Res Judicata in Arbitration
Alternative Dispute Resolution is an attempt to devise machinery which should be capable of providing an alternative to the conventional methods of resolving disputes. In India the origin of Alternative Dispute Resolution can be traced back to the interiors of rural India. Bodies such as the Panchayat, a group of elders and influential persons in a village deciding the dispute between villagers are not uncommon even today. Under the Principles of Muslim law in the Indian culture the Kazi was the designated judicial officer who decided disputes between individuals. There are many recorded instances where the kazi has decided a case beyond the law by getting the disputants to agree to a solution that has been arrived at by conciliation, without actually giving that colour to the decision. The Arbitration and Conciliation Act, 1996 is an attempt by Parliament to take a holistic approach to alternative dispute resolution in India. It is an act permitting the settlement of dispute either through Arbitration or through Conciliation.
The doctrine of res judicata can come into play in relation to international arbitration in a variety of ways. In the context of a discussion devoted to “Post-award issues”, res judicata is relevant only insofar as it relates to the effects of arbitral awards. In this connection, the issues that arise are whether a given arbitral award has res judicata effect in the same arbitration (in which case the question is that of the effects of partial or interim awards in subsequent phases of the same arbitration), in other arbitrations (whether or not based on the same arbitration agreement) and in proceedings before domestic courts. Other aspects of the doctrine which do not involve the effects of awards, and are therefore beyond the scope of this discussion, are the res judicata effects in arbitral or in domestic court proceedings of judgments of domestic courts which deal with arbitration (for instance a finding of nullity or inapplicability of an arbitration agreement) and the res judicata effects in arbitration proceedings of national judgments on issues of substance.
Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides. Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts.
Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, where the parties agree to hold all disputes to arbitration, without knowing, specifically, what disputes will ever occur) and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.
Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. Arbitration is not the same as:
# Judicial proceedings, although in some jurisdictions, court proceedings are sometimes referred as arbitrations.
# Alternative dispute resolution (or ADR)
# Expert determination.
Res judicata or res judicata (RJ), also known as claim preclusion, is the Latin term for "a matter [already] judged", and may refer to two concepts: in both civil law and common law legal systems, a case in which there has been a final judgment and is no longer subject to appeal; and the legal doctrine meant to bar (or preclude) continued litigation of such cases between the same parties, which is different between the two legal systems. In this latter usage, the term is synonymous with "preclusion".
In the case of res judicata, the matter cannot be raised again, either in the same court or in a different court. A court will use res judicata to deny reconsideration of a matter.
The legal concept of res judicata arose as a method of preventing injustice to the parties of a case supposedly finished, but perhaps mostly to avoid unnecessary waste of resources in the court system. Res judicata does not merely prevent future judgments from contradicting earlier ones, but also prevents litigants from multiplying judgments, so a prevailing plaintiff could not recover damages from the defendant twice for the same injury.
Advantages and Disadvantages of Arbitration:
Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:
# When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot "choose the judge" in litigation)
# Arbitration is often faster than litigation in court.
# Arbitration can be cheaper and more flexible for businesses.
# Arbitral proceedings and an arbitral award are generally non-public, and can be made confidential in arbitral proceedings the language of arbitration may be chosen, whereas in judicial proceedings the official # language of the country of the competent court will be automatically applied.
because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court judgments
in most legal systems there are very limited avenues for appeal of an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability
Some of the disadvantages include:
# Arbitration may become highly complex arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party.
# Arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees often do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job.
# If the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case
# In some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes in some arbitration agreements and systems, the recovery of attorneys' fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court
# If the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee.
# There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned.
# Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays.
# In some legal systems, arbitrary awards have fewer enforcement options than judgments; although in the United States arbitration awards are enforced in the same manner as court judgments and have the same effect.
# Arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of member or a small group of members in arbitration due to increasing legal fees, without explaining to the members the adverse consequences of an unfavorable ruling
# Rule of applicable law is not necessarily binding on the arbitrators, although they cannot disregard the law.
# Discovery may be more limited in arbitration or entirely nonexistent.
# The potential to generate billings by attorneys may be less than pursuing the dispute through trial.
# Unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award.
# Although grounds for attacking an arbitration award in court are limited, efforts to confirm the award can be fiercely fought, thus necessitating huge legal expenses that negate the perceived economic incentive to arbitrate the dispute in the first place.
Application of res judicata in common law:
The principle of res judicata may be used either by a judge or a defendant.
Once a final judgment has been handed down in a lawsuit, subsequent judges who are confronted with a suit that is identical to or substantially the same as the earlier one will apply the res judicata doctrine to preserve the effect of the first judgment.
A defendant in a lawsuit may use res judicata as defense. The general rule is that a plaintiff who prosecuted an action against a defendant and obtained a valid final judgment is not able to initiate another action versus the same defendant where:
# The claim is based on the same transaction that was at issue in the first action;
# The plaintiff seeks a different remedy, or further remedy, than what was obtained in the first action;
# The claim is of such nature as could have been joined in the first action.
# Once a bankruptcy plan is confirmed in court action, the plan is binding on all parties involved. Any question regarding the plan which could have been raised may be barred by RJ. The Seventh Amendment to the United States Constitution provides that no fact having been tried by a jury shall be otherwise re-examinable in any court of the United States or of any state than according to the rules of law.
For res judicata to be binding, several factors must be met:
# identity in the thing at suit;
# identity of the cause at suit;
# identity of the parties to the action;
# identity in the designation of the parties involved;
# whether the judgment was final;
# Whether the parties were given full and fair opportunity to be heard on the issue.
Regarding designation of the parties involved, a person may be involved in an action while filling a given office (e.g. as the agent of another), and may subsequently initiate the same action in a differing capacity (e.g. as his own agent). In that case RJ would not be available as a defense unless the defendant could show that the differing designations were not legitimate and sufficient.
Res Judicata: Whether Applicable in Arbitral Proceedings? :
What amounts to an arbitration agreement and its essential requirements etc. have been dealt with under Sec. 7. Some ticklish issues that arose and the judicial decisions thereon are considered as:
(1). Arbitration agreement during the pendency of appeal- Section 8 if attracted?
During the pendency of an appeal before the Supreme Court of India all the parties entered into an arbitration agreement to refer their disputes in appeal to a retired Judge of the Supreme Court. The Supreme Court observed:
The question that arises for consideration is whether this Court in appeal can refer the parties to Arbitrator under the new Act. Section 8 reads: “A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall…refer the parties to arbitration.”
The Supreme Court observed:
In our view, the phrase “which is the subject of an arbitration agreement” does not; in the context necessarily require that the agreement must be already in existence before the action is brought in the court. The phrase also connotes an arbitration agreement being brought into agreement while action is pending.
According to Black’s Law Dictionary: The word “is” as follows:
This word, although normally referring to the present, often has a future meaning, but is not synonymous with “shall have been”. It may have, however, a past signification, as in the sense of “has been”. It was held that in the circumstances the appellate court can refer the matter to arbitration.
Where a second reference was made, the dispute for the same having arisen after the first reference, the second reference was held to be not barred by res judicata.
The issues which are yet to be answered:
The point of departure of the discussion is the existence of a broad consensus that arbitral awards, like judgments of national courts, have res judicata effect. It is often even said that res judicata is a “general principle of law recognized by civilized nations” within the meaning of Article 38 of the Statute of the International Court of Justice7. Important as this finding may be, it is not particularly helpful because the consensus does not go much further.
Indeed, most of the crucial issues relevant for the solution of concrete problems remain open.
To list just the main questions that arise in this connection, there is uncertainty even as to the legal basis of res judicata in relation to awards in international arbitration. There are then fundamental questions as to the scope of the doctrine, and specifically the reach of the preclusive (negative) and conclusive (positive) effects of an arbitral award, i.e. the extent to which it prevents the relitigation of matters coming within the scope of an arbitration and the extent to which the effects of the award can be relied upon in different contexts.
