Delhi High Court reaffirms pro-arbitration approach in two recent judgments

In two recent judgments, the Delhi High Court (the “Court“) dismissed challenges to arbitral awards and emphasised its reluctance to interfere with decisions of arbitral tribunals, except in limited circumstances. In NHAI v M/S. Bsc-Rbm-Pati Joint Venture, the Court strongly criticised unnecessary challenges to awards, especially by public sector undertakings, noting that it wasted valuable judicial time. Carrying on with the sentiment to not interfere, in Delhi Metro Rail Corporation Limited v Delhi Airport Metro Express Private Limited, the Court stated that it would not interfere with an arbitral decision if the view taken by a tribunal was plausible, even where an alternative view was possible.

A brief summary of both cases can be found below.

Facts

NHAI v M/S. Bsc-Rbm-Pati Joint Venture (the “NHAI case”)

The matter related to a construction contract awarded by the National Highway Authority of India (“NHAI“) to a contractor. Disputes arose around the sums payable for the excavation of unsuitable construction material. The tribunal issued an award against the NHAI in October 2014 essentially tying the parties to the rates outlined in the contract. The NHAI challenged this award under section 34 of the Arbitration and Conciliation Act 1996 (“Act“). When this challenge was dismissed by a Single Judge of the Court in January 2017, NHAI appealed to a Division Bench of the Court under section 37 of the Act.

Delhi Metro Rail Corporation Limited (“DMRC”) v Delhi Airport Metro Express Private Limited (“DAMEPL”) (the “DMRC case”)

The DMRC case related to the construction and maintenance of a high speed metro railway in New Delhi.  DMRC, a state-owned corporation, and DAMEPL entered into a public-private partnership for the construction and operation of the metro railway. DAMEPL terminated the agreement when DMRC allegedly failed to cure defects in the civil works within the notice period. DMRC disputed the validity of the termination and the adjusted equity and termination payment costs demanded. DMRC argued that the agreement was terminated due to other issues with the project and not any defects, and that DMRC had performed adequate repairs.

The tribunal passed an award upholding DAMEPL’s termination and awarding it damages on 11 May 2017. DMRC made an application to set aside the award under section 34 of the Act in March 2018.

Judgments

In both cases, the Delhi High Court considered, in detail, the issues and reasoning of the tribunals. In the DMRC case, the Court observed that it “does not sit as a court of appeal and is not expected to re-appreciate the entire evidence and reassess the case of the parties“. The Court noted that its duty was to see whether the view of the tribunal was a plausible view on the facts, pleadings and evidence placed before it. If it found that there were two possible views and the tribunal had taken one of them, the Court could not substitute its judgment for the judgment of the tribunal.

In the NHAI case, the Court echoed this view, noting that the tribunal was the final arbiter on factual and legal issues, and that errors “which stop short of perversity” must not be interfered with by the courts. As long as the tribunal’s view was “plausible, and not merely possible” the court would not intervene.

In closing, the Court observed that there had been many cases where awards were challenged only because the award debtor had the financial power to do so. It was concerned that a majority of these challenges were made by public corporations and contributed to a “docket explosion” at the Court and wasted valuable judicial time. The Court commented that arbitration had been effectively reduced to a civil trial with parties challenging awards as a matter of course and noted that it “unhesitatingly deprecate(s) this practice”.

Importantly, in the NHAI case the Court also awarded costs to the award creditor on the basis that the award debtor had attempted to re-litigate the entire dispute in the Court.

Significance

Both the NHAI and DMRC judgments signify and welcome ‘light touch’ approach to applications to set aside arbitral awards. Instead of a detailed examination of the tribunal’s reasoning, the Court has signalled that it will not interfere with the award if the tribunal’s reaches a plausible outcome on the dispute. This suggests a focus on the tribunal’s process and procedure rather than the outcome.

It is also significant that the Court awarded costs to the award creditor on the basis that the award debtor had pursued a meritless set aside application. Courts in Hong Kong have awarded indemnity costs (ie, costs assessed at a higher level) where parties have been found to have made frivolous challenges to awards. A similar tough approach has been taken by courts in England and Western Australia where a party has commenced court proceedings in breach of an arbitration agreement. Recently, there has been a consultation paper in Singapore, which has proposed reforms in the law to award costs on an indemnity basis as a matter of course in unsuccessful proceedings to set aside an award or to resist enforcement of an award. Whilst the Delhi High Court did not go as far as that in this instance, it did recognise that its discretion on costs can be used to discourage meritless challenges.

 

For further information, please contact Nicholas Peacock, Partner, Kritika Venugopal, Senior Associate, Nihal Joseph, Associate or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
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+44 20 7466 2803
Kritika Venugopal
Kritika Venugopal
Senior Associate
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+65 68 688 017
Nihal Joseph
Nihal Joseph
Associate
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+44 207 466 2212

Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.

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