dispute resolution and governing law clauses...

Dispute resolution and governing law clauses in India-related commercial contracts

3Dispute resolution and governing law clauses in India-related commercial contracts

This guide is primarily intended to assist in-house counsel who handle India-related commercial contracts on behalf of non-Indian companies and who need to have a practical understanding of the nuances of drafting dispute resolution and governing law clauses in the Indian context.

Our aim is to give a practical introduction to:

• whatworksandwhatdoesnot;

• trapstoavoid;and

• practicaldraftingsolutions.

This issue is important: dispute resolution and governing law clauses in India-related contracts need to be tailored to reflect the nuances of the Indian legal system. Model form clauses which are perfectly effective in other jurisdictions maynot(withoutamendment)worksatisfactorilyintheIndiancontext.Apartyto an India-related agreement containing a non-India specific dispute resolution clause may find itself – contrary to its expectations and intentions – embroiled in lengthy litigation before the Indian courts. Given that resolving a dispute in theIndiancourtscantakeadecadeormore,timespentonsecuringeffectivedispute resolution and governing law clauses will invariably be time well spent.

The guide has two sections:

A.Dispute resolution clauses;and

B. Governing law clauses.

Properly drafted contracts of course ought to have both types of clauses.

Remember that this guide is just an introduction and not a substitute for legal advice and the exercise of informed judgment in relation to particular situations. Eachclauseshouldbecarefullydraftedtakingintoconsiderationthelikelytypesofdisputes,theexigenciesofagivensituationandtheapplicablelaws.Thereare many sector-specific and deal-specific issues which justify departure from thegeneralprinciplessetoutinthisguide.However,wehopethattheguideishelpfulasaframeworkforfindingworkablesolutions,decidingwhentocompromiseandwhentostandfirm,andspottingwhenanissuehasarisenonwhich advice is required.

Inthisguide,weusetheshorthand“offshore”tomeanoutsideIndiaand“onshore”tomeaninsideIndia.

Theguideisuptodateasof13April2012.

Introduction

4 Dispute resolution and governing law clauses in India-related commercial contracts

Wesuggestfivekeydraftingprinciples:

(1) agree arbitration with an offshore seat1wherepossible;

(2) understandthedifferencesbetweentheprincipaloffshorearbitrationoptions;

(3) inoffshorearbitrationclauses,specificallyexcludetheapplicationofPartIofthe(Indian)ArbitrationandConciliationAct1996(the“Indian Arbitration Act”);

(4) ifoffshorearbitrationisnotpossible,optforinstitutional(notad hoc) arbitrationinIndiaandinsistonaneutralchairman,or–asalastresort–agreetoarbitrationinIndiaundertheUNCITRALRules,specifyaninternational appointing authority and insist on a clause requiring that the chairmanorsolearbitratorbeofneutralnationality;and

(5) keepitsimple.

Principle (1): agree arbitration with an offshore seat where possible

Offshore arbitration is usually the best dispute resolution option. Neither litigation (onshoreoroffshore),noronshorearbitration,aretypicallyadvisable:

(i) Litigation in India:Litigation2 before the Indian courts is not usually a good option.3Whilstthejudiciaryisprofessionalandindependent,delaysareendemic,with timelines of ten years or more in obtaining a final judgment not uncommon. Further,comparedtojurisdictionssuchasEngland,Indiancourtshavemuchless experience in adjudicating complex commercial disputes.

(ii) Offshore litigation: Whilst offshore litigation may be preferable to onshore litigationdependingonthecourtschosen(assuming,ofcourse,thattheIndian party is prepared to accept that a foreign court should have exclusive jurisdiction),partiesarelikelytofacesignificantchallengesin:(a)enforcingforeignjurisdictionclauses;and(b)ensuringthatforeignjudgmentsarerecognised and enforced in India.

Indian courts do not consider exclusive jurisdiction clauses to be determinative4,and have occasionally disregarded such clauses on the vaguely-defined ground thatitwasinthe“interestsofjustice”todoso.Secondly,onlycertain“decrees”pronouncedbysuperiorcourtsinafewcountriesrecognisedas“reciprocatingterritories”areentitledtorecognitionandenforcementunderIndianlaw.Ofthe twelve territories5thathavebeennotifiedas“reciprocatingterritories”,onlyEnglandandSingaporefindaplaceamongthecommonoffshorejurisdictions.Decrees pronounced by courts in other offshore jurisdictions would not be

A.Disputeresolutionclauses


recognisedandenforcedbytheIndiancourts.Further,thegroundsforrefusingenforcement of foreign judgments are wider6 than those for non-enforcement of arbitralawards,andIndiancourtshaveoftenbeenreluctanttoenforceforeignjudgments without subjecting them to some measure of scrutiny on the merits.

