The Corporate & Commercial Law Society Blog, HNLU

Month: November 2023

  • Navigating Uncharted Territories: ICSID Tribunal’s Power to Remove Counsel

    Navigating Uncharted Territories: ICSID Tribunal’s Power to Remove Counsel

    BY AARyA PARIHAR, THIRD-YEAR STUDENT AT RMLNLU, LUCKNOW

    Introduction

    The role of a lawyer is extremely crucial in an arbitration proceeding. The right to effective legal representation of one’s choice is recognized explicitly in various international instruments, like Article 14 of the International Covenant on Civil and Political Rights and Article 6 of the European Convention on Human Rights. Such a right is equally essential in investor-state arbitration proceedings, where it may form part of the due process expectations of the parties to the proceedings with serious transgressions from the principle, even potentially constitute a ground to challenge the award itself. The ICSID Convention, Rules, and Regulations do not expressly address the authority of ICSID Tribunals to permit the withdrawal of legal counsel or to compel their continued participation in the proceedings (against their wishes). This post discusses the authority of ICSID Tribunals to exclude or require the presence of particular counsel in a dispute. The post then discusses the existing arbitral decisions on this issue to examine the contours of ICSID Tribunals’ powers concerning these matters.

    Do ICSID Tribunals Have the Power to Remove/Exclude Counsel?

    ICSID Tribunals are formed to resolve treaty disputes between contracting parties. Every dispute has its own Tribunal with separate procedural rules that disputing parties agree on. Arbitration’s inherent nature of being party-centric, where parties’ autonomy is given primacy, leads to divergent procedural practices. Additionally, the non-binding nature or lack of precedential character of ICSID awards over other ICSID Tribunals leads to differing awards. Thus, it is essential that before moving to ICSID Tribunals, assistance shall be taken from the federal courts of the United States, who have often used their power to decide upon the issue of counsel resignation.

    The U.S. Court in May v. Seibert enquired about the existence of good cause, which depends upon the facts and circumstances of every case. Simply put, there is no straitjacket formula to when a counsel can legally stop their representation. It largely depends upon the peculiar factual matrix of every case and the application of mind by the judge presiding over it.

    In the realm of ICSID, only a few Tribunals were called upon to decide upon the issue of counsel resignation or removal of counsel. Five publicly available awards are from the Hrvatska Tribunal, Rompetrol Tribunal, Edmond Khudyan Tribunal, Fraport Tribunal, and Theodore David Einarsson Tribunal. These five orders from five different Tribunals delve into the removal of counsel. In all these five decisions, the Tribunal found its power to remove counsel under Article 44 of the ICSID Convention, providing residuary power to the Tribunals. It empowers the Tribunals to decide upon any question of procedure which is not explicitly covered under the ICSID Convention, Rules, and Regulations.

    Due to the heavy amount of cross-referencing/quoting done in these decisions, discussing them separately and conjointly is essential. The post attempts to cull out only the important dictum from these decisions, which is required to facilitate analysis in the present article.

    Hrvatska Tribunal

    In the Hrvatska award, the removal of counsel was warranted because of his apparent connection with one of the arbitrators, which might have caused bias. The Tribunal found that the right to effective representation is pitted against the right to effective and unbiased proceedings. After due deliberation, the Tribunal found itself empowered to rule on this issue by virtue of Article 44 of the ICSID Convention.

    Rompetrol Tribunal

    The Respondent in the Rompetrol decision cited the Hrvatska decision as the sole authority to bolster their argument regarding ICSID Tribunals’ authority to exclude counsel from the proceedings. The Tribunal found it has inherent power to exclude counsels under Article 44 of the ICSID Convention but refused to exercise the same in the present dispute. According to this Tribunal, this power should only be used in exceptionally uncommon circumstances where the integrity of the whole proceeding is in question/dispute.

    Edmond and Fraport Tribunals

    In the decision rendered in the Edmond dispute, the Tribunal reiterated that it has the power to exclude the participation of counsel under Article 44 of the ICSID Convention. In this case, both parties agreed to this power of the Tribunal without any disagreements. The Tribunal again emphasized using this power sparingly and only in certain circumstances. It should be used only to protect the proceedings’ integrity and fairness and to ensure the parties’ equality. The Tribunal heavily quoted from the Fraport decision, reaching a similar conclusion. The Fraport Tribunal also imposed the necessary contours of “ensuring fair conduct of the proceedings” while exercising its power under Article 44 of the ICSID Convention.

