When arbitration turns unfair

The arbitral panel appointed under the ICC rules got off on the wrong foot by not laying the proper groundwork while ruling that it had the jurisdiction to try the case.

But this minor technical defect pales into insignificance when one examines the grounds on which the tribunal found that Antrix didn’t do all that it could have, in preventing the Cabinet Committee on Security (CCS) from resolving that the contract between Antrix and Devas be annulled.

This was an important consideration because Antrix would not then have been able to cite a ‘ force majeure ’ event to extricate itself from the financial consequence of its failure to perform its obligations under the contract.

It flows from the salutary principle that a person cannot claim the benefit of a force majeure event after having triggered it in the first place.

In the tribunal’s view, if Antrix had done what was within its powers to do, the CCS would not have decided on the annulment and there would have been no ‘force majeure’ event that resulted in the purpose for which the contract was entered into, being frustrated.

Just what did Antrix not do that had the effect of the CCS deciding in the manner that it did? It doesn’t directly answer that question but refers instead to what Antrix did do that had the effect of prompting the CCS to act in that manner.

More specifically, it referred to the actions of Radhakrishnan, who in his capacity as the chairman of Antrix, set off a chain of events which triggered the whole mischief ( force majeure ), in the tribunal’s view. It said, Radhakrishnan did the following:

Radhakrishnan obtained advice from the Ministry of Law and Justice about how to annul the agreement.

Permitted his department to inform the Space Commission that it was “inevitable” that the Devas Agreement be annulled.

Sat as Chair of the Space Commission when it resolved that the Department of Space (DoS) may instruct Antrix to annul the agreement.

Sought advice from the ASG concerning the annulment of the Devas agreement.

Sought approval from the CCS to annul the Devas agreement.

In the tribunal’s view, these are the steps that led directly led the CCS’ decision to annul the agreement. Had these steps not been taken, there would have not been an event that had all the ingredients of a ‘ force majeure ’ event. In other words, the arbitral panel lays the entire blame for the CCS’ decision at the doors of Radhakrishnan, chairman of Antrix.

In order for the “ Force Majeure Events” referred to in Article 11 (b) of the agreement to be invoked it must be first established that the event was beyond Antrix’s ‘reasonable’ control. In the panel’s view, it was perfectly ‘reasonable’ for Antrix to have not drawn the attention of the CCS to the existence of a situation where continued operation of the commercial contract that was clearly indefensible under generally accepted norms of administrative law.

In the panel’s view, Radhakrishnan was expected to act solely as the chairman of Antrix and do all that is necessary to protect its commercial interests even though he was additionally the Secretary, DoS and the chairman of the Space Commission with its own set of public duties and responsibilities.

In the process, it has totally failed to see that in a situation pregnant with conflicting interests, it is possible for an individual to act in larger public interest and if that went against the commercial interests of Devas that was just simply a case of collateral damage.

Moreover, the panel had completely ignored the larger political circumstances leading up to the eventual cancellation of the deal. The political authority of the day was embroiled in a huge controversy with allegations of corruption and administrative favouritism over the allotment of 2G spectrum.

The allotment of coal mine blocks too had run into rough weather. To top it all, the impropriety of allocation of S-Band radio spectrum by ISRO on two of its future satellites to one party without inviting any competitive bids was exposed by this newspaper and which prompted the Department of Telecommunication asking ISRO to clarify on the news.

To argue, therefore, as the panel has done, that the whole matter would have quietly died a natural death if only the ISRO and Space Commission had not written those letters to the government is naïve, to say the least, and one which shows poor understanding the political process at work in democratic societies.

Both from hindsight and from an intelligent assessment of events as they unfolded, it must be said that the contract was doomed to fail ever since it became public knowledge that ISRO had allotted scarce natural resources without any logical basis for arriving at the successful bidder.

This has become a settled principle of administrative law following the decisions of the Supreme Court both in the 2G spectrum and coal mine blocks allotment cases.

On compensation, the tribunal had relied heavily on the valuation made by Deutche Telecom when it picked up an investment stake in Devas. The tribunal used this as a starting point and then proceeded to assume that subsequent events had only contributed to enhance that initial value.

Two points can be made here. History is replete with instances of gross errors of judgments made by pioneer investors in startups. The fact that such investments are being made by players with exposures to business risks in specific sectors is no guarantee that such valuations are not born of irrational optimism if not outright exuberance.

One need only look at the experience of Telenor of Norway and DoComo of Japan with regard to their investments in India in a technologically mature sector as 2G voice telephony business, to realise the essential truth of this proposition.

To assume, therefore, that Dutch Telecom operator had a superior crystal ball to ascertain the true value is beyond the pale of judicial wisdom. To then go on to assume that the successful demonstration of technological capability or that the satellites were up and receiving and sending signals as a proof of enhanced financial viability while ignoring the huge competitive pressures or the additional financial burden on operating a mobile telephony business is a case of compounding the original error.

To cap it all, subjectively arriving at a number that such enhanced business value amounted to 50 per cent of the original Deutche Telecom valuation, is a monumental folly.

The local judicial process may have its shortcomings. But if the present ruling proves anything at all it is this. The remedy of an ‘alternative dispute resolution’ mechanism as the ICC and similar processes that exist now can potentially turn into a case of a cure that is worse than the disease.

This is the concluding article in a two-part series. The first part was carried yesterday