Delhi High Court enforces SIAC award in Glencore v. India Potash: pro-arbitration or disregard for party autonomy?

Bar & Bench October 12 2019
Nivedita Shenoy

Nivedita Shenoy

In the recent decision of Glencore International AG v. Indian Potash Limited, the Delhi High Court recognized and enforced a foreign award, despite concluding that the arbitration was administered under the rules of an institution not agreed upon by the parties. The Delhi High Court permitted the enforcement of an SIAC award that was rendered in an arbitration seated in Singapore.

Facts

Glencore International AG (Glencore) entered into an agreement dated February 5, 2010, with India Potash Ltd. (IPL) for the supply of 40,000 wet metric tonnes of iron ore with a specified percentage of 61% iron.  The agreement contained an arbitration clause that stated, inter alia, that any dispute between the parties arising out of or in connection with the Agreement shall be referred and finally settled by arbitration in accordance with the rules of the Singapore International Arbitration of the Chambers of Commerce in Singapore and that the seat of arbitration shall be Singapore. Pertinently, there is no arbitral institution by the name ‘Singapore International Arbitration of the Chambers of Commerce” in Singapore.

Disputes arose between the parties based on Glencore’s contention that the iron content in the iron ore supplied by IPL was less than 61%. Glencore issued a notice of arbitration to IPL, indicating that it had commenced arbitration proceedings under the SIAC Rules. IPL resisted the initiation of the arbitration proceeding contending that the invocation of arbitration prior to mutual talks was void. IPL also indicated that its request for extension of time to initiate arbitration must not be construed as if it has agreed, inter alia, to the applicability of the SIAC rules. Thereafter, the Chairman of SIAC appears to have determined under Rule 25 of the SIAC Rules 2010 that an arbitration agreement exists between the parties. Glencore also made a request for the expedited procedure under Rule 5 of the SIAC Rules, which was accepted. A sole arbitrator was appointed by the Chairman of SIAC. The arbitration was conducted as per the expedited procedure envisaged under the SIAC Rules. A final award and a cost award were passed by the sole arbitrator. These awards were sought to be enforced by Glencore through proceedings under Section 48 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

Contentions

IPL resisted enforcement of the award, inter alia, on the following grounds:

  1. The final award and cost award were not stamped;
  2. The arbitral tribunal was not constituted according to the agreement between the parties. Although the Chairman/Registrar, SIAC was the default authority for appointment of arbitrator under Section 8 (2) of the Singapore International Arbitration Act, read with Article 11 (3) (b) of the UNCITRAL Model Law, he could exercise the power to appoint an arbitrator only as the last resort, upon failure of the parties to agree on the constitution of the tribunal. Furthermore, the parties had included a non-existent institution in the arbitration agreement and there was no agreement regarding the administration of the arbitration under the SIAC Rules. In such circumstances, the procedure laid down under the model law would apply. On this basis, it was contended that awards were not enforceable under Section 48 (1) (d)[1] of the Arbitration Act;
  3. The arbitral tribunal failed to decide the issue of jurisdiction at the threshold, depriving IPL of the right of an appeal under the Singapore International Arbitration Act and this was against the public policy of India;
  4. The arbitral tribunal had violated the principles of natural justice by allowing Glencore to amend its pleadings without allowing IPL to contest the amendment.

Glencore responded to the contentions as under:

  1. A foreign award would not be amenable to stamp duty as it would presuppose that the award is to be enforced in one State. This is also not in consonance with Part II of the
  2. Arbitration Act. Payment of stamp duty is not a ground on which enforcement of an award can be resisted under Section 48;
  3. The constitution of the arbitral tribunal under the SIAC Rules had not caused any prejudice to IPL. The findings of the arbitral tribunal were reasonable and must not be interdicted by the Court. Reliance was placed on Pricol Ltd. v. Johnson Controls, (2015) 4 SCC 177;
  4. The arbitral tribunal had the discretion to decide whether to rule on the issue of jurisdiction at the preliminary stage or at the stage of rendering the final award and this aligns with Indian public policy;
  5. The tribunal had the power to allow the amendments under the SIAC rules.

