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TMI Blog2019 (5) TMI 1879X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that even on principle, it is the substance of the amendment that is to be looked at rather than the form. Therefore, even in cases where, for avoidance of doubt, something is clarified by way of an amendment, such clarification cannot be retrospective if the earlier law has been changed substantively. A fundamental principle of justice has been breached, namely, that a unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court. However, we repeat that this ground is available only in very exceptional circumstances, such as the fact situation in the present case. Under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. The judgments of the Single Judge and of the Division Bench of the Delhi High Court are set aside. Consequently, the majority award is also set aside. Under the Scheme of Section 34 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi. C1 = the all India average wholesale price index for cement on the day 28 days prior to the last day of the period to which a particular interim payment certificate is related, as published by Ministry of Industrial Development, Government of India, New Delhi. Pc = percentage of Cement component. Insofar as the component C0 is concerned, the date which is 28 days prior to the last submission of bids is 29.09.2005, which is the base date for calculation of price adjustment, since it is common ground that the date of submission of the bid is 27.10.2005. 3. The price adjustment was being paid to the appellant every month in terms of the agreed formula under sub-clause 70.3 by using the Wholesale Price Index [ WPI ] published by the Ministry of Industrial Development, which followed the years 1993-94 = 100 [ Old Series ]. However, with effect from 14.09.2010, the Ministry of Industrial Development stopped publishing the WPI for the Old Series and started publishing indices under the WPI series 2004-05 = 100 [ New Series ]. It is important to note that even under this New Series, the WPIs for the previous years beginning from April, 2005 were also being published by the Minis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular retrospectively. 6. Meanwhile, the aforesaid dispute was referred to the Dispute Adjudicating Board as envisaged under sub-clause 67 of the contract. The Dispute Adjudicating Board, by its majority recommendation dated 31.10.2013, recommended a certain linking factor and then arrived at the figures of price adjustment in the aforesaid four materials by applying such linking factor. However, one of the members of the Dispute Adjudicating Board gave a dissenting note in favour of the appellant, recommending that in view of the express terms of the contract, the provisions contained in the impugned Circular cannot be applied for calculation of price adjustment. Aggrieved by the recommendations of the Dispute Adjudicating Board, the appellant issued a notice of dissatisfaction dated 19.11.2013, and referred the dispute to an arbitral tribunal consisting of three members. The appellant raised a claim of INR 2,01,42,827/- towards unpaid price adjustment for the period September 2010 up to May 2014, plus INR 1 ,00,86,417/- for interest on the aforesaid unpaid amount. The dispute that was thus referred to arbitration was a narrow one, namely, as to whether price adjustment would con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monthly from due date of payment to the date of award, viz. 02.05.2016. 9.4. Further interest @ 12% per annum, simple interest, shall be payable to the Claimant from 02.05.2016 onwards till the date of payments. No future interest however shall be payable in case the amounts are paid within 90 days of the date of the award, that is by 02.08.2016. A dissenting award was given by Shri Dilip Namdeo Potdukhe, in which the learned dissenting arbitrator expressly stated that neither the Circular nor the guidelines could be applied as they were de hors the contract between the parties. Accordingly, the dissenting award awarded the claim of the claimant-appellant in full. 7. A Section 34 petition which was filed by the appellant was rejected by the learned Single Judge of the Delhi High Court, by a judgment and order dated 09.08.2016, in which it was held that a possible view was taken by the majority arbitrators which, therefore, could not be interfered with, given the parameters of challenge to arbitral awards. The learned Single Judge also went on to hold that the New Series published by the Ministry could be applied in the case of the appellant as the base indices for 2004-05 under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formula with the base index of 2004-05 would make the contract unworkable, as a result of which, it was imperative to have a linking factor. According to the learned counsel, the appellant itself applied a linking factor when the Tribunal asked it to do so, may be without prejudice to its other contentions. In any case, this was a matter of interpretation of the agreement in which the arbitrators view is final, as has been correctly held by the learned Single Judge and the Division Bench. He also cited some judgments in support of this proposition. According to him, therefore, this appeal should be dismissed. Applicability of the Arbitration and Conciliation (Amendment) Act, 2015 10. Since the Section 34 petition in the present case is dated 30.07.2016, an important question as to the applicability of the parameters of review of