Relationship between a client and foreign law firm 'commercial in nature' for the purpose of Sections 44, 45 Arbitration Act: Delhi HC
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Relationship between a client and foreign law firm 'commercial in nature' for the purpose of Sections 44, 45 Arbitration Act: Delhi HC

Aditi Singh

The Delhi High Court has held that for the purpose of Sections 44 and 45 of the Arbitration and Conciliation Act, 1996, the relationship between a client and foreign law firm was commercial in nature. (Spentex Industries vs Quinn Emanuel Urquhart & Sullivan LLP)

The order was passed by a Single Judge Bench of Justice Jayant Nath while dealing with an application filed under Order 7 Rule 11 of the Civil Procedure Code, 1908 read with Section 45 of the Arbitration and Conciliation Act, 1996.

Justice Jayant Nath
Justice Jayant Nath

The Defendant, Quinn Emanuel Urquhart & Sullivan LLP, was a law firm having its office in Washington DC, United States of America.

The Plaintiff, Spentex Industries, and its subsidiary, namely, Spentex Netherland BV (the subsidiary) had entered into investment transactions with the Republic of Uzbekistan. 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 and accordingly, the Defendant was approached for its legal services.

On May 20, 2013, the Defendant issued a detailed common Engagement Letter in respect of possible arbitration proceedings. This Letter was signed the next day at Delhi.

Meanwhile, arbitration with the Republic of Uzbekistan commenced in September 2019 and Defendant raised memos/invoices for the arbitration proceedings on the subsidiary.

After the fee remained unpaid even after the passing of the arbitral award, the Defendant raised a demand for an arbitration in August 2017 in terms of Article 16 of the Letter of Engagement.

Finally, in September 2017, a notice for commencement of Tripartite Arbitration was served. The Plaintiff, however, chose to abstain themselves from the arbitration proceedings and an award was passed against them.

Before the High Court, the Plaintiff contended that the Letter of Engagement and the arbitration agreement was null and void, inoperative and non-est in terms of Section 44, 45 of the Arbitration and Conciliation Act, 1996 as the relationship between the Plaintiff, a client and the Defendant- a law firm could not be considered as ‘commercial’ under the law in force in India.

Inter alia, it was also pleaded that the agreement was barred by Indian Law as it involved payment of contingency fees which was void in India.

Without prejudice to its rights, the Defendants, inter alia, submitted that the contract between the Plaintiff and the Defendant contained an arbitration agreement by virtue of a specific arbitration clause.

The Court was informed that the Plaintiff had failed to pay the Defendant’s fee which included fixed fees payable at specified milestones, costs and expenses incurred in relation to the Arbitration etc.

After hearing the parties, the Court stated that the scope of enquiry in a suit to declare an arbitration agreement as null and void, inoperative and incapable of being performed, was limited.

Usually courts have frowned upon suits filed containing vague, evasive and bald allegations to claim that the Arbitration Agreement is null and void etc.”, it said.

Relying on a series of judgements passed by the Supreme Court and the coordinate benches of the High Court, the Court said that 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.”, the Court recorded.

In the present case, the Court noted that the allegations of the arbitration agreement being null and void, inoperative or incapable of being performed was premised on the claim that the provisions of Sections 44 and 45 of the Arbitration Act did not apply to the agreement.

The Court thus proceeded to examine if the work of a lawyer was commercial in nature.

The Court analysed a plethora of judgements on the issue provided by the Plaintiff and the Defendant and observed that the term commercial had to be interpreted liberally consistent with its literal and grammatical sense.

Given that "commercial" was not defined in the Act, the Court said,

"Clearly transactions relating to services for valuable consideration would be a commercial legal relationship and would be covered by Section 44 of the Arbitration and Conciliation Act, 1996."

The Court also pointed out that in the present case, the Defendant was a foreign law firm and not an Indian law firm and was thus not governed by the statutory regime prevailing in India relating to advocates.

The Court thus recorded that the Plaintiff's reliance on judgements asserting that the profession of an advocate had to be distinguished from a commercial activity was of no application in the present case.

In view of the above, the Court concluded that since the proceedings were substantially for recovery of money, the same would tantamount to a "commercial relationship" as per section 45 of the Arbitration Act.

“Essentially, 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.. Hence, the plea of the learned counsel for the plaintiff that section 44 and 45 of the act are not attracted is a plea without merits.”
Delhi High Court

As far as the issue of contingency fee was concerned, the Court observed that the agreement was governed by the laws prevailing in USA where contingency fees was not barred.

The Court stated that it was for the Plaintiff to have participated in the arbitration proceedings and raised any defences which they thought appropriate.

Since the award had already been passed, the Court observed that the Plaintiff was free to take appropriate steps as per law against the award.

The suit was dismissed for being without any cause of action.

Plaintiff was represented by Advocates Ramesh Singh, Arun Arora, Kaumudi Joshi.

Defendant was represented by Shardul Amarchand Mangaldas & Co Partner and Head of Disputes Practice Tejas Karia, along with Rishab Gupta, Amee Rana and Anirveda Sharma.

Read the Order:

Spentex Industries vs Quinn Emanuel Urquhart & Sullivan LLP.pdf
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