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TMI Blog2023 (11) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the aforesaid observations made by this Court in ICOMM Tele Limited are as under: (a) That the pre-deposit condition in an arbitration clause is violative of Article 14 of the Constitution of India being arbitrary. (b) Unless it is first found or prima facie established that the litigation that has been embarked upon is frivolous, the exemplary costs or punitive damages cannot follow. (c) Deterring a party to an arbitration from invoking the Alternative Dispute Resolution Process by pre-deposit of certain percentage would discourage arbitration. This would run contrary to the object of de-clogging the court system and would render the arbitral process ineffective and expensive. In the decision of the Calcutta High Court in M/S AMAZING INDIA CONTRACTORS PVT. LTD. VERSUS THE AIRPORT AUTHORITY OF INDIA AND ORS. [ 2023 (6) TMI 1331 - CALCUTTA HIGH COURT] , ICOMM Tele Limited and PERKINS EASTMAN ARCHITECTS DPC ANOTHER VERSUS HSCC (INDIA) LTD. [ 2019 (11) TMI 1154 - SUPREME COURT] were relied upon and ultimately, it was held that Clause 33 of the agreement therein between the parties providing for constitution of a Dispute Resolution Committee with a stipulation that before availi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause No. 55 of the Contract empowering the Principal Secretary/Secretary (Irrigation), State of Uttarakhand to appoint an arbitrator of his choice is in conflict with the decision of this Court in the case of Perkins Eastman [ 2019 (11) TMI 1154 - SUPREME COURT] ? - HELD THAT:- There are a plethora of judgments of this Court even prior to the amendment of Section 12, where courts have appointed the arbitrators, giving a go-by to the agreed arbitration clause in certain contingencies and situations, having regard to the provisions of unamended Section 11(8) of the Act which, inter alia, provided that while appointing the arbitrator, Chief Justice, or the person or the institution designated by him, shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial arbitrator. The courts in the United States of America have also deliberated upon the doctrine of unconscionability on numerous occasions. The Court of Appeal of California in the case of Patterson v. ITT Consumer Financial Corporation, had the occasion to consider whether the requirement for the claimants to pay a filing fee along with hearing fees for the purpose of resolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter referred to as the "Contract Value"). The petitioner was to commence work on the date of the execution of the Contract, i.e., 25.10.2019 and complete the work within 24 months, i.e., by 25.09.2021. 5. The Schedule A to Clause 5 of the Special Conditions of Contract (SCC) (hereinafter referred to as the "Schedule A") provided for the completion period of all works that the petitioner was required to carry out under the Project. Further, the Schedule B to Clause 5 of the SCC (hereinafter referred to as the "Schedule B") provided for the payment that was to be released to the petitioner upon the completion of each stage of work. 6. The respondent took over the said Project from the UPDCC pursuant to an order dated 08.05.2020, passed by the Government of Uttarakhand, which directed that the Project be transferred from UPDCC to the respondent. The takeover of the Project was done by virtue of a tripartite agreement dated 06.10.2020 (hereinafter referred to as the "Tripartite Agreement"), whereby the Contract was novated to the extent that the respondent stepped into the shoes of UPDCC and took over all the obligations under the Contract. 7. The Clause 53 read with Clause 55 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the arbitration proceedings. However, the Party initiating the arbitration claim shall have to deposit 7% of the arbitration claim in the shape of Fixed Deposit Receipt as security deposit. (b) On submission of claims the Arbitrator shall be appointed as per the following procedure: I) For claim amount upto 10.00 Crores, the case shall be referred to Sole Arbitrator to be appointed by the Principal Secretary/Secretary (Irrigation), GoU,…" (Emphasis supplied) 8. In the wake of various disputes that arose between the parties, the petitioner herein issued a notice of arbitration dated 06.05.2022, calling upon the respondent to appoint an arbitrator in terms of the arbitration clause contained in the GCC referred to above. The relevant part of the arbitration notice reads thus: "26. The Respondent's failure to pay the Claimant's outstanding dues, therefore, entitles the Claimant to invoke the arbitration clause contained in 53 and 55 of the GCC for settlement of the Claimant's claims of a total of INR 1,04,32.664.86/- (Indian Rupees One Crore Four Lacs Thirty-two Thousand Six Hundred and Sixty- Four and Eighth-Six Paise only), i.e. INR 32,91,020/- (Indian Rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of an arbitrator invoking Section 11(6) of the Act 1996. SUBMISSIONS ON BEHALF OF THE PETITIONER 11. Mr. Sidhant Goel, the learned counsel appearing for the petitioner submitted that the case on hand, is one of "international commercial arbitration" within the meaning of Section 2(f) of the Act 1996 as his client is incorporated outside India. He submitted that under Section 11(12)(a) of the Act 1996, this Court has the requisite jurisdiction to take necessary measures for the constitution of an arbitral tribunal under Section 11(6) of the Act 1996 as the case is one of international commercial arbitration. 12. The learned counsel submitted that Clause 55.1(b)(I) of the Contract which provides for appointment of a sole arbitrator by the Principal Secretary/Secretary (Irrigation), Government of Uttarakhand is in teeth of the decision of this Court in Perkins Eastman Architects DPC and Another v. HSCC (India) Limited reported in (2020) 20 SCC 760. He submitted that the unilateral right of appointment of the arbitrator given to the respondent under the Contract is unenforceable as on date. 13. The learned counsel further submitted that the condition for pre-deposit of 7% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in (supra). 