Keywords: Third-Party Funding, Security for Costs, International Investment Arbitration, Litigation Funding.

I. Introduction

The mechanics utilised by Tribunals in granting security for costs in the sphere of International Commercial Arbitration have been discussed in Part I of the series. However, given the recent in global FDI flows, disputes concerning the discriminatory practices of states in sanctioning FDI have concomitantly risen. This trend has therefore ushered in the prevalence of Investor-State Dispute Settlement (“ISDS”) claims, which is a process that is extremely onerous on investors given the hefty costs associated with instituting ISDS claims against a State. Part II of this series will therefore evaluate an Investment Tribunal’s criterion for granting security for costs in ISDS disputes. It will additionally navigate the viability of the security for costs model within India’s Third-Party Funding framework.

II. The Power of Investment Tribunals to Grant Security for Costs

As per and , an ICSID tribunal has the power to grant “any provisional measure[s]” for the preservation of the parties’ rights. However, they do not explicitly mention security for costs as a provisional measure that may be ordered. However, the case of marked the first time an investment tribunal granted an order for the security for costs in 2014. The Tribunal ruled that a tribunal’s power under the Convention relating to provisional measures is in fact broad enough to permit security for costs.

More recently, the case of . triggered an onslaught of diverging perspectives on the enforceability of security for costs. In this case, the State of Turkmenistan requested that the Tribunal order the Claimant to post security for costs since it believed that the Claimant would be unable to pay the costs if he were unsuccessful in his claim. Accordingly, the Tribunal first ordered security for costs, since it found that the claimant was reliant on TPF; however, the third-party funder was not liable for a potential adverse costs award. It, therefore, held that such a scenario would prejudice the Respondent’s right to enforce cost awards. However, in a later order, the Tribunal reversed its previous order in holding that the Claimant faced ‘insurmountable obstacles’ to obtain funds for security, and the requirement of security for costs in such a situation would result in a ‘denial of access to justice’ to the investor.

In light of this uncertainty regarding the applicability of security for costs in investment arbitration, it is currently under discussion at the and in the . However, the myriad views among states reflect the conflicting arbitral decisions on this matter, meaning that a consensus is yet to be crystallised.

III. The Indian Scenario with Respect to TPF and Security for Costs

With arbitration emerging as an increasingly popular dispute resolution mechanism in India over the past decade, the costs associated with arbitral proceedings, though less intimidating than those of litigation, are still a reality. While there is no law explicitly barring or allowing third-party funding in India, consent can indirectly be deduced from the Civil Procedure Code, 1908. (State Amended) of the Code empowers plaintiffs to secure finances for litigation by requiring the financier to become a party and deposit such costs in Court. As reiterated by Courts in cases like and , an agreement of the nature of TPF is legally enforceable and while it necessitates monitoring such financing, it is not against public policy. Additionally, in the recent case of , the Supreme Court barred advocates from funding litigation on behalf of their clients without imposing such a bar on funding by any other third party.

Thus, such scattered instances of TPF recognition in India reflect a deficit of institutionalisation of arbitration mechanisms in this regard. Per Contra, they also bring to the foreground a growing inclination in India to legalise TPF. Such enthusiasm is also evident in the of a legal technology start-up, LegalPay, to launch India’s first third-party litigation funding platform. However, this bears further implications for an ancillary need to envisage the incorporation of security for costs within the TPF framework in India. Particularly so, as costs in arbitral proceedings often emerge as a site of contestation between what has been intended by the parties and any contrary decisions of a tribunal. In the recent case of Company, while the parties had agreed upon bearing costs on their own, the Arbitral Tribunal deriving powers from , granted costs to the Respondent company. While the Appellant contended that such award of costs was contrary to the contract provisions, the Delhi High Court upheld the primacy of the Act provisions over the clause of costs in the contract. Therefore, in the backdrop of an upward trend in imposing cost liabilities on parties either through contracts or the discretion of tribunals, the requirement for security for costs becomes increasingly relevant, especially where the parties are reliant on TPF. However, with the international view itself being muddled in contradicting perspectives on security for costs with respect to TPF in investment and commercial arbitrations, it is unlikely for India to efficiently implement the inept present structure in the near future.

IV. Conclusion

Therefore, while the tests for granting security for costs remain largely subjective and discretionary, TPF emerges as an indicative factor in situations where the claimant’s ability to satisfy an adverse costs award is dubious. While TPF in itself does not warrant security for costs, it serves as a tool in assessing the capital adequacy of an ill-intentioned claimant, which is considered an important factor in both international commercial and investment arbitration. Nonetheless, a nuanced analysis would only emerge from a balance between details of the funding agreement between the parties and the discretion of the tribunal after considering ancillary factors like unilateral termination rights. Further as explained previously, since the applicability of security for costs in investment and commercial arbitration is inundated with conflicting arbitral decisions and subjectivity of tribunals, it posits a bleak prospect for the liberalised granting of security for costs in India. With the gradually expanding ambition around third-party funding mechanisms in arbitral proceedings seated in India, it remains to be seen whether such gradual adaptation will usher developments towards security for costs or only emerge as an emulation of international perspectives on the subject matter. However, the authors propose the adaptation of the liberalised approach taken by the Tribunals in the Tenke, RSM, and Herzig cases in order to cement the assessment for the availability of TPF through the security for costs route in India.

[1] J. Lew, L. Mistelis & S. Kroll, Comparative International Commercial Arbitration, (1st ed., 2003), p. 601.

[2] (2021) EWHC 3301 (Comm.).

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Keywords: Mediation, Tenancy, Compulsory, Litigation, Arbitration.

I. Introduction

The use of dispute resolution methods like mediation to resolve issues has become very predominant in India and the world. However, the , and allow third parties to stall any form of negotiation. This article seeks to understand the viability of compulsory mediation in India with its current framework with respect to certain situations such as tenancy disputes in India as compared to other common law jurisdictions that have already applied such mandatory mediation. The article therein focuses on the use of the Retail Leases Act, 1994 as used in Australia and legislation in the United States such as the Federal Rules of Civil Procedure, or the Alternative Dispute Resolution Act, 1998, that encourages ADR for dispute resolution. This article would be divided into four main parts: the analysis of compulsory mediation itself, the comparison with other jurisdictions, the applicability of mediation in tenancy disputes and a conclusion on whether compulsory mediation is viable since Section 89 of the Civil Procedure Code allows third-party mediation organizations such as and to enforce their mediated settlement agreements as arbitral awards.

The dilemma with the concept of mandatory pre-litigation mediation for tenancy disputes is that such since the dispute is considered as subjective rights in-personam, that arise from rights in rem. This is except for when they are covered by specific rent control laws that allow exclusive jurisdiction to particular forums. This decision was made after a 2017 decision of the Supreme Court in that ruled that when the Transfer of Property Act (TOPA), as applicable, the dispute would not be arbitrable.

In the scenario where compulsory mediation is implemented for tenancy disputes, parties with a pre-existing arbitration clause in their tenancy agreements would have to endure significant challenges to resolution, such as the arbitration and the mediation – both of which allow either party to delay the filing of the dispute before any Court as they are time-consuming. The arbitrability of the dispute also raises questions such as – if the mediation agreement has been created, but is violated by either party, does that allow the other party to enforce the arbitration agreement in the contract, or would they necessarily have to follow the terms of the mediation agreement itself? Furthermore, the applicability of under (“A&C”) could raise the question of whether a mediated settlement agreement is to be treated as an arbitral award and set aside before arbitration could be pursued. This requires a re-examination of and the precedent it set on the enforceability of mediation agreements.

II. Compulsory Mediation in India

The mandatory mediation of tenancy disputes would require specific legislations that would encourage its acceptance, but this is done sparingly in domestic legislation. This is seen in the implementation of (“CCA”) which has . There are also several laws governing mediation in India such as Section 21 of the , , the and .

. This perpetuates the notion that the justice gained by it is inferior to the binding nature of litigation despite the enforceability of a mediated settlement agreement. Furthermore, the legal fraternity would also face due to the dilution of litigation if compulsory mediation is to be implemented. However, mandatory mediation could this by placing the onus of requesting mediation on the Court and not on a specific party, allowing parties to reconcile without worrying about the power differences inherent within a mediation . However, this does raise the question of whether party autonomy is an inherent part of a mediation session. With the possibility of mandatory mediation, the options allowed through the judgment of , such as arbitration, negotiation or a mix of mediation and arbitration would no longer be available to parties that may have preferences for a particular form of ADR. Further, it leads to the disclosure of confidential information that would have been vital in litigation for either party or for restoring the power imbalance between the parties before the mediation session begins, as it is required for parties to enter into the mediation session in good faith.

