Professor Franco Ferrari, the Center’s Director, and a renowned expert on the United Nations Convention on Contracts for the International Sale of Goods (CISG), has just published a paper focusing on the interpretation of the CISG in which he identifies two interpretative trends, both of which are disruptive of the uniformity aimed at by the drafters of the CISG; the homeward trend and the outward trend. As for the homeward trend, it has been defined as the tendency of interpreters of the CISG to read the expressions used in the CISG in light of the domestic law in which the interpreter was trained. On the other hand, the “outward trend”, an expression coined by Professor Ferrari in earlier writings, is defined by Professor Ferrari as the “the tendency of those interpreting a uniform law instrument to project foreign law onto the provisions of an international instrument where these provisions refer to legal concepts unknown in the system in which the interpreter is trained”. As Professor Ferrari points out in his paper, both trends go against the very idea behind the creation of a uniform sales law and must therefore be combatted. In his paper, Professor Ferrari makes a suggestion on how to do so successfully.

The paper is entitled Tendencia nacionalista vs tendencia importadora en la jurisprudencia de la CVIM, and is published in The Transnational Sales Contract. 40 years influence on the CISG on National Jurisdictions edited by F. Benatti et al., Milan, 2022, p. 199-217.

Professor Franco Ferrari, the Center’s Director, has just published a paper on the importance of the seat of arbitration entitled “Lex facit arbitrum 2.0” in the Italian peer reviewed law journal Diritto del commercio internazionale. The paper, which builds of earlier papers authored by Professor Ferrari, shows what implications the choice of the seat of arbitration has over the course of an arbitration’s life-cycle. As the paper shows, the choice of the arbitral seat identifies the lex loci arbitri and, thus, the applicable arbitration framework. As Professor Ferrari shows, this does not mean that an arbitration will only be governed by the national arbitration regime of the seat. Different national arbitration regimes may be – and generally are – applicable to any given arbitration.

On 19 February, from 9.30 am to 6.00 pm, the Center for Transnational Litigation, Arbitration, and Commercial Law alongside NYU’s International Arbitration Association will host the 11th Annual NYU Vis Practice Moot.

The 11th Annual Vis Practice Moot, to be held online, will welcome teams from selected law schools from across the world as well as many distinguished professionals and academics, who agreed to act as arbitrators, including Professor Franco Ferrari, the Center’s Director.

The Practice Moot rounds aim to provide a helpful forum for the Willem C. Vis International Commercial Arbitration Moot participants to practice their oral advocacy skills by pleading before, and receiving constructive feedback from, panels of experienced arbitrators from all around the world. The Practice Moot also enables the participating teams to meet and have a chance to plead against each other before the actual rounds, where more than 3000 students from about 370 law schools from around the world will compete.

For more info, please see the flyer.

On December 1st, 2021, Professor Franco Ferrari will host Italian Supreme Court Justice Francesco Cortesi, a two-time scholar-in-residence at the Center, who will give a talk at NYU on the autonomous interpretation of uniform law instruments in general, and the United Nations Convention on Contracts for the International Sales of Goods (CISG) in particular. Justice Cortesi, who graduated in 1994 cum laude from Bologna University School of Law, and specialized in international commercial law at Tilburg University School of Law (Netherlands) under the supervision of Professor Franco Ferrari, the Center’s Director who at the time was professor at Tilburg University, was appointed Judge at Court of Bologna in 1999. In 2001, he was assigned to the Court of Rimini, where he mainly dealt with disputes regarding contracts, consumer law issues and professional malpractice torts. In 2007, he moved to the Court of Forlì, where he was able to focus on those very same areas of law. During his tenure there, he also rendered some of the most relevant decisions concerning the United Nations Convention on Contracts for the International Sales of Goods, many of which have been translated into various languages, including English. In 2006, Justice Cortesi was appointed to the Government Committee for the revision of the Italian Civil Code. In January 2016, Justice Cortesi was appointed to the Italian Supreme Court, thus becoming one of the second youngest justice ever appointed to the Italian Supreme Court.

Professor Franco Ferrari, the Center’s Director, has just published a paper entitled “Plures leges faciunt arbitrum” in issue 3/2021 of Arbitration International.

In his paper, Professor Ferrari asserts that in international arbitration the lex loci arbitri has not lost its importance, which is not to say that it operates as the exclusive source of the arbitral process. While it is still the law of the seat that primarily furnishes arbitration its legal framework, in the form of ground rules in accordance with which arbitral activity may validly take place at the arbitral seat, it is not the only law imposing itself upon an international arbitration. In other words, the regulatory sovereignty of the State of the seat of arbitration is not necessarily the only one to be triggered during the different stages of an arbitration’s life-cycle. This is due to the fact that this regulatory sovereignty encounters both subject-matter limitations and territorial limitations, and, therefore, depending on what matter is to be addressed – and when and by whom – may call into play the regulatory sovereignty of States other than that of the seat. Thus, plures leges faciunt arbitrum.

The paper can be downloaded here.

NYU’s Center for Transnational Litigation, Arbitration, and Commercial Law is glad to invite you to a webinar entitled “Text, Context, and Applicable Law: Arbitral Decision Making?” to take place on 15 November 2021, from noon to 1.30 pm (NY time).

As it commonly known, arbitrators often confront a text/context duality in interpreting contracts. The applicable law may impose the adoption of one approach over the other – e.g., New York-textualist versus California-contextualist. However, whether unimposed or even imposed, leeway remains, and an arbitrator’s unstated (and perhaps unconscious) philosophy of language is the hidden hand in the interpretive action. Divining “ordinary meaning,” and thereby “intention,” is the art and the frustration. In the webinar, it will be suggested that arbitrators should try to examine — openly — that hidden hand. Moreover, in doing so, they should consider whether approaches to the interpretation of texts in other disciplines, including the use of corpus linguistics (as promoted by Thomas Lee/Stephen Mouritsen), would improve arbitral decision-making.

