Gauging the Arbitrability of Competition Law Disputes

                                    

In the recent times, arbitration has become a preferred private and consensual mode of dispute resolution. Arbitral tribunals and courts have been dealing with complex contracts and rapidly evolving the law relating to arbitrations. The prime issue faced by arbitral tribunals is whether the dispute referred to it is arbitrable in the first place. These questions commonly arise when allegations of fraud are made before a tribunal, or a reference is made to decide issues relating to competition law.

‘Arbitrability’-What is it, and why is it so important?

To understand the above questions, let us assume a situation, where an arbitral tribunal comes to a conclusion, that a dispute raised before it is not arbitrable or cannot be referred to arbitration. In such a situation, what is the option left to the parties, where does the aggrieved party go?

The amended Section 34 (as amended by amending Act of 2015), now provides for few additional grounds to challenge the award, the word ‘patent illegality’ in included now as clause (2A) to Section 34 of the Act. Though it has not specifically been defined specifically in the act, the Hon’ble Apex Court in a catena of judgments defined it. In the case of Ssangyong Vs NHAI[1], Hon’ble Apex Court defined ‘patent illegality’ as under:

“Illegality which goes to the root of the matter, but excluding erroneous application of law by an arbitral tribunal or re-appreciation of evidence by an appellate court. However, this ground may be invoked if (a) no reasons are given for an award, (b) the view taken by an arbitrator is an impossible view while construing a contract, (c) an arbitrator decides questions beyond a contract or his terms of reference, and (d) if a perverse finding is arrived at based on no evidence, or overlooking vital evidence, or based on documents taken as evidence without notice of the parties [paras 26 – 30].”

Thus it is clear, that ‘patent illegality’ as defined by the Apex Court in this case, has four facets:

Ø     When no proper reasons are given for the award.

Ø     The view taken by Arbitrator is impossible

Ø     The Arbitrator decides questions beyond a contract or his terms of reference.

Ø     If perverse finding is arrived at, as vital evidence is ignored.

Going by the above analysis, arbitrability of a dispute, is nothing but, the capability of a dispute of being settled by arbitration which has to be gauged strictly as per what the parties contemplated in the contract.

What do the foreign courts say on the Arbitrability on Antitrust Disputes?

Traditionally, courts across jurisdictions have taken the view that competition law disputes are non-arbitrable. This was because arbitration being a private and consensual mode of dispute resolution, was considered to be an inappropriate forum for deciding competition law issues which related to the larger public interest of promoting competitive markets.

View of the US Supreme Court

In Mitsubishi Motor Corp. v. Soler Chrysler Plymouth[2], Respondent alleged that Mitsubishi had conspired to divide markets in restraint of trade and had coercively tried to replace Soler as a distributor. The U.S. Supreme Court noted that the arbitration clause between the parties was broad enough to provide for the arbitration of all disputes, controversies and differences between the parties in relation to the agreement. Given the nature of the clause, even antitrust claims would be covered within its scope.

View of the European Court of Justice

The European Court of Justice’s decision in Eco Swiss China Time Ltd. v. Benetton International N.V.[3] held that an arbitral tribunal could also arbitrate upon competition law issues. The Court again held that the scope of the agreement, was wide and from the language of contract, parties seem to have contemplated any kind of contract.

Major Concerns of Parties over referring the Competition/ Anti Trust Disputes To Arbitration

Ø  Anti-trust issues require expert legal and economic analysis, and thus concern is raised  whether the arbitration process with principles of expedition, minimal requirements of written rationale and simplicity can be invoked and the success of such procedure . However, the concern is vague as suggested by experts that in such times, Arbitration can be made adaptable and the parties can have access to expertise.

Ø   Treble damages in case Anti-trust violations of competition statute. Treble damages refer to financial compensation awarded to the parties who have faced business loss due to violations by other parties. Parties claim that such damages are too important in a business fabric and the arbitration process cannot be counted on to enforce competition policy with arbitrators, many times foreign and many times chosen from the business community. However, it is believed that impartiality and competence of the arbitrators and the ad hoc institutions can resolve such issues.

