9911796707
TMI Blog2019 (5) TMI 1879X X X X Extracts X X X X X X X X Extracts X X X X ..... reed to be calculated as per a formula given in sub-clause 70.3 of the contract. The relevant portion of sub-clause 70.3 states as under: "ii. Adjustment for Cement Component Price adjustment for increase or decrease in the cost of cement procured by the contractor shall be paid in accordance with the following formula: Vc = 0.85 x Pc x Ri x (C1 - C0) 100 C0 Where, Vc = increase or decrease in the cost of work during the month under consideration due to change in rates of component. C0 = the all India average wholesale price index for cement on the day 28 days prior to the closing date of submission of bids, as published by Ministry of Industrial Development, Government of India, New Delhi. C1 = the all India average wholesale price index for cement on the day 28 days prior to the last day of the period to which a particular interim payment certificate is related, as published by Ministry of Industrial Development, Government of India, New Delhi. Pc = percentage of Cement component." Insofar as the component C0 is concerned, the date which is 28 days prior to the last submission of bids is 29.09.2005, which is the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to receive monthly payment under the Circular. The appellant submitted a conditional undertaking dated 17.05.2013, in which it was clearly stated: "The above undertaking is without prejudice to the Contractor's right to challenge the said Circular dated 15.02.2013 as per provisions of contract and other legal remedies available to the Contractor before the appropriate forum." 5. The appellant then approached the Delhi High Court vide an application under Section 9 of the Arbitration and Conciliation Act, 1996 ["1996 Act"], for interim protection against deduction and recoveries sought to be made by the respondent by applying the said Circular. The Delhi High Court, by its order dated 31.05.2013, restrained the respondent from implementing the said Circular retrospectively. 6. Meanwhile, the aforesaid dispute was referred to the Dispute Adjudicating Board as envisaged under sub-clause 67 of the contract. The Dispute Adjudicating Board, by its majority recommendation dated 31.10.2013, recommended a certain linking factor and then arrived at the figures of price adjustment in the aforesaid four materials by applying such linking factor. However, one of the members of the Disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd 9.1. Based on the findings above, we hold that introducing linkage factor is imperative and required for conversion of indices from the base 2004-05 series to the earlier series base 1993-94 as basis for determination of price adjustment. Linking factors for four items of work/materials involved in price adjustment, shall be as under: Cement 1.528 Steel 2.365 Plant and Machinery 1.840 Other Materials 1.873 9.2. The final amount of price adjustment shall be worked out on the basis of above-mentioned linkage factors. After deducting the amount already paid to the Claimant, the amount payable to them against their claim shall be determined and the same shall be paid by the Respondent to the Claimant. 9.3. This amount shall also attract interest @ 10% per annum compounded monthly from due date of payment to the date of award, viz. 02.05.2016. 9.4. Further interest @ 12% per annum, simple interest, shall be payable to the Claimant from 02.05.2016 onwards till the date of payments. No future interest however shall be payable in case the amounts are paid within 90 days of the date of the award, that is by 02.08.2016." A dissenting award was given by Shri Dilip Namdeo P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 34(2)(a)(iii) would also be attracted. She argued that the government guidelines were never produced before the arbitrators, and the arbitrators applied the said guidelines behind the back of the parties, thus, resulting in breach of Section 34(2)(a)( iii) of the 1996 Act. Finally, though she argued the ground of patent illegality, this argument was given up when it was pointed out by the Court that this ground, which obtains under Section 34(2A) of the 1996 Act, would not be available in the case of an international commercial arbitration that is decided in India. Shri Mukul Rohatgi, learned Senior Advocate, supplemented the submissions of Smt. Rashmeet Kaur. 9. On the other hand, Shri S. Nandakumar, learned counsel appearing on behalf of the respondent, argued that applying the new formula with the base index of 2004-05 would make the contract unworkable, as a result of which, it was imperative to have a linking factor. According to the learned counsel, the appellant itself applied a linking factor when the Tribunal asked it to do so, may be without prejudice to its other contentions. In any case, this was a matter of interpretation of the agreement in which the arbitrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments of this Court, being Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] and Western Geco [ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as has been held in para 18 in HRD Corpn. v. GAIL (India) Ltd. [HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471], it is clear that such amendments would only be prospective in nature. We do not express any opinion on the aforesaid contention since the amendments made to Section 34 are not directly before us. It is enough to state that Section 26 of the Amendment Act makes it clear that the Amendment Act, as a whole, is prospective in nature. Thereafter, whether certain provisions