The speakers will be Laurence Shore and Klaus Peter Berger.

For more info and a registration link, please see the attached flyer.

The Center for Transnational Litigation, Arbitration, and Commercial Law will be hosting a webinar on October 14, 2021 from 12:30 PM to 2:00 PM (New York Time) called, “Does a Right to a Physical Hearing Exist?”.

In September 2020, Giacomo Rojas Elgueta, James Hosking and Yasmine Lahlou, in collaboration with ICCA, launched the research project “Does a Right to a Physical Hearing Exist in International Arbitration?”  The project arose from the need for reliable, jurisdiction-specific, information relating to a legal issues arisen due to the increased use of remote arbitral hearings triggered by the COVID pandemic. On the occasion of this webinar, the three co-editors will discuss the challenges of putting together a project that ultimately resulted in the submission of 77 national reports, all based on a standard survey questionnaire and model response, the national reporters were provided  with. The three co-editors will also discuss the main take-aways of their research project.

Please see the attached flyer for more information.

Registration is required.

Professor Franco Ferrari, the Center’s Director, will participate in a hybrid conference to take place on Friday, October 1, 2021, in Coimbra on the occasion of the entry into force in Portugal of the United Nations Convention on Contracts for the International Sale of Goods (CISG). On that occasion, Professor Ferrari, an expert in all things CISG, will address when the CISG applies in the context of international arbitration. In his talk, Professor Ferrari will point out that the CISG’s application in arbitration is due to reasons very different from the leading to the CISG’s application in litigation, and that arbitrators need to become aware of this.

For more info on the event, please turn to this link.

On Tuesday, Sept. 21, 2021, from 11.00 am – 1.00 pm, Professor Franco Ferrari, the Center’s Director, will give a lecture addressing the applicability of the 1980 United Nations Convention on Contracts for the International Sale of Goods (“CISG”) in arbitration. On the occasion of the webinar, hosted by Bologna University School of Law, Professor Ferrari’s alma mater, he will show how and why in international arbitration, the CISG, but the same holds true for other uniform substantive law conventions as well, applies for reasons other than those leading to the CISG’s application before state courts. As he will show, the application of the CISG in arbitration depends on the applicable arbitration-specific private international law rule. If this rule designates the law of a Contracting State as the applicable law, the CISG will apply as part of the law of that State (provided that its internationality requirement, its rationae materiae requirement, and it ratione temporis requirement are met). In addition, the CISG may apply on  its own, i.e. independently of the law of any Contracting State, if the applicable arbitration-specific private international law rule allows the application of “rules of law”.

For more info and to register, please see the flyer.

This is to invite you on behalf of NYU’s Center for Transnational Litigation, Arbitration, and Commercial Law to a webinar entitled “Introduction to International Arbitration in Africa” to take place on September 23, 20021, from 9.00 am – 10.15 (NY time).

This event, to be moderated by Mr. Domenico Di Pietro (GST LLP, London/Miami), will allow participants to get an idea of the status quo of international arbitration in Africa. The starting point will be an overview of the historical development of arbitration in Africa as well as the legal framework applicable in the various African countries to be analyzed by the two speakers, Ms. Ndanga Kamau (Ndanga Kamau Law, The Hague) and Professor Emilia Onyema (SOAS University of London). When addressing the legal framework, the speakers will also identify Model Law and non-Model Law jurisdictions on the African content and address the impact of OHADA and the New York Convention on arbitration in Africa. As part of their focus on the legal framework, the speakers will also analyze the institutional framework in the sense of the arbitral institutions operating on the African continent. The speakers will also address practical issues, such as the implications of choosing to seat an arbitration in an African jurisdiction, the importance of African arbitrators and counsel in international arbitrations with seats in Africa and outside Africa, and the attitudes of domestic courts vis-à-vis arbitration at both the pre-award and the post-award stages.

For more information, including short bios of the speakers see the brochure.

On the occasion of the 2021 Brazilian Arbitration Day at NYU, to take place on Aug. 31, 2021, from 9.00-noon, Professor Franco Ferrari will give the keynote speech entitled “The impact of anti-Covid measures on substantive law solutions”. The event, once again co-hosted by CAM-CCBC (Centro de Arbitragem e Mediação) and NYU’s Brazilian Legal Society, will be opened by Ms. Eleonora Coelho, President of CAM-CCBC, and will also feature Marcelo Ferro, Christian Leathley, Erika Levin, Pedro J. Martinez-Fraga, Rose Rameau, Guilherme Recena Costa, Frederico Singarajah, and Gretta Walters. Luíza Kömel, Deputy Secretary General of CAM-CCBC, and Rekha Rangachari, Executive Director of the New York International Arbitration Center, will act as moderators for the sessions on “Persuasion: Strategies for effective oral advocacy skills from the Counsel’s and the Tribunal’s perspectives” and “Arbitration War Stories: what the books don’t teach you”, respectively.

Registration is required.

Professor Franco Ferrari, the Center’s Director, has just published an article in Diritto del commercio internazionale, a peer reviewed Italian law journal. In his article, Professor Ferrari, one of the leading academics in the field of unification of law in general, and the United Nations Convention on Contracts for the International Sale of Goods (CISG) in particular, argues that in the arbitration context, uniform substantive law conventions apply for reasons that do not compare to those that lead to their application in litigation. In arbitration, their application will depend on the autonomous arbitration-specific conflict of laws rules. If these rules designate the law of a contracting State as the law applicable, the uniform substantive law conventions apply as part of the law of that State. But the conventions may also apply on their own, independently of the law of any contracting State, if the applicable arbitration-specific conflict of laws rule allows for the application of “rules of law”.

