QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| ARSANOVIA LIMITED
BURLEY HOLDINGS LIMITED
|CRUZ CITY 1 MAURITIUS HOLDINGS
|IN THE MATTER OF ARBITRATIONS BETWEEN:
|LCIA CASE NO. 111791
|CRUZ CITY 1 MAURITIUS HOLDINGS
BURLEY HOLDINGS LIMITED
|LCIA CASE NO. 111792
|CRUZ CITY 1 MAURITIUS HOLDINGS
BURLEY HOLDINGS LIMITED
|LCIA CASE NO. 111809
|CRUZ CITY 1 MAURITIUS HOLDINGS
(instructed by Skadden Arps Slate Meagher & Flom LLP) for the Claimants
David Wolfson QC and Nehali Shah
(instructed by White & Case LLP) for the Defendants
Hearing dates: 21 and 22 November 2012
Crown Copyright ©
Mr Justice Andrew Smith:
i) An award in an arbitration between Cruz City 1 Mauritius Holdings ("Cruz City"), a Mauritian company, as claimants and Arsanovia Limited ("Arsanovia"), a Cypriot company, and Burley Holdings Limited ("Burley"), a Mauritian company, as respondents ("Arbitration 1" and "Award 1").
ii) An award in an arbitration between Cruz City as claimants and Burley and Unitech Limited, (Unitech"), an Indian company, as respondents ("Arbitration 2" and "Award 2").
iii) An award in an arbitration between Arsanovia and Burley as claimants and Cruz City as respondents, in which Cruz City made a counterclaim against Arsanovia ("Arbitration 3" and "Award 3").
On these applications under section 67 of the Arbitration Act, 1996 Arsanovia, Burley and Unitech challenge Awards 1 and 2 on the grounds that the Tribunals did not have substantive jurisdiction. The Tribunals have determined that they had substantive jurisdiction, but their decisions do not bind me in any way and I must consider the matter de novo: Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan,  UKSC 46, paras 26 and 96. The claim form also made applications under section 68 but they were not pursued.
"LCIA Arbitration. Any dispute arising out of or in connection with the provisions of this Agreement, including any question regarding its validity, existence or termination, shall be referred to and finally settled by arbitration under the London Court of International Arbitration Rules ("Rules"), which rules are deemed to be incorporated by reference into this Clause. The number of arbitrators shall be three. The seat or legal place of the arbitration shall be London, England. The language to be used in the arbitral proceedings shall be English. ... Notwithstanding the above, the Parties hereto specifically agree that they will not seek any interim relief in India under the Rules or under the Arbitration and Conciliation Act, 1996 (the "Indian Arbitration Act"), including Section 9 thereof. The provisions of Part 1 of the Indian Arbitration Act are expressly excluded. For the avoidance of doubt, the procedure in this Clause 21 shall be the exclusive procedure for the resolution of all disputes referred to herein."
"Governing Law. This agreement shall be governed by, and construed in accordance with laws of India, without regard to the conflict of law rules thereof that would require the application of the laws of another jurisdiction."
Clause 18 of the Keepwell Agreement provided that:
"Governing Law. This Keepwell Agreement shall be governed by, and construed and interpreted in accordance with, the laws of India without regard to conflicts of laws principles thereof. "
i) The law applicable to the arbitration agreement in the SHA is Indian law and therefore Indian law determines whether Burley is a party to it.
ii) Under Indian law, Burley did not agree to be bound by the arbitration agreement in the SHA; and even if the arbitration agreement is governed by English law it did not do so.
iii) Under Indian law, where an arbitration is brought against two respondents only one of whom is party to the arbitration agreement, the arbitration cannot be maintained against either; and so, because the Tribunal did not have jurisdiction over Burley, it did not have jurisdiction to decide the claims against Arsanovia either.
