In its decision of 4 July 2018, the Delhi High Court (“Court“) has agreed to enforce a China International Economic and Trade Arbitration Commission (CIETAC) award against an Indian company, despite the award debtor’s arguments that the dispute should have been referred to and administrated by the now independent Shanghai International Arbitration Centre (SHIAC), which until mid-2012 was the Shanghai Sub-Commission of CIETAC (“Shanghai Sub-Commission“). The Court’s decision is interesting not only in discussing the 2012 split of CIETAC, but also because it may provide some guidance on how Indian courts may, in future, deal with structural changes to other arbitral institutions, such as the very recent termination of the joint venture between LCIA and Mauritius (the LCIA-MIAC Arbitration Centre), or the Shenzhen Court of International Arbitration (SCIETAC/SCIA) and the Shenzhen Arbitration Commission (SAC) merger at the beginning of 2018. Last but not least, this decision reinforces a pro-enforcement approach of Indian courts in relation to foreign arbitral awards.
Background to the dispute
The dispute originated in a Framework Contract entered into in 2011 between, among others, Hindustan Cleanenergy Limited (“Hindustan“) and LDK Solar Hi-Tech (Suzuhou) Co. Ltd (“LDK“), a Chinese solar power company, for the supply of solar panels to be used in solar energy generating projects in India. Following an unsuccessful challenge of a CIETAC award in favour of LTK in China, Hindustan, the applicant challenged enforcement of the award on a number of grounds (which had also been raised with, but rejected by, CIETAC). Two of the most interesting grounds are discussed below.
First argument – CIETAC had no jurisdiction to administer the case
Hindustan argued that CIETAC had no jurisdiction to entertain LDK’s claim, as under the relevant arbitration agreement, the parties were to refer any disputes for adjudication to the Shanghai Sub-Commission. This was in line with Article 2(8) of the CIETAC Arbitration Rules 2005 (“CIETAC Rules“), which provided that the parties may agree to have their disputes arbitrated either by CIETAC in Beijing or by the Shanghai Sub-Commission. According to Hindustan, once the Shanghai Sub-Commission had split from CIETAC the dispute should have been referred to the now independent SHIAC. In support of its argument, the applicant referred to an Official Reply of the Supreme People’s Court in China of 15 July 2015 (“Official Reply“), which held that SHIAC alone would have jurisdiction if an arbitration agreement provides for reference of disputes to the Shanghai Sub-Commission.
Having analysed the wording of the arbitration agreement, the CIETAC Rules and the Official Reply, the Court rejected this argument. It held that pursuant to the arbitration agreement, disputes had to be “submitted for arbitration before […] CIETAC in Shanghai“, noting that the Sub-Commission was not expressly mentioned by the parties. It further observed that under Articles 2(7) and 2(8) of the CIETAC Rules, parties had the following three options to have their disputes arbitrated: through (i) CIETAC Beijing, (ii) the Shenzhen South China Sub-Commission (“Shenzhen Sub-Commission“), or (iii) the Shanghai Sub-Commission. In the absence of an agreement between the parties as to which option applied, the final decision was to be made by CIETAC. As for the Official Reply, the Court held that it was inapplicable, as it only deals with situations where parties have expressly agreed to refer their disputes either to the Shenzhen or the Shanghai Sub-Commission, which was not the case in this dispute. The Court concluded that a distinction should be drawn between an arbitral institution administering the dispute and the place of arbitration, holding that the arbitration agreement in this instance was to be interpreted to say that the arbitration shall be conducted by CIETAC and the place of arbitration shall be Shanghai.
Second argument – CIETAC violated Principles of Natural Justice
In addition, Hindustan argued that by appointing a substitute President Arbitrator almost immediately following a voluntary withdrawal of the initial Presiding Arbitrator, and by failing to give the parties additional time to agree on a joint nomination under Articles 25 and 31 of the CIETAC Rules, CIETAC violated Principles of Natural Justice that had to be complied with in accordance with Indian law. The applicant further argued that the notice informing the parties of the hearing following the appointment of the substitute President Arbitrator was invalid, as the Tribunal was wrongly constituted. Therefore, according to Hindustan, it had insufficient notice of the oral hearing, and had no proper opportunity to produce witnesses in support of its case.
This argument was likewise dismissed by the Court. In particular, it noted that the initial Presiding Arbitrator had been appointed by the CIETAC Chairman pursuant to Article 25(4) of the CIETAC Rules, as the parties had failed to reach agreement on an appointee. According to the Court, there was no ground for CIETAC to revive the original appointment procedure following the withdrawal. It further held that Hindustan had sufficient notice of the date of the oral hearing, and that the applicant had produced no evidence of prejudice as a result of the decision not to change the hearing date. The Court, therefore, concluded that the second argument was meritless, specifically noting that “some real prejudice must be shown to have been suffered by the party complaining of the violation of Principles of Natural Justice“.
While we understand that Hindustan may seek to appeal this enforcement decision, the pro-arbitration approach adopted by the Court may serve as a helpful precedent for future disputes regarding the interpretation of arbitration agreements following reorganisations of arbitral institutions.
For further information, please contact Nicholas Peacock, Partner, Jessica Fei, Partner, Donny Surtani, Partner, Kritika Venugopal, Senior Associate or your usual Herbert Smith Freehills contact.