(iii) Arbitration in India: Onshore arbitration conducted under the auspices of one of the major international arbitral institutions (see Principle (4) below) isabetterchoicethanlitigationbeforeIndiancourts,butstillsuffersfromanumber of shortcomings when compared with the standards generally accepted in international arbitration. Onshore arbitrations are especially vulnerable to excessive judicial intervention by the Indian courts.7 The Indian courts have demonstrated a willingness to reopen onshore awards based on a very broad definitionof“publicpolicy”.8 Ad hoc arbitration in India is best avoided because it allows greater scope for Indian court intervention and subsequent delay – for example,ifonepartyfailstoappointanarbitrator,itcantakeoverayearfortheIndiancourtstoappointthatarbitratorandthecourtsoftenembarkonanenquiry into the merits at this stage.9

(iv) Offshore arbitration:Bycontrast,offshorearbitrationwillgenerallyprovidea neutral forum for the resolution of disputes and is often acceptable to both Indian and foreign parties.10Indiancourtsgenerallyrespect,andenforce,clausesprovidingforoffshorearbitration.IndiahasratifiedtheConventionontheRecognitionandEnforcementofForeignArbitralAwards(the“New York Convention”),whichprovidesasuperiorregimefortheenforcementofforeignarbitralawardsthanthatwhichappliestoforeigncourtjudgments.(Thatsaid,there remain some concerns in relation to enforcement – see Principle (3) below.)

Principle (2): understand the difference between offshore arbitration options

Theseatorplaceofarbitrationisimportant,becauseitdictatesthelegalframeworkunderlyingthearbitration(inrelationto,forexample,thegroundsonwhich the arbitral award may be challenged or appealed). Neutral fora that are currentlypopularincludeLondon,Singapore,Paris,GenevaandStockholm.

The best option in the Indian context is usually one of:

• LCIAorICCarbitrationinLondon;

• SIACorICCarbitrationinSingapore;and

• ICCarbitrationinParis.


EachofLondon,SingaporeandParishasarbitrationlawsandcourtswhicharebroadlysupportiveofarbitrationandhavewellestablished,reputedarbitrationinstitutions.

Other alternatives sometimes seen in the Indian context include: (i) ad hoc arbitration inLondonorParis;and(ii)institutionalorad hoc arbitration in other major European arbitrationcentres(eg,Geneva,ZurichandStockholm).WiththerecentinclusionofChinainthelistofcountriesnotifiedintheOfficialGazetteasareciprocatingterritoryforthepurposesofenforcementundertheregimeoftheNewYorkConvention,HongKongislikelytoemergeinthecomingyearsasanotherneutralforumpartiesmay wish to consider when selecting a seat for India-related arbitrations. Most other arbitration alternatives are either impractical or undesirable in the Indian context.

IndianpartiesareoftenmostcomfortablewitharbitrationinLondonorSingaporeperhapsbecauseofIndia’shistoricaltieswithEnglandandtheCommonwealthandthesimilaritybetweenthebasictenetsoftheIndian,EnglishandSingaporelegalsystems.SIACarbitrationinSingaporeisincreasinglypopularwithIndianparties.Inourexperience,IndianpartiesarereluctanttoagreetoarbitrateintheUSA.

Principle (3): in offshore arbitration clauses, specifically exclude the application of Part I of the Indian Arbitration Act

Most national arbitration laws distinguish between the powers of the national courts inrelationtoarbitrations:(i)withtheirseatsinthejurisdiction;and(ii) withtheirseatsabroad.Typically,thenationalcourts’powersinrelationtoforeignarbitrationsarelimited to issues such as enforcement and the grant of interim relief in support of the arbitration.Thecourtsarenot,therefore,abletointerveneundulyinaforeignarbitration–theycannot,forexample.setasideforeignarbitrationawardsorappointarbitrators(or otherwise interfere in the constitution of the tribunal) in foreign arbitrations.

InIndia,however,thepositionis(potentially)different.TheIndianSupremeCourthas held that the Indian courts may exercise their powers under Part I of the Indian ArbitrationActeveninrelationtoarbitrationswiththeirseatoutsideIndiaunless the parties provide that Part I does not apply.11 This considerably extends the scope fortheIndiancourtstointerfereinoffshorearbitrations.Underthislineofauthority,theIndiancourtsareempoweredto,forexample:(i)re-openandpotentiallysetasidearbitralawardsrenderedinoffshorearbitrations;and(ii)appointarbitratorsinanoffshorearbitration.In2008,theSupremeCourtofIndiaheldthatunlesstheparties either expressly or impliedly exclude the application of Part I of the Indian ArbitrationAct(selectionofanoverseasseatalonedidnotamounttoanimpliedexclusion),thatPartshallbedeemedtoapply,andthecourtsshallhavethepowerto intervene in an international arbitration as if it were a domestic arbitration.12


Note however that where the agreement is between Indian entities only (which may include the Indian subsidiary of an overseas parent company) the Indian courts have held that the parties may not contract out of Indian law. It is not clear if such a restriction prevents Indian entities from excluding Part I of the IndianArbitrationAct,butthereisarealriskthatsuchanexclusionmaynotberecognised by the courts.