Decision

The Court held that:

  • In view of the decision in Shriram EPC Ltd. v. Rioglass Solar SA, Civil Appeal No. 9515/2018, a foreign award was not required to be stamped.
  • The objection that the SIAC Rules were inapplicable was erroneous. The arbitration agreement was interpreted by the tribunal by the use of extrinsic evidence pertaining to its drafting history - the parties had made cosmetic changes to the arbitration agreement by replacing the words ‘English’ and ‘London, United Kingdom’ with ‘Singapore’. This method of interpretation was reasonable and caused no prejudice to IPL and since lex arbitri was applied, the enforcement court should be slow to interfere.
  • The arbitration agreement shows that the parties have agreed for arbitration under the rules of an institution that does not exist. In these circumstances, once the arbitral tribunal identifies the institution which the parties had in mind via the interpretative method, only the rules of that institution would apply to the arbitration proceedings.
  • Irrespective of whether the SIAC Rules apply or the Singapore International Arbitration Act, the appointing authority is the same.
  • There is no fundamental policy in Indian law that an arbitral tribunal must render decisions on matters of jurisdiction at the preliminary stage. The tribunal acted in accordance with the SIAC Rules.
  • The tribunal had the power under the SIAC Rules to allow the amendment.

Comment

Although this decision joins numerous in the pro-arbitration regime, the Court appears to have glossed over the objection regarding the pathological designation of an arbitral institution. IPL’s objections with respect to SIAC were two-fold - firstly, that the constitution of the Tribunal was premature since IPL had asked for postponement of arbitration until the conclusion of talks between the parties; secondly, that although the Chairman of SIAC may have the authority under the Singapore International Arbitration Act and UNCITRAL Model Law to constitute the tribunal, that does not automatically entail application of the SIAC Rules. The objections, therefore, were on the grounds of the improper constitution of the Tribunal as well as the application of an arbitral procedure that is not in accordance with the agreement of the parties. In the Johnson Controls case cited by Glencore, the Court was only concerned with the constitution of the Tribunal. In this case, although both grounds raised by IPL were argued separately, the Court did not extensively deal with the objection regarding the application of the SIAC Rules to the arbitral proceeding. However, the Court upheld the arbitral tribunal’s decision to decide the question of jurisdiction at the final stage and allow Glencore’s request for amendment, for the reason, inter alia, that the SIAC Rules permit the tribunal to do so.

It is not clear from the judgment as to how the arbitral tribunal could have interpreted ‘rules of Singapore International Arbitration of the Chambers of Commerce in Singapore’ to mean the rules of the Singapore International Arbitration Centre and not any of the several other arbitral institutions in Singapore. There have been instances where other Courts have given effect to pathological clauses designating non-existent institutions because the parties clearly intended to resolve their disputes through arbitration[2]. In these cases, either the parties were referred to an ad hoc arbitration or where possible, the institution that was in the contemplation of the parties was identified via interpretation. There have also been cases where it has been held that the designation of an institution was so vague or not relatable to an existing institution that any interpretation would amount to re-writing the agreement.[3] An interpretation that amounts to re-writing an agreement is impermissible under Indian law[4]. In the author’s opinion, even if it is assumed that the arbitral tribunal’s interpretation leading to the application of the SIAC Rules was correct, the Delhi High Court was required to consider this issue adequately and independently under Section 48.

[1] The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement was not in accordance with the law of the country where the arbitration took place.

[2]See for example, SAS ADB c REO Inductive Components AG, Cour d’appel de Paris, Chambre Civile, Section 1, no. 10/23578 ; HKL Group Co Ltd v Rizq International Holdings Pte Ltd, [2013] SGHCR 5.

[3] See for example, S. Ltd (Republic of Korea) v. P. GmbH (Germany), Case No. 10113-0023, Award (Korean Comm’l Arb. Bd. 2011)

[4] Enercon (India) Ltd. v. Enercon GmBH & Ors., AIR 2014 SC 3152.

Nivedita Shenoy is an Associate Partner at AK Law Chambers, Bengaluru. Nivedita is a dispute resolution lawyer with an LL.M. in International Business Regulation, Litigation, and Arbitration from New York University School of Law.