Daniel Gaw

Introduction

When determining the seat of arbitration and the proper law of an arbitration agreement, is it relevant that the choice of a particular seat and/or law may invalidate the arbitration agreement? In BNA v. BNB,[1] the Singapore Court of Appeal (“SGCA”) reached a result that effectively answered this question in the negative. Specifically, the Court held that the law of the People’s Republic of China (“PRC”) governed an arbitration agreement despite a real risk that the arbitration agreement would be rendered invalid as a result. In doing so, the Court reversed the decision of the Singapore High Court (“SGHC”),[2] which had held that Singapore law governed the arbitration agreement.

This paper takes a closer look at the case and highlights three key takeaways relating to: (a) the express choice of law for an arbitration agreement; (b) the implied choice of law for an arbitration agreement; and (c) the relevance of the validation principle. It concludes that the SGCA’s decision was correct notwithstanding the unsatisfactory outcome for the party that relied on the arbitration agreement.

Summary of the Case

Facts

In BNA v. BNB, the Korean sellers commenced arbitration against a Chinese buyer for alleged non-payment of amounts due under a contract for the sale of industrial gases (the “Agreement”). Article 14.1 of the Agreement provided that “[t]his Agreement shall be governed by the laws of the People’s Republic of China”, while Article 14.2 provided for disputes to be “submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules”.

The buyer objected to the tribunal’s jurisdiction. It contended that the arbitration agreement was invalid because: (a) the arbitration was seated in the PRC and the arbitration agreement governed by PRC law; (b) PRC law prohibited a foreign arbitral institution like SIAC from administering the arbitration of a domestic dispute; and (c) in any event, even if the dispute had sufficient foreign elements, PRC law nonetheless prohibited a foreign arbitral institution from administering an arbitration seated in the PRC.

The tribunal’s decision

The majority of the tribunal held that it had jurisdiction over the dispute because: (a) the arbitration was seated in Singapore; (b) the arbitration agreement was thereby governed by Singapore law; and (c) PRC law was therefore irrelevant on the question of jurisdiction.[3] In reaching that decision, the majority applied the validation principle and effective interpretation principle, which it summarised as follows: “[I]t makes no commercial or logical sense for parties to intentionally select a law to govern an arbitration agreement which would then invalidate it.”[4] The dissenting arbitrator, however, took the view that the tribunal lacked jurisdiction because: (a) the proper law of the parties’ arbitration agreement was PRC law; (b) the parties’ dispute was classified in PRC law as a domestic dispute; and (c) PRC law prohibited a foreign arbitral institution from administering the arbitration of a domestic dispute.[5]

The SGHC’s decision

Dissatisfied with the tribunal’s jurisdictional decision, the buyer asked the SGHC to decide the issue pursuant to Section 10(3) of the Singapore International Arbitration Act. The SGHC upheld the tribunal’s jurisdiction on the basis of two key findings.

First, the court considered that the arbitration agreement referred not only to Shanghai, but also Singapore, as a potential seat of arbitration. Specifically, the reference to the SIAC Rules included Rule 18.1 thereof, which provided that if the parties did not agree on a seat of arbitration, then it shall be Singapore unless the tribunal determines otherwise.[6] The question was therefore whether the phrase “arbitration in Shanghai” amounted to an agreement by the parties on the seat of arbitration. As a matter of construction, the court held that the reference to Shanghai merely identified the venue of arbitration and not a seat, as Shanghai was a city and not a law district.[7] In contrast, the express reference to the SIAC Rules was “the clearest possible manifestation” of the parties’ intention to have their arbitrations seated in Singapore.[8]

Having found that Singapore was the seat of arbitration, the SGHC turned to determine the proper law of the arbitration agreement, applying the three-stage choice of law analysis set out by the English Court of Appeal in Sulamérica v Enesa Engelharia SA:[9] (a) Have the parties expressly chosen the proper law of their arbitration agreement? (b) If not, have they impliedly done so? (c) If there is no express or implied choice, then with what system of law does the arbitration agreement have its closest and most real connection?[10]

            Under the first stage, the court found that the express choice of law to govern the main contract did not amount to an express choice of law in respect of the arbitration agreement. Proceeding to the second stage, the court accepted that the starting point was that the proper law of the contract (PRC law) would also govern the arbitration agreement.[11] It held, however, that this presumption was displaced in favour of the law of the seat (Singapore law). This was because the choice of PRC law “would defeat the parties’ manifest intention to resolve their disputes through arbitration”.[12] Interestingly, the court did so despite having rejected the validation and the effective interpretation principles as being “nakedly instrumental”.[13]   

The SGCA’s decision

On appeal, the SGCA reversed the SGHC’s decision. The key point of departure for the SGCA was the SGHC’s interpretation of the phrase “in Shanghai” as referring merely to the venue of arbitration and not the seat. In the SGCA’s view, “where parties specify only one geographical location in an arbitration agreement, and particularly where, as here, the parties express a choice for ‘arbitration in [that location]’, that should most naturally be construed as a reference to the parties’ choice of seat”.[14] The fact that Shanghai is not a law district was immaterial as commercial parties often only specify either the city or country in their arbitration agreements.[15] Given that the parties had agreed on the PRC as the seat of arbitration, the default choice of Singapore as the seat under SIAC Rule 18.1 did not apply.

Turning to the proper law of the arbitration agreement, the Court held that the express choice of PRC law to govern the main contract did not constitute an express choice of law for the arbitration agreement.[16] It did, however, amount to an implied choice of law for the arbitration agreement.[17] There was nothing to displace this implied choice because the law of the seat was also PRC law.[18] It followed that the validity of the arbitration agreement was to be determined by the PRC courts applying PRC law.

