- Himanshu Raghuvanshi, Umang Bhat Nair
Applying Issue Estoppel in Enforcement Proceedings in India: Preventing a Second Bite at the Cherry
[Himanshu and Umang are students at NALSAR University of Law, Hyderabad.]
Issue preclusion, also known as issue estoppel, precludes a party from raising an issue already decided in a prior litigation between the parties in a subsequent litigation between the same parties. Most common law jurisdictions recognize the principle of issue estoppel. The recent decision of the England and Wales High Court (EWHC) in Carpatsky Petroleum Corporation v. PJSC Ukrnafta (Carpatsky) solidifies the jurisprudence on the application of this principle in enforcement proceedings. This decision has bolstered confidence in the English enforcement regime for award creditors facing recalcitrant award debtors. In this context, the current authors highlight the relevant findings of the EWHC in Carpatsky and contrast the decision with the latest judgment of the Delhi High Court (Delhi HC) in this area of law, Cruz City 1 Mauritius Holdings v. Unitech Limited (Cruz City). We argue that India would be best served if Indian courts follow the approach laid down by the EWHC in Carpatsky.
The findings of EWHC in Carpatsky
The arbitral award in Carpatsky resulted from a Stockholm seated arbitration. The arbitral award was first challenged by the award debtor in the seat court. However, the seat court dismissed the award debtor’s arguments along with the application for setting aside the award. Subsequently, when the award creditor sought to enforce the award in Texas, the award debtor resisted the enforcement of the award on grounds similar to those raised in the setting aside proceedings but in vain. The enforcement proceedings in the EWHC were commenced after the conclusion of both these proceedings, and the award debtor again raised grounds similar to those raised in the prior proceedings. The EWHC held that the award debtor is estopped from raising these issues as they were already determined by the seat court in the setting aside proceedings and the US court in the enforcement proceedings.
While considering the arguments of both sides about the application on issue estoppel, the EWHC concluded the following ‘points’:
The requirements of issue estoppel are those identified in Good Challenger Navegante S.A. v. Metalexportimport S.A (Good Challenger): (a) The judgement must be given by a foreign court of competent jurisdiction; (b) the judgement must be final and conclusive on the merits; (c) there must be identity of parties; and (d) there must be identity of subject matter, which means that the issue decided by the foreign court must be the same as that arising in the English proceeding [at ¶104].
There is a public interest to be accorded to sustaining the finality of decisions of the seat courts on properly referred procedural issues arising from the arbitration [at ¶121].
Although a party is not required to challenge an award in the seat court, if it does it would be estopped from raising in the subsequent enforcement proceedings any issue that it could and should have raised in the earlier proceedings. The EWHC held that this would prevent an abuse of process, a principle laid down in Henderson v. Henderson (Henderson) [at ¶123-124].
Any refinements of a party’s arguments in the seat court guised as a new issue for the enforcement proceedings must be precluded by application of the Henderson principle [at ¶131].
Indian position on issue estoppel
India has a rich jurisprudence on the application of res judicata in various legal proceedings. In Hope Plantations v. Taluk Land Board, the Supreme Court of India (SC) clarified that issue estoppel is a subset of the broader notion of res judicata. Issue estoppel has often been applied by Indian courts at the enforcement stage when it comes to decisions of the arbitral tribunal. However, there are few decisions that discuss the applicability of these principles at the enforcement stage based on previous foreign judgements of the seat and other enforcement courts.
An early example is the Andhra Pradesh High Court’s decision in International Investor KSCS v. Sanghi Polyesters. The court rejected the award debtor’s objections under Section 48(1)(b) of the Arbitration and Conciliation Act (IACA) on the ground that a submission rejected by the seat court cannot be raised again in subsequent enforcement proceedings. The court based its decision on the application of the principles of res judicata.
While the aforementioned judgements are important decisions on the matter of principles of preclusion, the latest and leading case in the application of issue estoppel in enforcement proceedings is that of the Delhi HC in Cruz City. Prior to the Delhi HC enforcement proceedings, there was a setting-aside proceeding at the seat court. Cruz City inter alia contended that Unitech could not resist enforcement on the grounds of ‘inability to present its case’ because it had failed to raise this issue in the prior setting-aside proceedings. Therefore, its plea would be barred by res judicata. However, the Delhi HC, rejected Cruz’s contention. Since the cause for the present enforcement proceedings was materially different from the setting-aside proceedings, the court held that such a plea could be argued. The court further found that principles of res judicata and issue estoppel would not bind courts at the enforcement stage. Rather, it was held that such principles are merely a factor to consider when exercising court discretion to enforce an award notwithstanding a ground for refusal of enforcement under Section 48(1) being proved. It is surprising that the court reached this conclusion after recognizing the policy interest in precluding re-litigation of issues already dealt with by the seat court.
