In the recent case of Manek and others v IIFL Wealth (UK) Ltd and others  EWCA Civ 625 (available here) the English Court of Appeal rejected a challenge to the jurisdiction of the English Commercial Court made on the basis that (amongst other issues) the claims fell within an arbitration clause. The Court of Appeal decided that the relevant claims in deceit against individual majority shareholders did not in fact fall within the arbitration clause and could properly be heard by the English Commercial Court.
In The Federal Republic of Nigeria v. Process & Industrial Developments Limited  EWHC 2379 (Comm), the English High Court (“Court”) granted the Federal Republic of Nigeria (“Nigeria”) an extension of time to bring challenges to an arbitral award of US$6.6 billion in damages and approximately US$4 billion in costs and interest (“Final Award” or “Award”) in favour of Process & Industrial Developments Limited (“P&ID”) under Sections 67 and 68(2)(g) of the English Arbitration Act 1996 (“Act”), nearly three years after the award was made.
In a little heralded development, the Government of India passed the Arbitration and Conciliation (Amendment) Ordinance 2020 (the “Ordinance”) on 4 November 2020 to amend the Indian Arbitration and Conciliation Act 1996 (the “Act”) with immediate effect. The Ordinance introduces provisions to stay the enforcement of arbitral awards tainted by fraud, and deletes certain provisions from the Act relating to qualification and accreditation of arbitrators.
Stay on enforcement
An important change introduced by the Ordinance concerns the power of the Indian court to stay enforcement of an award where an application has been made to set it aside. A court must now grant an unconditional stay on the enforcement of an award if a prima facie case is made out that the arbitration agreement or contract which is the basis of the award, or the making of the award itself was “induced or effected” by fraud or corruption. The stay shall continue until the application to set aside the award is decided.
By way of background, under Section 34 of the Act, a party to an arbitral award made in India may apply to the Indian court to have it set aside on the grounds, amongst other things, that the award conflicts with the public policy of India, which includes circumstances where the making of the award was induced or affected by fraud or corruption.
Prior to 2015, Section 36 of the Act was applied such that enforcement of an award would be stayed where an application was made under Section 34 until that application had been decided. This incentivised losing parties to challenge awards on any grounds to prevent their enforcement. An amendment to the Act passed in 2015 (discussed in our prior blog post here) modified Section 36 such that the filing of an application to set aside an award would not by itself render the award unenforceable, unless the court in its discretion granted a stay based on a separate application.
The Ordinance now restricts this discretion in that a court must stay an award unconditionally if it is satisfied that a prima facie case of fraud is made out. The amendment is deemed to have been inserted from 23 October 2015, and applies to all court cases arising out of arbitral proceedings, irrespective of whether the arbitration or court proceedings were commenced before or after this date.
The Ordinance notes that the change was made to address concerns raised by stakeholders. While the court already had the discretion to stay enforcement where the award was being challenged, the mandatory nature of the stay where a prima facie case of fraud is made out will inevitably incentivise challenges on that basis. It will be interesting to see how judges deal with such challenges.
While this amendment addresses challenges to awards made in India, it should not apply to the enforcement of foreign awards under a separate part of the Act, although the Indian court has the discretion (under Section 48) to refuse enforcement of a foreign award where it finds that the award was induced or affected by fraud.
Norms for accreditation of arbitrators
The Ordinance has also deleted the Eighth Schedule to the Act dealing with the qualifications and experience of an arbitrator, which provided that a person would not be qualified to be an arbitrator in an arbitration seated in India unless he or she is an advocate, accountant or company secretary under Indian law, or an officer of the Indian Legal Service, or holding a particular degree and/ or having public sector experience. This provision was understood effectively to exclude foreign nationals from acting as an arbitrator on arbitrations seated in India.
Section 43J of the Act now states that: “The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.” It is possible that these regulations would be framed by the Arbitration Council of India, which is to be formed pursuant to the Arbitration and Conciliation (Amendment) Act 2019 (discussed in our blog post here).
For more information, please contact Nick Peacock, Partner, Nihal Joseph, Associate, or your usual Herbert Smith Freehills contact.
12-13 March 2020
Ciragan Palace Kempinski, Istanbul, Turkey
A conference presented by the IBA Arbitration Committee
Under the theme of “Innovation 360: new and novel ideas for the practice of arbitration – critically tested”, the 2020 Arbitration Day will present a series of panels, with each panel presenting one new idea that challenges a key aspect of the way in which international arbitration is presently practiced. Each panel discussion will start with the proponents of the new idea making their case. Both the other panelists and the audience will then subject the new idea to critical testing and rigorous assessment.
