04 March 2024 Arbitration Law >> Business & Commercial Law  

A recent decision by the Indian High Court highlights the importance of timely raising concerns about arbitrator bias and the deference given to foreign arbitration awards.

Background:

Avitel Post Studioz (Avitel), an Indian company, entered into a Share Subscription Agreement with HSBC PI Holdings (Mauritius) Limited (HSBC) for an investment in Avitel. The agreement included a clause mandating that any disputes be settled through arbitration at the Singapore International Arbitration Centre (SIAC).

Following a failed BBC contract and alleged misuse of funds by Avitel, HSBC initiated arbitration proceedings at SIAC and secured a US$60 million award in its favor. However, Avitel challenged the enforcement of the award in Indian courts, arguing bias on the part of the presiding arbitrator, Mr. Lau.

Avitel Claims Bias by Arbitrator:

Avitel's argument centered on Mr. Lau's position as an independent director at Wing Tai, a company allegedly unrelated to HSBC. Avitel claimed this position created a situation where Mr. Lau might be hesitant to rule against a company with a similar leadership structure.

 

 

Narrow Interpretation of Public Policy Wins:

The High Court employed a strict interpretation of "public policy" under the New York Convention, an international treaty governing enforcement of foreign arbitration awards. The court emphasized that enforcement can only be refused if it violates India's "most basic notions of morality or justice."

Furthermore, the court acknowledged the importance of international standards for determining arbitrator bias, not just domestic ones. It highlighted the deference accorded to arbitration awards and the high bar required to establish bias justifying non-enforcement.

Disclosure During Arbitration Key:

The court pointed out that Avitel should have raised the bias concern during the arbitration proceedings in Singapore. This delay significantly weakened their argument.

The decision also acknowledged the IBA Guidelines on Conflict of Interest, which provide a framework for arbitrators to disclose potential conflicts. However, the court determined that Mr. Lau's position at Wing Tai, with no established connection to HSBC, did not meet the disclosure criteria under the guidelines.

Upholding the Award:

Ultimately, the High Court rejected Avitel's challenge and upheld the enforcement of the US$60 million arbitration award.

Key Takeaways for Businesses:

This case underscores two crucial takeaways for businesses entering into agreements with international arbitration clauses:

• Foreign arbitration awards are generally enforced in India, with a very high threshold for claims of bias or violation of public policy.
• Parties to arbitration agreements should raise any concerns about arbitrator bias promptly during the arbitration proceedings to maximize their chances of success.

While the IBA Guidelines offer guidance on arbitrator disclosure, companies should remain vigilant and actively pursue potential conflicts during the arbitration process.

Importance of Enforcing Foreign Awards:

The judgment emphasizes the importance of upholding foreign arbitration awards in India. The court discourages frivolous challenges based on bias and stresses that enforcement should be the norm, with exceptions only for clear violations of public policy. In this case, the high threshold for non-enforcement was not met.

Conclusion:

The Supreme Court dismissed Avitel's appeal and upheld the lower court's decision to enforce the award. The judgment further directed swift execution of the award to ensure HSBC finally receives the compensation owed.

This case serves as a reminder of the challenges associated with enforcing international arbitration awards, despite legal victories. It also underscores the importance of India's commitment to upholding such awards, promoting stability in cross-border commercial disputes.

  Arbitration and Conciliation Act, 1996