be covered by the Bespoke Agreement itself, as these are costs of
litigation of respondent nos.1 to 4 herein. {Para 17}
18. The fact that the Bespoke Agreement states that it shall stand
terminated in case the claim is not successful, can also, prima facie,
not affect the right of the petitioner inasmuch as the said agreement
would continue till the passing of the Arbitral Award and the costs arepart of the Arbitral Award. Thereafter, the petitioner is only seeking to enforce the Arbitral Award in terms of the Bespoke Agreement.
IN THE HIGH COURT OF DELHI AT NEW DELHI
O.M.P.(I) (COMM.) 71/2023
SBS HOLDING INC Vs ANANT KUMAR CHOUDHARY & ORS.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
I.A. 4645/2023 (Exemption)
1. Allowed, subject to all just exceptions.
O.M.P.(I) (COMM.) 71/2023
2. Issue notice.
3. Notice is accepted by Mr.I.P.S. Oberoi, learned counsel on
behalf of the Official Liquidator appointed for respondent No. 4, and
Mr.Shashank Garg, learned counsel on behalf of respondent No. 5.
4. Notice be served on the remaining respondents through all
modes, returnable on 9th May, 2023.
5. Let reply(ies) be filed within a period of two weeks, as prayed
for. Rejoinder thereto, if any, be filed within a period of two weeks
thereafter.
6. It is the case of the petitioner that the petitioner has succeeded
in the arbitration proceedings held under the aegis of the Singapore
International Arbitration Centre, being SIAC Arbitration No. 105 of
2019, Anant Kumar Choudhary And Ors. vs. Global Enterprise
Logistics Pte Ltd and Anr., by way of an Arbitral Award dated
22.12.2022. The Arbitral Award, while rejecting the claims of the
respondent nos.1 to 4 herein, has also awarded costs of those
proceedings in favour of the petitioner herein, who was the respondent
no.2 in the said proceedings, as under:
“861. The Respondents have succeeded in all
the substantive issues. However, the
Respondents have failed in a number of
jurisdictional objections, namely on Issues 1,
2, 4 and 6. Furthermore, 1R’s case on the
change of ownership of 1R being a bona fide
arms-length transaction is not accepted, and
even though this ultimately had no bearing on
the substantive merits of the case, this aspect
of the case involved a lengthy crossexamination
of Mr Shigemoto. Taking into
account all these factors/circumstances,
including the Tribunal’s costs orders made in
interlocutory applications above, the Tribunal
orders in accordance with Rule 37 of the SIAC
Rules:
(a) The Claimants shall bear 80% of 2R’s
legal and other costs claimed, being SGD
1,212,838.98, USD 246,196.96, and JPY
1,102,612.
xxxxx
863. Having considered all the evidence and
submissions placed before it and for the
reasons set out above, the Tribunal hereby
FINALLY DECLARES and DETERMINES as
follows:
(d) The Claimants are jointly and severally
liable to 2R for, and shall pay to 2R the
amounts of SGD 1,212,838.98, USD
246,196.96, and JPY 1,102,612 within 21 days
of the date of receipt of this Award, after
which simple interest on this amount shall run
at the rate of 5.33% per annum until the costs
ordered are paid in full.”
7. The learned counsel for the petitioner submits that a group
company of the petitioner, namely, SBS Logistics Singapore Pte Ltd.,
had succeeded against the respondent no. 4 in another arbitration
proceedings by way of an Award dated 25.10.2017. In the course of
the enforcement of the said Award against the respondent no.4,
proceedings under the Insolvency and Bankruptcy Code, 2016 were
initiated and the respondent no.4 is now facing liquidation. In the
course of enforcement proceedings, the Court also found that amounts
had been withdrawn by the respondent nos.1 to 4 from the bank
accounts and all fixed assets had been encumbered so as to negate the
enforcement of the Arbitral Award. In this regard, he has also drawn
my attention to the order dated 27.11.2018 passed in Enforcement
Petition, being O.M.P.(EFA)(COMM.) 4/2018, SBS Logistics
Singapore Pte Ltd v. SBS Transpole Logistics Private Limited. He
submits that in case interim protection is not granted to the petitioner,
the petitioner shall suffer the same fate in the enforcement
proceedings of the present Arbitral Award.
