International commercial arbitration

International Commercial Arbitration

International commercial arbitration

• International arbitration is a leading method for resolving disputes arising from international commercial agreements and other international relationships. As with arbitration generally, international arbitration is a creature of contract, i.e., the parties' decision to submit disputes to binding resolution by one or more arbitrators selected by or on behalf of the parties and applying adjudicatory procedures, usually by including a provision for the arbitration of future disputes in their contract.

• The practice of international arbitration has developed so as to allow parties from different legal and cultural backgrounds to resolve their disputes, generally without the formalities of their respective legal systems.

• International arbitration has enjoyed growing popularity with business and other users over the past few decades.

• There are a number of reasons that parties elect to have their international disputes resolved through arbitration.

• These include the desire to avoid the uncertainties and local practices associated with litigation in national courts, the desire to obtain a quicker, more efficient decision, the relative enforceability of arbitration agreements and arbitral awards (as contrasted with forum selection clauses and national court judgments), the commercial expertise of arbitrators, the parties' freedom to select and design the arbitral procedures, confidentiality and other benefits.

• International arbitration is sometimes described as a hybrid form of dispute resolution, which permits parties broad flexibility in designing arbitral procedures.

International commercial arbitration

• The most favorable situation for a party to a dispute in an international commercial transaction is to litigate in one’s own courts. Even if the courts are scrupulously unbiased, that party is litigating at home using its regular lawyers, following a familiar procedure and in its own language.

• While that is good for one party to the transaction, it is not so good for the other party who faces all the difficulties of litigating in an unfamiliar procedure, in a language that may be foreign and may not be the language of the contract, and not being able to use its lawyers who are familiar with the company. It is also not irrelevant that the one party is staying at home while the other party is staying in a foreign country with all the inconvenience and expense that entails.

• Reason for the current popularity of international commercial arbitration is the comparative ease of enforcement of an award as compared to the enforcement of a judgment of a foreign court.

• Unless there is a treaty between the State in which the judgment was issued and the State in which enforcement is sought, the requested court is under no international obligation to enforce the judgment.

THE DIFFERENTIATION• Many States draw a distinction between arbitrations that are considered to be domestic

and those that are considered to be international. One of the consequences may be that the types of disputes that may be submitted to arbitration are different in an international arbitration. For example, in some States claims of anti-trust violation may be submitted in an international arbitration but not in a domestic arbitration. Similarly, some States permit the State or State entities to enter into valid arbitration agreements only if the arbitration would be international. Finally, following the lead of the Model Law, many States have different laws governing domestic and international arbitrations. It follows that the distinction between domestic and international arbitrations is a matter of national law. There is no generally accepted distinction.

• E.g. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. Supreme Court 1985) in which the Supreme Court of the United States held that anti-trust claims could be submitted to arbitration when they arose in an international dispute, “even assuming that a contrary result would be forthcoming in a domestic context.”

• In India an application under S.11 of the Indian Arbitration & Conciliation, 1996 for the appointment of the arbitrator (by the court) would be filed before the :– Chief Justice of the High Court in case of Domestic Arbitration;– Chief Justice of India in case of International Arbitration.

THE NEED TO CATEGORIZE

• SIGNIFICANCE OF THE TERM ‘INTERNATIONAL’ IS ESSENTIAL IN ORDER TO CATEGORIZE THE ARBITRATIOIN.

• SUCH ‘SLOTTING’ WOULD DECIDE THE COURSE OF FURTHER PROCERDURE BECAUSE WE UNDERSTAND THAT ‘INTERNATIONAL’ IS DIFFERENT FROM THE ‘DOMESTIC’ in terms of scope and application.

• MOREOVER THE ENFORCEMENT REGIME OF THE ‘DOMESTIC’ AWARD SUBSTANTIALLY DIFFERES FROM THAT OF A ‘FOREIGN’ AWARD.

