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”).
Tag: Nihal Joseph
Herbert Smith Freehills has issued the latest edition of its India arbitration e-bulletin.
In this issue, we consider various court decisions which cover topics such as the limitation period for enforcement of foreign awards, the arbitrability of fraud, ‘patent illegality’ as a ground to set aside awards, and granting of interim directions against non-signatories to an arbitration agreement. We also consider India-related bilateral investment treaty news such as the tribunal’s decision in the Vodafone tax dispute and Nissan’s settlement of its claim against India. We also touch on other developments such as updates issued to the Indian Arbitration and Conciliation Act 1996 and the London Court of International Arbitration Rules.
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.
Herbert Smith Freehills has issued the latest edition of its India arbitration e-bulletin.
In this issue we consider various court decisions, which cover issues such as the constitutional validity of s87 of the Arbitration Act, setting aside an award on the grounds of bias, and the time limits surrounding enforcement of awards. In other news, we consider the latest developments regarding COVID-19, the UAE becoming a reciprocating territory for the enforcement of judgments, as well as India-related bilateral investment treaty news and other developments. Continue reading
In Filatona Trading v Navigator Equities  EWCA Civ 109, the English Court of Appeal upheld a judgment of the High Court (which we discussed here) relating to an LCIA arbitration concerning ownership of a Russian textile company. The main issue in the appeal was whether a party who did not sign an agreement was entitled to enforce rights under it (including the right to arbitrate), on the basis that an agent had entered into the agreement on the non-signing party’s behalf.
The Court found, in the circumstances of this case, that the principal was able to enforce the agreement and so the LCIA arbitration initiated by the principal was validly commenced. The judgment offers important guidance on when a person who is not a signatory to a contract can enforce its terms, including the arbitration clause.
We discussed the background to this case in more detail in our previous post here. Briefly, Ms Danilina and Mr Deripaska were signatories to a shareholders agreement (“SHA”) relating to the ownership of shares in a Russian textile company. Mr Chernukhin was not a signatory to the agreement, nor was he named in the SHA. However, he argued that Ms Danilina entered into the agreement on his behalf and Mr Deripaska knew this. Mr Chernukhin was thus, he claimed, a party to the SHA as a disclosed principal, with Ms Danilina as his agent.
A dispute arose under the SHA and Mr Chernukhin commenced an LCIA arbitration. The tribunal issued an award, finding that Mr Chernukhin was a party to the SHA and that the tribunal had jurisdiction over the claim. Ms Danilina and Mr Deripaska challenged the award under s67 of the Arbitration Act 1996 (“the Act”), arguing that the tribunal had no jurisdiction over the claims by Mr Chernukhin as he was not a party to the SHA. Mr Deripaska also challenged the award under s68 of the Act on the basis that there was a serious irregularity affecting the award.
Commercial Court decision
The Commercial Court dismissed the claims of Ms Danilina and Mr Deripaska, finding that Ms Danilina had, in fact, entered into the SHA as an agent for Mr Chernukhin and that there was nothing in the SHA that prevented Mr Chernukhin from enforcing its terms. The Commercial Court judgment addressed other issues, including whether the tribunal had the power to order a buy-out of shares pursuant to Cypriot company law, but this and other issues were not the subject of the appeal.
Court of Appeal decision
The permission to appeal was granted on a limited basis and the Commercial Court’s finding of fact that Mr Chernukhin was a party to the SHA by virtue of the principal-agent relationship could not be challenged. The appeal instead focussed on whether “the terms and surrounding circumstances of the contract, either expressly or by necessary implication, excluded Mr Chernukhin from exercising contractual rights (including the right to arbitrate)”.
The Court of Appeal judgment noted that English law makes a “beneficial assumption” in commercial cases that an undisclosed principal is generally entitled to enforce the contract in their own name. It was stated that the same approach should apply where the person is a disclosed principal. The relevant question was whether there were “clear and unambiguous words or indications of an intent to exclude the known and identified principal”. There was a “heavy burden of persuasion” on the party who argues that an identified principal should be excluded from a contract.
Having regard to the contract in question and the surrounding circumstances, it was then considered (i) why Mr Chernukhin was not named as a party to the SHA and (ii) whether, in light of this circumstance, the SHA was to be construed as excluding him from the contract. It was likely that all parties knew that Mr Chernukhin was a party to the SHA, even though he was not named in the SHA, which was mainly related to his position in a Russian financial institution. There was nothing in the wording of the SHA that demonstrated a clear intention to prevent Mr Chernukhin from exercising rights under the SHA.
