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In this blog post, Shubham Aparijita, a student at Symbiosis Law School, Pune and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, talks about arbitration in an EPC contract.

 

EPC Industries

EPC stands for Engineering, Procurement, and Construction and it is a form of agreement, or rather, a contracting agreement which in the construction industry or sector. It deals with the detailed engineering design procure equipment and necessary materials and then construction work is done to deliver a proper functioning facility or assets to their respective client.

With the development of this industry, there is a wider scope of dispute as compared and the rights and obligation has also increased proportionately. As almost all construction contracts now a days contain an arbitration clause for the settlement of disputes arising, the arbitration cases number, in both sectors ie. in public as well as private sectors, has accordingly increased. The enactment of the Arbitration & conciliation Act, 1996 has brought several changes in the field of arbitration. This, along with other fact that the engineering & construction industry involves several other laws, including the Indian Contract Act, the Specific Relief Act, the Interest Act, etc. has made the job of understanding one’s rights and obligation more challenging.

EPC CONTRACT

It is the most common form of contract which is used to undertake construction works on large scale and complex infrastructure projects. Under this contract a contractor is required to deliver a complete contract for a fixed price on a fixed date.

It is also referred to as turnkey construction contract because a contractor is required to deliver a complete facility so that the other party only need to turn a key to start working or operating the facility.

Judicial intervention in arbitration

  1. Section 8- Making reference in a pending suit.
  2. Section 9- Passing interim orders.
  3. Section 11-Appointment of arbitrators.
  4. Section 14(2) – Termination mandate of arbitrator.
  5. Section 27-Court assistance in taking evidence.
  6. Section 34- Setting aside an award.
  7. Section 36- Enforcement of an award by way of decree.
  8. Section 37- Entertaining appeals against orders.
  9. Section 39(2)]- Directing giving of award.
  10. Section 41- Reference of a dispute to arbitration in insolvency proceedings.

Interim protection

The court and arbitral tribunal both of them have the power to grant interim protection. As per section 9, court can allow interim protection any time before, during arbitral proceedings or after the making of the arbitral award, but before it is enforced (accordance with section 36). Section 17 of the Act gives co-terminus powers to the arbitral tribunals to order interim measures of protection. Parties have right to prevent the tribunal to exercise such powers by mutual agreement. It would operate only during the existence of the arbitral tribunal and its being functional and not pre or post arbitration. If pre arbitration notice invoking arbitration is required the court must be satisfied that effective steps to commence arbitration have been taken.

Section 34 – Setting Aside an Arbitral Award

The power to set aside an arbitral award is very limited. For example:

  1. Incapacity
  2. Arbitration Agreement invalid
  3. No proper notice of appointment or arbitral proceedings
  4. Arbitral award outside the scope of the agreement
  5. Composition of arbitral tribunal or procedure not in accordance with agreement
  6. Court finds that the subject matter is not capable of settlement by arbitration under the law
  7. “Patently Illegal” or “illegality

Under section 34 a court can’t re-appreciate evidence.If a possible view is taken in relation to the obligations of the parties then interference by the court is not justified.  

Employee arbitrators

What is the position of employee arbitrator are they neutral?

In government contracts arbitration is carried out by employee of the government, statutory bodies, public sector undertaking.

Case: In Indian Oil Corporation Ltd. and Ors. Vs. Raja Transport, Supreme Court held

A senior officer, who has nothing to do with the contract are independent and impartial and is not barred from acting as an arbitrator just on the ground that their employer is a party to that contract.

Incorporation

Principles of incorporation of arbitration clause by reference has been summarised in M.R. Engineers and Contractors Pvt. Ltd. Vs. Som Datt Builders Ltd. as:

  • There should be a clear contain and  clear reference to the documents containing clause; the reference should clearly indicate an intention to incorporate the clause into the contract;
  • The arbitration clause should be apt, capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.General reference given is not helpful it must be specific, If referring contract states “in terms of execution and performance” – arbitration agreement does not follow but if it specifies a section of another contract, , then there is incorporation by reference.

Law governing of arbitration

Dispute referred to international commercial arbitration can be categorised to three different laws:

  1. Proper law – Law  which governs the substantive contract
  2. Law which governs the construction and validity of the arbitration agreement – This law governs the agreement to arbitrate and also the performance of that agreement.
  3. Procedural law of arbitration– This law governs the conduct of the arbitration.

In maximum of cases, all three will be the same. But (1) will mostly be different from (2) and 3), and rare cases, (2) may be different from (3). Where parties are not able to choose the law for arbitration proceedings then it would be the Seat.Seat not to be confused with venue of arbitration.

Foreign Arbitral Awards

There are 2 parts, part 1 applies to domestic arbitrations and Part II applies to foreign arbitrations.

In Bhatia International and Venture Global, Supreme Court had held that for international commercial arbitrations when a party wanted to enforce an award under Part II, Indian courts would also have jurisdiction and Part I will also apply.

In Bharat Aluminum Co. v. Kaiser Aluminum Technical Service Inc the judgment in Bhatia International and Venture Global was overruled. The principles given in Bharat Aluminum are:

Part I is only applicable to international commercial arbitration held in India and is not applicable to international commercial arbitration held outside.

In international commercial arbitrations which are held outside India interim relief can’t be granted by Indian courts. Section 34 applies only if the seat of arbitration is in India. Application of awards rendered in arbitration held outside India would only be subject to the jurisdiction of the Indian courts when that award are sought to be given in India in accordance with provisions contained in Part II. The seat of arbitration will decide applicable law of arbitration. The venue may change but it will not effect on the seat of arbitration. The seat of the arbitration remains the same i.e. the place initially agreed by the parties.

Enforcement of foreign award

Foreign awards can be given under New York and Geneva Convention and can be enforced under the Part II of the Act. It can’t be set aside. The Indian courts may only impose it or refuse to impose it.

Enforcement Conditions:

  1. The award must fulfil and satisfy the definition of foreign award under section 44  and section 53 of the respective conventions.
  2. A party who applies for enforcement of a foreign award must produce the following document before the court:
  1. Original award or a copy of the award which is duly authenticated.
  2. Original arbitration agreement or certified copy.
  3. Such other evidence to prove that the award is a foreign award.  

Refusal of Enforcement can be on following grounds:

  1. Incapacity
  2. No proper notice of appointment
  3. Arbitral award given outside the scope of the agreement
  4. Composition of arbitral tribunal not in accordance with agreement of the parties

Once Final Arbitral Award is passed, the same becomes final and binding between the parties. Section 34 of the Act, provides certain possibilities in which a Final Arbitral Award can be set aside by a court. However, the Courts have, time after time, interpreted and construed this Section in a very narrow way, effectively leaving very little area for the parties to challenges a Final Arbitral Award in court. The Courts are always reluctant to interfere with a final arbitral award since the arbitrator is a judge who is chosen by the parties and his decision should be respected. A final Arbitral Award may be set aside by the Court if the same is totally willful or is based on a wrong proposition of law. A court may interfere if the award is based upon a proposition of law which is unsound in law and which of error in proposition of law vitiates the decision of the Arbitrator. The error must appear from the Award itself. It is generally accepted that a Final Arbitral Award can be set aside by a Court if the Arbitrator has misconducted the proceedings. Misconduct means to legal misconduct which arises if the arbitrator on face of the award arrives at a decision ignoring material documents.

Conclusion

It is the most common form of contract which is used to undertake construction works on large scale and complex infrastructure projects.

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