PETITIONER:
SUMITOMO HEAVY INDUSTRIES LTD.
Vs.
RESPONDENT:
ONGC LTD. & ORS.
DATE OF JUDGMENT: 04/12/1997
BENCH:
S.P. BHARUCHA, S.C. SEN
ACT
HEADNOTE
JUDGMENT
THE 4TH DAY OF DECEMBER, 1997 Present:
Hon’ble the Chief Justice
Hon’ble Mr.Justice S.P.Bharucha
Hon’ble Mr.Justice S.C.Sen Soli J.Sorabjee, Shanti Bhushan, B.Dutta, Milon K.Banerjee, Sr.Advs., P.H.Parekh, Amit Dhingra, Nikihil Shakharande, G.Joshi, G.khandpal, Virendra, G.K. Banerjee, Advs., with them for the appearing parties.
JUDGMENT
The following Judgment of the Court was delivered: BHARUCHA, J.
This appeal by special leave assails the correctness of the judgment and order of a learned single Judge of the High Court at Bombay. By the Judgment and order the petition of the first respondent for the issuance of a direction to the second respondent to file the award that he had made as the umpire in arbitration proceeding between the appellant and the first respondent in that court was allowed.
Briefly stated, these are the facts relevant to the issue in the appeal:
The appellant and the first respondent entered into a contraction on 7th September, 1983, whereunder the appellant agreed to install and commission on trunkey basis an oil platform at Bombay High, about 100 miles north-west of Bombay. The contract stipulated the following.
"17.0 Laws/Arbitration
17.1 Applicable Laws
All questions disputes or
difference arising under, out of or
in connection with this Contract
shall be subject to the laws of
Indian.
17.2 Arbitration
If any dispute, difference or
question shall at any time
hereafter arise between the parties
hereto or their respective
representatives or assigns in
respect of the construction of
these presents or concerning
anything herein contained or
arising out of these presents or as
to the rights, liabilities or
duties of the said parties
hereunder which cannot be mutually
resolved by the parties, the same
shall be referred to arbitration,
the proceeding of which shall be
held at London, U.K. Within 30 days
of the receipt of the notice of
intention of appoint arbitrators
each party shall appoint an
arbitrator of its own choice and
inform the other party. Before
entering upon the arbitration, the
two arbitrators shall appoint an
umpire. In case the parties fail to
appoint its arbitrator within 30
days from the receipt of a notice
from the other party in this behalf
of if any dispute in selection of
umpire, the president of
International Chamber of Commerce,
Paris, shall appoint the arbitrator
and/or or the umpire as the case
may be.
The decision of the arbitrators and
failing to an agreed decision by
them, the decision of the umpire
shall be find and binding on the
parties.
The arbitration proceeding shall be
held in accordance with the
provision of International Chamber
of Commerce and the rules made
thereunder as amended from time to
time. The arbitration proceedings
shall be conducted in English
language."
Disputes having arisen subsequent to the completion of the work under the contract, the appellant served notice of arbitration on the first respondent and appointed Mr. Robert A. MacCrindle its arbitrator. The first respondent appointed Mr. Justice Chandrasekhar (Retired) its arbitrator. The arbitrators nominated the second respondent as the umpire. Preliminary hearings commenced. The appellant then applied to the queens Bench Division, Commercial Court in London for leave to issue and serve on the first respondent an Originating Summons seeking an order under Section 5 of the English Arbitration Act, 1979, to confirm that the arbitrators had the power toe proceed with the arbitration in default of a defence having been served by the first respondent. A learned Judge of the Commercial Court granted to the first respondent leave to issue and serve the said summons. It was heard and decided in favour of the appellant. Thereafter the first respondent’s defence was served, and a summons was issued on the first respondent’s behalf in the Commercial Court to set aside its earlier orders. The application made by the first respondent was decided on 23rd July, 1993 by Potter, J. (The Judgment and order is reported in (1994) 1 LIoyd’s Law Reports 45). The arbitrators having differed, the second respondent entered upon the reference and, on 27th June, 1995, made his award. The award was served on the first respondent on 10th July, 1995.