Analysis

The SGCA’s decision is noteworthy for three points which are discussed further below. 

Express choice of law for an arbitration agreement

            The SGCA decided that an express choice of law in respect of the main contract does not, in and of itself, also constitute an express choice of the same law in respect of the arbitration agreement. The SGCA’s approach is consistent with the concept that the arbitration agreement is separable from the main contract and more specific words are required to make an express choice of law in respect of the arbitration agreement. 

That said, no absolute rule can be laid down in this regard, and it is ultimately a matter of contract interpretation as to whether the parties have expressly chosen a law for their arbitration agreement. For instance, if the parties define the term “Agreement” in a manner that clearly includes the arbitration agreement therein and then subject the entire “Agreement” to a particular law, then that may amount to an express choice of law in respect of the arbitration agreement.[19] 

Implied choice of law for an arbitration agreement

Common law courts have diverged on the issue of whether the law of the main contract or the law of the seat should be presumed to be the implied choice of law for an arbitration agreement. In Singapore, an Assistant Registrar concluded that it should be the law of the seat,[20] while other High Court decisions have ruled in favour of the law of the main contract.[21] Likewise, in the recent UK case of Enka v. Chubb, the Court of Appeal and Supreme Court arrived at different conclusions on this issue – the former preferred the law of the seat,[22] while the latter held in favour of the law of the main contract.[23] The SGCA’s decision in BNA v. BNB confirms that, as a matter of Singapore law, the law of the main contract will presumptively be the implied choice of law for the arbitration agreement, and the choice of a different seat is insufficient to displace that presumption.

Relevance of validation principle

The SGCA purported not to address the validation principle when determining the proper law of the arbitration agreement, reasoning that it had no scope for operation in a case where both the law of the main contract and the law of the seat was PRC law.[24] In this author’s view, however, the Court had implicitly rejected the validation principle when determining that the seat of arbitration was Shanghai. Specifically, the Court held that the potentially invalidating effect of PRC law was irrelevant when determining whether the phrase “arbitration in Shanghai” referred to the venue or the seat of arbitration. This was because there was no evidence that the parties were aware that the choice of proper law of the arbitration agreement could have an impact upon its validity.[25] The Court’s reasoning here was arguably an implicit rejection of the validation principle, which “rests on the rational assumption that parties would prefer to have an agreement upheld than not”[26] and does not require actual evidence that the parties had actually turned their minds to the issue of validity in a particular case.

It is submitted that the SGCA’s approach was correct. The validation principle cannot be used to override a clear and express term of the contract simply because giving effect to that term would invalidate the contract or part of it. In this case, the natural meaning of the phrase “arbitration in [city/country]” is that the specified location would be the seat of arbitration, as confirmed by numerous cases and commentaries.[27] Had the word “Shanghai” been substituted with another city (e.g. London), a court or tribunal would undoubtedly have no difficulty with interpreting that phrase as designating the seat of arbitration. It would be unprincipled to depart from the parties’ express choice of the arbitral seat simply because that choice results in certain undesirable outcomes that they perhaps might not have foreseen.  

Conclusion

The SGCA decided in BNA v. BNB that the words of an arbitration agreement should be given their natural meaning unless there are sufficient contrary indicia to displace that reading, and “the parties’ manifest intention to arbitrate is not to be given effect at all costs”.[28] The decision was correct as it is not the function of the courts to save the parties from the consequences of poorly drafted or ill-advised arbitration clauses. It underscores the importance of choosing the seat of arbitration and proper law of the arbitration agreement with care. 

Daniel Gaw is an LL.M. candidate (Vanderbilt Scholar) in the International Business Regulation, Litigation and Arbitration program at the NYU School of Law and an Associate in Dechert LLP’s International Arbitration group. He holds a Bachelor of Laws (First Class Honours) from the National University of Singapore and was formerly a Justices’ Law Clerk of the Supreme Court of Singapore.

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[1] [2019] SGCA 84.

[2] [2019] SGHC 142.

[3] BNA v. BNB [2019] SGHC 142 ¶ 8.

[4] BNA v. BNB [2019] SGCA 84 ¶ 18.

[5] Id.

[6] BNA v. BNB [2019] SGHC 142 ¶ 104.

[7] Id. ¶ 108.

[8] Id. ¶ 109.

[9] [2013] 1 WLR 102.

[10] BNA v. BNB [2019] SGHC 142 ¶ 17.

[11] Id. ¶ 111.

[12] Id. ¶ 117.

[13] Id. ¶¶ 48 and 53.

[14] BNA v. BNB [2019] SGCA 84 ¶ 65.

[15] Id. ¶ 92.

[16] Id. ¶ 61.

[17] Id. ¶ 62.

[18] Id. ¶ 94.

[19] Kabab-Ji SAL v Kout Food Group [2020] EWCA Civ 6 ¶ 62.

[20] FirstLink Investments Corp Ltd v GT Payment Pte Ltd [2014] SGHCR 12 ¶ 16.

[21] BCY v BCZ [2016] SGHC 249 ¶ 65; Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2016] SGHC 238 ¶ 31.

[22] [2020] EWCA Civ 574 ¶ 91.

[23] [2020] UKSC 38 ¶ 170(iv).

[24] BNA v. BNB [2019] SGCA 84 ¶ 95.

[25] Id. ¶ 90.

[26] Enka v. Chubb [2020] UKSC 38 ¶ 198 (dissenting judgment of Lord Burrows).

[27] BNA v. BNB [2019] SGCA 84 ¶¶ 66-68.

[28] Id. ¶ 104.

