Monday, October 4, 2010

Arbitration: MSM Satellite v. World Sport Group – Part 2

(The following is the continuation of this previous post, and has been contributed by Vijay Kumar, a lawyer and a company secretary by qualification, who is practising as an Advocate in the Chennai High Court with the law firm of Iyer and Thomas)
Comments

a. The Dispute in reality is between MSM and WSGML and the question is whether MSM is liable to WSGML under the facilitation deed. This question has nothing to do with the plea for public policy raised or BCCI being affected by reason of the Dispute. The Media Release Rights continue to remain with BCCI which is their owner. BCCI is not affected by the present dispute. In fact, BCCI has agreed to continue with the Media release rights arrangement with MSM by way of an undertaking in the previous suit filed by MSM. In such a situation the Court could have left it to MSM and WSGA to decide the validity of the agreement and their liability under the agreement and work out their remedies in Arbitration. Neither BCCI nor the Media Release License rights would be affected by the reason of the present dispute. Therefore, the parties must have been allowed to work out their remedies in Arbitration in accordance with the provisions of Section 8 of the Act.

b. It was for the Arbitrators to decide if the consent of MSM to the Facilitation Deed is obtained by fraud and if that be the case the same can be decided in favour of MSM. BCCI need not be party to such proceedings as evidence of the fraud let by MSM would have been sufficient to prove the same. It is open to MSM to plead fraud against WSGML and therefore take a view that MSM shall not be liable for any payment to WSGML.

c. The Court unnecessarily mixed up the issues of the earlier suit filed by MSM where BCCI and WSGA and others are made as parties. The earlier suit was filed for protection of interests of MSM and its Media Rights license and that suit does not affect the arbitration to be presently commenced between the parties. The causes of action of both the suits are different. In the first suit filed by MSM (where BCCI is a party), the cause of action is the fear of BCCI terminating broadcasting rights. In the second suit, the cause of action is whether MSM is liable to make payment to WSGML under the Facilitation deed and the binding nature of Facilitation Deed on its parties.

d. For the parties to be restrained from submitting to arbitration under Section 45 of the Arbitration and Conciliation Act, the very necessity is that the agreement is rendered void or inoperative or incapable of being performed. The Hon’ble Court never came to the conclusion that the facilitation deed is void. It referred to the Dispute resolution mechanism agreed between the parties and held that one of the clauses that restricts the parties from approaching the Civil Court for a remedy is void under Section 28. Further, adjudication of Media Release Rights which has its situs in India as per English Law would be against public policy in India. With due respect, the clause which prevents parties from approaching Ordinary Courts is capable of being severed from the clause of Arbitration and the parties could have been relegated to arbitration. The requirement is that the agreement relied on by the parties has become void; the arbitration agreement has become void and only in that event reference to arbitration is void. Here, only an inference as to the arbitration (dispute resolution mechanism) clause being void has been arrived at. No conclusive decision has been made as to the arbitration agreement or the main agreement being void. Such conclusion is one of the prime necessities to restrain conduct of arbitration which has not been arrived in the present decision.

e. The Court failed to justify how public policy would be affected if WSGML and MSM are referred to arbitration. How BCCI which is the owner of Media Release Rights is affected by referring parties to arbitration. If MSM commits a breach of the present agreement, BCCI shall be entitled to terminate the agreement and license the rights in favour of another broadcaster and provide the same service. The disputes between MSM and WSGML are private disputes and need to be determined by the parties. The mode of resolution is arbitration which is not in contrary to public policy. Determination of private disputes does not affect public policy. As a result the arbitration is not void; hence Section 45 cannot be invoked. The argument of public policy is fallacious because the Media Rights released by BCCI is not in question. The question is whether MSM continues to be liable for payment to WSGML under the Deed of Facilitation. This could have been decided independently based on evidence let in by the parties. It is for MSM to show that fraud is played and therefore WSGML is not entitled to any amounts under the Deed. The Arbitrators are entitled to let in evidence and come to such conclusion. Such conclusion would not change whether it is under Indian Law or English Law. An agreement which is vitiated by fraud is fraudulent agreement under all laws. Therefore the plea raised that such determination cannot be arrived without BCCI being a party is fallacious. It is evidence that determines fraud and BCCI as witness can let in evidence to show WSGML fraud.

