ARBITRABILITY OF FRAUD IN LIGHT OF WORLD SPORT GROUP (MAURITIUS) LTD. CASE

ShiveshAggarwal*

Introduction

Questions regarding arbitrability of disputes have always been highly contentious and controversial. That being said, this post focuses on arbitrability of fraud, more specifically recent development which has taken place in this field in India through a judgment of the Supreme Court of India in World Sport Group (Mauritius) Ltd v.MSM Satellite (Singapore) Pte Ltd.[i] decided on January 24, 2014. The Supreme Court has ruled that Indian Courts cannot refuse to refer the matter to arbitration merely on the ground that serious allegations of fraud have been brought against a party, provided that the arbitration is an international commercial arbitration[ii] and not domestic arbitration. This pro-arbitration judgment has been analysed below, in order to assess whether it is a welcome step or requires some reconsideration.

Arbitrability

The concept of arbitrability involves what types of disputes can be submitted to arbitration; and what specific classes of disputes are exempted from arbitration proceedings and belong exclusively to the domain of state courts.[iii]

It rests on the notion that some matters are so pervasively involved with public rights or the interests of third parties that agreements to resolve such disputes by a “private” dispute resolution mechanism should not be given effect to.[iv] To add more, whether or not a particular type of dispute is “arbitrable” under a given law is in essence a question of public policy, which varies from one country to another and changes from time to time.[v] Additionally judicial and legislative decisions over the past several decades have progressively narrowed the scope of subjects which are considered to be non-arbitrable[vi], thereby reaffirming the principle of party autonomy in resolving disputes particularly in the context of international commercial disputes.[vii]

Arbitrability of fraud

In a scenario where allegations of fraud in the procurement or performance of a contract are alleged, there appears to be no reason for the arbitral tribunal to decline jurisdiction.[viii] Even the U.S. Supreme Court has held that the legal issue of a contract’s voidability because of fraud is to be decided by persons designated to arbitrate factual controversies arising out of a valid contract between the parties.[ix] Courts across countries have relied on the “very strong public policy” that the intention of parties who have agreed to resort to arbitration ought to be fully given effect to[x] and have thus, made fraud-related matters arbitrable.[xi]

World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte.Ltd.

Having elucidated upon the general notions related to arbitrability of fraud in the international context, below is a brief summary of the World Sport Group case.

Facts

The dispute arose with regards to the Deed for Provision of Facilitation Services (“Facilitation Deed”) signed between the Appellant and the Respondent. The Board of Cricket Council of India (“BCCI”) had entered into an agreement with the Appellant wherein the media rights for the Indian Premier League for 2009-2017 were awarded to the Appellant.[xii] Subsequently, the Appellant played an active role in the facilitation of a new Media Rights License Agreement between the BCCI and the Respondent and as a result the Facilitation Deed was executed between the Appellant and the Respondent, thereby making the Respondent liable to pay Rs.425 crores to the Appellant as facilitation fees.[xiii]

Clause 9 of the Facilitation Deed, i.e., the arbitration clause on which the entire case was basedstated that the parties would agree to settle their disputes through arbitration before International Chamber of Commerce under its rules, with the seat being Singapore. The clause also stated that, “Any party may seek equitable relief in a court of competent jurisdiction in Singapore, or such other court that may have jurisdiction over the Parties……. The parties hereby waive their right to jury trial with respect to all claims and issues arising under, in connection with, touching upon or relating to this deed…. and including any claim for fraudulent inducement thereof.

Due to some discord between the parties, the Respondent later rescinded the Facilitation Deed on the ground that it was voidable on account of misrepresentation and fraud on the part of the Appellant. Consequently, when the arbitration process was set into motion by the Appellant, an anti-arbitration injunction was sought by the Respondent from a Single Bench of the Bombay High Court. The Single Bench refused to intervene in the proceedings, decision which was later reversed by the Division Bench.

The matter came before the Supreme Court in the form of an appeal, the main issue being whether the Division Bench of the Bombay High Court could have passed an anti-arbitration injunction restraining the parties from proceeding with the arbitration in Singapore.

Decision of the Court

After hearing the arguments from both sides and examining the arbitration clause, the apex court held that[xiv]the Bombay High Court was obliged to refer the parties to arbitration unless it had found that the arbitration agreement was null and void, inoperative or incapable of being performed[xv]. It further emphasized that the arbitration agreement does not become “inoperative or incapable of being performed” merely because allegations of fraud have to be inquired into, and that the Court cannot refuse to refer the parties to arbitration on the ground that allegations of fraud have been made by a party.[xvi]

Adding, by using the principle of separability[xvii], the Court asserted that the challenge to the Facilitation Deed does not in any manner affect the arbitration agreement contained in Clause 9 of the Facilitation Deed, which is independent of and separate from the main Facilitation Deed.