On 26th July, 1995, the first respondent filed in the High Court at Bombay a petition praying that the second respondent be directed, under Section 14 of the Indian Arbitration Act, 1940, to file the award in that court. The first respondent submitted that the award was invalid, unenforceable and liable to be set aside under the provisions of the said Act. The learned Judge, as aforestated, allowed the petition.
The decision rendered by Potter, J. in the Commercial Court is of some importance because the jurisdiction of the English Courts was discussed. The learned Judge said:
"Before stating my reasons for that
conclusion and then turning to the
"frustration" argument, and because
questions have arisen as to whether
English law or Indian law is
appropriate to be applied at
various stages of this application,
I propose briefly to advert to the
various laws potentially applicable
to the various aspects of the
arbitral relationship which may
fall for consideration in cases of
this kind.
(1) The proper law of the
underlying contract i.e. the law
governing the contract which
creates the substantive rights and
obligations of the parties out of
which the dispute has arisen.
(2) The proper law of the
arbitration agreement, i.e. the law
governing rights and obligations of
the parties arising from their
agreement to arbitrate and, in
particular, their obligation to
submit their disputes to
arbitration and to honour an award.
This includes inter alia questions
as to the validity of the
arbitration agreement, the validity
of the notice of arbitration, the
constitution of the tribunal and
the question whether an award lies
within the jurisdiction of the
arbitrator.
(3) The proper law of the
reference, i.e. the law governing
the contract which regulates the
individual reference to
arbitration. This is an agreement
subsidiary to but separate from the
arbitration agreement itself,
coming into effect by the giving of
a notice of arbitration from which
point a new set of mutual
obligations in relation to the
conduct of the reference arise upon
lines canvassed in the Bremer
Vulkan Schiffbau and
Maschinenfabrik v. South India
Shipping Corporation, [1981] 1
Lloyd’s Rep. 253 at p. 263 and
developed by Mr. Justice Mustill
(as he then was) in Black Clawson
International Ltd. v. Papierwork
Waldhof-Aschaffenburg A.G. [1981] 2
Lioyd’s Rep. 446. That law governs
the questions of whether by reason
of subsequent circumstances the
parties have been discharged
(whether by repudiation or
frustration) from their obligation
to continue with the reference of
the individual dispute, while
leaving intact the continuous
agreement to refer future disputes
pursuant to the arbitration
agreement.
(4) The curial law, i.e. the law
governing the arbitration
proceedings themselves, the manner
in which the reference is to be
conducted. It governs the
procedural powers and duties of the
arbitrators, questions of evidence
and the determination of the proper
law of the contract.
In respect of many arbitrations,
the applicable law will be the same
in all four cases. (1) will usually
be decisive as to (2), in the
absence of an express contrary
choice; (2) and (3) will very
rarely differ. However, as to (4),
it is not uncommon to encounter the
incidence of a different curial law
in cases where the parties have
made an express choice for
arbitration (frequently in London)
in a jurisdiction divorced from the
jurisdiction with which the
contract in (1) has most real
connection.
In this case, as to (1), the
parties have made an express choice
of Indian law as the proper law of
the contract. As to (2), it seems
to me likely (although) it is not
necessary finally to decide) that
the proper law of the arbitration
agreement is similarly Indian law,
since the arbitration agreement is
part of the substance of the
underlying contract and the terms
of cl. 17.1 are clear in that
respect. As to (3), it matters not
for the purpose of this application
whether the governing law in
English or Indian law, because Mr.
Dunning has conceded before me that
there is no material difference
between the two so far as
applicable to the doctrine of
frustration upon which he relies
(see also par. 7 of the affidavit
of Mr. Majumdar to that effect).
As to (4), the curial law, it seems
to me plain that it is the law of
England. There is, it is true, no
express choice of curial law.
However, there is a clear
requirement that the arbitration
proceedings be held in London. In
the absence of express agreement,
there is a strong prima facie
presumption that the parties intend
the curial law to be the law of the
"seat" of the arbitration, i.e. the
place at which the arbitration is
to be conducted, on the ground that
is the country most closely
connected with the proceedings -
see Mustill and Boyd, 2nd ed.,
p.64."