III. Comparative Analysis with India

The use of mediation in other common law jurisdictions is dependent on the court’s discretion. In Australia, states that a tenancy dispute is not to be a subject of a proceeding till the Registrar has certified that the mediation has failed, or if the Court is satisfied that mediation would not be able to resolve the dispute. This allows Judges the discretion to decide if mediation is still necessary, making party autonomy a secondary priority despite party autonomy being an essential part of a mediator’s opening statement. Furthermore, as per the precedent in , the Court is prevented from exercising its jurisdictional powers (except for orders related to injunctions), until the mediation is complete, allowing either party to impede proceedings.

However, , the approach to mediation contains a mix of statutes, local rules of the court, federal statutes, and the . This framework includes the treatment of a settlement agreement as a “contract”. , also require parties to negotiate in good faith and have the authority to settle claims mandatorily. Being absent at a mediation session or ignoring court orders could lead to a determination of bad faith participation and lead to prosecution. However, the determination of bad faith is done by the court, after a party files a motion to seek sanctions for not entering into the mediation with good faith. that allows Courts to interfere in a mediation session despite the confidentiality it needs to offer. However, in India, the use of mediation is voluntary (With the exception of Section 12A of the Commercial Courts Act), and there is no examination on the use of “bad faith” for prosecution since the mediated settlement agreement is treated as an arbitral award, and not as a contract.

IV. Conclusion

The use of mediation as a part of dispute resolution is relatively new in India but has led to the rise of several platforms that advocate for the private resolution of disputes through mediation such as and , that do not require authorization from the Court under Section 89 of the Civil Procedure Code but have binding mediated settlement agreements that could be treated as an arbitral award. The comparative analysis between other common law jurisdictions and the Indian approach to mediation is similar and requires a uniform legislation – an effort taken by the United States through the Uniform Mediation Act and the in India, both of which are yet to be implemented as law. Borrowing legislation on the enforcement of bad faith, on the other hand, is not only needed but could also encourage parties reluctant to enter a mediation session from exploring it due to the authority of the court.

However, considering taken by the Parliament, the possibility of compulsory mediation as a reality could diminish, but still allow the fight between party autonomy and court-annexed mediation to continue, preventing weaker parties from equalizing the power between parties in a mediation session.

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Keywords: Third-Party Funding, Security for Costs, International Commercial Arbitration, International Investment Arbitration, Litigation Funding.

I. Introduction

Third-party funding has become increasingly common in international arbitration. It can be described as the financing by a third-party of part or all of the costs of the arbitral proceedings for one of the parties to the dispute. In return for this financial liability, the financier receives a certain percentage of the compensation obtained by an award or a settlement. Conversely, if the claim fails, the funder will usually receive no compensation and will remain liable for the client’s legal fees, as well as for any other adverse costs. TPF is a relatively novel concept that arose as a solution to the challenges emerging from the financial impecuniosity of a party, resulting in its inability to proceed with an arbitral proceeding.

The onset of the COVID-19 pandemic has triggered economic fluctuations that have resulted in a shortage of resources, thereby hindering the business operations of entire industries. As documented by , most funders have increased their business despite the COVID-19 economic downturn, backed by growing interest and use by law firms and clients. Thus, these conditions have allowed for the scope of litigation funding to allow businesses to fulfil their litigation claims through TPF.

However, on the one hand, while TPF helps impecunious claimants fund their claims and obtain access to justice, on the other hand, it creates the risk that a respondent may not be able to enforce a potential adverse costs award against an impecunious claimant that is funded. Thus, this article seeks to address this imbalance by exploring the prospect of tribunals granting ‘security for costs’, i.e., a method by which a respondent can ensure that it is able to recover the costs of successfully defending claims brought by impecuniously funded claimants. It is enforced as an order that requires the claimant to pay money or provide a guarantee or a bond, as security for the respondent’s costs of litigation. Part I of this article will assess this solution and the effect of TPF on a tribunal’s decision to grant security for costs in the context of international commercial arbitration. Thereafter, Part II of this article will address the scope for the liberalised granting of security for costs within India’s legal framework by recapping the legal framework surrounding an arbitral tribunal’s power to grant costs in investment treaty arbitration. Consequently, it will present TPF as a solution by analysing how it weaves into a tribunal’s decision to grant security for costs.

II. The Mechanism of Security for Costs in International Commercial Arbitration

The increased prevalence of TPF in the realm of international commercial arbitration can be attributed to its attractive promises of providing tenable solutions regarding financing preferences and risk management policies. An arbitral tribunal’s power to grant security for costs in this regard generally arises either from an agreement between the parties or the lex arbitri (law of the seat)[1] considering that a party seeking TPF is equally vulnerable to an application for security for costs. A recent judgement affirming the same is , where the English Commercial Court on 7th December 2021, upheld an award of third-party funding costs rendered by a London-seated ICC arbitral tribunal and confirmed the stance that a tribunal has the power to grant security for costs. The case dealt with a challenge to the final Award rendered in favour of Katanga, the Respondent. The Tribunal ordered Tenke, the Appellant, to pay Katanga’s legal and expert costs. However, Tenke challenged the Tribunal’s Award under , on the grounds of “serious irregularity” and “substantial injustice”. The Court held that since the parties’ arbitration clause in their contract was subject to ICC arbitration seated in London, they would be subject to the , implying that the Tribunal’s TPF costs award would stand. The case further referred to another landmark decision, Essar Oilfields Services Ltd v. Norscot Rig Management Pvt Ltd, where the Commercial Court rejected a similar application to set aside an arbitral award granted under the ICC rules entitling the respondent to costs for third party litigation funding on grounds of serious irregularity.

As recognised in these cases and several other and , some of the potential factors considered by tribunals while granting security for costs in commercial arbitration are likely to be the party’s financial situation and the likelihood of the claims’ success on merits, with the most relevant consideration being the probability that a party may not satisfy an adverse cost award. This is particularly pertinent because TPF does not imply that a party is impecunious per se; merely obtaining funds, therefore, does not qualify as a material change in the claimant’s finances guaranteed to counteract adverse costs. Thus, the granting of security for costs is extremely subjective and dependent on a tribunal weighing the scale between commercial viability and broader fairness concerns unless the third-party possesses powers to the extent of unilaterally terminating the agreement.

III. Conclusion

Therefore, while TPF clearly emerges as a burgeoning trend in international commercial arbitration, its scope seems to be inundated by the inability of parties to satisfy adverse cost awards. Thus, arbitral tribunals have accommodated security for costs as a viable solution. Although the tests for granting security for costs remain largely subjective and discretionary, TPF emerges as an indicative factor in situations where the claimant’s ability to satisfy an adverse costs award is dubious. While TPF in itself does not warrant security for costs, it serves as a tool in assessing the capital adequacy of an ill-intentioned claimant, which is considered an important factor in international commercial arbitration. Nonetheless, since it attempts to provide a safety valve against ill-intentioned claimants, it might be more favourable in international investment arbitration where awards are generally publicly available with higher compensatory amounts requested, thus appealing to funders.

[1] J. Lew, L. Mistelis & S. Kroll, Comparative International Commercial Arbitration, (1st ed., 2003), p. 601.

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Keywords: Arbitration, Sharia, Saudi Arabia, New Arbitration Law, Foreign Awards.

Introduction

The rapid expansion of commercial activities and the burgeoning web of global trade necessitates a uniform framework for arbitration to resolve disputes without tardiness and with efficiency. The advantages of instantaneous resolution of disputes are beneficial for everyone involved in it by saving time and costs of litigation, reinforcing trust in the legal systems, and, more importantly, safeguarding a country’s resources. Recognising this, the Kingdom of Saudi Arabia (“KSA”) enacted a New Arbitration Law in 2012 that was laid out in consonance with the framework of the UNCITRAL Model Law. This was done, in part, to promote the country as a. However, it remains to be seen whether such reforms have truly aided the alignment of Saudi Arabian laws with Western Arbitration models and international conventions for commercial arbitration. In this article, the authors examine the pre-2012 and the post-2012 reforms to arbitration laws in Saudi Arabia, with particular emphasis on the procedure for enforcing arbitral awards in the country. The article first highlights the major conflicts between Sharia and arbitration and its interplay with the domestic arbitration procedures within KSA. It then brings to the foreground the inefficacy of the New Arbitration Law in recognising and enforcing foreign arbitral awards while also emphasising the implications it can possess for KSA’s commerce and economy with regard to the rights of foreign investors in the country.