are clarificatory, declaratory or procedural and, therefore, retrospective, is a separate and independent enquiry, which we are not required to undertake in the facts of the present cases, except to the extent indicated above, namely, the effect of the substituted Section 36 of the Amendment Act." xxx xxx xxx "78. The Government will be well-advised in keeping the aforesaid Statement of Objects and Reasons in the forefront, if it proposes to enact Section 87 on the lines indicated in the Government's P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Associate Builders, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204 , making it clear that the construction of the terms of the contract is primarily for the arbitrator to decide unless it is found that such a construction is not a possible one."] It would be important to remember that the 246th Law Commission Report has itself bifurcated proceedings into two parts, so that the Amendment Act can apply to court proceedings commenced on or after 23-10-2015. It is this basic scheme which is adhered to by Section 26 of the Amendment Act, which ought not to be displaced as the very object of the enactment of the Amendment Act would otherwise be defeated." (emphasis supplied ) 11. There is no doubt that the amendments made in Explanations 1 and 2 to Section 34(2)(b)(ii) have been made for the avoidance of any doubt, which language, however, is not found in Section 34(2A). Apart from the anomalous position which would arise if the Section were to be applied piecemeal, namely, that Explanations 1 and 2 were to have retrospective effect, being only to remove doubts, whereas sub-section (2 A) would have to apply prospectively as a new ground, with inbuilt exceptions, having been introduced f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of setting aside an award if it is in conflict with the public policy of India, as it existed before the Amendment Act, 2015. In Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 ["Associate Builders"], this Court referred to the judgment in Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644 ["Renusagar"], as follows: "18. In Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644], the Supreme Court construed Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961: "7. Conditions for enforcement of foreign awards.-(1) A foreign award may not be enforced under this Act- xxx xxx xxx (b) if the Court dealing with the case is satisfied that- xxx xxx xxx (ii) the enforcement of the award will be contrary to the public policy." In construing the expression "public policy" in the context of a foreign award, the Court held that an award contrary to (i) The fundamental policy of Indian law, (ii) The interest of India, (iii) Justice or morality, would be set aside on the ground that it would be contrary to the public policy of India. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efuse recognition and enforcement of a foreign award under Section 48, Section 34(2)(b) ought to have been construed in the same manner as Section 48(2)(b). 15. However, this Court, in Saw Pipes ( supra), added yet another ground, namely, that of "patent illegality" to the three grounds mentioned in Renusagar (supra) in order to set aside an award under Section 34 of the 1996 Act. This ground was added in the following terms: "31. ...... [Patent] Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void." 16. Given this interpretation of the law, insofar as Section 34 was concerned, this Court, in DDA v. R.S. Sharma and Co., (2008) 13 SCC 80, summarised the law as it stood at that point of time, as follows: "21. From the above decisions, the following principles emerge: (a) An award, which is (i) contrary to substantive provisions of law; or (ii) the provisions of the Arbitration and Conciliation Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge. xxx xxx xxx 38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple in Indian law is also contained in Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation Act. These sections read as follows: "18. Equal treatment of parties.-The parties shall be treated with equality and each party shall be given a full opportunity to present his case. xxx xxx xxx 34. Application for setting aside arbitral award.- xxx xxx xxx (2) An arbitral award may be set aside by the court only if- (a) the party making the application furnishes proof that- xxx xxx xxx (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;" 31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where: (i) a finding is based on no evidence, or (ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. 32. A good working t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a nonmember, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at." 34. It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood." 18. It is at this stage that certain fundamental changes were made in the law pursuant to the 246th Report of the Law Commission of India ["Law Commission Report"] of August 2014. The Law Commission Report first suggested an amendment to the Preamble of the 1996 Act as follows: "Amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground of an erroneous application of the law or by re-appreciating evidence." The Commission believes that this will go a long way to assuage the fears of the judiciary as well as the other users of arbitration law who expect, and given the circumstances prevalent in our country, legitimately so, greater redress against purely domestic awards. This would also do away with the unintended consequences of the decision of the Supreme