This case is a relatively rare instance of a s67 application reaching the Court of Appeal. The failure of the challenge in Filatona is a further example of the English courts’ reluctance to overturn arbitral awards and the courts’ non-interventionist approach.
For further information, please contact Nicholas Peacock, Partner, Rebecca Warder, Professional Support Lawyer, Nihal Joseph, Associate, or your usual Herbert Smith Freehills contact.
The International Centre for Settlement of Investment Disputes (“ICSID”) has released case statistics for 2019 and updated their records for cases since 1972 (available here). ICSID has historically administered the majority of investor-state claims and these statistics remain an important bellwether for trends in such disputes. The 2019 statistics show that a lower number of cases were registered this year. There was a dip in cases involving state parties from Eastern Europe and Central Asia, and the highest proportion of cases involved state parties from South America. As in previous years, cases involving the oil and gas, electric power and other energy sectors dominated.
In this issue we consider India-related investment treaty developments (“BITs“), starting with the signing of India’s new BITs with Belarus and Taiwan.
We then consider new investment treaty claims commenced by Indian investors against Saudi Arabia and Macedonia, as well as new claims commenced against India, including the potential claim brought by a Portuguese investor and the new claim under the India-Korea BIT brought by KOWEPO.
We also cover the developments in existing BIT claims, such as India’s first win in a BIT claim and the settlement negotiations in the Nissan BIT claim against India.
- India signs new BITs with Belarus and Taiwan and agrees joint interpretative statement with Colombia and Bangladesh.
As we previously reported in April 2015 and January 2016, the Government of India published a new model BIT (the “Model BIT“) to serve as a template for future BIT negotiations. Later in 2017, India decided to terminate 58 of its existing BITs. The Model BIT limits the protections afforded to investors perhaps as a reaction to the number of investor claims against India in recent years.
India has since entered into a BIT with Belarus in September 2018 (available here) and with an investment promotion organisation in Taiwan in December 2018 (available here). Both BITs largely follow the text of the Model BIT including in the definitions of ‘investor’ and ‘investment’, exclusion of the fair and equitable treatment standard and detailed requirements on exhaustion of local remedies.
The “India-Taiwan” BIT is between the India Taipei Association and the Taipei Economic and Cultural Centre rather than between two nation states. India’s Department of Economic Affairs currently notes that draft BITs based on the Model BIT are “under discussion” with a number of countries including Switzerland, UAE, Hong Kong, Israel, Mauritius and Iran.
Separately, in 2016, India circulated a proposed joint interpretative statement to be agreed with the counterparties to its existing BITs that were not then capable of being terminated (25 countries), seeking to align those BITs with the Model BIT. In October 2018, India and Columbia concluded a joint interpretative statement regarding the India-Columbia BIT of 2009. India had previously concluded a similar interpretative statement with Bangladesh in 2017.
New BIT Claims
- Indian investor Khadamat Integrated Solutions Private Limited pursues BIT claim against Saudi Arabia
As reported here, Indian investor Khadamat Integrated Solutions Private Limited has brought a claim against Saudi Arabia under the India-Saudi Arabia BIT. It has been reported that the dispute concerns a large-scale development project in Saudi Arabia but no further details are available. The Permanent Court of Arbitration (“PCA“) is administering the claim with a tribunal already formed under the UNCITRAL rules. Eric A. Schwartz has been appointed as chair by the co-arbitrators to sit alongside Franco Ferrari (nominated by Khadamat) and Rolf Knieper (nominated by Saudi Arabia).
- Tribunal constituted in a BIT claim by Indian investors against Macedonia
According to this report, the tribunal in a BIT claim by Indian investors against Macedonia has been constituted, with the President of the International Court of Justice appointing Nigerian arbitrator Funke Adekoya SAN as chair to sit alongside Robert Volterra (Indian investors’ nominee) and Brigitte Stern (Macedonia’s nominee). The claim was allegedly commenced in 2017 by Gokul Das Binani and Madhu Binani under the India-Macedonia BIT of 2008. The claim reportedly alleges that Macedonia illegally expropriated mining concessions awarded to a London-based company (in which the investors were the only shareholders) and subsequently auctioned it to a Bulgarian company. The arbitration is seated in Switzerland and governed by the UNCITRAL Rules.
- India may face new claim from Portuguese investor
As reported here, the Indian government revealed that it may be facing a claim from a Portuguese investor currently identified only as Mascarenhas. While it is known that Mascarenhas is bringing the claim under the India-Portugal BIT, the details of the dispute remain undisclosed.