Inrecentyears,theIndiancourtshaveshownawillingnesstoexcludetheapplicabilityofPartIoftheIndianArbitrationAct,evenwhenpartieshavenotexpresslysoprovided,when,forexample,thepartieshavechosenaforeignseatfor the conduct of the arbitration and a foreign law to govern the contract or even just the arbitration agreement.13

Sincetherecognitionofsuchan“impliedexclusion”ofPartIoftheIndianArbitrationActwillultimatelydependonthefactsofthecaseandtheexerciseofdiscretionvestedwiththejudge,itisdesirabletoexpresslyexcludetheapplicabilityofPartIoftheIndianArbitrationActinanyoffshorearbitrationclause.

Inthiscontext,adraftingpracticehasdevelopedtoseektocarveoutsections9and27fromtheexclusionofPartI,inorderthatthereliefsofferedbythosetwosections might continue to be available to the parties.

• Section9oftheIndianArbitrationActallowstheIndiancourtsthepowertograntinterimmeasuresinsupportofanarbitration.Thiscouldbeuseful,forinstance,incaseswhereyoumightwanttoseekurgentreliefagainstan Indian counter-party or to restrain the sale of assets located in India. On theotherhand,thiscouldpotentiallybedetrimental.InterimordersinIndiaare often obtained initially on an ex parte basis and can remain in force foraconsiderableperiodoftime.Youshouldconsider,giventhespecificcircumstancesofyourcase,whetheritwouldbebeneficialtoretaintherighttoapproachtheIndiancourtsforinterimrelief,orwhetheritwouldbebetterto exclude the application of Part I altogether.

• Section27oftheIndianArbitrationActenablesanarbitraltribunalorapartytoseekassistancefromtheIndiancourtsinobtainingevidence.Thiscouldbeuseful,forexample,whereyoumightwanttogainaccesstoadocumentlocatedinIndiaorexamineawitnessinIndianterritory,especiallyincircumstanceswherethecounterpartyisreluctanttocooperate.Inpractice,giventhedelaysendemicinmanyIndiancourts,itmaybedifficulttoobtainanorderonanopposedapplicationunderSection27intimetobeofuseinanoffshorearbitration.

EvenwiththeexclusionofPartIoftheIndianArbitrationAct,someconcernsarelikelytoremaininrelationtoenforcement.Inarecentdecision,theIndianSupremeCourt


suggested that even offshore awards could be reviewed under a broad approach to “publicpolicy”objections(whichcouldincludesituationswhereanarbitraltribunalisalleged to have applied the law erroneously to the facts of the dispute).14 This ruling has introducedanelementofadditionaluncertaintyandislikelytolengthenthetimeframefor enforcing an offshore award in India.15Moreover,youshouldkeepinmindthatPartIIoftheIndianArbitrationAct,whichgovernstheenforcementofNewYorkConventionawardsinIndia,onlyappliestoawardsrenderedinjurisdictionsnotifiedbytheIndianGovernmentasjurisdictionsinwhichtheNewYorkConventionapplies.Whilstmostofthemajorinternationalarbitrationcentresliewithinsuchjurisdictions(including,sinceApril2012,ChinaandHongKong),therearestillcertainexceptionssuchastheUAE.Therefore,careshouldbeexercisedwhenchoosingaseatforIndia-relatedinternational arbitrations to avoid difficulties at the enforcement stage.

Principle (4): if offshore arbitration is not possible, opt for institutional (not ad hoc) arbitration in India and insist on a neutral chairman

Foreign parties sometimes find that it is commercially necessary to agree to a demand from the Indian party that disputes be resolved in India. If you find yourselfinthatsituation,arbitrationinIndiaremainspreferabletoIndianlitigation,but you should insist in return on:

1. institutional (not ad hoc) arbitration under the auspices of one of the major internationalinstitutions(astowhich,seePrinciple(2)above–anyoftheinstitutions listed there should be comfortable administering an arbitration with its seat in India). We recommend avoiding (at least for now) the Indian arbitrationinstitutionsotherthanLCIAIndia(below).

2. whereoption(1)aboveisnotacceptable,attheminimum,insistonthearbitrationbeinggovernedbytheUNCITRALRules(whicharedesignedforuseinad hoc arbitrations) and specify the appointing authority. It is also recommended that the arbitration clause expressly specify that the sole or presiding arbitrator (in a tribunal of three) must be of a nationality different from that of the parties to avoid the possibility of a local majority being appointed to the tribunal.