Court in ONGC vs. Saw Pipes Ltd, (2003) 5 SCC 705, which, although in the context of a purely domestic award, had the unfortunate effect of being extended to apply equally to both awards arising out of international commercial arbitrations as well as foreign awards, given the statutory language of the Act. The amendment to section 28(3) has similarly been proposed solely in order to remove the basis for the decision of the Supreme Court in ONGC vs. Saw Pipes Ltd , (2003) 5 SCC 705 - and in order that any contravention of a term of the contract by the tribunal should not ipso jure result in rendering the award becoming capable of being set aside. The Commission believes no similar amendment is necessary to section 28 (1) given the express restriction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d result in the award falling foul of Section 28 and consequently being against public policy.]" Similarly, amendment of Section 34 was prescribed as follows: "Amendment of Section 34 18. In section 34, (i) In sub-section (1), after the words "sub-section (2)" add the words ", subsection (2A)". (ii) In sub-section (2), after the word "Explanation.-" delete the words "Without prejudice to the generality of sub-clause (ii), it is hereby declared, for" and add the word "For" and after the words "the avoidance of any doubt," add the words "it is clarified" and after the words "public policy of India" add the word "only" and after the word "if" delete the word "-" and add the word ":" and add the sub-clause "(a)" before the words "the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81" and add the word "; or" after the words "violation of section 75 or section 81" and add sub-clause "(b) it is in contravention with the fundamental policy of Indian law; or" and add subclause "(c) it is in conflict with the most basic notions of morality or justice." [NOTE: The proposed Explanation II is required to bring the stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Supplementary Report"] was made by the Law Commission of India, in which the Law Commission stated: "10. The 246th Report of the Law Commission and the decision in Western Geco. 10.1. The Law Commission, in the 246th Report, provided for the same narrow standard, namely that a mere violation of law of India would not be a violation of 'public policy' in cases of international commercial arbitrations held in India. It suggested substantial amendments to Section 34 of the Act, with an endeavour to ensure that the Renusagar position applies to all foreign awards and all awards passed in international commercial arbitrations. With respect to domestic arbitrations, the Commission recommended that the "patent illegality" test be retained, although it be construed more narrowly than under the Saw Pipes regime. In this regard, the following provisions were added to Section 34(2)(b)(ii) and a new provision, Section 34(2A) was introduced. These provisions are stated as follows: S. 34(2)(b)(ii) the arbitral award is in conflict with the public policy of India. Explanation.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n legal parlance called a "judicial approach" in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge. 38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a quasi-judicial authority must, while determining the rights and obligations of parties b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under Section 34, as it is deemed to be part of "fundamental policy of Indian law." 10.4. Such a power to review an award on merits is contrary to the object of the Act and international practice. As stated in the Statement of Objects and Reasons of the 1996 Act itself, one of the principal objects of that law was "minimization of judicial intervention" [The 1996 Act, Statement of Objects and Reasons, paragraph 4(v)]. ( emphasis supplied ) 10.5. As the Supreme Court's judgment in Western Geco (supra) would expand the Court's power rather than minimise it, and given that it is also contrary to international practice, a clarification needs to be incorporated to ensure that the term "fundamental policy of Indian law" is narrowly construed. If not, all the amendments suggested by the Law Commission in relation to construction of the term "public policy" will be rendered nugatory, as the applicability of Wednesbury principles to public policy will certainly open the floodgates. 10.6. This will have four major deleterious effect, being ( a) a further erosion of faith in arbitration proceedings amongst individuals and businesses in India and abroad; ( b) a reduction in popularity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more userfriendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases. 4. As India has been ranked at 178 out of 189 nations in the world in contract enforcement, it is high time that urgent steps are taken to facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered and reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration, so as to encourage investment and economic activity. 5. As Parliament was not in session and immediate steps were required to be taken to make necessary amendments to the Arbitration and Conciliation Act, 1996 to attract foreign investment by projecting India as an investor friendly country having a sound legal framework, the President was pleased to promulgate the Arbitration and Conciliation (Amendment) Ordinance, 2015. xxx xxx xxx" ( emphasis supplied ) 22. Section 28(3), before the Amendment Act, read as follows: "28. Rules applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) Enforcement of an arbitral award may also be refused if the Court finds that- xxx xxx xxx (b) the enforcement of the award would be contrary to the public policy of India. Explanation 1.