NPAC’s Arbitration Review: Non-co-operation by a respondent in arbitration: Scope of passing ex parte orders by arbitrator

VS Jayakumar

Introduction

The Arbitration and Conciliation Act,1996 as amended in 2015 deals with situations in which the respondent does not cooperate in the arbitration proceedings under Section 25. 

“Default of a party in an arbitral proceedings.

Unless otherwise agreed by the parties, where, without showing sufficient cause,—

(a)…..

(b) the respondent fails to communicate his statement of defense in accordance with sub-section (1) of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant;

(c) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.”

This provision undoubtedly comes in handy for an arbitrator if he wants to ignore the conduct of the respondent in a given case. However, adequate as it may appear, this provision does not meet all situations where the respondent appears only a few times while staying away from the regular hearings and communicates after such hearings thus creating a stumbling block for the arbitrator. 

Can such conduct on part of the respondent be considered as adverse in entirety? The answer is no. 

Yet, the practical implication is that the respondent is given too long a rope to drag the proceedings. In the interest of enabling a quick resolution of the dispute, the arbitrator needs to ensure prompt attendance of both the parties. Sometimes, the tact on the part of the arbitrator has a role to play. 

Appropriate approach 

From a perusal of the positions adopted in other jurisdictions, and considering the lack of jurisprudence in the Indian scenario, it appears that the most appropriate approach would be to ensure that the parties are given ample notice and time to respond by using multiple modes of service of notice. Upon non-participation past this stage, it would only seem prudent on the part of the arbitrator to pass an ex-parte order. An ex parte order at every stage of the proceeding may not be desirable as that would create an imbalance. 

Ex parte should be the last resort

Instead, the arbitrator should attempt to persuade the parties as much as possible so as to avoid multiplicity of unnecessary hearings to contest the same fact set. Ex parte awards ought to be treated as a last resort measure. 

A hint from a Supreme Court decision:  

Justice Dalveer Bhandari and Justice Deepak Varma in Ramrameshwari & Others v. Nirmala Devi & Others, Manu/SC/0714/2011 made certain recommendations relating to ex-parte orders (though not in the context of an arbitral award, may be adapted in this scenario). In an article by Shan Kohli in the Spicy IP Journal (dated August 1, 2011), these points have been succinctly summarised as follows:

• The Presiding Judge must exercise due care, caution, diligence, and attention while framing the issues for the suit so as not to include issues already decided by other courts in violation of the principle of res judicata. 
• The trial judge must carefully scrutinize, check and verify the pleadings and the documents filed by the parties. 
• The court should order discovery and production of the documents at the earliest so as to focus on the main controversies of the case and arriving at the truth of the matter. 
• Courts should impose realistic costs on parties who engage in frivolous litigation. 
• Courts have to be very careful in imposing ex parte orders. If an injunction has been granted on the basis of false pleadings or forged documents (which is very often the case in India) courts must impose costs on the litigants. 
• Courts should give short notice to the Defendants and hear both parties before passing ex parte interim orders since the experience has been that once granted these orders cause havoc and getting them modified is next to impossible. 
• In an exceptional case where the court has to grant an ex-parte injunction, it must record in the order that if the suit is dismissed the petitioner will have to pay full restitution, actual or realistic costs and mesne profits. 
• If ex parte order is granted then all endeavours should be made to dispose the application for injunction as expeditiously as possible, preferably as soon as the defendant appears in court or another option available is, to limit the life of the ex parte order for a week so as to prevent any incentive of prolonging the matter on the plaintiff’s part.

A snapshot of other jurisdictions

NYC

The practise adopted is that when the defendants are not cooperative, the arbitrators will have to ensure to the best possible extent that both parties are given opportunities to be heard. Upon reasonable notice being given to the parties, if there still exists such non-cooperation, the arbitrators are permitted to make awards ex-parte. If however it is proven that the defendant was not properly notified, enforcement of an award can be challenged. Article V (1) (b) of the New York Convention provides that the recognition and enforcement of the award may be refused if the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.

