THE ROLE OF NATIONAL COURTS IN INTERNATION COMMERCIAL ARBITRATION
Dr. Manpreet Kaur Rajpal
Head of Department, Indore Institute of Law
The International Commercial Arbitration has become an effective platform for settling disputes and in order to become more effective, it has been accepted that arbitration needs the support of national courts. The relationship between national courts and arbitration tribunal oscillates between forced cohabitation and true partnership. The research aims the role of national courts for arbitration and examines how national courts have interfered with the process of arbitration. The paper emphasizes on the jurisdiction issues in international commercial arbitration. The paper also deals with recognition end enforcement of foreign arbitral award which is the essential aspect of the relationship between the national court and international arbitration. The paper emphasizes that whether the arbitration can resolved the disputes without the interference of the national courts.
Keywords: Arbitration, Cohabitation, Arbitral award.
“I realized that the true function of a lawyer is to unite the parties involved in a dispute. The lesson was so indelibly burnt into me that the large part of my time during the twenty years of my practice as a lawyer was occupied in bringing about private compromises of hundreds of cases. I lost nothing, there by not even money and certainly not my soul”
– Mahatma Gandhi
National court interference in international commercial arbitration is a fact of life as prevalent as the weather. The arbitration is the system of justice, born of merchants. It has been in existence for many years in one or the other form. The international commercial arbitration is the process of resolving disputes between or among transnational parties through the use of arbitrators rather than through courts. It constitutes the agreement of the parties, which is usually given via arbitration clause that is inserted into the contract and the decision emerges out is usually binding. The international arbitration has been enhanced and advanced to its modern eminence through significant conventions such as Geneva Convention of 1927, The Geneva Protocol of 1923, The New York Convention of 1958 and the UNICTRAL Model Law of 1985.
The relationship between the national court and arbitral tribunal swings between forced cohabitation and true partnership. The success of the international commercial arbitration lies in gaining a considerable degree of independence from national courts in arguendo it is the court which alone has the power to rescue the arbitration while one of the parties to arbitration seeks to sabotage it. The national court takes different forms at the different stages of arbitration process like court enforce an agreement to arbitral, support arbitration and issue pro-arbitration orders for specific performance of arbitration agreements.
Since the international commercial arbitration is the private process so the proceedings are not public and results are often confidential. As a private practice, arbitration ends with an award which can only be enforced by a national court in the enforcement state. The role of courts is to support the arbitral process not to displace it.
EARLY CONFLICTS BETWEEN INTERNATIONAL COMMERCIAL ARBITRATION AND NATIONAL COURTS
The conflicts between the national courts and international commercial arbitration could be traced to Rome, where the arbitration agreements were not entertained by the national courts. The rivalry between commercial arbitration and courts spread out in England, USA, France, and Germany. Subsequently, the English Parliament enacted the successive Arbitration Acts which persistently maintained the power of courts over arbitral proceedings and enabling a court to set aside arbitral awards.
The hostility came to an end in England with the enactment of Arbitration Act 1996, which provided the validity to arbitration agreements and empowered the court to stay proceedings of claims subject to valid arbitration agreements. Thus, supporting the arbitral process. The act also gave the recognition to arbitral tribunals to resolve the jurisdictional objections37.In France, the Napoleonic Code of Civil Procedure 1806, restricted the arbitration agreements and procedures. The code particularly made agreements to arbitrate future disputes unenforceable38.
In Germany, there was legislative support for arbitration, but the courts indicated their hostility by setting aside the arbitral awards on grounds that tribunals failed to comply with provisions of the code39. The commercial arbitration took a new form after Germany ratified the Geneva Protocol 1923. The Parliament passed the Arbitration and Conciliation Bill in 1996 through full majority from both the houses by the assent of the President. Subsequently, the Arbitration and Conciliation Act, 1996 was further amended by the Arbitration and Conciliation Act, 2015.
The Arbitration and Conciliation Act, 1996 consists of two parts where the first part comprises of New York Convention, 1958 and second part comprises of UNICTRAL Model Law. The New York Convention, 1958 on the recognition and enforcement of foreign arbitral awardswas ratified by 144 countries whereas over 60 countries adopted UNCITRAL Model Law. The Model Law, which records what are generally considered the standards and practices of international arbitration and the most appropriate national law for international arbitration40 constitutes the similar provisions as the New York Convention but expansive as to the role of courts.
The Model law was framed in order to prevent the intervention of courts in arbitral matters. Article 5 of the Model law notably limit the occasions for court interruption in arbitral matters. Thus, the article provides that, “In matters governed by this law, no court shall intervene except where so provided in this law” but the courts held that the corollary to the limitation expressed is that the court still remains able to intervene where matters of international commercial arbitration proceedings are not governed by the Model Law.
The Article 8(1) of the Model Law says that “A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.” The national laws are based on the spirit of Model Law. The national courts and arbitral tribunal work with different approaches through different jurisdictions accordingly.