Evenoption(1)aboveisnotideal,butisworthatleastconsideringasacompromiseifyouareconvincedthatthepointwillotherwisebeadeal-breaker.

InApril2009,theLondonCourtofInternationalArbitration(LCIA)establishedanLCIAcentreinIndia,basedinNewDelhi(“LCIA India”).WiththepublicationofitsRulesinApril2010,LCIAIndiaisnowafullyoperationalarbitrationcentreandislikelytoprovideanimportantalternativeforarbitratingIndia-relateddisputes.16


Principle (5): keep it simple

InIndia,aselsewhere,itisadvisablenottoover-complicatearbitrationclauses.Adoptingtherelevantarbitralinstitution’smodelformclause(withamendmentswherenecessary),precisedraftingandavoidingover-complicationscanhelpcontracting parties navigate away from practical troubles in relation to the following areas in India-related contracts:

1. Escalation clauses

Clausesprovidingforthepartiestotakecertainstepsbeforeinitiatingarbitrations(suchasmeetingsatacertainlevel),oftencalled“escalationclauses”,aretobe approached with caution in India-related contracts because they can cause significant delay whilst (as is often the case) not realising the objective of any meaningful negotiations.

Ifyouconsiderthatsuchaclauseisdesirable,orifacounterpartyinsists,thenbe aware that such a clause may prevent initiation of arbitration until the time periodssetoutintheclausehaveexpired–andwiththatinmind,maketherelevant periods short and clear.

2. Clauses specifying the qualifications of the tribunal

Itisgenerallynotrecommendedtoimpose,inanarbitrationclause,specificqualificationsthatthearbitratorsmustfulfil(inparticular,aconditionthatonlyretiredjudgesoftheIndianSupremeCourtorthevariousIndianHighCourtsbeappointed to the tribunal). This is because such restrictions operate to reduce thepoolofavailablearbitrators,oftencausingseriousharmtoyourinterests.

3. The submission of the dispute to arbitration

Thearbitrationclausemustcontainaclearagreementtoarbitrate.Agreementscontaininganarbitrationclauseshould,ofcourse,notalsoincludeajurisdictionclausereferringtoaparticularstate’sdomesticcourts.

Relatedtothisisadraftingpractice,commoninIndiancommercialcontracts,tospecify a particular Indian court to have supervisory jurisdiction over an arbitration seatedinIndia(forexample,becausethatcourtisconsideredmoreefficientthan other Indian courts that might be approached by a party in the event of an arbitration being commenced or threatened). While such a selection can be beneficial,caremustbetakentoensurethatthejurisdictiongrantedtothecourtdoesnotcutacrosstheparties’clearelectiontoarbitratetheirdisputes.


Itis,ofcourse,advisabletoincludeagoverninglawclauseinanycontract.

Indian contract law is largely similar in content to principles of English contract law,albeitwithsomespecialrules(especiallyinrelationtocontractswherethegovernment is the counterparty).

Whilst non-Indian parties will often prefer to choose another legal system for reasonsoffamiliarity,thecontentofIndiancontractlawis,broadlyspeaking,within the normal expectations of most non-Indian parties and can usually be agreed to as part of a wider compromise.

We suggest that non-Indian parties consider the following general approach:

1. First,considerwhetherIndianlawisrequired(seebelow).

2. Ifitisnotrequiredthen,ifyoucandosoasamatterofcommercialbargainingpower,chooseanon-Indianlawwithwhichyouarefamiliarandcomfortable.

3. If you are obliged to choose Indian law (whether under a legal requirement to do so or as a matter of commercial bargaining power) ensure that you haveaqualifiedpersonreviewthecontracttoensurethatittakesaccountof areas where Indian contract law differs from the contract law system(s) with which you are familiar.

The restrictions imposed by Indian law on choice of governing law

ThestartingpointisthatIndianlawwillrespecttheparties’choiceofgoverninglaw,subjecttoafewimportantcaveats:

1. Indian courts can invalidate a choice of law clause if they perceive it as beingopposedtoIndian“publicpolicy”.17 If the court decides that a foreign law has been chosen as the governing law to avoid or evade provisions ofmandatoryIndianlaws,thenthechoiceoflawclausemayberuledineffective on the basis that it is opposed to Indian public policy.

2. Ina2008decision,theIndianSupremeCourtappearstohavesetdownarulethat,asamatterofIndianpublicpolicy,Indiannationalscontractingbetween themselves are not permitted to contract out of the application of Indian law.18ThisruleevenextendstocompaniesincorporatedinIndia,butwhose“centralmanagementandcontrol”islocatedoutsideIndiasuchas,forinstance,wholly-ownedsubsidiariesofforeigncompanies.

