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DISPUTE RESOLUTION

IN EPC CONTRACTS
Abhishek Singh
PXV Law Partners
E-mail: abhishek.singh@pxvlaw.com

STRICTLY PRIVATE – NOT FOR
CIRCULATION

OUTLINE

• ADR Mechanisms
• Conciliation
• Arbitration
• Expert Determination
• Multi-Tiered Dispute Resolution

STRICTLY PRIVATE – NOT FOR CIRCULATION
• Dispute Resolution Boards
• Best Practices
• Writ Remedies in EPC Contracts

ADR MECHANISMS - CONCILIATION .

• Restriction on initiating arbitral or judicial proceedings during conciliation proceedings except for preserving rights. [Section 61] • Unless the parties have specifically excluded conciliation procedure. . [Section 77] • Settlement arrived before the conciliator has the same status as an arbitral award. Proceedings cannot be relied on in a subsequent arbitration / litigation. 1996 ("Act") provides for recognition of conciliation in commercial disputes.CONCILIATION • The Part III of the Arbitration and Conciliation Act. Conciliator cannot be presented as a witness. they are free to take recourse to conciliation prior to arbitration. • Confidential process.

ARBITRATION – KEY ASPECTS .

• Section 5 starts with “non-obstante” clause and limits the scope of judicial intervention. [Section 16] • An appeal lies against an order if the arbitrator decides that he does not have jurisdiction or if the arbitrator decides that he has exceeded the scope of his authority. • Section 8 limits discretion of courts and mandates the court to refer the parties to arbitration when there is an arbitration agreement.ARBITRATION-KEY ASPECTS • Section 5 of the Act – a deliberate departure from UNICTRAL Model law. . • Arbitral tribunal is competent to rule on its own jurisdiction including the validity of the arbitration agreement.

• Court assistance in taking evidence [Section 27]. • Enforcement of an award by way of decree [Section 36]. • Entertaining appeals against certain orders [Section 37]. • Passing interim orders [Section 9]. • Setting aside an award [Section 34].JUDICIAL INTERVENTION IN ARBITRATION • Making reference in a pending suit [Section 8]. • Appointment of arbitrators [Section 11]. • Reference of a dispute to arbitration in insolvency proceedings [Section 41]. . • Directing delivery of an award [Section 39(2)].

. • Under section 17. • Problem of enforceability. the arbitral tribunal can also order interim measures of protection. NEPC India Ltd. pre-arbitration notice invoking arbitration is required or the court must be satisfied that effective steps to commence arbitration would be taken. • Under section 9. [Sundaram Finance Ltd. • Generally. AIR 1999 SC 565].INTERIM PROTECTION • Both the court and the arbitral tribunal have the power to grant interim protection. court can allow interim protection before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36.. The arbitral tribunal can draw negative inference in case of non-compliance. vs. • Section 17 would operate only during the existence of the arbitral tribunal – not pre or post arbitration.

• “Patently Illegal” [ONGC v. The Supreme Court found the award to be against the public policy of India. Under section 74 of the Indian Contract Act. which held that liquidated damages had to be proven. . • The award is in conflict with the public policy of India. if the award was induced by fraud. against the terms of the contract [Section 28].SECTION 34 – SETTING ASIDE AN ARBITRAL AWARD • Power to set aside an arbitral award under section 34 is very limited • Incapacity • Arbitration agreement invalid • No proper notice of appointment of arbitrator or arbitral proceedings • Arbitral award outside the scope of the agreement • Composition of arbitral tribunal or procedure not in accordance with agreement of the parties • Court finds that subject matter of dispute is not capable of settlement by arbitration under the law or arbitral award is in conflict with “public policy of India” • Against the Act or substantive law • Against the Act example: unreasoned award. right to a hearing unless agreed otherwise [Section 24]. misrepresentation or corruption. (2003) 5 SCC 705] • In ONGC. the Supreme Court of India set aside an award. 1872 the actual loss or damages need not be proven. unless agreed otherwise [Section 31]. since the award was against the substantive law of India. Saw Pipes.

a court cannot re-appreciate the evidence. [Hind Builders vs. Arosan Enterprises Ltd.SETTING ASIDE AN ARBITRAL AWARD UNDER SECTION 34 IS NOT AN APPEAL • Under section 34. then interference by the court is not justified. (1999) 9 SCC 449] • If a possible view has been taken in relation to the obligations of the parties based on construction of the terms of the agreement. [M/s. vs. Union of India. Union of India & Anr.. (1990) 3 SCC 338] .