• International arbitration is a significant variant of the practice in many countries of arbitration, from which it is derived and shares many features. It is not just the fact that international arbitration arises in the context of international contracts that makes it different. In the international dispute resolution community, it is widely accepted to be a different animal entirely, involving different practices and rules, and being represented by a different community of arbitrators and legal practitioners

Redfern and Hunter : Law and Practice of International Arbitration, (2nd Edition, pages 14

and 15)

• “Amongst states which have a developed arbitration law, it is generally recognized that more freedom may be allowed in an international arbitration than is commonly allowed in a domestic arbitration. The reason is evident. Domestic arbitration usually takes place between the citizens or residents of the same state, as an alternative to proceedings before the courts of law of that state…..it is natural that a State should wish (and even need) to exercise firmer control over such arbitrations, involving its own residents or citizens than it would wish (or need) to exercise in relation to international arbitrations which may only take place within the state’s territory because of geographical convenience.”

• Most societies developed at an early date systems of “arbitration” for the settlement of disputes. Disputes between private parties that are settled by arbitration might be of a family nature, concern labor relations or be between two commercial enterprises.

• In the past such disputes were almost exclusively domestic and the systems of arbitration that developed reflected the nature of the particular society.

• The ability to resolve disputes in a neutral forum and the enforceability of binding decisions are often cited as the main advantages of international arbitration over the resolution of disputes in domestic courts. And there is solid legal support for this view. The principal instrument governing the enforcement of commercial international arbitration agreements and awards is the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention").

• As a practical matter, what that means is that an international award originating in a country that is a party to the New York Convention may be enforced in any other country that is also a signatory, as if that award were actually rendered by the domestic courts of that second country. Here is an example of this important concept: assume that parties from countries A and B have agreed to resolve their disputes in country C, and all three countries are parties to the New York Convention.

• This will mean that even though the arbitration will take place in country C, the resulting award can be enforced in countries A or B, as if it were a court decision rendered in the domestic courts of that country.

• By contrast, there is no equivalent treaty for the international recognition of court decisions.

• The resolution of disputes under international commercial contracts is widely conducted under the auspices of several major international institutions and rule making bodies. The most significant are the International Chamber of Commerce (ICC), the International Centre for Dispute Resolution (ICDR), the international branch of the American Arbitration Association), the London Court of International Arbitration (LCIA), the Hong Kong International Arbitration Centre, and the (SIAC).

• Specialist ADR bodies also exist, such as the World Intellectual Property Organisation (WIPO), which has an arbitration and mediation center and a panel of international neutrals specialising in intellectual property and technology related disputes.

• A number of arbitral institutions have adopted the UNCITRAL Rules for use in international cases.

• The most salient feature of the rules of the ICC is its use of the "terms of reference." The “terms of reference” is a summary of the claims and issues in dispute and the particulars of the procedure, and it is prepared by the tribunal and signed by the parties near the beginning of the proceedings.

• In a more recent development, the Swiss Chambers of Commmerce of Industry of Basel, Berne, Geneva, Lausanne, Lugano, Neuchâtel and Zurich have adopted a new set of Swiss Rules of Commercial Mediation that are designed to integrate fully with the Swiss Rules of International Arbitration that were previously adopted by these chambers to harmonize interntional arbitration and mediation proceedings across Switzerland.

International Investment Arbitration

• The last few decades have seen the promulgation of numerous Bilateral Investment Treaties (BITs), as well as Multilateral Investment Treaties, which are designed to encourage investment in signatory countries by offering protections to investors from other signatory states.

• One of the significant features of some BITs is that they provide investors with the ability to resolve disputes with the host states before the International Centre for the Settlement of Investment Disputes (ICSID).

Inter-Nation Arbitration• Arbitration has been used for centuries, including in Antiquity,

for the resolution of disputes between states and state-like entities. After a period of relative disuse, Jay's Treaty between the United States and Great Britain revived international arbitration as a means of resolving inter-state disputes.

• The 1899 and 1907 Hague Conferences addressed arbitration as a mechanism for resolving state-to-state disputes, leading to the adoption of the Hague Conventions for the Pacific Settlement of International Disputes.

• The Conventions established the Permanent Court of Arbitration and a rudimentary institutional framework for international arbitration of inter-state disputes.

• In recent years, international arbitration has been used to resolve a number of disputes between states or state-like entities.

International Contracts

• LET US IMAGINE THE SITUATION WHERE NO ARBITRATION HAS BEEN PREFERRED.

• THE PROCEEDINGS OF LITIGATION WOULD BE INITIATED BY THE AGGRIEVED PARTY.

• IN SUCH A SITUATION THE BREACH OF CONTRACT WOULD BE HANDLED BY THE RESPECTIVE COURTS ACCORDING TO THE DOMESTIC MANDATORY LAWS.