- Procedural Timetable No. 1—topped and tailed: improved case management
- Quantum academy: training and certification on assessing damages
- Creating an independent technology and document management hub
- Prosecuting and adjudicating fraud claims in international arbitration
To book tickets, or for more information, please visit: https://www.ibanet.org/Conferences/conf1004.aspx
Paula Hodges QC, Head of Herbert Smith Freehills’ Global Arbitration Practice, is a member of the organising committee of the conference.
For more information, please contact Paula Hodges QC, Head of Global Arbitration Practice, Craig Tevendale, Partner, or your usual Herbert Smith Freehills contact.
The Paris Court of First Instance has rejected an application for the review and withdrawal of an enforcement order of an arbitral award, despite allegations of fraud and collusion between the arbitrator and the claimant. It also refused to the state’s request to stay enforcement proceedings until the issuance of a decision in proceedings appealing the arbitral award before the Common Court of Justice and Arbitration.
The case demonstrates the deference given to international arbitral awards by French courts in enforcement proceedings and the limited ability of the courts to review the underlying award. It also reiterates that, as a matter of principle, the only recourse available against an order granting enforcement of a foreign award is an appeal on the grounds permitted under Article 1525 of the French Code of Civil Procedure (CPC). Courts will be restrictive in their interpretation of the CPC and any application for the review or withdrawal of an enforcement order of an international arbitral award is likely to fail. A party will have no means of challenging the enforcement order, absent an appeal under Article 1525 of the CPC, even in cases where allegations of fraud and collusion have been made. (La République du Niger v Africard Co Ltd, Tribunal de grande instance de Paris, summary judgment (ordonnance de référé)).
Herbert Smith Freehills has issued the latest edition of its Indian international arbitration e-bulletin. In this issue we will consider Indian court decisions, including the arbitrability of allegations of fraud and non-arbitrability of trust disputes by the Supreme Court. We have also considered various decisions in which the Delhi High court shows restraint in relation to interfering with offshore arbitrations, while also making decisions that demonstrate the observance of formalities by the court which could be construed as not pro-arbitration, including refusing to enforce an arbitration clause in an unsigned agreement. In other news, we consider the rise of institutional arbitration in India and India-related bilateral investment treaty news. Further, we discuss the imminent launch of a new edition of our Guide on India-Related Contracts Dispute Resolution.
In a significant recent judgment, CBF Industria De Gusa S/A v. AMCI Holdings, Inc. (2d Cir. 2017), the influential U.S. Court of Appeals for the Second Circuit (the Second Circuit) considered an arbitral award's preclusive effects and its ability to bind third parties. In the same decision, the Second Circuit also issued valuable guidance to the lower courts on the correct procedure and terminology for the enforcement of New York Convention awards issued abroad.
The Second Circuit handed down its initial opinion in January. However, in a rare move, the Court released a revised opinion earlier this month to "correct" its conclusion on a point of law in the first opinion. This post, unlike much of the online commentary of AMCI Holdings, refers exclusively to the Second Circuit's later opinion.
The decision of the Indian Supreme Court in Swiss Timing Limited v Organising Committee, 2010 Olympic Games, Delhi ("Swiss Timing") last year seemingly settled the legal position on whether claims involving allegations of fraud are arbitrable in India. The Supreme Court in Swiss Timing overruled the previous leading Supreme Court authority, N Radhakrishnan v Maestro Engineering ("Radhakrishnan"), to hold that fraud allegations are capable of being adjudicated by arbitral tribunals. However, a number of recent Indian High Court decisions have taken apparently conflicting approaches to the issue and have raised questions on the authority of Swiss Timing to effectively overrule Radhakrishnan. The vexed question of arbitrability of fraud has thus been brought back to the forefront of Indian arbitration law.
In its judgment in IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation (No.3)  EWCA Civ 1144 & 1145, handed down on 10 November 2015, the Court of Appeal considered whether the Appellant ("IPCO") was entitled to enforce an arbitration award made against the Respondent ("NNPC") in Nigeria in October 2004 (the "Award").
In this significant decision, the Court of Appeal ordered that IPCO should be able, in principle, to enforce the Award, notwithstanding the existence of challenges to it in Nigeria, given the very significant delay in resolving those challenges before the Nigerian courts. On the facts of this case, the Court of Appeal considered that the alternative result (of yet further adjournment) would, in commercial terms, be absurd and inconsistent with the principles underpinning the New York Convention.
The Fiona Trust case is one of the best known decisions in English arbitration case law, setting out a “fresh start” in English jurisprudence with the strong presumption that commercial parties intend all disputes to be determined in a single forum.