The Convention on the enforcement and recognition of Foreign Arbitral Awards was done in New York on 10th July 1958. It described as the most successful treaty in private international law. The convention provides that each contracting state must recognize the agreement in writing and make sure that concerning subject matter must be capable of settlement of arbitration41, courts of contracting states, when dealing with a case in which there is a valid arbitration agreement, must “at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative, or incapable of being performed”42 and the court has the power to refuse the recognition and enforcement of awards in specified limited circumstances.
RELATIONSHIP OF NATIONAL COURTS AND ARBITRAL TRIBUNAL
“The relationship between national courts and arbitral tribunal swings between forced cohabitation and true partnership”.43 International commercial arbitration is the most effective way to resolve any transnational commercial disputes. It is the discretion on the parties to resolve the dispute either through arbitration or court litigation. The international commercial arbitration will achieve the heights of success then only when there would be a considerable degree of independence from national courts but in arguendo at the same time courts have only the power to rescue the arbitration while one of the parties of arbitration seeks to destroy it.
In 1942, the decision of House of Lords in Heyman vs. Darwins44 created an important legal fiction, namely doctrine of separability. The thesis which was used to support the doctrine of separability was that the arbitration clause constitutes a self – contained contract collaterally to the underlying contract.45 The rationale for the presumption of separability is that the parties’ agreement to arbitrate comprises of promises that are independent for the underlying contract: “the mutual promises to arbitrate form the quid pro quo of one another and constitute a separable and enforceable part of the agreement.” 46 Article 16(1) of Model Law provides that “an arbitration clause which forms a part of a contract shall be treated as an agreement independent as the other forms of the contract.”
There is the basic issue of the allocation of the competence between arbitrators and national courts to decide disputes over existence, enforceability, validity and interpretation of the international arbitration agreements. The competence-competence doctrine also includes which states that arbitral tribunal may rule on its own jurisdiction with respect to the validity of arbitration agreement. The Model law reduced judicial involvement and increase the arbitral powers. The Model law came up with four themes such as party autonomy, reduced judicial involvement, equality of treatment and increase the powers of the arbitral tribunal.
In Coppee-Lavalin SA/NV Vs. Ken-Ren Chemicals and Fertilisers Ltd 47 , Lord Mustill emphasized that whatever view is taken regarding the correct balance of the relationship between international arbitration and national courts, it is impossible to doubt that at least in some instances the intervention of the Court may not only be permissible but highly beneficial.
The article I, III and V of New York Convention provides two principles firstly, court involvement is required as support for the arbitral process and for recognition and enforcement of arbitration agreements and awards but nothing else48 and secondly, the only courts that should become involved in the arbitration process are those at the seat of arbitration or the place of enforcement.49
Model Law encapsulates court involvement in various articles such as article 8 (arbitration agreement and substantive claim before Court – stay of proceedings), article 9 (interim measures), article 11 (appointment of arbitrators), article 13 (challenge procedure), article 14 (failure or impossibility to act), article 16 (competence of arbitral tribunal to rule on its jurisdiction), article 27 (Court assistance in taking evidence), article 34 (setting aside an award) and article 35 and 36 (recognition and enforcement of awards).
No court other than court at the seat of arbitration has right to interference. There can be no basis for any court to grant an injunction on grounds of comity, a balance of convenience, or even whether an arbitration appears to be oppressive. Instead, the only concern of the court must be the validity of the arbitration agreement itself. 50 The court has the power to grant the anti-arbitration injunction, in the case of General Electric Co. v. Deutz AG51 the U.S court grant the anti-arbitration injunction to stop arbitration abroad. The court held the court should decline to follow the restrictive standard applicable to cases of anti-suit injunctions against foreign court proceedings.52
In Mitsui Engineering & Shipbuilding Co Ltd v Easton Graham Rush53, Singapore courts have affirmed that court intervention would only be appropriate to the extent such intervention is expressly sanctioned by Model Law itself. This case further illustrated that “supportive rather than an interventionist attitude of Singapore Courts when called upon to exercise interventionist powers over arbitrations”.54 The court had the power to stay the court proceedings which are pending arbitration under Section 5 of the Arbitration Act 1908. But if a stay were declined, the Court nevertheless had the power to restrain the arbitration from proceeding pending the outcome of the litigation.55
Basically, the arbitral tribunal is empowered to grant the interim measures during arbitration but sometimes there are circumstances when the parties resort to national courts for interim relief. Perhaps, tribunals have no power to bind the third party so in that case resort to national court becomes necessary for enforceable order. Thus, the crisis for which the national court issue conservatory measures are as follows measures relating to the attendance of witnesses, measures relating to the preservation of evidence, measures related to documentary disclosures, measures aimed at preserving the status quo and measures aimed at relief in respect of parallel proceedings, etc.
JURISDICTION OF NATIONAL COURTS AND ARBITRAL TRIBUNAL
When a jurisdictional objection is raised, the national court must initially decide the issue or alternatively, whether an arbitral tribunal must initially decide the jurisdictional objection raised. Different states adopt different approaches to this issue. In the United States, if a court decides that there is no valid arbitration agreement or that agreement does not apply to the parties disputes, then it will not allow the parties to arbitration instead it will allow the parties to litigate for resolving the dispute.