International Contracts : LITIGATION

International Contracts and Litigation: Different Approaches used by the courts

• "lex patriae“ : Law of the Person:

• "lex fori" - The law of the forum;

• "Lex loci contractus" - The law of the place of conclusion of the contracting.

• "Lex loci damni" - The law of the place where the injury occurs. In other words, if an injury appears in another country, the laws of that country governs, provided that the tort-feasor should have foreseen that the damage would occur there.

•

• Lex mercatoria; • Lex maritima; • "Lex loci delicti" - The

law of the place of the tort/delict.

• "Lex loci solutionis" - The law of the place of performance of the contract;

• The ‘Proper Law’ Doctrine

• Forum non conveniens

Law of the Person ("lex patriae")

• Law of the Person ("lex patriae") - Wherever a person was a citizen, he/she had their "laws" follow them throughout the world.

• The French Emperor Napoleon Bonaparte promoted this approach in the first Civil Code of France (1804). He believed that the French Civil Code was superior to all other forms of law, and thus French citizens should benefit from it, wherever they were.

• The original Civil Code of France, at the third paragraph of article three, invoked the law of the citizen for questions of status and capacity. Mancini advanced the lex patriae theory further in the second half of the nineteenth century.

• The law of the flag, as a concept, was very similar to the concept of the law of the citizen, or person, of Napoleon and Mancini. See Tetley, Int'l C. of L., 1994 at pp. 8-9, 93, 185.

"lex fori" - The law of the forum.

• This is a very straight forward theory of applying This is a very straight forward theory of applying the law of the land where the award enforcing the law of the land where the award enforcing judge is sitting. judge is sitting.

• Implicit in this theory is a bias in favour of the law Implicit in this theory is a bias in favour of the law of the forum, or a "homeward trend," of the forum, or a "homeward trend," demonstrating a preference for the application by demonstrating a preference for the application by judges of local law. judges of local law.

• Though the theory is simple it may not answer Though the theory is simple it may not answer many problems of the international trade.many problems of the international trade.

Other conflict of law approachesOther conflict of law approaches

• "Lex loci contractus" - The law of the place of conclusion of the contracting. See Tetley, Int'l C. of L., 1994 at p. 303.

"Lex loci damni"

• - The law of the place where the injury occurs. In other words, if an injury appears in another country, the laws of that country governs, provided that the tortfeasor should have foreseen that the damage would occur there.

• Sect. 3126 of the Quebec Civil Code.

"Lex loci delicti"

• - The law of the place of the tort/delict.

"Lex loci solutionis"

• - The law of the place of performance of the contract.

• See Tetley, Int'l C. of L., 1994 at p. 303.

"Lex maritima" ("ley maryne")

• A body of oral rules, customs and usages relating to navigation and maritime commerce, the first elements of which may be traced back to the Rhodian Law (c. 800 B.C.), and which developed in medieval Western Europe from the ninth to the twelfth centuries as part of a wider, customary mercantile law (the "lex mercatoria" or "Law Merchant", infra), administered by merchant judges. 

• The lex maritima was gradually codified in early maritime law compilations, such as the Rôles of Oléron in the twelfth century, the Consolato del Mare in the fifteenth century and the Laws of Wisby in the sixteenth century. It underlies much of contemporary maritime law, not only in civilian countries, but even in common law jurisdictions such as England and Canada, and, in particular, may be found in the "general maritime law" (supra) of the United States.

Lex mercatoria"("law merchant")

• "  - A body of oral, customary mercantile law which developed in medieval Europe and was administered quite uniformly across Europe by merchant judges, adjudicating disputes between merchants. The lex mercatoria originally included the lex maritima (supra). In the contemporary world, some (although not all) scholars believe there exists a modern lex mercatoria, defined to include certain transnational trade usages and commercial customs recognized internationally by the mercantile community, and possibly extending to certain international conventions and even national laws pertaining to international economic relations. International commercial arbitration is frequently cited as a field in which the modern lex mercatoria is operative.

The ‘Proper Law’ Doctrine• This doctrine was developed in the English laws by

way of suggesting better aproach than the ones already existing such as lex fori, lex contractus etc.

• The proper law of the contract is the main system of law applied to decide the validity of most aspects to the contract including its formation, validity, interpretation, and performance.