19. He submitted that in the absence of any clause to the contrary, the security deposit is refundable by virtue of being only a deposit for "security". The object of such a clause is to ensure that only valid and bona fide claims are made by the parties, and that the project is not hindered by frivolous and baseless claims. He submitted that a three-Judge Bench of this Court in S.K. Jain (supra) found the clause providing for pre-deposit to be logical and containing a balancing factor to prevent frivolous and inflated claims. The relevant clause in S.K. Jain (supra) provided that on the termination of arbitration proceedings, the sum would be adjusted against the costs awarded by the arbitrator and the balance amount would be refunded. In ICOMM Tele Limited (supra), the contract expressly provided for forfeiture of the security deposit, even in the event of the award going in favour of the party which made the deposit. In such circumstances, this Court held such a clause to be arbitrary being violative of Article 14 of the Constitution. In the present case, the Contract does not provide for any such forfeiture under Clause 55 and by virtue of the terminology used, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-deposit stipulated in the arbitration clause as provided in the Contract is violative of the Article 14 of the Constitution of India being manifestly arbitrary? (iv) Whether the arbitration Clause No. 55 of the Contract empowering the Principal Secretary/Secretary (Irrigation), State of Uttarakhand to appoint an arbitrator of his choice is in conflict with the decision of this Court in the case of Perkins Eastman (supra)? JURISDICTION OF THE COURT UNDER SECTION 11(6) OF THE ACT 1996 25. In the wake of a few decisions of this Court, the legislature thought fit to add sub section (6A) to Section 11 of the Act 1996 by way of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as "Amendment 2015"). The same reads thus: "(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under subsection (4) or subsection (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement." (Emphasis supplied) 26. Taking cognizance of the legislative change, this Court in Duro Felguera, S.A. v. Gangavaram Port Limited re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably "non-arbitrable" and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism." (Emphasis supplied) 28. The limited scope of judicial scrutiny at the pre-referral stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court's challenge is to find the right amount of and the context when it would examine the prima facie case or exercise restraint. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly nonarbitrable. 140. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the Arbitral Tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a ruse to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the Arbitral Tribunal and violate the legislative scheme allocating jurisdiction between the courts and the Arbitral Tribunal. Centralisation of litigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a memo directing it to deposit 7% of the claimed amount before the arbitral tribunal. The civil appeal was dismissed by a three-Judge Bench of this Court and the memo was accordingly upheld. 34. In S.K. Jain (supra), the relevant arbitration clause reads as under: "25-A. (7) It is also a term of this contract agreement that where the party invoking arbitration is the contractor, no reference for arbitration shall be maintainable unless the contractor furnishes to the satisfaction of the Executive Engineer in charge of the work, a security deposit of a sum determined according to details given below and the sum so deposited shall, on the termination of the arbitration proceedings be adjusted against the costs, if any, awarded by the arbitrator against the claimant party and the balance remaining after such adjustment in the absence of any such costs being awarded, the whole of the sum will be refunded to him within one month from the date of the award-- Amount of claim Rate of security deposit 1. For claims below Rs 10,000 2% of amount claimed 2. For claims of Rs 10,000 and above and below Rs 1,00,000 and 5% of amount claimed 3. For claims of Rs 1,00,000 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved against the decision of the CE, the parties may within 30 days prefer an appeal of MPL Com who shall afford an opportunity to the parties of being heard and to offer evidence in support of his appeal. MPL Com will give his decision within 90 days. If any party is not satisfied with the decision of MPL Com, he can refer such disputes for arbitration to an Arbitration Board to be constituted by the Corporation, which shall consist of three members of whom one shall be chosen from among the officers belonging to the Urban Administration and Development Department not below the rank of BE, one retired Chief Engineer of any technical department and City Engineer, Nagar Nigam, Jabalpur. The following are also the terms of this contract, namely: (a) No person other than the aforesaid Arbitration Board constituted by the Corporation (to handle cases of all technical departments) shall act as arbitrator and if for any reason that is not possible the matter shall not be referred to arbitration at all. (b) The Corporation may at any time effect any change in the personnel of the Board and the new members or members appointed to the Arbitration Board shall be entitled to proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent to furnish security as envisaged in clause 29(d) of the contract. Therefore, we are of the opinion, that on account of nonfurnishing of security by the respondent, the question of constituting an Arbitration Board by the Corporation could not arise at all. Accordingly, we hold that the High Court was not justified in appointing a retired Chief Justice of a High Court as arbitrator by the impugned order. 22. It is not disputed before us that the learned Arbitrator appointed by the High Court has already commenced the arbitration proceeding. Mr Mukherjee, appearing on behalf of the Corporation, on instruction, had submitted before us that they shall constitute an Arbitration Board as soon as the respondent furnishes security in terms of clause 29(d) of the contract and if any direction is given to the Arbitration Board to proceed from the stage the learned arbitrator had already reached, that would not be objected to. That is to say, Mr Mukherjee contended that the Arbitration Board may be directed to take over the arbitration proceedings from the stage the learned arbitrator had already reached. 23. Such being the stand taken by the Corporation, we direct the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4882 of 2017. The High Court merely followed its earlier judgment and dismissed the writ petition as well. The matter was carried to this Court. 