The Delhi High Court’s Decision in Nuovo Pignone Settles the Dust
Jurisprudence on the enforcement of consent awards under the Convention for Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”) is limited, both in the Indian context and internationally. Indeed, the question of whether consent awards are recognised under the Articles of the New York Convention has, surprisingly, not come up before courts of law all too often, with the decision of the United States District Court (New York) in Albtelcom currently ruling the field.
One of the reasons why the recognition of consent awards raises an interesting question before enforcing courts is the lack of any specific reference to such awards under the New York Convention. In fact, parties who seek to argue that consent awards are unenforceable often rely on the lack of a specific Article under the New York Convention recognising consent awards, in order to circumvent any payment obligations under such the same.
Recently, the High Court of Delhi (“Delhi HC”) was faced with a similar situation in the case Nuovo Pignone v Cargo Motors Pvt. Ltd. (“Nuovo Pignone”), one of the firsts in Indian jurisprudence. In its decision, the Delhi HC has held that consent awards have an implicit recognition under the Articles of the New York Convention, and are thus enforceable.
Through this piece, we seek to delve into the reasoning of the court in recognising consent awards under the Convention. Also, we question whether the Delhi HC’s pro-arbitration approach in enforcing the consent award in the present case might be the fillip for such reasoning to be adopted globally in respect of consent awards in the future.
The dispute between the parties arose from an Equipment Purchase Agreement, which contained an arbitration clause concerning any disputes arising out of the same. After the constitution of the arbitral tribunal by the ICC Court of Arbitration, and the completion of pleadings, both parties collectively informed the sole arbitrator that they had arrived at a mutual settlement of the dispute. A draft consent award was drawn and circulated to the parties for their inputs thereafter.
The Tribunal specifically noted that the Respondent – Cargo Motors Pvt Ltd – had raised no objections to the inclusion of the terms of the Settlement Agreement into the draft consent award circulated by the ICC. While the Respondents undertook a change in their legal representation, both parties approved the revised terms of reference in the arbitration without any demur.
Contentions raised by the parties
The Respondent challenged the enforcement of the consent award on two broad grounds. First, according to the Respondent, consent awards were unenforceable under the New York Convention since the Convention only recognised awards that arose out of “differences” between parties. The Respondent relied on the travaux preparatoires which led to the enactment of the New York Convention, to contend that despite suggestions made by acceding parties to the Convention, there was no specific inclusion of consent awards under the Convention.
Second, the Respondent contended that it was coerced to agree to the draft consent award. Using the doctrine of economic duress, the Respondent argued that the consent award was unenforceable, since it was entered into during the peak of the Covid-19 pandemic, and the Respondent was rushed into settling the dispute by the counterparty.
The Enforcing Petitioner objected to the grounds raised by the Respondent, contending that a specific exclusion of consent awards was visibly absent under the Articles of the New York Convention. Placing reliance on the Supreme Court’s decision in Harendra Mehta, the Enforcing Petitioner submitted that foreign consent awards had been recognised under the erstwhile Foreign Awards (Regulation and Enforcement) Act, 1961, and the Court should apply the principles established therein for the enforcement of such awards to the present case as well.
The Enforcing Petitioner also relied upon the decision of the US District Court in Albtelecom v. UNIFI Communication and Transocean v. Erin to show that even in the context of the New York Convention, the objection to the enforcement of consent awards – on the ground that such awards were not specifically recognised – had been rejected emphatically. Lastly, the Enforcing Petitioner made light of the ground on economic duress raised by the Respondent, claiming that the Respondent was adequately represented at all times during the arbitration. As per the Enforcing Petitioner, the Respondent was clearly using the ground of coercion as an afterthought, once payments under the consent award had become due against it.
The Court’s ruling
The Delhi HC divided its decision into two portions, with the former dealing with the applicability of the Convention to consent awards, and the latter covering the defense of economic duress.
