The Delhi High Court has held that the relationship between a client and the foreign law firm engaged by it was commercial in nature in terms of Sections 45 and 46 of the Arbitration and Conciliation Act.
While disposing of an application under Order 7 Rule 11 of Civil Procedure Code, the Single Bench of Justice Jayant Nath noted that the plaintiff have failed to show or plead that the arbitration agreement is null and void, inoperative or incapable of being performed.
Certain disputes arose between the plaintiff and its subsidiary on one hand and the Republic of Uzbekistan on the other. The plaintiff expected a possible submission of disputes for resolution through an international arbitration. Accordingly, the plaintiff approached the defendant for its legal services in connection with the aforesaid possible future arbitration proceedings.
The defendant issued a detailed common Engagement Letter dated 20.05.2013 in respect of possible arbitration proceedings. It is stated that the plaintiff and its subsidiary signed the Engagement Letter on 21.05.2013 at Delhi and returned a copy to the defendant. Hence, it is claimed that a concluded contract came into existence between the plaintiff and the defendant and its subsidiary at New Delhi on 21.05.2013. Some amendments in the Engagement Letter were executed on 28.05.2013.
It is stated that the arbitration between the subsidiary of the plaintiff and Republic of Uzbekistan commenced on 03.09.2013. Thereafter, certain communications are said to have taken place between the defendant and the subsidiary in respect of the fee issues of the defendant. Thereafter the defendant raised a demand for an arbitration on 25.08.2017 in terms of Article 16 of the Letter of Engagement dated 20.05.2013 under the aegis of JAMS. On 01.09.2017 JAMS gave a notice for commencement of Tripartite Arbitration.
Arguments Advanced by the Plaintiff
The plaintiff submitted that the arbitration agreement entered into between the plaintiff and the defendant is null and void, inoperative and non-est. Reliance is placed on Section 44 of the Arbitration and Conciliation Act, 1996.
It was further argued that the relationship between the plaintiff-client and the defendant-firm of lawyers cannot be considered as „commercial‟ under the law in force in India. Hence, it is pleaded that Letter of Engagement seeking to resolve any possible future disputes/differences between the plaintiff and its lawyer is null and void, inoperative and non-est.
Arguments Advanced by the Defendant
The defendant argued that the plaintiff failed to pay the defendant‟s fee which includes fixed fees payable at specified milestones, costs and
expenses incurred in relation to the ICSID Arbitration(International Centre for the Settlement of Investment Disputes), and fees linked to the outcome of the ICSID Arbitration.
that the Tribunal on 27.12.2016 issued the Award dismissing the plaintiff and the subsidiary‟s claim in the arbitration on the basis of its findings that the plaintiff and the subsidiary engaged in illegalities especially corruption in making investments in
Uzbekistan. In terms of the contract between the parties, the plaintiff and the subsidiary became liable to pay the defendant unpaid fees based on the hours that the firm had invested in the case times as per regularly billed hourly rates.
Observations of the Court
Before entering into the merits of the application, the bench of Justice Jayant Nath analysed various judgements of the Supreme Court to observe that the courts have to be extremely circumspect and reluctant in any manner to interfere in arbitration proceedings. The mandate is to refer parties to arbitration unless the arbitration agreement is on the face of it null and void, inoperative or incapable of being performed. The court is not to examine the legality or validity of the substantive agreement.
While holding that the plea of the plaintiff under section 45 of the Act has no merit, the court highlighted that:
'the defendant has initiated arbitration proceedings for his outstanding fees. The defendant being a law firm was advising and acting for the plaintiff subsidiary. It was to be paid for the services as agreed upon. It cannot be urged that such an agreement was completely bereft of elements
of commerce. The claim of the law firm is that the plaintiff have defaulted in paying its professional charges and other aspects. The claim does not relate to professional issues. As the proceedings are substantially for recovery of money, the same would tantamount to a commercial relationship as per section 45 of the Arbitration Act.'
Click here to download the Order