A further question is whether the res judicata effect of an award applies only to the dispositive part of the award or also to the reasoning. Furthermore, does res judicata operate only when the “triple identity test” often mentioned in this connection (same parties, cause of action and subject matter) is satisfied? Does it cover all matters that could or should (by the exercise of due diligence and good faith) have been raised before the court in support of the claims brought in the earlier proceedings (this situation is sometimes referred to as the obligation of concentration)? How does one assess which matters ought to have been pleaded in support of the claims? Do awards on jurisdiction and interim or partial awards have res judicata effects? Who is bound by the res judicata effect of an arbitral award? As of when is the award res judicata? Is the effect conditional upon the award being, or having been declared, enforceable? Are there situations where res judicata does not apply? Does res judicata operate across different legal orders (e.g. can a judgment rendered under public international law or in an investment arbitration be res judicata in a commercial arbitration or vice versa)? What are the consequences of the failure to attribute the requisite res judicata effect to an arbitral award?
Must, or can, res judicata of an award be raised by arbitrators of their own motion?
The answers to most of these questions are far from settled.
The shortcomings of domestic law:
A possible starting point in the quest for the solutions to the issues pointed to above is Obviously domestic law. And indeed, as will be discussed below, domestic courts and arbitral tribunals often do resort to domestic law to deal with the problem. However, national laws are not necessarily helpful nor do they provide the ideal solution. This is because, firstly, not all national laws deal explicitly with the effect of arbitral awards and, moreover, those that do, do so in fairly general terms. They usually do not go much beyond the proposition that arbitral awards have res judicata effects or that arbitral awards have the same effects as court judgments. Similar, but equally rather unhelpful, statements about the binding effect of awards appear in the rules of certain arbitral institutions. Most national laws contain fairly elaborate statutory or other rules on this problem. The trouble is that they relate almost exclusively to the effects of the judgments of the courts of the forum, and not of arbitral awards and are therefore not necessarily particularly suitable when it comes to assessing the effect of arbitral awards. This is because an award differs considerably from a judgment, since the authority of the former stems in the first instance from the autonomy of the parties, whilst the latter is determined directly, and exclusively, by the law
The complexity increases when it comes to the effects of arbitral awards in international situations, where — to the extent that an analogy can be drawn between arbitration and court judgments — the analogy is with the effects of foreign judgments. Now, the rules governing the res judicata effect of foreign judgments are far from well settled.
To all this must be added that, in any event, the approaches of individual national legal systems differ considerably from one another. At the risk of serious generalization, continental legal systems tend to adopt a more formalistic approach, which essentially limits res judicata to the dispositive part of the decision and sets considerable emphasis on the triple identity test. Common law systems, on the other hand, follow a more open and pragmatic approach which extends the res judicata to cover not only claim preclusion (or cause of action estoppel) but also issue preclusion (or issue estoppel). Even legal systems belonging to the same family can provide for significantly divergent results.
This poses a dual problem. On the one hand, even were it appropriate to rely on principles governing the res judicata effects of court judgments, the diverging approaches of national laws make it difficult to identify significant common principles, beyond very general concepts, and consequently to derive from those systems any meaningful principles having universal validity. Consequently, applying one law rather than another may lead to dissimilar results, which is a questionable outcome when dealing with arbitration and with its effects that should ideally always be assessed in the same way.
Relying on national law often raises another equally intractable problem, viz. identifying appropriate conflict of laws rules to determine which national law governs the res judicata effects of an award. There are, in fact, no generally accepted conflict rules on the subject. As recalled above, even in relation to the res judicata effect of foreign judgments the conflict principles are not settled. When it comes to determining the res judicata effect of an arbitral award, several different laws could conceivably be relevant. Among the ones that spring to mind are (i) the lex arbitri of the award whose effects are invoked; (ii) the lex arbitri of the second arbitration or the lex fori of the court, depending on whether the award is invoked in arbitration or before a State court; (iii) the substantive law governing the rights at issue.