The Enforcement of Domestic Arbitral Awards in KSA ������-à-������ Sharia

The Sharia is an assortment of laws that encapsulates spiritual and everyday aspects of Muslim life. Sharia deems Allah as the highest authority. In Islamic nations such as Saudi Arabia, Sharia is the provenance of all laws and orders. So, it merits no explanation that even arbitral awards are bound by the tenets of Sharia law. Unlike the West, where parties can choose the law that will govern their dispute in arbitration as per Article 28 of the UNCITRAL Model Law, Sharia does not offer . Arbitral awards subjected to international laws must pass muster when appraised through the prism of Sharia law in Saudi Arabia. In the same vein, the decisions of arbitrators are also not absolutely binding on the parties. The rigmarole around the non-binding nature of arbitral awards in Islamic jurisprudence stems from the divergence in opinions among While the Hanafi and Shafi’i schools postulate that arbitral awards must not be regarded as anything more than conciliation, the Maliki and Hanbali schools hold that an arbitrator’s judgment is binding and final unless there is flagrant unfairness on the arbitrator’s part. The Saudi Arbitration Regulations have purportedly adoptedunder the Hanbali school.

However, in modern arbitration proceedings, the supportive role of courts in endorsing arbitration is crucial to ensure the sanctity of the arbitration process. The scope of interference by courts in arbitration proceedings has also engendered contentious debates. The courts in Saudi Arabia can interfere in arbitration proceedings : 1. At the beginning of arbitration proceedings; 2. During the arbitration proceedings; 3. Once the Arbitral Award has been passed, in this article, the authors will deal with the court’s role in arbitration when an arbitral award has been passed since the award, even if binding, could be rescinded if it does not meet the merits of Sharia law in KSA.

As per the law that was in force in Saudi Arabia till 2010, parties could challenge arbitral awards before the Board of Grievances (“Board”) if there were issues pertaining to jurisdiction, procedure or capacity. However, unlike in the West, objections could also be raised if the award is inconsistent with Sharia and public order. This could create multiple challenges because the failed to lay downon which challenges could be sustained with respect to Sharia. Moreover, questions of public policy have always puzzled lawyers due to the uncertainty of enforcement of awards. In Saudi Arabia, public policy originates from : (1) Sharia, (2) Royal power, and (3) public morals. The country may come up with new royal orders that are promulgated as laws or policies in the kingdom in order to keep up with modern needs without violating Sharia principles. Therefore, public policy in Saudi Arabia is not similar to that of many modern states, and thus, the scope of interference by the courts is more due to the limited role of the arbitrator and the indomitable powers of the Royals. This makes enforcement of arbitral awards challenging and cumbersome if the award is challenged before the Board.

Such an ambiguity-riddled atmosphere for the enforcement of domestic arbitral awards not only posits a bleak future for arbitration in the country but also raises relevant questions pertaining to International commercial arbitration. While the (“NEL”) in Saudi Arabia has provided an alternative pathway for international parties to enforce commercial awards, it begets an assessment of this framework of enforcing awards in harmony with Sharia and several International Conventions.

The Enforcement of Foreign Arbitral Awards within KSA’s Arbitral Framework

As can be inferred from the domestic viewpoint, the Saudi legal system is heavily based upon the principles of Sharia Law, with Judges being obliged to apply the Holy Quran and the Sunnah when adjudicating cases, as given in Article 46 of the Further, it is noteworthy to mention that Islamic jurisprudence does not explicitly preclude international commercial arbitration procedures. However, the procedures could only be followed so long as they do not contradict the basic principles of Islam. Thus, before the 2012 pro-arbitration amendments in KSA, the enforcement of a foreign award was subject to the scrutiny of the Board of Grievances. The review involved a consideration of whether the Award conflicted with the Saudi public policy, Sharia principles or any previous decisions of the Saudi judicial authorities. Such wide discretionary powers and resistance to recognising foreign procedural laws typically prevented the enforcement of most awards citing public policy reasons. An infamous illustration of the same is the 2008 case of ,where the Board was required to assess an award issued by the ICC ordering Jadawel to pay legal costs to Emaar. In a seemingly absurd turn of events, the Board not only refused to enforce the award but also overturned the decision itself, ordering Emaar instead to pay over $250 million as damages to Jadawel.

In the backdrop of such a potential anti-arbitration ethos, the 2012 New Arbitration Law and Enforcement Law in KSA, prima facie, emerged as a beacon of hope. With Saudi Arabia’s ratification of international treaties like the 1983 Riyadh Convention and the New York Convention of 1958, it seems to have willingly bound itself to the obligation of recognising and enforcing foreign awards. The power to scrutinise awards has now shifted to the Enforcement Circuits according to . However, the parameters of assessment continue to remain inter alia contradictions with Sharia law or Saudi’s public policy. Thus, this move can be interpreted as a mere semblance of reform solely effectuating a switch between players while a clear resistance to foreign awards persists. Moreover, such vesting of exclusive jurisdiction with the Enforcement Courts simply reinforces the potentiality of judicial interference in awards, which the New Law sought to minimise. This is all the more problematic since Saudi Courts have undertaken a strict interpretation of Sharia to justify the non-recognition of awards issued outside Saudi Arabia. Consequently, it might create impediments for international contracting parties who do not have any clear legal criteria or guidance with respect to what constitutes a breach of Sharia principles or of public policy. Thus, while the Saudi Legislative System appears to have been unsuccessful in reconciling Sharia with international instruments within the arbitration framework, it is even more imperative to consider its potential implications on the commerce and economy of KSA.

Implication for Foreign Commercial and Investor Parties in KSA

The framework of enforcing arbitral awards within KSA also bears considerable repercussions for the Saudi government’s treaty obligations and investment agreements that are intrinsically interwoven with commercial arbitration. While foreign parties are readily investing in Saudi Arabia, the commercial mindset is accompanied by a pursuit of high immediate gains as well as stability in such expectations. Such assurance can only be secured through the non-discriminatory application of unambiguous predictable laws. Thus, it is imperative for such parties to be aware of their rights and obligations under the law of the enforcing state to protect their commercial interests effectively. Considering the Saudi government’s rigid adherence to Sharia, a laborious endeavour needs to be shouldered to harmonise the national laws with international practices to protect foreign investor rights. This is particularly relevant to counter the growing concerns of by foreign investors where they seek jurisdiction of such courts/domestic laws, which are likely to protect their economic interests best. Such unsolicited interference by third-party countries not only breaches the reciprocity of the treaty but also hampers the quid pro quo envisaged through the treaty.

Notwithstanding the aforementioned concerns, it is also important to highlight a few measures undertaken by Saudi Arabia in this regard, including accession to international treaties with contracting states. The Saudi Arabian General Investment Authority (SAGIA) has provided general financial and commercial information for investors through the while also playing an integral role in strengthening their rights over their assets. Such liberalising reforms offer an optimistic perspective to bolster macroeconomic growth in KSA while also highlighting the willingness of the government to enact laws that can protect the rights of international parties.

Conclusion

Thus, an examination of the recognition and treatment of both domestic and international awards clearly indicates Saudi Arabia’s evolving attitudes towards the rights of private parties. While KSA seems to have attempted to reform the judicial process in the country through the New Arbitration Law, it still seems to be knee-deep in the quicksand of balancing Sharia with international principles. Although such strict adherence to Sharia can be considered ill-suited to deal with modern commercial realities, it is also undeniable that such principles constitute a core position in the lives of modern Muslims in KSA. Additionally, while international arbitration continues gaining traction as a flexible and faster dispute resolution mechanism, it solely depends on the continued efforts of the KSA government to modernise the arbitral award enforcement procedures to finally render the alliance between Sharia and Arbitration a truly successful one.

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Keywords: Mediation, Politics, Diplomacy, International Relations, Conflict

Introduction

Mediation is a whereby disputants take the assistance of a third party (a state, group of states, or organization) to settle their conflict without the use of physical force or invoking the authority of law. The stresses a number of key fundamentals that need to be considered for successful international mediation, including consent, impartiality, inclusivity, national ownership, and quality peace agreements.

While mediation has been used to solve conflicts for centuries in the private and commercial realm, it is equally, if not more, useful to solve larger international political disputes as well, for three reasons. First, the makes the cost of conflict extremely high in such situations. Mediation, therefore, provides a quicker and relatively cost-effective method of resolving disputes. Second, within the international sphere, there is regulating states’ behaviour. Third, in the international sphere, all of which wish to protect their sovereignty. Mediation, through its , is, therefore, an effective tool to deal with differences between these antagonistic interests, as it does not endanger states’ right to act according to their own wishes.