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. xxx xxx xxx" 23. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the "Renusagar" understanding of this expression. This would necessarily mean th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality. 27. Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award. 28. To elucidate, paragraph 42.1 of Associate Builders ( supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award. 29. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders ( supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961 ["Foreign Awards Act"]. The Foreign Awards Act has since been repealed by the 1996 Act. However, considering that Section 7 of the Foreign Awards Act contained grounds which were borrowed from Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 ["New York Convention"], which is almost in the same terms as Sections 34 and 48 of the 1996 Act, the said judgment is of great importance in understanding the parameters of judicial review when it comes to either foreign awards or international commercial arbitrations being held in India, the grounds for challenge/refusal of enforcement under Sections 34 and 48, respectively, being the same. After referring to the New York Convention, this Court delineated the scope of enquiry of grounds under Sections 34/48 (equivalent to the grounds under Section 7 of the Foreign Awards Act, which was considered by the Court), and held: "34. Under the Geneva Convention of 1927, in order to obtain recognition or enforcement of a foreign arbitral award, the requirements of clauses (a) to (e) of Article I had to be fulfilled and in Article II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 269) 36. Similarly Alan Redfern and Martin Hunter have said: "The New York Convention does not permit any review on the merits of an award to which the Convention applies and, in this respect, therefore, differs from the provisions of some systems of national law governing the challenge of an award, where an appeal to the courts on points of law may be permitted." (Redfern & Hunter, Law and Practice of International Commercial Arbitration, 2nd Edn., p. 461.) 37. In our opinion, therefore, in proceedings for enforcement of a foreign award under the Foreign Awards Act, 1961, the scope of enquiry before the court in which award is sought to be enforced is limited to grounds mentioned in Section 7 of the Act and does not enable a party to the said proceedings to impeach the award on merits. xxx xxx xxx 65. This would imply that the defence of public policy which is permissible under Section 7(1)( b )( ii) should be construed narrowly. In this context, it would also be of relevance to mention that under Article I(e) of the Geneva Convention Act of 1927, it is permissible to raise objection to the enforcement of arbitral award on the ground that the recognition or enforcement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Partasides, Alan Redfern, and Martin Hunter (Oxford University Press, Fifth Ed., 2009) ["Redfern and Hunter"] as follows: "11.56. First, the New York Convention does not permit any review on the merits of an award to which the Convention applies. [This statement, which was made in an earlier edition of this book, has since been cited with approval by the Supreme Court of India in Renusagar Power Co. Ltd. v. General Electric Co. The court added that in its opinion 'the scope of enquiry before the court in which the award is sought to be enforced is limited [to the grounds mentioned in the Act] and does not enable a party to the said proceedings to impeach the Award on merits']. Nor does the Model Law." The same theme is echoed in standard textbooks on international arbitration. Thus, in International Commercial Arbitration by Gary B. Born (Wolters Kluwer, Second Ed., 2014) ["Gary Born"], the learned author deals with this aspect of the matter as follows: "[12] No Judicial Review of Merits of Foreign or NonDomestic Awards in Recognition Actions It is an almost sacrosanct principle of international arbitration that courts will not review the substance of arbitrators' decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsportes Equipamentos Industriais e Armazes Gerais, XXXV Y.B. Comm. Arb. 330, 331 (Brazilian Tribunal de Justiça) (2010)]: "these questions pertain to the merits of the arbitral award that, according to precedents from the Federal Supreme Court and of this Superior Court of Justice, cannot be reviewed by this Court since recognition and enforcement of a foreign award is limited to an analysis of the formal requirements of the award." Commentators have uniformly adopted the same view of the Convention [See, for e.g., K.