None of these solutions unquestionably recommends itself over the others, nor are any particularly satisfactory. Even the one which relies on the lex arbitri has significant drawbacks.
Of course the seat is an important connecting factor in arbitration, principally because its courts have supervisory jurisdiction and jurisdiction on the validity of the award. However, in international arbitration the links to the seat are often rather weak and random, as a result of which the claim of its law to govern matters relating to the arbitration is often fairly arbitrary.
In any event, to the extent that it makes sense to refer to it, the law of the seat is more suitable to govern issues concerning the functioning of the arbitration. Notwithstanding that in national legal systems it is often considered an issue of procedure, in the international context the force of res judicata of the award is a matter that pertains to the conceptual framework and underpinnings of arbitration and which, as will be mentioned below, is affected by the international obligations of States in relation to the effects of awards. Moreover, relying on the law of the seat of the arbitration may lead to unpredictable results, since the rules applying to the res judicata effect of the award are not usually amongst the questions that parties consider when choosing the seat. Finally, it is debatable whether, if reference is had to the lex arbitri, this should be to the one of the first or of the second arbitration, when the question is whether an award can have res judicata effects in arbitration.
No given law, including the lex arbitri, thus has a particularly strong claim to govern the matter. In any event, the trend in international arbitration is in the direction of moving away from too much reliance on conflicts of laws approach in the identification of the solutions to key problems affecting the structure, the nature and the functioning of the arbitration, as is clearly the one of the effects of an award. In this respect the situation is unlike the one prevailing in relation to the merits of the dispute, for which the tendency is for the most part to apply national law following a conflicts of law approach, albeit not necessarily the same one that would be applied by national courts. The conflict of laws problem does not always have the same relevance from a practical point of view. If the transnational nature of the arbitration is not very pronounced, or simply when the arbitration is closely related to a single legal system or to legal systems which share common approaches and concepts, the need to engage in a sophisticated analysis to identify the law which should govern the issue may be less pressing. This still leaves open the problem that, not being arbitration-specific, the national rules which are applied are not ideally suited to this institution and that different awards may be treated differently depending on the law applied to assess their effects.
The approach of national courts:
Having seen the drawbacks of the application of national law to govern the res judicata effects of international awards, one can examine more closely the attitude of national courts and of arbitral tribunals. Those attitudes may not necessarily be the same, even though that might be undesirable or not entirely satisfactory. Ideally the effects, in particular from the perspective of res judicata, of an international arbitral award should remain the same, regardless of whether they are considered by a State court or by another arbitral tribunal. National courts will more often than not be tempted to assess the res judicata effects of awards simply applying rules mirroring those of their own legal system that govern the res judicata of domestic judgments.
This approach is probably not justified even for domestic awards, due to the difference between arbitral awards and domestic judgments. The reference by national courts to concepts of domestic law, including their own, is questionable, and particularly unsatisfactory, when it comes to international arbitration. This solution appears even more questionable if one considers that in this context there is an international source, i.e. the New York Convention that plays a paramount role. Although the Convention does not address res judicata directly or expressly, the obligation for States to “recognize arbitral awards as binding”.
Since the obligation derives from an international convention, regard must be had in its
application to the principles of construction of international treaties laid down by the 1969 Vienna Convention on the law of treaties which postulates that regard must be had, inter alia, to the “object and purpose” of the treaty (Article 31, para. 1). These considerations militate in favour of an autonomous and relatively broad approach to res judicata in relation to arbitral awards even before national courts, which would seem to go beyond the narrow and formalistic notions that traditionally apply in continental systems. In other words, the international framework aimed to ensure the effects and the circulation of arbitral awards requires municipal courts to focus on the effet utile, and therefore on the proper functioning of the mechanism, primarily having due regard to the underlying assumptions of the parties’ agreement to arbitrate. Admittedly even this only provides general guidance and does not directly resolve the question of how res judicata effects are to be gauged in specific situations. A broad notion of the res judicata effects of arbitral awards has been adopted by the French courts, independently of the New York Convention, in a recent case that upheld the “obligation of concentration”.
