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[This guest post is authored by Rahul Kumar, Advocate, Sarvada Legal; Aditya Singh, 3rd year student at Dr. Ram Manohar Lohiya National Law University, Lucknow; and Devashish Jain, 3rd year student at Hidayatullah National Law University, Raipur. The authors can be reached at rahul@sarvada.co.in, adi823549@gmail.com<\/em>, and devashishjain.2020@hnlu.ac.in. This post has been co-edited by our guest editor Devansh Pandit, Symbiosis Law School, Noida]<\/em><\/p>\n ONGC v. Afcons: A Call for Revision of Arbitrators\u2019 Fees<\/strong><\/p>\n Arbitration is widely accepted as one of the most viable options for parties to resolve commercial disputes. All good things, however, come with their cons. A recent trend is that of arbitrators, particularly among retired judges of Indian Courts, are the high high fees charged by arbitrators. These fees can at times be a heavy burden on the parties. The Supreme Court discussed this issue in\u00a0Oil And Natural Gas Corporation v Afcons Gunanusa JV<\/em><\/strong><\/a>\u00a0(\u201cONGC<\/strong>\u201d) and passed directions for standardising arbitrators\u2019 fees in ad-hoc arbitration.<\/p>\n Background<\/strong><\/p>\n Afcons Gunanusa JV (\u201cAfcons<\/strong>\u201d) and ONGC had a joint venture agreement for the development of an offshore process platform (\u201cAgreement\u201d). When disputes arose, Afcons invoked arbitration against ONGC. This resulted in the formation of an arbitral tribunal consisting of three members. Afcons claimed an amount in excess of 600 crores plus interest, to which ONGC replied with a counterclaim in excess of 400 crores plus interest. <\/p>\n The Tribunal objected to the fees stipulated in the contract, which proposed that they be paid in accordance with the Schedule IV of the Arbitration and Conciliation Act, 1996 (\u201cArbitration Act\u201d), to which the parties agreed.\u00a0\u00a0Almost two years later, the tribunal increased the fees to INR 1.5 Lakhs per hearing, per arbitrator.\u00a0\u00a0Since ONGC objected, the tribunal, in 2019, subsequently decreased their fees to INR 1 Lakh. However, it is imperative to note that the tribunal imposed this fee retrospectively, forcing the parties to pay for all hearings since 2018 at the rate imposed in 2019. While Afcons consented to the revised rates, ONGC did not follow suit.<\/p>\n ONGC then filed a Petition in the Bombay High Court to revoke the arbitral tribunal\u2019s authority under\u00a0Sections 14<\/a>\u00a0and\u00a015<\/a> of the Arbitration Act. The Bombay High Court directed ONGC to approach the Supreme Court since the underlying arbitration was an international commercial arbitration, the jurisdiction to decide the same shall lie with the Supreme Court.\u00a0<\/p>\n Court\u2019s Ruling<\/strong><\/p>\n The Court ruled unambiguously that arbitrators must obtain the parties\u2019 permission before setting their remuneration. In this case, the court exercised its authority under Article 142 of the Constitution of India by terminating the mandate of the original arbitral panel and mandating the creation of a new arbitral tribunal.\u00a0<\/p>\n In the event the arbitrators have a problem with the stated fees, they must recommend alternative fees, and only if both parties agree to the new fees will they be binding. If significant time has passed, the arbitrators and the parties may increase the fees and determine the increased magnitude based on the directions. In addition to the same, arbitrators cannot hike their rates at will. That said, in the absence of a prior agreement between the parties, however, the Tribunal may establish fees under the Fourth Schedule of the Arbitration Act, and the parties shall have no right to challenge such amounts.<\/p>\n The Doctrine of Prohibition of \u201cin rem suam<\/em>\u201d decisions<\/strong><\/p>\n The concept of \u201din rem suam\u201d<\/em>\u00a0means that an agent cannot act with irrevocable authority. The Supreme Court, in the instant case, while relying on\u00a0K. Bockstiegel, Stefan Kr\u00f6ll and Patricia Nacimiento (eds), Arbitration in Germany: The Model Law in Practice (2nd edition, 2015), Chapter VI<\/em>,<\/a>\u00a0<\/em>(Paragraph 61 of the Judgement), observed that in Germany, in the absence of an agreement in ad hoc arbitrations, the German Civil Code (B\u00fcrgerliches Gesetzbuch) governs the fees charged depending on the type of contract between the parties. Without the parties\u2019 consent, arbitrators cannot act as judges in their actions and should not decide on their fees under the doctrine of prohibition of \u201din rem suam<\/em>\u201d decisions. This idea originated so arbitrators there couldn\u2019t decide on the amount in dispute because doing so would damage their compensation. Since the parties had agreed to have their disputes arbitrated, it would be unethical for the arbitrators to decide on the dispute.