8. The learned counsel for the petitioner submits that in the present
arbitration proceedings, the respondent nos.1 to 4 were being funded
by the respondent no.5 under the terms of the Bespoke Funding
Agreement dated 20.12.2018 (hereinafter referred to as the ‘Bespoke
Agreement’). The terms of the said agreement would show that the
funding of the entire litigation, including the costs of the Lawyers, the
Tribunal, the Experts, etc., were borne by the respondent no.5. The
learned counsel for the petitioner further submits that in terms of
Clause 3(f) read with Clause 5(d) of the Bespoke Agreement, the
respondent no. 5 had the exclusive and unsevered prior rights on any
damages that could have been awarded by the Arbitral Award in
favour of the respondent nos. 1 to 4 and against the petitioner. The
said damages, thereafter, would have been distributed amongst the
respondents in the manner prescribed in Clause 3(f) of the Bespoke
Agreement. He submits that, therefore, respondent no. 5 having
funded the arbitration proceedings is equally liable to make good the
costs that have been levied on the respondent nos.1 to 4 in the Arbitral
Award. In support, he places reliance on the following:-
i) Arkin v. Borchard Line Ltd and Others, (2005) EWCA
Civ 655; and
ii) Excalibur Ventures LLC v. Texas Keystone Inc and
Ors., Neutral Citation Number: (2016) EWCA Civ 1144
9. On the other hand, the learned counsel for the respondent no. 5,
who appears on an advance notice, draws reference to Section 46 of
the Arbitration and Conciliation Act, 1996 (hereinafter referred to as
the ‘Act’) to submit that the Foreign Award can be enforced only
against the “persons as between whom it was made”. Hence, it cannot
be enforced against third parties.
10. He further submits that the liability of the respondent no.5
under the Bespoke Agreement is confined only to the costs that are
incurred by the respondent nos.1 to 4 in the arbitration proceedings
and not thereafter. Further, placing reliance on Clause 7A(iv) of the
agreement, he submits that the Bespoke Agreement was to terminate
in case the claim filed by the respondent nos.1 to 4 in the arbitration
proceedings was not a success. The said eventuality having occurred,
the Bespoke Agreement stands terminated and the respondent no.5
cannot be made liable thereunder.
11. In rejoinder, however, the learned counsel for the petitioner,
placing reliance on judgment of the Supreme Court in Gemini Bay
Transcription Private Limited v. Integrated Sales Service Limited
and Another, (2022) 1 SCC 753, submits that the scope of Section 46
of the Act is even wider than Section 35 of the Act, and would include
all persons who claim under the parties to the agreement. In the
present case, as provided in the Bespoke Agreement, the respondent
no. 5 had a right through respondent nos. 1 to 4 in the arbitration
proceedings. They, therefore, are equally liable to make good the
liability that has been imposed under the Arbitral Award.
12. I have considered the submissions made by the learned counsels
for the parties.
13. It cannot be denied that the Arbitral Award, in terms of the
paragraphs that have been quoted hereinabove, have awarded costs of
the arbitration proceedings in favour of the petitioner and against the
respondent nos. 1 to 4. The petitioner, by making reference to the
earlier enforcement proceedings, has also established a prima facie
case in its favour to show that in case an ad interim injunction is not
granted in its favour, the Award may be rendered as a ‘paper decree’.
14. The petitioner by relying upon the Bespoke Agreement has also,
at least prima facie, been able to show that the respondent no.5 had a
vested interest in the outcome of the arbitral proceedings, having
funded the respondent nos.1 to 4 for a benefit of a return therefrom in form of the result of the arbitration proceedings.
15. In Arkin (Supra), in similar circumstances, it has been held as
under:-
“38. While we do not dispute the importance
of helping to ensure access to justice, we
consider that the judge was wrong not to give
appropriate weight to the rule that costs
should normally follow the event. R (on the
application of Factortame) Ltd v Secretary of
State for Transport, Environment and the
Regions (No 2) [2002] 4 All ER 97, [2003] QB
381, on which he strongly relied, was not a
case in which there was any need to take this
balancing factor into account. In our judgment
the existence of this rule, and the reasons
given to justify its existence, render it unjust
that a funder who purchases a stake in an
action for a commercial motive should be
protected from all liability for the costs of the
opposing party if the funded party fails in the
action. Somehow or other a just solution must
be devised whereby on the one hand a
successful opponent is not denied all his costs
while on the other hand commercial funders
who provide help to those seeking access to
justice which they could not otherwise afford
are not deterred by the fear of
disproportionate costs consequences if the
litigation they are supporting does not
succeed.
