SAKUMA EXPORTS LIMITED V. LOUIS DREYFUS COMMODITIES SUISSE S.A.
INTRODUCTION
A bench comprising of Justice Shiva Kirti Singh and Justice
Anil r. Dave of the Supreme Court of India (“SC”) while exercising Civil Appellate Jurisdiction and deciding the
application and scope of Section 34 of the Arbitration and Conciliation Act,
1996 (“the Act”) have upheld the
judgment of the Hon’ble Bombay High Court and have held as under:
“Where the parties have expressly chosen the proper law governing
the contract, the chosen law must, in the absence of an unmistakable intention
to the contrary, govern the arbitration agreement”.
FACTS OF THE CASE
Appellant is an Indian Company, carrying on the business of
import and export of sugar among other commodities – Respondent is a Swiss
Company – The Appellant and the Respondent entered into an agreement dated
January 12, 2010 for the purchase of 2700 metric tons of Brazilian white sugar
of a stipulated description – Consignment was to be shipped between January 15,
2010 and February 15, 2010 at the option of the Respondent – The port of
destination was to be Nhava Sheva or Kolkata at the option of the Appellant – Disputes
arose between the parties which were submitted to Arbitration.
RELEVANT PROVISIONS
OF THE CONTRACT
Terms and
conditions: This Contract is subject to the Rules of the Refined Sugar
Association, London as fully as if the same had been expressly inserted herein,
whether or not either or both parties to it are Members of the Association.
The arbitration
agreement: All disputes arising out of or in conjunction with this
Contract shall be referred to the Refined Sugar Association, London for
settlement in accordance with the Rules relating to Arbitration. This Contract
shall be governed by and construed in accordance with English Law.
Paragraph 20 of Bombay
High Court judgment reads as follows: In the present case, the parties
have specifically made their contract subject to the rules of the Refined Sugar
Association, London. Leaving no ambiguity of interpretation the contract
mandates that the rules of the Refined Sugar Association, London are incorporated
“as fully as if the same has been expressly inserted” in the contract. The
governing law of the contract is English law. All disputes arising out or in
conjunction with the contract were to be referred to the Refined Sugar
Association for settlement in accordance with the rules relating to arbitration
of the Association. The law in the U.K. is, therefore, the substantive law of
the contract. The seat of the
arbitration is in the U.K. Parties have made it clear that the rules of the
Refined Sugar Association would govern the resolution of their disputes. Rule 8 of the Rules of the Refined Sugar
Association (on which there is no dispute between the parties during the course
of the hearing of the appeal) provides as follows:
Rule 8: For the
purpose of all proceedings in arbitration, the contract shall be deemed to have
been made in England, any correspondence in reference to the offer, the acceptance,
the place of payment or otherwise, not-withstanding, and England shall be regarded
as the place of performance. Disputes shall be settled according to the law of
England wherever the domicile, residence or place of business of the parties to
the contract may be or become. The seat of the Arbitration shall be England and
all proceedings shall take place in England. It shall not be necessary for the
award to state expressly the seat of the arbitration.
The terms of the contract as well as Rule 8 of the Rules of
the Refined Sugar Association would make it clear that disputes shall be
settled in accordance with the law of England wherever the domicile, residence
or place of business of parties to the contract may be or become. Moreover, for
the purposes of all proceedings in arbitration, the contract shall be deemed to
have been made in England and England shall be regarded as the place of
performance. The seat of the arbitration shall be England and all proceedings
shall take place in England. On the basis of these provisions, it has been
submitted that parties have, by the terms of their agreement, impliedly
excluded the provisions of Part-I. We
find merit in the submission. It is clear from the terms and conditions which
have been accepted by the parties in the purchase contract, read with Rule 8
that parties have accepted English law as the governing law of the contract;
that the seat of the arbitration would be London; that disputes shall be
settled according to the law of England which would include the resolution of
disputes and that all proceedings shall take place in England. Alternatively,
even if it were to be held that parties have not provided for the curial law
governing the arbitration, the decision in Bhatia International does not
prohibit the exclusion of the application of Part-I on account of the proper law of the contract being
a foreign law. Where the proper law governing the
contract is expressly chosen by the parties, which they have done in the
present case by selecting English law as the proper law of the contract, that
law must, in the absence of an unmistakable intention to the contrary, govern
the arbitration agreement. The arbitration agreement, though it is collateral
or ancillary to the main contract is nevertheless a part of the contract. In an
application for challenging the validity of an arbitral award under Section 34,
the Court would necessarily have to revert to the law governing the arbitration
agreement which, in our considered view,
would be the law of England.”
CONTENTIONS
The petitioners sought to challenge, the final award as
passed by the arbitral tribunal on December 31, 2010, under Section 34 of the
Act.
The respondents questioned the maintainability of the said
petition by arguing that the courts in India have no jurisdiction to entertain
the petition. The respondent most specifically raised the ground that the
applicability of Part - I of the Act was excluded by the agreement between the
parties and even under the law as it then prevailed in Bhatia International – a
petition under Section 34 of the Act was not maintainable in the given
circumstances.
DECISION
The terms of the contract make it subject to the Rules of Refined
Sugar Association, London by expressly inserting them in the contract. Rule 8
of the Refined Sugar Association, London, leaves no doubt that the parties have
accepted English law as the governing law for the contract and have also
submitted all disputes and arbitration to the law of England. Admittedly the seat
of Arbitration is England. Thus, the courts in India have no jurisdiction to
entertain the petition under Section 34 of the Act.
SC ON APPLICATION OF
PART – I OF THE ACT TO INTERNATIONAL ARBITRATION
A Constitution Bench of the Hon’ble SC in the case of Bharat
Aluminum Company etc. vs. Kaiser Aluminum Technical Services Inc. etc.
overruled the earlier judgment in Bhatia International and concluded that Part
I of the Act would have no application to International Commercial Arbitration
held outside India. The SC also directed that the law so declared shall
apply only prospectively i.e. to all arbitration agreements executed thereafter.
Accordingly the arbitration agreement in the present case was
to be governed in accordance with the law as decided in the case of Bhatia International.
Thus the provisions of Part I of the Act were to apply to the International Commercial
Arbitration held outside India unless the parties by an agreement, express or
implied, exclude all or any of its provisions.
