Author: Vaishnavi Navghare.
(2009) 2 SCC 55
NAMES OF PARTIES
Applicant: Visa International Ltd.
Respondent: Continental Resources (USA) Ltd.
Justice B. Sudershan Reddy.
The arbitration clause is most important before entering into arbitration. Ambiguity and mistakes in framing the clause can lead to certain difficulty as well as dispute between the parties. Also when the Multi-tiered dispute resolution clause is involved then Pre-arbitration clause need to be fulfilled, Multi-tiered clauses are for the amicable dispute settlement between the parties. In this case of Visa International Ltd. V. Continental Resources (USA) Ltd.
The court gave the emphasis and clear explanation on how the court recognize the arbitration agreement between the parties. This article is a case study on the same case and discuses the each issue in the case in detail with critical analysis.
The applicant in the case Visa International Ltd. was carrying the business of providing services in international trading of metals, minerals and ship chartering.
On the other hand the respondent in the case Continental resources (USA) Ltd. wanted to engage in the business of mining and wanted to setup an integrated aluminium complex in Orissa with aluminium refinery catered by bauxite from the Gandhamardan mines in Orissa.
In order to make substantial investment for whole project the respondent entered into the memorandum of understanding with the ‘Orissa Mining corporation’ for mining of bauxite from the Gandhamardan mines in Orissa.
The Orissa mining corporation agreed to make joint venture agreement for the substantial investment for setting up of aluminium complex but with certain terms and conditions. Conditions put forth were that the Continental resources Ltd has to set up the aluminium complex in the nearby vicinity of Gandhamardan mines and also have to make use of the bauxite from the same mine as raw material for the establishing the aluminium complex.
Continental resources Ltd approached the applicant Visa International Ltd for setting up the integrated aluminium complex with him and entered into a joint venture agreement with it for the same, where the applicant has to set up the special purpose vehicle for the project. The applicant accepted the proposal of respondent.
The respondent and applicant decided to execute the memorandum of understanding for the same and to define their rights and obligation for the agreement. On the 14th of February 2005 the MOU was executed by the parties it was also followed by the agreement. Where it was decided that the respondent and applicant will set up a a company ‘VISA Aluminium Ltd’ for the fulfilling the main purpose of setting up the integrated aluminium complex.
The agreement was executed on 15th of February 2005 were it was stated that the applicant is in joint venture with Orissa mining corporation for setting integrated aluminium complex and for that project the respondent is having the joint venture with Visa International Ltd to set up a company ‘VISA Aluminium Ltd’.
The terms of the agreement were stated as the 25% of the issued and paid up equity share of company will be with the Continental resources and the rest 75% will be with the applicant Visa International Ltd. The day to day control of the company was given to applicant and it also paid the sum of $25,250,000 to respondent for future overseas cost in relation to agreement.
As per the clause IV of the the agreement will come into the effect only when the both the parties will sign the agreement and as per applicant clause VI of the agreement contains the arbitration clause and the whole dispute is in connection with this clause.
In 2006 the respondent wrote a application to the applicant stating that agreement in which they entered in 2005 is “not appropriate and is obsolete” as it does not include the changes in Orissa mining corporation agreement. And the respondent proposed the applicant for formulating new agreement where applicant stated that earlier agreement is valid and this pave the way for the unending dispute between them.
The respondent gave the application to the applicant stating that the MOU and the agreement in which they entered in 2005 “stand discharged and the CLR stands discharged”. By the application to the respondent in 2007 the applicant stated that the unilateral terminal of agreement was not acceptable to the applicant.
The applicant then invoke the arbitration clause in the agreement and informed the respondent that the dispute to be resolved by the arbitration by appointing the arbitrator. The respondent through the application then rejected the suggested names of arbitrator and the proposal stating that first, Arbitration is expensive and second, Arbitration is premature.
The respondent never disputed over the existence of arbitration clause nor whether dispute should be resolved by the arbitration or conciliation. As per him the agreement cannot be enforced and it is contingent and invalid. Application was filed by applicant under section 9 and 11(5) of the Arbitration and Conciliation Act 1996. as per respondent there is no pint to refer the case to arbitration as applicant failed to identify that the dispute cannot be settle amicably.1
The arbitration agreement clause in the case was-
“Any dispute arising out of this agreement and which cannot be settled amicably shall be finally settled in accordance with the Arbitration and Conciliation Act, 1996”.2
- Whether there is a valid arbitration agreement between parties?
- Whether there exist a live claim between the parties?
Court’s Findings on the Issues
Issue 1. Whether there was a valid arbitration agreement between the parties?