Approach of arbitral tribunals:
The possible approaches:
Although not directly bound by the New York Convention, it would seem natural that arbitral tribunals adopt an approach which is at least in part different from that of domestic courts.
One reason is that it is more in the nature of arbitrators to attribute paramount importance to the will of the parties, given that this is the primary source of arbitration, rather than to abstract rules on the effects of judicial decisions. In so doing they may consider the purported, or even the actual, intention both of the parties to the first arbitration as to the effects of the outcome of that arbitration, as well as of the parties to the second arbitration as to the effects of the first award within that arbitration.
Another reason for the likely difference in approach of international arbitrators compared to national judges is the fact that, while the latter are immersed in the perspective of their lex fori, arbitrators, who have no lex fori, may find it appropriate to shy away from a rigid application of national law in matters having to do with the functioning and with the structure and essence of arbitration, as opposed to pure issues of merits. As indicated above, in those matters arbitrators are generally more inclined to apply a flexible and substance-oriented approach which does not give prominent weight to formalities often typical of national law. There is a further factor that may influence the attitude of arbitrators confronted with res judicata issues, allowing them to shift away from a strict application of domestic notions and to develop more pragmatic and issue-oriented solutions. Since the application of the principle is irrefutably a question of law, the scope for court review of the way in which the arbitrators have dealt with the issue in the award at the annulment and enforcement stage is fairly limited.
This does not mean that arbitrators are free to disregard the principle altogether or to apply it arbitrarily. Nevertheless, given that in most legal systems the application of legal principles by the arbitrators is not a ground for review of the award, the application of the principle of res judicata can attract the sanction of setting aside or refusal of enforcement only if it falls within one of the few possibly relevant grounds. The most obvious one is public policy. However, even if it is held that res judicata is one of the tenets of public policy, as is certainly arguable, it is probably only the unjustified or idiosyncratic disregard of the principle that could fall foul of public policy. The other conceivable grounds to fault the application of res judicata are the violation of the arbitrator’s mission and due process, but these too will be available only in exceptional circumstances.
The upshot is that seldom will it be possible to contest a given application of the doctrine, whether broad or restrictive, provided it is reasonably argued. This means that arbitrators in practice have a considerable leeway to apply the principle as they see fit in light of the circumstances, and in keeping with broader principles relevant to the nature of arbitration, and without undue deference to national conceptions. Empirical evidence shows that arbitrators frequently refer to the applicability of res judicata axiomatically, without engaging in particularly elaborate discussions on the underpinnings and on the scope of the doctrine.
An authoritative survey of arbitral case-law bears out that such a case-by-case and pragmatic approach is followed also with regard to the res judicata effects of previous awards, which, as mentioned above, is precisely a matter that pertains to the conception of arbitration
as an international dispute settlement instrument. In many of the awards discussed in the survey, even when arbitrators state their need to rely on principles of national law, this sometimes appears like lip service to a traditional conception. Some arbitral jurisprudence displays a constructive and non-formalistic approach to the issue, placing considerable emphasis on principles such as good faith, party autonomy and the scope and effects of the arbitration agreement, consistency and non-contradiction, estoppel, concentration of issues and claims, expectations of the parties, effet utile, efficiency and procedural economy and prohibition of procedural abuse. Thus, even when the issue is debated in a framework of continental legal systems there is a tendency to follow an approach which recognizes a fairly broad scope to the doctrine of res arbitrate. As always with arbitral practice, it is difficult to know exactly how widespread any particular approach is and whether one may be in the presence of a significant uniformity or trend. Also with regard to the present topic one may suspect that there is a considerable variety of solutions. It is for example probably fair to assume that the extent to which arbitrators will be prompted to depart from a strict construction of res judicata according to the conceptions of a given national law may also be a function of the degree of “trans nationality” of the arbitration and of the underlying dispute.
