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Determination of Arbitration fee solely by one party to be Discontinued: Supreme Court

-Report by Harshita

The matter of determining the arbitration fee was discussed in detail in the case of ONGC v. Afcons Gunanusa JV.

In May 2009, Oil and Natural Gas Corporation Limited(ONGC) and Afcons Gunanusa entered into a contract for the construction of an ICP-R Platform. The Platform was completed in October 2012. Due to some disparities between the parties, Afcons invoked arbitration in the case in July 2015. In August of the same year, ONGC appointed Justice Gyan Sudha Mishra as their arbitrator with Afcons appointing Justice Mukul Mudgal. Both the arbitrators appointed Justice GN Ray as the guiding arbitrator. In a preliminary meeting of the tribunal in November 2015, the members agreed that the fee schedule for the arbitration fee suggested in the contract was impractical. ONGC was not agreeing to the revision in the schedule whilst the arbitrators and Afcons agreed. In a letter to ONGC by the council, it was suggested to revise the fee schedule according to the fourth schedule of the Arbitration and Conciliation act 1996. The fee given was Rs. 30 lakhs for cases above the jurisdiction of Rs. 20 crores which were Rs. 900 crores here. Again, the tribunal informed ONGC on the matter that they would no longer bargain for this amount if ONGC would agree to the amount in the fourth schedule and also provide a reading fee of Rs. 6 lakhs each. ONGC could not agree on providing a reading fee. In August 2016, The tribunal fixed a fee of Rs 1.5 lakhs for every arbitrator for sitting for three hours. Thus, after not agreeing to the set arbitration fee, ONGC filed a petition in the Bombay High Court u/s 14 and 15 of the Arbitration Act. They filed for a termination of the current tribunal and a substitution. In October 2021, the Bombay High Court bailed out of the case claiming that it doesn’t fall under their jurisdiction as the tribunal was on an international level. That is when ONGC filed for a new arbitration petition.

While ONGC argued, with a letter in August 2020, let the arbitration tribunal know that the executives of the institute did not approve of the change in fees. They stood by the same throughout the situation. The respondents contended that the tribunal wanted to fix the correct amount of fees and suggested following the fourth schedule of the Arbitration Act, also an exclusive reading fee for the sessions was requested.

COURT’S DECISION

A fee schedule was already prescribed in the LSTK contract, which was rejected by the tribunal in a preliminary meeting. And the tribunal by itself decided on the fee of Rs. 1.5 lakh for a 3-hour sitting at the end. It was observed

“In view of our directives in Section C.2.4, we exercise our powers under Article 142 of the Constitution of India and direct the constitution of a new arbitral tribunal in accordance with the arbitration agreement. For this purpose, Arbitration Petition (C) No. 5 of 2022 would be listed for directions before this Court on 21 September 2022. The above directions should not be construed as a finding on the conduct of the arbitration proceedings. These directions are an attempt to ensure that the arbitral proceedings are conducted without rancour which may derail the proceedings. In consonance with our findings, the fee payable to the earlier arbitral tribunal PART G 135 would be the fee payable in terms of the Fourth Schedule of the Arbitration Act. Though the Fourth Schedule is per se not applicable to an international commercial arbitration, since ONGC had indicated (following the suggestion of the arbitral tribunal) that it would be agreeable to pay the fee payable in terms of Schedule, it cannot now take recourse to the arbitration agreement between the parties to pay a lesser fee. We further clarify that if the fee in excess of the amount payable under the Fourth Schedule has been paid to the members of the arbitral tribunal, such amount will not be recovered from them.”

The court took a look at the comparison of India’s situation in this matter and the international views. India lacks jurisdiction on the matter of arbitration fees. Usually, when a tribunal is constituted, the fee is determined by the institution or discussed with and finalized by the presiding arbitrator. The parties are not a part of such discussions but in ad hoc arbitrations the parties can discuss such fees with the members of the tribunal on their own. The issues that arose in these cases have been concluded by giving the following decisions:

● Arbitrators cannot be the sole judges in the determination of the arbitration fees. They cannot issue any binding orders on this matter. Even though they have the power to apportion the cost between the parties u/s 31(8) and 31A of the Arbitration Act.
● It has been held that the arbitration fee should be fixed at the establishment for the avoidance of matters arising including conflicts between the parties and arbitrators.
● The terms of the fourth schedule refer to claim and counterclaim differently. Thus, arbitrators can charge fees in both situations in an ad hoc case and the ceiling will be applied to both the claim and counterclaim fee.
● The price ceiling given as Rs. 30 lakhs applies to the sum of Rs. 19,87,500 and the variable amount. The highest fee is to be Rs. 30 lakhs.
● The fee applies to each arbitrator on the bench and not the tribunal as a whole. Although, a sole arbitrator is to be paid 25 percent above this amount.

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