The arbitration agreement is defined in the Section 7 of the arbitration and conciliation act 1966. the section does not prescribe any particular form of the arbitration agreement. It only states that the “An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement”.3
In the case of Rukmani Bai Gupta v. Collector of Jabalpur4 the dispute was regarding the clause in the lease deed. In which the court held that the clause in the dispute does not include the words like “arbitration or a settlement of dispute by the arbitrator”. It was stated by the court that the arbitration agreement should not be in any particular form, if the parties agreed that the dispute arise between the parties is in respect to the subject matter of the contract then the dispute can be referred to the arbitration also the agreement can be referred as arbitration agreement. Emphasis was given on the subject matter of the dispute rather than the form of the arbitration agreement.
In the case of M. Dayanand Reddy v. A.P. Industrial Infrastructure Corp. Ltd. & Ors5 court stated that “An arbitration clause is not required to be stated in any particular form. If the intention of the parties to refer the dispute to arbitration can be clearly ascertained from the terms of the agreement, it is immaterial whether or not the expression ‘arbitration’ or ‘arbitrator’ or ‘arbitrators’ has been used in the agreement”. In order to the existence of the agreement the emphasis was given on the intention of the parties, surrounding circumstances etc.
In the case of Bihar State Mineral Development Corporation v. Encon Building6 it was stated that the section 7 of the The Arbitration and Conciliation Act, 1996 does not prescribe any particular form in which the agreement should be formulated the emphasis was given on the intention of parties to know the existence of agreement.
In the present case in respondent never disputed over the existence of the arbitration clause, only stand of the respondent was that the agreement between the parties is itself not valid then how can be the matter be referred to the arbitration.
From the side of respondent there appeared Shri K.K. Venugopal, relied on the judgement of Iron and Steel Company Ltd. v. Tiwari Roadlines7 and he stated that there is no arbitration agreement and agreement is itself contingent therefore it cannot be enforces. Also the he stated that the intention of the respondent if any dispute arose was to settle through conciliation as it ensures the amicable resolution and not to go with arbitration as there even if dispute will resolve or not the parties have to go with the binding decision and it ultimately ensures no amicable dispute resolution and violates the latter part of the agreement. Therefore the application under section 11 of the act should be rejected.
On the other hand from the applicant side there appeared Dr. Singhvi he contented that there exist the valid arbitration agreement between the parties and arbitrator can be appointed to resolve the dispute.
The court there relying on the facts and intention of the parties stated that there was a valid arbitration agreement between the parties.8
Issue 2. Whether parties want to resolve their dispute through arbitration or conciliation?
Nowhere the respondent intended or took plea to settle the dispute from conciliation. As per Shri Venugopal if we compare the agreement between the Orissa mining corporation and Continental Resources Ltd. with the current agreement between the Visa international Ltd and Continental Resources Ltd nowhere the parties intended to go for the arbitration if dispute arose. Also the earlier agreement is not relevant because it is not the contract between the current parties in dispute.
He also stated that “No party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances”9.
Issue 3. Was there any evidence suggesting that the parties intended to resolve their disputes through conciliation on failure to settle the disputes amicably among themselves?
Section 62 provides for the procedure to commence the conciliation proceedings which include the invitation by one party, then discussion on subject matter and acceptance of invitation from the other party. From the language of clause VI it never intended that the parties ever want to resort to conciliation.
It is intended from the language of the clause that they failed to settle the dispute amicably then the parties will resolve the dispute as per the Arbitration and Conciliation act 1966. parties never sent the invitation to each other in relation to conciliation. The phrases like ‘shall be finally settled ’ shows that parties were intending for the binding decision.10
Issue 4. Whether invoking the Article VI leads to the premature arbitration?
The parties were making continuous allegations on each other and entering into the agreement it was contented by respondent that many meetings and discussions took place between the parties and Continental Resources Ltd to ask the Visa international for the support to achieve the goal but it did not provide any funding schedule.
The letter exchanged between the parties are the evidence that parties tried to resolve the dispute amicably but the efforts were fruitless and therefore there was no other option rather than invoking the arbitration clause.11
Issue 5. Whether there exist any live issue between the parties?