At the very outset, the Delhi HC acknowledged that Article I of the Convention does not define “arbitral awards”. It provides an inclusive explanation, describing the phrase to comprise awards passed by arbitration institutions. The Court explained that the existence of a dispute between parties sets the arbitral process into motion; consequently, the same comes to an end once the parties reach an agreement or settlement. Also, the Delhi HC reasoned that, since such settlement is not prohibited under the Convention, the terms of settlement can be adopted by the Arbitral Tribunal in order to make it enforceable in law.
The reasoning of the Delhi HC is in consonance with the position under Indian law with respect to consent decrees. In Indian law, a consent decree stands on the same pedestal as a decree drawn by the courts after the conclusion of an adversarial trial. A corollary to consent decrees can be found under section 30(4) of the Arbitration and Conciliation Act 1996 (“Arbitration Act”), which specifically recognises consent awards in domestic arbitral proceedings.
In Nuovo Pignone, theDelhi HC extended the same reasoning for providing recognition to foreign consent awards, falling under Part II of the Arbitration Act. The Court observed that no institutional rules or domestic/international statute place any restriction on two contesting parties terminating the arbitration proceedings on the basis of a mutual agreement. In furtherance of the same, the Court referred to specific provisions from laws and arbitration rules of major arbitral institutions – such as the SIAC, LCIA, the English Arbitration Act, and the UNCITRAL – all of which explicitly recognise the power of tribunals to record a potential settlement by parties in the arbitral award.
The findings of the Delhi HC in Nuovo Pignone follow the US District Court’s decisions in Albtelecom v. UNIFI Communication and Transocean v. Erin, which also support the applicability of the Convention to the enforcement of foreign consent awards. In both these rulings, the US District Court resoundingly concluded that if a consent award is held unenforceable under the Convention, it would dissuade parties from settling their disputes after the commencement of arbitration proceedings.
On the Respondent’s claim of economic duress and coercion, the Delhi HC observed that both parties were well represented by their counsel at all stages of the arbitration proceedings. In order to conclude that one of the parties had been coerced, there had to be evidence to show that the acceptance of the terms provided to the party was not voluntary. However, in the present case, no such evidence was to be found. In fact, the terms of the settlement were finalized only after each party had obtained independent legal advice on the draft award. Moreover, the Tribunal had also obtained the parties’ consent before adopting the terms of settlement in the award.
The Delhi HC’s decision in Nuovo Pignone is welcome. It provides much-needed impetus to the recognition and enforcement of foreign consent awards under Part II of the Arbitration Act in India. The decision is also a major development for arbitration globally, since it significantly contributes to the dearth of case laws on this question of law.
Pertinently, the decision follows a pro-arbitration approach, since it strengthens the two underlying goals of arbitration – party autonomy and finality. By reading consent awards into the broader definition of “arbitral awards” under the Convention, the Delhi HC signals enforcing courts to ultimately remember that arbitration is a dispute resolution process which furthers the intention of parties. As a result, when it is clear that both parties have voluntarily participated in the arbitration proceedings and have thereafter opted for a settlement, an enforcing court should not discredit the award merely because it was arrived at upon consent, and not contest.
The decision also buttresses the goal of finality by allowing parties to ensure that the arbitral tribunal can record any amicable settlement even after commencement of arbitration proceedings. The terms of settlement can be further included in the award to ensure that the same is enforceable in law, without facing procedural hiccups at the enforcement stage. Lastly, the recognition of consent awards in Nuovo Pignone shall provide the necessary incentive to the parties to opt for alternative settlement options pending the arbitration proceedings, if the same leads to a speedy resolution of the dispute.
ABOUT THE AUTHORS:
Sumit Chatterjee is a commercial dispute resolution lawyer at Arista Chambers, Bangalore. Sumit regularly appears before a wide variety of judicial and quasi-judicial fora, including the Karnataka High Court, trial courts, and arbitral tribunals. Sumit is a graduate of the National Law School of India University (NLSIU), with a keen interest in commercial arbitration and civil litigation.
Disha Surpuriya is a commercial dispute resolution lawyer at Arista Chambers, Bangalore. After graduating from ILS Law College, Pune, Disha pursued her Masters in Alternative Dispute Resolution from Jindal Global Law School. With a strong inclination towards ADR, she has been exploring the realms of domestic and international arbitration laws.