Monthly Archives: March 2014

IMPORTING THE MODEL LAW: HOW FAR IS TOO FAR?

Sujoy Chatterjee*

 “… The present bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules

–          Statement of Objects and Reasons to the Arbitration and Conciliation Act, 1996

“… AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules

–          Preamble to the Arbitration and Conciliation Act, 1996

Most academic papers and articles available online (for example, http://www.kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf, http://manupatra.com/roundup/326/Articles/Arbitration.pdf and http://globalarbitrationreview.com/reviews/55/sections/194/chapters/2171/india/) characterize India’s arbitration law, i.e., the Arbitration and Conciliation Act, 1996 (ACA) as being ‘based’ or ‘modeled’ on the  UNCITRAL Model Law on International Commercial Arbitration (ML). While the Statement of Objects and Reasons and the Preamble to the ACA leave very little scope for doubt that the underlying premise for enacting the ACA is the ML, would this be tantamount to saying that the provisions of the ML or the interpretation imparted to them can be imported by Indian Courts for interpreting the ACA? The answer turns on how we understand the phrase “taking into account” appearing in the Statement of Objects and Reasons and the Preamble to the ACA. While numerous cases[i] have referred  to and even relied upon the ML while interpreting provisions of the ACA, only a handful have directly addressed the manner and extent to which the ML should play a role in interpreting the ACA.

This question was raised in 1999 before the Delhi High Court in Union of India v. East Coast Boat Builders & Engineers Ltd (http://indiankanoon.org/doc/1559340/) in the context of whether an order passed by an arbitral tribunal under Section 16 of the ACA that the claims in a petition are arbitrable could be treated as an interim award, such that the order could be set aside under Section 34. It was argued that since the ACA had been enacted ‘taking into account’ the ML, Article 16(3) of the ML should come into play while interpreting the nature of an order under Section 16. The High Court rejected the contention that Article 16(3) could be relied upon while determining the nature of an order under Section 16 by stating:

“…it cannot be said that each and every provision of the said Model Law and Rules forms part of the Act. Those Model Law and Rules were in fact taken into account while drafting and enacting the Act but whatever has been enacted is the law on arbitration enforceable in India.”

However, East Coast Boat Builders sought to distinguish between situations where the provisions of the ACA were clear as opposed to situations where the provisions were ambiguous. The High Court noted:

“…had there been a lacunae in the provisions of the Indian Arbitration Act on the point at issue or if it contained such provisions which is capable of two or more different interpretations then of course internal aid of the preamble to the Act could be taken for interpreting such provision and then the relevant provisions of the said Model Law and Rules could be read so as to interpret that provision because while enacting the Indian Act, said Model Law and Rules were taken into account.”

The proposition laid down by East Coast Boat Builders cannot be faulted with, since it reiterates two basic cannons of statutory interpretation:

(i)     A provision is to be interpreted using the ordinary meaning of the language of that provision (i.e., the literal rule of statutory construction); and

(ii)   If the literal meaning of a provision is clear and unambiguous, then the provision must be given effect to in accordance with the language used therein.

Therefore, if a literal reading of a provision of the ACA is unambiguous and leads to a certain conclusion, the Courts are required to give effect to that conclusion irrespective of whether Parliament had contemplated such a conclusion while enacting the provision. However, Courts in India have on countless occasions resorted to the ML for interpreting the ACA.[ii] Whether such reference and/or reliance are justified is not merely an academic discourse. It has far-reaching consequences, the most widely known instance of which is the Supreme Court of India’s 2002 pronouncement in Bhatia International v. Bulk Trading (http://indiankanoon.org/doc/110552/).

Bhatia International required the Supreme Court to interpret, inter alia, Section 2(2) of the ACA to determine whether Part I of the ACA applies to arbitrations taking place outside India. Section 2(2) reads, “This Part shall apply where the place of arbitration is in India” From a plain reading of Section 2(2), there is very little ambiguity that Part I applies to arbitrations taking place in India. However, the Supreme Court created an ambiguity for itself by reading Article 1(2) of the ML, which reads, “The provisions of this Law, except Articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.” Emphasizing that the omission of the word ‘only’ in the ACA changed “the whole complexion of the sentence”, Bhatia International ruled that Part I would apply to arbitrations seated in India as well as outside India. While other reasons were also given to substantiate this finding, it is debatable whether the Supreme Court would have concluded so had it limited its scope of analysis to Section 2(2) and not read Article 1(2) along with it.