That decision did not, however, prevent related litigation in the English courts. The most recent application to the English courts in Fiona Trust v Privalov  EWHC 527 (Comm) has highlighted the difficult path to be followed for the English court in reaching decisions in concurrent litigation proceedings which could impact upon or be seen to prejudge issues in on-going arbitration. Smith J in this case granted an application to clarify the meaning of an order as it would prevent litigation hampering the arbitral process.
The background to the 2007 House of Lords decision in Fiona Trust involved O, the owners of Russian ships which were chartered to C. O claimed to have rescinded the charterparties (including the arbitration clauses within them) on the grounds they had been induced by bribery.
C sought to refer the matter to arbitration and appointed an arbitrator. O applied to court seeking to restrain the arbitration on the basis that the charterparties (including the arbitration clause) had been rescinded for bribery. In response, C applied to stay the court proceedings in favour of arbitration under s 9 of the Arbitration Act 1996. The Court of Appeal ordered the stay (the “CofA Order“), ruling that the scope of the arbitration clause was wide enough to encompass a fraud claim. This was subsequently upheld by the House of Lords (now the Supreme Court). Following this decision, the parties appointed an arbitral tribunal.
In 2009, O brought fresh proceedings in the English courts. In these proceedings O pleaded that, by causing or permitting the charterparties, certain defendants had acted in breach of fiduciary or other duties owed to O. As part of these pleadings, O continued to plead that the charterparties and their arbitration provisions had been rescinded. The relief sought divided broadly into two types: (1) various heads of damage which were not dependent on the rescission of the charterparties; and (2) monetary claims relating to, or consequential on, rescission of the charterparties.
In 2010, Smith J in the High Court dismissed the claims as they were based on dishonesty and a finding there had been no dishonesty had been made. Counsel was asked to assist in the drafting of an order to that effect (the “2010 Order“).
The application in these proceedings came before Smith J again in the High Court. The application was made on the basis that the 2010 Order did not prevent O from bringing monetary claims consequential on rescission of the charterparties in the courts, as it was only the claim for a declaration that the charterparties had been validly rescinded which had been stayed by the CofA Order. The parties sought clarification under the Court’s discretionary powers as to the meaning of the 2010 Order.
Smith J was not persuaded to exercise any discretionary power to enable O to pursue claims for consequential monetary relief. If the claims were stayed under the CofA Order, they could not be pursued as no application had been made to lift the stay. The claims which had not been stayed had come to trial before Smith J in the 2009 proceedings (resulting in the 2010 Order) and no order had been made to allow O to try consequential monetary relief claims separately. It was not open to a party to decide, without reference to the Court, not to argue all their points at trial and then try to bring a separate claim at a later date.
Smith J continued that the only other reason to exercise the discretion sought to clarify the 2010 Order would be if it would assist the arbitration proceedings. Smith J refused to use CPR 3.1 to grant any of the applications to clarify. Neither would he use CPR 40.12 to “correct” the 2010 Order, as there was no accidental ‘slip or omission’ in the drafting of the order. Smith J said that the 2010 Order had not dealt with the specific possibility of consequential monetary claims as it had not occurred to him that the parties believed that those claims had not been stayed by the CofA Order – if he had realised this, he would have included wording to the effect that, in so far as not covered by the stay, such claims were dismissed. Smith J, using the inherent power referred to in CPR 40 BPD4.5, and after concluding that use of the power would not trespass on the arbitrators’ territory because it actually would prevent the litigation hampering the arbitral process, asked counsel to assist in drafting an order to this effect.
Throughout this judgment, Smith J appears conscious of a tension that he should endeavour not to express a view on questions which might rest within the jurisdiction of the Tribunal or on which the Tribunal might wish to reach its own conclusion. In particular, he did not wish to create a res judicata on the scope of the 2010 Order which might compromise the efficacy of the arbitration agreements. However, while Smith J was conscious of not stepping on the toes of the Tribunal, he accepted that in order to deal properly with the application, he would have to take a view on some matters which had been referred to arbitration.
The case demonstrates the difficulties caused by related claims in different fora. Concurrent disputes such as this one on similar and related issues will provoke difficult questions for both a court and tribunal as to which has the ultimate jurisdiction to determine any particular issue. While such tensions will continue to arise, the Court’s efforts here to continue to support the parties’ choice of arbitration – and to allow space for that arbitration to reach its own conclusions – is extremely welcome.
For further information, please contact Nicholas Peacock, Partner, or your usual Herbert Smith Freehills contact.