arbitral awards would arise in this case. More particularly, radical changes have been made by the Arbitration and Conciliation (Amendment) Act, 2015 [ Amendment Act, 2015 ] with effect from 23.10.2015 in particular, in the public policy of India ground for challenge of arbitral awards. The question which arises is whether the amendments made in Section 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not required to undertake in the facts of the present cases, except to the extent indicated above, namely, the effect of the substituted Section 36 of the Amendment Act. xxx xxx xxx 78. The Government will be well-advised in keeping the aforesaid Statement of Objects and Reasons in the forefront, if it proposes to enact Section 87 on the lines indicated in the Government s Press Release dated 7-32018. The immediate effect of the proposed Section 87 would be to put all the important amendments made by the Amendment Act on a back-burner, such as the important amendments made to Sections 28 and 34 in particular, which, as has been stated by the Statement of Objects and Reasons, have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act , and will now not be applicable to Section 34 petitions filed after 23-10-2015, but will be applicable to Section 34 petitions filed in cases where arbitration proceedings have themselves commenced only after 23-10-2015. This would mean that in all matters which are in the pipeline, despite the fact that Section 34 proceedings have been init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not found in Section 34(2A). Apart from the anomalous position which would arise if the Section were to be applied piecemeal, namely, that Explanations 1 and 2 were to have retrospective effect, being only to remove doubts, whereas sub-section (2 A) would have to apply prospectively as a new ground, with inbuilt exceptions, having been introduced for the first time, it is clear that even on principle, it is the substance of the amendment that is to be looked at rather than the form. Therefore, even in cases where, for avoidance of doubt, something is clarified by way of an amendment, such clarification cannot be retrospective if the earlier law has been changed substantively. Thus, in Sedco Forex International Drill, Inc. and Ors. v. Commissioner of Income Tax, Dehradun and Anr., (2005) 12 SCC 717 [ Sedco ], this Court held: 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicy. In construing the expression public policy in the context of a foreign award, the Court held that an award contrary to (i) The fundamental policy of Indian law, (ii) The interest of India, (iii) Justice or morality, would be set aside on the ground that it would be contrary to the public policy of India. It went on further to hold that a contravention of the provisions of the Foreign Exchange Regulation Act would be contrary to the public policy of India in that the statute is enacted for the national economic interest to ensure that the nation does not lose foreign exchange which is essential for the economic survival of the nation (see SCC p. 685, para 75) . Equally, disregarding orders passed by the superior courts in India could also be a contravention of the fundamental policy of Indian law, but the recovery of compound interest on interest, being contrary to statute only, would not contravene any fundamental policy of Indian law (see SCC pp. 689 693, paras 85 95). To this statement of the law, this Court added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian Law [see paragraph 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t stood at that point of time, as follows: 21. From the above decisions, the following principles emerge: (a) An award, which is (i) contrary to substantive provisions of law; or (ii) the provisions of the Arbitration and Conciliation Act, 1996; or (iii) against the terms of the respective contract; or (iv) patently illegal; or (v) prejudicial to the rights of the parties; is open to interference by the court under Section 34(2) of the Act. (b) The award could be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality. (c) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. (d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India. 17. Yet another expansion of the phrase public policy of India contained in Section 34 of the 1996 Act was by another judgment of this Court in Western Geco (supra), which was explained in Associate Builders (supra) as follows: 28. In a recent judgment, ONGC Ltd. v. Weste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law. 39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 : (1947) 2 All ER 680 (CA)] principle of reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision which it arrives at; or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. 