While Bharat Aluminium v. Kaiser Aluminium (http://www.sci.nic.in/outtoday/ac701905p.pdf) has overruled the ratio of Bhatia International by limiting the applicability of Part I to arbitrations seated in India, a less highlighted facet of the judgment is the apex court’s take on the extent of permeability of the ML into the ACA. After undertaking an elaborate study of the objects and reasons of the ACA and its scheme, which also involved the “taking into account” of the ML, the apex court stated:

The aim and the objective of the Arbitration Act, 1996 is to give effect to the UNCITRAL Model Law.”

The difference between “taking into account” and “give effect to” is not mere semantics – it transposes the role of the ML from that of a base document which was kept in mind while drafting the ACA to that of a legal framework which is being implemented in India through the ACA. Whether this statement in Bharat Aluminium is merely an obiter or an authoritative finding is hard to discern in the absence of reasoning. To further complicate matters, the extent to which the ML plays a role in interpreting the ACA was briefly discussed later in the judgment, with the Supreme Court choosing not to delve deeper into the issue.

The Appellants in Bharat Aluminium had referred to certain observations in Konkan Railway Corporation v. Rani Construction (http://indiankanoon.org/doc/1999671/), where the apex court had held:

“… that the Model Law was only taken into account in the drafting of the said Act is, therefore, patent. The Arbitration Act, 1996 and the Model Law are not identically drafted… The Model Law and judgments and literature thereon are, therefore, not a guide to the interpretation of the Act…”

It was also argued that S.B.P. v Patel Engineering (http://indiankanoon.org/doc/1641452/) , which had overruled Konkan Railway regarding the nature of the Chief Justice’s function under Section 11 of the ACA, had not overruled Konkan Railway on the point of the applicability (or more aptly, the non-applicability) of the ML. However, Bharat Aluminium expresses no opinion on whether it agreed with Konkan Railway on this point or whether S.B.P. had impliedly overruled[iii] even this aspect of Konkan Railway. From an overall reading of Bharat Aluminium, the Supreme Court quoted extensively from the ML. This fact, along with the “give effect to” googly[iv], has perhaps laid the foundation for the ML to be used as a ready reckoner for interpreting the ACA in future cases.

Arbitration aficionados may contend that there is nothing wrong in referring to or relying upon the ML and its associated literature while interpreting the ACA, since it ensures that India’s arbitration law is in sync with arbitral developments in the international arena. While no exception can be taken to India’s gradual movement towards establishing a pro-arbitration legal framework, is this not a policy decision best left to the realm of the legislature? Parliament, in its wisdom, ‘considered’[v] and ‘took into account’[vi] the ML while enacting the ACA in 1996 to “bring it, as much as possible, in harmony with the UNCITRAL Model Law”[vii]. But once the ACA is in place, is it the judiciary’s role to ensure that India’s arbitration framework is in line with international expectations? In fact, Bhatia International is a ripe example of how an Indian Court’s attempt at reading the ACA along with the ML led to an interpretation of the ACA which completely isolated India from the international arbitration community. Of course, it may be argued that Bharat Aluminium overruled Bhatia International on the basis of the territoriality principle which permeates throughout the ML, and therefore this course correction would not have been possible without reference to the ML. However, could we not have celebrated ‘Indian Arbitration Day’ (http://lexarbitri.blogspot.in/2012/09/indian-supreme-courts-landmark.html)  just by reading the relevant provisions of the ACA and giving effect to their  ordinary English meaning sans any reference to the ML and its related literature?

My limited objection with regard to Indian Courts utilizing the ML while interpreting the ACA can be crystallized through a simple analogy. The exercise of interpreting a provision of law, in my opinion, is similar to driving on a highway. The legislature has paved the way for the judiciary to drive on by enacting the ACA. The ML is at best a road-sign or a map-based ‘app’,[viii] i.e., an aid which comes into play only if the highway bifurcates or has a crossroads. However, i.e., if Parliament has paved a straight highway without any digressions, should Indian Courts have the flexibility to:

(i)                 choose whether they want to drive on that highway?; and

(ii)               use the road-sign or the ML ‘app’ to go off-road?