Although the India-Portugal BIT was terminated by India as of March 2017 alongside 58 other BITs (as we previously reported here), the India-Portugal BIT contained a 15-year sunset clause which protects investments made in India prior to the BIT’s termination date. Thus, while there are only very limited details of the claim, it is a useful reminder that claims may yet arise under the cancelled BITs provided they fall within the sunset provisions of the relevant treaty.
- KOWEPO sends a notice of dispute under the India-Korea BIT and / or the Comprehensive Economic Partnership Agreement (CEPA) between India and Korea
According to this report, Korea Western Power Company (KOWEPO) has sent a notice of dispute to the Government of India in relation to a gas-based power plant in the state of Maharashtra. KOWEPO, which owns 40% in Pioneer Gas Power Limited, the operator of the plant, has alleged that India has failed to honour its fuel supply commitments to the plant and has reportedly claimed US$ 400 million in damages.
Two treaties govern India’s obligations towards Korean investors – the India-Korea BIT of 1996 (for investments made prior to the termination of the India-Korea BIT on 22 March 2017) and the 2009 Comprehensive Economic Partnership Agreement (CEPA) between India and Korea. It is unclear whether KOWEPO has initiated arbitration under one or both treaties. While the substantive investment protection standards in these treaties are different, both treaties provide for a cooling off period of at least six months from the date of the notice of dispute. If the dispute is not resolved in this period, KOWEPO is entitled to commence arbitration proceedings against India.
Developments in Existing BIT Claims
- Tribunal awards India its first public win in a BIT claim, dismissing claims of French investor
An UNCITRAL arbitral tribunal reportedly dismissed a US$ 36 million claim by a French investor, Louis Dreyfus Armateurs SAS (“LDA“), against India under the 1997 France-India BIT. LDA claimed that India had breached its treaty commitment to provide full protection and security, in particular as regards LDA’s Indian joint venture employees and their families, and was also in breach for its failure to follow Indian court orders. The tribunal reportedly found that it lacked jurisdiction over LDA’s claims since the BIT requires that an investor in an indirect investment hold at least 51% ownership in order to fall within the BIT’s protection. LDA’s shareholding did not satisfy this threshold. The award is not public at this time, but press reports state that LDA has also been ordered to pay approximately US$ 7 million in respect of India’s legal expenses.
A more detailed discussion of the decision is available on our blog here.
- Tribunal in Nissan BIT case dismisses India’s objections and upholds jurisdiction
According to this report, the claim brought by Nissan under the Japan-India Comprehensive Economic Partnership Agreement (CEPA) is now progressing to the merits phase, with the tribunal upholding jurisdiction in a now public decision which can be found here.
As we had previously reported, the claim relates to withdrawal of incentive payments allegedly promised by the state government of Tamil Nadu pursuant to a 2008 agreement under which Nissan established a manufacturing facility in Chennai.
Despite settlement talks between the parties (which we previously reported on here), and the efforts by the state of Tamil Nadu to prevent the arbitration proceedings from happening (see here), the PCA tribunal applying the UNCITRAL rules has dismissed most of India’s objections to the tribunal’s jurisdiction.
India had objected to the tribunal’s jurisdiction on five grounds. First, it objected to the default appointment by the PCA of India’s nominee and the tribunal chair. Second, India claimed that Nissan had triggered a fork-in-the-road clause which barred it from bringing its claim to international arbitration. Third, India asserted that the claim was essentially contractual in nature, which meant the seat of the arbitration should have been Chennai, as stipulated in the 2008 agreement signed between the parties. Fourth, India alluded to CEPA’s three-year time bar, and contended that Nissan had first acquired knowledge of the alleged breach and loss three years prior to filing its claim. Finally, India argued that Nissan’s claim was barred entirely due CEPA’s exception for taxation measures.
The tribunal dismissed India’s first four objections (see detailed discussion here), and deferred its final objection to the merits phase, with the merits hearing set for February 2020. That jurisdictional award is now being challenged in the Singapore International Commercial Court.
- Delhi High Court refuses to grant an anti-arbitration injunction restraining a BIT claim against India
In 2013, Khaitan Holdings brought a claim against India under the India-Mauritius BIT. The claim arose from the Indian Supreme Court’s 2012 decision (and subsequent decisions of regulatory bodies in India) to cancel 2G spectrum licenses granted by the Government of India (the “GOI“), including one granted to Loop Telecom of which Khaitan Holdings was a shareholder. The tribunal was not fully constituted until 2018 when Khaitan Holdings applied to the Permanent Court of Arbitration for the appointment of the presiding arbitrator to sit alongside Francis Xavier SC (Khaitan Holdings’ nominee) and Brigitte Stern (the GOI’s nominee).