B. Governing law clauses


Onanarrowinterpretation,thismerelyre-affirmsthatIndianarbitrationtribunals sitting in a domestic arbitration may not apply a foreign governing law to a contract in a dispute between two Indian parties. On a broader interpretation,however,thisdecisionrepresentsauthoritythatIndianpublicpolicy precludes Indian nationals (including wholly foreign owned Indian incorporated subsidiaries) from contracting out of Indian law unless they arecontractingwithaforeignparty,evenifanydisputesundertherelevantagreement will be resolved by arbitration outside of India. If this broader interpretationisadopted,itraisesthepossibilitythattheIndiancourtscould refuse to enforce an award rendered by an arbitration tribunal seated outside of India if that tribunal (pursuant to the relevant governing law clause in a contract between solely Indian nationals) applied a foreign law.

Thereis,therefore,anelementofuncertaintyastotwoIndianparties’freedomtochoosea“foreign”governinglaw.Untilfurtherclarificationbecomesavailable,giventhesimilaritiesbetweenEnglishandIndiancontractlaw,itwouldbeprudent to opt for Indian law governing law clauses in contracts between exclusively Indian parties (even where one or more of those parties is wholly owned by a foreign investor).


Appendix A

Recommended arbitration clauses

Below are suggested arbitration clauses providing for some of the most commonorappropriatechoicesseeninIndia-relatedcontracts,namely:

(a) LCIAarbitration;

(b) LCIAIndiaarbitration;

(c) SIACarbitration;

(d) ICCarbitration;and

(e) UNCITRALarbitration

User’s guide

1. The clauses are all based on the standard clause and rules for the relevant institution but incorporate certain amendments which we suggest for your consideration.

2. Theyallapplytheinstitution’srulesinforceatthedateofarbitration.19 It is also acceptable to opt for the rules in force at the date of the contract.

3. Alwaysreviewthemostuptodateversionoftherelevantarbitrationrules(available on the various websites cited below) before drafting or agreeing to an arbitration clause providing for the application of those rules.

4. Alwaysconsiderwhetherthereisanypotentialforadisputetoinvolvemorethantwopartiesormorethantwocontracts.Ifthereis,youshouldconsiderseekingexpertadviceondraftingasuitablemulti-partyormulti-contractarbitration clause (a technical matter of some subtlety).

5. Three arbitrators are generally recommended for all contracts except for thoseinwhichanydisputesarelikelytobeoflowvalue,inwhichcaseasole arbitrator may be considered. This is because a three member tribunal allows the parties a greater say over constitution of the tribunal and generally improves the quality of the tribunal (although opting for a sole arbitrator does usually reduce the cost of any arbitration and may help expedite the process).

6. Inallcasesofoffshorearbitration,excludetheapplicationofPartIofthe

Appendices


IndianArbitrationActsubjecttoanyofthecarveoutsdiscussedaboveinPrinciple (3).

LCIA arbitration20

Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.

The number of arbitrators shall be [one/three].

Each party shall nominate one arbitrator, and the two arbitrators nominated by the parties, or appointed by the LCIA Court in the absence of such nomination, shall within [15/30] days of the appointment of the second arbitrator agree upon a third arbitrator who shall act as Chairman of the Tribunal. If no agreement is reached within that period, the LCIA Court shall appoint a third arbitrator to act as Chairman of the Tribunal. [Include only where there are three arbitrators]

The seat or legal place of arbitration shall be [City, Country].

The language to be used in the arbitral proceedings shall be [English].

The parties agree to exclude (for the avoidance of any doubt) the applicability of the provisions of Part I of the Indian Arbitration and Conciliation Act 1996 [save and except Section 9 and Section 27 thereof] to any arbitration under this Clause. [Include only where the place of arbitration is outside India]

LCIA India arbitration21

Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA India Arbitration Rules, which Rules are deemed to be incorporated by reference into this clause.


Each party shall nominate one arbitrator, and the Chairman of the Tribunal shall be selected by the LCIA Court22. [Include only where there are three arbitrators.]


The seat or legal place of arbitration shall be [City, Country].

The language to be used in the arbitration shall be [English].

The parties agree to exclude (for the avoidance of any doubt) the applicability of the provisions of Part I of the Indian Arbitration and Conciliation Act 1996 [save and except as provided for in the LCIA India Arbitration Rules] to any arbitration under this Clause. [Include only where the place of arbitration is outside India]

SIAC arbitration23

Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in [Singapore] in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”) in force at the date of applying for arbitration, which rules are deemed to be incorporated by reference in this clause.


Each party shall nominate one arbitrator, and the two arbitrators nominated by the parties (or appointed by the Chairman pursuant to the SIAC Rules as the case may be) shall within [15/30] days of the appointment of the second arbitrator agree upon a third arbitrator who shall act as the Chairman of the Tribunal. If the third arbitrator has not been agreed within that period, the third arbitrator shall be appointed by the Chairman. [Include only where there are three arbitrators]

The language of the arbitration shall be [English].


ICC arbitration24

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.



