Balasore Alloys Limited v. Medima LLC- Two different arbitration clauses in two related agreements

- Gautam Mohanty[1]


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1. In this article, the author discusses the judgment of the Balasore Alloys Limited v. Medima LLC (2020) 9 SCC 136. This judgment was delivered by a 3-judge bench of the Supreme Court in September 2020. In this case, Balasore Alloys Ltd. (Applicant) approached the Supreme Court of India (SCI) in a petition under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996 (Act, 1996) praying for the appointment of an arbitrator on behalf of Respondent to adjudicate all disputes arising out of and in connection with 37 purchase orders executed between the Applicant and Respondent.


FACTS OF THE CASE:

2. The Applicant in the present case was a manufacturer of high carbon ferro chrome and entered into a business transaction with the Respondent whereby the Applicant agreed to supply the high carbon ferro chrome manufactured by them to the Respondent for sale of the same in the territories of USA and Canada. An Agreement dated 19.06.2017 limited to the sale of 2000MT was signed between the Parties and consequently, 37 purchase orders were placed by the Respondent, specifying the details of the supply to be made under each of the purchase orders. Additionally, the parties also entered into another Agreement dated 31.03.2018 relating to the above transaction enumerating new terms of the transaction. Thus, the premise of the entire issue in discussion surfaced when certain disputes arose between the Parties which were required to be resolved through arbitration.


THE CASE OF APPLICANT:

3. The Applicant placed reliance on Clause 7 in the said 37 purchase orders in the Agreement dated 19.06.2017, seeking for the appointment of an arbitrator to resolve the disputes. Notably, Clause 7 of the said 37 purchase orders envisaged a dispute resolution process through arbitration by an Arbitral Tribunal. Since, as per the Applicant, Respondent had failed to appoint their Arbitrator, the Court should appoint an arbitrator on their behest.


THE CASE OF RESPONDENT:

4. Per Contra, the case of the Respondent was that the entire transaction was governed by the “Umbrella” Agreement dated 31.03.2018. Therefore, as per Respondent, Clause 23 of the aforesaid Agreement would be the relevant dispute resolution clause governing the disputes emanating from the purchase orders. Further, Respondent also contended that under Clause 23 of the Agreement dated 31.03.2018, the International Chamber of Commerce (ICC) was the relevant authority to adjudicate the disputes in hand and accordingly the Arbitral Tribunal had already been constituted under the aegis of ICC. Hence, in the present case, Respondent prayed for the dismissal of the Section 11 Application filed by the Applicant.


RELEVANT CLAUSES:

5. Clause 7 of Agreement dated 19.06.2017 is as below:

“7. ARBITRATION: Disputes and differences arising out of or in connection with or relating to the interpretation or implementation of this contract/order shall be referred to the Arbitral Tribunal consisting of 3 Arbitrators of which each party shall appoint one Arbitrator, and the two appointed Arbitrators shall appoint the third Arbitrator who shall act as the Presiding Arbitrator as per the provisions of the Arbitration and Conciliation Act, 1996 and any modification or re-enactment thereto. The venue of the arbitration proceedings shall be at Kolkata and language of the arbitration shall be English. The arbitration award shall be final and binding upon the parties and the parties agree to be bound thereby and to act accordingly. When any dispute has been referred to arbitration, except for the matters in dispute, the parties shall continue to exercise their remaining respective rights and fulfil their remaining respective obligations.”

6. Clause 23 of the Agreement dated 31.03.2018 is as below:

“23. GOVERNING LAW; DISPUTES This Agreement shall be governed by and construed in accordance with the laws of the United Kingdom. Any claim, controversy or dispute arising out of or in connection with this Agreement or the performance hereof, after a thirty calendar day period to enable the parties to resolve such dispute in good faith, shall be submitted to arbitration conducted in the English language in the United Kingdom in accordance with the Rules of Arbitration of the International Chamber of Commerce by 3 (Three) arbitrators appointed in accordance with the said Rules, to be conducted in the English language in London in accordance with British Law. Judgment on the award may be entered and enforced in any court having jurisdiction over the party against whom enforcement is sought.”

ISSUES FOR CONSIDERATION:

7. Whether Clause 7 of the Agreement dated 19.06.2017 or Clause 23 of the Agreement dated 31.03.2018 is the correct dispute resolution clause in the current factual matrix? More particularly, whether the Arbitral Tribunal has already been constituted in terms of Clause 23 of the Agreement dated 31.03.2018?

DISCUSSION & ANALYSIS:

8. At the outset, the SCI in view of the facts of the case referred to Olympus Superstructures' (P) Ltd. v. Meena Vijay Khetan wherein the SCI had previously dealt with a similar issue. In the above-mentioned case, the SCI had harmonized the two clauses and had on reconciliation held that the parties should resolve their disputes under the main agreement. Keeping the above case in the backdrop, the SCI in the present factual matrix was of the view that to conclusively ascertain the applicable dispute resolution clause it was imperative to refer to the manner in which the arbitration Clause was invoked and the nature of the dispute that was sought to be resolved by the Parties through Arbitration.


9. Further, the SCI upon close perusal of the reply to the notice of Respondent invoking the arbitration clause dated 13.04.2020 observed that the Applicant had made references to price and the terms of the payment in the context of the Agreement dated 31.03.2018, i.e. the Umbrella Agreement. Additionally, the SCI also observed that Clause 5,8,9 and 10 of the Pricing Agreement provides for the mechanism relating purchases and sales; final price, payment of provisional price and adjustment of advance, determination of the final sale price and monthly accounting and payment. Alternatively, the SCI took note that the purchase orders did not provide for any of the above but merely provided for the purchase order referring to the price of the quantity ordered for and the special terms relating to provisional price etc. In light of the above, the SCI stated that even if disputes are raised relating to the contract terms, the pricing, deductions etc. will be related to the main agreement and the Tribunal constituted thereunder is empowered to address any issue arising under the contract terms of the individual purchase order as well.


10. Taking note of the fact that Parties had entered into an agreement dated 31.03.2018 which was encompassing all terms of the transaction and such agreement contained an arbitration Clause which was different from the arbitration Clause provided in the purchase orders which was for the limited purpose of governing disputes arising out of the supply of the product; the SCI ultimately observed that the arbitration Clause contained in Clause 23 in the Agreement dated 31.03.2018 would govern the parties in the present case as the disputes raised by the Parties was in relation to price, terms of payment including recovery etc.


11. Lastly, the SCI also opined that as the arbitration Clause contained in the Agreement dated 31.03.2018 had been invoked and the Tribunal had been constituted on 22.06.2020 it would be inappropriate for the Applicant to invoke Clause 7 in the said 37 purchase orders in the Agreement dated 19.06.2017 at this juncture.

PRACTICAL TAKEAWAYS:

12. At the outset, the basis of the priority of reference to international arbitration, does not seem to be decisive in nature owing to a lack of general discussion in that regard in the judgement. The ground that the Tribunal had already been constituted under Clause 23 under the rules of ICC and that it would be inappropriate to invoke Clause 7 is at best a moral assertion without any legal backing. In view of the author, such factors should not play an influential role in decision making, whereby it compromises due process in arbitration.


13. Notwithstanding the above, the author approves the harmonization of two parallel arbitration clauses and deems it as a necessary postulation by the SCI to clarify the debated topic of applicability of parallel arbitration clauses in arbitration.

[1] Editor, The Arbitration Workshop | Doctoral Candidate, Kozminski University, Warsaw, Poland. He can be reached at gautam.mohanty1414@gmail.com

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