41. The relevant observations made by this Court are as under: "12. In S.K. Jain v. State of Haryana [(2009) 4 SCC 357 : (2009) 2 SCC (Civ) 163], this Court dealt with an arbitration clause in an agreement which read as follows: Xxx xxx xxx 13. In upholding such a clause, this Court referred to the judgment in Central Inland Water Transport Corpn. [Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 : 1986 SCC (L&S) 429] and distinguished this judgment, stating that the concept of unequal bargaining power has no application in the case of commercial contracts. … 14. It will be noticed that in this judgment there was no plea that the aforesaid condition contained in an arbitration clause was violative of Article 14 of the Constitution of India as such clause is arbitrary. The only pleas taken were that the ratio of Central Inland Water Transport Corpn. [Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 : 1986 SCC (L&S) 429] would apply and that there shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and minority awards, making it clear that there may be two possible or even plausible views which would indicate that the claim is dismissed or allowed on merits and not because it is frivolous. Further, even where a claim is found to be justified and correct, the amount that is deposited need not be refunded to the successful claimant. Take for example a claim based on a termination of a contract being illegal and consequent damages thereto. If the claim succeeds and the termination is set aside as being illegal and a damages claim of Rupees One crore is finally granted by the learned arbitrator at only ten lakhs, only one-tenth of the deposit made will be liable to be returned to the successful party. The party who has lost in the arbitration proceedings will be entitled to forfeit nine-tenths of the deposit made despite the fact that the aforesaid party has an award against it. This would render the entire clause wholly arbitrary, being not only excessive or disproportionate but leading to the wholly unjust result of a party who has lost an arbitration being entitled to forfeit such part of the deposit as falls proportionately short of the amount awarded as compared to what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a condition for invoking the arbitration, would fall foul of the law declared by the Supreme court in the decisions reported as Perkins Eastman Architects DPC v. HSCC (India) Ltd. - [2019 SCC OnLine SC 1517] and ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board - [(2019) 4 SCC 401] respectively. I am not persuaded to accept the contention of the learned senior counsel for the respondent that it is only in the event of a challenge to clause 5.15 of the RFP on the ground that it is violative of the fundamental rights of the petitioner under Article 14 of the Constitution of India, that this Court can hold the said clause, in the RFP, as illegal. After the amendment of the 1996 Act in 2015, the law must be taken to be that any clause in an agreement, that requires one of the contracting parties to make a deposit of amount as a precondition for invoking the arbitration, has to be seen as rendering the entire clause arbitrary, being not only excessive or disproportionate but leading to a wholly unjust situation in arbitration proceedings, that are ordinarily to be encouraged on account of the high pendency of cases in courts and the ever-increasing cost of litigation. I am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant observations from the Judgment are as under: "23. Resultantly, the issue of pre-deposit now arises. Counsel for the petitioner has heavily relied upon the judgment passed in M/s ICOMM Tele Ltd. (supra), which has been rightly distinguished by the learned counsel for the respondent … 24. Thereafter, in 'S.K. Jain Vs. State of Haryana and another', 2008 AIR (Punjab) 30 the challenge was to the clause of 7% of the total amount claimed. While placing reliance upon the judgment of the Apex Court in 'Municipal Corporation, Jabalpur & others Vs. M/s Rajesh Construction Co.', 2007 (5) SCC 344, the writ petition was dismissed. The said judgment was upheld by the Apex Court in 'S.K. Jain Vs. State of Haryana and another' 2009 (2) SCC (Civil) 163 by holding that there is logic in providing the said cap. … 25. In M/s ICOMM Tele Ltd. (supra) the objectionable clause 25 (viii) was struck down which was for 10% deposit. In the event of an award in favour of the claimant, the deposit was to be refunded to him in proportion to the amount awarded with regard to the amount claimed and the balance if any was to be forfeited and paid to the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in M/s. ICOMM Tele Limited's case (supra) itself while discussing S.K. Jain's case (supra). It is obvious that a clear cut distinction has been made in respect to the type of pre-deposit clause. Discussion of the judgment of S.K. Jain's case (supra) makes it crystal clear that such like clauses, which provide for adjustment and refund to the party making the deposit after the passing of the award are materially different from the clause which was under challenge in M/s. ICOMM Tele Limited's case (supra). In case of M/s. ICOMM Tele Limited's case (Supra), the objectionable clause 25(viii) was struck down finding the same to be arbitrary… It is in the said factual matrix that the observations regarding the clause of pre-deposit discouraging arbitration was made and the said clause was struck down while distinguishing the earlier judgment passed by the Hon'ble Supreme Court in S.K. Jain's case (supra). Learned counsel for the petitioner is unable to deny that Clause 33(7) of the Agreement in the present writ petitions is identical to Clause 25(7) of the Agreement, which was under consideration in S.K. Jain's case ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroversy was sought to be raised in CWP-21840- 2020 and other connected writ petitions, which have been dismissed on 08.04.2022. Question raised for adjudication in the said writ petitions was also whether the clause in question requiring a pre-deposit for invocation of Arbitration is unreasonable, unconscionable and liable to set aside. Clause in question in the abovesaid writ petitions was identical as clause 25(A)(vii) involved in the instant writ petition. Reliance had been placed on M/s ICOMM Tele Limited (supra) as is the case in the present writ petition. However, while dealing with the contentions as raised and dismissing the said writ petitions, judgment of the Three Judge Bench of the Hon'ble Supreme Court in S.K. Jain v. State of Haryana, (2009) 4 SCC 357 was duly considered. It was also noticed that Hon'ble Supreme Court itself in the case of M/s ICOMM Tele Limited (supra) referred to the case of S.K. Jain (supra) and infact upheld the clause regarding pre-deposit in S.K. Jain's case (supra)." xxx xxx xxx Similar view in regard to such a pre-deposit clause has also been taken by a Co-ordinate Bench in decision dated 03.11.2020 passed in ARB-127- 2019 and in CWP N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nviting tender. This clause being severable from the rest of clause 25 will not affect the remaining parts of Clause 25. The judgment of the High Court is set aside and the appeal allowed." 