With an Arbitration Clause, Do you Still Need to Designate Jurisdiction?

Normally, parties to an agreement negotiate on an arbitration clause wherein they agree upon a place of arbitration. For instance, two Indian parties may agree:

"13. Any dispute arising out of or in connection with this Agreement shall be referred to arbitration by a sole arbitrator to be jointly appointed by the Parties. The place of arbitration shall be New Delhi.."

The question is whether parties should also agree on the courts that would have jurisdiction over matters in relation to this Agreement. The law as it stands today is that in addition to the courts that would ordinarily have had jurisdiction had there been no arbitration clause (typically the court from which a part or the whole cause of action arose or the court within whose jurisdiction the respondent resides or carries on business, etc.), the courts of the seat of arbitration would also have jurisdiction. In this regard, see, BALCO:

"96... For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the Courts of Delhi being the Courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located."

That the SC in BALCO sought to introduce concepts of international arbitration into domestic arbitration when there was no need to and contrary to the definition of "court" in Section 2(1)(e) of the Arbitration and Conciliation Act, 1996 ("1996 Act") is fairly well-established. See, for instance, V. Niranjan & Shantanu Narvane, ‘Bhatia International Rightly Overruled: The Consequences of Three Errors in BALCO’ (2012) 9 SCC J-26, where the authors argue, rightly, that one of the important consequence of this "error" in BALCO is that BALCO created an exception to the fairly established principle that jurisdiction on a court cannot be conferred by consent, unless the law otherwise confers jurisdiction.

What is more problematic is the problem of reconciliation of two opposing principles. One of the justifications of the court in BALCO was the purportedly well-established principle in international arbitration that designation of a seat operated as an exclusive jurisdiction clause. Based on this, the court held that if a party to an Indian arbitration with no foreign element ("Purely Domestic Arbitration"). At the same time, it was fairly well-established that where two or more courts had concurrent jurisdiction over the matter, parties to a contract could agree to confer exclusive jurisdiction only on one of those courts but not on another. 

Now the problem with the above formulation was that both these two principles could not be conceptually reconciled where the choice of seat was different from the choice of jurisdiction. For instance, in the above quoted example, if choice of seat was Delhi and if the parties had agreed on the exclusive jurisdiction of the courts at Mumbai, would the choice of seat and the consequent "choice" of Delhi courts as courts of exclusive jurisdiction  override parties' agreement to have Mumbai as the choice of court?

This crucial hole in this doctrine is stark if one peruses the observations of the Supreme Court in Indus Mobile:

"Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to "seat" is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction -- that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Sections 16 to 21 of Code of Civil Procedure be attracted. In arbitration law however, as has been held above, the moment "seat" is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties."

Two problems arise owing to this observation: (1) if the seat is designated, will parties' choice of a court other than the seat's court be invalid? If the emphasised observation is taken to its logical end, this is what will entail. (2) the observation really renders S. 2(1)(e) otiose, which could definitely not have been the legislative intent. 

There is another dimension to the issue. In Brahmani River (25.07.2019: SC), the Division Bench of the Supreme Court observed: "Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts." If that is so, then whenever the parties agree on the place/ seat  of arbitration, say Delhi, and agree that courts at another place, say, Mumbai, will have exclusive jurisdiction, then parties should be deemed to have excluded the courts at the place of arbitration and should be deemed to have chosen Mumbai as the relevant court. In such a case, the principle that choice of seat is an exclusive jurisdiction clause will not survive.

The statement in C v D [2007] EWCA Civ 1282 and Shashoua v. Sharma that the choice of seat is akin or analogous to an exclusive jurisdiction clause has been taken to mean that choice of seat is equivalent to an exclusive jurisdiction clause in BALCO and Indus Mobile. More on Indus Mobile, criticisms of Indus Mobile and other aspects in another post. The judicial creation of jurisdiction to courts at seat in domestic arbitration is a reality which we have to accept. That it may be wrong is for a future court to decide. This question needs to be answered from the perspective of party autonomy. 