EMPLOYEE ARBITRATORS • Government. vs. where a government employee is named as an arbitrator. Raja Transport. • Senior officer of the government body who was not involved with the execution of the contract and was independent and impartial .not barred from functioning as arbitrator merely because their employer is a party to the contract. statutory body or PSU contracts. . and Ors. (2009) 8 SCC 520] • However. [Indian Oil Corporation Ltd. there is an obligation “independence” and “impartiality”.

Procedural law of arbitration– Law governing the conduct of the arbitration.GOVERNING LAW OF ARBITRATION • Dispute referred to international commercial arbitration can be subject to three different laws. • (1) can be different . but (2) and (3) are usually the same. 2. 3. Law governing the construction and validity of the arbitration agreement – Law governing the agreement to arbitrate and the performance of that agreement. it would be the country where the arbitration is held (seat). . Proper law – Law governing the substantive contract. • Seat NOT to be confused with venue of arbitration. • Where parties fail to choose the law governing the arbitration proceedings. 1.

• And at least one party is • Foreign national or habitually resides in a foreign country. • The most important impact is that in international commercial arbitration held abroad Part I of the Act will not apply. • “International commercial arbitration” is defined under section 2 (f) of the Act. [2012 (8) SCALE 333] overruled Bhatia International [(2002) 4 SCC 105 ] and Venture Global [(2008) 4 SCC 190]. • For the Act to apply. Kaiser Aluminium Technical Service Inc . • Body of Individuals. section 34 setting aside the award or Section 9 interim measures cannot be resorted to. • Government of a foreign country.FOREIGN ARBITRAL AWARDS - • Part I applies to domestic arbitrations. the arbitration must be commercial as defined under the Indian law. while Part II applies to international commercial arbitrations. which is incorporated in a country other than India. . association or a company whose central management or control is exercised in a foreign country. • Hence. vs. • A corporation. • Bharat Aluminium Co.

. but it will have no effect on the seat of arbitration. The seat of arbitration remains the place initially agreed by or on behalf of the parties.09.2012. Therefore.09. Kaiser Aluminium Technical Service Inc.  Bharat Aluminum to apply only post 06.  The seat of arbitration will decide the applicable law of arbitration.FOREIGN ARBITRAL AWARDS Other critical implications of Bharat Aluminium Co. any application for relief under section 9 or 34 in respect of foreign seated arbitration will continue to be governed by the Bhatia principle.  The venue of arbitration may change. advisable to have them amended. If existing international arbitration agreements are pre 06.2012. vs.

DISPUTE RESOLUTION BOARD .

. • Generally. discussions. DRB is constituted at the time of commencement of contract. • Dispute arose level: If conflicts arises during the execution of the project. The DRB will conduct the hearing and attend every issue in relation to the dispute. quasi legal body commonly known as Disputes Resolution Board (“DRB”) can be formed. DRB could provide informal opinion on potential areas of disagreement so that they are solved before it eventually escalates to dispute. • Three stages of DRB: • Onset level: During the working of the project. less formal and optionally binding solution to disputes prior to the process of arbitration. DRB members make a recommendation in writing to both parties. etc. period status meetings. • Upon reaching a solution. • DRB is intended to provide a site based.DISPUTE RESOLUTION BOARD • In large projects. • Hearing level: The hearing procedures allow both parties to explain their position as well as to respond on the issues involved in the dispute.

• A World Bank study (2007) on the operation of dispute resolution mechanisms for civil works in India concluded that the operation of DRBs had been ineffective. Where the DRBs had been established on time. site visits conducted regularly. Done away with mediation process. the results were positive.DRB PROBLEMS • Ministry of Road Transport & Highways’ new EPC model places great emphasis on DRBs. . • It was noted that the success of DRBs depended on the intent of the contract personnel to manage the contract professionally and efficiently. and disputes referred by parties promptly. The DRBs took far longer than contractually mandated to make their recommendations and faced high rejection rate.

EXPERT DETERMINATION .

