofCommerce
Problem
Some delay of General Electric in adhering to the timeschedule for supply of equipment
Consequently, Renusagar rescheduled the paymentinstallments and certain installments were unpaid underdue dates.
-
8/7/2019 Public Policy in International Arbitration
12/25
-
8/7/2019 Public Policy in International Arbitration
13/25
Supreme Court gave narrow interpretation to thewords public policy and held that
1. Payment of interest on interest (compound interest),2. Possibility of violation of FERA,
3. Payment of damages,
4. Possibility of unjust enrichment by General Electric
did not amount to or was not contrary to the publicpolicy of India
-
8/7/2019 Public Policy in International Arbitration
14/25
Renusagar was thus
Correctly decided
Took a narrow view of the word public policy Left little scope of judicial interference in arbitration
proceedings and final determination of awards
-
8/7/2019 Public Policy in International Arbitration
15/25
Foreign Party
SAW Pipes Ltd., a company incorporated in Europe
Terms of Contract
ONGC ordered pipes from SAW Pipes Ltd. on certainterms and conditions
Arbitration clause for dispute resolution
-
8/7/2019 Public Policy in International Arbitration
16/25
Problem
Pipes was unable to conform to the time schedule forsupplies due to the strike of the workers in Europe foralmost two months
SAW Pipes informed these facts to ONGC which in turn
replied that damages as per the contract would have to bepaid
SAW Pipes thereafter supplied the pipes
ONGC deducted a large sum from the bill on account ofdelay without there being any adjudication ordetermination by a third party
-
8/7/2019 Public Policy in International Arbitration
17/25
Arbitration passed an order in favour of SAW Pipes
Order challenged before High Court and thereafter divisionbench but both dismissed the petition
Appeal to Supreme Court under Article 136 (Special LeavePetition) heard by 2 Judges concluded that ONGC was
justified in deducting the amount and the arbitrators were
wrong in awarding the amount with interest and set asidethe award
The Court held that any arbitral award which violates Indianstatutory provisions is patently illegal and contrary topublic policy
-
8/7/2019 Public Policy in International Arbitration
18/25
Equating patent illegality to an error of law, the Court paved
way for losing parties in arbitral process to have their day in Indiancourts
Thus resurrected the potentially limitless judicial review which the1996 Act was designed to eliminate
Decision widely criticized in the International community
3 years later, Supreme Court had an opportunity to refer the
matter to a larger Bench which it did not
The Bench in Renusagar case held that the term public policy ofIndia was to be interpreted in a narrow sense, whereas theDivision Bench in ONGC case interpreted it in a narrow sense
A huge step backwards in laws relating to alternate dispute
resolution in the era of globalization
-
8/7/2019 Public Policy in International Arbitration
19/25
Foreign Party
Venture Global Engineering (VGE) incorporated in the USA
T
erms of Contract A joint venture agreement to constitute a company named
Satyam Venture Engineering Services Ltd. (SVES) in whichbothVGE and SCSL have 50 per cent equity shareholding
Shareholders Agreement (SHA) executed between the
parties provides that disputes have to be resolvedamicably between the parties and failing such resolution,the disputes are to be referred to arbitration
-
8/7/2019 Public Policy in International Arbitration
20/25
Problem SCSL alleged that owing to a breach in SHA VGE had purchased
shares in SVES at its book value owing to several venture companiesbecoming insolvent
Case Proceedings London Court of International Arbitration appointed arbitrator passed
an award directingVGE to transfer the shares to SCSL The City Civil Court, Secunderabad passed an interim order of
injunction restraining SCSL
The Andhra Pradesh HC suspended the trial courts order holding thatthe award cannot be challenged even if it is against the public policy VGE asserted that the award violated the Foreign Exchange
Management Act, 1999, and therefore constituted a conflict with thepublic policy of India.
-
8/7/2019 Public Policy in International Arbitration
21/25
SC Final Judgment
The provisions of Part I of the Act (Arbitration andConciliation Act, 1996) would apply to all arbitrationsincluding international commercial arbitrations
Where such arbitration is held in India, the provisions of
Part-I would compulsorily apply and parties are free todeviate to the extent permitted by the provisions of Part-I
Even in the case of international commercial arbitrationsheld out of India provisions of Part-I would apply unless
the parties by agreement, express or implied, exclude allor any of its provisions
-
8/7/2019 Public Policy in International Arbitration
22/25
Arbitration & Conciliation Act, 1996 is divided into four parts.
The first two parts consists as follows:
Part I deals with domestic arbitration
Part II deals with provisions relating to enforcement of New YorkConvention Awards and Geneva Convention Awards in India
This has been the basis of all the Arbitration clauses
incorporated in the contract between various Indian andForeign companies until now
However, with the case ofVGE vs. SCSL, Part I of the Act ismade applicable to all international commercial arbitrations
This has led to a great deal of mistrust, confusion and uproar
amongst the foreign companies
-
8/7/2019 Public Policy in International Arbitration
23/25
Arbitration in India is not for the faint-hearted
Continued intervention of courts in arbitration is
harmful in two ways
A pro-arbitration stance would reduce the pressure on thecourts in a legal system plagued by delays
For foreign investment, it is imperative that its legal
system provides efficient and predictable remedies to
foreign investors. Foreign investors typically preferarbitration and have shied away from Indian courts due toprolonged delays in litigation
-
8/7/2019 Public Policy in International Arbitration
24/25
Recent judgment in the Satyam case has made Part 1 of the
1996 Act applicable to all International arbitrations Many foreign companies having relevant business interests
in India have relied heavily upon Indian law based on the ACTitself and already opted for Arbitration procedures
This recent judgment has infused a strong feeling of
insecurity in dealings of foreign companies with their Indiancounterparts.
So, it is largely upto the Indian Judiciary to step in andcontain the interventionist role it has assumed for itself andhave greater trust in the arbitral process
-
8/7/2019 Public Policy in International Arbitration
25/25