Professor Franco Ferrari, the Center’s Director, and Dr. Friedrich Rosenfeld, Global Adjunct Professor at NYU Law in Paris, Visiting Professor at the International Hellenic University in Thessaloniki and Lecturer at Bucerius Law School in Hamburg, have co-authored a book entitled “International Commercial Arbitration: A Comparative Introduction” for which Adjunct Professor John Fellas acted as Consultant Editor.

The book is a concise comparative introduction to international arbitration. With reference to recent case law from leading arbitration jurisdictions and up-to-date rules revisions (including by the German Arbitration Institute, HKIAC, the International Chamber of Commerce, the London Court of International Arbitration (LCIA), the Singapore International Arbitration Centre SIAC), and the Vienna International Arbitration Centre), it provides a comparative analysis of the issues raised in arbitration, from the time of #drafting of arbitration clauses to the rendering of the award and the post-award stage. After introductory remarks on the applicable normative framework, the book covers arbitration agreements and their enforcement, the initiation of #proceedings, the constitution of the tribunal, the taking of evidence, issues arising in complex arbitrations, as well as the #award and the post-award regime.

More information can be found on the publisher’s website.

Introduction

The doctrine of separability, which provides that the invalidity of the substantive commercial contract does not affect the validity of the arbitration agreement except if the arbitration agreement itself is directly impeached as void ab initio, has been widely accepted in the arbitration jurisprudence.

[1] However, it has been adopted by the Indian Supreme Court (“Court”) only recently. By way of its judgment in N. N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Others (“N.N. Global Judgment”), the Court has for the first time answered in negative – “Whether an arbitration agreement would be non-existent in law, invalid or un-enforceable, if the underlying contract was not stamped as per the relevant Stamp Act?”[2]

The N.N. Global Judgment is noteworthy as by applying the doctrine of separability of arbitration agreement from the underlying contract, the Court has undertaken a complete departure from its previous decisions. It has declared that its previous judgments which held that the non-payment of stamp duty on a commercial contract would invalidate even the arbitration agreement and render it non-existent in law and un-enforceable, are bad in law.[3] In fact, since this is the first time the Court has adopted a diametrically opposite view on this issue in complete dismissal of the precedent set by its co-ordinate bench, the issue has now been referred to a Constitution Bench of five judges of the Court so that the law may be authoritatively settled.[4]   

Factual and Procedural Background

Indo Unique had entered into a contract with the Karnataka Power Corporation Ltd. (“KPCL”) pursuant to an open tender. Subsequently, Indo Unique executed a sub-contract, being Work Order dated September 28, 2015 (“Work Order”), with M/s N. N. Global Mercantile Pvt. Ltd. (“Global Mercantile”) for transportation of coal. Clause 10 of the Work Order incorporated an arbitration clause providing for resolution of disputes by an arbitrator appointed by mutual consent. Further, in satisfaction of the requirements of Clause 9 of the Work Order, Global Mercantile had furnished a bank guarantee for INR 33.6 million in favor of the State Bank of India, the banker of Indo-Unique. Thereafter, certain disputes arose between Indo Unique and KPCL. Consequently, Indo Unique invoked the bank guarantee furnished by Global Mercantile under the Work Order.

In response, Global Mercantile filed a commercial suit against Indo Unique and its banker seeking a declaration that Indo Unique was not entitled to fraudulently encash the bank guarantee as the Work Order had not been acted upon and no loss was suffered by Indo Unique as a result. Pursuant thereto, Indo Unique filed an application before the Commercial Court under Section 8 of the Arbitration and Conciliation Act (“Arbitration Act”) seeking reference of the dispute to arbitration. This was opposed by Global Mercantile as not maintainable since the bank guarantee was an independent contract. By way of judgment dated January 18, 2018, the Commercial Court accepted Global Mercantile’s argument and rejected the application while holding that its jurisdiction was not ousted by the arbitration agreement in the Work Order.

Challenging the decision of the Commercial Court, Indo Unique approached the Bombay High Court with a writ petition[5]. The High Court, by way of judgment dated September 30, 2020, set aside the Commercial Court’s judgment. It held that it was the admitted position that there was an arbitration agreement between the parties and therefore the application under Section 8 was maintainable. The High Court further held that the issue that the non-stamping of the Work Order rendered the arbitration agreement unenforceable could be raised by Global Mercantile before a court under Section 11[6] of the Arbitration Act or before the arbitral tribunal. Aggrieved by the decision of the High Court, Global Mercantile approached the Court.

Analysis Of The N.N. Global Judgment

Numerous issues were raised by Global Mercantile before the Court, however this paper concentrates on the findings of the Court on the issue – “Whether an arbitration agreement would be enforceable and acted upon, even if the Work Order dated 28.09.2015 is unstamped and un-enforceable under the Stamp Act?”[7]. Global Mercantile argued that the application under Section 8 of the Arbitration Act for reference of disputes to arbitration was not maintainable. It contended non-maintainability on the ground that the Work Order not being stamped as per the relevant Stamp Act could not be received in evidence or acted upon, thus, the arbitration clause contained therein also could not be enforced. On the other hand, Indo Unique contended that non-payment of stamp duty on the Work Order was a curable defect and did not render the Work Order unenforceable. Therefore, opportunity should be granted to Indo Unique to cure the defect by paying the deficient stamp duty.  

The Court, while arriving at its holdings in the N.N. Global Judgment, analyzed the development of the doctrine of separability internationally through judgments delivered in the United Kingdom[8], United States[9] and France[10]. The Court acknowledged that Section 16 of the Arbitration Act recognizes the doctrine of separability and kompetenz-kompetenz in India. Further, Section 5 and Section 11 of the Arbitration Act enshrine the legislative policy of minimal judicial intervention. A conjoint reading of Section 5 and Section 16 of the Arbitration Act reveals that the issue whether the main contract is voidable is to be resolved through arbitration. On a careful perusal of the relevant Stamp Act, the Court opined that stamp duty is not chargeable on an arbitration agreement and is only payable on the main contract. The non-payment of stamp duty on the Work Order did not invalidate it but only created a deficiency which could be cured by payment of the requisite stamp duty.