Competition Law Disputes and their Arbitrability- Intention of the Parliament and view of the Apex Court.

After the economic reforms of 1991 in the form of market liberalization, India enacted the Competition Act to usher in a competitive market and to prevent potential market distortions. In furtherance of this aim, the Competition Act prohibits anti-competitive behavior between the market players having an adverse impact on competition and it further prevent a dominant enterprise in the market from abusing its dominant position.

Interestingly, the Competition Act does not provide for an alternate method of dispute resolution and the CCI or COMPAT do not have statutory powers to direct parties to use such methods. They were two times, court was confronted with these issues, once in the case of Union of India Vs Competition Commission of India[4]. Brief facts of the case along with the findings of the court are as under:

Ø  Parties who had entered into a Concession Agreement with the Ministry of Railways for operating container trains, filed a complaint before the CCI alleging that the Railway Board was abusing its dominant position by imposing increased charges and restricting access to infrastructure. The Railways challenged the CCI’s jurisdiction to hear the dispute in view of the extant arbitration agreement between the parties. The Delhi High Court allowed the CCI to hear the matter notwithstanding a valid arbitration clause, on the ground that the scope and focus of CCI’s investigation is very different from the scope of an enquiry before an Arbitral Tribunal. It was observed that ‘the Arbitral Tribunal would neither have the mandate, nor the expertise, nor the wherewithal’ to prepare an investigation report which is necessary to decide the dispute in question.

The other time, when a similar factual matter went to the court was in the case of Man Roland Vs Multicolour Offset[5], where the court held that remedies available under the act, are in addition to the remedies available under the Contract Law. The courts would, therefore, continue to have jurisdiction despite the arbitration agreement between the contractual parties.

Since there is no authoritative judgment which considers these issues from a public policy perspective, arbitrability of competition law disputes still remains an open question in India.

Why is there a need for resolving Competition Law Matters using Arbitration?

In India, judicial hostility towards arbitration arguably stems from the concern that public interest would be injured if competition law disputes are allowed to be resolved by arbitration. On the brighter side, there is now an overwhelming international judicial consensus that these are ‘archaic misconceptions’ and with the proliferation of arbitration, the relevance on public policy is diminishing on the international front.

The extent of Arbitrability in Competition Law Disputes, would depend upon the nature of allegations that are made. If the allegations are such that they involve an inquiry into anti-competitive conduct, the CCI would be a more appropriate forum. But, if the allegations are such that they incidentally relate to the determination of other claims, the arbitral tribunal should be allowed to arbitrate.

Penalties for Violations Vs Compensation for Damages-The bone hangs here!

It is pertinent to mention here that remedies associated with the Competition Act relate to penalties for violations and not damages for compensation, which are contractual remedies sought by the parties during arbitrations.

Thus, if the objective of the claim before an arbitral tribunal is to seek contractual remedies, and the scope of the reference is limited to the contract, the tribunal should proceed with the matter even if incidental antitrust issues are involved.

As India is attempting to reclaim its position on the stage of international arbitration, allowing arbitration to resolve competition law disputes, albeit with some safeguards, would be a step in the right direction to align India’s arbitration regime with international standards. A predictable arbitration regime would prove immensely useful in reducing risks in trans-border commerce, thus making the Indian markets more accessible to commercial parties.

Aditya Jain is Advocate on Record at Supreme Court of India and Partner at J&G Advocates
Neha Gyamlani is an Advocate at Rajasthan High Court/Supreme Court and Partner at J&G Advocates

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[1]Civil Appeal No. 4779 of 2019

[2] Mitsubishi Motor Corp v. Soler Chrysler Plymouth, 473 U.S. 614 (1985).

[3] Case C – 126/97, Eco Swiss China Time Ltd. v. Benetton Int’l N.V., 1999 E.C.R. I – 3055.

[4] AIR 2012 Del 66

[5] (2004) 7 SCC 447