Abstract
As per the latest ICSID caseloadstatistics, the majority of disputes belong to the oil, gas, and energy sector. This clearly shows that arbitration has become the most preferred mode of dispute settlement mechanism in this sector. Energy awards are thehighest number of awards among all the arbitration awards. These disputes often deal with sources of energy whose value or sustainability diminish due to delays. Amidst these proceedings, emergency reliefs, even before the constitution of the Tribunal, can mitigate the losses of concerned parties substantially, both monetarily as well as on merits.
In a recent landmark ruling, the Supreme Court of India has signaled towards opening doors for Emergency Arbitrations (“EA”) in India by dealing with it in detail amidst the Amazon and Future Group controversy. Emergency reliefs have often been sought by parties related to the energy sector dealing in cross border transitions to avoid delays. This article sheds light on all the aspects of EA, the global perspective surrounding it and seeks to establish its eminent relevance in the energy sector. Additionally, it endeavors to discuss opportunities for India to become a global arbitration hub.
Introduction
Arbitral proceedings, as a way of dispute settlement, are often criticized for being lengthy and not serving the purpose for which the “Arbitration and Conciliation Act” of 1996 was enacted. The legislative regime, however, constantly takes account of the development of its initiatives, in furtherance of which, Courts undertake and bring in concepts from international jurisprudence to expedite the process and make it more effective. An introduction of emergency relief in the Indian arbitration regime can provide a pedal to the medal in the gamut of arbitration to streamline it with global standards.
Emergency arbitration is a forthcoming concept for any party to an arbitration that seeks to secure their assets and/or seek relief amidst arbitral proceedings by making an arrangement themselves. The arbitral concept of party-autonomy is the driving factor herein as the proceedings are conducted by an Arbitrator appointed by the parties, as per the agreement entered into by them. In the energy sector, EA takes acomprehensive approach to International Energy Arbitration, providing various instruments to settle and enforce energy disputes. The problem, however, surfaces when we attempt to trace EA in the Indian legislative system, which does not acknowledge it. Interim reliefs are granted underSections 9(1) and 17(1) of the Act which are deemed as Orders issued by a Court. However, neither of these two sections explicitly mention any interim Order or Award made during an EA process, making the position of emergency reliefs vague. This article delves into the background of EA and the recognition that it has gained so far from the International Institutions and Indian Courts, especially in the context of the Energy sector, where disputes and emergencies are day-to-day concerns.
Purpose
The need of EA was felt by the parties in cases of urgent relief for which they could not wait for the Tribunal to be constituted. Herein, the party seeking emergency relief makes an application for EA only when it sees a reasonable possibility that it will succeed on merits or there wouldn’t be any substantial loss even if the Emergency Award is not in its favour. These proceedings are arranged by the parties themselves under the applicable institutional rules mentioned in their Arbitration Agreement. The invocation begins with a Notice to the opposite party, followed by submission of proof of service of such Applications. Some of the limitations, inter alia, are that EA proceedings cannot do away with paying the Arbitrator as per the fee schedule provided by their respective centres, and that such proceedings are limited only to the signatories and their legal heir(s), implying that third parties cannot seek any relief by way of EA.
EA seems promising in disputes related to the energy sector, especially when there is a cross-border element, because a lot of time is wasted in constituting a suitable Tribunal sans jurisdictional or confidentiality issues. These potentials are discussed in detail in the latter part of this Article.
Powers and Responsibilities of Emergency Arbitrator
Since Emergency Arbitrators are appointed upon the consensus of the parties or as per the Agreement between them for a short span of a time, with a specific purpose, their powers resemble those of an ad-hoc Arbitrator, and thereafter the Arbitrator vacates the role after serving the purpose by providing interim relief orders. The Arbitrator is mandated to consider an emergency relief application within two days of the appointment by providing equal opportunities to all concerned parties to submit their documents and pleadings. These proceedings can be conducted over the telephone if there is any requirement of oral submissions for clarifications, but not necessarily to be opted for by the Arbitrator. The interim order is subsequently granted within eight to ten days, which may vary according to the Agreement or the institutional Rules in force, by placing reliance only on the submissions made before the Emergency Arbitrator who has the authority to decide on his jurisdiction. The binding authority of these emergency Awards lies with the parties, institutional Rules and the Rules of the country where they are to be enforced or can be altered later by the Arbitral Tribunals.
