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Fresh arbitration allowed if the award is set aside
Practical Law UK Legal Update Case Report 3-503-1877 (Approx. 3 pages)
Fresh arbitration allowed if the award is set aside
by Practical Law
| Published on 01 Sep 2010 • India |
Sahaneen Parikh (Partner), Amarchand & Mangaldas & Suresh A Shroff & Co
In a judgment dated 29 July 2010, the Bombay High Court held that where an award is set aside, parties are free to arbitrate the dispute afresh.
In the matter of M/s Associated Constructions v Mormugoa Port Trust, Arbitration Application No. 18 of 2007, in rejecting the respondent's argument that the arbitration clause ceased to have any effect pursuant to an earlier invocation and arbitration, the court held that the fresh arbitration would also be under the existing arbitration clause and that consent of both parties would not be required. Either party would be entitled to refer the matter for a fresh arbitration under the original arbitration clause.
The disputes arose under a construction contract entered into between the parties on 8 October 1996, which referred disputes to arbitration. An award made on 24 September 2004 (awarding the sum of INR42,86,135 to be paid by the Mormugoa Trust to Associated Constructions) was challenged by the respondent and set aside in its entirety by a judgment of the Bombay High Court. The claimant then filed an application under section 11 of the Arbitration & Conciliation Act 1996 (1996 Act), requesting the appointment of an arbitrator so that disputes between the parties could be referred to a fresh arbitration.
Granting the application and allowing the fresh arbitration, the court observed that:
"An arbitration agreement, can be entered into only with the consent of the parties. Once an arbitration agreement is entered into it may be invoked by any of the parties unilaterally. If one of the parties refuses to abide by the arbitration agreement, the other party is entitled to invoke or enforce it under the said Act. Where an award is set aside as in the above case, the commencement of the arbitration again is pursuant to and under the existing arbitration clause. The same is neither based on nor dependent upon a fresh arbitration agreement between the parties".
The court also noted the judgment of the Supreme Court in McDermott International Inc. v Burn Standard Co. Ltd. & Ors, 2006 (11) SCC 181 which held that:
"The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired."
On a separate note, the court observed that the award had been set aside in its entirety as the position under the law as it then stood was that an award could not be modified even by segregating that part of the award which could be upheld, once it was found that even a part of the award was liable to be set aside. This position was overruled by the judgment of a full bench of the Bombay High Court in R.S. Jiwani v Ircon International Ltd 2010 (1) Bom.CR 529. In that case, after considering a series of earlier judgments, the court held that it had power to apply the principle of severability to an arbitral award and set aside an award partly or wholly depending on the facts and circumstances of the given case.
This judgment settles the position that an award may be upheld or set aside partially by a court and that in respect of an award, or part of an award, which is set aside, the parties may re-arbitrate the dispute in a fresh arbitration before a fresh arbitral tribunal.