• This does not deny the power of the parties to agree that different aspects of the contract shall be governed by different systems of law. But, in the absence of such express terms, the court will not divide the proper law unless there are unusually compelling circumstances.

• The Doctrine of Proper Law examines the parties' intention as to which law is to govern the contract.

• The claimed advantage of this approach is that it satisfies more abstract considerations of justice if the parties are bound by the law they have chosen.

• WHAT WE HAVE JUST NOW DISCUSSED IS THE SITUATION WHERE THE TRANSACTION / INJURY /CONTRACT HAD TOUCHED UPON MORE THAN ONE JURIDICTION.

• A DOMESTIC COURT CAUGHT IN SUCH AN INTERNATIONAL SITUATION WOULD NOT BE ABLE TO IGNORE A FOREIGN ELMENT ALTOGETHOR.

• IT WOULD THEREFORE BE NECESSARY FOR A NATION TO DEVELOP A LEGAL MECHANISM (LAW) WHICH COULD GUIDE THE COURTS.

THE CONFLICT OF LAWS.THE CONFLICT OF LAWS.

• Law of any nation is so entrenched into itself that its mingling with other foreign laws may not always happen.

• This situation is called “conflict of laws”. A nation then has to develop its own technique to handle this ‘conflict-situation’.

• This is done by articulating rules called ‘conflict of law rules’. The foreign law is thus accommodated and applied.

• The conflict of law is that part of the private law of a country which deals with cases having a foreign element. By a “foreign element” is meant simply a contract with some system of law other than the domestic law.

• The conflict of laws is a necessary part of the law of every country because different countries have different legal systems containing different legal rules, while public international law seeks to regulate relations between different Sovereign States.

• Public international law, in theory at any rate, is the same every where. But rules of the conflict of laws different from country to country.

• In a Conflicts lawsuit, one or more state laws will be relevant to the decision-making process. If the laws are the same, this will cause no problems, but if there are substantive differences, the choice of which law to apply will produce a different judgment.

• Each state therefore produces a set of rules to guide the choice of law, and one of the most significant rules is that the law to be applied in any given situation will be the proper law.

• This is the law which seems to have the closest and most real connection to the facts of the case, and so has the best claim to be applied.

• All laws, to a greater or lesser extent, are reflections of the public policies of the state that enacted them. The more important the policy to the society, the greater the claim of the relevant law to be applied. Thus, if laws exist to protect citizens, the law of the place where loss or damage is sustained might have a strong claim to apply.

International Contracts :

ARBITRATION

• THE GOOD NEWS IS THAT NO PARTICULAR LAW PREVAILS.

• THE PARTIES WOULD BE AT THE LIBERTY TO CHOSE THE LAW.

• THIS IS CALLED THE CONCEPT OF ‘CHOICE OF LAW’ IN INTERNATIONAL ARBITRATION,

• REMEMBER THAT THE CONCEPT OF CHOICE OF LAW IS NOT AVILABLE IN DOMESTIC ARBITRATION

Lex loci arbitri:::Lex loci arbitri:::

• The lex loci arbitri is the Latin term for The lex loci arbitri is the Latin term for "law of the place where arbitration is to "law of the place where arbitration is to take place“take place“

• That simply means that the law of the That simply means that the law of the place of arbitration will prevail for all place of arbitration will prevail for all purposes, purposes,

• However, such a doctrine does not However, such a doctrine does not serve the real purpose of international serve the real purpose of international arbitration.arbitration.

PARTY AUTONOMYPARTY AUTONOMY

PARTY AUTONOMYPARTY AUTONOMY

PARTY AUTONOMYPARTY AUTONOMY

THE APPLICABLE LAW: THE APPLICABLE LAW: PARTY AUTONOMYPARTY AUTONOMY

choice of law clausechoice of law clause

• A A choice of law clausechoice of law clause or or proper law proper law clauseclause in a in a contract is one in which the parties specify which law (i.e. the law of which state or nation if it only has a single legal system) will be applied to resolve any disputes arising under the contract.

choice of law: How it works?choice of law: How it works?