Each party shall nominate one arbitrator, and the two arbitrators nominated by the parties shall within [15/30] days of the appointment of the second arbitrator agree upon a third arbitrator who shall act as President of the Tribunal. [Include only where there are three arbitrators]

The seat or legal place of the arbitration shall be [City, Country].



UNCITRAL arbitration

Where you have opted for ad hocarbitrationundertheUNCITRALRules,(seePrinciple (4) above) you should provide as follows:

Any dispute, controversy or claim arising out of or relating to this contract or the breach, termination or invalidity thereof shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules.

The appointing authority shall be [insert neutral appointing authority located outside of India or LCIA India].


The [sole/presiding] arbitrator shall be of a nationality other than those of the parties].

The place of arbitration shall be [City, Country].




Appendix B

Governing law clause

ThisAgreementandanydisputeorclaimarisingoutoforinconnectionwithitoritssubjectmatter,existence,negotiation,validity,terminationorenforceability(includingnon-contractualdisputesorclaims)shallbegovernedby,andconstruedinaccordancewith,thelawsof[].

User’s guide

1. It is sufficient to simply add the name of the relevant legal system in the squarebracketsabove.

2. Avoiderrorssuchas“thelawsoftheUK”or“Britishlaw”(use“thelawsofEngland”or“thelawsofEngland&Wales”ifthatiswhatisintended)or“thelawsoftheUSA”(use“thelawsofNewYork”orwhicheverotherstatelawis desired).


Nicholas Peacock,partner,London T:+442074662803 M:+447809200087 [email protected]

Alastair Henderson,partner,Singapore T:+6568688058 M:+6591790907 [email protected]

Justin D’Agostino,partner,HongKong T:+85221014010 M:+85290870603 justin.d’[email protected]

Murray Rosen QC,HeadofAdvocacyUnit,London T:+442074662262 M:+447717834964 [email protected]

Ann Levin,partner,London T:+442074662398 M:+447795050090 [email protected]

Chris Parker,partner,London T:+442074662767 M:+447515783552 [email protected]

Donny Surtani,seniorassociate,London T:+442074662216 M:+447809200736 [email protected]

Vikas Mahendra,associate,Singapore T:+6568688059 M:+6596666347 [email protected]

Contacts

Dispute resolution and governing clauses in India-related commercial contracts18

1. Theseatorplaceofanarbitrationisalegalconcept,andshouldnotbeconfusedwiththevenueoforalhearings(whichneednotnecessarilytakeplaceintheseat,althoughtheyoftendo).

2. i.e.resolvingthemeritsofacommercialdisputeinthecourtsystem.Evenwitharbitrationonemayhavetoengagewiththecourtsystemincertainlimitedcontexts;eg,attheenforcementstage,whichstillsometimescausesproblemsinIndia.However,thereisabigdifferencebetween resolving the merits of a dispute in court and enforcing in court.

3. TheGovernmentofIndiahasannouncedplanstoestablishfast-trackcommercialcourtsacrossthecountrywhich,ifsuccessfullyimplemented,mayservetoreducethetimetakentoresolve business disputes.

4. Medi Entertainment Network v WSG Cricket Pte Ltd,(2003)4SCC341.

5. The territories notified by the Government of India as reciprocating territories are the United Kingdom,Aden,Fiji,RepublicofSingapore,FederationofMalaya,Sikkim,TrinidadandTobago,NewZealand,HongKong,PapuaNewGuinea,BangladeshandtheUnitedArabEmirates.

6. Underthe(Indian)CodeofCivilProcedure1908,enforcementofaforeignjudgmentwouldberefusedifthejudgment:(a)hadnotbeenpronouncedbyacourtofcompetentjurisdiction;(b)hadnotbeenrenderedonthemeritsofthecase;(c)wasfoundedonanincorrectviewof international law or a refusal to recognise the laws of India in cases in which such law was applicable;(d)hadbeenobtainedbyfraud;(e)sustainedaclaimfoundedonabreachofanylawinforceinIndia;or(f)wheretheproceedingsinwhichthejudgmentwasobtainedwerecontrary to principles of natural justice.

7. TheIndianArbitrationActprovidestwodistinctregimesfordisputeresolutiondependingontheseatofthearbitration.PartIprovidesaframeworkofrulesfordisputes–bothdomesticand those with an international element – where the seat of arbitration is in India. This Part conferssignificantpowersontheIndiancourtstoorderinterimmeasures,appointandreplacearbitratorsandhearchallengestoarbitralawards.PartIIincorporatestheNewYorkConventionandtheGenevaConventionontheExecutionofForeignArbitralAwardsintoIndianlaw,andsignificantly limits the scope of judicial intervention in arbitration.