International Practice
An increasing number of International-arbitration legislations have, in recent years, altered their rules to make room for allowance of emergency reliefs. For instance, in order to bring EA under its jurisdiction, the Singapore International Arbitration Act has changed the definition of what constitutes an “arbitral tribunal.” In similar fashion, Hong Kong has also rectified its Arbitration Order with Part 3A being inserted, in order to accelerate the procedure. Moving towards the Arbitral Institutions, there is no denying that most of them have already welcomed EA, on an opt-out basis unless the parties have expressly excluded it, in order to expedite the process. For example, it can be seen in Rule 30 of the Singapore International Arbitration Centre (SIAC), Article 29 of the International Chamber of Commerce Rules (ICC), Expedited Rules under the Stockholm Chamber of Commerce (SCC), Article 42 of the Swiss Chambers Arbitration Institution (SCAI) and the Netherlands Arbitration Institute (NAI), to name a few. The New York Convention, however, does not recognise interim Awards therefore such Awards have to appear for the test of finality to become a final and binding Award. The NY Court in Yahoo! Inc. v. Microsoft Corporation casereasoned that the Emergency Arbitrator is entitled to provide interim emergency reliefs to maintain the status quo in the subject matter, thereby rejecting the motion of vacating the EA Award. However, this position wasturned the other way around in the decision delivered in Chinmax Medical Systems v. Alere San Diego wherein EA was excluded from the concepts as mentioned under New York Convention.
These EA Awards become enforceable upon the consideration provided to them by the respective national Courts and laws which the parties undertake to comply with. The recent practices by various Courts across the global jurisdictional sphere show a proactive step towards supporting EA to uphold the principle of party autonomy.
Indian Scenario- Yet to Open Doors
As mentioned earlier, the Arbitration and Conciliation Act, 1996 does not expressly mention any sort of Emergency Award however it should be noted that attempts have been made in the past to recognise them. The Law Commission’s 246th Report proposed certain amendments to the Act, one of which was to include appointment of Emergency Arbitrators under Section 2 to bring the Act at par with International Arbitration laws, rules and regulations. However, this suggestion failed to garner the attention of the Parliament and thus was not included in the 2015 Amendment made to the Act. However, the fire has been rekindled by the Supreme Court while deciding the case of Amazon.com NV Investment Holdings LLC vs. Future Retail Limited &Ors. The Supreme Courtobserved that the suggestions made under the Law Commission Report are still relevant even if they failed to become a part of the amendments. The Court also referred to the Srikrishna CommitteeReport to suggest that the Act can be open to amendments to enforce Emergency Awards while interpreting Section 17(2) to harmonize it with the International Arbitration regime. The Arbitral Institutions have already devised their rules in a manner which runs consistent with the prominent international arbitral institutions.
Even the Supreme Court has now recognized in the matter of Amazon that after a party has consented to institutional procedures and engaged in an Emergency Award hearing, the party is obligated by the Award passed, and it is not in a party’s discretion to disregard an Emergency Arbitrator’s Award to assert nullity. Some notableinstitutions with their respective regulations are Delhi International Arbitration Center (DAC), Court of Arbitration of the International Chambers of Commerce-India, International Commercial Arbitration (ICA), Madras High Court Arbitration Center (MHCAC) Rules, 2014, and Mumbai Center for International Arbitration (Rules) 2016, which enumerate the provisions of EA and the role of an Emergency Arbitrator to match their working consistent with the global approach.
Apart from Arbitral Institutions and the Supreme Court, the High Courts, too, have shown their inclination towards EA despite dealing with only a limited number of cases concerning EA reliefs. Some of them are HSBC v. Avitel and Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors, whereby the Bombay High Court and the Delhi High Court respectively,granted interim reliefs which can be deemed as orders of the Emergency Arbitrator. This enables courts to make their own decisions and award interim relief in circumstances where it is appropriate, even if the Act does not clearly provide for it.
Notably, a remarkable move has been made by the Supreme Court while dealing with the controversy between Amazon and Future Group by deliberating upon EA and recommending the legislators to incorporate the same. The case involved enforcement of EA Award by Amazon, under Section 17(2) of the Act, which was granted in its favour under the SIAC rules containing an interim relief of injunction against a transaction in dispute. The Supreme Court had to deal with the issues relating to the inclusion of Emergency Awards within the scope of the Act, and its recognition as an Order passed under Section 17. The Court examined the definition of ‘arbitral tribunal’ and held that “Section 2 solely does not include emergency arbitrators. However, it opens with the words ‘unless the context otherwise requires’. Therefore when it is construed with Sections 2(6) and 2(8) of the Act, it is clear that interim orders passed by Emergency Arbitrators under the rules of an arbitral institution would be included within the ambit of orders under Section 17(1) of the Act and the same are appealable as well.” Thus, it is abundantly clear that the Court upheld the party autonomy or the freedom of choice of the parties with respect to compliance with institutional Rules that include Emergency Arbitrators delivering interim Orders.
The Supreme Court’s latest Judgment is of importance since the Courts have taken a pro-arbitration approach that requires minimum Court interference. The recognition of Emergency Arbitral Awards would only increase India’s reach as an Arbitration powerhouse. This will enable parties to move their disputes and seek immediate relief/measure in a mutually chosen jurisdiction, where conflicts are settled quickly and confidentially. An Emergency Award that has been passed under institutional arbitration will be at par with an interim Order passed by an arbitral tribunal seated within India. In simpler terms, it legitimizes an EA Award in an India-seated arbitration proceeding in the same fashion as a decree of an Indian Court stands.
