Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd.: Another Milestone Towards the Pro-enforcement Bias

 Ish Chopra*

Introduction

The Supreme Court judgment dated 2nd June, 2020 brought an end to a long-standing dispute (1999) between M/s Centrotrade Minerals and metals Inc. (“Centrotrade”/ “the Appellant”), a U.S. based Corporation, and Hindustan Copper Ltd. (“HCL”/ “the Respondent’). The judgment by the Supreme Court further reinforced the pro-enforcement bias which forms the basis of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as it protected the sanctity of the arbitration mechanism by relying on a narrow interpretation of Section 48(1)b) of the Arbitration and Conciliation Act, thereby reversing the judgment passed by a division of the apex court in 2006. The judgment tackled three major issues:

  1. Whether the Respondent was given a fair opportunity to present its case in the Arbitration proceeding.
  2. The interpretation of Section 48(1)(b) of the Arbitration and Conciliation.
  3. The authority of an arbitrator in the arbitration proceeding.

Timeline

The subject-matter of the dispute was the quantity of dry weight of copper concentrate delivered, which led to the invocation of the arbitration clause provided in the contract between the two parties. Clause 14 of the agreement provided that any disputes will be settled using a two-tier arbitration proceeding. The first of which was to be settled in India and disagreement over the award in this tier will give the disagreeing party a right to appeal in the second- tier of arbitration to be held by ICC in London.

On 15th June 1999, the arbitrator appointed by the Indian Council of Arbitration passed a Nil Award which led to the dispute reaching the second tier of the arbitration which gave an Award in the favour of Centrotrade on 29th September 2001.

Before the arbitrator gave an Award in the London Arbitration, HCL filed a suit in the Court at Khetri, Rajasthan challenging the multi-tiered arbitration clause. A revision petition was filed in the Rajasthan High court against the Order passed by the Khetri court which restrained Centrotrade from taking further steps in the London arbitration. But the High Court Order dated 27th April 2000 was vacated by the Supreme Court of India on 8th February 2001 following which the arbitrator gave the Award in the London Arbitration.

In order to enforce the award in India, the Appellant reached the Calcutta High Court. A single judge bench of the High Court dismissed the Section 48 petition filed by HCL and pronounced that the foreign award will be enforceable in India. This order was later overruled by the Division Bench of the High Court on 28th July 2004 as it held that the awards passed by the two arbitrations will be mutually destructive of each other since arbitrators of both the awards had concurrent jurisdiction.

The matter was then referred to a Division bench of the Supreme Court in 2006 which ended in a difference of opinion between the two judges regarding the permissibility of a multi-tiered arbitration in India. Due to the difference, the case was then referred to a three-judge bench of the Supreme Court in 2017 which divided the issue in two parts and while addressing the first issue, it held that Clause 14 of the agreement (multi-tier arbitration) was permissible in India.

In order to consider the second issue regarding the enforceability of the “foreign award” as per the provisions of Section 48 of the 1996 Act, the appeal was listed again to another three-judge bench who pronounced the judgment in June, 2020.

Summary of Relevant Facts

The question before the court in the present case was whether the Respondent was given a fair opportunity to present its case in the foreign arbitration. The court considered the facts of the London arbitration as well as the previous judgment s passed by this court on this issue. The court took cognisance of the fact that the arbitrator gave HCL as many as six opportunities to present its case. Only when the arbitrator gave a final opportunity after which he intended to proceed with the award, did HCL respond and asked for extension twice before it submitted the documents in support of their case. Even though the arbitrator wasn’t bound to consider HCL’s submission due to their belated nature, he took them into account before giving the final award. In the 2006 judgment, Justice Chatterjee held that HCL wasn’t given a fair opportunity to present its case because the arbitrator did not consider the additional material provided by the Respondent before passing the award even though the court did not receive any evidence of the same.

Legal Issue: Whether HCL was Given A Fair Opportunity to Present its Case

The present judgment highlighted a mistake of fact in Justice Chatterjee’s judgment (2006) as he conjectured that the arbitrator further received more material from HCL between the last deadline i.e. 13th September and the award passed on 29th September which he did not consider before delivering the award. There was no supporting material available with Justice Chatterjee as any documents supporting this claim were presented by the Respondent for the first time before the bench in the present case. Thus, there is a grave mistake of fact which formed the basis of the 2006 judgment stating that HCL wasn’t given a fair opportunity to present its case.

