Justified Under the 1985 Model Law? Should It Apply to Domestic Disputes?

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THE AUTHOR:
Aishwary Kumar Tiwari, Counsel & Tribunal Secretary

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Introduction

The Arbitration and Conciliation Act 1996 (“Arbitration Act”), applicable in India, is primarily based on UNCITRAL (United Nations Commission On International Trade Law) Model Law on International Commercial Arbitration (1985) (“Model Law 1985“). Until recently, Indian courts had not adopted the internationalist interpretative approach outlined in Article 2A from Model Law 1985, with 2006 amendments (“Model Law 2006″). This was likely because Article 2A is not a part of the Arbitration Act. However, the Supreme Court’s recent decision in Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) (“CORE“) marks a shift.

While CORE does not explicitly justify its advocacy of Article 2A principles, and critics might view this as judicial overreach, the internationalist interpretation, as discussed below, is not a radical shift but rather a codification of pre-existing principles. Thus, this article supports the view in CORE that Article 2A should apply when interpreting the provisions of the Arbitration Act. It also suggests that applying the internationalist interpretation—originally designed for international commercial arbitration—to India-seated domestic arbitrations is appropriate.

UNCITRAL’s Aim for Harmonisation and Functional Uniformity

UNCITRAL was established with the aim of  “progressive harmonization and modernization of the law of international trade.” It published model laws as a vehicle for the harmonisation of national laws, and in order to increase the likelihood of achieving a satisfactory degree of unification, and to provide certainty about the extent of unification, States are encouraged to make as few changes as possible when incorporating a model law into their legal systems.

Thus, harmonisation, as Fortese refers to it, is a process through which discrepancies in domestic laws are eliminated (or reduced) to achieve greater similarity across jurisdictions (Fortese F., Early Determination of Jurisdiction (March 21, 2024). Kluwer Law International (2024)). This greater similarity, despite textual differences arising from States amending model laws, is commonly known as Functional Uniformity. Hence, the uniformity referred to in model laws is Functional Uniformity.

Implementation of Harmonisation Through Model Laws

UNCITRAL has published approximately twelve model laws—one in 1985, the Model Law 1985, another in 1992, and the remaining ten between 1996 and 2022.

1985 to 1995 – Limited Reference to Harmonisation in Early UNCITRAL Model Laws

Among the model laws published before 1996, the model law on International Credit Transfers (1992) remains unchanged but was recommended “in view of the […] need for uniformity of the law applicable to international credit transfers”.

The Model Law 1985 has since been amended to include Article 2A. Notably, even before this amendment, the Model Law 1985—together with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention“) and the UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules (1976) (“UNCITRAL Arbitration Rules“), convinced the General Assembly of “significantly contribut[ing] to the establishment of a unified legal framework,” leading to its recommendation to States “in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice”.

Thus, while these two model laws did not have articles on how to interpret these model laws, the limited emphasis on harmonisation was evident.

1996 to 2022 – Stronger Emphasis on Harmonisation in UNCITRAL Texts

Among the ten model laws published between 1996 and 2022, nine contain articles on how to interpret these model laws, of which six contain articles that share either a high degree of textual similarity or absolute similarity to Article 2A. These six are:

1. Model Law on Electronic Commerce (1996)
2. Model Law on Electronic Signatures (2001)
3. Model Law on International Commercial Conciliation (2002) (renamed and amended in 2018 as the Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation)
4. Model Law on Secured Transactions (2016)
5. Model Law on Electronic Transferable Records (2017)
6. Model Law on the Use and Cross-Border Recognition of Identity Management and Trust Services (2022)

From the remaining four, the interpretation articles in three model laws focus solely on “international origin and the need to promote uniformity in its application and the observance of good faith.”Thesethree are:

1. UNCITRAL Model Law on Cross-Border Insolvency (1997),
2. UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments (2018) and
3. UNCITRAL Model Law on Enterprise Group Insolvency (2019)

Lastly, the UNCITRAL Model Law on Public Procurement (2011) did not have an article similar to Article 2A, but as mentioned in its guide to enactment, one purpose of enactment was “to support the harmonization.”  

The above analysis confirms that model laws have remained a vehicle for the harmonisation of national laws. However, since 1996, UNCITRAL has explicitly pursued harmonisation by adopting articles on interpretation similar to Article 2A, which is discussed below.

