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Matter of choice!

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Shourav Lahiri presents a case study that brings out the importance of selecting appropriate arbitrators

In January 2010, the Supreme Court issued its ruling in NBCC v JG Engineering. The case related to the termination of the mandate of an arbitrator who had exceeded the time agreed by the parties to issue an award. The decision raises some interesting considerations that parties to construction contracts should bear in mind when selecting arbitrators. The arbitration between JG Engineering and NBCC was an unfortunate saga.
JG Engineering secured the contract to construct the terminal building at Bhubaneshwar Airport in March 1993. The works were to be completed by October 1994, but the works were still in progress in March 1996. NBCC terminated the contract alleging default by JG Engineering. Soon thereafter, in May 1996, JG Engineering invoked the arbitration clause under which NBCC’s Chairman/MD was required to appoint an arbitrator. This was done by August 1996.
However, following this, NBCC closed its offices and this led to a series of replacement arbitrators, with three being appointed in the following eight years. JG Engineering also took its time to prosecute its claim – taking four years to file its reply to NBCC’s defence. In May of 2004, JG Engineering filed an application before the Calcutta High Court seeking removal of the then incumbent arbitrator. In August 2004, the High Court directed NBCC’s Chairman/MD to appoint a new arbitrator within four weeks from the date of communication of the Court’s order and for the appointed arbitrator to conclude the arbitration proceedings within a period of six months from the date of his appointment.

The arbitrator was duly appointed, and the parties agreed subsequently to extend the time for him to issue award from end February 2005 to end September 2005. But the arbitrator failed to issue his decision within this time. Three months after the deadline passed, JG Engineering applied to the court for a termination of this arbitrator’s mandate. The case travelled through the courts to the Supreme Court. In January 2010, the Supreme Court upheld the High Court’s decision in part, and terminated the arbitrator’s mandate. As a result, NBCC will have to appoint yet another arbitrator and the arbitration process must start again.
Fourteen years after arbitration was commenced, the parties are still without an award. It is not clear from the terms of the ruling why the fourth arbitrator found himself unable to issue an award within the stipulated time – or even to request the parties for an extension of the time period to issue the award (which is quite common if the arbitrator feels unable to complete writing his award in time). But this decision does bring into sharp focus the importance of parties selecting the right arbitrator: one who will give effect to the parties’ intention to achieve an effective and expedient resolution of their dispute.
Choosing an arbitrator need not be a lottery. In the NBCC case, the choice was to be made by NBCC alone without the participation of JG Engineering; but even in those circumstances, an appropriate choice by NBCC would have avoided it having to participate in abortive arbitration processes.

Shourav Lahiri is a Partner at Pinsent Masons LLP. Pinsent Masons LLP has been selected as the Global Construction Law Firm of the Year 2009 by Who’s Who Legal and as one of the Top 10 international firms doing India work by the India Business Law Journal in June 2009. Shourav can be contacted at shourav.lahiri@pinsentmasons.com
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