Applicability of Res Judicata: Supreme Court of India decision vis-à-vis Issue before London Court:
The Delhi High Court (“Delhi HC”) in the instant case of Union of India (“Plaintiff”) v. Videocon Industries Limited (“Defendant”) granted an anti-suit injunction in favour of the Plaintiff, passing an order of perpetual injunction restraining the Defendant from pursuing the claim before Commercial Court, London. The Delhi HC held that re-initiation of proceedings before the London Courts was oppressive and abuse of the process of law and in violation of the doctrine of res judicata and issue estoppel.
In the present case, the Plaintiff entered into a Production Sharing Contract (“PSC”) with a consortium of four companies consisting of Oil and Natural Gas Corporation Limited, Videocon Petroleum Limited (merged with Videocon Industries/”Defendant” herein), Command Petroleum (India) Private Limited and Ravva Oil (Singapore) Private Limited on October 28, 1994. By virtue of the PSC, the consortium was granted an exploration and mining lease to explore and produce hydro-carbon resources in the offshore of Andhra Pradesh coast.
As per the provisions of the PSC, the contract was governed and interpreted in accordance with the laws of India subject to the fact that the seat of arbitration shall be Kuala Lumpur and the arbitration agreement shall be governed by the laws of England. Further, the PSC clearly stipulated that the contract shall not be modified, amended, varied or supplemented in any respect except by an instrument in writing signed by all the parties.
Disputes arose between the parties in 2000, with respect to the correctness of certain cost recoveries and profit and the matter was referred to an Arbitral Tribunal.
Chronology of Events:
a. The matter was fixed for hearing before the Arbitral Tribunal at Kuala Lumpur,Malaysia however due to outbreak of epidemic “SARS”, the Tribunal held sittings atAmsterdam in the first instance and later agreed to shift the seat of arbitration to Londonwithout any amendment to the arbitration agreement as contemplated in the PSC.
b. The Arbitral Tribunal passed a partial award on March 31, 2005. The same was challenged by the Plaintiff herein before the Malaysian High Court at Kuala Lumpur for setting aside the award. The Defendant opposed the same questioning the jurisdiction of the Courts contending that in view of clause 34.12 of the PSC only the English Courts have the jurisdiction to entertain any challenge to the award, as the seat was shifted to London.
c. Pending passing of the final award, the Plaintiff requested the Arbitral Tribunal to hold further sittings at Kuala Lumpur with the epidemic being over. However, the Arbitral Tribunal rejected the request and passed an Order to continue proceedings in London on April 20, 2006.
d. Being aggrieved by the said order, the Plaintiff filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) before the Delhi HC seeking a declaration that the seat of arbitration is Kuala Lumpur. The Defendant objected to the maintainability of the petition and pleaded that the Courts in India do not have the jurisdiction to entertain challenge to the arbitral award. The Delhi HC passed an order in favour of the Plaintiff on April 30, 2008 and held that the said High Court has the jurisdiction to entertain the petition filed under Section 9 of the Act.
e. The Defendant filed a Special Leave Petition before the Supreme Court (“SC”) challenging the order of the Delhi HC dated April 30, 2008 that was subsequently converted to a Civil Appeal.
f. Pending the hearing of the civil appeal before the SC, the Malaysian High Court dismissed the application filed by the Plaintiff challenging the partial award. The Plaintiff thereafter filed a Memorandum of Appeal before the High Court of Malaysia.
g. The decision of the Malaysian High Court was brought on record before the SC. Pending the final adjudication by the SC; the Defendant filed a claim before the High Court of Justice, Queen’s Bench Division, Commercial Court, London (“London Court”) for deciding on the issue of juridical seat of arbitration. The same was not disclosed before the SC nor was the Plaintiff herein served contrary to the order of the London Court. The Plaintiff was later served with notice about the claim pending before the London Court at a much later date. The Plaintiff consented to the hearing without prejudice to the issue of res judicata and participated in the proceedings.