11. In the light of the aforesaid decision rendered by the Supreme Court in M/s Icomm Tele Ltd. (supra), which has considered absolutely an identical clause contained in the agreement between the parties and after doing so has struck down the said clause, it is not for this Court i.e. the High Court to consider the contention of the respondent and take a different view as that would be not just beyond the authority of this Court but would also be an act of impropriety. This Court being bound by the decision rendered by the Supreme Court in M/s Icomm Tele Ltd. (supra) allowed the present petition filed by the petitioner and declares the arbitration clause 25(viii) of the tender conditions, quoted above, as unconstitutional and passes the same orders in similar terms as were passed by the Supreme Court in paragraph-28 of the decision rendered in M/s Icomm Tele Ltd. (supra)." (Emphasis supplied) 57. In the aforesaid decision of the Punjab and Haryana High Court, the decisions of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most ambiguous. If the petitioner is making a claim which is then and there disputed by the respondent, why should the petitioner, being the claimant be asked to deposit the disputed amount? When the petitioner is making a claim against the respondent, it is unable, at that point of time, to know whether the whole claim or part of it would be admitted, or the whole of it denied by the latter. Hence, it is unable to gauge the disputed amount. Even if it were possible for the respondent to notify the disputed amount immediately, the clause would only be operative if the respondent was simultaneously making a counter claim more than the petitioner's claim which was being denied by the petitioner, by seeking reference of the dispute to arbitration. If the respondent was first making the claim which was disputed by the petitioner, still the matter could not be referred to the Committee in as much as the clause suggests an application for dispute resolution by the petitioner only. For all these reasons, this clause itself is vague for uncertainty and invalid." (Emphasis supplied) 60. In the aforesaid decision of the Calcutta High Court, ICOMM Tele Limited (supra) and Perkins Ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 14 of the Constitution of India. Para 16 reads thus: "16. Thus, it must be seen as to whether the aforesaid Clause 25(viii) can be said to be arbitrary or discriminatory and violative of Article 14 of the Constitution of India." 64. Thereafter, the Court proceeded to observe that Clause 25(viii) therein could not be said to be discriminatory as the same applied equally to both the parties, however, arbitrariness could be said to be a separate and distinct facet of Article 14 of the Constitution. Saying so, the Court referred to and relied upon para 19 of this Court's decision in A.L. Kalra v. Project and Equipment Corporation of India Ltd. reported in (1984) 3 SCC 316. Para 19 reads thus: "19. The scope and ambit of Article 14 have been the subjectmatter of a catena of decisions. One facet of Article 14 which has been noticed in E.P. Royappa v. State of Tamil Nadu [(1974) 2 SCR 348 : (1974) 4 SCC 3 : 1974 SCC (L&S) 165 : AIR 1974 SC 555 : (1974) 1 LLJ 172] deserves special mention because that effectively answers the contention of Mr Sinha. The Constitution Bench speaking through Bhagwati, J. in a concurring judgment in Royappa case [(1974) 2 SCR 348 : (1974) 4 SCC 3 : 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther elaborated and affirmed in D.S. Nakara v. Union of India [(1983) 1 SCC 305 : 1983 SCC (L&S) 145 : (1983) UPSC 263 : AIR 1983 SC 130]. In Maneka Gandhi v. Union of India [ (1978) 2 SCR 621 : (1978) 1 SCC 248 : AIR 1978 SC 597] it was observed that Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It is thus too late in the day to contend that an executive action shown to be arbitrary is not either judicially reviewable or within the reach of Article 14. The contention as formulated by Mr Sinha must accordingly be negatived. " (Emphasis supplied) 65. The Court thereafter, took notice of the fact that the 10 % "deposit-atcall" of the amount claimed therein was to avoid frivolous claims by the party invoking arbitration. This Court went on to say that a frivolous claim can always be dismissed with exemplary costs. 66. Keeping the aforesaid in mind, if we look into the 7% pre-deposit condition in the case on hand, as contained in Clause 55 of the GCC it is evident that nothing has been provided as to how this amount of 7% is to be ultimately adjusted at the end of the arbitral proceedings. With a view to salvage this situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine-- (a) whether costs are payable by one party to another; (b) the amount of such costs; and (c) when such costs are to be paid. Explanation.--For the purpose of this sub-section, "costs" means reasonable costs relating to-- (i) the fees and expenses of the arbitrators, Courts and witnesses; (ii) legal fees and expenses; (iii) any administration fees of the institution supervising the arbitration; and (iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award. (2) If the Court or arbitral tribunal decides to make an order as to payment of costs,- (a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or (b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing. (3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including- (a) the conduct of all the parties; (b) whether a party has succeeded partly in the case; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A, [2012] EWHC 854 (Comm.) : [2012] 2 All ER 395 (Comm.), at para. 77)." (Emphasis supplied) RE: ISSUE NO. 3 WHETHER THE VALIDITY OF THE PRE-DEPOSIT CONDITION AS CONTAINED IN CLAUSE 55 OF THE AGREEMENT CAN BE LOOKED INTO AND DECIDED ON THE ANVIL OF ARTICLE 14 OF THE CONSTITUTION IN A PETITION UNDER SECTION 11(6) OF THE ACT 1996? 70. The vociferous submission on the part of the learned counsel appearing for the respondent, that this Court while considering an application under Section 11(6) of the Act 1996 for the appointment of arbitrator should not test the validity or reasonableness of the conditions stipulated in the arbitration clause on the touchstone or anvil of Article 14 of the Constitution, is without any merit or substance. 