However, the judicial creation of jurisdiction leads to doctrinal inconsistency. Consequently, courts in future will have to answer this properly and provide its reasoning by filling the logical gap. The only way in which the opposing principles can be reconciled would be to re-write these principles in terms of default rules (or as presumptions, if one were to see these in terms of evidence), which is quite a standard formulations in many jurisdictions as regards choice of law issues:

1. The choice of seat will operate as a exclusive choice of the courts at seat.
2. Parties could contract around this default rule by agreeing on one of the courts which would have had concurrent jurisdiction had there been no arbitration clause. 
3. Where there is a choice of seat and a designation of exclusive jurisdiction of a court different from the seat, such a designation would be a clear indicator of parties' intent to contract around the default rule at Sl. No. 1.
4. Contracting around the default rule is constricted by the principle that no one can confer jurisdiction on a court by agreement when such court would not otherwise have jurisdiction. In other words, if a party wants to contract around the presumption in Sl. No. 1, such a contracting around would be valid only if the court chosen is one which will come within the purview of Section 2(1)(e). For instance, if Party A (from Lucknow) and Party B (from Mumbai) enter into agreement at Mumbai for execution of contract at Mumbai and payment at Mumbai and agreement provides for seat of arbitration at Chennai and exclusive jurisdiction of courts at New Delhi, the party choice of exclusive jurisdiction of courts at New Delhi cannot be deemed to have contracted around the default rule (that choice of seat at Chennai operates as the exclusive choice of courts at Chennai) since under the Code of Civil Procedure, 1908, courts at New Delhi would not have any jurisdiction.

Now, to answer the question posed in the title of this post: why should parties waste precious negotiation time on jurisdiction clause when it is sufficient if they agree on the choice of seat? They should, if they wish to contract around the aforesaid default rule and make an exclusive choice of courts other than those of the seat. If the parties do not wish to do so, they need not waste time on the jurisdiction clause because choice of seat also means the exclusive choice of courts at the seat.

Part II: Party Autonomy and NOM Clause in the UK SC: Rock Advertising v MWB Business Exchange

In the previous post we discussed the majority opinion of the UK Supreme Court on whether an agreement could be amended orally despite a "No Oral Modification" (NOM) clause. In this post we discuss the minority view and the Indian position on the subject.

The Minority View

The minority view of Lord Briggs calls for a more open possibility of an oral modification to the agreement despite the NOM clause. Lord Brigg's view was that parties could not only unbind themselves from what they had agreed, they could also unbind themselves orally of any procedural restrictions to vary the agreement. But the agreed departure from the NOM will not be "lightly inferred". The underlying policy reasons for his differing view are aptly summed up in the concluding portions of the minority opinion and are quoted here:

"31. In my view this more cautious recognition of the effect of a NOM clause, namely that it continues to bind until the parties have expressly (or by strictly necessary implication) agreed to do away with it, would give the parties most of the commercial benefits of certainty and the avoidance of abusive litigation about alleged oral variation for which its proponents contend. It would certainly do so in the present case. It would probably leave only those cases where the subject matter of the variation was to be, and was, immediately implemented, where estoppel and release of the NOM clause by necessary implication are likely to go hand in hand. While it might in theory also leave open the case where it is alleged that the parties did have the NOM clause in mind, and then agreed to do away with it orally, that seems to me to be so unlikely a story that a judge would usually have little difficulty in treating it as incredible (if denied), and therefore as presenting no obstacle to summary judgment on the contract in its unvaried form.

32. In proposing this perhaps cautious solution to the problem thrown up by this case I am comforted by the perception that it represents an incremental development of the common law which accords more closely with the conceptual analysis adopted in most other common law jurisdictions, as Lord Sumption has described. By contrast the more radical solution which he proposes would involve a clean break with something approaching an international common law consensus, unsupported by any societal or other considerations peculiar to England and Wales. There may be cases where a pressing need to modernise the common law justifies such a break, perhaps in the expectation that other common law jurisdictions will in due course follow, but this case is not, in my opinion, one of them."

The Indian Position

In India, the Supreme Court has perhaps taken a view that more-or-less accords with the minority view of Lord Briggs. In BPCL v Great Eastern Shipping, the Supreme Court held that although ordinarily silence does not mean acceptance of an offer but in certain cases when the offer is coupled by silence but the conduct leads to the inference of acceptance, such acceptance would be acceptance subsilentio and a contract would deemed to have been formed. 