f. For restraining the parties from being referred to arbitration it was held in Shin- EtSu versus Aksh OptiFibre Ltd as follows-
Clearly Section 45 casts an obligation upon the judicial authority when seized of the matter to record a finding as to the validity of the arbitration agreement as stipulated in the Section and there is nothing to suggest either from the language of the section or otherwise that the finding to be recorded is to be only ex facie or prima facie. It is true that Section 5 limits judicial intervention in the manner provided therein. Both provisions are differently structured albeit the purpose of both is to refer parties to arbitration but in one case domestic arbitration and in other case international arbitration. Unlike Section 8 which provides that the application shall be moved not later than when submitting the first statement of the substance of the dispute, under Section 45 there is no such limitation. The apparent reason is that insofar as domestic arbitration is concerned, the legislature intended to achieve speedy reference of disputes to arbitration tribunal and left most of the matters to be raised before the arbitrators or post award. In case of foreign arbitration, however, in its wisdom the legislature left the question relating to validity of arbitration agreement being examined by the court. One of the main reasons for the departure being the heavy expense involved in such arbitrations which may be unnecessary if the arbitration agreement is to be invalidated in the manner prescribed in Section 45. In view of the aforesaid, adopting liberal approach and restricting the determination by judicial authority about validity of agreement only from prima facie angle, would amount to adding words to Section 45 without there being any ambiguity or vagueness therein.

I am of the view that Indian Legislature has consciously adopted a conventional approach so as to save the huge expense involved in international commercial arbitration as compared to domestic arbitration. In view of the aforesaid discussion, I am of the view that under Section 45 of the Act, the determination has to be on merits, final and binding and not prima facie.
The findings in the above case decided by Supreme Court have not been considered. Instead summary conclusion has been arrived without examining and considering evidence in detail.

g. The dispute resolution mechanism is not restrictive and is in accordance with the provisions of Section 28 of the Indian Contact Act. It empowers parties to approach the Courts in Singapore or such other court having jurisdiction. Such clause cannot be considered as restrictive in jurisdiction when parties are given the option to invoke the jurisdiction of any Court which has jurisdiction.

To sum up, the decision raises certain serious questions as to the circumstances in which Section 45 of the Arbitration and Conciliation Act, 1996 can be invoked and the extent of caution that needs to be exercised to ensure that exercise of jurisdiction is not unnecessary judicial interference. This decision once again stresses the need for extensive guidelines that the Apex Court needs to lay down on the circumstances in which exercising of jurisdiction under Section 45 of the Arbitration and Conciliation Act, 1996 is warranted.

5 comments:

Anonymous said...

YOUR CONCEPT OF AN ANTI SUIT INJUNCTION WOULD REQUIRE A RELOOK...

Vijay said...

The present suit is not seeking anti suit injunction. The present suit is to show that conducting of Arbitration has become impossible without BCCI as party and without deciding issue of jurisdiction (Russel's on Arbitration) hence the arbitration has become void. Further Media Release rights are in India and hence English laws are not applicable is one of the grounds. So Section 45 of A &C is to be triggered and not anti suit injunction that is sought

Anonymous said...

A unique piece of writing in this blog !

Anonymous said...

The extract from Shin Etsu seems to be from the dissenting opinion (Sabharwal)and not the majority (Srikrishna + Dharmadhikari) ...the majority holds that the decision under Section 45 has to be prima facie and not after a full examination.

Anonymous said...

your analysis as to shin etsu is wrong as you have quoted the minority judgment of sabharwal on the point