The Court also opined that the arbitration agreement in question was wide enough to bring this dispute within the scope of arbitration.[xviii] The most significant part of the judgement was perhaps where the Supreme Court differentiated the present matter from that of N. Radhakrishnan v. Maestro Engineers & Ors.[xix] and Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak [xx] by affirming that these decisions were rendered in the context of domestic arbitrations and not in the context of international commercial arbitration. In other words, the Court emphasized that allegations of fraud would be decided by the courts rather than arbitrators only if the arbitration is domestic, but it would otherwise be referred to arbitral tribunal – in an international commercial arbitration.

The Court finally referred the dispute between the parties to International Chamber of Commerce for arbitration in Singapore.

Analysis and Conclusion

The World Sport Group case is a welcome judgement which reflects the favourable attitude of Supreme Court towards international commercial arbitration, a trend which has been emanating from various recent judgements. Through this authoritative decision, the Court has deliberately distinguished the principles governing domestic arbitration and international arbitrations in the Indian legal context. It has cleared the ambiguity with regards to arbitrability of fraud in international arbitration by taking this progressive step of enabling international matters related to fraud to be governed by arbitration.

Also, by taking such pro-arbitration decisions and reducing the possibility of judicial intervention, the apex court has taken an appreciative step in making India a favourable place for enforcement of awards from foreign seated arbitrations, thereby encouraging arbitration agreements between Indian and foreign parties. Let us hope that the Supreme Court in future takes similar arbitration-friendly decisions thereby upholding the principles of party autonomy and remaining in consonance with the internationally acknowledged notions in the field of arbitration.

____________________________________________________________________________________________________________

* Student, National Law University, Jodhpur. Contact e-mail: shiveshaggarwal94@gmail.com

[i] World Sport Group (Mauritius) Ltd v. MSM Satellite (Singapore) Pte Ltd., Civil Appeal No.895/2014, Supreme Court of India (Unreported) (India), Available at http://judis.nic.in/supremecourt/imgs1.aspx?filename=41175 [Hereinafter “World Sport Group case”].

[ii] “Arbitration is considered as ‘international’ if (in the sense of UNCITRAL Model Law) it involves parties of different nationalities, or it takes place in a country which is ‘foreign’ to the parties, or it involves an international dispute.” – MARTIN HUNTER ET AL., Redfern and Hunter on International Arbitration 12 (5th ed. 2009) [Hereinafter “Hunter”].

[iii] Loukas A. Mistellis, Arbitrability – International and Comparative Perspectives: Is Arbitrability a National or International Law Issue? In Arbitrability: International and Comparative Perspectives 4 (Loukas A. Mistellis& Stavros L. Brekoulakis ed. 2009).

[iv] Gary Born, International Commercial Arbitration-I 768 (2010) [Hereinafter “Born”].

[v] Hunter, supra note 3, at 124.

[vi] Born, supra Note 5 at 788.

[vii] Born, supra Note 5 at 837.

[viii] Hunter, supra note 3 at 134.

[ix] Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).

[x] Burlington Northern Railroad Co. v. Canadian National Railway Co., [1997] 1 S.C.R. 425 (Can.).

[xi] Fiona Trust v Privalov[2007] All ER 233; Bilta (UK) Ltd v Muhammad Nazir [2010] All E.R. 146 (Eng.).

[xii] World Sport Group case, supra note 1 at ¶ 3.

[xiii] Id. at ¶ 4.

[xiv] Id. at ¶ 21.

[xv] Section 45 of Arbitration and Conciliation Act, 1996 reads, “Power of judicial authority to refer parties to arbitration.- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”

[xvi] World Sport Group case, supra note 1 at ¶ 29.

[xvii] House of Lords explains Principle of separability in Premium Nafta Products Ltd. v. Fili Shipping Company Ltd. & Ors. as, “The principle of separability means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a “distinct agreement” and can be void or voidable only on grounds which relate directly to the arbitration agreement.”

[xviii] World Sport Group case, supra note 1 at ¶ 34.

[xix] N. Radhakrishnan v. Maestro Engineers & Ors., (2010) 1 S.C.C. 72 (India).

[xx] Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, A.I.R. 1962 S.C. 406 (India).