71. It would be too much for the respondent to say that it is only the writ court in a petition under Article 226 of the Constitution that can consider whether a particular condition in the arbitration clause is arbitrary. 72. It is not for the first time that this Court is looking into the arbitration clause falling foul of Article 14 of the Constitution while deciding Section 11(6) application. 73. In the case of TRF Limited v. Energo Eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ") and under the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996 ("the Scheme") prays for the following principal relief: "(a) appoint a sole arbitrator, in accordance with Clause 24 of the contract dated 22-5-2017 executed between the parties and the sole arbitrator so appointed may adjudicate the disputes and differences between the parties arising from the said contract." xxx xxx xxx 21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator" The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two arbitrators nominated by the parties should be given full freedom to choose the third arbitrator from the whole panel." (Emphasis supplied) 76. What is relevant to note in all the above referred decisions of this Court is the phrase "operation of law". This phrase is of wider connotation and covers the Act 1996 as well as the Constitution of India and any other Central or State Law. 77. In the aforesaid context, we should look into and discuss the Kelson's Pure Theory of Law on the basic norm that he called "Grundnorm". 78. Kelson's pure theory of law has its pyramidical structure of hierarchy based on the basic norm of Grundnorm. The word 'Grundnorm' is a German word meaning fundamental norm. He has defined it as 'the postulated ultimate rule according to which the norms of this order are established and annulled, receive or lose their validity'. It is the Grundnorm which determines the content and validates the other norms derived from it. But from where it derives its validity, was a question which Kelson did not answer, stating it to be a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Another reported in 2016 SCC OnLine MP 8551, it was again mentioned that, 'The Constitution of India is the grundnorm - the paramount law of the country. All other laws derive their origin and are supplementary and incidental to the principles laid down in the Constitution.' (v) In the case of Government of Andhra Pradesh & Ors vs Smt. P. Laxmi Devi reported in (2008) 4 SCC 720, this Court observed, 'According to Kelson, in every country there is a hierarchy of legal norms, headed by what he calls as the 'grundnorm'. If a legal norm in a higher layer of this hierarchy conflicts with a legal norm in a lower layer the former will prevail. In India the Grundnorm is the Indian Constitution.' 81. Thus, in the context of the Arbitration Agreement, the layers of the Grundnorm as per Kelsen's theory would be in the following hierarchy: (i) Constitution of India, 1950; (ii) Arbitration and Conciliation Act, 1996 & any other Central/State Law; (iii) Arbitration Agreement entered into by the parties in light of s. 7 of the Arbitration and Conciliation Act, 1996. 82. Thus, the Arbitration Agreement, has to comply with the requirements of the following and cannot fall foul of: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of execution of the agreement, cannot turn around and tell the court in a Section 11(6) petition that the same is arbitrary and falling foul of Article 14 of the Constitution is without any merit. 85. It is a settled position of law that there can be no consent against the law and there can be no waiver of fundamental rights. The Constitution Bench of this Court speaking through Chief Justice Y.V. Chandrachud (as His Lordship then was) in Olga Tellis and Others v. Bombay Municipal Corporation and Others reported in (1985) 3 SCC 545 observed something very illuminating on the said aspect: "28. It is not possible to accept the contention that the petitioners are estopped from setting up their fundamental rights as a defence to the demolition of the huts put up by them on pavements or parts of public roads. There can be no estoppel against the Constitution. The Constitution is not only the paramount law of the land but, it is the source and sustenance of all laws. Its provisions are conceived in public interest and are intended to serve a public purpose. The doctrine of estoppel is based on the principle that consistency in word and action imparts certainty and honesty to human ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts. How far the argument regarding the existence and scope of the right claimed by the petitioners is well-founded is another matter. But, the argument has to be examined despite the concession. 29. The plea of estoppel is closely connected with the plea of waiver, the object of both being to ensure bona fides in day-today transactions. In Basheshar Nath v. CIT [1959 Supp 1 SCR 528 : AIR 1959 SC 149 : (1959) 35 ITR 190], a Constitution Bench of this Court considered the question whether the fundamental rights conferred by the Constitution can be waived. Two members of the Bench (Das, C.J. and Kapoor, J.) held that there can be no waiver of the fundamental right founded on Article 14 of the Constitution. Two others (N.H. Bhagwati and Subba Rao, JJ.) held that not only could there be no waiver of the right conferred by Article 14, but there could be no waiver of any other fundamental right guaranteed by Part III of the Constitution. The Constitution makes no distinction, according to the learned Judges, between fundamental rights enacted for the benefit of an individual and those enacted in public interest or on grounds of public policy." (Emphasis supplied) Issue No. IV 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing." 89. The Amendment 2015 is also based on the recommendation of the Law Commission which specifically dealt with the issue of "Neutrality of Arbitrators" and a discussion in this behalf is contained in paras 53 to 60 of the Law Commission's Report No. 246 published in the August 2004. We reproduce the entire discussion hereinbelow: "NEUTRALITY OF ARBITRATORS 53. It is universally accepted that any quasi-judicial process, including the arbitration process, must be in accordance with principles of natural justice. In the context of arbitration, neutrality of arbitrators viz. their independence and impartiality, is critical to the entire process. 54. In the Act, the test for neutrality is set out in Section 12(3) which provides-- '12. (3) An arbitrator may be challenged only if-- (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59 : (2012) 2 SCC (Civ) 37 : AIR 2012 SC 817] and Bipromasz Bipron Trading Sa v. Bharat Electronics Ltd. [Bipromasz Bipron Trading Sa v. Bharat Electronics Ltd., (2012) 6 SCC 384 : (2012) 3 SCC (Civ) 702] , to appoint an independent arbitrator under Section 11, this is not enough. 