Mr Hirst submitted that Award 2 is also invalid because the Tribunal did not have substantive jurisdiction on these grounds:
iv) The law governing the arbitration agreement in the Keepwell Agreement is Indian law and therefore Indian law determines its scope.
v) Under Indian law and on the proper construction of the Keepwell Agreement the claims against Unitech and Burley could be brought only after Burley's liability under the SHA had been adjudicated (if not admitted); and they were therefore premature and beyond the Tribunal's jurisdiction.
vi) In any case, under Indian law the question whether Burley was liable under the SHA in the arbitration leading to Award 2 was not within the scope of the arbitration agreement in the Keepwell Agreement, and, since Award 1 was invalid, therefore Burley had not been validly found to be liable under the SHA and so the Tribunal in Arbitration 2 had no jurisdiction to make an award against Burley or Unitech under the Keepwell Agreement.
All these propositions were disputed by Mr David Wolfson QC, who represented Cruz City.
The law applicable to the arbitration agreement in the SHA
"Given the desirability of certainty in the field of commercial contracts and the number of authorities on the point, it is, at least at first sight, surprising that it is by no means easy to decide in many such cases whether the proper law of the arbitration agreement is (i) that of the country whose law is to apply to the contract or (ii) that of the country which is specified as the seat of the arbitration. However, once it is accepted that that issue is a matter of contractual interpretation, it may be that it is inevitable that the answer must depend on all the terms of the particular contract, when read in the light of the surrounding circumstances and commercial common sense."
Lord Neuberger recognised that C v D had taken a "rather different approach" from earlier cases, and continued as follows (at paras 56 and 57):
"Accordingly, (i) there are a number of cases which support the contention that it is rare for the law of the arbitration to be that of the seat of the arbitration rather than that of the chosen contractual law, as the arbitration clause is part of the contract, but (ii) the most recent authority is a decision of this court which contains clear dicta (albeit obiter ) to the opposite effect, on the basis that the arbitration clause is severable from the rest of the contract and plainly has a very close connection with the law of the seat of the arbitration.
Faced with this rather unsatisfactory tension between the approach in the earlier cases and the approach in C v D, it seems to me that, at any rate in this court, we could take one of two courses. The first would be to follow the approach in the most recent case, given that it was a decision of this court, namely C v D. The alternative course would be to accept that there are sound reasons to support either conclusion as a matter of principle. Whichever course is adopted, it is necessary to consider whether there is anything in the other provisions of the contract or the surrounding circumstances which assist in resolving the conundrum."
Having rejected the possibility of treating the obiter dicta in C v D as wrong, Lord Neuberger then said that each of the two other possible courses that he had identified led to the conclusion that the arbitration clause was governed by English law, and therefore it was unnecessary to chose between them and he did not do so.
"It has long been recognized that in principle the proper law of an arbitration agreement which itself forms part of a substantive contract may differ from that of the contract as a whole, but it is probably fair to start from the assumption that, in the absence of any indication to the contrary, the parties intended the whole of their relationship to be governed by the same system of law. It is common for parties to make an express choice of law to govern their contract, but unusual for them to make an express choice of the law to govern any arbitration agreement contained within it; and where they have not done so, the natural inference is that they intended the proper law chosen to govern the substantive contract also to govern the agreement to arbitrate.
In Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd  1 All ER 664 at 682,  AC 334 at 357-358 Lord Mustill said:
"It is by now firmly established that more than one national system of law may bear upon an international arbitration. Thus, there is the proper law which regulates the substantive rights and duties of the parties to the contract from which the dispute has arisen. Exceptionally, this may differ from the national law governing the interpretation of the agreement to submit the dispute to arbitration. Less exceptionally it may also differ from the national law which the parties have expressly or by implication selected to govern the relationship between themselves and the arbitrator in the conduct of the arbitration: the "curial law" of the arbitration, as it is often called." (My emphasis.)"
