The Position of Composite Reference to Arbitration in India

INTRODUCTION

Arbitration is an alternative dispute resolution method initiated by the parties at dispute. The dispute arises out of some contractual or other relationship existing between two parties. In arbitration, the dispute is resolved by a neutral third person or parties. When a third neutral party is appointed, he is called as sole arbitrator. Whereas, “arbitral tribunal” means a sole arbitrator or a panel of arbitrators.[i] The arbitrator gets its power from the agreement between the parties.[ii] Existence of arbitration agreement between the parties is a pre-condition for arbitration proceedings to take place. The parties' arbitration agreement might be in the form of a separate contract or it can be included in the principal contract as an arbitration clause.[iii]

The England court in Collins v. Collins,[iv] case held that “An arbitration is a reference to the decisions of one or more persons either with or without an umpire, a particular matter in difference between the parties.” In India, arbitration has been defined under S.2(a) of the Indian Arbitration and Conciliation Act, 1996 as “any arbitration whether or not administered by a permanent arbitral institute.”[v]

SAME PARTY DISPUTE

The traditional concept that arbitration is a dispute settlement mechanism between two parties does not sustain in the modern world situations anymore. Various international business transactions now involve themselves in complicated contracts existing either between the same parties or different parties and each distinct contract would contain a specified dispute resolution procedure that might be different than other contracts. This leads to unnecessary delay of arbitral award. Hence, in cases concerning same or similar issues emerging out of one underlying transaction it would be efficient and economical to resolve these related issues emerging out of single event in a single arbitration process.

These situations generally arise in huge construction projects. Typically, the employer enters into a construction contract with the principal contractor, who then engages into multiple additional contracts with suppliers and subcontractors. Because they are all tied to the same project, these contracts will have a back-to-back effect in terms of liability. However, it's almost certain that they'd each have their own set of provisions in terms of dispute resolution, choice of law, and so on.[vi]

PRECONDITIONS FOR JOINT PROCEEDINGS

The hon’ble Supreme court in the case of P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd[vii] held that in order to initiate joint arbitration proceeding. The party (in this case A) must have a separate arbitration clause or arbitration agreement with that party/parties (in this case party B and party C) then only A can settle his claims against B and C in joint arbitration. Otherwise, he cannot include non-signatory parties in the proceedings of arbitration.

The Supreme Court of India recognised the notions of "composite transaction" and "composite performance" as prerequisites for making a "composite reference" to arbitration in the Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc[viii] case and in circumstances where:

i. A single economic transaction is involved

ii. Contracts that include a main contract and an ancillary contract.

iii. When the doctrine of "group of companies" can be used.

The group of companies doctrine means, “whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement.”[ix]

This case also introduced a test to determine whether composite reference of arbitration proceedings can be done. The court stated that when the contracts are interrelated and interdependent, and the parties have stated a common intention to commit both signatories and non-signatories to a composite arbitration, the Chloro Controls test applies. Further, in those cases only composite reference be performed.

INTERNATIONAL LAW

Article 9 of the ICC Arbitration Rules[x] expressly states that claims resulting from or related to several contracts may be brought in a single arbitration, regardless of whether they are brought under one or more arbitration agreements. Article 14(1) of the Stockholm Chamber of Commerce's (SCC) 2017[xi] Arbitration Rules expressly permits the lodging of claims arising out of or in connection with multiple contracts in a single arbitration. Article 14 of the 2015 China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules[xii] states that if the following criteria are met, a claimant may begin a single arbitration addressing disputes arising out of or in connection with several contracts:

· Contracts are linked and involve the same parties as well as similar legal relationships;

· disputes occur from the same transaction or sequence of transactions;

· and arbitration agreements are same or well matched.

RECENT JUDICIAL TRENDS

In the case of Duro Felguera, SA v. Gangavaram Port Ltd,[xiii] the Supreme Court decided whether a composite reference to arbitration can be made in the situation of multiple agreements. The respondent, Gangavaram Port Ltd (GPL), awarded tender work to Duro Felguera Plant, a Spanish firm, and its Indian subsidiary, M/s Felguera Gruas India (P) Ltd, in this case (FGI). The original contract was split up into five separate contracts. Duro Felguera Plant had one contract, while FGI had the remaining four. Each of these five contracts had its own arbitration clause, and the parties signed a tripartite Memorandum of Understanding.