• As an application of the As an application of the public policy of of freedom of contract, the parties have autonomy to make , the parties have autonomy to make whatever bargain they want. Thus, in principle, the whatever bargain they want. Thus, in principle, the parties are free to nominate any law as the parties are free to nominate any law as the proper law of of their contract even though there may be no other their contract even though there may be no other connection between the substance of the obligations connection between the substance of the obligations and the law selected. However, such clauses could be and the law selected. However, such clauses could be used as a device to used as a device to evade the application of a the application of a mandatory provision of law within a relevant legal mandatory provision of law within a relevant legal system.system.

• Consequently, most states will not honour choice of law Consequently, most states will not honour choice of law clauses unless they are seen to have been included on clauses unless they are seen to have been included on a a bona fide basis. If the clause is recognized as a basis. If the clause is recognized as a good good faithfaith term, the 'forum state' must apply the nominated term, the 'forum state' must apply the nominated proper lawproper law to resolve the dispute. to resolve the dispute.

choice of law: How it works?choice of law: How it works?

• If there is no express selection of a proper law, the courts will usually take the nomination of a forum as a "connecting factor", i.e. a fact that links a case to a specific georgraphical location. For these purposes, one of the "forums" that may be selected is arbitration. Hence, the fact that the parties have chosen a state as the place of arbitration is an indication that parties may have intended the local law to apply. This indication will be weighed alongside other connecting factors. The state that has the largest number of connecting factors will be the lex causae applied to resolve the dispute between the parties. If there is a tie, the connecting factors which relate to performance will be given a greater weighting.

‘‘ENGLAND’ APPROACHENGLAND’ APPROACH

• England: the proper law of the contract is that chosen by the parties so long as the choice is bona fide and not contrary to public policy.

• If there is no express choice then efforts are made to determine the intention of the parties. Intention of the parties may be inferred by the choice of jurisdiction or place of arbitration (eg. High Court of England or London arbitration). If that does not achieve a result then the proper law is the country whose system of law the contract has the closest connection.

• To determine this issue factors such as the place of dispute resolution, the place of contracting, and the place of performance will be considered.

‘‘USA’ APPROACHUSA’ APPROACH

• United States: where there is no express choice of law then one usually will determine the proper law by “ascertaining the place of most significant contracts between the parties and the subject matter of the contract.” In other words, one would look to factors such as the residence of the parties, the place of dispute resolution, the place of contracting, and the place of performance like in England.

‘‘CANADA’ APPROACH CANADA’ APPROACH • Canada: like in England where there is an

express choice of law that will usually determine the issue. Where there is no express choice of law then the court will attempt to infer or imply a choice of law. Where that cannot be done then the court will look to the closest and most real connection. Again in determining the closets and most real connection factors like the residence of the parties, the place of dispute resolution, the place of contracting and the place of performance will be significant. In shipping cases, the port of registry and the flag of the vessel would also be considered as factors.

EXAMPLE of BRAZIL EXAMPLE of BRAZIL

• Brazilian conflict of laws rules prevent the parties to an Brazilian conflict of laws rules prevent the parties to an international commercial contract from making a free international commercial contract from making a free choice of law. The choice of forum is severely limited in choice of law. The choice of forum is severely limited in the Brazilian courts under the applicable rules of the Brazilian courts under the applicable rules of international jurisdiction. international jurisdiction.

• Brazil’s rejection of party autonomy in commercial Brazil’s rejection of party autonomy in commercial contract litigation is deeply rooted in the country’s contract litigation is deeply rooted in the country’s history and civil law jurisprudence. Yet the country’s history and civil law jurisprudence. Yet the country’s approach to conflict of laws also prevents Brazil from approach to conflict of laws also prevents Brazil from realizing its full economic potential. realizing its full economic potential.

• By forbidding choice-of-law clauses and throwing the By forbidding choice-of-law clauses and throwing the enforceability of choice-of-forum clauses into doubt, enforceability of choice-of-forum clauses into doubt, the Brazilian conflicts rules foster legal uncertainty and the Brazilian conflicts rules foster legal uncertainty and generate transaction costs that must be passed on to generate transaction costs that must be passed on to Brazilian counterparties.Brazilian counterparties.

FORUM SHOPPINGFORUM SHOPPING

• Forum shopping is the Forum shopping is the informal name given to the practice adopted by some litigants to get their legal case heard in the court thought most likely to provide a favorable judgment. Some states have, for example, become notorious as plaintiff-friendly jurisdictions and so have become litigation magnets even though there is little or no connection between the legal issues and the jurisdiction in which they are to be litigated.