-H. Böckstiegel, S. Kröll & P. Nacimiento, Arbitration in Germany 452 (2007)] ." ( at pp. 3707-3710) ( emphasis supplied ) Likewise, the UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (2016 Ed.) ["UNCITRAL Guide on the New York Convention"] also states: "9. The grounds for refusal under article V do not include an erroneous decision in law or in fact by the arbitral tribunal. A court seized with an application for recognition and enforcement under the Convention may not review the merits of the arbitral tribunal's decision. This principle is unanimously confirmed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1996 Act. 36. Sections 18, 24(3), and 26 are important pointers to what is contained in the ground of challenge mentioned in Section 34(2)(a)(iii). Under Section 18, each party is to be given a full opportunity to present its case. Under Section 24(3), all statements, documents, or other information supplied by one party to the arbitral tribunal shall be communicated to the other party, and any expert report or document on which the arbitral tribunal relies in making its decision shall be communicated to the parties. Section 26 is an important pointer to the fact that when an expert's report is relied upon by an arbitral tribunal, the said report, and all documents, goods, or other property in the possession of the expert, with which he was provided in order to prepare his report, must first be made available to any party who requests for these things. Secondly, once the report is arrived at, if requested, parties have to be given an opportunity to put questions to him and to present their own expert witnesses in order to testify on the points at issue. 37. Under the rubric of a party being otherwise unable to present its case, the standard textbooks on the subject have stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to facts that have not been introduced in the proceedings by the parties, but that the tribunal has raised sua sponte, provided it was entitled to do so. For instance, if the tribunal gained "out of court knowledge" of circumstances (e.g., through its own investigations), it may only rest its decision on those circumstances if it informed both parties in advance and afforded them the opportunity to comment thereon. The same rule applies to cases where an arbitrator intends to base the award on his or her own expert knowledge, unless the arbitrator was appointed for his or her special expertise or knowledge (e.g., in quality arbitration). Similarly, a tribunal must give the parties an opportunity to comment on facts of common knowledge if it intends to base its decision on those facts, unless the parties should have known that those facts could be decisive for the final award." ( emphasis in original ) In Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, 1999) ["Fouchard"] it is stated: "In some rare cases, recognition or enforcement of an award has been refused on the grounds of a breach of due process. One example is the award made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed invoices, had its claim rejected by the Iran-US Claims Tribunal, for failure to submit detailed invoices! The US court, rightly it is suggested, refused to enforce the award against the US company [Iran Aircraft Ind v Avco Corp. 980 F.2d. 141 (2nd Cir. 1992)] . In different circumstances, a German court held that an award that was motivated by arguments that had not been raised by the parties or the tribunal during the arbitral proceedings, and thus on which the parties had not had an opportunity to comment, violated due process and the right to be heard [See the decision of the Stuttgart Court of Appeal dated 6 October 2001 referred to in Liebscher, The Healthy Award, Challenge in International Commercial Arbitration (Kluwer law International, 2003), 406]. Similarly, in Kanoria v Guinness, [2006] EWCA Civ. 222, the English Court of Appeal decided that the respondent had not been afforded the chance to present its case when critical legal arguments were made by the claimant at the hearing, which the respondent could not attend due to a serious illness. In the circumstances, the court decided that 'this is an extreme case of potential injustice' and resolved not to enforce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, unable 'to state its view'. Those reasons could only have been its lack of prior access to the sub-sale award and the evidence which underlay it. I conclude that it was to give Ferco's lawyer an opportunity to refute this material that the Beijing court ordered a 'resumed' arbitration." ( at pp. 656-657) The Ground of Challenge under Section 34(2)(a)(iv) 39. So far as this defence is concerned, standard textbooks on the subject have held that the expression "submission to arbitration" either refers to the arbitration agreement itself, or to disputes submitted to arbitration, and that so long as disputes raised are within the ken of the arbitration agreement or the disputes submitted to arbitration, they cannot be said to be disputes which are either not contemplated by or which fall outside the arbitration agreement. The expression "submission to arbitration" occurs in various provisions of the 1996 Act. Thus, under Section 28(1)(a), an arbitral tribunal "... shall decide the dispute submitted to arbitration ...". Section 43(3) of the 1996 Act refers to "... an arbitration agreement to submit future disputes to arbitration ....". Also, it has been stated that where matters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a decision that is rendered ultra petita would not contravene Article V, paragraph 1(c). It is important to note that the Convention provides that the refusal of recognition or enforcement can be confined to aspects of the award which fail to comply with the terms of the arbitration agreement, provided that those aspects can be separated from the rest of the award (Art. V(1)(c)). Once again, the courts have taken a very restrictive view of the application of this ground." ( at p. 988) Similarly, Gary Born (supra) states: "There are a number of recurrent grounds for claiming that an arbitral tribunal has exceeded its authority. These generally involve claims of either extra petita (the tribunal went beyond the limits of its authority) or infra petita ( the tribunal failed to fulfil its mandate by not exercising authority it was granted). [a] Awards Ruling on Matters Outside Scope of Parties' Submissions Article 34(2)(a)(iii) permits annulment of awards where the arbitrators "rule (d) on issues not presented to [them] by the parties" - so-called "extra petita" or "ultra petita" [Allen v. Hounga [2012] EWCA Civ 609 (English Ct. App.)] As with other grounds for annulment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Another example of an excess of authority under Article 34(2)(a)(iii) and parallel provisions of other arbitration statues involves awards deciding issues or disputes that the parties have not submitted to the arbitral tribunal [See, e.g., Emilio v. Sprint Spectrum LP, 2013 WL 203361 (2d Cir.)]