h. Finally, on May 11, 2011 the SC passed its judgment in the civil appeal stating that Indian courts had no jurisdiction to entertain Section 9 petition because the parties had agreed that the law governing the arbitration will be English law. Further the SC also stated that mere change in the physical venue of hearing from Kuala Lumpur to Amsterdam andLondon did not amount to change in the juridical seat of arbitration.
i. Relying on the above judgment, the Plaintiff requested the Defendant to withdraw the proceedings before the London Court. However, after several round of correspondences being exchanged, the Defendant re-commenced the proceedings. The London Courtproceeded with the matter and passed order to decide whether the decision of the SC was binding and operated as res judicata between the parties.
This led to the present suit being filed by the Plaintiff seeking declaration and perpetual injunction to restrain Defendant from pursuing with the said claim before the London Court.
The issue before the Delhi HC was whether the attempt of the Defendant to re-litigate the issue of juridical seat of arbitration before the London Courts after the same being settled by the SC was in breach of the contractual provisions and barred by res judicata/issue estoppel.
Contentions of the Plaintiff:
The Plaintiff firstly contended that as per the provisions of the PSC, the seat of arbitration is Kuala Lumpur and none of the parties could claim anything contrary to the Indian laws, as per the provisions therein. The Plaintiff placed reliance on Articles 33.2 and 34.12 of the PSC and the same are reproduced hereinbelow.
Laws of India not to be contravened
Subject to Article 17.1, nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India
Venue and Law of Arbitration Agreement
“The venue of the sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia and shall be conducted in the English language. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be governed by the laws of England.”
Further, applying the doctrine of res judicata, the Plaintiff contended that the Defendant could not be permitted to indulge in forum shopping and re-agitate the same issue before the London Courtwhen the SC has already decided on the issue. The Plaintiff relied on a series of judicial precedents and held that re-initiation of proceedings before London courts is barred by res judicata/issue estoppel and merely led to a second round of litigation.
The SC had clearly held that change in the venue of hearing to Amsterdam or London did not amount to change in the juridical seat of arbitration; as a result the matter was no longer res integra. Further, the same is opposed to the public policy of India and in breach of the PSC entered between the parties.
Secondly, with respect to the binding nature of the findings rendered by the SC, the Plaintiff submitted relying on judicial precedents that a judgment rendered by the highest court of the land is sacrosanct and is a precedent for itself and for all courts/tribunals and authorities in India. Further, the Plaintiff submitted that even if it is contended that the SC judgment is erroneous or alleged to be passed without jurisdiction, the same can be corrected by the SC itself and cannot be dealt with collaterally by any other court.
Thirdly, the Plaintiff submitted that the parties cannot vest a court with jurisdiction it does not otherwise have and the London Court did not have jurisdiction in the present case. The SC was the natural forum as it not only had personal jurisdiction but also could exercise jurisdiction from the territorial and subject matter perspective. Fourthly, the Plaintiff contended that the Defendant had suppressed material facts from the SC and its malafide intentions is clearly reflected as they did not disclose before the SC about the proceedings before London Court, neither did they disclose before the Malaysian High Court about the proceedings before SC, London Court and the present suit and nor did they get the service effected on the Plaintiff in contravention of the orders of the London Court.
Contentions of the Defendant:
The Defendant contended that none of the tests for grant of an anti-suit injunction as laid down in the SC decision of Modi Entertainment Network and Anr. v.W.S.G. Cricket Pvt. Ltd. were met and the London Court is the appropriate Court to decide whether or not the Defendant’s claim is barred by res judicata. The Defendant submitted that the bar operates in the forum where the issue alleged to have been decided is being re-agitated and res judicata does not arise in the abstract or prior to the subsequent suit. Further, the courts of the country whose law governs the arbitration agreement have the exclusive jurisdiction to decide all disputes.