Mandatory application of the principle of preclusion
Section 48(1) of the IACA, which adopts Article V(1) of the New York Convention (NYC), lists the grounds under which enforcement of a foreign award ‘may’ be refused. The SC in Vijay Karia v. Prysmian Cavi interpreted the word ‘may’ to grant courts the discretion to enforce an award despite an objection under Section 48 being made out. Although the Delhi HC in Cruz City recognized issue estoppel, it merely viewed it as one of the factors courts could consider when exercising this discretion. Moreover, it declined to apply issue estoppel in a fact scenario similar to Carpatsky. It is this position of the Delhi HC that the authors disagree with. The authors argue that the Delhi HC should have taken an approach similar to the EWHC and considered issue estoppel to be mandatorily applicable in the enforcement proceedings because:
The SC, in numerous domestic cases in various contexts, has held that principles of preclusion such as issue estoppel are fundamental principles of law and part of India’s public policy. The Delhi HC in Union of India v. Videocon, while granting an anti-suit injunction against re-litigation of issues in the EWHC for issues already decided by the SC, found principles of preclusion to be an intrinsic part of the public policy of India. Indian courts must also find themselves furthering India’s public policy by precluding re-litigation of issues already addressed in the setting-aside proceedings.
Additionally, Article VII of the NYC allows courts to enforce awards, otherwise not enforceable under it, based on domestic laws. The EWHC reached its conclusion by extending the Henderson principle to enforcement proceedings. When we look at India’s domestic laws as well, the Henderson principle has been incorporated in Explanation IV to Section 11 of the Code of Civil Procedure 1908 and has been expressly recognised by the SC. While this provision is not directly applicable in arbitration proceedings, Indian courts can extend this principle to enforcement proceedings by following the Carpatsky approach.
Issue estoppel will prevent an 'abuse of process' by recalcitrant award debtors seeking to delay the enforcement of any award against them. Pints 3 and 4 show the EWHC’s approach to parties that pocket objections they could and should have raised at the setting aside proceedings and then attempt to derail future enforcement proceedings by raising those objections. Similarly, in Cruz City, Unitech should have been precluded from raising objections it could have easily raised at the setting-aside proceedings.
Section 48(1) of the IACA lists 'internationally uniform grounds' for refusal of enforcement. Such objections are not based on the domestic policies of India unlike the grounds under Section 48(2). It is logical that a foreign court will be as equipped as an Indian court to deal with such contentions. A strict application of issue estoppels by Indian courts on these objections will thus further the harmonisation of treatment of arbitral awards, furthering an aim of the NYC. This will bring certainty to award creditors and debtors alike. Moreover, the bar to re-litigation of claims and issues will reduce costs and wastage of time for both parties.
The basic tenet of principles of issue estoppel is that they must further justice, not injustice (Good Challenger at ¶54). Thus, the application of these principles is subject to the consideration of justice. This is clearly seen in Carpatsky where the EWHC refused to apply issue estoppel to an earlier decision of a Ukrainian court ruling on the jurisdiction of the tribunal because the action was brought after the commencement of the Stockholm seated arbitration and the seat court had reached an opposite conclusion to that of the Ukrainian court. Thus, Indian courts by application of principles of preclusion can further the dual aim of efficiency in arbitration while also ensuring that injustice is not caused to any party.
Due to the reasons highlighted, Indian courts should follow the approach laid out in Carpatsky and view issue estoppel more favourably. With guidance from the Carpatsky decision, India can ensure that respondents do not get a second bite at the cherry and delay enforcement by raising the same issues again in enforcement proceedings. Considering the potential benefits of applying issue estoppel, Indian courts must rectify the shortcomings of the Cruz City judgement.
 Gary Born, International Commercial Arbitration (2nd ed.), Kluwer Law International, p. 3734-3735 (2014).
 Hope Plantations Limited v. Taluk Land Board, Peermade and Another, (1999) 5 SCC 590 (at ¶26); M. Nagabhushana v. State of Karnataka and Others, (2011) 3 SCC 408 (at ¶13).
 Marike Paulsson, The 1958 New York Convention in Action, Kluwer Law International, p. 237 (2016).