8. In ONGC v Saw Pipes,(2003)5SCC705,theIndianSupremeCourtgaveanexpansiveinterpretationto“publicpolicy”byessentiallyequatingthetermwithanyerrorintheapplication of Indian law.

9. InSBP and Co v Patel Engineering Limited,AIR2006SC450,theIndianSupremeCourtruled that the courts could consider a number of contentious issues when approached for the nomination of an arbitrator such as the validity of the arbitration agreement and the existence of a live claim. It further held that any decision made on such matters would be binding on the parties.

10. IndianlawdoesnotprohibitIndiancontractingpartiesfromchoosingaforeignseatofarbitration.SeeAtlas Export v Kotak & Co,(1999)7SCC61.

End notes

Dispute resolution and governing clauses in India-related commercial contracts 19

11. ThisprinciplewasfirstlaiddownbytheIndianSupremeCourtinBhatia International v Bulk Trading SA,(2002)4SCC105andreiteratedinVenture Global Engineering v Satyam Computer Services Limited,CivilAppealNo.309of2008(SupremeCourtof India,10 January2008)andIndtel Technical Services Private Limited v WS Atkins PLC,ArbitrationApplicationNo.16of2006(SupremeCourtofIndia,25August2008).

12. Venture Global Engineering v Satyam Computer Services Limited,CivilAppealNo.309of2008(SupremeCourtofIndia,10January2008).

13 Dozco India P. Ltd. v Doosan Infracore Co. Ltd,MANU/SC/0812/2010andVideocon Industries Limited v Union of India,MANU/SC/0598/2011.

14. Phulchand Exports Ltd. v OOO Patriot, (2011)10SCC300.InONGC v Saw Pipes,(2003)5SCC705,theIndianSupremeCourtstatedthatanawardwouldbecontrarytopublicpolicyifitwascontraryto:(a)thefundamentalpolicyofIndia;(b)theinterestsofIndia;(c)justiceormorality;or(d)iftheawardwaspatentlyillegal.TheONGCdecisionstressedthat“publicpolicy”wouldbe accorded a significantly narrower meaning in the context of enforcement of offshore awards as compared to challenges to domestic awards. This approach was followed by the Delhi High CourtinPenn Racquet Sports v Mayor International[2011]1ARBLR244(Delhi),whichheldthatthemeaningof“publicpolicy”wasnarrowerinPartIIthaninPartI,andthemerefactthatanawardwascontrarytoIndianlaw,orcontrarytotheinterestsofanIndianentity,didnotmeanitwascontrarytothefundamentalpolicyorinterestsofIndia.However,intherecentSupremeCourtdecisionofPhulchand,whereunlikeinONGC the court was specifically seised to consider thequestionofenforcementofaforeignaward,theSupremeCourtexpresslyrecognisedthatthebroaddefinitionof“publicpolicy”givenintheONGC decision (i.e. under Part I of the Indian ArbitrationAct)wouldapplyequallyeveninenforcementproceedings(underPartIIofthatAct).Thecourtinthatcasewentintoadetailedreviewofthearbitralawardonitsmeritsbeforeconcluding that the award was not patently illegal and hence enforceable.

15. InApril2010,theIndianLawMinistryreleasedaconsultationpaperproposing10importantamendmentstotheIndianArbitrationAct.OneofthekeyamendmentsseekstonullifytheimpactoftheSupremeCourt’srulinginONGC v Saw Pipes,(2003)5SCC705.

16. WhilsttheLCIAIndiaRulesundoubtedlyprovideamoreefficientmeansofresolvingIndia-relateddisputes,notallsuchdisputeswillberesolvedinIndiaitself.GiventhebackgroundofjudicialinterferenceinarbitrationsseatedinIndia,LCIAIndiahasrefrainedfrommakingIndiathedefaultseat.Rather,thechoiceofseatwillalwaysbeadeliberateone.ItisexpectedthatpartiesmayselectaseatoutsideofIndia,therebychoosingthecourtsofanotherjurisdictiontosupporttheirarbitrationinsofarastheyneedthem.Nonetheless,forconvenience,hearingscouldstilltakeplaceinIndia.

17. National Thermal Power Corporation v Singer Corporation,(1992)3SCC551;British India Steam Navigation Company v Shanmughavilas Cashew Industries,(1990)3SCC481.

18. TDM Infrastructure Private Limited v UE Development India Private Limited,ArbitrationApplicationNo.2of2008(SupremeCourtofIndia,14May2008).

Dispute resolution and governing clauses in India-related commercial contracts20

19. Onthebasisofaworkingassumptionthattheinstitutionsaremorelikelytoimprovetheirrulesovertimethantheyaretomakethemworse.

20. TheLCIARulesareavailableatwww.lcia.org

21. TheLCIAIndiaRulesareavailableatwww.lcia-india.org

22. TheLCIAIndiaRulesprovidethattheTribunalChairmanshallbeappointedbytheLCIACourtinallcases,andregardlessoftheparties’agreementotherwise.Thisisadeliberateprovision within the Indian context aimed at ensuring the Tribunal and the arbitration procedureareinthehandsofaChairmantrustedbytheLCIACourttoconducttheprocess expeditiously.

