Abhishek Singh
PXV Law Partners
E- mail: abhis hek . s ingh@ pxvlaw. c om
STRICTLY PRIVATE – NOT FOR CIRCULATION
DISPUTE RESOLUTION
IN EPC CONTRACTS
OUTLINE
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ADR Mechanisms
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Conciliation
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Arbitration
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Expert Determination
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Multi-Tiered Dispute Resolution
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Dispute Resolution Boards
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Best Practices
Writ Remedies in EPC Contracts
STRICTLY PRIVATE – NOT FOR CIRCULATION
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ADR MECHANISMS CONCILIATION
CONCILIATION
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The Part III of the Arbitration and Conciliation Act, 1996 ("Act") provides for
recognition of conciliation in commercial disputes. [Section 61]
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Unless the parties have specifically excluded conciliation procedure, they
are free to take recourse to conciliation prior to arbitration.
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Confidential process. Proceedings cannot be relied on in a subsequent
arbitration / litigation. Conciliator cannot be presented as a witness.
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Restriction on initiating arbitral or judicial proceedings during conciliation
proceedings except for preserving rights. [Section 77]
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Settlement arrived before the conciliator has the same status as an arbitral
award.
ARBITRATION – KEY
ASPECTS
ARBITRATION-KEY ASPECTS
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Section 5 of the Act – a deliberate departure from UNICTRAL Model law.
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Section 5 starts with “non-obstante” clause and limits the scope of judicial
intervention.
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Section 8 limits discretion of courts and mandates the court to refer the
parties to arbitration when there is an arbitration agreement.
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Arbitral tribunal is competent to rule on its own jurisdiction including the
validity of the arbitration agreement. [Section 16]
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An appeal lies against an order if the arbitrator decides that he does not
have jurisdiction or if the arbitrator decides that he has exceeded the
scope of his authority.
JUDICIAL INTERVENTION IN ARBITRATION
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Making reference in a pending suit [Section 8].
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Passing interim orders [Section 9].
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Appointment of arbitrators [Section 11].
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Court assistance in taking evidence [Section 27].
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Setting aside an award [Section 34].
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Enforcement of an award by way of decree [Section 36].
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Entertaining appeals against certain orders [Section 37].
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Directing delivery of an award [Section 39(2)].
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Reference of a dispute to arbitration in insolvency proceedings [Section
41].
INTERIM PROTECTION
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Both the court and the arbitral tribunal have the power to grant interim
protection.
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Under section 9, court can allow interim protection before or during
arbitral proceedings or at any time after the making of the arbitral award
but before it is enforced in accordance with section 36.
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Generally, pre-arbitration notice invoking arbitration is required or
the court must be satisfied that effective steps to commence
arbitration would be taken. [Sundaram Finance Ltd. vs. NEPC India
Ltd., AIR 1999 SC 565].
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Under section 17, the arbitral tribunal can also order interim measures of
protection.
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Problem of enforceability. The arbitral tribunal can draw negative
inference in case of non-compliance.
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Section 17 would operate only during the existence of the arbitral
tribunal – not pre or post arbitration.
SECTION 34 – SETTING ASIDE AN
ARBITRAL AWARD
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Power to set aside an arbitral award under section 34 is very limited
• Incapacity
• Arbitration agreement invalid
• No proper notice of appointment of arbitrator or arbitral proceedings
• Arbitral award outside the scope of the agreement
• Composition of arbitral tribunal or procedure not in accordance with agreement of the parties
• Court finds that subject matter of dispute is not capable of settlement by arbitration under the law or arbitral
award is in conflict with “public policy of India”
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Against the Act or substantive law
• Against the Act example: unreasoned award, unless agreed otherwise [Section 31]; against the terms of
the contract [Section 28]; right to a hearing unless agreed otherwise [Section 24].
• The award is in conflict with the public policy of India, if the award was induced by fraud, misrepresentation
or corruption.
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“Patently Illegal” [ONGC v. Saw Pipes, (2003) 5 SCC 705]
• In ONGC, the Supreme Court of India set aside an award, which held that liquidated damages had to be
proven. Under section 74 of the Indian Contract Act, 1872 the actual loss or damages need not be proven. The
Supreme Court found the award to be against the public policy of India, since the award was against the
substantive law of India.