    Theodore Einarsson Tribunal

    Another crucial decision in this aspect is of the Theodore Einarsson Tribunal, where the Tribunal while deliberating on the removal of a counsel, outlined that the ICSID Tribunals do not have the power to police the compliance of counsels with their deontological or ethical mandates imposed by any local code/rule. These ethical constraints are generally introduced by a local code governing the professional conduct of the lawyer practicing thereof. They include the duty to not discontinue representation without a good cause or the commitment to confidentiality. It reasoned that since the removal of counsel attacks the core of the fairness of proceedings, it is a mandate of the ICSID Tribunal.

    The Contours of the Power of ICSID Tribunals to Control Representation of Counsels

    The Tribunals in all the above-quoted disputes have reasoned that the power to remove counsel is exercised to ensure the fairness and integrity of the proceedings. In both the decisions in Fraport and Theodore, the Tribunals refused to look into the counsel’s deontological or ethical mandate. They found it outside the purview of their authority and a question that is to be decided by local or regional courts.

    It can be understood that the ICSID Tribunals have been reluctant to rule on anything else apart from simply the participation of a counsel. The Author believes that the power to exclude includes the power to retain counsel by overriding the parties’ choice. In simpler words, there are instances where the Client/Party does not want their counsel to continue. The Tribunals have the power to order the continuation of their representation against the party’s wishes. One crucial aspect is the conditions or situations where a counsel can be removed from the ongoing proceedings.

    Ruling on Counsel’s request for removal

    The five above-referenced awards do not concern any situation where the Tribunal was required to address a counsel’s request to resign. Almost all of them had some bias or conflict between the challenged counsel and an arbitrator. There may arise a situation where the counsel wishes to resign, whether voluntarily or per the desire of either party that wants their counsel to discontinue representation. In these scenarios, as already stated, the courts generally use their wisdom to decide based on every case’s peculiar facts and circumstances.

    Generally, counsels decide to withdraw their representation when there is a breakdown of any attorney-client relationship. Simply put, it is when the attorney has lost faith in his client and their case or vice versa. It is broken down to such an extent that the representation would only harm the client’s case. Also, it is essential to note that the withdrawal should not cause undue or unreasonable delay to the proceeding. This also means that there should be no prejudice caused to parties involved by the ‘withdrawal of a counsel’.

    In the Jean-Boscotrial, the International Criminal Tribunal (hereinafter “ICT”) for Rwanda denied withdrawal/replacement of counsel because of the possibility of undue delay in the proceedings that would cause prejudice to the parties. It was highlighted in the Jean-Bosco decision that new counsel needs to acquaint themselves with the facts, documents, and figures of the existing case. Sometimes, this process of getting acquainted with everything also causes an undue delay in the proceedings, and the Courts have rejected the withdrawal for this reason of delay. This similar reasoning was also employed by the ICT for Rwanda in the Jean-Bosco Trial to decide on dismissing the withdrawal/replacement of counsel.

    Suggestions and Conclusion

    There is an apparent dearth of awards and decisions by ICSID Tribunals on the issue of counsel withdrawal/exclusion. The available awards reiterate the similar reasoning applied by the Tribunals in every dispute. There seems to be a well-founded reluctance by ICSID Tribunals to adjudicate over counsel’s withdrawal or exclusion with full vigor. ICSID Tribunals are constituted mainly to resolve the dispute between investors and States. The contours of a Tribunal’s powers are well-defined in the ICSID Convention, Rules, and Regulation. Thus, the Tribunal finds itself in a quagmire or conundrum where the chances of overreach exist. In light of various awards highlighted in this article, it is abundantly clear that the ICSID Tribunals have discovered their inherent power to decide on any question of “procedure” of the dispute flowing from Article 44 of the ICSID Convention. Issues of counsel’s conduct and obligations are not the mandate of ICSID Tribunals. If the Tribunals are given unfettered power to decide upon the issue of counsel’s ethical obligations, it will open a floodgate of fresh proceedings and further cause delay. This would defeat the purpose of arbitration proceedings, where the primary aim is to promote expediency and efficiency.