• However. [Joint Investments Pvt. an expert determination is not a binding arbitration award. (2010) 170 DLT 487] . Escorts. v. Resolving disputes by experts can be very effective where technical issues are involved.EXPERT DETERMINATION • Expert determination is an important method of dispute resolution preceding arbitration / litigation. Ltd.

MULTI-TIERED DISPUTE RESOLUTION .

• can effectively deal with a range of conflicts with a minimum of disruption to the project. arbitration. However. • ADR mechanism commonly incorporated into multi-tiered dispute resolution clauses include: negotiation. • Key benefits: • filtering system. dispute resolution board and finally. there is a conflict of view. • The Courts in India have shown an inclination to enforce multi-tiered dispute resolution clauses. . • Stages preceding to arbitration / litigation can be waived by the parties.MULTI-TIERED DISPUTE RESOLUTION • The process essentially involves resolving disputes through a multi-tiered dispute resolution clause which provides for separate dispute resolution processes at distinct and escalating stages.only the complex disputes result in arbitration. conciliation. expert determination.

” [M. and challenge to the domestic arbitration award before another arbitral tribunal pending consideration before a larger bench of Supreme Court in Centrotrade Minerals vs. (1999) 2 SCC 594 ] • “When the parties agree for a specific procedure and mode for settlement of their dispute by way of arbitration and also prescribes certain pre-condition to be complied with for referring the matter to arbitration. the parties are required to comply with those pre-conditions and only then refer the matter to the arbitration. Hindustan Copper Limited .” [Tulip Hotels Pvt. . vs. (2006) 11 SCC 245.MULTI-TIERED DISPUTE RESOLUTION • “The steps preceding the coming into operation of the arbitration clause though essential are capable of being waived. Ltd. Trade Wings Ltd.K. State of Madhya Pradesh. MANU/MH/1748/2008] • Validity of two tier arbitration clauses which envisages an initial domestic arbitration. Shah Engineers & Contractors vs.

DRAFTING ARBITRATION CLAUSES .

when ad-hoc arbitration is chosen. • The parties should select the seat of arbitration – practical and juridical factors. . • Despite Bharat Aluminum. • The parties should specify the method of selection and replacement of arbitrators and. • The scope of dispute subject to arbitration should not be limited.DRAFTING DISPUTE RESOLUTION CLAUSES – BEST PRACTICES. duration and the quality of the arbitral proceedings. its better to expressly exclude Part I of the Act. should select an appointing authority. Benefits? • The parties should select a set of arbitration rules and use the model clause recommended for these arbitration rules as a starting point. IBA GUIDELINES • The parties should decide between institutional and ad-hoc arbitration. • The parties should specify the number of arbitrators – impact on overall cost.

effect of choice on arbitrators / counsels must be considered. • Alternative dispute resolution mechanisms such as conciliation. should be clearly specified. venue. • The parties should indicate the rules of law governing the contract. etc. • Parties may consider specifying the powers of the arbitral tribunal to grant interim relief.DRAFTING ARBITRATION CLAUSES– BEST PRACTICES • Where applicable. nominating arbitrator. time limits for each event for e. • The parties should specify the language of arbitration.g. . should be specified. DRBs. Language of documentation. etc. seat of arbitration. expert determination.

WRIT REMEDY .

[Kumari Shrilekha Vidyarthi vs. If the impugned act of the State is arbitrary or unfair or unreasonable.P.WRIT REMEDY IN PROJECTS • Writ remedy is not a routine jurisdiction but an extraordinary jurisdiction meant for an extraordinary purpose. the courts are reluctant to exercise their writ jurisdiction. even in contractual matters the State and its instrumentalities are duty bound to act fairly and reasonably. • However. In contractual matters. Hindustan Petro Corporation Ltd. • Examples of effective use of writ remedy in projects. Wig vs. • “Facts and circumstances” test. State of U.. a writ is maintainable. . however. (2005) 8 SCC 242]   • Existence of arbitration clause in an agreement is normally a bar to the exercise of writ jurisdiction. Sanjana M. [Mrs. (1991) 1 SCC 212] • Writ petition may not be an appropriate remedy when disputed questions of facts are involved and the parties are required to lead evidence. There are certain exceptions where the writ jurisdiction can be invoked even in the presence of arbitration clause. not an absolute bar. and Ors .

Thank You .