In light of the above, this article examines the use of mediation in resolving international political disputes. It explores the role of mediators in such disputes, the definition of a “successful” mediation process, and the external influences on such outcomes.

The Role of Mediators in International Disputes

argue that it is futile to distinguish between mediation, conciliation, facilitation, diplomacy, and fact-finding, as a mediator often employs one or more of these strategies to resolve an international conflict. The role taken on by a mediator can be described on a “”, depending on the circumstances of the conflict. Mediators may adopt a by deciding the agenda, timing, meeting place, or other arrangements of meetings between the disputants, to reduce the stress on parties that may not have a prior history of peace-making. They may also take a more interventionist role by or attempting to influence parties through diplomatic sanctions or providing humanitarian aid (the of mediation).

The , and may even be at odds with principle of in the mediation process; for a settlement to be effectively implemented, it must be a voluntary consensus between the disputants themselves, and mediators cannot impose solutions upon them. To illustrate the ineffectiveness of highly prescriptive international mediation, one may consider the mediation in Sudan led by the Intergovernmental Authority for Development (“IGAD”). In 1994, the IGAD prepared the outlining the essentials for achieving peace in Sudan, however, because it , it for another four years. Similarly, Trump’s Israel-Palestine peace plan and was thereby rejected by them.

At the same time, merely playing a procedural role may not be beneficial to the mediation process. Depending on the circumstances, it may be preferable for the mediator to have an increased degree of involvement. For example, that the parties wanted to receive his ideas for settlement during the process. The role of a mediator must therefore remain flexible and be shaped based on disputants’ expectations from the process. Further, explains that Carter saw his role as mediator to be simply facilitating improved communication and that it was the disputants’ job to solve the conflict. He would simply come up with a “blueprint” for the solution. However, the , and an agreement was reached only when Carter became, in effect, a third negotiating party (this was partly also due to his position as US President).

Therefore, the role of a mediator is highly contingent on the circumstances of the conflict itself. There is no one-size-fits-all model of mediator involvement which can be imitated for success in each instance. Their role may also be influenced by factors external to the mediation process itself, as will be explained later in this article.

What Constitutes “Successful” International Mediation?

As mentioned earlier, the notes “quality peace agreements” as a fundamental of international mediation. However, although a mediation process is usually considered successful if it results in the signing of a peace agreement, that . In fact, more than half of all civil war peace agreements arrived at through regional governmental organization mediation . For example, after mediation by the United States, Russia, and the United Nations in 1991 in Angola’s civil war, the two disputing factions agreed to sign the . However, this did not lead to peace; after the elections, a , causing over 300,000 casualties in two years.

Therefore, it is important to look beyond short-term consensus and the creation of a peace agreement in defining successful international mediation. This leads to the question of enforcement of the consensus reached through mediation; if the formulation of an agreement clearly does not translate to durable peace, is it the job of the mediator to ensure enforcement of the agreement as well? Noting that the blurred line between mediation and enforcement leads to the reduction of mediation to power-based diplomacy, Nathan argues that mediation and enforcement should be conducted by separate actors. Enforcement measures taking the form of punitive action such as sanctions are ineffective; less than a third of sanctions implemented between 1914 and 1990 achieved the intended foreign policy goal. Punitive measures also directly hindered the mediation process in Burundi, where sanctions undermined Tutsi confidence in reconciliation, prolonging hostilities. The adoption of punitive enforcement measures further makes the mediator a party to the conflict, violating the process’s characterization as a third-party intervention.

as well, appears to pre-empt the concern of joint mediation and enforcement. It posits that success occurs when, firstly, an agreement is reached by third-party intervention, and, secondly, the agreement is implemented such that the disputing parties refrain from returning to war “when the outsiders leave”. By defining success as the continuance of peace once third-party intervention ends, it removes from the purview of “successful” mediation situations where peace is only achieved due to the mediator’s enforcement of the peace agreement.

If this is the case, then it is clear that the outcome of mediation is not dependent solely on the mediation process itself; it is shaped by many external influences, including the disputants’ willingness to abide by the agreement, which is often out of the mediators’ control.

External Influences on the Outcome of International Mediation

Typically, heavy and their dexterity as the key determinant of the success or failure of international mediation. However, it is only one of many influences on the outcome of the mediation process. The most obvious external influence is the nature of the dispute itself. concludes that lengthy, complex disputes with high number of fatalities are “incompatible with successful mediation”, as they are intensely hostile and less “amenable to mediation”.

Their study also notes how the substantive nature of the issues at stake have, in previous research, been found to directly impact mediation outcomes. Generally, “intangible” issues of legitimacy concerns, national honour, and concerns of the image are associated with prolonged hostility between disputants. On the other hand, disputes involving “tangible” issues (those which can be concretely measured, such as money, territory, etc.) are relatively easier to mediate. For Bercovitch & Langley, the implication for mediators is that they should repackage issues and focus on tangible issues for the mediation process to be successful. Application of this suggestion, however, seems ineffective for most disputes, which often involve a combination of both tangible and intangible issues. For example, a dispute appearing to be merely territorial may be rooted in parties’ concerns of their image and the national honour associated with occupying that territory. Therefore, the suggestion of focusing on tangible issues merely to achieve an agreement is not necessarily favourable; as has been previously noted, mediation cannot be deemed successful simply because an agreement is reached. To create long-term, durable peace, it is necessary for international mediation to address and resolve the differences causing the dispute, not just its symptoms. Thus, this suggestion should not be taken as a model guaranteeing success if imitated. Rather, its use should be limited to those conflicts where the root of the dispute may be expressed in tangible issues, not simply when the dispute impacts tangible issues.

Next, the institutional body to which the mediator belongs to also significantly impacts the outcome of mediation. For example, noted that the internal politics of the IGAD impacted not only the composition of the mediation team but ultimately would “infect” and “complicate” the peace process. Further, , thereby impacting the outcome of a possible agreement. For example, the Organisation of African Unity (“OAU”) in a 1964 Resolution of the OAU Assembly of Heads of State and Government forbade secessionism and irredentism, a stance reiterated in a . This led to the OAU attempting to resolve successionist struggles . It further bars redrawing borders as a solution to conflict even if both parties agree to it.

.

Conclusion

Unlike other kinds of mediation, international mediation does not come to an end when parties reach an agreement. Even if the methods suggested by the studies cited in this article are used to reach a peace agreement, its durability and enforceability is often dependent on factors external to the mediation process itself. The high-stakes nature of the disputes at hand also makes splitting differences an undesirable outcome, requiring reconsideration of traditional mediation techniques.

This article, therefore, reaches three conclusions with respect to international mediation, each having implications for mediators’ strategy. First, mediators’ level of involvement should depend on the circumstances of the conflict and must strike a balance between the two ends of a continuum. Second, international mediation cannot be deemed “successful” simply because parties have reached an agreement. Rather, consideration of durable, long-term peace is crucial. Finally, the outcome of international mediation is contingent on several factors external to the mediation process itself.

Notwithstanding the foregoing, it is important to note that mediation is and should be tailored to specific conflicts, and arguments encouraged or discouraged in this article may not be applicable in all circumstances. Instances of successful international mediation should remain examples, and not imitable models, of success. As this article has established, a mediation strategy that is successful in one instance may be detrimental in another; an increased level of mediator involvement made Jimmy Carter’s mediation successful but reduced the level of national ownership in Trump’s and the IGAD’s peace plans. A mediator’s focus on tangible issues may successfully resolve some disputes, however, this may be ineffective when the dispute is rooted in intangible issues. Therefore, it is crucial that mediators remain flexible and craft their techniques according to the circumstances of the dispute.

Additionally, there is a need to improve the legitimacy of the third parties intervening as mediators, in order to foster the growth and development of international mediation. Mediating states and institutions must be seen as just, fair, and unpartisan. Unfortunately, as previously enumerated, history proves otherwise – since their interests are impacted by international political disputes, mediators sometimes ignore one disputant in favour of the other. Yet, without correcting this perception through practice, disputants will view the process with suspicion, and mediation will never occur in the first place.

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Citation: Civil Appeal No. 8990 of 2017

Court: Supreme Court of India

Coram: B.R. Gavai & B.V. Nagarathna, JJ.