The Court held that on an application of the doctrine of separability – (a) the arbitration agreement contained in the Work Order being independent and distinct from the underlying contract; and (b) no stamp duty being chargeable on it – the arbitration agreement would survive independent of the Work Order. Arbitration agreement would not be rendered invalid or unenforceable on the ground that the contract containing it cannot be acted upon due to non-payment of stamp duty. The N.N. Global Judgment declared that the previous judgments on this issue are bad in law for not upholding the doctrine of separability. Further as a co-ordinate three-judges’ bench of the Court had previously arrived at a contrary decision, in deference to the doctrine of stare decisis, the issue was referred to a Constitution Bench of the Court for authoritative determination.

Comments On The N.N. Global Judgment

The issue of enforceability of an arbitration agreement contained in an unstamped agreement has previously been addressed by the Court in numerous judgments. The Court in SMS Tea Estates Pvt. Ltd. v. M/s Chandmari Tea Co. Pvt. Ltd.[11] held that until the payment of stamp duty with penalty, a court cannot act upon the contract which means consequently the court cannot act upon the arbitration agreement contained in the contract. This issue also came up for the consideration of the Court in 2019 in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited[12] wherein it was held that the Stamp Act applies to the whole contract, hence, it is impossible to separate the arbitration clause contained in the contract from the remainder of the contract to give the arbitration clause an independent existence. This position of the Court was further cited with approval by a three judges’ bench in Vidya Drolia & Ors. v. Durga Trading Corporation[13], which held that arbitration agreement presupposes the existence of a valid and enforceable agreement, so it does not exist when a party cannot sue and claim rights based on an unenforceable agreement.

The Court by way of the NN Global Judgment was right in declaring the judgment in SMS Tea Estates Pvt. Ltd. and Garware Wall Ropes Limited as bad in law and doubt the correctness of the view adopted in Vidya Drolia & Ors. as these judgmentscompletely disregard the well-established doctrine of separability.[14]The doctrine of separability is incorporated in Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) which provides that a decision of the arbitral tribunal that a contract is null and void will not automatically render the arbitration clause invalid. The Arbitration Act was codified and implemented in India with a view to implement the Model Law to create a unified legal framework for the fair and efficient settlement of disputes.[15] In fact the doctrine of separability contained in Article 16(1) of the Model Law is codified in Section 16(1) of the Arbitration Act. Therefore, the previous judgments of the SC clearly failed to appreciate that the doctrine of separability is the mandate of the codified law in India and are thus bad in law. 

The legislative policy of promoting arbitration by limiting judicial intervention in arbitration can be gleaned from the 2015 amendment to Section 11 of the Arbitration Act. The Court has interpreted the amendment to reflect the legislative intent that at the pre-reference stage, courts seized of the matter must exercise minimal judicial intervention and only decide on the issue of existence of arbitration agreement.[16] The Court has repeatedly emphasized that under the now amended Section 11(6A) of the Arbitration Act, in deference to the doctrine of kompetenz-kompetenz embodied in Section 16, the scope of court’s examination is limited to determining the existence of the arbitration agreement and all other preliminary / threshold issues are to be decided by the arbitrator.[17] Thus, once a court has prima facie determined that an arbitration agreement exists, issues regarding the invalidity of the agreement due to non-stamping have to be referred to an arbitrator in terms of the arbitration agreement.

Further, the stamp duty is only a fiscal measure to secure revenue and not a weapon of technicality, so there is no bar on an unstamped instrument being acted upon once the defect is cured.[18] In any event, under the Stamp Act no stamp duty is levied on an arbitration agreement. Hence, non-stamping of the main agreement (a) does not affect the validity of the arbitration agreement; and (b) does not render the main agreement void and is only a technical defect which can be cured by payment of stamp duty and penalty. This being the case, a party cannot be permitted to misuse the Stamp Act to deny the other party the pre-agreed remedy of arbitration.  

The N.N. Global Judgment, by accepting the doctrine of separability, has finally brought the Indian arbitration law in line with the international practices. The UK Court of Appeal, while accepting that the principle of separability exists in English Law, had held that if the arbitration clause is not directly impeached it is capable of surviving the invalidity of the contract so that the arbitrator has the jurisdiction to determine the initial validity of the contract.[19] When the validity of the contract is challenged, the arbitration agreement is treated as an autonomous procedural contract and not as an element of a material-legal contract.[20] The internationally accepted doctrine of separability has finally been accepted and applied by India’s apex court.

Conclusion

In recent times, the Court has adopted a policy to promote India as an arbitration-friendly nation. This is evident from its decision in A. Ayyasamy v. Parmasivam & Ors., wherein it held – “The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution.”[21] The N.N. Global Judgment is another in a series of pro-arbitration judgments of the Court aimed at evolving a robust framework of Indian arbitration law, benchmarked against the best international practices. The World Bank’s Doing Business 2020 report reveals that India ranks 63^rd in the ‘Ease of Doing Business Rankings’.[22] Promoting India as an arbitration-friendly jurisdiction is vital for attracting more investments and the N.N. Global Judgment is a welcome step in that direction.

Ananya Dhar Choudhury is an LL.M. candidate in the International Business Regulation, Litigation and Arbitration program at the NYU School of Law. Prior to attending NYU, she worked as an Associate with the Litigation and Disputes Resolution team at Cyril Amarchand Mangaldas, a leading full-service law firm in India.