SETTING ASIDE AN ARBITRAL AWARD
UNDER SECTION 34 IS NOT AN APPEAL
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Under section 34, a court cannot re-appreciate the evidence. [M/s. Arosan
Enterprises Ltd. vs. Union of India & Anr., (1999) 9 SCC 449]
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If a possible view has been taken in relation to the obligations of the
parties based on construction of the terms of the agreement, then
interference by the court is not justified. [Hind Builders vs. Union of India,
(1990) 3 SCC 338]
EMPLOYEE ARBITRATORS
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Government, statutory body or PSU contracts, where a government
employee is named as an arbitrator.
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Senior officer of the government body who was not involved with the
execution of the contract and was independent and impartial - not barred
from functioning as arbitrator merely because their employer is a party to
the contract. [Indian Oil Corporation Ltd. and Ors. vs. Raja Transport,
(2009) 8 SCC 520]
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However, there is an obligation “independence” and “impartiality”.
GOVERNING LAW OF ARBITRATION
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Dispute referred to international commercial arbitration can be subject to
three different laws.
1. Proper law – Law governing the substantive contract.
2. Law governing the construction and validity of the arbitration agreement –
Law governing the agreement to arbitrate and the performance of that
agreement.
3. Procedural law of arbitration– Law governing the conduct of the arbitration.
• (1) can be different , but (2) and (3) are usually the same.
• Where parties fail to choose the law governing the arbitration proceedings,
it would be the country where the arbitration is held (seat).
• Seat NOT to be confused with venue of arbitration.
FOREIGN ARBITRAL AWARDS •
Part I applies to domestic arbitrations, while Part II applies to international commercial
arbitrations.
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“International commercial arbitration” is defined under section 2 (f) of the Act,
• For the Act to apply, the arbitration must be commercial as defined under the Indian law.
• And at least one party is
• Foreign national or habitually resides in a foreign country.
• A corporation, which is incorporated in a country other than India.
• Government of a foreign country.
• Body of Individuals, association or a company whose central management or control is
exercised in a foreign country.
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Bharat Aluminium Co. vs. Kaiser Aluminium Technical Service Inc. [2012 (8) SCALE 333]
overruled Bhatia International [(2002) 4 SCC 105] and Venture Global [(2008) 4 SCC 190].
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The most important impact is that in international commercial arbitration held abroad Part I
of the Act will not apply.
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Hence, section 34 setting aside the award or Section 9 interim measures cannot be resorted
to.
FOREIGN ARBITRAL AWARDS
Other critical implications of Bharat Aluminium Co. vs. Kaiser Aluminium
Technical Service Inc.
 The seat of arbitration will decide the applicable law of arbitration.
 The venue of arbitration may change, but it will have no effect on the
seat of arbitration. The seat of arbitration remains the place initially
agreed by or on behalf of the parties.
 Bharat Aluminum to apply only post 06.09.2012. Therefore, any
application for relief under section 9 or 34 in respect of foreign seated
arbitration will continue to be governed by the Bhatia principle. If
existing international arbitration agreements are pre 06.09.2012,
advisable to have them amended.
DISPUTE RESOLUTION
BOARD
DISPUTE RESOLUTION BOARD
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In large projects, quasi legal body commonly known as Disputes Resolution Board (“DRB”) can be
formed.
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DRB is intended to provide a site based, less formal and optionally binding solution to disputes prior to
the process of arbitration.
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Generally, DRB is constituted at the time of commencement of contract.
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Three stages of DRB:
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Onset level: During the working of the project, period status meetings, discussions, etc.
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Dispute arose level: If conflicts arises during the execution of the project, DRB could provide
informal opinion on potential areas of disagreement so that they are solved before it eventually
escalates to dispute.
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Hearing level: The hearing procedures allow both parties to explain their position as well as to
respond on the issues involved in the dispute. The DRB will conduct the hearing and attend every
issue in relation to the dispute.
Upon reaching a solution, DRB members make a recommendation in writing to both parties.
DRB PROBLEMS
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Ministry of Road Transport & Highways’ new EPC model places great emphasis on
DRBs. Done away with mediation process.
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A World Bank study (2007) on the operation of dispute resolution mechanisms for
civil works in India concluded that the operation of DRBs had been ineffective. The
DRBs took far longer than contractually mandated to make their recommendations
and faced high rejection rate.
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It was noted that the success of DRBs depended on the intent of the contract
personnel to manage the contract professionally and efficiently. Where the DRBs
had been established on time, site visits conducted regularly, and disputes
referred by parties promptly, the results were positive.
