HIGH COURT OF GUJARAT FINDS THAT TWO INDIAN PARTIES CAN CHOOSE A FOREIGN SEAT OF ARBITRATION BUT CANNOT OBTAIN INTERIM RELIEF IN INDIAN COURTS

The Gujarat High Court (the “Court”) recently handed down a significant decision in GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited, Arbitration Petition No. 131 and 134 of 2019, confirming that two Indian parties are permitted to choose a foreign seat of arbitration, and that the award from such an arbitration may then be enforced in India as a foreign award. However, the Court held that Indian parties who had chosen a non-Indian seat would not be entitled to interim relief from the Indian courts in support of the arbitration under s9 of the Arbitration and Conciliation Act 1996 (the “Act”).

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INDIA AMENDS ARBITRATION LAW RELATING TO ENFORCEMENT OF AWARDS TAINTED BY FRAUD AND ARBITRATOR QUALIFICATIONS

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.

Nicholas Peacock

Nicholas Peacock
Partner
+44 20 7466 2803

Nihal Joseph

Nihal Joseph
Associate
+44 20 7466 2212

DISPUTE RESOLUTION CHOICES FOR BANKS AND FINANCIAL INSTITUTIONS: MAXIMISING THE CHANCES OF SUCCESSFUL ENFORCEMENT – WEBINAR RECORDING NOW AVAILABLE

Choice of dispute resolution forum can have a fundamental impact on the ability of banks and financial institutions to enforce contractual obligations.

In our client webinar on 23 September, Dispute Resolution Choices for Banks and Financial Institutions: Maximising the Chances of Successful Enforcement, Julian Copeman, Nick Peacock and Hannah Ambrose discussed recent trends in dispute resolution choices in the banking and finance sector in the context of Brexit, before addressing:

  • the use of the English courts, providing guidance as to enforcement of English court judgments in the EU in the context of Brexit;
  • the risks and rewards associated with unilateral clauses which enable a choice of forum to be made once a dispute has arisen; and
  • the key points which banks and financial institutions need to be aware of if choosing arbitration, such as the powers of arbitral tribunal with respect to remedies and the award of interest, and the increasing use of summary judgment procedures to resolve unmeritorious claims.

The speakers also touched on practical points to bear in mind for successful enforcement in Russia, Africa, India and China, and addressed questions from clients on the restatement of English court jurisdiction clauses after the end of the Brexit transition period to minimise enforcement risk, and the availability of interim relief from the court to support arbitral proceedings.

The webinar recording is now available for clients and contacts. To access the recording, please contact Hannah Ambrose (here) or your usual Herbert Smith Freehills contact.

For more information, please contact Julian Copeman, Partner, Nick Peacock, Partner, Hannah Ambrose, Senior Associate or your usual Herbert Smith Freehills contact.

Julian Copeman

Julian Copeman
Partner
+44 20 7466 2168

Nicholas Peacock

Nicholas Peacock
Partner
+44 20 7466 2803

Hannah Ambrose

Hannah Ambrose
Senior Associate
+44 20 7466 7585

HERBERT SMITH FREEHILLS LAUNCHES FIRST GUIDE TO DISPUTE RESOLUTION AND GOVERNING LAW IN RUSSIA

Please click here to preview this publication. To request a copy of the Guide, please email RussiaDisputeResolutionGuide@hsf.com.

Our first Guide to Dispute Resolution and Governing Law in Russia provides a concise and accessible overview of some of the practical issues involving both litigation and arbitration across the region to help our clients understand the ways in which Russian law restricts the choice of law in contracts and the types of dispute resolution mechanisms that can be used for Russia-related commercial contracts.

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ENGLISH HIGH COURT GRANTS EXTENSION OF TIME TO BRING CLAIM UNDER S12 ARBITRATION ACT 1996

In the recent case of National Bank of Fujairah (Dubai Branch) v Times Trading Corp [2020] EWHC 1983 (Comm) the English High Court (the “Court”) granted National Bank of Fujairah (”NBF”) an extension of time under s12(3)(b) Arbitration Act 1996 (the “Act”) to bring an arbitration claim against Times Trading Corp (“Times”). The decision follows the recent case of Fimbank PLC v KCH Shipping (“Fimbank”) (see our blog post on this decision here) where an extension of time to bring an arbitration claim was refused on a somewhat similar set of facts.

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ENGLISH HIGH COURT REFUSES TO GRANT EXTENSION OF TIME TO COMMENCE ARBITRATION PROCEEDINGS UNDER BOTH LIMBS OF S12 ARBITRATION ACT 1996

In the recent case of Fimbank PLC v KCH Shipping Co Ltd [2020] EWHC 1765 (Comm), the High Court (the “Court”) refused to grant an extension of time under either s12(3)(a) or s12(3)(b) Arbitration Act 1996 (the “Act”) for FIMbank PLC (“Fimbank”) to pursue a claim in arbitration against KCH Shipping Co Ltd (“KCH”).

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ENGLISH COURT GRANTS ANTI-SUIT INJUNCTION TO RESTRAIN BRAZILIAN PROCEEDINGS PURSUED IN BREACH OF UNDERTAKING TO ARBITRATE

In the recent case of Daiichi Chuo Kisen Kaisha v Chubb Seguros Brasil [2020] EWHC 1223 (Comm) (available here) the English High Court granted an anti-suit injunction to compel a claimant to discontinue Brazilian court proceedings which it had pursued in breach of an undertaking not to pursue the relevant contractual claim otherwise than through arbitration in England.

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Update: The discontinuation of LIBOR: issues of substance and procedure for parties and arbitrators

The global financial markets are currently preparing for the phasing out of the London Inter-bank Offered Rate (or LIBOR) and other Inter-bank Offered Rates (or IBORs). LIBOR is the most widely used benchmark interest rate globally, employed in an estimated US$350 trillion worth of financial contracts worldwide. LIBOR may also be used in commercial contracts – for example, in price adjustment mechanisms in share purchase agreements, price escalation clauses or as a reference rate for contractual interest on late payments. LIBOR may also be specified in arbitration clauses as a benchmark rate for interest on the award.

The clock is now ticking towards the deadline of the end of 2021 for the market to be ready but there is concern that many contracts will not be amended voluntarily by that time. Recognising the impact on existing contracts of the transition, the Tough Legacy Taskforce, part of the industry-led Working Group on Sterling Risk-Free Reference Rates, was set up to provide market input regarding the ‘tough legacy’ of products that may prove unable to be converted or amended to include robust fallbacks to address the end of LIBOR. Last month the Tough Legacy Taskforce published its report (the Tough Legacy Paper). As discussed in detail in our blog post here, the Tough Legacy Paper serves to highlight the difficulties in amendment of contracts, and particularly the complex relationship between contracts in different asset classes in many transactions.

Many financial instruments affected by the discontinuation of LIBOR will include arbitration clauses. As discussed below, whilst the substantive disputes arising from the end of LIBOR will be the same whether they are resolved in a court or by an arbitral tribunal, there are some additional considerations particular to the arbitration process which are relevant in the context of LIBOR discontinuation disputes. Further, even when determining a dispute which does not arise from the end of LIBOR, arbitral tribunals may have to grapple with how to award interest where an arbitration clause uses LIBOR as a reference point. Read more in the E-bulletin here.

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