East Coast Boat Builders had limited the circumstances in which the ML should be resorted to for interpreting the ACA, while Konkan Railways shut out the ML en masse. However, it seems that in our hurry to showcase India as a ‘hub’ of international arbitration (see, http://www.legalweek.com/legal-week/analysis/2164470/delhi-dawn-india-global-arbitration-hub, http://www.dnaindia.com/india/report-india-can-be-lucrative-global-hub-of-arbitration-says-veerappa-moily-1561790 and http://www.ficci-arbitration.com/htm/news-clipping/news.htm#4), Bharat Aluminium has set the tone for the ML to replace the ACA as the primer for resolving arbitration cases in India.


* Advocate, New Delhi. Alumnus, National Law University, Jodhpur 13

[ii] Ibid

[iii] See the following statement in S.B.P.:

It is common ground that the Act has adopted the UNCITRAL Model Law on International Commercial Arbitration, but at the same time, it has made some departures from the Model Law

[iv] A passing reference regarding the ACA “giving effect to” the ML was also made in DM Infrastructure v. UE Development India, (2008) 14 SCC 271

[v] Statement of Objects and Reasons, ACA; Preamble, ACA

[vi] Ibid

[viii] Depending on which side of the “taking into account” debate you are on, the ML can be treated either as a road-sign laid by Parliament along the highway (i.e., an internal aid) or a map-based mobile application (i.e., an external aid) for determining which route to take if there are multiple roads ahead. Either ways, the ML is merely an aid which should come into play only when there is an ambiguity in the provisions of the ACA.

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Unilateral Jurisdiction Clauses

Akhil Raina*

Even though they come in various shapes and sizes, the essence of unilateral jurisdiction clauses continues to remain the same. It confers a unilateral or one-sided option to only one party as to which forum would decide the dispute. It is often adopted when one party has a superior bargaining position and can therefore insist on having a choice of forum, while limiting the options available to the counterparty.[i] The spectrum of choice may spread over several national courts, or can be a toss-up between arbitration and national courts.  Learned author Gary B. Born has observed that such clauses have frequently led to arguments based upon the doctrine of unconscionability, but that a ‘decisive majority’ of recent decisions have upheld the substantive validity of asymmetric clauses.[ii]
The effectiveness of such clauses must be adjudged on the anvil of three fundamentals of dispute resolution clauses:

  1. To avoid delay ( and additional expenses) in resolution due to a debate regarding where the dispute will be heard and decided
  2. To avoid a forum which one of the parties considers unacceptable and unfavorable. For example, on the ground that the courts of the jurisdiction in question are slow or perceived to be partial to the counterparty.
  3. To help in smooth passage of the judgment by providing an enforceable instrument that will enable effective recourse against assets in the relevant jurisdiction.[iii]

The key advantage of such clauses is that, since the election is made after the nature of dispute is known; it empowers the parties to choose the forum which will best assist them. However, the differing attitudes regarding its validity in several jurisdictions mean that the theoretical flexibility is frustrated by real-world uncertainty.
Their popularity can be attributed to the fact that they allow the party in whose favor they operate, to exercise flexibility on jurisdiction. The main proponents (and eventual beneficiaries) of this provision are financial institutions like banks. This is because they carry the primary risk of commercial exposure under the contract. Contrast this with the situation in Germany where the courts have held that unilateral jurisdiction clauses in certain kinds of contracts, such as standard form contracts, are invalid.[iv]

The 2012 French Cour de Cassation judgment in the Rothschild case highlights the danger to unilateral jurisdiction clauses.[v] Here the court was asked to decide on the question of validity of a UJC which mandated that one parties must bring the dispute to a particular court, whereas the other was free to opt for “any other court of competent jurisdiction”. The Court found the clause invalid on grounds of unconscionability. Copious amounts of criticism were directed towards this decision, especially because the court gave only brief reasons for this surprising decision which appears to be based on the French Civil Code concept of “potestivité”.

Nonetheless, the case sparked off a trend with Bulgarian and Russian[vi] courts following suit. In the Sony Ericsson case, the Supreme Arbitrazh (Commercial) Court of Russian Federation held that the party that was restricted to recourse to arbitration only, should also have the right to refer the matter to the courts.[vii] This was a substantial departure from earlier cases like the Red Burn[viii] which upheld the validity of the UJC claiming that the party bearing the risk should have greater flexibility when it came to dispute resolution. Granting the power of choice to the party carrying greater risk seems to make commercial sense.[ix] This change in legal understanding has several consequences- as to whether there is a risk only to unilateral jurisdiction clause or even to unilateral jurisdiction.
It is interesting to note that which many jurisdictions like Romania and Poland are refusing to recognize their validity, English law seems to be going in the diametrically opposite direction.  The tendency of English courts to place reliance on the parties’ agreement as to the dispute resolution term is well known. The case of Law Debenture Trust Corporation plc v Elektrim Finance BV[x] confirmed the validity of a unilateral option to litigate. In this case, the Trust Deed underpinning the dispute provided for a dual dispute resolution regime which entitled each party to enforce the arbitration provision against the other, but only gave the claimant and the bondholders the right to refer disputes to the English courts (that is, a unilateral option to litigate).[xi]
In such a scenario, doubt and uncertainty continues to loop over the scope of arbitration, hindering complex disputes from getting resolved. Strong lobby-organizations like banks would look to push towards a system increasingly focused on the supremacy of party autonomy. In any case, it would be interesting to observe if the headstrong West bows to a rising tide from the rest of the world.


