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MALLEABILITY OF SECTION 19 by Athul Aravind and Aarya Pachisia

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INTRODUCTION

Section 19 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration Act”) allows parties to determine their own procedure and gives the arbitrator discretion to conduct proceedings in a manner she or he deems fit. It is widely accepted that the Arbitration Act is modeled on the UNCITRAL Model Convention and is pari materia with many provisions contained in the said Convention. Similarly, Section 19 of the Arbitration Act is identical to Article 19 of the UNCITRAL Model Convention. This paper seeks to analyze Article 19 so as to gain further clarity on its counterpart in the Indian Arbitration Act.

UNCITRAL (EXPLANTORY NOTE ON MODEL CONVENTION)[1]

34. Article 19 guarantees the parties’ freedom to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings, subject to a few mandatory provisions on procedure, and empowers the arbitral tribunal, failing agreement by the parties, to conduct the arbitration in such a manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence. 

35. Autonomy of the parties in determining the rules of procedure is of special importance in international cases since it allows the parties to select or tailor the rules according to their specific wishes and needs, unimpeded by traditional and possibly conflicting domestic concepts, thus obviating the earlier mentioned risk of frustration or surprise (see above, paras. 7 and 9). The supplementary discretion of the arbitral tribunal is equally important in that it allows the tribunal to tailor the conduct of the proceedings to the specific features of the case without being hindered by any restraint that may stem from traditional local law, including any domestic rule on evidence. Moreover, it provides grounds for displaying initiative in solving any procedural question not regulated in the arbitration agreement or the Model Law.

ANALYSIS OF SECTION 19

One commentator has termed Article 19 the “Magna Carta of Arbitral Procedure”[2], as it protects the principle of party autonomy. This article guarantees the parties complete autonomy in determining what procedural rules shall govern the arbitration. The parties may develop their own rules, employ those of an arbitration institution, [3]or follow the standard arbitration practice of a particular trade association. They may even choose to refer to the civil procedure law of a specific legal system. In the event the parties have not agreed on some specific procedural rules Article 19(2) empowers the arbitral tribunal to conduct the proceedings in the manner it deems appropriate. This includes the power to determine the admissibility, relevancy, materiality and weight of any evidence. This Article is given substance through Article 28 of the convention as it allows the parties to choose the law which governs the procedure.

Article 28(1) is very broad and states that the parties may choose to apply “rules of law,” not merely the “law” of a given state. This reference to “rules of law” provides the parties with a wide range of options. It enables the parties, for example, to select laws from more than one legal system and apply them to different aspects of their relationship, or to choose rules embodied in an international convention, whether or not that convention is in force. This progressive[4] approach is intended to provide the parties of an international transaction with the flexibility to apply those laws which are most suitable for their specific case. [5]

If the parties have not determined which substantive rules of law shall apply, the arbitral tribunal is required to apply conflict of laws rules to determine the applicable law.[6] This more cautious approach is a significant step away from the freedom of choice allowed the parties under paragraph (1). It has been argued that there is no reason to deny the arbitrators the same freedom and flexibility accorded the parties.[7]The intention behind this more restrictive provision, however, is to provide the parties with some degree of certainty as to what law the arbitral tribunal will apply to the substance of their dispute.[8]Alternatively, under 28(3) the parties can agree that the arbitral tribunal shall decide the dispute ex aequo et bono (dispense with consideration of the law but consider solely what they consider to be fair and equitable in the case at hand) or as amiable compositor. The model law does not define this type of arbitration, which in practice is implemented in various forms. It is supposed that the parties must establish the necessary rules or guidelines.[9]

The rationale for Article 19 being flexible is to facilitate the principles set forth in Article 28. That is, to ensure that the substance of the arbitration does not hinge on the local law in all circumstances and provides an opportunity to decide the procedure in a manner that avoids litigation and one that makes India an arbitration hub. This provides the spine for section 19 in the Arbitration Act.

THE DILEMMA OF CONFLICT OF LAWS

The law that deals with the substantive rights of the parties and procedure can be categorized as the ‘external’ and ‘internal’ aspects of arbitration respectfully. It is very important to note that two different laws can apply to the two different spheres and are distinct from each other. There is the traditional ‘lex arbitri’ doctrine which would mean that the seat of the arbitration would be the law that governs it. They can also follow a delocalized process which is free from the parochial restraints of local law. Parties can even agree to follow the procedural laws of another country. This choice of deciding between the various applicable laws is why Section 19 of the A&C Act allows the arbitrator to exclude the Evidence Act and Code of Civil Procedure. However, this does not mean it is not applicable.

in Sapphire Int’l Petroleums Ltd v National Iranian Oil Co. (1963) that the arbitration was ‘as far as procedure is concerned’, subject to the binding rules of the tribunal’s seat (Vaud, Switzerland),[10] Arbitrator Cavin found persuasive ‘the view of some eminent specialists in Private International law [that] since the arbitrator has been invested with his powers as a result of the common intention of the parties he is not bound by the rules of conflict in force at the forum of arbitration’. To his mind, ‘the parties cannot be presumed to have agreed upon the choice of a conflict rule by their common choice of the forum.’[11] Section 19 is the product of the lex arbitri versus delocalization debate; it aims to give discretion to the arbitrator to not be bound by local law, and in the absence of party agreement, the arbitrators have much greater flexibility in applying either national and/or international law to the dispute.

IS ADMISSION OF EVIDENCE AT A LATER STAGE AGAINST THE PRINCIPLES OF NATURAL JUSTICE?