FORUM SHOPPING AND FORUM SHOPPING AND CONFLICT OF LAWSCONFLICT OF LAWS

• Forum shopping in international litigation and arbitration is the product of the differences which exist in the procedural and substantive laws of countries throughout the world participating in an ever-more globalized economy.

• Generally countries are often supposed as :: arbitration friendly; award enforcement friendly etc.. It is purely a matter of legislative policy.

• Countries would want to be popular in the international arbitration as that would be reflective of the business scenario a country could provide.

• Business friendly arbitration is what a foreign investor would look for.

Forum non conveniens • Forum non conveniens (Latin for "inconvenient

forum" or "inappropriate forum") is a discretionary power of mostly common law courts to refuse to hear a proceeding that has been brought before it. The courts will refuse to take jurisdiction over matters where there is a more appropriate forum available to the parties.

• The doctrine is also used both internationally and domestically. It is an important organizing principle in the field of conflict of laws.

• A concern often raised in applications of the doctrine is forum shopping, or picking a court merely to gain an advantage in the proceeding.

• The doctrine of forum non conveniens originated in the United States in Willendson v Forsoket 29 Fed Cas 1283 (DC Pa 1801) (No 17,682) where a federal district court in Pennsylvania declined to exercise jurisdiction over a Danish sea captain sued for back wages by a Danish seaman, stating that "[i]f any differences should hereafter arise, it must be settled by a Danish tribunal."

• In Scotland, the concept is first recorded in MacMaster v MacMaster (Judgment of 7 June 1833, Sess, Scot 11 Sess Cas, First Series 685.)

• Forum selection clauses have been criticised by a minority of courts as improper attempts to divest them of personal jurisdiction over the parties. Because of this, some jurisdictions refuse to give effect to these clauses, declaring them to be void as against public policy. However, most jurisdictions now recognise and enforce forum selection clauses, so long as the parties were acting in good faith.

Public policy and choice of lawPublic policy and choice of law

• Public policy is the body of principles that underpin the operation of legal systems in each state. This addresses the social, moral and economic values that tie a society together: values that vary in different cultures and change over time. Law regulates behaviour either to reinforce existing social expectations or to encourage constructive change, and laws are most likely to be effective when they are consistent with the most generally accepted societal norms and reflect the collective morality of society.

• It is of utmost significance that the ‘choice of law’ essentially being ‘party autonomy’ is necessarily restricted by the mandatory rules and the public policy of a nation.

Which law to choose. Which law to choose.

• This is a major area in the international consultancy.

• The approach should not be casual but calculative after contemplating the factors such as (list not exhaustive):– Interim relief from the court– Intermediate challenge of the certain orders

passed by the tribunal;– Other challengeable orders; – Recognition of the award;– Enforcement of the award;

• All the above factors so far possible should be held in an arbitration friendly country.

National Thermal Power Corporation v. Singer Company (AIR 1993 SC 998)

• In this case the law chosen for the contract was held to be the applicable law i.e. The Indian Law. The reasons were : 1. the agreement contained in the arbitration clause being

governed by the Indian law;2. the exclusive jurisdiction of the courts in Delhi having

been expressly recognized by the parties to the contract in all matters arising under it,

3. and the contract being most intimately associated with India;

Matters of procedure connected with the conduct of arbitration were left to be regulated by the contractually chosen rules of the ICC to the extent that such rules were not in conflict with the public policy and the mandatory requirements of the proper law and of the law of the place of arbitration.

‘India’ Approach :(AIR 2006 SC 401 "Rite Approach Group Ltd. v. M/s.

Rosoboronexport"

• A dispute arose between the parties with respect to the amount payable to the respondent company in regard to the supply of the helicopters to Government of India in terms of the contract entered into in June, 2003.

• It was agreed that if differences and/or disputes could not be solved by both PARTIES through negotiations, they will be submitted to Arbitration Court under the Chamber of Commerce and Trade of the Russian Federation. The decision of the Arbitration Court will be final and obligatory for both PARTIES.“

• The petitioner filed a petition under Section 11(6) of the Arbitration Act, 1996 before the Indian Supreme Court and sought prayer for appointment of arbitrator in India under the Indian Arbitration Act as according to the petitioner, it apprehended that it is not likely to get justice in Russia.