Sweden 

The scenario followed appears to be the same in other jurisdictions such as in Sweden, UAE etc. However, the question that arose was what is considered ‘proper notice’. The Swedish Supreme Court held that the lack of notification due to the change of the respondent’s address was not deemed as a proper notification and hence annulled a final award rendered under the auspices of the Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry. In that case, the request for arbitration was served to the respondent at its last known address mentioned in the contract, and a delivery receipt was provided by the courier service. The proceedings went ahead on an ex parte basis. However, it appeared at the enforcement stage that the respondent had changed its address and did not inform the claimant as explicitly required under the terms of the contract. Notwithstanding the respondent’s failure to notify the claimant with its new address, the Swedish Supreme Court found that the respondent was not properly made aware of the proceedings and annulled the final award. [Journal of International Arbitration (2010) 27 J. Int. Arb. 5.]

The United Kingdom 

Different jurisdictions appear to treat the non-cooperation by a defendant in arbitration in a similar manner. In the United Kingdom, for instance, the Chartered Institute of Arbitrators had drafted an international arbitration practice guideline that puts forth a rather reasonable approach. The guidelines are based on the preamble that when parties agree to arbitration if a dispute arises between them, they will cooperate and actively participate in the proceedings. 

Other jurisdictions adopt a more flexible approach. Under section 14 of the UK Arbitration Act, the arbitration is commenced when a party serves a notice to the other party requesting it to appoint an arbitrator. According to Section 76 of the Act, in the absence of the parties’ agreement, notifications have to be made by “any effective means” to the addressee’s last known address.

This section is derived from Article 3 of the UNCITRAL Model Law. In Bernuth Lines Ltd v High Seas Shipping Ltd [2005] EWHC 3020], the court held that “any effective means” includes serving the notice by email. The email was ignored by the staff of the respondent as it was received as spam; the court nonetheless considered it a valid notification, stating that there was no reason why delivery of a document by email – a method habitually used by businessmen, lawyers and civil servants – should be regarded as essentially different from communication by post, fax or telex.

The position in English law can be summarised as follows: notification of the respondent is valid if there is proof that the service of notice has been effective. The approach of English law seems to be helpful practically and one can say that it generally supports the use of arbitration, where it has been agreed between the parties. When the service of notice appears inadequate, an award passed for non-participation of a party can be set aside. 

The United Arab Emirates

In the UAE, there is no clear set of guidelines or requirements for proper notification. Article 208 of the UAE Civil Procedure Law provides that “the arbitrator shall, without the need to comply with the rules provided under this Law in respect of serving of notices, notify the parties to the dispute” Due to the lack of guidelines and proper awareness of the principles of arbitration, practitioners in the UAE tend to apply the classic rules of the UAE Civil Procedure Law to the notification. 

France 

In the French jurisdiction, the courts in the case of Yukso Capital [CA Paris, 24 March 1995 in Revue de l’Arbitrage 1996, p. 259], held that the fact that a party does not participate in arbitration proceedings does not necessarily lead to a violation of due process and thus to the setting aside the arbitral award, if the non-participating party was given the opportunity to take part in the proceedings.

Similarly, the Paris Court of Appeal ruled that where a party was regularly informed of the arbitration proceedings but willingly decided not to take part, then it was prevented from invoking any irregularities regarding the arbitration proceedings [CA Paris, 21 April 2005]. The French Cour de Cassation expressly sanctions the bad faith of the non-participating party bound by the arbitration agreement and emphasizes the parties’ duty to procedural loyalty in the arbitration proceedings.

In conclusion, the arbitrator should handle the situation with some reasonable control of the situation so as to ensure speedy access to justice in the arbitration.

Members of the Nani Palkivala Arbitration Arbitration Centre (NPAC) will be writing a weekly column for Bar & Bench analyzing the latest developments on the law of arbitration.