    If a further step could be taken, the ICSID Convention should insert an explicit provision defining the power of its Tribunals to decide upon the issue of counsel resignation/removal in cases of apparent bias/conflict with the arbitrator or irrevocable breakdown of attorney-client relationship. To develop their contours or limits, the Tribunals may take assistance from decisions of local courts and international tribunals where the issue of counsel resignation has been discussed in length.

  • Arbitral Tribunal’s Powers To Grant Interim Measures Affecting Third Parties: Still At Crossroads?

    Arbitral Tribunal’s Powers To Grant Interim Measures Affecting Third Parties: Still At Crossroads?

    BY PRIYANSHI BHAGERIA, FOURTH-YEAR STUDENT AT RMLNLU, LUCKNOW

    Introduction

    Section 17 of the Arbitration & Conciliation Act 1996 (‘Act’) empowers the Arbitral Tribunal to grant interim measures during the arbitral proceedings. The phraseology of Section 17 is similar to Section 9 of the Act, which grants similar powers to the courts. Both the sections are similar in the sense that they not only deal with the grant of interim measures, although at different stages, but also the orders passed under the respective sections are deemed to be court orders and shall be enforceable in the same manner. 

    One major question that is a subject of repeated discourse is whether the tribunal has the power to grant measures affecting the rights of the third parties since a similar power is often exercised by the courts under Section 9. In this context, it is important to examine if there is a difference in the scope of the powers under both these sections. 

    This article analyses the bare provision and tries to establish that the Tribunal has powers that are at parity with a civil court and are to be governed by the Civil Procedure Code, 1908 (‘CPC’). Further, the effect of the conversion of Section 9 applications to Section 17 applications is dealt with by the author to make a case for the power of the Tribunal to grant interim measures affecting the third parties. Lastly, the article highlights the applicability of the group of companies doctrine and the necessity to grant such a power to the Tribunal. 

    Nature & Scope of Section 17

    A reading of Section 17 suggests that the Tribunal has powers to grant interim measures like interim injunctions, appointment of receivers, appointment of guardians, etc. The powers of the Tribunal are wide and the same can be gauged from Section 17(1)(ii)(e) which empowers the Tribunal to grant any other measures, apart from the ones enumerated in the provision, that it deems just and convenient. Despite the wide ambit of powers, the primary argument against the applicability of Section 17 with respect to third parties is that it is a creation of an express contract between two parties and the tribunal hence cannot pass orders affecting the rights of the third parties. However, this argument cannot be seen in isolation. 

    It is important to note that there is a reference under this section about the powers of the tribunal being akin to that of a court while granting interim measures. It is significant to highlight that such a mention was specifically made by the Arbitration and Conciliation (Amendment) Act, 2015, highlighting the unambiguous intention of the legislature. Moreover, Section 17(2) states that an order under this section is deemed to be a court order and would be enforceable under CPC. In Pearl Hospitality & Events Pvt. Ltd. v. OYO Hotels and Homes Pvt. Ltd., the Delhi High Court held that the principles governing Order XXXVIII Rule 5 would be applicable, while considering a prayer for furnishing security, under Section 9 or Section 17.  In another case, Navtrip Implementation Society v. IVRCL Ltd., the Delhi High Court observed that the object of Section 17 of the Act is similar to that of Order XXXVIII, Rule 5 of the CPC, and therefore its conditions have to be kept in mind while passing orders under Section 17. This shows that the principles of CPC govern the powers of the Tribunal despite there being resistance regarding the same. Hence, it is absurd to assume that some principles of CPC which grants inherent powers to the courts to grant interim measures affecting the rights of third parties will not be applicable while some mentioned above would still continue to guide the proceedings under Section 17. It is important to clarify that a blind application of all the existing principles of CPC is not desirable. However, unsubstantiated exclusion of these specific principles raises concerns and leads to adverse repercussions for the parties as explained further in the article. 

    Furthermore, Section 28(1)(a) of the Act states that the tribunal shall be bound by the substantive law of India in case of domestic arbitrations. In a number of cases, the Indian courts have enumerated general principles of granting interim measures and the same would apply to the Tribunal by virtue of it being a part of the substantive law of India.

    Therefore, the nature of the power under Section 17 is guided by the principles of CPC and is placed at a similar stature to that of a court. 

