A Consent Foreign Award Is Enforceable Under The New York Convention: Delhi High Court

The High Court of Delhi has held that a consent foreign award is enforceable under the New York Convention/Part II of the A&C Act, 1996.

The bench of Justice Yashwant Varma held rejected the argument that consent arbitration award do not fall within the rubric of New York Convention. The Court rejected the argument that an award to be recognized under the Convention must be one based on adjudication as arbitration presupposes adjudication by the tribunal and any award incorporating the settlement agreement entered into by the parties during the pendency of the proceedings would not amount to an award.

The Court held that a party raising the plea of economic duress must show that it had taken the plea at the first available opportunity and a party having failed to take such objection at the first possible opportunity cannot benefit from it later. Moreover, the Court held that where it is shown that consent was arrived at upon due consideration and on receipt of legal advice, an allegation of economic duress would not sustain.

Facts

The petitioner and the respondent no. 2 entered into an Equipment Purchase Agreement. Clause 26 of the agreement was the arbitration clause and provided for the resolution of dispute under the aegis of ICC. The respondent no.1 acted as a guarantor for the second respondent and executed a Parent Company Guarantee in favour of the petitioner.

A dispute arose between the parties when the respondent failed to pay for the goods that were supplied by the petitioner in pursuance of the agreement. Accordingly, the petitioner invoked the arbitration clause and in terms of the agreement a request for arbitration was made to ICC International Court of Arbitration.

Before the arbitral tribunal, the petitioner filed its statement of claim and the respondent filed its defence statement. However, during the pendency of the proceedings, the parties arrived at a settlement which was recorded in the Settlement Agreement. The terms of this agreement provides that the agreement would form the basis of the consent award to be passed by the tribunal.

On becoming aware of this development, the tribunal proceeded to forward a draft consent award to the parties for their review and comments. Both the parties provided their comments to the draft award, however, no objection was taken by the respondent to anything. Accordingly, the tribunal passed a consent award on the basis of the settlement agreement.

Objections

The respondent objected to the maintainability of the petition on the following grounds:

• The award is a consent award which is not recognised under the Convention.
• New York Convention does not contemplate awards rendered upon settlement, the enforcement action would not sustain.
• The erstwhile Federal Republic of Germany and Austria had both provided their comments to the UN Secretary General regarding the inclusion of an express provision to recognise consent awards, however, these comments did not translate into reality under the Convention, therefore, it is clear that by not incorporating provision relating to consent award, the convention does not recognise consent awards.
• An arbitration presupposes adjudication by the tribunal on the merits of the dispute and an arbitrator is not supposed to act as a mere rubber stamp by delivering an award on the settlement arrived between the parties.
• The award or the settlement agreement was an outcome of the economic duress as the settlement terms were hurriedly pushed through by the petitioner during the period when the pandemic had gripped the entire world and had adversely impacted the respondents from seeking appropriate legal opinion.

The petitioner made the following submissions in favour of the petition:

• The Convention does not define the term ‘award’ therefore, no inference can be drawn that it does not include a consent award.
• The concept of consent award is universally accepted and the Courts across the globe have rejected the argument that New York Convention does not include a consent award.
• Merely because no express provision regarding recognition of consent award under the convention was made even after the comments by the Republic of Germany and Austria, it cannot lead one to conclude that awards on settlement would not be enforceable thereunder
• The Supreme Court in its judgment in Harendra H. Mehta v. Mukesh H. Mehta, (1999) 5 SCC 108 explicitly recognised the consent award under the Foreign Awards (Regulation and Enforcement) Act, 1961.
• Two United States District Courts have expressly recognised consent awards under the New York Convention in the judgments in Albtelecom SH.A v. UNIFI Communs., Inc (2017 U.S. Dist. LEXIS 82154) and Transocean Offshore Gulf of Guinea VII Ltd. v. Erin Energy Corp (2018 U.S. Dist. LEXIS 39494).
• The allegation of economic duress is a complete afterthought as the respondents were duly represented in the arbitral proceedings. Further, Clause 11 of the settlement agreement records that appropriate legal opinion was taken by the parties. Moreover, the tribunal had taken the comments from the respondent before passing the award and no objection was raised by it.

Analysis by the Court

The Court observed that the term ‘award’ has not been defined under the Convention. It observed that that a consent award is neither specifically excluded from its ambit nor does Article V declare that an award that may be drawn on the basis of a settlement between parties would not fall under the Convention.

The Court further observed that the fact that suggestions made by the Republic of Germany and Austria did not translate into specific provision, the same is wholly insignificant. It held that there is no provision under the convention that proscribes arbitral proceedings from being brought to a close once parties arrive at a settlement. All settlements and agreements that may come into being could thus be adopted by an Arbitral Tribunal for rendering an effective quietus to the disputes that existed. The adoption of the terms of the settlement in the Award is a measure aimed primarily at ensuring that it binds parties, makes it enforceable in law and thus transcend beyond and above a mere private agreement between the parties.

The Court relied on the judgment of the US District Courts to hold that there exists no justification to construe the provisions of the Convention as being inapplicable to consent awards.

The Court further observed that Section 30(4) of the 1996 Act explicitly recognises a consent award. Further, Article 30 of the UNCITRAL Model Law, Section 33 of ICC Arbitration Rules, Section 51 of the UK Arbitration Act, Article 26.9 of LCIA Rules, Rule 32.10 of SIAC Arbitration Rules, etc, explicitly recognizes consent awards and allows the liberty to parties to enter into settlements during the arbitration proceedings.

Next, the Court dismissed the allegation of economic duress raised by the respondent. The Court observed that the of economic duress is a complete afterthought as the respondents were duly represented in the arbitral proceedings. Further, Clause 11 of the settlement agreement records that appropriate legal opinion was taken by the parties. Moreover, the tribunal had taken the comments from the respondent before passing the award and no objection was raised by it.

The Court held that a party raising the plea of economic duress must show that it had taken the plea at the first available opportunity and a party having failed to take such objection at the first possible opportunity cannot benefit from it later. Moreover, the Court held that where it is shown that consent was arrived at upon due consideration and on receipt of legal advice, an allegation of economic duress would not sustain.

Accordingly, the Court dismissed the objections to the petition and allowed the petition for the recognition and enforcement of the award.

Case Title: NUOVOPIGNONE INTERNATIONAL SRL v. CARGO MOTORS PRIVATE LIMITED & ANR

Citation: 2023 LiveLaw (Del) 491

Counsel for the Petitioner: Mr. Jayant Mehta, Sr. Adv. with Mr. Abhijnan Jha, Ms. Bhagya Yadav, Ms. Sadhvi Chhabra and Mr. Srikar, Advs.

Counsel for the Respondents: Mr.Varun K. Chopra, Mr. R.V. Prabhat, Ms. Mehul Sharma, Mr. Dipu Kumar Jha, Advs.

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