By – Hemaxi Agrawal
INTRODUCTION
Arbitration is a process in which the disputes between parties are settled by a neutral party or panel through a binding decision depending on the previously agreed upon norms and rules. Whereas in international arbitration, the dispute resolution process allows those parties which belong to different countries, they can come together and resolve the disputes out of the traditional court system based on international laws like international commercial contracts and international investments (according to Jeswald W. Salacuse).[1]
International arbitration becomes a preferred spirit resolution mechanism for cross-border business or business entities and transactions as it offers many unique features and characteristics. It provides autonomy and flexibility to the parties by giving them control over how they want to resolve their dispute. This will include what rules would be considered for the arbitration process, choosing the arbitrations according to their expectation and also choosing the procedural framework. It provides a neutral third party or panel for dispute resolution which avoids either of the parties having an advantage of being in their home court and being favoured by the domestic court. One of the strengths of international arbitration is the enforceability of the arbitral awards due to the New York Convention on REFAA (the Recognition and Enforcement of Foreign Arbitral Awards), 1958, the awards are easier to enforce internationally than they are as per the court judgments. This has been ratified by 160 countries. The international arbitration processes maintain confidentiality, unlike court proceedings that are generally public.
This article aims to analyse the discrepancies and challenges in International Arbitration across frameworks and procedures; and assess how these discrepancies impact the efficiency of arbitral accounts across various jurisdictions by using relevant case laws and case studies.
Legal Framework
The legal framework for international arbitration is primarily derived from both international treaties and national laws such as:
New York Convention (The Convention on the Recognition and Enforcement of Foreign Arbitral Awards), 1958: This treaty is for the purpose of recognition and enforcement of international arbitral agreements, requiring countries of the contracting parties to enable private contracts for arbitration; and recognise and enforce the arbitration awards arising out of this resolution, subject to certain specific exceptions.
UNCITRAL Model Law, 1985: The UN Commission on International Trade Law developed a model law on international commercial arbitration that has been adopted by various countries and used as a basis for arbitration laws of many nations. This model law standardises procedures for international arbitration and provides a role framework for parties, legal practitioners and arbitrators.
Institutional Rules: The parties to the agreement can also choose to administer the international arbitration via certain institutions that support the administrative process and provide a set of rules for conducting the arbitration like the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the International Centre for Dispute Resolution (ICDR) etc. Such institutes have also laid down their own procedural rules (ICC Arbitration Rules (International Chamber of Commerce), 1922 and LCIA Rules (London Court of International Arbitration),1981) if the parties choose the particular institution, as they ensure procedural clarity and efficient dispute resolution.
National Arbitration Laws: Each country may have its arbitration laws. These laws determine how domestic and international arbitrations are to be conducted within the national jurisdiction.[2] It impacts factors like the selection of the arbitrator, arbitral procedure and enforcement of the arbitral award. India has its own arbitration law – The Arbitration and Conciliation Act, of 1996. PART II of the act lays down the laws regarding international commercial arbitration.
KEY DISCREPANCIES AND CHALLENGES
Differences in National Arbitration Laws
While international arbitration frameworks like the New York Convention seek to standardise enforcement of arbitral awards, national laws on grounds like public policy can refuse the arbitral award leading to inconsistent outcomes. This variation between the international and national laws manifests due to different procedural and regulatory requirements like differences in the criteria from permissible evidence, the extent of allowing of the pre-hearing discovery, and the function of national courts in the arbitration process.
Variations in Legal Traditions
The nature of the jurisdiction can create variations in the approaches for legal processes like collecting evidence and the role of the arbitrator. One major legal tradition that has these differences is the common law jurisdictions, they are more permissive compared to the other, the civil law jurisdiction. Local legal customs, traditions and norms affect the conduct of arbitration through factors like varied levels of formalness of the proceedings and witness examination.
Institutional Rules Variability
As mentioned before, different arbitration institutions have their own set of rules and procedures that can lead to procedural differences and confusion affecting the efficiency of the outcomes. Across the institutions, the efficiency of administrative support and the costs of the proceedings also differ, impacting the parties’ choice for a particular institution.
Interplay with Local Courts
The extent and nature of local judicial intervention in the arbitration process can affect the efficiency. In jurisdictions where local courts have more discretion to intervene in the arbitration proceedings, delays and complications can occur. It has a direct effect on the enforcement of arbitral awards too.[3] The less developed legal systems may be sceptical towards arbitration and hesitate to enforce awards.
Other challenges arising from discrepancies: Discrepancies in international arbitration frameworks can lead to uncertainties, directly impacting parties’ risk assessments and decision-making processes. The act of balancing legal systems, national laws and institutional rules can increase the complexity and cost of the arbitration, decreasing its efficiency and speediness. Parties tend to make strategic manipulations by selecting more biased institutions for a favourable arbitrational environment.