• The Indian Supreme Court held that in view of the specific arbitration clause conferring power on the Chamber of Commerce and Trade of the Russian Federation, it is that authority which alone will arbitrate the matter. The Indian SC declined its jurisdiction to entertain the matter.

‘India’ Approach ::: AIR 2007 SC 2327 "NAFED v. Gains Trading Ltd."

• It was agreed by the parties that dispute shall be referred to and finally resolved by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and the venue of arbitration shall be Hong Kong.

• It was held that merely because the parties had agreed that the venue of arbitration shall be Hong Kong, it did not follow that Laws in force in Hong Kong will apply. The arbitration clause stated that the Arbitration and Conciliation Act, 1996 (an Indian Statute) will apply. Therefore, the Indian Act governed the following issues:– the appointment of Arbitrator;– the reference of dispute and – the entire process and procedure of arbitration from

the stage of appointment of Arbitrator till the award is made and executed /given effect to.

‘India’ Approach :: AIR 2007 SC 2706 " M/s. Aurohill Global Commodities Ltd., v. M/s.

M.S.T.C. Ltd."

• The ARBITRATION clause read:: Any disputes, controversies and/or claims arising out of or relating to this agreement or any modification thereto, or any alleged breach or cancellation thereof, which cannot be settled amicably between Seller and buyer, shall be settled by arbitration in London and in accordance with rules of arbitration of the Great Britain arbitration and the award in pursuance thereof shall be binding on the parties.

• The international contract was for supply of steel products. Petitioner was a company registered in Cyprus. Moreover, vide Clause 20 of the alleged contract the parties argued that the competent Court in Great Britain alone shall have exclusive jurisdiction to decide all matters including arbitration proceedings to be instituted. Reading Clauses 19 and 20 conjointly, it is clear that the procedural law application to the arbitration proceedings had to be the British Rules of Arbitration. In the circumstances, it is not possible for this Court (SC) to substitute the British Rules of Arbitration by the procedural law under the said 1996 Act.

:::S. 28::: Indian Arbitration

& Conciliations Act, 1996.

S. 28. Rules applicable to substance of dispute of a party.

(1) Where the place of arbitration is situate in India, -(a) In an arbitration other than an international commercial arbitration, the arbitral

tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;

(b) In international commercial arbitration, -– (i) The arbitral tribunal shall decide the dispute in

accordance with the rules of law designated by the parties as applicable to the substances of the dispute;

– (ii) Any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;

– (iii) Failing any designation of the law under clause (a) by the parties, the arbitration tribunal shall apply the rules of law it considers to be appropriate, given all the circumstances surrounding the dispute.

(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so.

(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.

Only Indian Law in Domestic Arbitration ????

• Under S. 28 there is a mandate to the arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. The substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force.

• This section expects the Tribunal to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction.

• If the arbitral Tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal liable to be set aside u/s. 34.

• In Dr.P.C.Rao’s commentary on the 1996 Act it is clearly stated that such a question relating to the law applicable to the substance of the dispute could not be referred to a third party or to an institution for decision.

S.28 and International Arbitration

• In Dr.P.C.Rao’s commentary on section 28, it is stated as follows:

• “Section 28 lays down the rules applicable to the substance of the dispute. It is applicable only when the place of arbitration is in India, be it domestic arbitration or international commercial arbitration.”

S.28 and International Arbitration

• In this subsection it is implicit that an international commercial arbitration, to take place in India, may be validly constituted under the Indian Act notwithstanding that the parties have left the arbitrators an extremely wide freedom to depart from the rules of any legal system.

S.28 and International Arbitration

• The subsection is capable, however, of giving rise to some difficulties of interpretation. To bring their agreement within it, the parties must expressly authorize the arbitral tribunal to decide ex aequo et bono or as amiable compositeur.

• How express is express? Presumably it is unnecessary to use the precise Latin or French phrases. Equivalent terminology in English or any other language should do. According to the glossary in Russell on Arbitration, the two phrases would appear to mean the same thing. That standard work defines Amiable Compositeurs as "arbitrators who resolve disputes without recourse to strict application of any particular law". But the qualification "strict", suggestive as it is of only a limited flexibility, rather muddies that definition. Moreover, to many people the French words are more suggestive of conciliation or mediation than of arbitration.