39. If a professional funder, who is
contemplating funding a discrete part of an
impecunious claimant's expenses, such as the
cost of expert evidence, is to be potentially
liable for the entirety of the defendant's costs
should the claim fail, no professional funder
will be likely to be prepared to provide the
necessary funding. The exposure will be too
great to render funding on a contingency basis
of recovery a viable commercial transaction.
Access to justice will be denied. We consider,
however, that there is a solution that is
practicable, just and that caters for some of
the policy considerations that we have
considered above.
40. The approach that we are about to
commend will not be appropriate in the case of
a funding agreement that falls foul of the
policy considerations that render an
agreement champertous. A funder who enters
into such an agreement will be likely to render
himself liable for the opposing party's costs
without limit should the claim fail. The present
case has not been shown to fall into that
category. Our approach is designed to cater
for the commercial funder who is financing
part of the costs of the litigation in a manner
which facilitates access to justice and which is
not otherwise objectionable. Such funding will
leave the claimant as the party primarily
interested in the result of the litigation and the
party in control of the conduct of the litigation.
41. We consider that a professional funder,
who finances part of a claimant's costs of
litigation, should be potentially liable for the
costs of the opposing party to the extent of the
funding provided. The effect of this will, of
course, be that, if the funding is provided on a
contingency basis of recovery, the funder will
require, as the price of the funding, a greater
share of the recovery should the claim
succeed. In the individual case, the net
recovery of a successful claimant will be
diminished. While this is unfortunate, it seems
to us that it is a cost that the impecunious
claimant can reasonably be expected to bear.
Overall justice will be better served than
leaving defendants in a position where they
have no right to recover any costs from a
professional funder whose intervention has
permitted the continuation of a claim which
has ultimately proved to be without merit.
42. If the course which we have proposed
becomes generally accepted, it is likely to have
the following consequences. Professional
funders are likely to cap the funds that they
provide in order to limit their exposure to a
reasonable amount. This should have a
salutary effect in keeping costs proportionate.
In the present case there was no such cap, and
it is at least possible that the costs that MPC
had agreed to fund grew to an extent where
they ceased to be proportionate. Professional
funders will also have to consider with even
greater care whether the prospects of the
litigation are sufficiently good to justify the
support that they are asked to give. This also
will be in the public interest.
43. In the present appeal we are concerned
only with a professional funder who has
contributed a part of a litigant's expenses
through a non-champertous agreement in the
expectation of reward if the litigant succeeds.
We can see no reason in principle, however,
why the solution we suggest should not also be
applicable where the funder has similarly
contributed the greater part, or all, of the
expenses of the action. We have not, however,
had to explore the ramifications of an
extension of the solution we propose beyond
the facts of the present case, where the funder
merely covered the costs incurred by the
claimant in instructing expert witnesses.
44. While we have confined our comments
to professional funders, it does not follow that
it will never be appropriate to order that those
who, for motives other than profit, have
contributed to the costs of unsuccessful
litigation, should contribute to the successful
party’s costs on a similar basis.”
16. In Excalibur Ventures LLC (Supra), it was reiterated that:-
“23. The argument for the funder boiled
down in essence to the proposition that it is
not appropriate to direct them to pay costs on
the indemnity basis if they have themselves
been guilty of no discreditable conduct or
conduct which can be criticised. Even on the
assumption that the funders were guilty of no
conduct which can properly be criticised, and
I accept that they did nothing discreditable in
the sense of being morally reprehensible or
even improper, this argument suffers from two
fatal defects, both of which were identified by
the judge. First, it overlooks that the conduct
of the parties is but one factor to be taken into
account in the overall evaluation. Second, it
looks at the question from only one point of
view, that of the funder. As the judge pointed
out at paragraph 125, it ignores the character
of the action which the funder has funded and
its effect on the Defendants.
24. The argument is yet further flawed in
that it assumes that the funder is responsible
only for his own conduct. This too is incorrect.
As the judge pointed out at paragraph 60,
where conduct comes into consideration in this
context, the successful party is afforded a more
generous basis for assessing which of his costs
should be paid by his opponent because of the
way in which the latter, or those in his camp,
have acted. Thus as the judge pointed out at
paragraph 118, a litigant may find himself
liable to pay indemnity costs on account of the
conduct of those whom he has chosen to
engage – e.g. lawyers, or experts, which
experts may themselves have been chosen by
the lawyers, or the conduct of those whom he
has chosen to enlist, e.g. witnesses, even
though he is not personally responsible for it.
