Prior to proceeding into arbitration, the arbitration clause is crucial. Ambiguity and errors in drafting the provision can lead to trouble and disagreement between the parties. Also, if a multi-tiered conflict resolution clause is involved, the pre-arbitration clause must be met. Multi-tiered clauses are for amicable dispute resolution between the parties. In the case of Visa International Ltd. v. Continental Resources (USA) Ltd.
The court placed emphasis and provided a clear explanation of how it recognizes the parties’ arbitration agreement. This article is a case study of the same case that discusses each aspect in detail with critical analysis.
In this matter, the applicant, Visa International Ltd., was engaged in the business of providing services in the international trading of metals, minerals, and ship chartering. The respondent in the case, Continental Resources (USA) Ltd., on the other hand, intended to get into the mining sector and set up an integrated aluminium complex in Orissa with an aluminium refinery fed by bauxite from the Gandhamardan mines in Orissa.
In order to make a large investment in the entire project, the respondent entered into a memorandum of understanding with the ‘Orissa Mining Corporation’ for the mining of bauxite from the Gandhamardan mines in Orissa.
The Orissa Mining Corporation decided to enter into a joint venture agreement for a major investment in the establishment of an aluminium complex, subject to specified terms and conditions. The conditions included that Continental Resources Ltd create the aluminium complex in the area of the Gandhamardan mines and use bauxite from the same mine as raw material in the establishment of the aluminium complex.
Continental Resources Ltd approached the applicant Visa International Ltd about establishing the integrated aluminium complex with him and agreed into a joint venture agreement for the same, in which the applicant is required to establish the special purpose vehicle for the project. The applicant agreed to the respondent’s proposition.
The responder and applicant decided to sign a memorandum of understanding outlining their respective rights and obligations under the agreement. The parties executed the MOU on February 14, 2005, and it was followed by the agreement. It was decided that the responder and applicant will form a business called ‘VISA Aluminium Ltd’ to carry out the principal goal of establishing the integrated aluminium complex.
The agreement was signed on February 15, 2005, and stated that the applicant is in a joint venture with Orissa Mining Corporation to establish an integrated aluminium complex, and that the respondent is in a joint venture with Visa International Ltd to establish a company called ‘VISA Aluminium Ltd’ for that purpose.
According to the terms of the deal, Continental Resources will own 25% of the company’s issued and paid-up equity shares, with the remaining 75% owned by the applicant Visa International Ltd. The applicant was given day-to-day control of the company, and it also paid the sum of $25,250,000 to respondent for future overseas costs incurred as a result of the agreement.
According to clause IV of the agreement, the agreement will take effect only when both parties sign it, and according to applicant clause VI of the agreement contains the arbitration clause, and the entire dispute is based on this clause.
The respondent wrote an application to the applicant in 2006, alleging that the agreement they struck into in 2005 is “not appropriate and is obsolete” since it does not include the changes in the Orissa mining corporation agreement. And the respondent recommended to the applicant that a new agreement be drafted, despite the fact that the applicant maintained that the previous agreement was legitimate, paving the way for their ongoing disagreement.
The respondent gave the application to the applicant, indicating that the MOU and the agreement they signed in 2005 “stand discharged and the CLR stands discharged.” The applicant said in the application to the respondent in 2007 that the unilateral termination of agreement was not acceptable to the applicant. The applicant then used the arbitration clause in the agreement and notified the responder that the matter would be settled through arbitration by designating the arbitrator. The respondent then opposed the proposed names of arbitrators and the proposition in the application, claiming that first, arbitration is expensive, and second, arbitration is premature.
The respondent never contested the existence of the arbitration clause or whether the matter should be settled through arbitration or conciliation. According to him, the agreement cannot be implemented because it is dependent and invalid. The applicant submitted an application pursuant to sections 9 and 11(5) of the Arbitration and Conciliation Act of 1996. According to the respondent, there is no need to bring the issue to arbitration because the applicant failed to demonstrate that the disagreement cannot be resolved amicably.
1. Is there a legitimate arbitration agreement between the parties?
The arbitration agreement is described under Section 7 of the Arbitration and Conciliation Act of 1966. The section does not specify the format of the arbitration agreement. It merely mentions that “An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.”
The issue in Rukmani Bai Gupta v. Collector of Jabalpur4 was about a clause in the lease agreement. In which the court ruled that the dispute provision does not include language like “arbitration or a settlement of dispute by the arbitrator.” The court stated that the arbitration agreement should not be in any particular form; if the parties agreed that the dispute between the parties is about the subject matter of the contract, the dispute can be referred to arbitration, and the agreement can be referred to as an arbitration agreement. The focus was on the subject matter of the dispute rather than the form of the arbitration agreement.