23. TheSIACRulesareavailableatwww.siac.org.sg

24. TheICCRulesareavailableatwww.iccwbo.org/court/arbitration

End notes

Dispute resolution and governing clauses in India-related commercial contracts 21

Notes


Notes

HerbertSmithLLPdoesnotpractiseIndianlaw,andthecontentsofthisguidedonotconstituteanopinionuponIndianlaw.Ifyourequiresuchanopinion,youshouldobtainitfromanIndianlawfirm(wewould be happy to assist in arranging this).

The contents of this Guide are for general information only. They do not constitute legal advice and shouldnotberelieduponassuch.Specificadviceshouldbesoughtaboutyourspecificcircumstances.

©HerbertSmithLLP2012

Abu DhabiHerbert Smith LLPSuite 302, 3rd FloorAl Bateen Towers C2 BuildingAl BateenPO Box 106178Abu Dhabi UAET: +971 2 412 1700F: +971 2 412 1701

BangkokHerbert Smith (Thailand) Ltd1403 Abdulrahim Place990 Rama IV RoadBangkok 10500T: +66 2657 3888F: +66 2636 0657

BeijingHerbert Smith LLP28th Floor Offi ce TowerBeijing Yintai Centre2 Jianguomenwai AvenueChaoyang DistrictBeijing PRC 100022T: +86 10 6535 5000F: +86 10 6535 5055

BelfastHerbert Smith LLP3 Cromac Quay Ormeau GasworksBelfast BT7 2JDT: +44 28 9025 8200 F: +44 28 9025 8201

BrusselsHerbert Smith LLPCentral PlazaRue de Loxum 251000 BrusselsT: +32 2 511 7450F: +32 2 511 7772

DohaHerbert Smith Middle East LLPLevel 14 Commercial Bank PlazaWest BayPO Box 27111Doha QatarT: +974 4452 8955 F: +974 4452 8960

DubaiHerbert Smith LLP Dubai International Financial Centre Gate Village 7, Level 4 PO Box 506631 Dubai UAE T: +971 4 428 6300 F: +971 4 365 3171

Hong KongHerbert Smith23rd Floor, Gloucester Tower15 Queen’s Road CentralHong KongT: +852 2845 6639F: +852 2845 9099

JakartaHiswara Bunjamin and TandjungHerbert Smith LLP associated fi rm23rd Floor, Gedung BRI IIJl. Jend. Sudirman Kav. 44-46Jakarta, 10210T: +62 21 574 4010F: +62 21 574 4670

LondonHerbert Smith LLPExchange HousePrimrose StreetLondon EC2A 2HST: +44 20 7374 8000F: +44 20 7374 0888

MadridHerbert Smith Spain LLPPaseo de la Castellana 6628046 MadridT: +34 91 423 4000F: +34 91 423 4001

MoscowHerbert Smith CIS LLP10 Ulitsa NikolskayaMoscow 109012T: +7 495 363 6500F: +7 495 363 6501

ParisHerbert Smith Paris LLP 66, Avenue Marceau75008 ParisT: +33 1 53 57 70 70F: +33 1 53 57 70 80

Saudi ArabiaAl-Ghazzawi Professional AssociationHerbert Smith LLPassociated fi rmJeddah Commercial Centre, 3rd Floor, Al Maady StreetCorniche Al HamraP.O. Box 7346, Jeddah 21462T: +966 2 6531576F: +966 2 6532612

Al-Ghazzawi Professional AssociationHerbert Smith LLP associated fi rmArabian Business CenterPrince Muhammad StreetPO Box 381, Dammam 31411T: +966 3 8331611F: +966 3 8331981

Al-Ghazzawi Professional AssociationHerbert Smith LLPassociated fi rmKing Faisal FoundationNorth Tower, 4th FloorK. Fahd RoadPO Box 9029, Riyadh 11413T: +966 1 4632374F: +966 1 4627566

ShanghaiHerbert Smith LLP38th Floor, Bund Center222 Yan An Road EastShanghai 200002T: +86 21 2322 2000F: +86 21 2322 2322

SingaporeHerbert Smith LLP50 Raffl es Place#24-01 Singapore Land TowerSingapore 048623T: +65 6868 8000F: +65 6868 8001

TokyoHerbert Smith41st Floor, Midtown Tower9-7-1 Akasaka, Minato-kuTokyo 107-6241T: +81 3 5412 5412F: +81 3 5412 5413

www.herbertsmith.com

©Herbe

rtSmith

LLP

201

296

91/170

412

dispute resolution and governing law clauses...

Documents