32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cumAssessing Authority v. Gopi Nath Sons [1992 Supp (2) SCC 312], it was held: (SCC p. 317, para 7) 7. It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law. In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 : 1999 SCC (L S) 429], it was held: (SCC p. 14, para 10) 10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugust 2014. The Law Commission Report first suggested an amendment to the Preamble of the 1996 Act as follows: Amendment to the Preamble After the words aforesaid Model Law and Rules the following be inserted: And WHEREAS it is further required to improve the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation, in order to provide a fair, expeditious and cost-effective means of dispute resolution; [NOTE: This amendment is proposed in order to further demonstrate and reaffirm the Act s focus on achieving the objectives of fairness, speed and economy in resolution of disputes through arbitration.] The Law Commission Report, when it came to setting aside of domestic awards and recognition or enforcement of foreign awards, prescribed certain changes to the 1996 Act as follows: SETTING ASIDE OF DOMESTIC AWARDS AND RECOGNITION / ENFORCEMENT OF FOREIGN AWARDS 34. Once an arbitral award is made, an aggrieved party may apply for the setting aside of such award. Section 34 of the Act deals with setting aside a domestic award and a domestic award resulting from an international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieves no similar amendment is necessary to section 28 (1) given the express restriction of the public policy ground. 36. Although the Supreme Court has held in Shri Lal Mahal v Progetto Grano Spa, (2014) 2 SCC 433, that the expansive construction accorded to the term public policy in Saw Pipes cannot apply to the use of the same term public policy of India in section 48(2)(b), the recommendations of the Commission go even further and are intended to ensure that the legitimacy of court intervention to address patent illegalities in purely domestic awards is directly recognised by the addition of section 34 (2A) and not indirectly by according an expansive definition to the phrase public policy . 37. In this context, the Commission has further recommended the restriction of the scope of public policy in both sections 34 and 48. This is to bring the definition in line with the definition propounded by the Supreme Court in Renusagar Power Plant Co Ltd v General Electric Co, AIR 1994 SC 860 where the Supreme Court while construing the term public policy in section 7(1)(b)(ii) of Foreign Awards (Recognition and Enforcement) Act, 1961 held that an award would be contrary to public policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard for setting aside an award in conformity with the decision of the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644 and Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433, for awards in both domestic as well as international commercial arbitrations. Ground (c) reflects an internationally recognized formulation. Such a formulation further tightens the Renusagar test and ensures that morality or justice terms used in Renusagar cannot be used to widen the test.] (iii) After the Explanation in sub-section (2), insert subsection (2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court if the Court finds that the award is vitiated by patent illegality appearing on the face of the award. Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciating evidence. [NOTE: The proposed S 34(2A) provides an additional, albeit carefully limited, ground for setting aside an award arising out of a domestic arbitration ( and not an international commercial arbitration ). The scope of review is based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orruption or was in violation of section 75 or section 81; (b) it is in contravention with the fundamental policy of Indian law; or (c) it is in conflict with the most basic notions of morality or justice. (2 A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court if the Court finds that the award is vitiated by patent illegality appearing on the face of the award. Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciating evidence. 10.2. The above amendments were suggested on the assumption that other terms such as fundamental policy of Indian law or conflict with most basic notions of morality or justice would not be widely construed. 10.3. However, a month after the submission of the 246 th Report in August 2014, the term fundamental policy of India was construed widely by a three-judge bench of Supreme Court in ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 in September to include an award that no reasonable person would have arrived at . This permitted the review of an arbitral award on merits on the basis of it viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law. 39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury principle [Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation (1948) 1 KB 223, (1947) 2 All ER 680 ( CA)] of reasonableness. Decisions that fall short of the standar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t domestic and foreign investors, about the efficacy and speed of dispute resolution and potential for judicial interference; and, (d) an incidental increase in judicial backlog. In this regard, the following amendment to the draft is suggested, by inserting Explanation 2 to Section 34(2)(b)(ii) of the Act: For the avoidance of doubt the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. 21. Pursuant to the Law Commission Report, the 1996 Act was amended by the Amendment Act, 2015 with effect from 23.10.2015. The Statement of Objects and Reasons of the Arbitration and Conciliation (Amendment) Bill, 2015 is set out as follows: xxx xxx xxx 2. The Act was enacted to provide for speedy disposal of cases relating to arbitration with least court intervention. With the passage of time, some difficulties in the applicability of the Act have been noticed. Interpretation of the provisions of the Act by courts in some cases have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act . With a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake into account the usages of the trade applicable to the transaction. Section 28(3), after amendment, reads as follows: 28. Rules applicable to substance of dispute.