57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the Arbitral Tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles -- even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties' apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegories (as set out in the Fourth Schedule, and as based on the red and orange lists of the IBA Guidelines), the ineligibility to be appointed as an arbitrator (and the consequent de jure inability to so act) follows from a smaller and more serious sub-set of situations (as set out in the Fifth Schedule, and as based on the red list of the IBA Guidelines). 60. The Commission, however, feels that real and genuine party autonomy must be respected, and, in certain situations, parties should be allowed to waive even the categories of ineligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective "justifiable doubts" regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to Section 12(5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed Section 12(5) by an express agreement in writing. In all other cases, the general rule in the proposed Section 12(5) must be followed. In the event the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Section 12, where courts have appointed the arbitrators, giving a go-by to the agreed arbitration clause in certain contingencies and situations, having regard to the provisions of unamended Section 11(8) of the Act which, inter alia, provided that while appointing the arbitrator, Chief Justice, or the person or the institution designated by him, shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial arbitrator. See Datar Switchgears Ltd. v. Tata Finance Ltd reported in (2000) 8 SCC 151, Punj Lloyd Ltd. v. Petronet MHB Ltd. reported in (2006) 2 SCC 638, Union of India v. Bharat Battery Mfg. Co. (P) Ltd. reported in (2007) 7 SCC 684, Deep Trading Co. v. Indian Oil Corpn. reported in (2013) 4 SCC 35, Union of India v. Singh Builders Syndicate reported in (2009) 4 SCC 523 and North Eastern Railway v. Tripple Engg. Works reported in (2014) 9 SCC 288. 93. Taking note of the aforesaid judgments, this Court in Union of India and Others v. Uttar Pradesh State Bridge Corporation Limited reported in (2015) 2 SCC 52 summed up the position in the following manner: "13. No doubt, ordinarily that would be the position. The moot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction of the High Court under Section 11(6) of the Act was sought to be emphasised by taking into account the expression 'to take the necessary measure' appearing in sub-section (6) of Section 11 and by further laying down that the said expression has to be read along with the requirement of subsection (8) of Section 11 of the Act. The position was further clarified in Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd. [(2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460]. Para 48 of the Report wherein the scope of Section 11 of the Act was summarised may be quoted by reproducing sub-paras (vi) and (vii) hereinbelow: (Indian Oil case [(2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460], SCC p. 537) '48.(vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on four pillars. These pillars are described as: (a) The first pillar: Three general principles. (b) The second pillar: The general duty of the Tribunal. (c) The third pillar: The general duty of the parties. (d) The fourth pillar: Mandatory and semi-mandatory provisions. Insofar as the first pillar is concerned, it contains three general principles on which the entire edifice of the said Act is structured. These principles are mentioned by an English Court in its judgment in Deptt. of Economics, Policy and Development of the City of Moscow v. Bankers Trust Co. [2005 QB 207 : (2004) 3 WLR 533 : (2004) 4 All ER 746 : 2004 EWCA Civ 314]. In that case, Mance, L.J. succinctly summed up the objective of this Act in the following words: (QB p. 228, para 31) "31. … Parliament has set out, in the Arbitration Act, 1996, to encourage and facilitate a reformed and more independent, as well as private and confidential, system of consensual dispute resolution, with only limited possibilities of court involvement where necessary in the interests of the public and of basic fairness." Section 1 of the Act sets forth the three main principles of arbitration law viz. (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple of default procedure is extended by this Court in such cases as well as is clear from the judgment in Singh Builders Syndicate [Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523 : (2009) 2 SCC (Civ) 246]. 17. In the case of contracts between government corporations/State-owned companies with private parties/contractors, the terms of the agreement are usually drawn by the government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a Managing Director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses which give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties." 21. Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury [Fouchard, Gaillard, Goldman on International Commercial Arbitration 562 (Emmanuel Gaillard & John Savage eds., 1999) {quoting Cour de cassation [Cass.] [Supreme Court for judicial matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass. 2e civ., 13-4-1972, JCP, Pt. II, No. 17189 (1972) (France)}.] , underlined that: "an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator." 22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrator. If any of those circumstances as mentioned therein exists, it will give rise to justifiable apprehension of bias. The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. Likewise, the Seventh Schedule mentions those circumstances which would attract the provisions of subsection (5) of Section 12 and nullify any prior agreement to the contrary. In the context of this case, it is relevant to mention that only if an arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an arbitrator. Likewise, that person is treated as incompetent to perform the role of arbitrator, who is a manager, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Likewise, persons who regularly advised the appointing party or affiliate of the appointing party are incapacitated. A comprehensive list is enumerated in Schedule 5 and Schedule 7 and admittedly the persons empanelled by the respondent are not covered by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Na, Canadian Contract Law (4th ed. 2018), at p. 925). 