Tata Power-Kleros Row Spotlights Arbitrators Rules & Third-Party Funding

Bhubaneswar: The legal battle between Tata Power Company Limited and Kleros Capital Partners over a US$ 490.32-million arbitration award has opened a wider debate over apparent bias, arbitrator disclosure and the growing role of third-party funding in international commercial disputes, even as Tata Power explores its next legal option following a setback in Singapore.

The Singapore International Commercial Court on August 26 dismissed three applications by Tata Power challenging the award in favour of Kleros. The court rejected allegations that two members of the arbitral tribunal were apparently biased because of undisclosed connections with Omni Bridgeway, the third-party funder of Kleros's claim.

The case has drawn attention because the court's ruling effectively leaves important questions about an arbitrator's disclosure obligations to be considered only as part of an apparent-bias assessment. The court held that where the circumstances did not establish apparent bias, it was unnecessary to separately determine whether there had been a failure to disclose.

Tata Power had argued that Prof Lawrence Boo and Stuart Isaacs KC should have disclosed appointments in other arbitrations involving Omni Bridgeway-funded parties. It also raised concerns over Prof Boo's professional and personal association with Mark Hughes, a member of Omni Bridgeway's investment committee. The court, however, held that the appointments in the unrelated cases were not made by Omni Bridgeway or the parties or counsel involved in the Tata-Kleros arbitration and that this, without more, did not establish apparent bias.

The court also rejected Tata Power's argument that a third-party funder should be treated as the same “party” as the funded claimant for disclosure purposes. It said such treatment would effectively require the corporate veil to be pierced in every case involving third-party funding.

The immediate issue for Tata Power, as industry experts view it, is now the financial and legal fallout. The arbitral award requires payment of US$490.32 million, besides legal costs and interest.

Tata Power has indicated that it intends to appeal the Singapore court's ruling before the Singapore Court of Appeal, keeping the dispute alive.

“The case is of wider significance for companies using international arbitration. It raises a fundamental governance question: how far should arbitrators be required to disclose professional relationships with parties, lawyers and third-party funders, particularly when litigation financiers have economic interests in the outcome?” says Biswanth Pradhan, an expert on finance.

For Tata Power, which also operates Odisha's four electricity distribution companies, the outcome could therefore have implications beyond a long-running overseas commercial dispute, adds Pradhan.