Harmonisation through Internationalist Interpretation: Article 2A and the Model Law 1985

Article 2A requires the reader to have regard to the following when interpreting the Model Law (“Internationalist Interpretation”):

1. The international ‘origin’ of the Model Law, i.e. to not impose local (domestic), common, or civil concepts and methods, but rather to refer to international (global) concepts and methods;
2. The need to promote uniformity (harmonisation) in its application, i.e. to consider and engage with decisions from other national courts to align arbitration practices across countries;
3. The observance of good faith, i.e. to avoid any inequitable procedural decision or allowing a party to take advantage of bad faith, and;
4. The general principles on which the Model Law is based, i.e. like the general principles indicated in the Guide to the Model Law on Mediation.

UNCITRAL’s Guidance on Article 2A’s Interpretation and the Expected Effect

The enactment guides for the six model laws mentioned above, which contain an article with either a high degree of textual similarity or absolute similarity to Article 2A, provide the below-quoted explanation—with minor variations—regarding the interpretation of model laws.

This explanation for the ‘courts and other national or local authorities’, is a pathway to the ‘expected effect’ by drawing attention to Models Law’s international origin and the need to ensure uniformity in interpretation across countries. It is the guidance legitimising the use of Internationalist Interpretation when interpreting national legislation based on UNCITRAL model laws.

“It is intended to provide guidance for interpretation of the Model Law by courts and other national or local authorities.  The expected effect of article […]  is to limit the extent to which a uniform text, once incorporated in local legislation, would be interpreted only by reference to the concepts of local law.”

“The purpose of paragraph (1) is to draw the attention of courts and other national authorities to the fact that the provisions of the Model Law (or the provisions of the instrument implementing the Model Law), while enacted as part of domestic legislation and therefore domestic in character, should be interpreted with reference to its international origin in order to ensure uniformity in the interpretation of the Model Law in various countries.”

“As to the general principles on which the Model Law is based, the following non-exhaustive list may be considered:…”

From the remaining three model laws, the enactment guides for the 2018 and 2019 Insolvency model laws include a similar explanation, except for the omission of the ‘general principles’ explanation, while the enactment guide of the 1997 Model Law on Cross-Border Insolvency recognises its interpretation article as being based on the Model Law on Electronic Commerce (1996), which has the above-quoted explanation.

Minor variations aside, UNCITRAL guidance on the interpretation of various model laws remains consistent. However, the question remains whether this guidance applies to Model Law 1985. It is addressed in the following section.

Harmonisation Under the Model Law 1985

The Singapore Court of Appeal in  PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others [2013] SGCA 57, 31 October 2013, aptly captures UNCITRAL’s harmonisation mandate and harmonisation as one of the aims of the Model Law 1985 in the following words:

“56. UNCITRAL’s general mandate was to promote the “progressive harmonization and unification of the law of international trade”: UN General Assembly Resolution 2205, 21 UN GAOR Supp (A/6594, 17 December 1966).  One of UNCITRAL’s aims through the Model Law was to reduce the divergences which might result from each State’s interpretation of its obligations under the New York Convention: Note of Secretariat on Further Work in Respect of International Commercial Arbitration (A/CN.9/169, 11 May 1979) at paras 69.  The mechanism of a model law was intended to create uniform rules to eliminate local peculiarities which stood in the way of international consistency: see John Honnold, “The United Nations Commission on International Trade Law: Mission and Methods” (1979) 27 Am J Comp L 201.”

In addition, as mentioned in the 2012 UNCITRAL Digest of Case Law, “UNCITRAL agreed that the inclusion of such a provision [Article 2A] would be useful and desirable because it would promote a more uniform understanding of the Model Law”. This signifies that UNCITRAL sought greater functional uniformity than what had been achieved, which is a natural consequence of Internationalist Interpretation, with the alternative being a domestic interpretation.  

Finally, commentators suggest, and the author concurs, that Article 2A does not create a new interpretative framework.  

Fortese suggests that “Article 2A codifies broad principles that existed implicitly in the original version of the Model Law. Bantekas suggests that “unless a state expressly rejects the principles and aids contained in Article 2A, these are presumed to apply in its application and interpretation of the Model Law”.

Hence, based on historical, judicial, and doctrinal sources, the position prior to the inclusion of Article 2A was arguably similar. Thus, domestic legislation based on Model Law 1985 should use the Internationalist Interpretation. With this in mind, we now turn to the Indian Supreme Court’s views on Article 2A.