JUDICIAL STANCE
Differences in Institutional Arbitration Rules
For example – ICC Rules of Arbitration, Article 5 provides for ‘the Terms of Reference’, a unique procedural step in ICC arbitrations in the form of a document outlining key details of arbitration, which is to be signed by the parties and LCIA Arbitration Rules, Article 22.1 empowers the tribunal to conduct the arbitration at its discretion; hinting that the latter is more liberal in devising arbitral discretion.
In Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb[4] and Yukos Universal Limited v. The Russian Federation[5] highlights complexities of international arbitration proceedings where the different institutions are present as the seat of the arbitration and the procedural rules that are followed resulting in a significant impact on the enforcement and interpretation of arbitration agreements.
Interactions with Local Courts
Arbitration Act 1996 (UK), Section 9 allows a party to an arbitration agreement to apply to the courts to stay legal proceedings started in respect of a matter which under the agreement is to be submitted to arbitration.
In the Sulamerica case[6], the Court of Appeal of the UK addressed the issue of which law will apply to the arbitration agreement, the seat of arbitration and the application of a stay under Section 9 of the Arbitration Act, 1996. This highlights how national arbitration laws like the UK’s Arbitration are applied coupled with international legal principles to guide national courts in their interactions with arbitration agreements and proceedings. It underscores the role of local courts in the enforcement of arbitration agreements according to the local and international standards; hence influencing the administration and implementation of international arbitration.
UNCITRAL Model Law
The Article 11 of UNCITRAL Model Law provides for the appointment of arbitration arbitrators and procedures to ensure their independence and impartiality. It also gives procedures for cases where parties cannot agree on an arbitrator.
In Jivraj v. Hashwani [2011] UKSC 40[7], The UK Supreme Court upheld that it is not contrary to anti-discrimination laws if an agreement about arbitrations between traitors belonging to a specific religious community is made, which highlights how different cultural and local legal traditions influence the selection of arbitrators, which might not be the case under laws of some other country.
Article 34(2)(a)(i) of UNCITRAL Model Law allows a court to set aside an arbitral award if the applicant party provides proof that a party to the arbitration agreement has incapacity or the invalidity of the agreement in law.
In FirstLink Investments Corp Ltd v. GT Payment Pte Ltd et al [2014] SGHCR 12[8], the Singapore High Court showcased how the contractual terms related to arbitration were interpreted under Singapore law.
Adaptation of the UNCITRAL Model Law: While the Model Law aims to provide a standardised procedure The countries may modify or adopt the model in a way to fit their existing legal system practices, which leads to variations in how the arbitration laws are implemented, bringing in various principles of international and national law together. It will potentially affect how arbitration proceedings are conducted and enforcement of arbitration laws.
New York Convention
Article V: The article specifies grounds for refusal of recognition and enforcement of the arbitral award by a court in cases of incapacity of the parcel parties, invalidity of the arbitration agreement, no proper notice, and awards that have been set aside. The article specifies grounds for refusal of recognition and enforcement of the arbitration.
This way the violation of public policy becomes a common ground for courts refusing enforcement of international arbitral awards under the New York Convention. The definition of public policy and its constitution vary from country to country. There are cases where the courts of some jurisdictions are more protective of the national interest, affecting the ease of enforcement of arbitral awards that do not abide strictly by the bounds of public policy.
In the case of Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46[9], while the court of France recognised the award, the Supreme Court of the UK refused it on the grounds that the arbitration agreement was invalid under Pakistani law, which should be applicable as determined by the UK court. This case emphasises the effects of differences in recognition of the validity of arbitration agreements under different national laws on the enforcement of arbitral awards.
INDIAN JUDICIAL RESPONSE
Renusagar Power Co. Ltd. vs General Electric Co.[10]
Disputes arising under the contract that were subject to arbitration had to follow the arbitration rules of the International Chamber of Commerce (ICC) and the seat of arbitration was in London. The award was made in favour of the Defendant, who sought enforcement of this award in India. The primary legal issue before the Supreme Court of India was whether a foreign arbitral award could be enforced in India under the Foreign Awards (Recognition and Enforcement) Act, 1961, considering the “public policy” defence. The Supreme Court stated the grounds for the refusal of the enforcement of a foreign award was if it went against public policy[11] – the fundamental policy of India, national interest and justice or morality. It discouraged the use of public policy defence to review the merits of an award and passed the judgment in favour of enforcement. Through this judgement, the court limited the application of the public policy defence.
The court stated:
“…the enforcement of foreign arbitral awards can only be refused on the grounds strictly specified in Article V of the Convention. The enforcement of the award will be refused on the ground of public policy only if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.”[12]
Significance – This case is pivotal in the context of the enforcement of foreign arbitral awards in India. The Indian Supreme Court in this case set a precedent by establishing that the enforcement of a foreign award would only be refused under the New York Convention if it was contrary to (1) the fundamental policy of Indian law, (2) the interests of India, or (3) justice or morality. This “public policy” criterion was thus narrowly tailored to provide a clear framework for what could constitute a valid ground for refusing enforcement, aiming to integrate with global standards while safeguarding core national principles.
