Reviewing Arbitrability at the Interim Relief Stage

[Agnish Aditya is a 4^th Year B.B.A LL.B student at NLU Odisha]

In a judgment rendered last month, the Madras High Court considered the impact of non-arbitrability on granting an interim relief. In Lifestyle Equities Cv v. QDSeatoman Designs Pvt. Ltd (“Lifestyle”), the Court was called upon to decide the arbitrability of certain disputes pertaining to intellectual property rights in an application under section 9 of the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) seeking interim orders. QDSeatoman (“QDS”) submitted that the original section 9 application was not maintainable, as the issues between the parties are not arbitrable, as the issues pertained to intellectual property rights. The Court considered the arbitrability of such issues in order to ascertain the maintainability of the original application.

In this post, I discuss the Court’s approach towards this issue and attempt to contextualize it with certain discussions of the UNCITRAL Working Group II[1] on a similar topic. To that effect, the facts of the case and the Court’s finding on the issue are not germane to this post. I argue that even though the Madras High Court took a temperate approach towards deciding the issue, there are certain problems in considering arbitrability as a pre-requisite for the maintainability of a section 9 application. I contend that arbitrability should not be considered as a pre-requisite for the maintainability of a section 9 application.

Views from the Working Group on Assessment of Arbitrability at the Interim Measures Stage

The Working Group II considered the question of a court’s power to review arbitrability while enforcing an interim award passed by an arbitral tribunal. Although a court enforcing an interim award is different from a court granting it in terms of scope of review, it would be instructive to refer to the deliberations before the Working Group II. The Working Group II debated whether courts should be allowed to refuse an interim relief on the basis of non-arbitrability and contravention of public policy.

Strong arguments were made against this provision, as many felt that reviewing arbitrability is inappropriate at the procedural stage because—

1. It will not be possible for the courts to determine the subject matter of the dispute in order to decide arbitrability.

2. A more certain assessment of arbitrability would require a review of the nature of the claims and the relief sought, which is not always possible at the procedural stage. Further, it will only lead to unnecessary delays.

3. Another pertinent apprehension raised was that the decision of the court on the jurisdictional issue of arbitrability might bind the arbitral tribunal. This situation would be inconsistent with Article 16 of the UNCITRAL Model Law (competence-competence).

However, this view did not prevail as it was seemingly addressed by the insertion of article 17 I in the UNCITRAL Model Law through the 2006 Amendments. The apprehensions were defeated due to two reasons—

1. The Working Group II felt that it would be inconsistent, in cases where a subject matter is clearly non-arbitrable, to disallow non-arbitrability as a ground for refusal of enforcement.

2. By including clause (2) in article 17 I, the Model Law restricts any determination on arbitrability only to the enforcement of interim awards. This satisfies the problem of judicial overreach while enforcing interim measures.

The approach of the Working Group II can also be found in the judgment of the Madras High Court in Lifestyle.

The Approach Towards Ascertaining Arbitrability under Section 9: How Lifestyle Adopts the Working Group Approach

Authors have time and again pointed out that determining arbitrability at the pre-arbitral stage denudes the arbitral tribunal of its power to rule on its own jurisdiction. A restrained approach towards assessing arbitrability under section 8 of the Arbitration Act has been suggested to resolve this problem. But the legislation is silent regarding the court’s scope of review of the arbitration agreement while granting interim relief; and similar arguments have not been made in this context.

The Bombay High Court, in Jeweltouch (India) Pvt. Ltd. v. Naheed Hafeez Quraishi (2008), held that a court application has the power to review validity of an arbitration agreement, while granting interim relief under Section 9, following the judgment of the Supreme Court in SBP & Co v. Patel Engineering Ltd. (2005). Since the question of arbitrability and validity are confused in the Indian context[2], it also allows courts under section 9 of the Arbitration Act to review arbitrability as a precondition to their jurisdiction. This was the approach adopted by the Court in Lifestyle.

The Court found that the issue at hand was arbitrable and, thus, the section 9 application was maintainable. However, the Court noted that the view on arbitrability was a prima facie one; the arbitral tribunal has the power to rule differently under section 16 of the Arbitration Act. It is pertinent to note that the arbitrability of the dispute was treated as a pre-condition to the maintainability of the section 9 application.

In this case, the Court adopted two approaches endorsed by the Working Group II—

1. It reviewed arbitrability on a prima facie basis only. This would mean that only in such cases, where the dispute is clearly non-arbitrable, should the court consider refusing an interim relief.

2. It held that the decision on arbitrability under a section 9 application would have no effect on the tribunal’s jurisdiction and its competence to rule on it. Such a determination would be restricted in order to determine the maintainability of a section 9 application.

Is Arbitrability Required to Maintain a Section 9 Application?

The Court in Lifestyle has certainly taken a temperate approach, which would address any preliminary concerns regarding assessment of arbitrability at the interim relief stage. However, a much more important concern seems to be whether the assessment of arbitrability is necessary for maintainability of a section 9 application and granting an interim relief. By making arbitrability a necessary condition for maintaining a section 9 application, the approach in Lifestyle seems to agree with the above proposition.

Arbitrability must not be considered as a pre-condition for maintainability of a section 9 application for the following reasons. First, even if the standard of interim relief is treated at par with the rigors of the Code of Civil Procedure (“CPC”), it will be necessary for the party seeking interim relief to establish a prima facie case. Arbitrability of a dispute is a jurisdictional question that does not address the merits of the case and as such should not be considered for that purpose.

Secondly, if the court finds that a dispute is not arbitrable, it will not necessarily mean that the party seeking an interim relief does not have a strong case on merits. It might still require interim relief to preserve its right. This argument gets buttressed in the case of domestic arbitrations where, even if the dispute is not arbitrable, it might be adjudicated by a court or a tribunal in India. In such a case, it makes sense to grant interim relief when a prima facie case has been established irrespective of whether it is going to be arbitrated or not.

The second argument may be countered in scenarios where the dispute is clearly not arbitrable; in such cases it will be inconsistent to grant an interim relief under the Arbitration Act and recourse must be had to the CPC. Both these arguments are made after recognizing the fact that courts must refrain from assessing arbitral jurisdiction in the pre-arbitral stage as far as possible. In most cases assessment of jurisdictional questions may not result in a productive analysis of the prima facie merits of the dispute and should be avoided at the procedural stage.

Thus, a court should not press on the arbitrability requirement for maintainability of a section 9 application unless it finds that the subject-matter is clearly not arbitrable (for e.g., consumer disputes, labour disputes, etc.). Even in cases where the dispute may seemingly be non-arbitrable, the court may consider granting an interim relief if it is satisfied of the existence of a prima facie case. This interpretation is also consistent with the language of article 17 I, which is permissive in nature (the article uses the terms “may be refused”) and does not mandate the court to refuse enforcement when the dispute is non-arbitrable.

– Agnish Aditya

[1] See June 2003 Working Group Report, A/CN.9/524 paras 38-39.

[2] This is an argument I shall be making in a forthcoming article. On a related note, please read this article for a better understanding of the difference between arbitrability and validity.