"In the absence of any indication to the contrary, an express choice of law governing the substantive contract is a strong indication of the parties' intention in relation to the agreement to arbitrate. A search for an implied choice of proper law to govern the arbitration agreement is therefore likely (as the dicta in the earlier cases indicate) to lead to the conclusion that the parties intended the arbitration agreement to be governed by the same system of law as the substantive contract, unless there are other factors present which point to a different conclusion. These may include the terms of the arbitration agreement itself or the consequences for its effectiveness of choosing the proper law of the substantive contract: …"
Did Burley become party to the arbitration agreement in the SHA?
"The undersigned hereby executes this Agreement to be bound by the direct obligations imposed upon them, under Clauses 3.9, 5.5.4, 5.6.2 and 15.3.4."
The arbitration agreement was not among the clauses identified. The issue between the parties is whether nevertheless Burley and the Parties agreed that Burley should be subject to the arbitration agreement. Cruz City contend that they did and the claimants dispute that. The question turns upon the proper interpretation of the signature page. I have concluded that it is governed by the law of India, but, as I shall explain, I think that it makes no difference whether it is governed by English or Indian law.
i) Construction delay: the SHA provided that Cruz City might require Burley (as well as Arsanovia) to buy shares under the put option in the event that the Conditions for Start of Construction of the project were not met on time (clause 3.9);
ii) Indemnities and liabilities: the SHA provided that Burley (as well as Arsanovia) should indemnify, defend and hold harmless Cruz City and others from and against losses arising from specified events (clause 5.4.4);
iii) Representations, warranties and covenants: Burley (as well as Arsanovia) undertook to make payments and contributions under the SHA from contributions or revenues from sources outside India and not from funds received from India (clause 5.6.2); and
iv) Indemnity for breach of warranties and covenants: Burley (as well as Arsanovia) agreed to pay their liabilities to Cruz City within specified time limits (clause 15.3.4).
i) In all four clauses identified on the signature page the SHA specifically referred to Burley and stated its obligation in the clause itself. In contrast the Arbitration Agreement did not refer to Burley.
ii) On the contrary the Arbitration Agreement referred to "the Parties" agreeing not to seek interim relief. Had it been intended that Burley was bound by the arbitration agreement, Burley as well as the parties would have been said to agree to this. (Of course, if Burley were party to the arbitration agreement, there might well be scope for the wording to be manipulated to deal with this, but my point is about what the wording of the clause indicates as to the parties' intention.)
iii) The signature page referred to Burley being "bound" by obligations imposed on it. It was not suggested, and I cannot conceive, that the Parties and Burley intended to make a one-sided arbitration agreement: that the Parties should have a right to bring a reference against Burley, but Burley has no right to bring arbitration proceedings. If Burley were party to the arbitration agreement, they would have had that right and the Parties (or at least Cruz City) would have undertaken corresponding obligations to Burley, but on its face the signature page does not reflect an agreement of this kind.
"This status of "self-contained contract" exists irrespective of the type of substantive contract to which it is collateral. In Bremer Vulkan it was a shipbuilding contract. It appears to me that this consideration (which I believe has not infrequently been over-looked) is another important reason why arbitration clauses are to be treated as being in a category of their own, as was the arbitration clause in the charterparty, which the House of Lords declined to permit to be incorporated into the bill of lading contract in Thomas v Portsea. If this self-contained contract is to be incorporated, it must be expressly referred to in the document which is relied on as the incorporating writing. It is not incorporated by a mere reference to the terms and conditions of the contract to which the arbitration clause constitutes a collateral contract. "
Russell on Arbitration (23rd Ed, 2007) observes:
"… judicial thinking seems to have favoured the approach of Sir John Megaw in Aughton, namely that general words of incorporation are not sufficient. Rather, particular reference to the arbitration clause needs to be made to comply with s.6 of the Arbitration Act 1996, unless special circumstances exist."
I agree that this lends some further support for Mr Hirst's submission that the wording of the signature page is not sufficient to make Burley subject to the arbitration agreement in the SHA.