Bharat Aluminium Co. (BALCO) v. Kaiser Aluminium Technical Service, Inc.[13]
The seat of the arbitration for this case was London and the arbitration. The issue ahead the Supreme Court was to determine 1) whether Indian courts had jurisdiction to intervene in arbitrations seated outside India and 2) whether they could grant interim relief in such cases.
The Supreme Court of India held that the provisions of the Arbitration and Conciliation Act, 1996 would apply only to arbitrations seated in India. The court effectively determined that Indian courts would not have jurisdiction over foreign-seated arbitrations in terms of granting interim relief or challenging the arbitration award as the act does not provide for such intervention by the Indian courts for such arbitration. This decision further decreased judicial intervention in foreign seated arbitration. It aimed at reducing judicial overreach to promote a more arbitration-friendly jurisdiction in India that aligns with international norms and gives autonomy to controversial parties.
The court observed:
“…we are of the opinion that Part I of the Arbitration Act, 1996 is to apply only to all the arbitrations which take place within the territory of India.”[14]
And further clarified:
“…in cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the opinion that such an interpretation does not lead to any conflict between the provisions of the Arbitration Act, 1996 and the provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.”[15]
This was a pivotal decision as it emphasised the importance of the territorial principle in the application of the Arbitration Act of India by ensuring that India respects the autonomy of the arbitration agreement and parties, as they agreed on certain procedural rules and venue of the arbitration.
Comparative Analysis
Both these landmark cases pinpoint the shift in the role of Indian judicial review in International Arbitration. The transition from the Renusagar case to the BALCO case Determines that India’s current approach is to align closer with the world. With the international arbitration norms, while the Renusagar case led the foundation, to encourage the enforcement of foreign awards by narrowly interpreting the public policy exception, the BALCO case on the other hand, took a step ahead by further minimising judicial interventions and foreign-seated arbitration, hence providing more control, autonomy and certainty to international commercial arbitration entities doing business transactions with Indian counterparts. Together these cases emphasise how the Indian legal framework is becoming more mature, in handling international disputes and taking a pro-arbitration approach by Liberal Judicial Review.[16]
CONCLUSION
The effectiveness of international arbitration depends on the legal frameworks established by international treaties, national laws, and institutional rules. They are essential for maintaining earning arbitration as a preferable and flexible alternative dispute resolution mechanism on a global level to overcome the complications that arise out of international arbitration, the parties should appropriately select the arbitration institution and venues, consider jurisdictional issues, and take advice regarding the same from an expert. The outcomes of arbitrations depend significantly on how jurisdictions adopt and adapt these frameworks. This makes the international arbitration framework and its careful adaptation into the national laws important to provide a healthy environment for international arbitration and increase the scope of the national laws in achieving global standards.
[1] Salacuse, Jeswald W. The Law of Investment Treaties. 2010.
[2] (1998) 1 SCC 305: AIR 1998 SC 825: 1998 AIR SCW 556: 1998 (1) SCJ 233
[3] AIR 1992 SC 732
[4] Enka Inşaat ve Sanayi A.S. v. OOO Insurance Company Chubb, [2020] UKSC 38.
[5] Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227.
[6] Sulamerica Cia Nacional De Seguros S.A. et al v. Enesa Engenharia S.A. – Enesa, [2012] EWCA Civ 638.
[7] Jivraj v. Hashwani, [2011] UKSC 40
[8] FirstLink Investments Corp. Ltd. v. GT Payment Pte Ltd., [2014] SGHCR 12.
[9] Dallah Real Estate & Tourism Holding Co. v. Ministry of Religious Affairs, Gov’t of Pakistan, [2010] UKSC 46.
[10] Renusagar Power Co. v. Gen. Elec. Co., 1994 Supp (1) SCC 644 (India).
[11] S. 34(2) (b) (ii), Arbitration and Conciliation Act, 1996
[12] Renusagar Power Co. v. Gen. Elec. Co., 1994 Supp (1) SCC 644 (India).
[13] Bharat Aluminium Co. v. Kaiser Aluminium Technical Serv., Inc., [2012] 9 SCC 552 (India).
[14] Bharat Aluminium Co. v. Kaiser Aluminium Technical Serv., Inc., [2012] 9 SCC 552 (India).
[15] Bharat Aluminium Co. v. Kaiser Aluminium Technical Serv., Inc., [2012] 9 SCC 552 (India).
[16] C. Shahi & S. Rastogi, Challenges in Enforcing Awards in Investor State Disputes, GLS Law Journal (2021).