- xxx xxx xxx (3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction. Section 34(2)(b)(ii), after amendment, reads as follows: 34. Application for setting aside arbitral award.- xxx xxx xxx 2. An arbitral award may be set aside by the Court only if - xxx xxx xxx (b) the Court finds that- xxx xxx xxx (ii) the arbitral award is in conflict with the public policy of India. Explanation 1.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the arbitrator has not adopted a judicial approach, the Court s intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra). 24. It is important to notice that the ground for interference insofar as it concerns interest of India has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the most basic notions of morality or justice . This again would be in line with paragraphs 36 to 39 of Associate Builders ( supra), as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground. 25. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under public policy of India , would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. 31. Given the fact that the amended Act will now apply, and that the patent illegality ground for setting aside arbitral awards in international commercial arbitrations will not apply, it is necessary to advert to the grounds contained in Section 34(2)(a)(iii) and (iv) as applicable to the facts of the present case. Section 34(2)(a) Does Not Entail a Challenge to an Arbitral Award on Merits 32. Section 34(2)(a)(iii) and (iv) state as under: 34. Appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orcement of foreign awards are in substance, similar to those adopted by the English courts at common law. (See: Dicey Morris, The Conflict of Laws, 11th Edn., Vol. I, p. 578). It was, however, felt that the Geneva Convention suffered from certain defects which hampered the speedy settlement of disputes through arbitration. The New York Convention seeks to remedy the said defects by providing for a much more simple and effective method of obtaining recognition and enforcement of foreign awards. Under the New York Convention the party against whom the award is sought to be enforced can object to recognition and enforcement of the foreign award on grounds set out in sub-clauses (a) to (e) of clause (1) of Article V and the court can, on its own motion, refuse recognition and enforcement of a foreign award for two additional reasons set out in sub-clauses (a) and (b) of clause (2) of Article V. None of the grounds set out in sub-clauses ( a ) to ( e) of clause (1) and sub clauses ( a ) and ( b) of clause (2) of Article V postulates a challenge to the award on merits. 35. Albert Jan van den Berg in his treatise The New York Arbitration Convention of 1958 : Towards a Uniform Judicial In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the public policy or the law of India. Since the expression public policy covers the field not covered by the words and the law of India which follow the said expression, contravention of law alone will not attract the bar of public policy and something more than contravention of law is required. 66. Article V(2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression public policy in Article V(2) (b) of the New York Convention and Section 7(1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article I(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that public policy in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of authority, or some other Article V exception, rather than purporting to justify a review of the merits. [a] No Judicial Review of Awards Under New York and Inter-American Conventions Neither the New York Convention nor the InterAmerican Convention contains any exception permitting non-enforcement of an award simply because the arbitrators got their decision on the substance of the parties dispute wrong, or even badly wrong. This is reasonably clear from the language of the Convention, which makes no reference to the possibility of a review of the merits in Article V s exhaustive list of the exclusive grounds for denying recognition of foreign and nondomestic awards. There is also no hint in the New York Convention s drafting history of any authority to reconsider the merits of an arbitral award in recognition proceedings. Likewise, the prohibition against review of the merits of the arbitrator s decision is one of the most fundamental pillars of national court authority interpreting the Convention. This prohibition has repeatedly and uniformly been affirmed by national courts, in both common law and civil law jurisdictions. Simply put: the court may not refuse to enforce an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treatment of parties.- The parties shall be treated with equality and each party shall be given a full opportunity to present his case. ( emphasis supplied ) Section 24(3) also states as follows: 24 . Hearings and written proceedings.- xxx xxx xxx (3) All statements, documents or other information supplied to, or applications made to the arbitral tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties. Section 26 of the 1996 Act is also important and states as follows: 26. Expert appointed by arbitral tribunal.