* VI Semester, III Year Student; B.Sc; LL.B (Hons.), National Law University, Jodhpur

[ii] G Born, International Commercial Arbitration, 3rd Edition (2009), Volume 1, p732-736.

[iii] For extensive debate on its effectiveness, see: http://uk.practicallaw.com/7-535-3743

[iv] See, for instance, Judgment of 26 January 1989, 1989 NJW 1477, 1477 (German Bundesgerichtshof)

[v] Judgment of 26 September 2012, X v Banque Privée Edmond de Rothschild Europe, Cass. Civ. (1ère) (French Cour de cassation)

[vi] CJSC Russian Telephone Company v. Sony Ericsson Mobile Communications Rus LLC (No A40-49223/11-112-401 1st Ruling: May 2012, 2nd Ruling: 19 June 2012), on the basis of violation of procedural equality

[vii] Ibid

[viii] Red Burn Capital v. ZAO Factoring Company (Case no A40-59745/09-63-478)

[x] Law Debenture Trust Corporation plc v Elektrim Finance BV and others [2005] EWHC 1412

[xi] More recently, Mauritius Commercial Bank v Hestia Holdings Limited and another [2013] EWHC 1328 (Comm)

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Enforcement of annulled arbitral awards: Would an International Arbitration Court (IAC) mitigate the inconsistencies?

Written by

Manu Thadikkaran*

Currently, one of the main reasons for favouring arbitration in international commercial disputes is the enforceability of an award across jurisdictions. The parties from different corners of the world can settle their disputes through a single process, and the result of such process can be enforced in any Member State to the New York Convention (NYC). However, this does not mean that once an award is rendered, there are no hassles attached to its enforcement. NYC itself sets out various grounds in Article V for a State to refuse enforcement of an arbitral award.

More importantly, an award can be set aside by the Courts of the seat of arbitration. The effect of setting aside of an award, as opposed to a mere refusal to enforce, is that the award becomes non-existent in every jurisdiction. Article V(1)(e) of the NYC specifically states that an award may be refused enforcement if it is set aside by a competent authority of a country in which, or under the law of which, the award was made.

Nevertheless, the French approach towards annulment of awards, starting from the Norsolor[i] case, has been to enforce such annulled awards. The French relies on the use of the word may in Article V(1)(e) of the NYC to interpret the provision as not mandatory. The French Civil procedure Code, while importing the grounds under Article V(1)(a)-(d) of the NYC, omits the ground under V(1)(e) to refuse enforcement. To further this reasoning, the French relies on Article VII of the NYC, which allows a party to rely on a more favourable national law for enforcement. When an award is sought enforcement in France, the provisions of the French Civil Code, which are more favourable than the NYC standard, is used by the Court. Thus, the French position relies on Article VII of the NYC to bypass the applicability of the NYC to the enforcement of the award. The French position was reiterated further in the famous Hilmarton[ii] and Putrabali[iii] cases, wherein an international arbitral award was viewed as an independent judicial decision, not rooted in any particular national law. The US, in the Chromalloy case, had followed an approach similar to the French approach. There was a shift in this position when the US Courts refused to enforce annulled awards in the Baker Marine[iv] and Termorio[v] cases. Recently, however, the US Courts enforced an award annulled in Mexico in the case of COMMISA v PEMEX[vi]. In this case, the Mexican Courts had annulled an award by the retroactive application of a law making administrative matters non-arbitrable.