. A tribunal exceeds its authority by ruling on an issue not presented by the parties in the arbitration even if the issue or dispute that it addresses is within the scope of the parties' arbitration agreement. As one court explained: "Arbitrators have the authority to decide only those issues actually submitted by the parties" [AGCO Corp. v. Anglin, 216 F.3d 589, 593 (7 th Cir. 2000)]. Doubts about the scope of the parties' submissions are resolved in most legal systems in favour of encompassing matters decided by the arbitrators. Put differently, a considerable measure of judicial deference is accorded to the arbitrators' interpretation of the scope of their mandate under the parties' submissions [See, e.g., Downer v. Siegel, 489 F.3d 623, 627 (5th Cir. 2007)]. In the words of one court, "[w]e will not overscrutinize the panel's language and leap to the conclusion that it exceeded its pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]. The court stated that, without an indepth review of the law of contract, the court could not state whether a breach of contract would abrogate a clause which excluded consequential damages. However, 'the standard of review of an arbitration award by an American Court is extremely narrow', and ( adopting the words of the US Court of Appeals in the well-known case of Parsons Whittemore Overseas Co Inc v Societe Generale de l'Industrie du Papier (RAKTA), 508 F.2d 969 (2nd Cir. 1974)) the Convention did not sanction 'second-guessing the arbitrators' construction of the parties' agreement'. Nor would it be proper for the court to 'usurp the arbitrators' role' [Libyan American Oil Company (Liamco) v Socialist Peoples Libyan Arab Yamahirya, (1982) VII Y.B. Comm. Arb., 382 at 388]. Accordingly, enforcement was ordered." 40. The Court of Appeal of Singapore, in CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK, [2011] SGCA 33, held as follows: "25. The court's power to set aside an arbitral award is limited to setting aside based on the grounds provided under Art 34 of the Model Law and s 24 of the IAA. As declared by this court in Soh Beng Tee & Co Pte Ltd v Fairmount Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) addresses the situation where the arbitral tribunal exceeded (or failed to exercise) the authority that the parties granted to it (see Gary B Born, International Commercial Arbitration (Wolters Kluwer, 2009) at vol 2, pp 2606-2607 and 2798-2799). This ground for setting aside an arbitral award covers only an arbitral tribunal's substantive jurisdiction and does not extend to procedural matters (see Robert Merkin & Johanna Hjalmarsson, Singapore Arbitration Legislation Annotated (Informa, 2009) ("Singapore Arbitration Legislation") at p 117). 32. Second, it must be noted that a failure by an arbitral tribunal to deal with every issue referred to it will not ordinarily render its arbitral award liable to be set aside. The crucial question in every case is whether there has been real or actual prejudice to either (or both) of the parties to the dispute. In this regard, the following passage in Redfern and Hunter ([27] supra at para 10.40) correctly summarises the position: The significance of the issues that were not dealt with has to be considered in relation to the award as a whole. For example, it is not difficult to envisage a situation in which the issues that were overl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e New York Convention further built on the 1927 Geneva Convention by explicitly allowing for severability of the part of the award dealing with a difference not contemplated by or not falling within the terms of the submission to arbitration, or containing decisions on matters beyond the scope of the submission to arbitration, in order to permit recognition and enforcement of the part of the award containing decisions on matters submitted to arbitration. Although there is generally little discussion of article V (1)(c) in the travaux préparatoires, the inclusion of the provision allowing for partial recognition and enforcement was the subject of some debate. The travaux préparatoires show that various concerns were raised over the form and substance of this principle, including concerns that severability of arbitral awards would in practice "open the door to a review as to substance", which the drafters of the New York Convention sought to prevent. Courts have since uncompromisingly asserted that article V (1)(c) does not permit an enforcing authority to reconsider the merits of a dispute. xxx xxx xxx 6. Courts and commentators agree that an arbitration agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcuit, 1974) ["Parsons"], it was held: "19. Under Article V(1)(c), one defending against enforcement of an arbitral award may prevail by proving that: 20. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. 