The court declared in the case of M. Dayanand Reddy v. A.P. Industrial Infrastructure Corp. Ltd. & Ors5 that “An arbitration clause is not required to be stated in any particular form.” If the parties’ purpose to bring the matter to arbitration can be readily established from the wording of the agreement, it makes no difference whether or not the terms ‘arbitration,’ ‘arbitrator,’ or ‘arbitrators’ appear in the agreement.” In order for the agreement to exist, the emphasis was placed on the parties’ intentions, surrounding conditions, and so on.
In the case of Bihar State Mineral Development Corporation v. Encon Building6, it was stated that section 7 of the The Arbitration and Conciliation Act, 1996 does not prescribe any particular form in which the agreement should be formulated, and that the emphasis was placed on the parties’ intent to be aware of the existence of the agreement. In the current case, the respondent never questioned the presence of the arbitration clause; rather, the respondent’s primary position was that if the agreement between the parties is invalid, how can the subject be referred to arbitration?
Shri K.K. Venugopal spoke on behalf of the respondent, citing the decision of Iron and Steel Company Ltd. v. Tiwari Roadlines7, and said that there is no arbitration agreement and that the agreement is dependent, so it cannot be enforced.
Also, he stated that if a dispute arose, the respondent’s intention was to settle through conciliation as it ensures amicable resolution and not to go with arbitration as there, regardless of whether the dispute resolves or not, the parties must go with the binding decision, which ultimately ensures no amicable dispute resolution and violates the latter part of the agreement. As a result, the application under Section 11 of the Act should be denied.
On the other hand, Dr. Singhvi came from the applicant side, claiming that the parties had a legitimate arbitration agreement and that an arbitrator may be chosen to resolve the issue. The court determined that the parties had a valid arbitration agreement based on the facts and intent of the parties.
2. Should the parties settle their dispute through arbitration or conciliation?
The respondent never intended or took the plea to settle the matter through conciliation. According to Shri Venugopal, if we compare the agreement between the Orissa Mining Corporation and Continental Resources Ltd. with the current arrangement between Visa International Ltd and Continental Resources Ltd, nowhere in the agreement did the parties intend to proceed to arbitration if a dispute developed. Furthermore, the previous agreement is irrelevant because it is not a contract between the current parties in dispute.
3. Was there any evidence that the parties intended to address their disagreements through conciliation if they could not settle them peacefully among themselves?
Section 62 specifies the procedure for initiating conciliation procedures, which includes an invitation by one party, discussion on the subject matter, and acceptance of the invitation by the other party. According to the text of Article VI, it was never intended for the parties to resort to conciliation.
The text of the clause indicates that if they are unable to resolve the matter amicably, the parties will resolve the dispute in accordance with the Arbitration and Conciliation Act of 1966. In relation to conciliation, the parties never sent each other an invitation. The phrase’ shall be finally settled’ indicates that the parties intended for a binding conclusion.
4. Is it true that invoking Article VI leads to premature arbitration?
Respondent stated that many meetings and discussions took place between the parties and Continental Resources Ltd to ask Visa International for support to achieve the goal, but it did not provide a funding schedule. The letters exchanged between the parties show that the parties attempted to settle the disagreement peacefully but were unsuccessful, leaving them with little choice except to invoke the arbitration clause.
5. Is there a current dispute between the parties?
The court relied on and restated its previous ruling in SBP and Co v. Patel Engineering Ltd.12, stating that the power placed in the court by section 11 of the act is judicial in character, not administrative. And thus, before appointing the arbitrator to resolve the dispute, the court must be satisfied with all arbitration-related questions such as whether there is a valid agreement between the parties and whether there is a live issue between them to examine this court cited a passage from Mustill and Boyd’s treatise on Arbitration law titled Law and Practice of Commercial Arbitration, 1982, which defined the term dispute as ;
“A dispute means that there is a disagreement about how a contract should be performed in the future.” For example, one party may deny that any further performance is due, or it may be a common ground that the contract exists, but the parties may disagree about whether a particular act would constitute valid performance; in this case, one party may be wrong and the other is right, so it is necessary to go to arbitration with sufficient speed to determine the true position of the parties.”
As a result, the parties in the current case are in active litigation, and the claim is not limited by any restriction.
It can be concluded from this case that the intention of the parties and the surrounding circumstances are more important than the words used in the agreement for determining the arbitration agreement. Furthermore, the language of Section 7 is not clear on the terms to be used for framing the arbitration clause, and as a result, it may be limited. The parties may confront difficulties when drafting the agreement.