Date: 30th September 2022

Keywords: Arbitration, Arbitral Award, Interest, Deliberate Delay

Overview

A Division Bench of the Supreme Court (‘the Court’) held that while an Arbitral Tribunal has the power to apply its mind and use its discretion to award interest for any part or whole of the award and any part or whole of the period between the date on which the cause of action arose and the date on which the award is made under (‘the A&C Act’), a party is not entitled to interest for the periods in which it deliberately delayed the proceedings. For this purpose, the Court held, the Supreme Court can invoke its powers under of the Constitution of India to reduce the amount of interest awarded.

Facts

On 16th December 1971, Gokul Chandra Kanungo (‘Respondent’) was awarded the contract for the construction of the 3 kilometres missing link on NH-6 from Kanjipani, Odisha to Kuntala, Telangana by Executive Engineers (‘Appellant’). The amount of the contract was Rs.4,59,330/- and it was agreed that the work must be completed within one year, that is, by 15th December 1972. The work, however, was completed only by 30th December 1977, by which time the Appellant had already paid an amount of Rs.3,36,465/-, to the Respondent. The Respondent then issued a notice to the Appellant on 25th July 1989 regarding the pending sum owed to him, but the Appellant responded by stating that the amount has already been paid.

The Respondent then filed a suit under (‘the 1940 Act’) before the Court of Civil Judge (Senior Division), Bhubaneswar (‘Trial Court’) seeking reference of the dispute to arbitration, which was granted in their favour vide an Order dated 14th February 1990. He, however, failed to comply with the Court’s directions to file the Original Agreement which the Court had stipulated as a necessity for referring the dispute to arbitration. In the meantime, the A&C Act came into force.

The Respondent then filed an application in the aforementioned suit before the Trial Court, seeking the appointment of an arbitrator under the A&C Act but the same was rejected by an Order dated 4th February 2002 for want of jurisdiction. The Respondent then filed a similar application in the High Court of Orissa, which was allowed vide an Order dated 15th October 2001 and an arbitrator was appointed.

The Respondent filed his claim of Rs.1,45,28,198/- on 15th March 2002 under 15 heads of claim and demanded 19.5% interest from 1st April 1976 to 15th March 2002. The Arbitrator, vide its award dated 24th August 2004, awarded a sum of Rs.9,20,650/- in respect of head Nos. 1 to 14. The learned Arbitrator also awarded interest pendente lite with effect from 1st April 1976 to the date of the award at the rate of 18% per annum which came to Rs. 46,90,000/-. The learned Arbitrator further directed the future interest to be paid at the rate of 18% per annum on the total of the aforesaid two amounts till actual payment. Aggrieved by this award, the Appellant filed an application for setting aside the Arbitral Award under which, was by the lower courts and came before the Supreme Court by way of appeal.

It was argued on behalf of the Appellant that the Respondent should not be entitled to interest for the period of 1977 to 1989, given that he was sleeping on his right and did not make any claim. Moreover, for the period of 1990 to 2000, the Respondent did not act on the order of the Court to file the Original Agreement and given these facts, the awarded interest amount of 18% is unreasonable. On the other hand, it was argued on behalf of the Respondent that the Tribunal has the discretion under to apply its mind depending on the facts of the case to award interest of the whole or part sum of the amount due for the whole or part of any part of the period from which the cause of action arose to the date of the award. They also contended that the award had been upheld by the Court of District Judge, Cuttack and the High Court of Orissa.

Issue

Whether the Arbitral Tribunal had reasonably used its discretion in awarding the interest at the rate of 18% per annum for the period during which the proceedings were pending and also at the same rate after the award was made till the actual payment.

Analysis

The Court on analysing Section 31(7)(a) of the A&C Act, emphasized that the section itself provides the Arbitral Tribunal with the discretion to award an interest rate on the whole or part of the sum awarded for whole or any part of the period for which the party is entitled to compensation. This Court held that this discretion however casts a duty upon the Arbitral Tribunal to provide reasons as to why the interest rate they have awarded is reasonable.

The Court agreed with the Appellant, that the conduct of the Respondent in not making a claim and thus sleeping on his rights between the years 1977 to 1989 was unreasonable and disentitles him from receiving interest for the said period.

Next, the Court considered the period from the Order dated 14th February 1990 (the appellant was required to file an Original Agreement for reference of the suit to arbitration) to 15th October 2001, the date on which the Appellant sought to revive the dispute and refer it for arbitration in the competent court, that is, the High Court of Orissa. For this period the Court held that the Appellant failed to comply with the Order of the High Court to file the original agreement and chose to revive the suit after a lapse of 10 years. This conduct, the Court held, also disentitles the Respondent to derive benefit in the form of interest for this period.

With reference to the rate of interest awarded, the Court referred to and , and found that the Arbitrator has full discretion to observe the circumstances of the case to decide at the rate of interest to be awarded and whether it should be awarded on whole or part of the award money and on whole or any part of the pre-award period. It also observed instances wherein the Apex Court invoked its power under to do complete justice by amending the rate of interest awarded.

Conclusion

The Court opined that the present case was also one that warranted the use of its powers under to reduce the rate of interest. Considering the conduct of the Appellant in delaying the proceedings and sleeping on his rights, it had brought about long and delayed proceedings. Thus, in order to do complete justice, the Court held that the Appellant was not entitled to any interest for the period between 30th August 1977 and 25th July 1989 and between 14th February 2000 and 15th October 2001 and reduced the interest rate for all the other periods from 18% to 9% per annum.

[This case has been authored by Nankee Arora, an Editor at Mapping ADR.]

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Keywords: Mandatory Mediation, ISDS, Investor-State Mediation, BITs, COMESA

Introduction

Mediation as a structured negotiation process assisted by a neutral person, who assists disputant parties to reach a mutually satisfactory settlement of a dispute. Investor-State Dispute Settlement (“ISDS”) is the customary mechanism to resolve disputes between foreign investors and the respective host states. The dispute resolution clauses of investment treaties such as Bilateral Investment Treaties (“BIT”) or Multilateral Investment Treaties (“MIT”) lay out the forum or mechanism to which the parties can resort for the settlement of disputes. The most approach by parties is to resort to investor-state arbitration for settling disputes. However, there has been a recently where parties are making use of investment mediation to resolve disputes. In this context, this article will analyse mandatory mediation with respect to ISDS. First, the article will see how mediation can function within ISDS, and then the article will analyse how and why mediation could be mandatory in ISDS. The article then explores the existence of mandatory mediation provisions within existing investment treaties and the obstacles that may arise in making mediation mandatory in ISDS.

What is Mediation in ISDS?

Mediation emerges as a promising avenue for dispute settlement and conflict prevention by laying considerable emphasis on harmony and achieving mutually satisfying results for the disputants. It the disputants a high degree of flexibility and autonomy with the intent to reach creative solutions by taking into account their common needs and interests. Mediation has long been considered an efficient tool to resolve cross-border commercial disputes and is being recognised as a tool for settling international investment disputes as well. However, despite the overall flexibility that the mediation process offers to the disputing parties, investment treaties at large,

Mediation is facilitated by a neutral third-party/mediator and is often characterised by multiple variations based on each party’s flexibility and to resolve disputes. It goes to say that the process is highly voluntary in nature instead of a coercive one and the parties are accountable for the outcome of the entire mediation process. The mediator, who presides over the mediation, acts as a guide for the disputing parties by facilitating communication between the parties and explaining the ground rules for the entire process. More specifically in ISDS, the mediator’s role is paramount in terms of employing ” to limit the that is bound to arise when a private entity engages in mediation with a nation-state.

How and Why should Mediation be mandatory in ISDS?

The waning interest in the conventional dispute resolution mechanism of arbitration in investor-state disputes is inter alia characterised by a losing party’s with an arbitral award, particularly when such a party is a State. As parties try to avoid acrimonious arbitration proceedings, mediation emerges as a possible alternative to the same. Not only does mediation alleviate the in investor-state arbitration, but it is also marked by . Additionally, mediation emerges as a speedier and lesser expensive form of dispute resolution mechanism as opposed to arbitration.

According to an, a comparative analysis of the costs involved between investor-state arbitration and investor-state mediation revealed that the average length and costs of arbitration proceedings were 4 years, and 4 months with a median cost of USD $4 million for both parties. An example of the exorbitant legal costs involved in investor-state arbitration includes the landmark case of where the Claimant’s legal costs were $4.6 million, as opposed to the Respondent, who had to bear $13.2 million in legal costs. Interestingly, the proceedings lasted more than 6 years after which the Arbitral Tribunal issued an award in favour of the Respondent and ordered the Claimant to pay to the Respondent, which was much less than the amount spent by the Respondent on legal costs alone. Most importantly, arbitration forecloses the possibility of reconciliation of parties, whereas mediation has the potential to preserve or re-establish business relations frayed in the process by emphasising a, rather than an adversarial approach.