55. Unconscionability is widely accepted in Canadian contract law, but some questions remain about the content of the doctrine, and it has been applied inconsistently by the lower courts (see, among others, Morrison v. Coast Finance Ltd., (1965) 55 DLR 710 (2d) (B.C.C.A.); Harry v. Kreutziger, (1978) 9 B.C.L.R. 166 (C.A.), at p. 177, per Lambert J.A.; Downer v. Pitcher, 2017 NLCA 13 : 409 DLR 542 (4th), at para. 20; Input Capital Corp. v. Gustafson, 2019 SKCA 78 : 438 DLR 387 (4th); Cain v. Clarica Life Insurance Co., 2005 ABCA 437 : 263 DLR 368 (4th); Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573 : 284 DLR 734 (4th); Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809 : 305 DLR 64 (4th); see also Swan, Adamski and Na, at p. 982; McInnes, at pp. 518-19). These questions require examining underlying contractual theory (Rick Bigwood, "Antipodean Reflections on the Canadian Unconscionability Doctrine" (2005) 84 Can. Bar Rev. 171, at p. 173). 56. The classic paradigm underlying freedom of contract is the "freely negotiated bargain or exchange" between "autonomous and self-interested parties" (McCamus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct their own interests. The elderly person with cognitive impairment who sells assets for a fraction of their value (Ayres v. Hazelgrove, Q.B. England, February 9, 1984); the ship captain stranded at sea who pays an extortionate price for rescue (The Mark Lane, [L.R.] 15 P.D. 135); the vulnerable couple who signs an improvident mortgage with no understanding of its terms or financial implications (Commercial Bank of Australia Ltd. v. Amadio, [1983] HCA 14 : 151 CLR 447) -- these and similar scenarios bear little resemblance to the operative assumptions on which the classic contract model is constructed. 59. In these kinds of circumstances, where the traditional assumptions underlying contract enforcement lose their justificatory authority, the doctrine of unconscionability provides relief from improvident contracts. When unfair bargains cannot be linked to fair bargaining -- when they cannot be attributed to one party's "donative intent or assumed risk", as Professor Benson puts it -- courts can avoid the inequitable effects of enforcement without endangering the core values on which freedom of contract is based (p. 182; see also Eisenberg, at pp. 799-801; S.M. Waddams, "Goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qual bargaining power can be established in these scenarios even if duress and undue influence have not been demonstrated (see Norberg, at pp. 247-48; see also McInnes, at p. 543). 71. The second common example of an inequality of bargaining power is where, as a practical matter, only one party could understand and appreciate the full import of the contractual terms, creating a type of "cognitive asymmetry" (see Smith, at pp. 343-44). This may occur because of personal vulnerability or because of disadvantages specific to the contracting process, such as the presence of dense or difficult to understand terms in the parties' agreement. In these cases, the law's assumption about self-interested bargaining loses much of its force. Unequal bargaining power can be established in these scenarios even if the legal requirements of contract formation have otherwise been met (see Sebastien Grammond, "The Regulation of Abusive or Unconscionable Clauses from a Comparative Law Perspective" (2010) 49 Can. Bus. L.J. 345, at pp. 353-54). Xxx xxx xxx 84. Unconscionability, moreover, can be established without proof that the stronger party knowingly took advantage of the weaker. Suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unreasonable or indecent terms the seller may have on his form, which do not alter or eviscerate the reasonable meaning of the dickered terms. The fine print which has not been read has no business to cut under the reasonable meaning of those dickered terms which constitute the dominant and only real expression of agreement, but much of it commonly belongs in. There has been an arm's-length deal, with dickered terms. There has been accompanying that basic deal another which … at least involves a plain expression of confidence, asked and accepted, with a corresponding limit on the powers granted : the boiler-plate is assented to en bloc, "unsight, unseen," on the implicit assumption and to the full extent that (1) it does not alter or impair the fair meaning of the dickered terms when read alone, and (2) that its terms are neither in the particular nor in the net manifestly unreasonable and unfair. (The Common Law Tradition : Deciding Appeals (1960), pp. 370-71) 88. We do not mean to suggest that a standard form contract, by itself, establishes an inequality of bargaining power (Waddams (2017), at p. 240). Standard form contracts are in many instances both neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, at pp. 992-93; McCamus, at p. 444; Jean Braucher, "Unconscionability in the Age of Sophisticated Mass-Market Framing Strategies and the Modern Administrative State" (2007) 45 Can. Bus. L.J. 382, at p. 396). It has also been present in the American jurisprudence for more than half a century (see Williams v. Walker-Thomas Furniture Company, 350 F.2d 445 (1965), at pp. 449-50). 91. Applying the unconscionability doctrine to standard form contracts also encourages those drafting such contracts to make them more accessible to the other party or to ensure that they are not so lop-sided as to be improvident, or both. The virtues of fair dealing were explained by Jean Braucher as follows: Businesses are driven to behave competitively in their framing of market situations or otherwise they lose to those who do. Only if there are meaningful checks on what might be considered immoral behavior will persons in business have the freedom to act on their moral impulses. An implication of this point is that, absent regulation, business culture will become ever more ruthless, so that the distinctions between "reputable businesses" and fringe marketers gradually wither away…. [p. 390] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been paid. 95. The arbitration clause, in effect, modifies every other substantive right in the contract such that all rights that Mr. Heller enjoys are subject to the apparent precondition that he travel to Amsterdam,7 initiate an arbitration by paying the required fees and receive an arbitral award that establishes a violation of this right. It is only once these preconditions are met that Mr. Heller can get a court order to enforce his substantive rights under the contract. Effectively, the arbitration clause makes the substantive rights given by the contract unenforceable by a driver against Uber. No reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it. 