Fuel to the Energy Sector
Energy projects, irrespective of the sources of energy like hydro, nuclear, wind, etc. involved in these projects, arecharacterised by capital-intensive and complex transactions with large volumes. The investments made in these projects are made for years with long-term expectations from both the parties, belonging to similar or different countries and backgrounds. Disputes usually form a part and parcel of these transactions due to a wide range of concerns, including but not limited to finances, expropriation and discharge of obligations. Arbitration is one of the primary options sought by parties to settle their disputes within theenergy sector, especially where there exists a cross-border aspect to disputes, due to a list of reasons like party autonomy, confidentiality, the appointment of impartial arbitrators and the list goes on.
Given the nature of the dispute, the essence and mode of international arbitration in this sector differs. The disputes could be classified as an investment-arbitration if it arises out of an investment under a Bilateral Investment Treaty (“BIT”) made by a foreign energy company in a host state or it can be a commercial-arbitration, if it pertains to modification in the contractual obligations of private parties. The disputes are referred to arbitration by arbitration clauses in their Bilateral Investment Treaties or Commercial Contracts. One of the International Treaties protecting investments in energy projects, in the event of any disagreement, is theEnergy Charter Treaty (“ECT”) which allows investors with energy investments in one of the member states to initiate an international arbitration action against the host state.Ukraine, a member state, was the first to have an Emergency Award enforced against it owing to imposition of royalties on a London based Oil Company. Ukraine, however denied enforcing this Award on grounds of non-completion of cooling off period under ENT, lack of consent and public policy. Subsequently, it was rendered to be incapable of enforcement because of public policy concerns, but it is pertinent to note that Emergency Awards are recognised and enforced under the domestic Laws of Ukraine.
The general nature and structure of many energy contracts or BITs means that urgent interim actions are sometimes required even before an Arbitral Tribunal is set. However, due to different domestic Laws and subjective understandings of the parties, hurdles often arise with respect to jurisdictional conflicts. Subsequently, this results in delayed proceedings, which directly impact the sustainability or quality of the resources or their uses. In such a time-constrained scenario, it is submitted that EA can definitely stimulate and expedite the process of resolving disputes between the parties. Therefore, it could be a historic move in tailoring the needs of this sector if awards passed under EA are recognised by international arbitration centres likeInternational Centre for Energy Arbitration andWorld Intellectual Property Organisation which aim towards handling disputes arising from energy projects.
This becomes all the more important in Indian context because India’s energy consumption ispredicted to surpass its domestic supply by 2035 owing to the economic changes post the COVID-19 pandemic, increased urbanization, improvement in living standards, etc. In the long run, India will be self-sufficient, but it will require imports to cover its energy needs well into the foreseeable future. It seeks higher energy efficiency, and one of the most dynamic industries is the market for technology and services that might help it achieve it. The fledging trend towards lower spot market pricing and hedging through forward contracts with importers, suggest that a more dynamic approach to energy trade may emerge. In such a dynamic scenario, introduction of emergency reliefs in the dispute resolution clauses of import contracts can help India in ensuring meeting its domestic demands while arbitration proceedings are going on because it can put the energy supply on hold until it concludes.
Suggestions and Conclusion
The concept of Emergency Arbitration is still evolving and vastly untested, therefore it becomes essential for the parties to examine the facts and circumstances of their own case and risks involved before seeking benefits of this relief. Despite the fact that many nations do not recognise the enforceability of Emergency Awards, the protection guaranteed to the parties, which can be materialised at a later stage in the arbitral procedure, induces them to respect such Awards that have been passed after a substantial effort is carried out by the parties in dispute. Certainly, it has already been proved and continues to be proven as a turning point in the international arbitration regime. However, India is yet to formally acknowledge the same from a certain statutory position. It is anticipated that in the near future, we will be able to see a more robust mechanism wherein India has access to the same. This will go a long way in developing India into an arbitration hub, which remains updated with the dynamic larger spectrum of Arbitration as a means to resolve disputes. Having a more regulated mechanism would most definitely be a very welcome step that would bring India in tandem with international practices of recognizing and enforcing Awards made during Emergency Arbitration.
About the Authors
Mr. Yazad M. Udwadia is an Advocate at the Bombay High Court and is pursuing a Post Graduate Diploma in Business Management, PGDMB (2022).
Ms. Vidhi Saxena is a 4th Year Law Student at National Law Institute University, Bhopal.
Editorial Team
Managing Editor: Naman Anand
Editors-in-Chief: Aakaansha Arya and Jhalak Srivastav
Senior Editor: Jhalak Srivastav
Associate Editor: Vidhi Saxena
Junior Editor: Joseph Antony Paddikala
Preferred Method of Citation
Yazad M. Udwadia and Vidhi Saxena “Emergency Arbitrations in Energy Sector-Global Perspective and Opportunities for India” (11 November 2021)
<https://ijpiel.com/index.php/2021/11/11/emergency-arbitrations-in-energy-sector-global-perspective-and-opportunities-for-india/>
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