- (1) Unless otherwise agreed by the parties, the arbitral tribunal may- (a) appoint one or more experts to report to it on specific issues to be determined by the arbitral tribunal; and (b) require a party to give the expert any relevant information or to produce, or to provide access to, any relevant documents, goods or other property for his inspection. (2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers it necessary, the expert shall, after delivery of his written or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple of due process, the tribunal must grant the parties an opportunity to comment on all factual and legal circumstances that may be relevant to the arbitrators decision-making. a) Right to Comment on Evidence and Arguments Submitted by the Other Party As part of their right to comment, the parties must be given an opportunity to opine on the evidence and arguments introduced in the proceedings by the other party. The right to comment on the counterparty s submissions is regarded as a fundamental tenet of adversarial proceedings. However, in accordance with the general requirement of causality, the denial of an opportunity to comment on a particular piece of evidence or argument is not prejudicial, unless the tribunal relied on this piece of evidence or argument in making its decision. In order to ensure that the parties can exercise their right to comment effectively, the arbitral tribunal must grant them access to the evidence and arguments submitted by the other side. Affording a party the opportunity to make submissions or to give its view without also informing it of the opposing side s claims and arguments typically constitutes a violation of due process, unless specific non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Appeals) (1992)], in another case where the defendant was not given the opportunity to comment on the report produced by the expert appointed by the tribunal [Paklito Inv. Ltd. v. Klockner East Asia Ltd., XIX Y.B. Comm. Arb. 664, 671 (Supreme Court of Hong Kong) (1994)], and again where the arbitral tribunal criticized a party for having employed a method of presenting evidence which the tribunal itself had suggested [Iran Aircraft Indus. v Avco Corp., 980 F.2d 141 (2nd Cir. 1992)] . ( at p. 987) Gary Born (supra) states: German courts have adopted similar reasoning, holding that the right to be heard entails two related sets of rights: (a) a party is entitled to present its position on disputed issues of fact and law, to be informed about the position of the other parties and to a decision based on evidence or materials known to the parties [See, e.g., Judgment of 5 July 2011, 34 SCH 09/11, II(5)(c)(bb) ( Oberlandesgericht Munchen)]; and (b) a party is entitled to a decision by the arbitral tribunal that takes its position into account insofar as relevant [See, e.g., Judgment of 5 October 2009, 34 Sch 12/09 ( Oberlandesgericht Munchen)]. Other authorities provide comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ask for the disclosure of evidence at issue and comment on it, but declined to do so. The court held that the due process defence to enforcement was not intended to accommodate circumstances in which a party had failed to take advantage of an opportunity duly accorded to it. 38. In Minmetals Germany GmbH v. Ferco Steel Ltd., [1999] CLC 647, the Queen s Bench Division referred to this ground under the New York Convention, and held as follows: The inability to present a case issue Although many of those states who are parties to the New York Convention are civil law jurisdictions or are those which like China derive the whole or part of their procedural rules from the civil law and therefore have essentially an inquisitorial system, art. V of the Convention protects the requirements of natural justice reflected in the audi alteram partem rule. Therefore, where the tribunal is procedurally entitled to conduct its own investigations into the facts, the effect of this provision will be to avoid enforcement of an award based on findings of fact derived from such investigations if the enforcee has not been given any reasonable opportunity to present its case in relation to the results ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of an arbitration agreement, either because the agreement is void (as in subsection (a)) or because it does not cover the subject-matter on which the arbitrator reached a decision (as in subsection (c)). For that reason, more recent arbitration statutes often either treat the two grounds as one, as in Article 1502 1o of the French New Code of Civil Procedure, or refer generally to the absence of a valid arbitration agreement, as in Article 1065 of the Netherlands Code of Civil Procedure. However, Article V, paragraph 1(c) does not cover all the cases listed in Article 1502 3o of the French New Code of Civil Procedure, which provides that recognition or enforcement can be refused where the arbitrator ruled without complying with the mission conferred upon him or her. That extends to decisions that are either infra petita and ultra petita, as well as to situations where the arbitrators have exceeded their powers in the examination of the merits of the case (for example, by acting as amiable compositeurs when that was not agreed by the parties, or by failing to apply the rules of law chosen by the parties). Generally speaking, such situations cannot be said to be outside the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw than some other national arbitration regimes) as follows [Judgment of 30 June 2005, Pilliod v. Econosto, 2006 Rev. arb. 687, 688 ( Paris Cour d appel )]: The fact that the contract was governed by French law does not allow the arbitrators to award interest pursuant to Art.1153 (1) of the Civil Code on the sole ground that this