"The arbitration clause, and the choice-of-law clauses in (Clause 24), are not primary obligations of the same nature as an obligation to pay. Rather they are accessory obligations which define the conditions in which these primary obligations can be exercised. It is inconceivable, in the Tribunal's view, that the parties – having taken the care of including compatible and detailed arbitration clauses in both the SHA and the Keepwell Agreement – intended that Cruz City would be free to sue Burley before some (undefined) state court, applying a law other than that expressly chosen in their agreements (Indian law). It is clear, and the Tribunal hereby holds, that the parties intended that the arbitration agreement in the SHA (and, so far as relevant, the choice of law clause) would apply to Burley with respect to disputes arising out of or in connection with the limited substantive obligations which it expressly assumed under the SHA, so that both Cruz City and Burley would be bound to arbitrate – and not to litigate – any claim relating to those substantive rights."
(I cite their reasoning not because the award is binding upon me in any way but simply because it is useful to see how the Tribunal dealt with the question that I am re-examining de novo: see the Dallah Real Estate case at para 160.)
Did the Tribunal have jurisdiction to make Award I against Arsanovia?
"The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, if follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed."
Such "bifurcation" would also cause delay and the risk of conflicting decisions.
i) The decision of the High Court of Madras in Kensoft Infotech Limited v Sundaram BNP Paribas Home Finance Ltd and anor, MIPR 2010 (1) 301, in which the claimants brought proceedings against two defendants, with the first of whom they had entered into an arbitration agreement. The allegation was that the defendants had colluded to infringe the claimant's copyright. An application to refer the claimants and first defendants to arbitration was refused (at para 17):
"This Court has to necessarily indicate that there is no provision in the Act which enables the Court to refer a matter to arbitration, if the subject matter of the suit includes the subject matter of arbitration agreement as well as other disputes also. Equally, there is no provision for splitting up the cause of action or the parties and referring the matter to arbitration. Apart from that, Section 8 does not envisage or answer a situation when some of the parties to the suit were not parties to the arbitration agreement. Under Section 8 the Court is required to refer the parties to arbitration only in a matter which is the subject matter of an arbitration agreement. Under the circumstances, merely because of the reason that the second defendant has filed a memo as referred to above, that he would be ready to submit to arbitration, the Court cannot exercise its power under Section 8 referring the matter to arbitration where all the parties can have the decision. The contention put forth by the learned Senior Counsel for the respondents that there is no prohibition to follow such a course cannot be countenanced. Merely because there is no prohibition in the Act to follow such a course of action, the parties cannot be referred to arbitration so long as some of the parties were not parties to the agreement containing the arbitration clause. If such a course to be allowed [sic], that would be against the intent of the legislature as envisaged under Section 8. Under the circumstances, this Court is of the considered opinion that it is not a fit case where the parties could be referred to arbitration invoking Section 8 of the Arbitration and Conciliation Act, and hence, the order of the learned Single Judge has got to be set aside.".
ii) A decision of the Kolkata High Court in Emirates Grains Products Co LLC v LMJ International Ltd, dated 23 July 2009, (MANU/WB/1220/2009), in which there was an arbitration agreement in a contract between the claimant and the first defendant, but the court considered that the plaint was not confined to one between those parties but involved the third defendant. It was held that in these circumstances the arbitration agreement was not operable, and the proceedings against the first defendant should not be stayed.
iii) The judgment of the Supreme Court in Booz Allen and Hamilton Inc v SBI Home Finance Ltd and ors, (2011) 5 SCC 532, another case concerning section 8 of the IACA. Consideration was given (at para 20) to "whether the subject-matter of the suit is "arbitrable", that is, capable of being adjudicated by a private forum (Arbitral Tribunal); and whether the High court ought to have referred the parties to arbitration under Section 8 of the Act?" The court said (at para 34) that the concept of arbitrability "relat[es] to the jurisdiction of the Arbitral Tribunal" and has three facets: whether the disputes are capable of adjudication and settlement by arbitration or whether their nature is such as to be capable of resolution only in the public forum of the courts; whether the disputes are covered by the arbitration agreement; and whether the parties have referred the disputes to arbitration, that is to say whether they fall within the scope of any reference that has been make.
