Synopsis
The term res judicata does not strictly apply to arbitration proceedings in the manner in which it applies to a suit.There is a difference of opinion as to whether constructive res judicata will also apply to arbitral proceedings.
The basic distinction between the doctrine of res judicata qua civil suits and the principles analogous thereto as they apply to arbitral proceedings is that the former is concerned with matters “directly and substantially in issue”, whereas the latter is concerned with “matters in dispute”.
This article is concerned with only arbitrations seated in India, whether they are international commercial arbitrations or not.
This Article does not apply to awards sought to be enforced under Part II of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”)
Example
Let us take an example to clearly appreciate the difference in the applicability of res judicata between arbitration and court proceedings-Suppose, two parties enter a contract that has an arbitration clause.
The first party (“A”) was to sell to the second party (“B”) certain goods at a determined price in three different shipments on three different dates.
A failed to deliver the goods, as promised, on each and every occasion.
Thus, the contract was breached on three different occasions.
Now, A has the right to institute a civil suit, or refer the matter to arbitration
In case of a civil suit-
- If B were to file a suit, he would have to pray for reliefs against all of the three breaches in the same pleadings. Otherwise, by virtue of constructive res judicata his ability to pray for the appropriate relief would be barred by virtue of Order 2 Rule 2 of the CPC.
- This is because the “matter in dispute” is the contract itself.
- Each of the three breaches gives rise to a dispute.
- There can be three different and separate arbitrations qua each of them.
- But there cannot be two concurrent arbitrations qua any given dispute.
- This is because Order 2 Rule 2 does not strictly apply to arbitration proceedings.
Res Judicata does not strictly apply
This was true during the 1940 Act (“Old Act”), since the Award holder under the Old Act had to initiate a fresh suit based on the award rendered. Thus, until the award was sued upon, the losing party in the Arbitration always had the option to use dilatory tactics and file a fresh civil suit or obtain a stay against the suit instituted against award.This position has substantially changed now. Under the 1996 Act, the award obtains finality after the time- period to challenge the award gets expired or when the challenge to the award is rejected. Once the time-period to challenge expires or a challenge to the award is rejected, the award can be executed as if it were a decree.
Thus, the benefit has shifted in the favour of the award holder who no longer has to initiate a fresh suit on the basis of the award.
This basic difference is necessary to appreciate the different opinions presented in the authoritative commentaries. Because while Bachawat says that constructive res judicata does not apply to arbitration proceedings, Jhunjhunwala and Saraf say quite the opposite. The only way to reconcile this divergence of views is, in my opinion, to appreciate the distinction between the Old Act and the and 1996 Act. This is because most of the authorities cited in both the books were based on the Old Act. However, while the authors of Bachawat have failed to appreciate the difference, the authors of Saraf and Jhunjhunwala have not. They have appreciated the first principles of the law applicable under the 1996 Act.
Res judicata as it applies to the law of Arbitration
The terminology, as correctly stated in Saraf and Jhunjhunwala is not res judicata, but rather “principles analogous thereto”. This is because the doctrine of res judicata has been enshrined in the Code of Civil Procedure, 1908 but not in the statutes governing the law of arbitration. However, the courts have evolved the principles analogous to res judicata to ensure that the objective of “putting a quietus to the res” is achieved in arbitration proceedings as well.These principles also help to achieve the objective of stopping the abuse of process of law, for example, through forum shopping.
res judicata in the Code of Civil Procedure
Section 11 of the CPC is reproduced hereunder, along with the relevant explanations appended thereto.“Res judicata—
No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.”
Thus, the doctrine of res judicata applies-
- Qua courts
- With regard to suits or issues
- With regard to matters directly and substantially in issue
- Thus, this does not apply where there was no decision on merits.