The CORE Judgment: Embracing Internationalist Interpretation

In CORE, the Court advised applying the Internationalist Interpretation for the Arbitration Act by stating:

“19.  Article 2A of the Model Law enunciates the following principles to interpret the provisions of national arbitration laws: regard for the arbitration law’s international origin; (ii) the need to promote uniformity in its application; and (iii) observance of good faith.  It further provides that issues not expressly settled under the arbitration law are to be settled in conformity with the “general principles” on which the law is based.²³

20.  The principles of interpretation suggested by the Model Law require courts to assume a global perspective consistent with the prevailing practice in courts of other jurisdictions and arbitral tribunals.²⁴ The Model Law encourages resort to “general principles” to fill the gaps in the national arbitration laws.²⁵ The term “general principles” is intended to refer to principles widely accepted by legal systems.²⁶ The above principles of interpretation will also apply when interpreting the provisions of the Arbitration Act.”

(emphasis added)

How the CORE judgment implements Article 2A is outside the scope of this article. However, given that the position prior to the inclusion of Article 2A was arguably similar, applying the Internationalist Interpretation to the Arbitration Act is justified.

While the adoption of the Internationalist Interpretation by Indian courts remains to be seen, its implementation, particularly in India-seated domestic arbitrations, will be challenging. It will require reconciling established domestic practices with international concepts, otherwise, maintaining separate interpretative principles for India-seated international and domestic arbitrations would add complexity.

Applying Internationalist Interpretation to India-Seated Domestic Arbitrations

The Arbitration Act comprises three parts.  With a few exceptions:

• Part I (based on the Model Law 1985) applies to international and domestic arbitrations seated in India;
• Part II covers the enforcement of foreign awards under the New York Convention and the Geneva Convention on the Execution of Foreign Arbitral Awards ; and
• Part III governs conciliations.

For India-seated domestic arbitrations, courts may hesitate to use the Internationalist Interpretation when deciding Part I disputes because such an approach could conflict with settled domestic practice, and domestic parties might not expect to be governed by international concepts and methods.  However, the courts should not hesitate for the following reasons:

1. The Arbitration Act’s applicability, i.e. Part I and Part II,is determined by the seat of arbitration (Section 2(2) of the Arbitration Act), not by whether arbitration is domestic or international. Thus, there is no justification be have separate interpretation principles for domestic and international arbitrations seated in India.
2. The legislature intended to harmonise international and domestic arbitration laws.  The Arbitration Act was enacted to “…consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards…” (Statement of Objects and Reasons, 1996 and 2019).
3. As explained above, Article 2A does not create a new interpretative framework; rather, it codifies broad principles that existed implicitly in the original version of the Model Law.
4. Finally, the goal of harmonisation itself provides a compelling reason to adopt this approach.  Ensuring international and domestic disputes are resolved within a consistent framework will make arbitration more predictable and straightforward.

Conclusion

The adoption of the Internationalist Interpretation approach would be a welcome step. While Indian courts may need to deliberate further on how to implement this approach, its implementation is likely to:

1. Fulfil one of the primary objectives of enacting the Arbitration Act based on the Model Law;
2. Provide certainty to users of arbitration and guidance to adjudicators on issues related to the Arbitration Act;
3. Assist in the adoption of best international practices into domestic arbitrations, thereby strengthening domestic arbitration—an objective that is as important as, if not more important than, becoming a preferred seat or a global hub for international arbitration; and
4. Promote a judicial dialogue between Indian courts and their counterparts in other jurisdictions, resulting in the refinement of legal principles, more predictable and consistent outcomes, the development of a robust legal framework, and an enhanced reputation for India as an arbitration-friendly jurisdiction.

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ABOUT THE AUTHOR

Aishwary Kumar Tiwari is a lawyer and tribunal secretary based in Paris, qualified in India and England & Wales. He holds an LL.M. in Transnational Arbitration & Dispute Settlement from Sciences Po, Paris. He has over seven years of experience working on arbitration, dispute board proceedings, and commercial litigation involving complex energy, infrastructure, and engineering disputes. With an understanding of civil law principles and the functioning of EU law, he is well-equipped to handle cross-border matters. He is fluent in English and Hindi.

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*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.