is permitted under that provision, even in the absence of a request of the parties. There is a difference between the role of a state court and that of an arbitrator, whose jurisdiction is based on the parties consent and who must therefore preserve the consensual character of the proceedings by consulting the parties on their intention as to the mission of the tribunal. Similarly, another court annulled an award on the grounds that the relief ordered by the tribunal exceeded the arbitrators powers because it was not sought by either party, and was completely irrational because it wrote material terms of the contract out of existence [PMA Capital Inc. Co. v. Platinum Underwriters Bermuda, Ltd., 400 F. Appx. 654 (3d Cir. 2010)]. Nonetheless, an award will not be subject to annulment where the arbitrators grant relief that, while different from what a party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook to local rules of civil procedure or litigation practices in determining whether an issue was presented to the arbitrators; the proper inquiry is instead a pragmatic one into whether the parties and tribunal had an opportunity to consider and submit evidence and argument on a particular issue. ( at pp. 3289-3293) ( emphasis supplied ) Redfern and Hunter (supra) states as follows: 11.77. The first part of this ground for refusal of enforcement under the Convention (and under the Model Law) envisages a situation in which the arbitral tribunal is alleged to have acted in excess of its authority, ie ultra petita, and to have dealt with a dispute that was not submitted to it. According to a leading authority on the Convention, the courts almost invariably reject this defence [See Albert Jan van den Berg, Court Decisions on the New York Convention , Swiss Arbitration Association Conference, February 1996, Collected Reports, 86]. By way of example, the German courts have rejected ultra petita defences raised in complaint of an arbitral tribunal s application of lex mercatoria, [see the decision of the regional court of Hamburg of 18 September 1997, (2000) XXV Y.B. Comm. Arb. 710] and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n opportunity to address the court if there has been a violation of due process or other irregularities in the arbitral proceedings (see Peter Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ( Sweet Maxwell, 3rd Ed, 2010) at para 7-001). 27. While the Singapore courts infrequently exercise their power to set aside arbitral awards, they will unhesitatingly do so if a statutorily prescribed ground for setting aside an arbitral award is clearly established. The relevant grounds in this regard can be classified into three broad categories (see generally Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th Ed, 2009) ( Redfern and Hunter ) at paras 10.30 10.86). First, an award may be challenged on jurisdictional grounds (ie, the nonexistence of a valid and binding arbitration clause, or other grounds that go to the adjudicability of the claim determined by the arbitral tribunal). Second, an award may be challenged on procedural grounds (eg, failure to give proper notice of the appointment of an arbitrator), and, third, the award may be challenged on substantive grounds (eg, breach of the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal s exceeding its powers (see s 68(2)(b) of the Arbitration Act 1996 (c 23) ( UK) ( the UK Arbitration Act )), Lord Steyn made clear ( at [24] [25]) the vital distinction between the erroneous exercise by an arbitral tribunal of an available power vested in it (which would amount to no more than a mere error of law) and the purported exercise by the arbitral tribunal of a power which it did not possess. Only in the latter situation, his Lordship stated, would an arbitral award be liable to be set aside under s 68(2)(b) of the UK Arbitration Act on the ground that the arbitral tribunal had exceeded its powers. In a similar vein, Art 34(2)(a) ( iii) of the Model Law applies where an arbitral tribunal exceeds its authority by deciding matters beyond its ambit of reference or fails to exercise the authority conferred on it by failing to decide the matters submitted to it, which in turn prejudices either or both of the parties to the dispute (see above at [31]). ( emphasis supplied ) The UNCITRAL Guide on the New York Convention (supra) states: 2. Article V (1)(c) finds its roots in article 2(c) of the 1927 Geneva Convention. The language at the outset of article V (1)(c), providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a new arbitration agreement by signing ICC Terms of Reference. Similarly, a decision by the English House of Lords stated that [i]n the present case one is dealing with an ICC arbitration agreement. In such a case the terms of reference which under article 18 of the ICC rules are invariably settled may, of course, amend or supplement the terms of the arbitration agreement. 