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Relationship between Client & Foreign Law Firm Is Commercial In Nature For The Purpose Of Sections 44 & 45 of Arbitration Act: Delhi HC

Case Name: Spentex Industries Ltd vs. Quinn Emanuel Urquhart & Sullivan LLP; 

CS (OS) 568/2017

Quorum: Hon’ble Mr. Justice Jayant Nath

The application was filed by the defendant under Order 7 Rule 11of the Civil Procedure Code, 1908 read with Section 45 of the Arbitration and Conciliation Act, 1996 for rejection of the plaint. 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.

Fact

The case of the plaintiff is that the defendant is a firm of overseas lawyers having its office in Washington DC, United States of America and that the plaintiff and its subsidiary, namely, Spentex Netherland B.V.(SNBV) 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. 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 on21.05.2013 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 fee issues of the defendant. Thereafter the defendant raised a demand for arbitration on 25.08.2017.

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. Further they stated 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.

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 and fees linked to the outcome of the ICSID Arbitration. 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 analyzed various judgments 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 High Court of Delhi held that the claim of the law firm is that the plaintiffs have defaulted in paying its professional charges and other aspects. The claim does not relate to professional issues.Lastly ,that the relationship between a client and the foreign law firm engaged by it was commercial in nature in terms of Section 45 and 46 of the Arbitration and Conciliation Act.

By Priyanka of SPPU