In view of the advantages that investor-state mediation accrues to the disputants, an argument can be made out for mandating mediation before the parties formally engage in arbitration. This underexplored aspect of alternative dispute resolution was considered by the United Nations Commission On International Trade Law (“UNCITRAL”) in its which sought to analyse the possibility of including mandatory mediation to resolve disputes. The Working Group recommended the utilisation of the ‘ period during the pre-dispute settlement stage which could accommodate the mediation process within a specified period of time. Failing which, litigation would commence, like an escalation clause. However, the Working Group cautioned that the entire mediation process should be completed within a reasonable and specified time period.

Existence of Mandatory Mediation in ISDS

A few BITs have already provided for mandating mediation as a precursor to arbitration or other dispute resolution mechanisms in the case of investor-state disputes. Making such procedures mandatory takes place :

(i) imposing an obligation on both disputing parties to undertake mediation,

(ii) requiring a designated procedure to have taken place before an arbitration can be initiated, or

(iii) making participation in the designated amicable dispute resolution procedure mandatory for the investor, at the State’s election.

An example of a draft mandatory mediation clause in ISDS can be found .

Article 26 of the requires the disputing parties to resolve their disputes in a six-month settlement period, where mediation would be the governing dispute resolution tool. Other investment treaties, such as (Article 14.23), , (Article 10(3)), etc. also provide that the disputing parties must mandatorily attempt to resolve their disputes through amicable avenues (such as mediation). However, since these investment treaties do not provide that ‘mediation’ must be the amicable dispute settlement mechanism, disputing parties have the option to choose other avenues such as conciliation. Notwithstanding the above, it is evident that mandatory mediation clauses in investment treaties exist already.

Obstacles related to Mandatory Mediation in ISDS

An analysis of the incorporation of mandatory mediation into ISDS frameworks would be incomplete without looking into the obstacles that exist between mediation and ISDS. Firstly, mandatory mediation may not reap its benefits if there is an improper legal framework bolstering its incorporation. Most mediation clauses do not apply for an obligation of good faith settlement upon the parties, either explicitly or implicitly. Such can give rise to issues pertaining to jurisdiction and admissibility in subsequent arbitrations. Due to the lack of a well-defined legal framework, the disputant parties do not have sufficient in mediation as a means to resolve their disputes.

Secondly, one of the most significant obstacles to making mediation mandatory in ISDS is that parties have the of making a decision to a third party. This is deeply motivated by institutional and political factors. Voluntary decisions taken by officials of host states during mediation might be held against them, but if the same is rendered in the form of an arbitral award by an impartial tribunal, it would be more beneficial for them. Therefore, parties have a tendency to shift responsibilities to a third party so that they do not have to make decisions that are material to the dispute; rather the decisions made by the third party enjoy official sanction and indemnify the host state from allegations of bias.

Thirdly, with the mediation process act as crucial obstacles. Since both disputant parties are with arbitration as the paramount dispute resolution system, both parties lack sufficient resources to engage in mediation and appoint appropriate mediators. Unfamiliarity and inexperience in mediation stem from its fundamentally . This also restricts knowledge about how many actual mediations do take place between host states and investors. Many lawyers also see mediation as an attack on their , as it is a much more expedited process than arbitration. This makes them tend to advise the disputant parties to avoid mediation.

Conclusion

Therefore, Investor-State mediation remains an underexplored aspect of ISDS despite its apparent advantages over arbitration in terms of legal costs and reconciliation between parties. Even though a few BITs have mandatory mediation in place, arbitration still remains a preferred mode of dispute resolution between the parties. The idea of mandatory mediation in ISDS remains at a nascent stage and further working group reports by the UNCITRAL would clarify the mode and method of engaging in mandatory mediation. However, a cursory comparison between the existing dispute resolution mechanisms makes a compelling case for mandatory mediation before engaging in formal arbitration proceedings in view of the reasons highlighted above.

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Keywords: Arbitration, Nominate, Appointment, Seventh Schedule, Section 12(5) of the A&C Act.

Introduction

In (“Steel Limited”), the Supreme Court recently rekindled a contentious question of law: whether a person who is ineligible to become an Arbitrator can nominate an Arbitrator. An omnibus of cases on this point of law has given divergent and at times, conflicting answers to resolve the conundrum surrounding the issue. The conundrum remains unsolved as the Supreme Court in the Steel Limited case referred the question to a larger Bench. The article first analyses how different cases on the point of ineligibility to nominate an Arbitrator attempted to remove the ambiguity surrounding the debate on the above point. While doing so, the authors will look into the underlying principles that formed the basis of decisions in multiple cases through case laws. Furthermore, the author will argue that instead of answering unanswered questions, the recent judgments pertaining to this case have created more confusion around the issue.

TRF and Perkins: Quit Facit Per Alium Facit Per Se

The saga stems from the (“TRF case”) where the Court held that a person who is not eligible to be appointed as an Arbitrator cannot nominate an Arbitrator. In this case, the Managing Director (“MD”) could nominate an Arbitrator. However, the Appellants argued that on a reading of the Seventh and Fifth Schedules, the MD was ineligible to act as an Arbitrator and hence, he could not nominate an Arbitrator. However, the Respondents contended that other than on the grounds listed in the Fifth and Seventh Schedule, a person cannot be ineligible to become an Arbitrator. The grounds listed in the schedules should be treated as general principles. The Court endorsed its decision by relying1 on the principle of qui facit per alium facit per se: that what cannot be done directly may not be done through indirect means. Since the parties had not waived the applicability of Section 12(5) of The Arbitration and Conciliation Act, 1996 (“A&C”) through a written agreement, the Section was applicable to the case. There are two important aspects to note here. Firstly, the Court made it clear that the question of law did not pertain to the disclosure, objectivity, or impartiality of the Arbitrator. Had this case been about each party nominating their respective Arbitrator, the situation would have been different in comparison to one where the MD is the sole Arbitrator. This means the principle applied in this case can only be applied to cases where there is a unilateral clause. Secondly, it is interesting to note that in this case, the Court acknowledged that the agreement was signed before the Arbitration and Conciliation (Amendment) Act, 2015 came into force. However, given the , the Court made no attempt to justify the retrospective application of the Section to this case. Moreover, to suggest that an Arbitrator’s ineligibility criteria prevents an Arbitrator from nominating an Arbitrator under the Act since the Act has express ineligibility criteria for Arbitrators. It seems that the Court attempted to preserve the principle of neutrality of an Arbitrator; however, there was no mention or discussion of neutrality. In fact, the Court explicitly mentioned that objectivity or impartiality was not part of the issue in the case. Additionally, the Court did not mention . Therefore, the Court chose to selectively apply a general principle of law without evaluating what effect the application of this principle might have on different kinds of Arbitrator appointments. Does the principle align with the legislative intent of the Act? Should the grounds stated in Schedules V and VII be treated as principles for appraising the neutrality of the Arbitrator? The Seventh Schedule contains numerous ineligibility criteria for arbitrators. Therefore, it is not clear why the Court felt the need to add another layer of restrictions over the appointment of an Arbitrator.

The rationale propounded in the TRF case was reaffirmed through several case laws such as (“Perkins case”). A clause in the contract in this case gave unrestricted discretion to the Chairman and MD of the respondents to select an Arbitrator of his choice. While drawing on the TRF case, the Court said that there were two categories of cases relevant for the principle. Firstly, as in the TRF case, it is where the MD himself is an Arbitrator with additional power to appoint any other person as an Arbitrator. In the second category, the MD is not acting as an Arbitrator himself but is empowered to appoint an Arbitrator of his choice. The TRF case found the MD to be ineligible as an Arbitrator because he would have an interest in the outcome or decision of the case, which would be antithetical to the principle of neutrality of an Arbitrator. If interest in the outcome of the dispute is the basis for determining bias, it will present in the second category of the case as well. Therefore, the Court said that the bias will be present regardless of whichever category the case falls under. However, the case where both parties could nominate an Arbitrator will be a completely different situation given that the power of one party will be counterbalanced by equal power with another party. The Court concluded by saying “the person who has an interest in the outcome or decision of the despite must not have the power to appoint a sole Arbitrator”. Again, the division of categories, in this case, fails to examine the fate of unilateral clauses in arbitration agreements.