An award cannot be set aside on the grounds that the appropriate procedure was not followed unless there has been a breach of natural justice, equity or fair play between the parties[12].  The arbitrators are the sole judge of the evidences produced in the proceedings therefore, it becomes necessary to determine whether additional evidences can be produced at the later stage of a proceeding. We can draw an analogy between the Code of Civil Procedure and principles laid down by the Courts with respect to arbitrations to answer the above-mentioned contention. 

According to the Code of Civil Procedure, 1908, if an evidence which is to be presented and has not been submitted with the plaint then the additional evidence cannot be tried until the court allows for it. Additional evidences cannot be filed once the substantial part of the proceeding has already been conducted. Order 7 Rule 14(3) of the Code of civil Procedure, 1908 gives discretionary power to the Court to decide whether a document should be admissible at a later stage.

In the context of Arbitral proceedings, the courts have taken a similar position. Some general rules on evidences to be considered while framing an award have been discussed below with help of case laws. These cases that are being discussed below have been decided upon by various High Courts and the Supreme Court of the country.  The arbitral awards can be challenged under section 34 of the Arbitration and the Conciliation Act, 1996. 

The Apex Court of the country, in Bareilly Electricity Supply Co. Ltd. v The Workmen and Ors[13]. held the following- 

But the application of principles of natural justice does not imply that what is not evidence can be acted upon. On the other hand, what it means is that no materials can be relied upon to establish a contested fact which are not spoken to by persons who are competent to speak about them and are subjected to cross-examination by the party against whom they are sought to be used. When a document is produced in a Court or a Tribunal the question that naturally arises is, is it a genuine document, what are its contents and are the statements contained therein true.”[14]

This essentially means that if the Tribunal takes inadmissible evidence into account which was objected to by a party and frames the award, then the award can be set aside as it would lead to gross error of law. 

In Pradyumna Kumar Sharma v Jayasagar M. Sancheti[15]it was held by the Bombay High Court that though the arbitrator is not bound by either the CPC or the IEA, a document which is not proved by the party and is taken into consideration while framing the award can be set aside. If an unproved document is considered in reaching the conclusion in a particular award then it will be violative of principles of natural justice and hence, liable to be set aside. 

As the Arbitrator himself decides upon the course of proceeding has the power to allow or disallow the evidence in the later stages of an Arbitration. Though, an Arbitrator might be appointed by the parties, the Arbitrator is not the agent of the parties and must act judicially without any prejudice. Therefore, an award cannot be set aside merely because the arbitrator refused to consider an evidence. It depends on the Arbitrator whether he allows the admission of the evidence in the later stages of proceeding and the award is not liable to be set aside on the ground that the Arbitrator refused the admission of certain evidences.[16] The arbitrator should not be prejudiced by the additional evidences during the later stages of an arbitration. If after the production of evidence at a later stage and the opposite party is given full opportunity to counter it then the award cannot be challenged on the ground that the evidence was produced at a later stage and violated principles of natural justice. The award will not be liable to be set aside[17].

CONCLUSION

This shows that although arbitrations are very flexible in terms of procedure, one cannot abuse the process of law to his own benefit, as illustrated above. There are limitations to the autonomy of parties. The arbitration agreement must be a valid one according to the law which governs it. This will usually be the law governing the substantive contract, in which the arbitration clause is embedded, but is not necessarily that law. The possibility of dépeçage (a single contract which provides that different parts of the contract shall be governed by different laws) arises because the arbitration agreement is regarded as a separate agreement to the substantive contract in which it is contained.[18] In addition the arbitral procedure itself should comply with the mandatory rules of law of the the lex arbitri. The lex arbitri is often the law of the place of the seat of the arbitration, but not invariably so.[19]

To summarize the following factors, limit the autonomy of parties:

  • Mandatory provisions governing the agreement
  • Lex arbitri
  • Unacceptable amendments to the arbitral rules 

[1] This note was prepared by the secretariat of the United Nations Commission on International Trade Law (UNCITRAL) for informational purposes only; it is not an official commentary on the Model Law. A commentary prepared by the Secretariat on an early draft of the Model Law appears in document A/CN.9/264 (reproduced in UNCITRAL Yearbook, vol. XVI – 1985, United Nations publication, Sales No. E.87.V.4).

[2] Herrmann, The UNCITRAL Model Law-Its Background, Salient Features, and Purposes, 1 ARB. INT’L 19 (1985).

[3] For example, parties may employ ICSID, ICC, or UNCITRAL Arbitration Rules.

[4] This approach has only been undertaken in the Washington Convention of 1965, Article 42, and the international arbitration laws of France and Djibouti.

[5] U.N. Doc. A/40117, supra note I, at para. 233 for criticisms of this concept of “rules of law.”

[6] id. at 90, art. 28(2).

[7] Rassegna, supra note 22, at 51-52.

[8] U.N. Doc. A/CN.9/264, supra note 6, at 62.

[9] 9 Dr. Herrmann offers the following general guidelines: “The arbitral tribunal would seek a fair and equitable solution, bound merely by those norms which ensure the international public policy of a given State, i.e., ordre public, relating to international transactions.” Herrmann, supra note 29, at 23. Further, in all cases, under Article 28(4) the arbitral tribunal must apply the conditions of the contract and consider trade usages.

[10] Sapphire Int’l Petroleum Ltd v National Iranian Oil Co., Award, 15 March 1963 (Cavin, sole arb.), 35 I.L.R. 136, 169 (1963).

[11] Id.,

[12] 2005 (1) ALT 264 

[13] AIR 1972 SC 330 

[14] Id.

[15]  2013 (5) MhLJ 86

[16] MANU/DE/0831/2014 

[17] 2017 (4) ARB LR 228

[18] Fouchard, Gaillard, Goldman, International Commercial Arbitration (Edited by Gaillard and Savage) 1999 at p 212.

[19] Fouchard, Gaillard, Goldman, p 635

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