27 ReSolution | Nov 2017
[11]
Heath J ultimately dismissed Mangatu’s application to adduce further evidence. His Honour concluded that there was no additional evidence proposed by Mangatu relevant to his decision which fell within the scope of the circumstances envisaged by Wylie J in Fresh Direct Ltd.
Heath J dismissed the appeal as he was not satisfied it met the required threshold. His Honour acknowledged the preliminary determination by the arbitrator as to methodology used in determining damages, but found there was a factual vacuum which meant important facts remain to be determined, and that the appropriate forum for determination was by the arbitrator. Remaining facts for determination included whether Mangatu would have issued a notice to terminate at the same time, if it had proceeded on the footing that immediate termination was impossible, and what steps might have been taken in the period between any notice being given and its expiry, to determine whether, and if so, to what extent, Forest Holdings has suffered loss.
Comment
The outcome of the consequent arbitral decision remains to be seen, and may only become public if either party appeals the arbitrator’s award. However, Heath J’s referral of the damages quantum back to the arbitrator is to be welcomed as it demonstrates the Court’s support for arbitration and its reluctance to interfere in the arbitration process where parties have contractually agreed to pursue arbitration in the event of a dispute arising.
References
[1] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448 at [5].
[2] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448 at [10].
[3] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448, at para [51].
[4] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 1174 at [5].
[5] Cooper v Symes (No 2) (2001) 15 PRNZ 166 (HC).
[6] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 1174 at [11].
[7] Fresh Direct Ltd v JM Batten & Associates HC Auckland CIV-2008-404-4757, 3 December 2009, at [11].
Forest Holdings Ltd v Mangatu Blocks Incorporation CONT...
down in Northern Railway Administration (Supra), as followed in all the aforesaid cases, must be applied, in that, the terms of the agreement ought to be adhered to and/or given effect to as closely as possible.
• The jurisdiction of the Court under Section 11 of 1996 Act would arise only if the conditions specified in clauses (a), (b) and (c) are satisfied. The cases referred to above show that once the conditions for exercise of jurisdiction under Section 11(6) were satisfied, in the exercise of consequential power under Section 11(8), the Court had on certain occasions gone beyond the scope of the concerned arbitration clauses and appointed independent arbitrators. What is clear is, for exercise of such power under Section 11(8), the case must first be made out for exercise of jurisdiction under Section 11(6) of the 1996 Act.
In view of the above, the Supreme Court allowed the appeal filed by Aravali Power and held that:
• Observations of the High Court show that the exercise was undertaken by the High Court, “in order to make neutrality or to avoid doubt in the mind of the petitioner” and ensure that justice must not only be done and must also be seen to be done.
• In effect, the High Court applied principles of neutrality and impartiality which have been expanded by way of the 2015 Amendment, even when no cause of action for exercise of power under Section 11(6) had arisen.
• The procedure as laid down in Section 12 of the 1996 Act prior to the 2015 Amendment mandated disclosure of circumstances likely to give rise to justifiable doubts as to independence and impartiality of the arbitrator. It is not the case of Era Infra that the provisions of Section 12 of the 1996 Act in un-amended form stood violated on any count. The provision contemplated clear and precise procedure under which the arbitrator could be challenged and the objections in that behalf under Section 13 of the 1996 Act could be raised within prescribed time and in accordance with the procedure detailed therein. The record shows that no such challenge was raised within the time and in terms of the procedure prescribed.
• As a matter of fact, Era Infra had participated in the arbitration and by its communication dated 4 December 2015, had sought extension of time to file its statement of claim.
• Accordingly, it was held that the Delhi High Court was clearly in error in exercising jurisdiction in the present case and it ought not to have interfered with the process and progress of arbitration. Therefore, the challenge raised by Aravali Power was accepted and the contentions raised by Era Infra were rejected.
Comment
The judgment delivered by the Supreme Court comes as a step back in implementing the true nature and spirit of the 1996 Act particularly with the advent of the 2015 Amendment and is conservative in approach in the light of the judgment of the Supreme Court in the Voestalpine Case (Supra).
The primary reason for allowing the employee of a party to continue as the nominated arbitrator by the Supreme Court is the distinction sought to be drawn with the pre-2015 Amendment period as compared to the post-2015 Amendment period. However, the Supreme Court ignored the legal position that existed even prior to the 2015 Amendment in as much as the principles of independence and impartiality were embedded in the provisions contained in Section 12 read with Section 11(8) of the 1996 Act even prior to the 2015 Amendment. The 2015 Amendment clarified the position by emphasising specific categories under Schedule V and VII of the 1996 Act.
Even on facts, the Supreme Court has ignored the factual findings of the Delhi High Court that though the CEO of Aravali Power was not the Engineer-in-Charge or the day-to-day in-charge of the work which was to be performed by Era Infra, but those who were responsible for such day-to-day work ultimately reported to the CEO. Therefore, the CEO had a controlling influence in Aravali Power against whom Era Infra sought to assert claims. In view of the above, circumstances existed for Era Infra to have justifiable doubts as to the independence and impartiality of the tribunal or that the arbitration procedure would be fair and unbiased.
Independence and impartiality are the touchstone of any adjudication process and more so in an arbitration process, where it is an alternative dispute resolution mechanism created by agreement between the parties. The endeavour of the legislature and the judiciary in the recent past has been to promote faster dispute redressal through mechanisms like – arbitration as compared to tardy and cumbersome Court process. Therefore, the role of fairness, independence and impartiality of the tribunals are indispensable. In view of limited judicial interference in the adjudication and post-adjudication stage, it is quintessential that there is a fair and unbiased adjudication. Apprehension of bias or justifiable doubts to the independence and impartiality of arbitral tribunals are to be resolved at the very outset rather than leaving it to a challenge at a later stage so as to avoid multiplicity of judicial proceedings, which has been one of the primary objectives of alternative dispute resolution. The whole scheme behind ensuring independence and impartiality of an arbitrator is to provide the necessary confidence and relief to contesting parties involved in the process of dispute resolution by resorting to the machinery of alternative disputes redressal. This becomes more important when a private party is contracting with a dominant government undertaking or a public aector undertaking (PSU), where the private party has minimal negotiating powers. In view of settled legal position, such government undertakings/ PSUs may strive to defend claims of the private contracting parties on merits rather than resorting to technical pleas.
Though the arbitration proceedings which have commenced post 2015 Amendment will continue to reap the benefits of the order passed in Voestalpine (Supra), the arbitration proceedings which commenced pre-2015 Amendment are bound to receive a differential treatment in this regard. The above judgment also dilutes the directives, with respect to procedure of appointment of arbitrators especially in cases of various Government agencies/ PSUs, as laid in another recent judgment of the Hon’ble Supreme Court dated 03 July 2017 passed in TRF Limited v. Energo Engineering Projects Limited[5]. A party, left with no choice or freedom of selection of an independent and impartial arbitral tribunal under the 1996 Act, will be left at the mercy of such an arbitral tribunal without any effective recourse to seek a fair, unbiased and reasonable adjudication of its disputes.
Employee of a party allowed as ‘arbitrator’ in proceedings... - CONT.