i) The first concerns the scope of the court's powers to refer to arbitration: this seems to be in the forefront of the judgment in the Sukanya case itself, where the court was concerned about not having power to require the "bifurcation" of a "matter" which includes a claim against a person who is not a party to the arbitration agreement. As it might be put, only part of the "matter" is the subject of the arbitration agreement and a section 8 reference requires that the whole matter is so covered.
ii) The second, found in the Emirates Grains Products case, concerns whether an arbitration agreement is operable where one of the parties to the dispute is not party to the arbitration agreement.
iii) Thirdly, there is the apparently broader notion of "arbitrability" articulated in the Booz Allen case.
"The ambit and scope of Section 45 of the 1996 Act, we shall be discussing shortly but at this stage itself, we would make it clear that it is not necessary for us to examine the correctness or otherwise of the judgment in the case of Sukanya (supra). This we say for varied reasons. Firstly, Sukanya was a judgment of this Court in a case arising under Section 8 Part I of the 1996 Act while the present case relates to Section 45 Part II of the Act. As such that case may have no application to the present case. Secondly, in that case the Court was concerned with the disputes of a partnership concern. A suit had been filed for dissolution of partnership firm and accounts also challenging the conveyance deed executed by the partnership firm in favour of one of the parties to the suit. The Court noticing the facts of the case emphasized that where the subject matter of the suit includes subject matter for arbitration agreement as well as other disputes, the Court did not refer the matter to arbitration in terms of Section 8 of the Act. In the case in hand, there is a mother agreement and there are other ancillary agreements to the mother agreement. It is a case of composite transaction between the same parties or the parties claiming through or under them falling under Section 45 of the Act. Thus, the dictum stated in paragraph 13 of the judgment of Sukanya would not apply to the present case. Thirdly, on facts, the judgment in Sukanya's case, has no application to the case in hand.
Thus, we decline to examine the merit or otherwise of this contention."
What law is applicable to the arbitration agreement in the Keepwell Agreement?
Was the claim of Cruz City upheld in Award 2 beyond the scope of the Tribunal's jurisdiction because it was premature?
"The obligation of Unitech and [Burley] to make payments to [Cruz City] in respect of the amounts set forth in Clause 15.3.4 (collectively, the "Obligations") shall be secured by Unitech Limited pursuant to [the "Keepwell Agreement"], which shall be executed and delivered to [Cruz City] by Unitech Limited and [Burley] on or prior to the Effective Date. [Cruz City] shall have the right to recoup under the Keep Well Agreement any and all Losses arising out of or resulting from such failure of Unitech or [Burley] to satisfy the payment obligations set forth in the first sentence of this Clause 15.3.3."
Was the question whether monies was due under the SHA within the scope of the arbitration agreement in the Keepwell Agreement?
"All disputes or differences whatsoever which shall at any time hereafter (whether during the continuance and in force of this agreement or upon or after it discharges or determination) arise between the parties hereto or their respective successors-in-title and assigns touching or concerning this agreement or its interpretation or effect or as to the rights, duties and liabilities of the parties hereto or either of them under or by virtue of this agreement or otherwise as to any other matter in any way connected with, arising out of or in relation to the subject-matter of this agreement shall … be referred …"
"… It is sufficient for the purposes of the present controversies to observe that the arbitration agreements postulate applicability of different systems of law as the proper law governing the arbitration between the parties. The arbitration clause contained in the four party agreement specifically commended by Shri M.H Shah for the defendants does not help matters. It does not further resolution of the problem. It provides for the arbitration in England and the applicability of the rules of the International Chamber of Commerce. It however, cannot govern disputes arising under other two agreements. These multifarious factors governing the adjudication of disputes and differences which constitute an indivisible matrix for determination, in my opinion, take the case outside the pale of Section 3 of the 1961 Act."