When the dispute emerged, GPL argued in front of the Hon'ble Court that a single arbitration panel should be established to resolve disputes arising from all five contracts. The Supreme Court decided that the five individual contracts had independent existence with five different arbitration clauses and that a composite reference was not possible because there was no interlinking, interdependence, or intermingling of these contracts. Later, in Cheran Properties Ltd. v. Kasturi And Sona. Ltd. And Ors.,[xiv] the Supreme Court ruled that the Duro Felguera decision does not apply in circumstances where the chloro controls test is passed.

CONCLUSION

Joint arbitration proceedings is an efficient and more practical way to settle the dispute between multiple party, multiple contracts. The Indian courts initially restricted the scope of joint arbitration only till situations where there is a distinct arbitration clause between all the parties in their respective contracts.[xv] But later on, the hon’ble Supreme court in the Chloro controls case declared that even non signatories can also be subjected to arbitration in absence of prior consent. But it shall be done in exceptional cases.

Internationally, principle of single arbitration is duly recognized under ICC arbitration rules, CIETAC arbitration rules etc., While, In India the Supreme court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., upheld the principle of making a composite reference to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996 before a single Arbitral Tribunal to prevent redundancy of proceedings.

Regardless of the fact that multiparty proceedings are efficient. They seldom infringe the confidentiality of arbitration proceedings by introducing non-signatories to the proceedings. Furthermore, such proceedings are complex and time consuming because involvement of additional parties means drafting of more intricated submissions.[xvi]

Multi-contract and multi-party disputes are likely to pose a number of similar factual and legal concerns. It precludes the possibility of various decision makers in different proceedings arriving at conflicting conclusions or giving contradictory relief.[xvii] The decisionmaker can gain a comprehensive and holistic knowledge of the parties' transaction and liabilities when related factual and legal concerns are heard simultaneously. This, in turn, offers a framework for more well-informed decisions and improves decision-making quality.

FOOTNOTES

[i] The Arbitration and Conciliation Act, S.2 (1), (1996).

[ii] RENE DAVID, ARBITRATION IN INTERNATIONAL TRADE (1st edn. Deventer ; Antwerp : Kluwer Law and Taxation, 1985).

[iii] Nana Adjoa Hackman, Arbitration In India: The Process And The Problems With A Special Focus On International Commercial Arbitration, (Dec. 24, 2021, 9:29 PM), https://www.international-arbitration-attorney.com/wp-content/uploads/arbitrationlawcepmlp_car13_5_612306438.pdf

[iv] Collins v. Collins, 1858 28 LJ Ch 184: 53 ER 916.

[v] The Arbitration and Conciliation Act, §2 (a), Act 26, Acts of Parliament, 1996 (India).

[vi] ALAN REDFERN & MARTIN HUNTER, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION (4th Ed. Sweet & Maxwell, 2004).

[vii] P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594.

[viii] Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.

[ix] Ibid.

[x] 2021 Arbitration Rules, International Chamber of Commerce (ICC), (Dec. 25, 2021, 3:31 PM), https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/

[xi] Arbitration Rules Of The Arbitration Institute Of The Stockholm Chamber Of Commerce, (Dec. 25, 2021, 3:31 PM), https://sccinstitute.com/media/1407444/arbitrationrules_eng_2020.pdf

[xii] China International Economic and Trade Arbitration Commission CIETAC Arbitration Rules, (Dec. 25, 2021, 7:00 PM), http://www.cietac.org/Uploads/201902/5c6148b100105.pdf

[xiii] Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.

[xiv] Cheran Properties Ltd. v. Kasturi & Sons Ltd., (2018) 16 SCC 413.

[xv] P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594.

[xvi] Gary Born & Wilmer Hale, Managing Multiplicity in Multi-Party And Multi-Contract Arbitrations, (Dec. 26, 2021, 7:00 PM), https://www.expertguides.com/articles/managing-multiplicity-in-multi-party-and-multi-contract-arbitrations/ARIKLLSH.

[xvii] Supra note 2