The acceptance subsilentio principle would equally apply to modifications "subsilentio" even in the context of a NOM clause. In Carrier Airconditioning and Refrigeration Pvt. Ltv. v. Linc Digital Systems Pvt. Ltd., the Delhi High Court had to decide whether the agreement could be extended beyond its validity period by conduct of the parties when there was a NOM clause. The court cited the BPCL case of the Supreme Court (discussed above) and held on facts that the conduct of the parties as evidenced by correspondences exchanged between them showed that they continued to bind themselves to the terms and conditions of the agreement. On that basis, the court concluded that the parties had by conduct extended the agreement despite the NOM. See also, Wire and Wireless India Pvt. Ltd. v. Information TV Pvt. Ltd. MANU/TD/0093/2011. 

The Indian position is not yet as chiselled as the English position is. However, the Indian precedents are more or less in line with the minority view of the decision of the UK Supreme Court, which needs no changes or interference.

Party Autonomy and NOM Clause in the UK SC: Rock Advertising v MWB Business Exchange

The true scope of the elusive but all pervasive party autonomy doctrine was at the heart of the debate in the case of Rock Advertising Limited v. MWB Business Exchange Centres Limited. On the day when Kings XI fell just three runs short of the 186 runs scored by Mumbai Indians, the UK Supreme Court delivered two opinions in the case settling and at the same time unsettling the law on the validity of oral amendments to a contractual provision which prohibited oral modifications to an agreement (No Oral Modification or NOM Clause). While the two opinions coincided in the outcome, the reasoning and the scope of the party autonomy doctrine in the context of validity of oral amendments to NOM clauses were vastly different. While one opinion preferred commercial certainty, the other side sought to strike a balance between certainty and reality. No wonder the leading opinion began with these lines: "Modern litigation rarely raises truly fundamental issues in the law of contract. This appeal is exceptional." (Para 1)

In this post we will provide a descriptive comment of the decision of the UK Supreme Court of the majority opinion in the case and in a later post, we will look at the minority view and the Indian law on the subject.

Facts

Rock Advertising Limited ("Rock") entered into an agreement with MWB Business Exchange Centres Limited ("MWB"), a company engaged in the business of operating serviced offices. Rock, the licensee, was supposed to pay a monthly consideration to the licensor, MWB. Clause 7.6 of the agreement, which was the term in issue, read:

“This Licence sets out all of the terms as agreed between MWB and Licensee. No other representations or terms shall apply or form part of this Licence. All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.” (emphasis supplied)

Unfortunately, Rock defaulted in payments to MWB. Rock's sole director spoke over phone with an employee of MWB regarding the dues. The director contended that the MWB's employee agreed to vary the agreement by in line with the revised schedule of payment proposed by him, which MWB's employee denied. 

The Legal Proceedings

Thereafter MWB locked out Rock from the premises owing to Rock's failure to pay the arrears, then terminated the licence agreement,and sued for the arrears in the County Court. In the proceedings, Rock filed a counterclaim for damages for wrongful exclusion from the premises. 

Although the County Court found that (a) there was an oral agreement between the Director of Rock and the employee of MWB and (b) MWB's employee had the ostensible authority to enter into such an agreement, the court concluded that Clause 7.6 (quoted above) made such a variation agreement ineffective. Note that clause 7.6 (emphasised above) requires that a variation agreement should be agreed, in writing and signed on behalf of both the parties before they took effect.

The Court of Appeal decided in favour of Rock by holding that the oral agreement to revise the payment schedule amounted to an agreement to dispense with the requirements of Clause 7.6. On the contention that there was no consideration in the purported agreement, the Court held that the consideration was supported by consideration: that Rock would make payments as per the revised schedule of payments. MWB appealed to the Supreme Court.

Judgement of the UK Supreme Court

As noted above, there are two opinions, one by Mr Justice Sumption (with whom Ms Justice Hale, Mr  Justice Wilson and Mr Justice Lloyd-Jones agreed) and the other one by Mr Justice Briggs. We'll summarise the majority opinion in this post:

The Leading Decision by Justice Sumption

The reasoning part of Justice Sumption's opinion began by acknowledging the baseline legal position that "law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation." Next, the judge gave the analogy of statutes requiring certain agreements to be in specific forms and stated that there is no principle prohibiting parties from doing what a statute does by adopting formal requirements by contract..