Disagreements with Precedents

As it is evident, the TRF and Perkins case reinforced the legal position that a person who is not eligible to become an Arbitrator cannot nominate an Arbitrator. Interestingly, in (“CORE case”), the Court refused to apply TRF and Perkin’s rationale. In the CORE case, a panel of three retired railway officers as arbitrators not below the rank of Senior Administrative Grade Officers would preside over the arbitration proceedings. The Respondents or the contractor were asked to suggest two out of four names from a list that was sent to them by the Appellant or General Manager of, Railway. The Respondents refused to send the names within the stipulated time as they argued that the retired railway officers would be ineligible to serve as an Arbitrator under Section 12(5) read with Schedule VII. The High Court of Allahabad (“HC”) appointed a sole Arbitrator while accepting their argument. The Supreme Court said that the HC erred in appointing a sole Arbitrator as the work contract was worth more than 165 crores, and therefore, the dispute could be resolved only by a panel of three Arbitrators. Moreover, the Court said that there was no bar under Section 12(5) of the A&C Act, 2015 for the appointment of a retired employee to act as an Arbitrator. The retired railway officers would be conversed with the technical aspects of the dispute and could contribute more effectively by utilizing their experience. Additionally, while evaluating the application of the TRF and Perkins cases to the present situation, the Court opined that the present case falls under the alternative situation, where there is more than one Arbitrator and both parties could appoint the Arbitrator. The General Manager would appoint at least one of the contractor’s nominees and the remaining Arbitrator from the panel or outside the panel as suggested in the procedure. This will ensure a balance of appointment powers between both parties. Therefore, in the CORE case, the General Manager could not be ineligible to appoint an Arbitrator.

Matters became more convoluted when the judges in (“TCL case”) while dealing with factually similar scenarios doubted the credibility of the CORE case. The Court in its order declared that they disagreed with the judgment in CORE “for the basic reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case.” The Order obfuscates the matter as the judges gave no justification for their reasoning. It is unclear how they could overlook the distinction pointed out in the CORE case between cases where there is a sole Arbitrator vis-a-vis cases where there is more than one Arbitrator. The judges did not adequately engage with the reasoning propounded in the CORE case. In the Steel Limited case, the judges doubted one of the party’s reliance on the CORE case as the Court said that it could be deduced on a prima facie appraisal of the arbitration order that the petitioner did not participate in the appointment process. Here, the Court had the golden opportunity to investigate the lacunae in the TCL case; however, the same was lost as the Court directed the matter to a larger Bench.

Conclusion

The puzzle surrounding the ineligibility of an Arbitrator to nominate an Arbitrator needs to be resolved for the sake of quick redressal for the parties who are caught in the quagmire of legal precedents. Although the TRF and Perkins case did not answer all the questions, they still made the position of law clear with regard to the nomination of an Arbitrator. The CORE case further consolidated the judgements by emphasizing the application and non-application of the principle in different cases. It was understood that any case where each party had the power to nominate at least one Arbitrator would not cast doubts on the validation of appointments made by a General Manager or an MD. However, the TCL and Steel Limited case criticized the rationale in the CORE case and demanded that the question be referred to a larger constitutional Bench. It is awaited to be seen what the Court will come up with to fill the gaps and lacunae now visible in the case laws.

(2017) (6).
Ibid (7).
Ibid (53).
Ibid (17).
(2019) (5).
Ibid (15).
Ibid (16).
Ibid (20).
Ibid (27).
Ibid (35).
Ibid (37).

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Keywords: Arbitration, Trademark, Internet Domain, Cybersquatting, Mediation.

Introduction

The Uniform Domain-Name Dispute-Resolution Policy (“UDRP”) as a dispute resolution method, created by the Internet Corporation for Assigned Names and Numbers (“ICANN”) has not only been the singular form of dispute resolution over domain names but is also assisted by other methods such as the WIPO Mediation Center, which has helped resolve a myriad of cases. The creation of the UDRP as a response to the burdensome task of litigation or arbitration has not only allowed domain name owners to protect their valuable assets but also allowed speedy resolution of disputes over trademark infringement. Its inception as an easier dispute resolution forum was propagated and confirmed through its 30-day period, which includes the constitution of a Panel, which is done by the WIPO, as opposed to the decision of the parties.

However, there have been allegations as to the bias of trademark owners, as opposed to domain name owners, since over eighty per cent of all UDRP disputes are resolved in favour of domain name owners, despite the fact that several domains are registered as a response to the demand for a particular domain name.

The main criticism stems from the structure of the UDRP, which and does not allow for appeals. Its jurisdiction is granted by the ICANN – a multi-stakeholder organization which regulates the assignment of domain names on the internet. This grants it the de facto status of a ‘Court of the Internet’ if you will.

However, its jurisdiction is still limited to generic Top-Level Domains (“gTLDs”), which are relatively . The use of “.com” and “.org” domains are now widespread and used by popular brands that are utilizing them for centralized control, while also registering their domains under country-specific country-code Top-level Domain names (“ccTLDs”) to prevent the use of their domain names by – “a bad faith registration of a trademark owners domain name”. For example, Netflix has regional ccTLDs, as well as a gTLD registration, which prevents cybersquatters from impersonating Netflix in domestic ccTLDs, as a method of trademark enforcement. This oversight by the ICANN in ensuring domain name protection for gTLDs, even among ccTLDs requires a revision of the UDRP, which has now been accused of being part of “forum shopping” for trademark owners that would want to register their domain names.

This leaves trademark owners with lesser effective alternatives, such as adjudication in local courts on trademark law, to procure domain names that are held by cybersquatters, or arbitration, which is mutually agreed upon. However, this has its drawbacks. For example, trademark law is based on the country of origin and is applied only to companies. If a non-profit organisation was to be prevented from registering a ccTLD within the domestic domain naming system, it would require domestic dispute resolution, as opposed to the UDRP framework. Furthermore, Section 4 of the UDRP Policy restricts the jurisdiction of the UDRP in cases of cybersquatters, since the standards established for determining domain name rights, are ‘bad faith’, and the absence of ‘legitimate right of interest’, . This is illustrated in , where it was unclear if Australian law permitted the ‘legitimate right of interest’, and led to the conflict between domestic law and the policy under the UDRP. The Panel had to decide if the domain was inactive as a result of bad faith and if the inaction by the Respondent was a form of bad faith. This led to the creation of the “passive holding doctrine”, which includes inaction as a form of bad faith uses regardless of explanations from domain name holders. This broadening definition of “bad faith” signifies the conversion of the UDRP into a form of Tribunal that grants rights that may be available only in cyberspace because of the UDRP’s jurisdiction over the internet.

Effective Alternatives

Considering these issues with the applicability of the UDRP, alternative dispute resolution methods have arisen, such as which provides rapid relief for clear cases of infringement with gTLDs. The application fee is a significant amount lower than the $1,500 required for an application at the UDRP, with a quicker resolution within 12-18 days, and also holds the domain name in escrow till complete resolution. It prevents cancellation of domains and opts for suspension or transferral, which is required as domain names could be re-registered after dispute resolution, making trademark owners despondent in their need to recover the domain name they lost.

However, this process is still exclusive to gTLDs. Although it was created to aid the UDRP by resolving simpler cases, critics call it an overreaching legislation that requires implementation by the WIPO. Although this makes it an important alternative to the UDRP mechanism, it is still a relatively untested mechanism. However, URS is now becoming a much more popular method of resolution as seen in the 80% rise in cases filed from the last year, with an due to its higher standard of proof and stricter requirements for filing.

Alternatively, state-owned forums such as the INDRP in India, which resolves disputes on “.in” ending domain names and is governed by the National Internet Exchange of India (“NIXI”) could be considered. The INDRP has now had a record of neutrality, with decisions that are against the Complainant, and also rules on the use of cybersquatting or Reverse Domain Name Hijacking (“RDNH”), as under Paragraph 1 of the UNDR Rules. The same has been observed in cases such as , where it was held that a case of RDNH had taken place, and the standard of ‘bad faith’ was utilized to hold the domain name holder accountable for the harm caused. However, the opposite is observed in the UDRP, wherein decisions have been observed to side with the Complainant, opening the possibility of fallacious claims succeeding, exploiting existing businesses that rely on these domain names to conduct day-to-day activities, since the Complainants are responsible for the selection of the Arbitration Panel, creating an implicit bias.