The position of the funder is directly
analogous. The funder is seeking to derive
financial benefit from pursuit of the claim just
as much as is the funded claimant litigant, and
there can be no principled reason to draw a
distinction between them in this regard. I also
agree with Mr Waller that the analysis here is
not dependent upon rules of agency – expert
and factual witnesses are not agents of the
party on whose behalf they give evidence any
more than they are agents of the funder. The
principle is a broader principle of justice.
Deployment of lawyers, experts and other
witnesses is a necessary part of bringing the
claim to a successful conclusion for the benefit
of the litigant, and it is equally a necessary
part of bringing it to a successful conclusion
for the benefit of the funder. The funder
chooses which claims to back, whereas, as the
judge rightly observed at paragraph 125, a
defendant does not choose by whom to be
sued, or in what manner. The judge continued:
“If, then, the funder’s witnesses
turn out to be liars or the
litigation is conducted
unreasonably, so that the court
awards costs on an indemnity
scale, it is just and equitable that
the funder should pay on that
scale.”
I agree. I can see no principled basis upon
which the funder can dissociate himself from
the conduct of those whom he has enabled to
conduct the litigation and upon whom he relies
to make a return on his investment.”
17. Prima facie, I am in agreement with the above observations. A
party having funded the litigation for a gain in the result thereof,
cannot escape its liability in case the result is contrary to its
expectation. A balance would have to be struck between a need to
ensure the access to justice through this funding arrangement and the
cost that the defendant would bear in case such litigation fails and is
found to be completely meritless, as in the present case. The defendant
cannot be left high and dry and be made to bear its own cost for the
purposes of defending a litigation, which was found without any merit
and which may not have been initiated against such party but for the
funding by the third party. In fact, prima facie, the costs which have
been levied by the Arbitral Award would become the cost which will
be covered by the Bespoke Agreement itself, as these are costs of
litigation of respondent nos.1 to 4 herein.
18. The fact that the Bespoke Agreement states that it shall stand
terminated in case the claim is not successful, can also, prima facie,
not affect the right of the petitioner inasmuch as the said agreement
would continue till the passing of the Arbitral Award and the costs arepart of the Arbitral Award. Thereafter, the petitioner is only seeking to enforce the Arbitral Award in terms of the Bespoke Agreement.
19. The submission of the learned counsel for the respondent no.5
that in terms of Section 46 of the Act, the enforcement of a Foreign
Award can only be against the party to the Agreement, also prima
facie, does not impress me. The Supreme Court Gemini Bay
Transcription Private Limited (Supra), has observed as under:-
“73. Shri Salve argued relying upon three
judgments of this Court, namely, Indowind
Energy Ltd. v. Wescare (India) Ltd., (2010) 5
SCC 306, Chloro Controls (India) (P) Ltd. v.
Severn Trent Water Purification Inc., (2013) 1
SCC 641, Cheran Properties Ltd. v. Kasturi &
Sons Ltd., (2018) 16 SCC 413 that a
comparison between Sections 35 and 46 of the
Arbitration Act, 1996 would show that the
legislature circumscribed the power of the
enforcing court under Section 46 to persons
who are bound by a foreign award as opposed
to persons which would include “persons
claiming under them” and that, therefore, a
foreign award would be binding on parties
alone and not on others.
First and foremost, Section 46 does not speak
of “parties” at all, but of “persons” who may,
therefore, be non-signatories to the arbitration
agreement. Also, Section 35 of the Act speaks
of “persons” in the context of an arbitral
award being final and binding on the
“parties” and “persons claiming under them”,
respectively. Section 35 would, therefore, refer
to only persons claiming under parties and is,
therefore, more restrictive in its application
than Section 46 which speaks of “persons”
without any restriction….”
20. In view of the above, the petitioner has been able to make out a
good prima facie case in its favour. The balance of convenience is also
in favour of the petitioner and against the respondents. The petitioner
is likely to suffer grave irreparable injury in case an ad interim
injunction is not granted in favour of the petitioner and against the
respondents.
21. Accordingly, the respondent nos.1, 2, 3 and 5 are directed to
disclose on affidavit their fixed assets and bank accounts, along with
the credit balance in the same held by them in India or any other
jurisdiction as on date. Such affidavit be filed within a period of four
weeks. The respondent nos.1, 2, 3 and 5 are further restrained from
creating any third-party interest/right/title in respect of any
unencumbered immoveable assets for a sum as has been awarded in
favour of the petitioner by way of the Arbitral Award dated
22.12.2022, till further orders.
22. List on 9th May, 2023.
NAVIN CHAWLA, J
MARCH 7, 2023.
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