The inconsistencies in the enforcement of annulled arbitral awards indicate the necessity for a balanced approach in this issue. When the parties agree to conduct arbitration in a particular State, they impliedly agree to be subject to the authority of such State with respect to its national laws. This includes the recognition of the power of that State to set aside an award made in its territory. At the same time, many States resort to setting aside an award on unreasonable grounds. For instance, in the COMMISA case, the award was set aside on the ground of a law which was applied retroactively. Similarly, in the Bechtel[vii] case, an award was set aside by the Courts in Dubai because the arbitrators did not hear the witnesses under oath, as required under their law. Even in the Chromalloy[viii] case, the US Courts took into consideration the strong possibility that the Egyptian government influenced the judiciary to set aside the award. Therefore, a balanced approach, in my view, would be to recognize setting aside of an award as a general rule, while applying the French view in exceptional circumstances. The challenge, then, becomes the identification of these exceptional circumstances where the French position is warranted. More importantly, there is a question of sovereignty as well which is involved. The non-recognition of an annulment may be viewed as an encroachment on the sovereignty of the annulling State and a breach of the principle of comity. In fact, when the French Court enforced the award annulled by Switzerland in the Hilmarton case, there was an outrage among the Swiss Judiciary which was later settled through an informal conference between France and Switzerland.

A possible way of mitigating this issue would be the formation of an International Arbitration Court (IAC) to annul awards under the NYC. The IAC can be formed by means of an Additional Protocol to the NYC. The function of the IAC would be to sit as a Court of annulment of international arbitral awards under the NYC. In doing so, the IAC would apply principles of transnational public policy. If an award is set aside by the IAC, it would be non-existent in all the Member States of the NYC. On the other hand, if an award is not set aside, each Member State would still have the option to refuse enforcement of such award in its jurisdiction on public policy grounds. Nevertheless, the international enforceability of the award would not be affected by the actions of a single national Court.

The Judges of the IAC must be selected among the nationals of the Member States to the NYC, on the basis of their knowledge and experience in international arbitration. There would be nine Judges and any application before the IAC must be decided by a Panel of three Judges as selected by the President of the Court on the basis of their nationality and expertise. The seat of the IAC may be in The Hague, while allowing the proceedings to take place in any place with the consent of the parties and the Panel for practical convenience. The costs of the proceedings should be allocated in such proportion as between the parties after considering the nature of the claim and the conduct of the parties during the proceedings. The Panel can, thus, prevent frivolous claims and delaying tactics by the parties before the IAC. Moreover, given the numerous actions for setting aside international awards every year, the IAC will be capable of financing itself with minimal financial contributions from the Member States to the NYC.

The main relevance of the IAC would be that the Member States to the NYC would limit their sovereign power in favour of an international body, to the extent of annulling international awards. When an international body formed by the consent of the States annuls an award as opposed to a national Court, the question of encroachment on sovereignty and breach of comity are likely not to arise. At the same time, the States can preserve their public policy through its power to refuse enforcement of an award confirmed by the IAC, on such public policy grounds.

Thus, the formation of the IAC has the potential to mitigate the inconsistencies in enforcement of annulled arbitral awards to a large extent. It would be a step forward in ensuring predictability and uniformity with respect to the enforceability of international awards. The real task, however, would be gathering a consensus among the Member States to the NYC for the formation of the IAC. Nevertheless, the efforts in gathering such consensus would be worth it in view of the benefits that would accrue from the IAC.


* Advocate;  Geneva LL.M. in International Dispute Settlement (MIDS ’14) (Hans Wilsdorf Scholar);  B.A., LL.B. (Hons.) (National Law University, Jodhpur ’13)

[i] Norsolor S.A. v. Pabalk Ticaret Sirketi S.A., Cour de cassation Oct. 9, 1984, 24 I.L.M. 360 (1985)

[ii] Société Hilmarton Ltd v. Société Omnium de traitement et de valorisation (OTV) / 92-15.137

[iii] Putrabali Adyamulia v. Société Rena Holding, 1ere civ 29 juin 2007

[iv] Baker Marine (Nig) Ltd. v. Chevron (Nig) Ltd., 191 F.3d 194 (2d Cir. 1999)

[v] TermoRio SA ESP v. Electranta SP, 487 F 3d 928 (DC Cir 2007)

[vi] COMMISA v. PEMEX; No. 10 Civ. 206 (AKH), 2013 WL 4517225, (S.D.N.Y. Aug. 27, 2013)

[vii] International Bechtel Co. Ltd. v. Department of Civil Aviation of the Government of Dubai, 300 F. Supp. 2d 112

[viii] Chromalloy Aeroservices v. The Arab Republic of Egypt, 939 F.Supp. 907

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