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[[1]] Tibor Varady et al., International Commercial Arbitration: A Transnational Perspective 192 (7th ed. 2019).

[[2]] N. N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Others, 2021 SCC OnLine SC 13 at ¶1.

[[3]] Id. at ¶12.

[[4]] Ibid.

[[5]] Under Article 226 of the Constitution of India, every High Court has the power to issue to any person, in its territories, any direction for the enforcement of any of the rights and for any other purpose. Further, Article 227 of the Constitution of India bestows the High Court with supervisory jurisdiction over all courts and tribunals throughout its territorial jurisdiction. Therefore, in this case the Bombay High Court had supervisory jurisdiction over the Commercial Court to pass any direction it deems fit.

[[6]] If the parties fail to agree on the appointment of an arbitrator or tribunal, then either party may approach the court under Section 11 of the Arbitration Act requesting the court to make such an appointment. The decision of the court, pursuant to such a request, is final.

[[7]] N. N. Global Mercantile Pvt. Ltd., supra at ¶2.

[[8]] The House of Lords in Fili Shipping Co. Ltd. and others v. Premium Nafta Products Ltd. and Others, [2007] UKHL 40 held that the main agreement and the arbitration agreement must be treated as having been separately concluded. The arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and not as a mere consequence of the invalidity of the main agreement.

[[9]] The US Supreme Court in in Buckeye Check Cashing, Inc. v. Cardegna et. al., US SC 440 (2006) held that challenge to the contract does not prevent a court from enforcing a specific agreement to arbitrate contained therein.

[[10]] The French Cour de Cassation in Gosset v. Caparelli, Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963), 545 held that the arbitration agreement is completely autonomous in law and remains unaffected by the possible invalidity of the main contract.

[[11]] (2011) 14 SCC 66 at ¶19.

[[12]] (2019) 9 SCC 209 at ¶19, 22.

[[13]] (2021) 2 SCC 1 at ¶147.

[[14]] N. N. Global Mercantile Pvt. Ltd., supra at ¶6.10, 6.12.

[[15]] Preamble to the Arbitration Act; Harpreet Kaur, The 1996 Arbitration and Conciliation Act: A Step Toward Improving Arbitration in India, 6 Hastings Bus. L.J. 261, 264 (2010).

[[16]] Duro Felguera v. Gangavaram Port Ltd., (2017) 9 SCC 729 (affirmed by a three-judge bench of the Court in Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714).

[[17]] Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd, (2020) 2 SCC 455 at ¶7.8, 7.10.

[[18]] Hindustan Steel Limited v. M/s Dilip Construction Company, (1969) 1 SCC 597 at ¶7.

[[19]] Harbour Assurance v. Kansa General International Insurance, [1993] 1 Lloyd’s Rep. 455 (CA).

[[20]] Sojuznefteexport v. Joc Oil Limited, 15 Yearbk. Comm. Arb’n 384 (1990).

[[21]] A. Ayyasamy v. Parmasivam & Ors., (2016) 10 SCC 386 at ¶53.

[[22]] World Bank Group, Doing Business 2020, World Bank, https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf.

Adjunct Professor Pedro Martinez-Fraga was invited to teach a course on private international law at the prestigious Hague Academy of International Law. The Hague Academy, which, since its creation in 1923, has occupied premises at the Peace Palace in the Hague, alongside the highest judicial institutions such as the International Court of Justice and the Bureau of the Permanent Court of Arbitration, is a centre for research and teaching in public and private international law, with the aim of further scientific and advanced studies of the legal aspects of international relations. It does not have a permanent teaching staff, but its scientific body, the Curatorium, freely calls upon academics, practitioners, diplomats, and other personalities from all over the world whom it considers qualified to give courses, in English or French (with simultaneous interpretation). These courses are given in the form of a series of lectures, on general or special subjects.

Professor Martinez-Fraga, a leading practitioner in the field of investor-State international arbitration, international commercial arbitration, and transnational litigation, including complex jurisdictional disputes concerning common law and civil law issues, and co-leader of the International Arbitration practice of Bryan Cave Leigthon Paisner, joins the ranks of other NYU faculty who over the years have taught courses at the Hague Academy, such as Professor Franco Ferrari (Forum shopping despite unification of law, 413 Collected Courses of the Hague Academy of International Law (2021)), Professor Ryan Goodman (International Humanitarian Law and the Use of Lethal Force, 2019), Professor José Alvarez (The public international law regime governing international investment, 344 Collected Courses of the Hague Academy of International Law 193 (2009)), Professor Linda J. Silberman (Cooperative efforts in private international law on behalf of children: the Hague Children’s Conventions,  323 Collected Courses of the Hague Academy of International Law 261 (2006)), who will also give the General Course on private international law during the Hague Academy’s 2021 summer session, Theodor Meron (International law in the age of human rights, 301 Collected Courses of the Hague Academy of International Law 9 (2003), and Status and independence of the international civil servant, 167 Collected Courses of the Hague Academy of International Law 285 (1980)), and late Professors Thomas M. Franck (Fairness in the international legal and institutional system, 240 Collected Courses of the Hague Academy of International Law 9 (1993), and Minimum standards of public policy and order applicable to collective international commodity negotiations, 160 Collected Courses of the Hague Academy of International Law 395(1978)), and Andreas F. Lowenfeld (International litigation and the quest for reasonableness : general course on private international law, 245 Collected Courses of the Hague Academy of International Law 9 (1994), and Public law in the international arena : conflict of laws, international law, and some suggestions for their interaction, 163 Collected Courses of the Hague Academy of International Law 311 (1979)).