Neither of the parties having filed an appeal from the judgment of Potter, J., its finding bind them. Based upon these findings, it was contended by Mr. S.J.Sorabjee, learned counsel for the appellant, that the petition filed by the first respondent in the High Court at Bombay fell outside the jurisdiction of that Court for a direction to the second respondent to file his award in court could be given only by the courts administering the curial law, that is to say the courts in England. The answer of Mr. Banerjee, learned counsel for the first respondent, is that the award having been made, the procedural or curial law had ceased to have effect, and accordingly, the courts administering the curial law and no jurisdiction to issue to the second respondent a direction to file his award therein.
This, then, is the central issue in the appeal: what is the area of operation of the curial law.
In Bank Mellat v. Helliniki Techniki S.A., 1984 (1) QB 291, the Court of Appeal said that the fundamental principle was that in the absence of any contractual provision to the country, "the procedural (or curial) law governing arbitrations’ was that of the forum of the arbitration, since this was the system of law with which the agreement to arbitrate in the particular forum would have its closest connection. Parties to international arbitrations might well choose London as a convenient neutral forum and "English law will, as the curial law, apply to the conduct of the arbitration; and the parties will, by holding their arbitration here, subject themselves for that purpose to English law......." (Emphasis supplied.)
In Naviera Amazonica Peruana S.A. vs. Compania International De Seguros Peru, 1988 (1) Lloyds Law Report 116, Lord Justice Kerr summarised the state of the relevant jurisprudence thus:
"A. All contracts which provide for
arbitration and contain a foreign
element may involve three
potentially relevant systems of
law. (1) The law governing the
substantive contract. (2) The law
governing the agreement to
arbitrate and the performance of
that agreement. (3) The law
governing the conduct of the
arbitration. In the majority of
cases all three will be the same.
But (1) will often be different
from (2) and (3). And occasionally,
but rarely, (2) may also differ
from (3)."
He said, "Prima facie, i.e. in the absence of some express and clear provision to the contrary it must follow that an agreement that the curial or procedural law of an arbitration is to be law of X has the consequence that X is also to be the "seat" of the arbitration. The lex fori is then the law of X, and accordingly X is the agreed forum of the arbitration. A further consequence is then that the Courts which are competent to control or assistant the arbitration are the Courts exercising jurisdiction at X". The learned Judge observed that there was no reason in theory which precluded "parties to agree that an arbitration shall be held at a place or in country X but subject to the procedural laws of Y". (Emphasis supplied.)
In the Law and Practice of Commercial Arbitration in England, Second Edition by Mustill and Boyd, there is a chapter on "The applicable law and the jurisdiction of the Court". Under the subtitle, "Law Governing The Arbitration", it is said,
"An agreed reference to arbitration
involves two groups of obligations.
The first concerns the mutual
obligations of the parties to
submit future disputes, or an
existing dispute to arbitration,
and to abide by the award of a
tribunal constituted in accordance
with the agreement. It is now
firmly established that the
arbitration agreement which creates
these obligations is a separate
contract, distinct from the
substantive agreement in which it
si usually embedded, capable of
surviving the termination of the
substantive agreement and
susceptible of premature
termination by express or implied
consent, or by repudiation or
frustration, in much the same
manner as in more ordinary forms of
contract. Since this agreement has
a distinct life of its own, it may
in principle be governed by a
proper law of its own, which need
not be the same as the law
governing the substantive contact.
The second group of obligations,
consisting of what is generally
referred to as the ‘curial law’ of
the arbitration, concerns the
manner in which the parties and the
arbitrator are required to conduct
the reference of a particular
dispute. According to the English
theory of arbitration, these rules
are to be ascertained by reference
to the express or implied terms of
the agreement to arbitrate. The
being so, it will be found in the
great majority of cases that the
curial law, i.e. the law governing
the conduct of the reference, is
the same as the law governing the
obligation to arbitrate. It is,
however, open to the parties to
submit, expressly or by
implication, the conduct of the
reference to different law from the
one governing the underlying
arbitration agreement. In such a
case, the court looks first at the
arbitration agreement to see
whether the dispute is one which
should be arbitrated, and which has
validly been made the subject of
the reference; it then looks to the
curial law to see how that
reference should be conducted; and
then returns to the first law in
order to give effect to the
resulting award.