- Constructive res judicata
Res judicata qua arbitral proceedings- comparison with the CPC
The doctrine of res judicata may be applied mutatis mutandis by replacing “matters directly and substantially in issue” with “ dispute”.Position of the Law
Based on my research, the following seems to be the position of law-- The same dispute once referred and embodied in an award cannot be the
subject matter of a fresh reference and to that extent the rule of res
judicata applies to arbitration proceeding. There is no authority for the
proposition that disputes which could have been raised but were not raised
previously, could not be raised on the principle of constructive res
judicata. There is authority for the proposition that the principles of
Order II Rule 2 is not applicable to arbitration proceedings.1
D/d. 6.3.1964, Para 9 - The Kerala High Court has held,” Principles of res judicata and
constructive res judicata are applicable to arbitration proceedings well. As
the appellant could have raised all his contentions before the Arbitrator at
the first instance and he did not raise it at the appropriate time, he
cannot be heard to say that the present claim was not an issue in the
earlier arbitration proceedings and therefore he is not precluded from
raising it afresh. In K.V. George v. Secretary to Govt. Water and Power
Department Trivandrum and another, AIR 1990 SC 53 the Supreme Court held
that the principles of res judicata or that matter the principles of
constructive res judicata apply to arbitration proceedings and as such the
award made in the second arbitration proceedings cannot be sustained. Even
if the connection of the appellant that the present claim was not a matter
in issue in the earlier arbitration proceedings is assumed to be correct, it
would not be of any help to him as the claim is barred by constructive res
judicata.”.2
7.11.1994, Para 4 - If the dispute is expressly left out of the first reference, then there may
be another subsequent reference on that dispute.3 An Arbitration
Agreement may have carved out an exception to the subject matter of the
contract.
Doc Id # 393783
- For example, “Any disputes arising out of or touching upon the interpretation of this contract shall be finally decided by a sole arbitrator whose decision shall be binding. Notwithstanding the aforementioned, the parties shall be free to seek interim injunction and protection of their Intellectual Property Rights as governed under Article X.”
- Constructive res judicata as well as general principles of law apply to
Arbitration proceedings as well as awards (in the context of the 1940
Act).45 This is because arbitration is meant for speedy dispute
resolution and claims which could have been raised and which had not been
raised, in my opinion, should be considered to be barred even though the
provisions of Order II Rule 2 of the Code of Civil Procedure in terms do not
apply to arbitration proceedings in appropriate cases. The Calcutta HC has
held, that if a particular issue was included in the terms of reference, the
claimant would be estopped by the doctrine of res judicata from raising that
issue in the subsequent arbitration proceedings. The first consideration,
therefore, is to find out whether the claim now sought to be raised had been
raised or was part of the reference made before. A claim made in the
arbitration proceeding which, is meant for speedy and quick disposal of
disputes between the parties.6
# 160820
Law Finder Doc Id # 328248
Finder Doc Id # 160700 - If the award suffers from the arbitrator not applying his mind, then the
res judicata will not apply. For example, when he has clearly not
appreciated relevant documents on record.7 However, if the award is a
non-speaking award, then the court has no basis to decide whether the
learned arbitrator has applied his mind or not. Thus, non-speaking awards
are difficult to prove.
(Calcutta) : Law Finder Doc Id # 159073 - A decree on an award under the 1940 Act, had the same effect as an ordinary
judgement and operated as res judicata in the award.8
Law Finder Doc Id # 312548 - A cause of action on which an award has become final cannot be the subject
matter of a fresh arbitration. However, what is a cause of action depends on
the facts of the case.9
Finder Doc Id # 329268 - A decree on an award is binding. After a decree was passed under the 1940 Act, is becomes final and the award could not be challenged. This seems to be the position under the 1996 Act as well, when either the time to challenge has run out or the challenge has failed.
- Under the 1996 Act, an award is a decree and all recourse against the award would be a recourse against the award as well as the decree. However, under the 1996 act, an award obtains finality only once the period for challenge is over.
- There can be successive references under the same arbitration agreement
regarding different disputes between the same parties.10
Doc Id # 148507, followed in AIR 1985 Del 132 - However, there cannot be successive references on the basis of the same
disputes. The same would be barred by law.11
Doc Id # 159551 - “All claims which are the subject matter of a reference to arbitration merge
in the award which is pronounced in the proceedings before the Arbitrator
merge in the award which is pronounced in the proceedings before the
arbitrator. After an award has been pronounced, the rights and liabilities
of the parties in respect of the claims can be determined only on the basis
of the said award.”12
para 8 - Where the arbitrators acted without jurisdiction, the doctrine or principles of res judicata do not apply.13
- The Apex Court has noted, “The principles of constructive res judicata as
well as Order II, Rule 2 are applicable to arbitration proceedings.”
(However, that observation was made in the context of the 1940 Act).14
Trivandrum, (SC) : Law Finder Doc Id # 88929 ; AIR 1999 SC 2012 - The “differences” which arise at the time of the first reference, but mature into disputes later can be the subject matter of subsequent reference.[^15]