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3 Comments

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3 responses to “ARBITRABILITY OF FRAUD IN LIGHT OF WORLD SPORT GROUP (MAURITIUS) LTD. CASE

  1. Manu

    Good work Shivesh. However, I have a slightly different take on this judgement. The way I see it, this judgment did not really deal with arbitrability of allegations of fraud. If we look at paras 29 and 34 of the judgment, the Court conveniently avoided going into the question of arbitrability of fraud. All the Court said is that there are allegations of fraud that is being raised, and it is up to the tribunal to decide whether there is any substance in these allegations. The Court never said that if there really is fraud in the matter, the dispute would still be arbitrable. So, this judgment was more focused on competence-competence of an arbitrator. The Court merely stated that when allegations of fraud are raised, the arbitrator can and should see if there is any substance in the same. But, if there is indeed fraud, then the matter, in my opinion and in line with transnational public policy, will not be arbitrable. And this judgment cannot be stretched to say that disputes from contracts based in fraud is arbitrable under Indian law. A possible reason for the confusion would be that the Court borrowed the US standard, wherein all questions on jurisdiction (such as competence-competence) is termed as an issue of arbitrability. However, that is a misnomer and as of now, I do not think that allegations of fraud are ‘arbitrable’ in India in its true sense.

  2. Shivesh Aggarwal

    Firstly, thank you so much for your generous compliment for the article, for which I am highly grateful.
    Now with regard to your comment on the write-up, when you state that this judgment did not deal with arbitrability of allegations of fraud which can be discernible from paragraphs 29 and 34, I humbly disagree with it. This is because after reading the two paragraphs, my understanding of the same is that Courts can decline the reference of matter to arbitration ‘only if’ the arbitration agreement is null and void or incapable of being performed. If there are allegations of fraud in the matter, the Court can ‘no more’ refuse the reference to arbitration, ‘provided the arbitration is under NYC’. In light of this reasoning given, the Supreme Court has sent this matter to ICC who is the competent and adequate forum in its view to adjudicate the matter involving allegations of fraud.
    Also when you assert that, “All the Court said is that there are allegations of fraud that is being raised, and it is up to the tribunal to decide whether there is any substance in these allegations.” Seeking support from this statement itself, I think the Court is permitting the arbitral tribunal to adjudicate the matter involving allegations of fraud and hence, making the fraud as arbitrable in the context of International Commercial Arbitration.
    Lastly, I totally concur with you on the point that fraud is ‘not arbitrable in India’ in true sense. It can even be supported with the help of N. Radhakrishnan case and Section 2(2) of Arbitration and Conciliation Act, 1996. Even the World Sports Group case also does not change this settled position.
    But, my only submission in relation to the ratio of this discussed judgment is that ‘it would prove to be of much assistance at the stage of enforcement of foreign arbitral awards’. To elaborate, if the losing party in International Commercial Arbitration seated outside India pleads before the Indian Courts at the stage of enforcement, to stay the enforcement of the award on the ground that allegations of fraud were involved in the matter, the Indian Courts are ‘no more’ empowered to stay the execution. The reason being, through this case the Hon’ble Supreme Court has made fraud ‘arbitrable in the International context in the eyes of Indian law’.
    Hence, in the light of aforementioned contentions, I believe that this case is a pertinent contribution in the field of Arbitrability of matters. I hope I was able to articulate my analysis of the judgment coherently. I also apologize if you still think there is any mistake in my understanding of the case or I was unable to address your comment properly.

    • Manu

      I understand your point Shivesh. But in my view, there is a broader point of competence-competence and that was all that the Court was trying to answer. The challenge that was made was on a jurisdictional question. The principle of competence-competence comes when there are jurisdictional questions raised before Courts on a matter which is to be referred to arbitration. In this case, the question was whether the arbitrators have jurisdiction to settle a matter based on fraud. And in my view, the Court said this is a question (the question being WHETHER a matter of fraud can be arbitrated) best left for arbitrators, and not the Courts. The Court was merely respecting the authority of an arbitrator who would reach the right decision in respect to the arbitrability of the matter. I still do not think that the Court meant to decide on the arbtirability of fraud as such. Moreover, I can also explain why this confusion arose. If you look at the judgment, the Court relied on US cases of arbitratbility to use that word in the text of the judgment. It is well-known internationally that the US Courts have consistently confused arbitrability with competence-competence. In all cases where they decided that the arbitrator had competence-competence over a jurisdictional issue, they termed it as arbitrability. The Indian Court relied on many of these cases and thereby, imported ‘arbitrability’ into something which they meant was only competence-competence. In any case, this is only my interpretation and as lawyers, we are bound to have different views. And I appreciate your point of view as well, but I guess we have to agree to disagree.

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