Moreover, even if we assume that any new material was indeed submitted after the final deadline, the award cannot be challenged because an arbitrator exercises control over the procedural orders and the deadlines and hence it is the arbitrator’s prerogative to consider any late submissions. The approach adopted by the 2006 judgment goes against the pro-arbitration sentiment developed by the Supreme Court in a plethora of its previous judgments. The court’s approach relied on the principle of natural justice to prove that HCL got a fair opportunity to present its case. The provision in Section 48(1)(b) of the Arbitration and Conciliation Act will apply only when the enforcee fails to present his case due to circumstances “not under his control”. On the other hand, when the enforcee does not take advantage of the opportunity given to him because of any circumstance which was under his own control, he won’t be able to take advantage of the exception provided in Article 48(1)(b). [Minmetals Germany GmbH v. Ferco Steel Ltd. (1999) C.L.C. 647 (Section 103(2)(c) is pari materia to Section 48(1)(b) of the 1996 Act)]

A reasonable test to determine whether a fair hearing was given or not is to check whether the argument in question forms the root of the case and which if goes unconsidered will result in denial of justice to the prejudice of the party. A caveat to this test is that the award should always be read with an inclination to uphold it. [Ssangyong Engineering and Construction Co. Ltd. vs. National Highways Authority of India (NHAI).] Thus, a party cannot intentionally ignore the procedural orders of an arbitral tribunal and then successfully claim that the procedures were fundamentally unfair. [Jorf Lasfar Energy Co. v. AMCI Export Corp.] Moreover, if the respondent claims that the result of the arbitration would have been different had he been given a fair opportunity of being heard without identifying the basis for the same, the enforcing court won’t play role in considering whether the award was correct either in law or on facts. [Cuckurva Holding A.S. v. Sonera Holding B.V.] Lastly, the burden of proof for showing that the arbitral process violated the “basic notions of fundamental fairness and justice” lies with the party challenging the enforcement of award. [Jorf Lasfar Energy Co.]

Analysis

1. Effective Enforcement of Foreign Awards

Through this judgment, the Supreme court has reinforced its stance towards the pro-enforcement bias set by the New York Convention by providing for a narrow interpretation of the grounds for refusal of Enforcement of Arbitral Awards. In numerous judgments like Vijay Karia v. Prsymian Cavi E Sistemi SRL, Ssangyong Engineering and Construction Co. Ltd. vs. National Highways Authority of India (NHAI) as well as the present judgment, Justice Nariman has heavily relied on  foreign judgments in order to elucidate the importance of foreign awards with minimal interference by national courts. In order to resolve the present dispute, Justice Nariman relied on various foreign judgments like Minmetals Germany GmbH v. Ferco Steel Ltd., Dongwoo Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH, Cuckurva Holding A.S. v. Sonera Holding B.V.amongst others, which highlights Supreme Court’s effort towards effective enforcement of awards in India. This approach is highly essential as the parties while enjoying the benefits of the arbitration mechanism, lose the “the right to seek redress from the court for all but the most exceptional errors at arbitration.” [Dean v. Sullivan]

2. The Interpretation of Section 48(1)(b) of the Arbitration and Conciliation Act,1996

Section 48(1) of the 1996 Act provides for the grounds on which the enforcement of a foreign award can be refused. Sub-clause (b) can be invoked when:

“the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case;”

The counsel for the respondent argued for a wider interpretation of the term “otherwise” as he proposed that the expression “otherwise” cannot be read ejusdem generis (i.e. of or as the same kind) with words that precede it and cited Kavalappara Kottarathil Kochuni v. States of Madras and Kerala in order to substantiate the same. The court did not concede to this reasoning because “otherwise” is defined as “in some other like capacity” and is commonly interpreted in a restricted sense as referring to some other matter which is similar to the classes mentioned before. [Monck v. Hilton]. After referring the context of the New York Convention, 1958 and the Vijay Karia Case, the court concluded that when “otherwise” is susceptible of two meanings then the narrower meaning is preferred which is in consonance with the pro-enforcement bias. (Principle of Maximum efficiency) [Parsons & Whittemore Overseas Co Inc v Société Générale]

3. The Authority of the Arbitrator in the Arbitration Proceedings.

In the 2006 judgment passed by the Division Bench of the Supreme Court, Justice Chatterjee held that refusal by the arbitrator to consider any other submissions by HCL after giving them extensions on various occasions “seems to be based on frivolous technicality.” This poses a question as to the authority of the arbitrator to set deadlines and his power to not entertain any delays. A party does not have an absolute right to be consulted for his convenience in every matter and the discretion with regards to consideration of any delay lies with the arbitrator and the court can intervene only in the light of positive abuse. [Montrose Canned Foods Ltd. v. Eric Wells (Merchants)]. And if any party chooses not to appear in the proceedings even after being given a proper notice then the proceedings may continue in his absence. [British Oil and Cake Mills Ltd. v. Horace Battin & Co. Ltd.] Arbitrator’s decision to not consider any more submissions should not be seen as perverse keeping in mind that the object of arbitration proceedings is speedy resolution of a dispute. [Hari Om Maheshwari v. Vinitkumar Parikh]

The Supreme Court’s approach recognises the wilful delays by the parties (almost invariably the respondent) with the intention to resist the enforcement of the arbitral award. The arbitral tribunal does not have to entertain ignorance towards the procedural directives and hence can draw possible sanction of adverse inference against the defaulting party. [Dongwoo Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH] Thus, it is reasonable for an arbitrator to even proceed ex parte if one of the parties fails or refuses to appear. Although it is desirable that the arbitrator balances the various factors involved and give an award that itself shows, on its face, the circumstances in which the party did not participate. [Redfern and Hunter on International Arbitration]


* Second year student at Rajiv Gandhi National university of Law, Punjab. He can be reached via LinkedIn or can be emailed at ishchopra26@gmail.com.


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