21. This provision tracks in more detailed form 10(d) of the Federal Arbitration Act, 9 U.S.C. 10(d), which authorizes vacating an award 'where the arbitrators exceeded their powers.' Both provisions basically allow a party to attack an award predicated upon arbitration of a subject matter not within the agreement to submit to arbitration. This defense to enforcement of a foreign award, like the others already discussed, should be construed narrowly. Once again, a narrow construction would comport with the enforcement-facilitating thrust of the Convention. In addition, the case law under the similar provision of the Federal Arbitration Act strongly supports a strict reading. See, e.g., United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593 , 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960); Coenen v. R. W. Pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise than by exceeding its substantive jurisdiction: see section 67) " The question arises how section 68(2)(b) and section 69, so far as the latter excludes a right of appeal on a question of law, are to operate. Specifically, can an alleged error of arbitrators in interpreting the underlying or principal contract be an excess of power under section 68(2)(b) , so as to give the court the power to intervene, rather than an error of law, which can only be challenged under section 69 if the right of appeal has not been excluded?" This was answered by the Court, thus: "[23] Contrary to the view I have expressed, I will now assume that the tribunal committed an error of law. That error of law could have taken more than one form. The judge (para 25) and the Court of Appeal (para 35) approached the matter on the basis that the tribunal erred in the interpretation of the underlying contract. Another possibility is that the tribunal misinterpreted its powers, under section 48(4) to express the award in any currency. Let me approach the matter on the basis that there was a mistake by the tribunal in one of these forms. Whichever is the case, the highest the case can be put is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that right by agreement. In cases where the right of appeal has by agreement, sanctioned by the Act, been excluded, it would be curious to allow a challenge under section 68(2)(b) to be based on a mistaken interpretation of the underlying contract. Moreover, it would be strange where there is no exclusion agreement, to allow parallel challenges under section 68(2)(b) and section 69. [32] In order to decide whether section 68(2)(b) is engaged it will be necessary to focus intensely on the particular power under an arbitration agreement, the terms of reference, or the 1996 Act which is involved, judged in all the circumstances of the case. In making this general observation it must always be borne in mind that the erroneous exercise of an available power cannot by itself amount to an excess of power. A mere error of law will not amount to an excess of power under section 68(2)(b). [33] For these reasons the Court of Appeal erred in concluding that the tribunal exceeded its powers on the currency point. If the tribunal erred in any way, it was an error within its power. [34] I am glad to have arrived at this conclusion. It is consistent with the legislative purpose of the 1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively amounts to an attempt to appeal the arbitrator's decision which is not permissible." (para. 11, p. 4). xxx xxx xxx "39. The Irish courts have had the opportunity of considering the proper approach to be taken in considering a challenge to an award based on Article 34(2)(a)( iii) where it is suggested that an arbitrator has exceeded his or her authority or acted outside his or her mandate. The leading Irish case on this point is Snoddy (Snoddy v. Mavroudis [2013] IEHC 285). In Snoddy, (Snoddy v. Mavroudis [2013] IEHC 285) Laffoy J. quoted with approval the commentary contained in Mansfield in relation to Article 34(2)(a)(iii). She stated as follows: "Mansfield's commentary on that provision is that it is a ground - '[ t]hat the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. Commentators have noted that 'this ground is infrequently invoked and it is even less frequently accepted by national courts to set an award aside' and international case-law decided under the Model Law has held that this ground is to be narrowly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases make clear that there is a presumption that the arbitral tribunal has acted within its mandate and the onus of establishing otherwise rests with the party seeking to set aside the award on this ground." ( emphasis in original ) In State of Goa v. Praveen Enterprises, (2012) 12 SCC 581 ["Praveen Enterprises"], this Court set out what is meant by "reference to arbitration" as follows: "10. "Reference to arbitration" describes various acts. Reference to arbitration can be by parties themselves or by an appointing authority named in the arbitration agreement or by a court on an application by a party to the arbitration agreement. We may elaborate: (a) If an arbitration agreement provides that all disputes between the parties relating to the contract (some agreements may refer to some exceptions) shall be referred to arbitration and that the decision of the arbitrator shall be final and binding, the "reference" contemplated is the act of parties to the arbitration agreement, referring their disputes to an agreed arbitrator to settle the disputes. (b) If an arbitration agreement provides that in the event of any dispute between the parties, an authority named therein shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to have been fairly