EXPERT DETERMINATION
EXPERT DETERMINATION
• Expert determination is an important method of dispute
resolution preceding arbitration / litigation. Resolving
disputes by experts can be very effective where technical
issues are involved.
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However, an expert determination is not a binding
arbitration award. [Joint Investments Pvt. Ltd. v.
Escorts, (2010) 170 DLT 487]
MULTI-TIERED DISPUTE
RESOLUTION
MULTI-TIERED DISPUTE RESOLUTION
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The process essentially involves resolving disputes through a multi-tiered dispute
resolution clause which provides for separate dispute resolution processes at distinct
and escalating stages.
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ADR mechanism commonly incorporated into multi-tiered dispute resolution clauses
include: negotiation, conciliation, expert determination, dispute resolution board and
finally, arbitration.
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Key benefits:
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filtering system- only the complex disputes result in arbitration;
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can effectively deal with a range of conflicts with a minimum of disruption to the
project.
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The Courts in India have shown an inclination to enforce multi-tiered dispute resolution
clauses. However, there is a conflict of view.
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Stages preceding to arbitration / litigation can be waived by the parties.
MULTI-TIERED DISPUTE RESOLUTION
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“The steps preceding the coming into operation of the arbitration clause
though essential are capable of being waived.” [M.K. Shah Engineers &
Contractors vs. State of Madhya Pradesh, (1999) 2 SCC 594]
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“When the parties agree for a specific procedure and mode for settlement of
their dispute by way of arbitration and also prescribes certain pre-condition
to be complied with for referring the matter to arbitration, the parties are
required to comply with those pre-conditions and only then refer the matter
to the arbitration.” [Tulip Hotels Pvt. Ltd. vs. Trade Wings Ltd,
MANU/MH/1748/2008]
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Validity of two tier arbitration clauses which envisages an initial domestic
arbitration, and challenge to the domestic arbitration award before another
arbitral tribunal pending consideration before a larger bench of Supreme
Court in Centrotrade Minerals vs. Hindustan Copper Limited , (2006) 11 SCC
245.
DRAFTING ARBITRATION
CLAUSES
DRAFTING DISPUTE RESOLUTION
CLAUSES – BEST PRACTICES, IBA
GUIDELINES
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The parties should decide between institutional and ad-hoc
arbitration. Benefits?
The parties should select a set of arbitration rules and use the
model clause recommended for these arbitration rules as a
starting point.
The scope of dispute subject to arbitration should not be limited.
The parties should select the seat of arbitration – practical and
juridical factors.
Despite Bharat Aluminum, its better to expressly exclude Part I of
the Act.
The parties should specify the number of arbitrators – impact on
overall cost, duration and the quality of the arbitral proceedings.
The parties should specify the method of selection and
replacement of arbitrators and, when ad-hoc arbitration is
chosen, should select an appointing authority.
DRAFTING ARBITRATION CLAUSES–
BEST PRACTICES
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Where applicable, time limits for each event for e.g. nominating
arbitrator, should be specified.
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The parties should specify the language of arbitration. Language of
documentation, effect of choice on arbitrators / counsels must be
considered.
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The parties should indicate the rules of law governing the contract,
venue, seat of arbitration, etc.
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Alternative dispute resolution mechanisms such as conciliation, DRBs,
expert determination, etc. should be clearly specified.
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Parties may consider specifying the powers of the arbitral tribunal to
grant interim relief.
WRIT REMEDY
WRIT REMEDY IN PROJECTS
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Writ remedy is not a routine jurisdiction but an extraordinary jurisdiction
meant for an extraordinary purpose. In contractual matters, the courts are
reluctant to exercise their writ jurisdiction.
However, even in contractual matters the State and its instrumentalities
are duty bound to act fairly and reasonably. If the impugned act of the
State is arbitrary or unfair or unreasonable, a writ is maintainable. [Kumari
Shrilekha Vidyarthi vs. State of U.P. and Ors., (1991) 1 SCC 212]
Writ petition may not be an appropriate remedy when disputed questions
of facts are involved and the parties are required to lead evidence. [Mrs.
Sanjana M. Wig vs. Hindustan Petro Corporation Ltd, (2005) 8 SCC 242]
Existence of arbitration clause in an agreement is normally a bar to the
exercise of writ jurisdiction, however, not an absolute bar. There are
certain exceptions where the writ jurisdiction can be invoked even in the
presence of arbitration clause.
“Facts and circumstances” test.
Examples of effective use of writ remedy in projects.
Thank You