8. Authors and courts have also considered whether article V (1)(c) provides grounds for refusing to recognize or enforce where the arbitrator s decision goes beyond the parties pleadings or prayers for relief to render an award ultra petita. Though some authors have argued that article V (1)(c) provides a second, separate ground for refusal to enforce an award rendered ultra petita, courts have rejected challenges to recognition or enforcement under article V (1)(c) based on the fact that the arbitrators had exceeded their authority by deciding on issues or granting forms of relief beyond those pleaded by the parties. As one United States court observed, [u]nder the New York Convention, we examine whether the award exceeds the scope of the [ arbitration agreement], not whether the award exceeds the scope of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preted the provision not to preclude jurisdiction on this matter. As in United Steelworkers of America v. Enterprise Wheel Car Corp., supra, the court may be satisfied that the arbitrator premised the award on a construction of the contract and that it is not apparent, 363 U.S. 593 at 598, 80 S.Ct. 1358, that the scope of the submission to arbitration has been exceeded. xxx xxx xxx 24. Although the Convention recognizes that an award may not be enforced where predicated on a subject matter outside the arbitrator s jurisdiction, it does not sanction second-guessing the arbitrator s construction of the parties agreement. The appellant s attempt to invoke this defense, however, calls upon the court to ignore this limitation on its decision-making powers and usurp the arbitrator s role. The district court took a proper view of its own jurisdiction in refusing to grant relief on this ground. ( emphasis supplied ) In Lesotho Highlands Development Authority v. Impregilo SpA and Ors., [2005] 3 All ER 789 [HL], after setting out the English statutory provision, the precise question which faced the Court was stated thus: [3] Section 68, so far as material, reads as follows : (1) A party to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an award: it involves the competence of the arbitrator. Article V(1)(c) relates to matters beyond the scope of the submission to arbitration. It deals with cases of excess of power or authority of the arbitrator. It is well established that article V(1)(c) must be construed narrowly and should never lead to a re-examination of the merits of the award: Parsons Whittemore Overseas Co Inc v Soci te G n rale de l Industrie du Papier (RAKTA) 508 F 2d 969 (2nd Cir 1974); Albert Jan van den Berg, The New York Arbitration Convention of 1958 (1981), pp 311318; Domenico Di Pietro and Martin Platte, Enforcement of International Arbitration Awards: The New York Convention of 1958 (2001), pp 158-162. By citing the Parsons decision counsel for the contractors alerted the House to this analogy. It points to a narrow interpretation of section 68(2)(b). The policy underlying section 68(2)(b) as set out in the DAC report similarly points to a restrictive interpretation. [31] By its very terms section 68(2)(b) assumes that the tribunal acted within its substantive jurisdiction. It is aimed at the tribunal exceeding its powers under the arbitration agreement, terms of reference or the 1996 Act. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of Ireland, 2018), put it thus: 24. As regards the second principle which emerges from the case law, namely, that an application to set aside is not an appeal from the decision of the arbitrator and does not confer upon the court the opportunity of second-guessing the arbitrator s decision on the merits, it is sufficient to refer to a small number of the Irish cases and the observations made in those cases. In Snoddy (Snoddy v. Mavroudis [2013] IEHC 285), Laffoy J. made it very clear that it was not open to the court to secondguess the construction of the relevant contractual issue in that case by the arbitrator by way of a set aside application. Laffoy J. stated that if the court were to do so, it would be usurping the arbitrator s role (para. 34, p. 16). In Delargy (Delargy v. Hickey [2015] IEHC 436), Gilligan J. stated: It is no function of this Court to attempt in any way to second guess the decision as arrived at by the arbitrator and this Court does not propose to do so. ( para. 74, p. 37). Later in his judgment, Gilligan J. stated that: This Court does not consider that it is appropriate to revisit the merits of the arbitrator s award. (para. 78, p. 39). 25. In O Leary Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew York Convention and on the Model Law. In considering the application of that statutory provision, Lord Steyn considered Article V(1)(c) of the New York Convention stating (at p. 236): It deals with cases of excess of power or authority of the arbitrator. It is well established that article V(1)(c) must be construed narrowly and should never lead to a re-examination of the merits of the award. Lord Steyn cited a decision of the US Federal Courts as authority for that last proposition: Parsons Whittemore Overseas Co Inc v Soci te G n rale de l Industrie du Papier, (1974) 508 F. 2d 969 (2nd Circuit). The limits on the excess of jurisdiction ground for setting aside an arbitration are, in my view, clearly brought home by the following passage from the opinion of Judge Smith in the Parsons case where he stated: Although the Convention recognises that an award may not be enforced where predicated on a subject matter outside the arbitrator s jurisdiction, it does not sanction secondguessing the arbitrator s construction of the parties agreement. The appellant s attempt to invoke this defense, however, calls upon the Court to ignore this limitation on its decisionmaking powers and usurp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the arbitrator has the jurisdiction to decide all disputes raised in the pleadings ( both claims and counterclaims) subject to any limitations placed by the arbitration agreement. Where the arbitration agreement provides that all disputes shall be settled by arbitration but excludes certain matters from arbitration, then, the arbitrator will exclude the excepted matter and decide only those disputes which are arbitrable. But where the reference to the arbitrator is to decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator s jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes. 42. A conspectus of the above authorities would show that where an arbitral tribunal has rendered an award which decides matters either beyond the scope of the arbitration agreement or beyond the disputes referred to the arbitral tribunal, as understood in Praveen Enterprises ( supra), the arbitral award could be said to have dealt with decisions on matters beyond the scope of submission to arbitration. 