The judge noted three reasons why No Modifications Clauses are recognised despite common law placing virtually no formal requirements for a valid contract:

• Such clauses prevents attempts at undermining agreements by informal means;
• It avoids disputes between the parties as to whether there was a modification in the agreement and the exact nature of the modification;
• A level of formality provides a level of internal control to the corporations on authority to effect such contractual modifications.

The judge felt that such "legitimate commercial reasons" do not act against any public policy and that case law disregarding them were entirely "conceptual", that is to say, did not serve substantial practical purpose. The conceptual justification to disregard NOM clauses was that parties who could agree on such clauses could also undo them.

The judge took aid from the international legal systems such as the UNIDROIT Principles of international Commercial Contracts and the Vienna Convention on Contracts for International Sale of Goods regarding the absence of formal requirements for contracting and the paradoxical recognition of NOM clauses. These were taken to suggest that there was "no conceptual inconsistency between a general rule allowing contracts to be made informally and a specific rule that effect will be given to a contract requiring writing for a variation."

Drawing the attention to Entire Agreement clauses, the judge took note of the coupling of such clauses with NOM clauses and found the commonality between these provisions: contractual certainty. The court "clarified" the legal position on the enforceability of entire agreement clauses by holding that such clauses may not operate where there is a collateral agreement (whose effect is against the entire agreement clause) which is supported by its own consideration, then most standard form Entire Agreement clauses would not have the effect of preventing such agreement's enforceability. However, the court clarified that if otherwise, the entire agreement clause would be given effect to.

As regards the parties' right to orally modify the agreement, the court held that it was not that oral modifications were forbidden; they simply agreed that oral modifications were forbidden. This is not to mean a party who made a representation so as to make the other rely on that representation and act on it can go without accepting the consequences. But for such a situation to arise, there should have been atleast "some words or conduct unequivocally representing that the variation was valid notwithstanding its informality; and something more would be required for this purpose than the informal promise itself".

On the basis of the above principles, the Judge Sumption concluded on facts that the oral variation was invalid as it did not satisfy the requirements of Clause 7.6 of the Agreement. The opinion of Judge Sumption left the question as to whether the consideration was adequate enough for MWB to accept a less advantageous schedule of payments to a larger bench and on another occasion.

More in the next post on this topic. The decision can be accessed from this link.

Sasan Power v North American Coal: Part I

Many initial news reports about Sasan Power Ltd. v. North American Coal Corporation India Private Limited said that Supreme Court allowed Indian parties to contract out Indian law or that Indian parties could agree to a foreign seat. Later reports make a little more sense in reporting what the judgement actually meant. Had there not been much publicity about the Madhya Pradesh judgement which preceded the Supreme Court decision, we do not think that the Supreme Court's decision would have surprised (disappointed?) many. There are two judgements in the case- the lead judgement by Chemaleswar, J. and the concurring judgement by AM Sapre, J.  

A crucial question was involved in the case: whether two Indian parties could contract out Indian law? Note that Section 28 of the Arbitration and Conciliation Act, 1996 provides that "Where the place of arbitration is situate in India, a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India..." Note also that Section 28 is in the context of arbitration law. Before this, the facts.

An Indian Company ("Sasan Power Ltd." or "Sasan") and an American company ("North American Coal Corp." or "NACC" or "American Coal") entered into an Agreement in January 2009 for mine development. Let's call this agreement "Agreement I" (as the Supreme Court did). Article XII of the Agreement provided that the Governing Law would be the laws of the United Kingdom" (whatever it meant!- England & Wales, North Ireland or Scotland?) and that dispute resolution would be by ICC Arbitration in London as seat. American Coal established a full owned Indian subsidiary which, for the sake of convenience can be referred to as "American Indian".

Now, Sasan, American Coal and American Indian entered into an Agreement ("Agreement II") whereby North American purported to assign all its rights and obligations with the consent of Sasan to American Indian. Agreement II also provided that American Coal was not relieved of its obligations and liabilities although Sason agreed to the transfer and assignment of the rights of American Coal to American Indian.