The Defendant putting forth the principle of comity of nations as recognised by the Indian Courts argued that grant of anti-suit injunctions is precluded barring the rarest of rare cases. As the London Court has not proceeded with the matter on merits but only sought to complete the pleadings, grant of an injunction would be against the principle of comity of nations.
Further, refusal to grant anti-suit injunction would not cause any loss to the Plaintiff as the Plaintiff had itself participated in the proceedings before London Court and would be afforded a full and complete hearing. However, grant of an anti-suit injunction would stall the arbitration process as the Malaysian Courts had already refused to deal with the issue and SC had held that Indian Courts have no jurisdiction as Part I of the Act was expressly excluded.
The Defendant also contended that the decision rendered by the SC with respect to the seat of arbitration was an obiter as the issue before it was restricted to deciding the jurisdiction of the Indian Courts and was not called upon to decide which foreign court has jurisdiction to decide the seat of arbitration. The Defendant submitted as the SC had no jurisdiction to deal with the issue; such decision would not give rise to the bar of res judicata.
The Delhi HC stated that firstly the Defendant had itself accepted in their pleadings that the issue of juridical seat of arbitration was decided by the SC however contended that the same would not be binding as it was a mere obiter. The Delhi HC placed reliance on judicial precedents and held that principles relating to precedent, per incurium, obiter have no application to the doctrine of res judicata. The Plaintiff had also satisfied all the grounds with respect to plea of res judicata.
Further, the Plaintiff though had participated in the proceedings before the London Court, the same did not amount to submitting to its jurisdiction as the Plaintiff had always maintained that the London Court did not have the jurisdiction to decide the issue of juridical seat of arbitration. Further, the Defendant itself having approached the SC to decide the issue of juridical seat of arbitration, the same amounted to a tacit understanding that the order passed was with the consent of both the parties. The SC had clearly held that in contrast to the provisions of the English Arbitration Act, the Act does not provide for any provisions to change the juridical seat of arbitration and with no amendment in the PSC, mere change of physical venue did not amount to change in the juridical seat of arbitration.
The SC had also clarified the fact that the Delhi HC had no jurisdiction to entertain Section 9 application as Part I of the Act was expressly excluded. The SC had clarified the distinction with regard to the governing law of the contract, the curial law and the distinction between the seat of arbitration and venue of arbitration. The Delhi HC held that subjecting the said decision of the SC before the foreign courts was against the principles of international commercial arbitration and their jurisdiction can be questioned only before the SC itself and not in collateral proceedings.
The Delhi HC stated that re-determination of the question of seat of arbitration would constitute abuse of the process of law and render the foreign proceedings vexatious and oppressive if the London Court concludes that principles of res judicata do not apply and re-examine the whole issue. The Delhi HC noted that the PSC had given primacy to Indian laws and no action could be taken by either party to contravene the same. The underlying object of doctrine of res judicata which encompasses the principle of issue estoppel, is public policy and safeguarding the same is of paramount importance.
Further, negating the arguments of the Defendant with respect to granting anti-suit injunction, the Delhi HC stated that the Courts need to be cautious prior to granting the same but the same operates against the party concerned and not against the court of foreign jurisdiction. As the parties by virtue of the PSC had granted primacy to Indian laws and no action could be taken in contravention of the same, the SC could adjudicate the said issue and the parties themselves by their mutual consent had submitted the issue of seat of arbitration.
# RES JUDICATA AND INTERNATIONAL ARBITRAL AWARDS
# Luca G. Radicati di Brozolo(*)
· Singh Avtar (2007), Law of Arbitration and Conciliation, Lucknow : Eastern Book Company
· Dr. S.C. Tripathi (2008), Arbitration and Conciliation Act, 1996 with Alternative means of Settlement of Disputes, Allahabad : Central Law Publications
· Patil B.S. (2008), The Law of Arbitration and Conciliation, Pune : Mrs. S.B. Patil
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The first question which often comes in one mind after analyzing the topic is what do you exactly mean by critical analysis of judicial process...
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