<\/p>\n Institutional Scenario<\/strong><\/p>\n The fees that must be paid to the arbitrator(s) are typically established by the arbitral institution itself when an arbitration is held under its auspices. However, several arbitral institutions, including the International Centre for Dispute Resolution (ICDR), Singapore International Arbitration Centre (SIAC), and Hong Kong International Arbitration Centre (HKIAC), uphold the idea of party autonomy by giving some wiggle room for negotiation between the parties and arbitrator(s) over the determination of arbitrators\u2019 fees. For instance,<\/p>\n Fascinatingly, an exception can be found under the\u00a0UNCITRAL Rules of 2013<\/a>\u00a0where the arbitrator(s), under Article 41\u00a0\u00a0have more freedom to determine their own fees, something that seems against the principle of party autonomy and is consistently missing from the rules of major institutions. Separately, under 41(4) of these rules, the specified appointing authority or the PCA Secretary-General is empowered to alter the arbitrator\u2019s proposed compensation (s). Therefore, no international body (including arbitral institutions) grants the arbitrator(s) the unilateral authority to set their own fees. Even UNCITRAL, where arbitrators have some power to determine their compensation, has a mechanism in place to keep these demands reasonable and in check.\u00a0<\/p>\n International Scenario<\/strong><\/p>\n In ONGC, while discussing international practices, the Supreme Court considered the national scenario across various jurisdictions such as England, Italy, Sweden, and Germany. Some of the basic principles which emerge are as follows:<\/p>\n So, it can be concluded that no jurisdiction grants unilateral or absolute power to the arbitrator(s) to determine their fees, it\u2019s always either decided by the parties which are in dispute, or it is settled through negotiation or is determined by courts.\u00a0<\/p>\n Indian Scenario<\/strong><\/p>\n Law Commission Report<\/strong><\/p>\n In its\u00a0246th Report,\u00a0\u00a0The Law Commission of India<\/strong><\/a>\u00a0lamented on the excessive quantum of fees demanded by arbitrators. According to the Report, these charges are \u201carbitrary, unilateral, and disproportionate<\/em>.\u201d\u00a0\u00a0Law Commission noted that institutional arbitrations and International Commercial Arbitration involving foreign parties may be subjected to differing norms. <\/p>\n Recommending greater deference to party autonomy, while strictly restricting its recommendations for ad-hoc proceedings, the Law Commission\u00a0\u00a0made the recommendation to introduce a model schedule of fees for arbitrators, following which the Fourth Schedule, laid out a standardised model for arbitrators\u2019 fees in the\u00a02015 amendment<\/a>.<\/p>\n Judicial Interpretations<\/strong><\/p>\n Prior to the 2015 amendment, in\u00a0Union of India v Singh Builders<\/em><\/strong><\/a>\u00a0Syndicate<\/u><\/em><\/strong>, the Supreme Court took note of how if an arbitrator is appointed by the court with no mention of the fees, at least one, if not both the parties are put at a disadvantage. The absence of a ceiling led to fees rising exorbitantly and led to an apprehension that parties not agreeing to pay the fees would be discriminated against by the arbitrators. The Hon\u2019ble Court further highlighted how there is an urgent need to provide a solution to such problems, touting institutional arbitration as one, with the other being that the Court at the time of appointment also mentions the fees chargeable by the arbitrator in consensus with the parties to the matter and the arbitrator as well, if the need be. Another possible solution was that the retired judges who had turned arbitrators would indicate their fee structure to the registry of their respective High Courts, so that there would be no point of confusion and there would be complete transparency in the fees charged. The court even went on to say that allowing for certain levels of self-regulation would also bring about remarkable transparency.<\/p>\n The Supreme Court laid out some suggestive measures which were then reiterated in\u00a0Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust<\/em><\/strong><\/a>\u00a0<\/em>:\u00a0<\/p>\n The 2015 amendment added a model schedule under Schedule IV for fees of the arbitrators and added that the high courts may use them as the basis to frame rules for determining fees for the arbitrators appointed by it under\u00a0Section 11<\/a>\u00a0of the Arbitration Act.<\/p>\n Post Amendment<\/strong><\/p>\n The Supreme Court, in its landmark judgment of\u00a0Gayatri Jhansi Roadways<\/em><\/strong><\/a>,<\/u><\/em><\/strong>\u00a0while also deciding the appeal arising out of Delhi High Court\u2019s judgement in\u00a0Gammon Engineers<\/em><\/strong><\/a>\u00a0<\/em><\/strong>\u00a0<\/strong>held that if there is already an agreement between the parties regarding the remuneration payable to the arbitrator(s), then the agreement would be honoured and there is no statutory requirement to refer the fees under the Fourth Schedule. It further noted that the revised language of\u00a0Section 31(8)<\/a>\u00a0read in conjunction with\u00a0Section 31A<\/a>, which states that the arbitral tribunal shall determine the expenses of an arbitration by Section 31A, only addresses costs generally and not the arbitrator\u2019s fees.\u00a0<\/p>\n In cases where the parties themselves appoint the arbitrators, such as in\u00a0Paschimanchal Vidyut Vitran Nigam Limited v. IL&FS Engineering & Construction Company Limited<\/em><\/strong><\/a>,<\/u><\/em><\/strong>\u00a0the Delhi High Court held that if the parties had a prior agreement about the fees of the arbitrator, then the court would have no role to fix the fees of the tribunal.<\/p>\n\n
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