On June 7, 2021, from 9.30 to 10.45 am NY time, the Center will host, together with the Milan Chamber of Arbitration, a webinar focusing on the study entitled “Responsible private funding of litigation” authored by Jérôme Saulnier with Ivona Koronthalyova and Klaus Müller, European Added Value Unit, Directorate-General for European Parliamentary Research Services (EPRS), and the research paper annexed to it entitled “State of play of the EU private litigation funding landscape and the current EU rules applicable to private litigation funding”, co-written by Professors Cristina Poncibò and Elena D’Alessandro, University of Turin, Law Department, with cooperation, inter alia, by Dr. Niccolò Landi. While the study aims at determining whether and why the European Union should act in the field of private litigation funding, the research paper’s goal is to give a comprehensive overview of private litigation funding (or third-party litigation funding – TPLF) in the European Union, by describing the main players on the European TPLF market (i.e. funders, claimants and lawyers) and analyzing the EU legal framework.

The event will also compare the key findings of the study and research paper, to be identified by Professor Cristina Poncibò and Dr. Niccolò Landi and Professor Marco Torsello, with private litigation funding in the commercial arbitration context, a topic to be addressed by Dr. Domenico Di Pietro.

Professor Franco Ferrari will moderate the event.

For more information, including how to register, see the flyer.

On 6 May 2021, at 12.30 pm NY time, Professor Franco Ferrari, the Center’s Director, will deliver a lecture on “Limits to Party Autonomy in International Commercial Arbitration”, based on a paper co-authored with Dr. Friedrich Rosenfeld to be published in the forthcoming Cambridge Compendium of International Commercial and Investment Arbitration, which Professor Ferrari is editing together with Professors Andrea Bjorklund (McGill) and Stefan Kröll (Bucerius). The event is co-hosted by and DIS40 (Young Arbitration Practitioners of the Deutsche Institution für Schiedsgerichtsbarkeit e.V. (DIS) – German Arbitration Institute.

In his talk, Professor Ferrari will challenge the liberalist premise that international arbitration is a process between two rational parties who are at liberty to choose how to resolve their disputes by means of alternative dispute resolution. But he will do so without any intention to downplay the key role of party autonomy or to depart from the liberalist tradition. The point that will be made is simply that arbitration involves at least four potential stakeholders whose interests may overlap in some cases but diverge in others. And this entails limitations to party autonomy.

To register and receive the access code for the online meeting, send an email to germany@aia-arbit-40.org.

Professor Franco Ferrari, the Center’s Director, will give a talk entitled “Relevance of the Seat for International Commercial Arbitrations”. The talk, to be given on Monday, April 19^th, 2021, starting at 8.30 am NY time, and hosted by the Center for Alternative Dispute Resolution of Jindal Global Law School, will show that, despite statements to the contrary, the seat is important at all stages of an arbitration’s life-span. At the pre-award stage, the seat triggers the application of the arbitration regime in the very many States in which the arbitration regime is based on the territorial approach. The seat also determines where the arbitral award “was made”, which is essential for the post-award stage (both for set-aside and recognition and enforcement proceedings). As Professor Ferrari will show, from this it follows that in international arbitration choosing the seat is of paramount importance. Foregoing the choice of the seat means giving up an arbitration planning tool, for which there is no appropriate remedy.

Further information, including how to register, is available on the flyer.

The Center for Transnational Litigation, Arbitration, and Commercial law together with NYU’s International Arbitration Association will be hosting a webinar entitled “What parties really want: a general counsel’s view of arbitration.” The webinar will take place on 5 April 2021, from 6.30 pm. to 7.45 pm.

A lot has been written about the presumed advantages of arbitration. This webinar will focus on whether these writings reflect the view general counsel has of arbitration and its advantages over litigation, and whether there are specific arbitration related issues of particular interest to general counsel.

The speakers will be Edgar Martinez and John Fellas. Franco Ferrari will moderate the event.

Edgar Martinez is the General Counsel of Japan Tobacco International Mexico, which commercializes the Camel, Winston and LD tobacco brands in the Country. He has been listed by the Legal 500 as within the top 100 General Counsels in Mexico. Edgar supports Legal Directors of other jurisdictions within the Company in arbitration matters, including the Global General Counsel.  He is a part time professor at his alma mater, Panamericana University – Mexico City, where he teaches Arbitration and Private International Law. Edgar has experience as counsel in arbitration and arbitrator. He has an L.L.M. in International Commercial Arbitration Law by Stockholm’s University and has been admitted to the Paris bar.

John Fellas is a full time arbitrator at Fellas Arbitration and an adjunct professor at New York University School of Law. He has over three decades of experience in international dispute resolution, and has acted as counsel and has served as co-arbitrator, chair or sole arbitrator in arbitrations all over the world, under all the major arbitration rules, and across a range of sectors. John is recognized as a leading international arbitrator by all the major legal directories including Chambers USA where he is ranked as “one of the best—his reputation is phenomenal and deserved.” He received a B.A. (Hons.) in law from the University of Durham, and both an LL.M. and an S.J.D. from Harvard Law School. 

Franco Ferrari is a Professor of Law and Director of Centre for Transnational Litigation, Arbitration, and Commercial Law at the NYU School of Law. Prior to joining NYU, he was Professor of International Law at Verona University, and Professor of Comparative Law at Tilburg University in the Netherlands and the University of Bologna in Italy. Franco Ferrari has published more than 300 law review articles and book chapters in various languages and 35 books in the areas of international commercial law, conflict of laws, comparative law, and international commercial arbitration. He is a recipient of the 2018 Certificate of Merit for High Technical Craftmanship and Utility to Practicing Lawyers and Scholars awarded by the American Society of International Law for the 4 volume Encyclopedia of Private International Law. He also acts as an international arbitrator both in international commercial arbitrations and investment arbitrations.

Participation in the webinar is free, but it requires registration.