comprehended as "disputes" within the arbitration agreement, or which were referred to the decision of the arbitrators as understood by the authorities above. If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of "patent illegality", which, as we have seen, would not apply to international commercial arbitrations that are decided under Part II of the 1996 Act. To bring in by the backdoor grounds relatable to Section 28(3) of the 1996 Act to be matters beyond the scope of submission to arbitration under Section 34(2)(a)(iv) would not be permissible as this ground must be construed narrowly and so construed, must refer only to matters which are beyond the arbitration agreement or beyond the reference to the arbitral tribunal. Most Basic Notions of Justice 44. The expression "most basic notions of ... justice" finds mention in Explanation 1 to sub-clause (iii) to Section 34(2)(b). Here again, what is referred to is, substantively or procedurally, some fundamental principle of justice which has been breached, and which shock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iolate the forum state's most basic notions of morality and justice. [Restatement Second of the Conflict of Laws 117 , comment c, at 340 (1971); Loucks v. Standard Oil Co., 224 N.Y. 99, 111, 120 N.E. 198 (1918)]." In Dongwoo Mann+hummel Co. Ltd. v. Mann+hummel Gmbh, [2008] SGHC 67, the High Court of Singapore held : "131. In PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR 597 ("PT Asuransi Jasa Indonesia (Persero)"), the Court of Appeal explained what would constitute a conflict with public policy (at [57] and [59]): 57. ... The legislative policy under the Act is to minimise curial intervention in international arbitrations. Errors of law or fact made in an arbitral decision, per se, are final and binding on the parties and may not be appealed against or set aside by a court except in the situations prescribed under s 24 of the Act and Art 34 of the Model Law. ... In the present context, errors of law or fact, per se, do not engage the public policy of Singapore under Art 34(2)(b) (ii) of the Model Law when they cannot be set aside under Art 34(2)(a) (iii) of the Model Law. xxx xxx xxx 59. Although the concept of public policy of the State is not defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , I do not think that the Court should be quick to interfere under this section [ie, s 68(2)(g) of the Arbitration Act 1996]. In those cases in which s. 68 has so far been considered the Court has emphasized that it is intended to operate only in extreme cases... xxx xxx xxx 19. Where an important document which ought to have been disclosed is deliberately withheld and as a result the party withholding it has obtained an award in his favour the Court may well consider that he procured that award in a manner contrary to public policy. After all, such conduct is not far removed from fraud... xxx xxx xxx 26. Even if there had been a deliberate failure to give disclosure of the two documents in question it would still be necessary for Profilati to satisfy the Court that it had suffered substantial injustice as a result." And finally, in BAZ v. BBA and Ors., [2018] SGHC 275, the High Court of Singapore stated: "156. From the outset, it is important to reiterate that the public policy ground for setting aside or refusal of recognition/enforcement is very narrow in scope. The Court of Appeal has held that the ground should only succeed in cases where upholding or enforcing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strongly relied upon by the majority award to arrive at the linking factor were never in evidence before the Tribunal. In fact, the Tribunal relies upon the said guidelines by itself and states that they are to be found on a certain website. The ground that is expressly taken in the Section 34 petition by the appellant is as follows : "It is pertinent to mention here that no such guidelines of the Ministry of Industrial Development had been filed on record by either of the parties and therefore, the Tribunal had no jurisdiction to rely upon the same while deciding the issue before it. Accordingly, the impugned Award is liable to be set aside." 46. Learned counsel for the respondent also agreed that these guidelines were never, in fact, disclosed in the arbitration proceedings. This being the case, and given the authorities cited hereinabove, it is clear that the appellant would be directly affected as it would otherwise be unable to present its case, not being allowed to comment on the applicability or interpretation of those guidelines. For example, the appellant could have argued, without prejudice to the argument that linking is de hors the contract, that of the three methods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar is acceptable to them. We have seen how the appellant gave such undertaking only conditionally and without prejudice to its argument that the Circular does not and cannot apply. This being the case, it is clear that the majority award has created a new contract for the parties by applying the said unilateral Circular and by substituting a workable formula under the agreement by another formula de hors the agreement. This being the case, a fundamental principle of justice has been breached, namely, that a unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court. However, we repeat that this ground is available only in very exceptional circumstances, such as the fact situation in the present case. Under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the disp ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