96. We add that the unconscionability of the arbitration clause can be considered separately from that of the contract as a whole. As explained in Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corporation Ltd., [1981] A.C. 909 (H.L.), an arbitration agreement "constitutes a self-contained contract collateral or ancillary to the [main] agreement" (p. 980; see also p. 998, per Lord Scarman). Further support comes from the severability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate their disputes, "the rule of law is threatened and the development of the common law undermined" (Hryniak v. Mauldin, 2014 SCC 7 : [2014] 1 SCR 87, at para. 26). Access to civil justice is paramount to the public legitimacy of the law and the legitimacy of the judiciary as the institution of the state that expounds and applies the law. 112. Access to civil justice is a precondition not only to a functioning democracy but also to a vibrant economy, in part because access to justice allows contracting parties to enforce their agreements. A contract that denies one party the right to enforce its terms undermines both the rule of law and commercial certainty. That such an agreement is contrary to public policy is not a manifestation of judicial idiosyncrasies, but rather an instance of the self-evident proposition that there is no value in a contract that cannot be enforced. Thus, the harm to the public that would result from holding contracting parties to a bargain they cannot enforce is "substantially incontestable" (Millar Estate, at p. 7, quoting Fender, at p. 12). It really is this simple : unless everyone has reasonable access to the law and its processes where necessary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that 'can be more expedient and less costly than going to court'" (Wellman, at para. 83, quoting Legislative Assembly of Ontario, March 27, 1991, at p. 245). Second, courts have accepted arbitration as an acceptable alternative to civil litigation because it can provide a resolution according to law. As this Court observed in Sport Maska Inc. v. Zittrer, [1988] 1 SCR 564, at p. 581: The legislator left … various procedures for settling disputes to be resolved freely by litigants when recourse to the courts was still possible. If judicial intervention was ruled out, however, the legislator had to ensure that the process would guarantee litigants the same measure of justice as that provided by the courts, and for this reason, rules of procedure were developed to ensure that the arbitrator is impartial and that the rules of fundamental justice … are observed. The arbitrator will make an award which becomes executory by homologation. This indicates the similarity between the arbitrator's real function and that of a judge who has to decide a case. [Emphasis added.] In other words, any means of dispute resolution that serves as a final resort for contracting part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid." (Emphasis supplied) 100. The courts in the United States of America have also deliberated upon the doctrine of unconscionability on numerous occasions. The Court of Appeal of California in the case of Patterson v. ITT Consumer Financial Corporation reported in 18 Cal. Rptr. 2d 563 (Cal. Ct. App. 1993), had the occasion to consider whether the requirement for the claimants to pay a filing fee along with hearing fees for the purpose of resolving the matter could be said to be unconscionable. The Court of Appeals held that such a condition was "incomprehensible" and discouraged the borrowers from pursuing their claims. The relevant observations are as under: "B. Unconscionability 2. Two alternative analyses exist under California law for determining whether a contractual provision will be unenforceable because it is unconscionable. (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 925, fn. [216 Cal. Rptr. 345, 702 P.2d 503] ["Both analytical pathways should lead to the same result."].) The first model set out in Graham v. Scissor- Tail, Inc. (1981) 28 Cal.3d 807 [171 Cal.Rptr. 604, 623 P.2d 165] asks initially whether the contract is one of adhesion. (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e type. On both versions of the form the provision was clearly titled "Arbitration." None of the preprinted clauses had been modified in any manner, which suggests that they were nonnegotiable. Several of the borrowers stated that they believed they would not have been able to obtain a bank loan. In these circumstances we think it indisputable that the contract was one of adhesion. ITT argues that arbitration has become such a common means of dispute resolution that it must be considered within the reasonable expectation of the borrowers. While arbitration per se may be within the reasonable expectation of most consumers, it is much more difficult to believe that arbitration in Minnesota would be within the reasonable expectation of California consumers. The arbitration clause says only that the dispute will be "resolved by binding arbitration by the National Arbitration Forum, Minneapolis, Minnesota." xxx xxx xxx In order to obtain a participatory hearing, however, the responding party must make a prompt demand for one and accompany it with prepayment of fees. Prepayment of hearing fees can be waived for individuals, but only after filing an affidavit of indig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The terms of the contract were not negotiated and Plaintiff had relatively little economic strength in the transaction. As to substantive unconscionability, the arbitration clause is unreasonable insofar as it requires Plaintiff to travel to Okaloosa County, Florida for the arbitration. In many circumstances requiring a consumer to travel a substantial distance to arbitrate a claim has been found to be unreasonable. DeOrnellas v. Aspen Square Mgmt., Inc., 295 F. Supp. 2d 753, 765-66 (E.D. Mich. 2003); Garrett v. Hooters-Toledo, 295 F. Supp. 2d 774, 783 (N.D. Ohio 2003); Comb v. PayPal, Inc., 218 F. Supp. 2d 1165, 1176-77 (N.D. Cal. 2002). In determining whether requiring the arbitration to be held in Florida is unreasonable, the Court must ask whether the "provision would deter a substantial number of similarly situated potential litigants. . . ."Morrison, 317 F.3d at 663. See Stutler, 448 F.3d at 346 (indicating that the test from Morrison is applicable "to the question of whether an arbitration clause is enforceable where federal statutorily provided rights are affected."). Requiring a consumer who is experiencing financial distress to travel to Florida wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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