The allocation of competence to decide jurisdictional disputes in the United States is affected by the presumption of separability, U.S. courts hold that there is no jurisdictional challenge and that the parties’ dispute over the validity of the underlying contract must be referred to arbitration.56 U.S Supreme court held that claims challenging the legality of the parties’ underlying contract were for initial resolution by the arbitrators: “because respondents challenge the agreement, and not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract,” and “should therefore be considered by an arbitrator, not a court.”57
The Model law jurisdictions have held that only a prima-facie inquiry into jurisdiction should be conducted by the court before referring to the parties arbitration. If there is any plausible argument that a valid arbitration agreement exists, the arbitrators should be permitted initially to resolve the jurisdictional issue; only if it is clear that there is no valid arbitration agreement may a court decline to refer the parties to the arbitration and allow the claim to be litigated.58
The arbitral tribunal has the power to rule on its own jurisdiction such as competence-competence doctrine. When an arbitration for any reason becomes abortive, the court has the power to take the burden on itself in order to help the parties out of tier impasse.Olympus Superstructures Pvt. Ltd v. Meena Vijay Khetan,59 it was held that under the Arbitration and Conciliation Act, 1996, the arbitral tribunal is vested with power under section 16(1) to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of arbitration agreement.
The two main fortificationsfound under section 16 of the Act were first, competence of the arbitral tribunal to make a binding decision on its own jurisdiction, including the decision ruling on any objection with respect to the existence or validity of arbitration agreement competence2, and for that purpose 60 and second, to treat, an arbitration clause which forms part of the substantive contract, as an agreement independent of the other terms of that contract and the decision by the arbitral tribunal that the contract null and void will not ipso jure invalidate the arbitration clause – ‘autonomy of the arbitration clause’ or ‘doctrine of separability’ and survival of the arbitration clause.61
The New York convention provides discretion on the judges to deny the enforcement of a foreign award on grounds, such as award has been set aside in the country where it made whether the cause of annulment is also recognized by the law of the enforcement forum or not.62 The Article-5(e) of the New York convention states that the court has the power to exercise jurisdiction on enforcement but it cannot set aside the award; whereas domestic award can be set aside.
If we look the Indian perspective in International Commercial Arbitration then the seat for arbitration in India but at least, one of the parties is a foreign national, then such matter would be dealt under the provisions of International Commercial Arbitration and Part-I of the International Commercial Arbitration Act. However, if the seat of arbitration is outside India then it would not be dealt under Part-I rather it would come under the ambit of Part-II of the Act. Section 9 of the Act empowered the court to grant theinterim relief to the parties.
The enforcement of arbitral award becomes binding on the parties under section 35 of the act is the same as an order passed by a court of law based on the provisions of Code of Civil Procedure, 1908. In Bhatia International v/s. Bulk Trading63, the Supreme court held that Part 1 of “The Arbitration and Conciliation Act, 1996” gives effect to UNCITRAL Model Law and gives power to the court to grant interim relief even when the seat of international commercial arbitration is outside India. In Bharat Aluminium v/s. Kaiser Aluminium Technical Services (BALCO)64, the court held that part 1 will applicable only where the seat of arbitration is in India and will not applicable outside India. It was also stated by the court that no suit can be filed for interim relief in India under Part 1 for the seat of arbitration is outside India.
As to the conclusion which may be drawn from the research is that the national courts play a vital role in International Commercial Arbitration. The intervention of courts is supportive of the International Commercial Arbitration. The Arbitration and Conciliation Act, 1996 which comprised of two parts i.e New York convention and UNICTRAL Model law but the act was amended in 2015 which brought new changes in the act such as only the High courts and Supreme court to jurisdiction in relation to international commercial arbitration, etc. The focus of national courts across jurisdictions world over, with respect to international arbitration’s has been on party autonomy and limiting the role of national courts inthe arbitral process.
There were number of principles which can drove out through the involvement of national courts in International Commercial Arbitration. Firstly, despite its autonomous character, international arbitration depends on the national courts to provide support, effectiveness and assistance to arbitral process. Secondly, international arbitration depends on national courts for legitimacy; this exists as of right, based on the agreement of the parties, New York convention and arbitration process. Thirdly, once an award is declared, the courts should seek to give effect to the tribunal’s award because it is the recognition of the autonomous character of arbitration. The last but not the least fourthly, anti-suit injunctions, which aim to restrain a party from resorting the national court.
The recognition and enforcement of Foreign Arbitral Award is the final aspect of the relationship between the national courts and international commercial arbitration. Article 5 of the New York convention enumerates the grounds for resisting the recognition and enforcement foreign arbitral award. There have been occurred many arguments against the court’s discretion in relation to the recognition and enforcement of foreign award solely because of the fact that court in each contracting state is influenced by the legal traditions and laws of that country and therefore may exercise discretion in a different way from other country. If any of the defenses enumerated in Article 5 of the convention established then courts may refuse the recognition and enforcement of the foreign award.
Hence, the role of national courts at some instances may not be permissible but is highly beneficial.