XXX XXX XXX
It may therefore be seen that
problems arising out of an
arbitration may, at least in
theory, call for the application of
any one or more of the following
laws-
1. The proper law of the contract,
i.e. the law governing the contract
which creates the substantive
rights of the parties, in respect
of which the dispute has arisen.
2. The proper law of the
arbitration agreement, i.e. the law
governing the obligation of the
parties to submit the disputes to
arbitration, and to honour an
award.
3. The curial law, i.e. the law
governing the conduct of the
individual reference.
XXX XXX XXX
1. The proper law of the
arbitration agreement governs the
validity of the arbitration
agreement, the question whether a
dispute lies within the scope of
the arbitration agreement; the
validity of the notice of
arbitration; the constitution of
the tribunal; the question whether
an award lies within the
jurisdiction of the arbitrator; the
formal validity of the award; the
question whether the parties have
been discharged from any obligation
to arbitrate future disputes.
2. The curial law governs’ the
manner in which the reference is to
be conducted; the procedural powers
and duties of the arbitrator;
questions of evidence; the
determination of the proper law of
the contract.
3. The proper law of the reference
governs; the question whether the
parties have been discharged from
their obligation to continue with
the reference of the individual
dispute.
XXX XXX XXX
The conclusion that we reach is that the curial law operates during the continuance of the proceeding before the arbitrator to govern procedure and conduct thereof. The courts administering the curial law have the authority to entertain applications by parties to arbitrations being conducted within their jurisdiction for the purpose of ensuring that the procedure that is adopted in the proceedings before the arbitrator conforms to the requirements of the curial law and for reliefs incidental thereto. Such authority of the courts administering the curial law ceases when the proceedings before the arbitrator are concluded.
The proceedings before the arbitrator commence when he enters upon the reference and conclude with the making of the award. As the work by Mustill and Boyd aforementioned puts, it with the making of a valid award the arbitrator’s authority, powers and duties in the reference come to an end and he is "functus officio" (page 404). The arbitrator is not obliged by law to file his award in court but he may be asked by the party seeking to enforce the award to do so. The need to file an award in court arises only if it is required to be enforced, and the need to challenge it arises if it being enforced. The enforcement process is subsequent to and independent of the proceedings before the arbitrator. It is not governed by the curial or procedural law that governed the procedure that the arbitrator followed in the conduct of the arbitrator.
Mr. Sorabjee relied upon observations in Dicey and Morris on "The Conflict of Law, 12th Edition". The first Rule under the heading "Arbitration" in the Chapter on "Arbitration and Foreign Awards" reads thus:
"Rule 57 - (1) The validity, effect
and interpretation of an
arbitration agreement are governed
by its applicable law.
(2) The law governing arbitration
proceeding is the law chosen by the
parties, or, in the absence of
agreement, the law of the country
in which the arbitration is held."
In discussing clause (2) of the Rule aforementioned, this is stated:
"The procedural law of the
arbitration will determined how the
arbitrators are to be appointed, in
so far as this si not regulated in
the arbitration agreement; the
effect of one party’s failure to
appoint an arbitrator, e.g. whether
an arbitrator may be appointed by a
court, or whether the arbitration
can proceed before the sole
arbitrator appointed by the other
party, and whether the authority of
an arbitrator can be revoked. The
law will also determine what law
the arbitrators are to apply, and
whether they are expected or
allowed to decide ex aequo et bono
or as amiables compositeurs, and,
if not, whether the parties can
gave them this power or impose on
them this duty. That law will also
determine the procedural powers and
duties of the arbitrators, e.g.
whether they must hear oral
evidence (but not their
jurisdiction to decide the dispute,
which is governed by the
arbitration agreement and the law
applicable to it) or whether the
arbitrators have been guilty of
misconduct. It will also determine
what judicial remedies are
available to a party who wishes to
apply for security for costs or for
discovery or who wishes to
challenge the award once it has
been rendered and before it is
sought to enforce it abroad, and
the circumstances in which judicial
remedies may be excluded."