Furthermore, the Arbitrator took into account principles such as ‘widespread recognition’ to establish that the mark was weak. This is an effective alternative for trademark dispute resolution regarding domain names and offers resolution for ccTLDs in India through an established process. However, the use of the INDRP restricts parties from using arbitration, with the appointment of an Arbitrator by the INDRP, and the Rules being as under the Arbitration and Conciliation Act, 1996. It also requires complete payment by the Complainant, as opposed to the UDRP, which splits the cost between the Registrar and the Complainant.

Conclusion

The implementation of the UDRP as a dispute resolution mechanism is touted as largely successful, with the UDRP registering over 2,030 cases in the last quarter alone, and over 80,000 cases of domain name dispute resolutions. The UDRP is also becoming more adept at resolving cases with RDNH, with . There are different classifications for RDNH depending on previous fact scenarios, such as the one created by where a trademark was acquired after the acquisition of the domain name, wherein a Complainant sought to use the UDRP to cancel the domain name and acquire it once it is put up for re-registration by the ICANN. Each RDNH case only reaffirms the UDRP’s role as a deterrent to cybersquatters. However, with the rise of alternative methods of resolution for gTLDs and ccTLD domains, it is important to reconsider its position as a dispute resolution platform, when contenders such as the URS are offering stricter standards of approval and favour trademark holders. This provides an effective deterrent to cybersquatters using the “Policy” to advance their interests. Furthermore, the shift towards WIPO-adjudicated methods such as mediation or Arbitration could provide a better alternative. such as the introduction of an appeals process, or the elimination of single-member Arbitral Panels, in favour of a tribunal with three members. Despite these measures, the UDRP still serves as an effective dispute resolution method for the moment, as it has implemented the policy to the best extent, but requires amendment for the modern era.

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Keywords: Insolvency, Arbitration, Moratorium, Parallel Proceedings

Introduction

The only effective remedy for an insolvent entity in India is through the process approved by the National Company Law Tribunal (“NCLT”). This would require the creation of a Committee of Creditors (“CoCs”) that currently only consists of ‘financial creditors’, which would ‘safeguard’ the continuation of the company and ensure an equitable distribution of assets among them. However, this process has been condemned for not being effective, as only proposed have been approved, while the others have led to the liquidation of the company’s assets. , with potential buyers waiting for the resolution plan to be rejected so they can buy their asset of choice during liquidation. However, creditors have tried alternative dispute resolution routes like arbitration to enforce their claims.

This article examines the possibility and legitimacy of parallel arbitration proceedings along with the CIRP. Further, the article seeks to explore the possible solutions as an alternative to the blanket moratorium period imposed by the NCLT. Considering the parallel proceedings possible within the Insolvency and Bankruptcy Code, 2016 (“IBC”) allow creditors to apply to be a part of the CoC as a financial or operational creditor based on their type of debt owed, or at the same time enforce the arbitration clause within their contracts with the Corporate Debtor, it becomes difficult for creditors to resolve their disputes, as will be detailed later within the article. We propose to include solutions to resolve this conundrum through methods such as amendments to the CIRP or the creation of a core proceedings list, as in the US Bankruptcy Code. These solutions seek to include disadvantaged creditors, i.e., potential creditors who could not be included within the CoCs due to such an imposition of the moratorium.

How can Parallel Proceedings Happen During the CIRP Despite the Moratorium Period?

The IBC envisions a centralised approach towards the resolution of a company that has been unable to fulfil its debt obligations and has hence undergone insolvency. As soon as an application for the CIRP is admitted against the Corporate Debtor, a moratorium period commences as per , which bars the institution and/or continuation of legal proceedings against the Corporate Debtor. The reason behind the same is to provide breathing room to the Corporate Debtor so that the assets of the Corporate Debtor may be preserved during the resolution process. However, since blanket protection is given to the Corporate Debtor due to the moratorium in place, disputes which have an Arbitration clause or Arbitration proceedings that have commenced against the Debtor before the acceptance of the CIRP request lead to a conflict between the Code and the Arbitration and Conciliation Act, 1996 (“The Act”).

In its early years, Courts were completely against the arbitrability of insolvency and winding-up matters, as held in the case. In the said case, the Supreme Court, in Para 22, recognised insolvency and winding-up matters to be exclusively non-arbitrable. This was further reiterated by the Supreme Court in the case, according to which arbitrations that commenced after the imposition of moratorium under Section 14 would be non-est in law. However, through judicial precedents, certain exceptions have been carved out to allow an interplay between the Code and the Act. For instance, arbitration proceedings have been held to be valid after the commencement of the CIRP if they (a.) the value of the Corporate Debtor’s Assets, (b.) the Corporate Debtor and do not adversely impact the assets of the Debtor, and (c.) do not provide for a against the Corporate Debtor during the moratorium.

Barring these exceptions, the moratorium period prohibits the continuation or institution of a suit against the Corporate Debtor irrespective of whether a parallel application to refer the parties to arbitration exists under . To that effect, the Supreme Court in carved out a distinction against such a blanket application. The Court stated that determination of the insolvency application would govern the validity of a Section 8 application under the Act. In case the Adjudicating Authority is satisfied that a default has been committed by the Corporate Debtor, the CIRP would commence, and an application under Section 8 would not be maintainable. However, in case there is no default, arbitration proceedings would be valid. Following this observation, the Apex Court made further inroads for Arbitration proceedings after the CIRP by permitting the Operational Creditor to pursue Arbitration against the Corporate Debtor even after the resolution plan had been approved by the Adjudicating Authority. In , the Arbitration proceedings were adjourned sine die, and the Operational Creditor’s dues (worth Rs. 2400 Cr) were admitted as ‘nil’ by the Resolution Professional. The note appended to the claim stated that the liability would be “subject to the outcome of the arbitration proceedings”. In appeal, the Supreme Court allowed the Appellant to proceed against the Corporate Debtor despite the former’s claim being nullified by the Resolution Professional. As such, the decision in the Fourth Dimension is the current status of the interplay between the Code and the Act.

How Can Disadvantaged Creditors be Included within the CIRP?

The inclusion of potential creditors because of the moratorium period on all disputes during the CIRP is problematic since the current insolvency resolution process is disadvantageous against creditors that are not financial creditors, who are a major part of the CoC. This position is seen in , wherein the Supreme Court held that operational creditors are not interested in the finances of the company and, therefore, should not be given voting rights regarding the dissolution of the company and that for a dispute to be arbitrable, it should be a right in personam. The treatment of the operational creditor was worsened in the t, , which states that operational creditors come under the category in of the Code, so the problem could be considered trite. However, this proved the unwillingness to allow diverse types of creditors to have a say in the CoCs. The decision in made a clear distinction regarding the creation of a debt, stating that third-party rights could be created only when the CIRP application is admitted. Similarly, the exceptions to the moratorium period allow creditors to be included within the CIRP if they maximise the value of the assets of the Corporate Debtor and if the arbitration proceedings cannot pursue recovery during the moratorium period due to the pendency of the arbitration.

This proves that the arbitrability of insolvency claims is possible, and when the arbitration of such disputes leads to resolution post the CIRP itself, it may be impossible to enforce the award since the assets would have already been distributed amongst the creditors. Thus, these disadvantaged creditors would have to be included within the CIRP in some form to prevent the non-enforcement of the arbitral award. This could be done through amendments to the CIRP, which would allow existing disputes to continue and include the parties involved as creditors till the completion of the arbitration, or through alternative methods like the creation of a “” list, like in the , which restricts the jurisdictions of certain matters and allows for arbitration to be applied since those topics would be considered as arbitrable. This would also require the Parliament to overrule the precedents stated above to allow the partial arbitrability of insolvency disputes and allow those disadvantaged by being in dispute with the Corporate Debtor to become entitled as creditors.

Conclusion

The implementation of ADR mechanisms such as arbitration requires the reconsideration of the blanket of non-arbitrability of insolvency claims within the Act and the Code, in addition to the rationale laid down in the precedents of , . This would allow for the creation of a distinction between the different types of insolvency claims to ensure equitable distribution among the stakeholders of the company while also ensuring that creditors are given their due. In cases such as , the uncertainty of a potential creditor’s claim could lead to a dangerous precedent that could prevent other claims that would have occurred before the moratorium period but would have the locus to do so. Thus, to include transborder arbitral claims against insolvent companies and to ensure disadvantaged creditors such as operational creditors are given their due in the CoC, the Judiciary must reconsider their stance on the arbitrability of insolvency disputes and chart a clear distinction between the types of cases that could be arbitrated, as opposed to providing broad exceptions that could only benefit the Corporate Debtor and the CoC.

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