The GOI then applied for an anti-arbitration injunction on the ground that (among other things) Khaitan Holdings is not a genuine and bona fide investor under the BIT as it is effectively controlled by Indian citizens. In a decision of 29 January 2019, the Delhi High Court dismissed the application on the basis that the GOI’s arguments were jurisdictional in nature and ought to be raised before, and decided by, the tribunal. The court expressly upheld the principle of kompetenz-kompetenz. In doing so, it relied on the earlier Delhi High Court decision in Union of India v Vodafone (which we covered on our blog here).
- Indonesia defeats BIT claim by Indian Metals & Ferro Alloys Ltd
As reported here, Indian investor Indian Metals & Ferro Alloys Ltd (“Indian Metals“) has lost its claim against Indonesia brought under the India-Indonesia BIT. The dispute concerned alleged interferences with Indian Metals’ coal mining rights in the Indonesian region of Kalimatan. In a currently unpublished award, the England-seated tribunal, applying UNCITRAL rules, dismissed the investor’s claim and ordered it to bear certain costs. The tribunal was chaired by Neil Kaplan, sitting alongside Muthucumaraswamy Sornarajah (nominated by Indonesia) and James Spigelman (nominated by Indian Metals).
- Hague court rejects set-aside of merits award in Devas case
According to this report, the Hague District Court has refused to set aside the merits award in the CC/Devas case against India brought under the India-Mauritius BIT.
In the merits award, the tribunal had found that India’s cancellation of a satellite lease contract was an unlawful expropriation and a breach of FET, but, in a split decision, also held that India was largely shielded from liability because of the BIT’s “essential security” clause.
India attempted to annul the award, and challenged the tribunal’s decision on jurisdiction and merits before the Hague District Court on three grounds. First, India alleged that the investor lacked a protected investment. Second, India argued that the tribunal had inappropriately dealt with its arguments on the “essential security” clause. Finally, India asserted that a domestic criminal complaint meant that the underlying satellite lease contract was void.
The Hague District Court rejected all of India’s objections. A detailed explanation of the Hague District Court’s reasoning can be found here.
- Two treaty claims against India withdrawn ahead of hearing
As reported here, claims by Astro All Asia Networks and South Asia Entertainment Holdings, two affiliates of Malaysian satellite-TV group Astro, have been withdrawn.
As with the Khaitan Holdings case, these claims arose out of the Indian Supreme Court’s decision in the 2G spectrum licenses case.
The UNCITRAL tribunal based in Hong Kong (comprised of Michael J Moser (chair), Peter Leaver QC, and Lucy Reed) issued consent awards recording the withdrawal of both claims.
If you have any questions or would like discuss any aspect of this post, please contact Nicholas Peacock, Partner, Kritika Venugopol, Senior Associate, Nihal Joseph, Associate (India), Divyanshu Agrawal, Associate (India) or your usual Herbert Smith Freehills contact.
In Sternberg Reed Solicitors v Harrison  EWHC 2065 (Ch), the High Court decided that an arbitrator had made an error in law in deciding that he could consider correspondence marked “without prejudice” when deciding costs. However, correspondence that is impliedly “without prejudice” could be taken into consideration. Arbitrators usually have broad discretion when considering costs but the established English law rules on privilege will still limit what evidence of the parties’ discussions is admissible. The court’s decision on impliedly “without prejudice” correspondence is significant and may impact how parties to an arbitration (or litigation) react to settlement offers.
In P v D  EWHC 1277 (Comm), the English High Court set aside an arbitral award on the basis that the tribunal had reached a finding of fact on a core issue that had not properly been put to a witness in cross-examination and that the tribunal had based its decision on a case not properly argued by the parties. Under s68 of the Arbitration Act 1996 (the “Act”), the court has the power to set aside an award on grounds of serious irregularity. It is rare for the court to exercise this power – although that does not deter aggrieved parties from submitting applications to set aside. The judgment gives important guidance on the court’s approach on this important procedural issue, and addresses considerations of fairness to witnesses in cross-examination, and to the parties putting those witnesses forward.
In a decision of 11 March 2019, the Supreme Court of India (the “Court“) struck down part of an arbitration clause which required a claimant to deposit 10 per cent of the amount claimed with the arbitrator before the arbitration went ahead. The contract was between a government entity and a private party and the Court relied on principles of Indian constitutional and administrative law to hold that the clause was arbitrary and therefore liable to be struck down. The Court also emphasised the need for arbitration to be speedy, effective and inexpensive so that it can “de-clog” the overburdened court system in India. This is an important decision for parties with arbitration agreements with Indian state or state-owned entities, and another encouraging indicator of the pro-arbitration mindset shown by the highest echelons of the Indian judiciary.