43. We therefore hold, following the aforesaid authorities, that in the guise of misinterpretation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is omission as indicative of an intention to broaden the defense [ Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1070-71 (1961)]. 8. Perhaps more probative, however, are the inferences to be drawn from the history of the Convention as a whole. The general pro-enforcement bias informing the Convention and explaining its supersession of the Geneva Convention points toward a narrow reading of the public policy defense. An expansive construction of this defense would vitiate the Convention s basic effort to remove preexisting obstacles to enforcement. [See Straus, Arbitration of Disputes between Multinational Corporations, in New Strategies for Peaceful Resolution of International Business Disputes 114-15 (1971); Digest of Proceedings of International Business Disputes Conference, April 14, 1971, at 191 (remarks of Professor W. Reese)]. Additionally, considerations of reciprocity considerations given express recognition in the Convention itself counsel courts to invoke the public policy defense with caution lest foreign courts frequently accept it as a defense to enforcement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary by Howard M Holtzmann and Joseph E Neuhaus (Kluwer, 1989) at 914): In discussing the term public policy , it was understood that it was not equivalent to the political stance or international policies of a State but comprised the fundamental notions and principles of justice It was understood that the term public policy , which was used in the 1958 New York Convention and many other treaties, covered fundamental principles of law and justice in substantive as well as procedural respects. Thus, instances such as corruption, bribery or fraud and similar serious cases would constitute a ground for setting aside. ( emphasis in original ) 132. In Profilati Italia SRL v Paine Webber Inc [2001] 1 Lloyd s Rep 715 ( Profilati ), Moore-Bick J made the following observations in relation to the argument that non-disclosure of material documents constituted a breach of public policy in the context of s 68 of the English Arbitration Act 1996 (at [17], [19] and [26]): 17. Where the successful party is said to have procured the award in a way which is contrary to public policy it wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther explains that Art 34(2)(b)(ii) of the Model Law was not to be interpreted as excluding instances or events relating to the manner in which an award was arrived at . 157. It is clear that errors of law or fact, per se, do not engage the public policy of Singapore under Art 34(2)(b) ( ii) of the Model Law when they cannot be set aside under Art 34(2)(a)(iii) of the Model Law (PT Asuransi at [57]) , with the exception that the court s judicial power to decide what the public policy of Singapore is cannot be abrogated (AJU v AJT [2011] 4 SLR 739 ( AJU v AJT ) at [62]) . xxx xxx xxx 159. This balance is generally in favour of the policy of enforcing arbitral awards, and only tilts in favour of the countervailing public policy where the violation of that policy would shock the conscience or would be contrary to the forum s most basic notion of morality and justice . In determining whether the balance tilts towards the countervailing public policy, it is important to consider both the subject nature of the public policy, the degree of violation of that public policy and the consequences of the violation. ( emphasis supplied ) 45. Given these parameters of challenge, let us now exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this, the dispute as to whether the linking factor applied, thanks to the Circular dated 15.02.2013, is clearly something raised and argued by the parties, and is certainly something which would fall within the arbitration clause or the reference to arbitration that governs the parties. This being the case, this argument would not obtain and Section 34(2)(a)(iv), as a result, would not be attracted. 48. However, when it comes to the public policy of India argument based upon most basic notions of justice , it is clear that this ground can be attracted only in very exceptional circumstances when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice. It can be seen that the formula that was applied by the agreement continued to be applied till February, 2013 in short, it is not correct to say that the formula under the agreement could not be applied in view of the Ministry s change in the base indices from 1993-94 to 2004-05. Further, in order to apply a linking factor, a Circular, unilaterally issued by one party, cannot possibly bind the other party to the agreement without that other party s consent. Indeed, the Circular itself expres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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