Court here relied and reiterated its earlier decision in SBP and Co v. Patel Engineering Ltd.12and stated that power vested by the court through section 11 of the act are judicially in nature and not administrative. And therefore before appointing the arbitrator to resolve the dispute the court should satisfied with all the arbitration related questions like whether there is valid agreement between the parties and whether there is live issue existing between them to examine this court quoted the passage of Mustill and Boyd in their treatise on Arbitration law titled Law and Practice of Commercial Arbitration, 1982, gave the meaning of word dispute as;
“A dispute means that there may be a difference of opinion as to the future performance of a contract. For example, one party may be denying that any further performance is due, or it may be a common ground that the contract is subsisting, but the parties may be in a dispute about whether a particular act would constitute a valid performance, in this one party can be wrong and other is right so it is necessary to go for arbitration with sufficient speed to know the true position of parties”13
From this it can be constituted that the parties in the current case are in live issue and the claim is not barred by any limitation. It is only in relation that whether they can start the arbitration procedure or not.
Court held that there exist the valid arbitration agreement between the parties as court gave emphasis on intention of the parties gathered from correspondence exchanged between the parties and surrounding circumstances rather than on language of the agreement.
Relying on the facts of the case as well as the language of the agreement clause it was stated that parties does not to resolve the dispute through conciliation and invoking the clause VI of the act will not make the arbitration premature. There was live issue between the parties based on the nature of dispute between them.
Therefore court appointed Justice A.S Anand former chief justice of India as the sole Arbitrator to the dispute.
In this case there was certain ambiguity in the arbitration clause therefore the dispute arose between the parties. The question was whether there exist the arbitration agreement between the parties and how the court will recognized it?
Court here held that it is settled that the section 7 of the Arbitration and Conciliation Act, 1996 does not provide for the particular format for framing the arbitration agreement and to whether the there exist the the arbitration agreement between the parties the court here gave emphasis on the intention of the parties gathered from correspondence exchanged between the parties and surrounding circumstances rather than the words used in the agreement.
On the stand of continental that agreement containing the arbitration clause to be invalid court said that it cannot be invalidated as arbitration clause is considered in law to be a separate agreement and it will sustain even if the agreement become invalid and arbritral tribunal can determine the issue of validity.
The Court also contented that there was no recourse to conciliation from the parties as the requirements for the conciliation given in section 62 of the act were not fulfilled. The letters exchanged between the parties were considered as the proof that the attempts were made by the parties to settle the disputes amicably. But not much explanation was given by the court on whether really the amicable attempts were satisfied or not.
The court appointed the arbitrator to resolve the dispute. The lacuna the judgement was judge here judge here approved the poorly drafted arbitration clause, as it can give excuse to the other people for not framing the clause properly and judge did not paid much attention on the Pre-arbitration clause of amicable settlement of dispute.
Multi- Tiered Dispute Resolution
Multi-tiered dispute resolution clauses are also known as multi-step step or ADR first clauses. In which parties follow the series of stages with different dispute resolution method to reach the settlement.
These clauses are of two types Pre-arbitration and post- arbitration clauses. In Pre-arbitration clause parties try to resolve the dispute through different resolution method before commencing the arbitration proceeding. ADR methods generally referred in Pre-arbitration are negotiation, mediation and conciliation.14
This clauses are added to resolve the dispute amicably without any binding decision on parties.15 In this case also the dispute is related to the Pre-arbitration clause and clause here is to make attempts to settle the dispute amicably before resorting to arbitration.16
It can be concluded from this case that the intention of the parties and surrounding circumstances are important rather than the words used in the agreement for determining the arbitration agreement and also the language of the Section 7 is not clear on the terms to be use for framing the arbitration clause and due to this it can suffer the limitation. The difficulty can be face by the parties while framing the agreement.
- Visa International Ltd. V. Continental Resources (USA) Ltd. (2009) 2 SCC. Pp.56.
- The Arbitration and Conciliation Act, 1996.
- (1980) 4 SCC 556.
- (1993) (3) SCC 137.
- (2003) 7 SCC 418.
- (2007) 5 SCC 703.
- Visa International Ltd. V. Continental Resources (USA) Ltd. (2009) 2 SCC.Pp.61.
- Visa International Ltd. V. Continental Resources (USA) Ltd. (2009) 2 SCC.pp.64.
- Visa International Ltd. V. Continental Resources (USA) Ltd. (2009) 2 SCC.pp.66.
- (2005) SCC 8 618.
- Visa International Ltd. V. Continental Resources (USA) Ltd. (2009) 2 SCC.pp.68.
- Shived Sahai, “Multi-tiered dispute resolution clauses and their enforceable in India”, kluwerarbitration.com. Pp.3. (http://arbitrationblog.kluwerarbitration.com) visited on 23rd February 2022.
- Saurabh Bindal, Tiered dispute resolution clause- Indian Picture, SCC online. Com, February 13, 2016.
- Shived Sahai, “Multi-tiered dispute resolution clauses and their enforceable in India”, pp.3. (http://arbitrationblog.kluwerarbitration.com) visited on 23rd February 2022.