(Emphasis supplied.)
Mr. Sorabjee submitted, relying upon the proposition that the procedural law would determine what judicial remedies were available to a party "who wishes to challenge the award once it has been rendered and before it is sought to enforce it abroad", that the court that administered the curial law of the arbitration had the jurisdiction to entertain a challenge to the award and, therefore, the jurisdiction to receive it. The footnote relative to the above proposition (at pave 583) reads thus:
"Whitworth Street Estates
(Manchester) Ltd. v. James Miller &
Partners Ltd. [1970] A.C. 583
(English remedies not available in
Scots arbitration)."
Mr. Banerjee submitted, and it seems to us, correctly, that the case of James Miller & Partners Vs. Whitworth Street Estates, 1970 A.C. 583, does not bear out the proposition. The facts of the case, shortly put, were these: A contract was entered into between an English company, Whitworth, and a Scottish company, James Miller. The Scottish company was to carry out work at the English company’s premises in Scotland. The contract did not provide for the place of arbitration or its procedure. Disputes arose between the parties and were referred to arbitration. The arbitration was held in Scotland, in accordance with Scottish law. The English company asked the arbitrator to state his award in the form of a special case for the decision of the English courts. The arbitrator refused to do so on the ground that the arbitration was a Scottish arbitration, and he issued his final award. The issue was whether the arbitrator should be required to state his award in the form of a special case. The case was, therefore, concerned with the question of which law governed the proceedings before the arbitrator and not with the question of which law governed proceedings to set an award.
We think that our conclusion that the curial law does not apply to the filing of an award in court must, accordingly, hold good. We find support for the conclusion in the extracts from Mustill and Boyd which we have quoted earlier. Where the law governing the conduct of the reference is different from the law governing the underlying arbitration agreement, the court looks to the arbitration agreement to see if the dispute is arbitrable, then to the curial law to see how the reference should be conducted, "and then returns to the first law in order to give effect to the resulting award".
The law which would apply to the filing of the award, to its enforcement and to its setting aside would be the law governing the agreement to arbitrate and the performance of that agreement. Having regard to the clear terms of Clause 17 of the contract between the appellant and the first respondent, we are in no doubt that the law governing the contract and the law governing the rights and obligations of the parties arising from their agreement to arbitrate, and, in particular, their obligations to submit disputes to arbitration and to honour the award, are governed by the law of India; nor is there any dispute in this behalf. Section 47 of the Indian Arbitration Act, 1940, reads thus:
"47. Act to apply to all
arbitrations. - Subject to the
provisions of Section 46, and save
in so far as is otherwise provided
by any law for the time being in
force, the provisions of this Act
shall apply to all arbitrations and
to all proceedings thereunder"
Provided that an arbitration award
otherwise obtained may with the
consent of all the parties
interested be taken into
consideration as a compromise or
adjustment of a suit by any Court
before which the suit is pending."
The only other statute which is required to be considered in the context of the provisions of Section 47 of the 1940 Act is the Foreign Awards (Recognition and Enforcement) Act, 1961. For the purposes of determining whether the provision of the 1940 Act are subject to the provisions of the 1961 Act, Section 9 is relevant. It reads thus:
"9. Saving - Nothing in this Act
shall-
(a) prejudice any rights which any
person would have had of enforcing
in India of any award or of
availing himself in India of any
award if this Act had not been
passed, or
(b) apply to any award made on an
arbitration agreement governed by
the law of India."
By reason of Section 9(b), the 1961 Act does not apply to any award made on an arbitration agreement governed by the law of India. The 1961 Act, therefore, does not apply to the arbitration agreement between the appellant and the first respondent. The 1940 Act, applies to it and, by reason of Section 14(2) thereof, the courts in India are entitled to receive the award made by the second respondent. We must add in the interests of completeness that is not the case of the appellant that the High Court at Bombay lacked the territorial jurisdiction to do so.
In the result, the appeal must fail, and it is dismissed with costs.