    Practice of Converting Section 9 Applications into Section 17 Applications

    Secondly, it is important to highlight a practice of the courts while dealing with an application under Section 9. In a catena of cases, the courts have converted an application under Section 9 to an application under Section 17 once the tribunal has been constituted. If we have a look at the data of the years 2022 and 2023, a significant number of applications filed under Section 9 before were converted into an application under Section 17 by various High Courts. 

    Court YearTotal Number of Applications Filed u/s 9 of the ActNumber of Section 9 Applications converted to Section 17 Applications
    Delhi High Court202240076
    Delhi High Court2023 (till May)18923
    Mumbai High Court202221824
    Mumbai High Court2023 (till May)532

    A bare look at the data might suggest that the number of Section 9 applications converted to Section 17 applications is only a small proportion. However, one must consider that even if the number is not compelling enough, the data indicates a practice which is prevalent. And the repercussions of such a practice are borne by one of the parties who is ultimately rendered remedy less. This also points to the fact that this practice which is supposedly ‘pro-arbitration’ can infact disincentivise arbitration if the Tribunals are not given powers at parity with the courts.

    The prayer under that Section 9 application which is now being converted to a Section 17 application before the Tribunal remains the same. It is impractical to assume that the Tribunal would not have the authority to grant measures at parity with the Court in the same prayer which is now to be dealt with by the Tribunal on the direction of the Court itself. For example, a prayer may pertain to custody or sale of the goods which are subject matter of the arbitration agreement and could include situations where the goods are in the possession of a third party. In such a scenario, the conversion of the Section 9 application to a Section 17 application would cause prejudice to the parties. 

    Moreover, if we were to assume that the powers of the court and the Tribunal are uneven, this conversion would disincentivize the constitution of the Tribunal. The parties would prefer applications under Section 9 or under the allied provision of CPC to an application under Section 17, where the Tribunal’s power is limited. This would create a lacuna and would defeat the purpose of the Act, i.e., to facilitate arbitration.

    Group of Companies Doctrine: Its Effect on Section 17

    Although the final verdict on the applicability of the group of companies doctrine by the Apex Court in Cox and Kings Ltd. v SAP India Pvt. Ltd. is awaited which would give more clarity, it is nonetheless important to analyze the position with regard to the Tribunal’s power under Section 17 affecting the rights of non-signatories. 

    The Supreme Court in cases, such as Chloro Controls (I) Private Limited v. Severn Trent Water Purification Incorporated, Ameet Lalchand Shah v. Rishabh Enterprises, and Mahanagar Telephone Nigam Limited v. Canara Bank, has acknowledged the multi-layered and complex nature of transactions in today’s times and has allowed that in certain exceptional situations, even non-signatories to an arbitration agreement could be referred to a composite arbitration proceeding and could be bound by the award. 

    There is still an absence of consensus with regard Tribunal’s powers under Section 17. This absence of consensus has resulted in courts giving conflicting judgments on the same issue. For example, in Prabhat Steel Traders Pvt. Ltd. v. Excel Metal Processors Pvt. Ltd., the Bombay High Court recognized that the interim orders passed by the Tribunal under Section 17 may affect non-signatory third parties in a direct or indirect manner. However, the same court in Bombay Slum Redevelopment Corporation Limited v. Samir Narain Bhojwani held that a Tribunal passing interim orders against a third party would be overstepping its jurisdiction under Section 17. 

    While ascertaining the Tribunal’s power in this context, the legislative intent must also be considered. Before the 2015 Amendment, Section 8 used the word ‘party’ which was replaced by ‘a party to the arbitration agreement or any person claiming through or under him’. This broadens the definition of party to make space for non-signatories. Hence, the complex nature of today’s transactions must be seen a reason enough for the Tribunal to exercise powers under Section 17 to grant measures that might affect the rights of the third parties.

    Conclusion

    Therefore, it is evident that there is a need to expand the powers of the Tribunal under Section 17 so as to grant interim measures that may affect the rights of the third parties. In order to incentivize arbitration, the Tribunal must be given such power to ensure that the measures granted can be practically executed which is only possible when the Tribunal has the liberty to include third parties. Even if there is no concrete provision establishing this power of the tribunal, the same should be seen in the context of the above arguments and the need of the hour. The courts must formulate guiding principles in this regard and the same must be allowed, even if it is only limited to exceptional circumstances.