The Delhi High Court has recently set aside an award of a sole arbitrator seated in London on various grounds, including on account of the arbitrator's non-disclosure of the fact that he had also been appointed by one of the parties in another dispute.
The dispute related to a claim by Kola Shipping Limited ("KSL") against Shakti Bhog Foods Ltd ("SBFL") in respect of a charterparty that KSL alleged had been executed between the parties, which provided for disputes to be resolved by LMAA arbitration in London. SBFL denied having entered into the charterparty, and therefore denied that any arbitration agreement existed between the parties.
KSL nominated Alan Oakley as arbitrator in October 2005. SBFL asserted that no arbitration agreement existed, and it therefore declined to nominate an arbitrator. KSL sought repeatedly to have SBFL nominate an arbitrator, which SBFL refused to do. Consequently, in March 2006 and again in August 2007, KSL invited Mr Oakley to act as sole arbitrator, to which Mr Oakley agreed.
In the meantime, SBFL continued to pursue claims against KSL in the Indian courts, which held that the disputes were to be determined by arbitration in London in accordance with the charterparty. SBFL filed a petition in the Supreme Court of India and notified KSL in September 2007. Whilst the petition was pending, no further steps were taken in the arbitration.
SBFL's petition was dismissed by the Supreme Court of India, which recognised the arbitration agreement, on 23 September 2008. Within two days of that date, SBFL sought to nominate an arbitrator. KSL resisted this nomination, and on 20 October 2008 applied to Mr Oakley to confirm his appointment as sole arbitrator, and to fix a date for the filing of SBFL's defence. Mr Oakley duly did so immediately, and ordered SBFL to file its defence by 17 November 2008, failing which he would make a final order carrying severe sanctions.
SBFL challenged Mr Oakley's appointment as sole arbitrator, and questioned his impartiality, particularly in light of the allegation that KSL's application to him on 20 October 2008 was not copied to SBFL, and he had decided that application without first copying the application to SBFL and inviting submissions from it. After a series of exchanges between the parties and the arbitrator, and an oral hearing in London on 28 January 2009, Mr Oakley issued his final award on 11 February 2009. In that award, he held that his own appointment was valid, and decided in KSL's favour on the merits of the dispute.
The Section 34 challenge
SBFL challenged the award in the Indian courts under section 34 of Part I of the Indian Arbitration and Conciliation Act 1996 (the "Act"), on the grounds that:
- no valid arbitration agreement existed between the parties;
- Mr Oakley was not validly appointed as sole arbitrator;
- Mr Oakley had failed to disclose that he had also been nominated as arbitrator by KSL in separate arbitral proceedings; and
- Mr Oakley's conduct in other respects called for the award to be set aside.
The Court held that the arbitration agreement was valid, but that the appointment of Mr Oakley as sole arbitrator was invalid, and that this was a ground for the award to be set aside.
The Court also noted that Mr Oakley had failed to disclose that he had been nominated by KSL to act as arbitrator in separate proceedings between KSL and the owner of the vessel that was involved in the present dispute. The fact that, in that arbitration, he had issued an award that was adverse to KSL did not matter. Notwithstanding his experience and standing as an arbitrator, and the fact that he had no personal interest in, or relationship to, KSL or its representatives, his failure to disclose his other appointment by KSL gave rise to "justifiable doubts as to his independence and impartiality". The Court held that this was also a ground for the award to be set aside.
Finally, although the Court did not accept many of SBFL's submissions as to Mr Oakley's conduct, it found that there were various matters which, "though not individually but collectively, gave rise to serious doubts as to the legality" of the award, in particular the readiness with which he adopted KSL's position in various matters, including costs awards in KSL's favour that included costs not falling within the arbitration.
This case underlines the importance of full and prompt disclosure by an arbitrator, even of matters that he does not consider to impugn his impartiality. As is often noted, the appearance of impartiality is critical for an arbitrator.
It also highlights the extent to which the Indian courts can review the conduct of arbitral proceedings in cases where Part I of the Act applies. In this case, KSL accepted that Part I applied and that therefore the Indian courts had jurisdiction to hear SBFL's challenge pursuant to section 34, no doubt because it had previously relied upon Part I of the Act to seek interim relief. The tension between the potential need for interim relief from the Indian courts and a party's potential desire not to have awards reviewed by those courts will continue to represent a difficult trade-off for parties considering whether Part I of the Act should apply to any disputes arising from their India-related commercial contract