Disputes arose. American Coal wrote to Sasan terminating Agreement I and sought to refer the dispute to arbitration. Sasan, interestingly, approached the relevant District Court seeking several reliefs against American Indian (not American Coal, it may be noted). Sasan sought the relief of declaration holding Article XII of the Agreement as null, void, inoperative and unenforceable. Again, interestingly, there was absolutely no relief claimed in respect of Agreement II. 

Eventually, the suit was dismissed. On appeal, the Madhya Pradesh High Court held that where parties decided to resolve their disputes by arbitration in a seat outside India, Part I of the Act would not apply. On this basis, the MP HC held that if the agreement satisfied the requirements of Part II, Part II would apply, in which case the parties have to be referred to arbitration as per Section 45. The Court therefore dismissed the appeal. 

While summarising the MP HC decision, the Supreme Court made an interesting observation (See, para 11 of the SC judgement). The SC acknowledged that one of the grounds of appeal to the SC was that the HC erroneously rejected the contention that two Indian parties could not agree to have their arbitration seated outside India. But the SC stated: "We do not find from the impugned judgement anything to indicate that such a submission was made before the High Court." In other words, the Supreme Court clarified that although the MP HC held valid and enforceable an agreement whereby two Indian parties could agree to a foreign arbitral seat, such a submission was seemingly never made by the parties before the HC (at least from the decision of the HC)! It appears that the counsel of American Coal clarified before the Supreme Court that he was not making that submission. 

Wow! What was happening? Did the Madhya Pradesh High Court draw a rabbit out of the hat?!

In any case, the Supreme Court in Sasan did not decide on whether two Indian parties could agree to a foreign seat, in opposition to the Supreme Court's judgement in TDM Infrastructure. As the Supreme Court clarified in para 12 of its judgement in Sasan, the court confined itself to deciding whether two Indian companies could contract out Indian substantive law.

More on the interesting case in the next post. 

Exclusive Jurisdiction Clause: Sense Prevails Finally!

There was always a risk of exclusive jurisdiction clauses being held by the courts as non-exclsuive in the absence of specific words like "only", "alone" etc. For instance, in ABC Laminart v AP Agencies (1989) 2 SCC 163, the clause in issue provided that any dispute arising out of the sale "shall be subject to Kaira jurisdiction". Despite a clear choice of court, the Madras High Court and the Supreme Court (on appeal) held that the Salem court had jurisdiction to entertain a suit pertaining to the said sale.

 

In view of the ambivalent approach of the courts towards jurisdiction clauses, parties which could afford the cost of legal advice often used the terms "only", "alone", etc in the jurisdiction clauses to signify grant of exclusive jurisdiction to a particular court having jurisdiction. 

 

It may be noted that parties incur additional transaction costs for negotiating an additional contractual term. If so, the court should prudently give force to such clauses. Instead, requiring that jurisdiction clauses must be unequivocal and must employ terms such as  "only", "alone", etc. does fall flat of reason. Why should parties by agreement designate a particular court in their agreement if their intent is not to refer all disputes to that particular court?

 

In a recent judgement (03.07.2013) in M/s Swastik Gases P. Ltd. v. Indian Oil Corp., the Supreme Court has held the following clause to be an exclusive jurisdiction clause: "The Agreement shall be subject to jurisdiction of the courts at Kolkata." Of the three judges, Madan B. Lokur, J. in his concurring judgement has rightly stated  that "parties would not have included the ouster clause in their agreement were it not to carry any meaning at all... [I]f the parties had intended that all Courts where the cause of action or a part thereof had arisen would continue to have jurisdiction over the dispute, the exclusion clause would not have found a place in the agreement between the parties." (para 27, concurring judgement). Justice RM lodha (with whom Justice Kurian Joseph agreed) applied the maxim expressio unius est exclusio alterius (meaning the expression of one thing is the exclusion of another) and held that parties had intended that all disputes should be referred to the courts at Kolkata in the absence of any intent to the contrary. The court held: "Where the contract specifies the jurisdiction of the courts at a particular place and such courts have jurisdiction to deal with the matter, we think an inference may be drawn that parties intended to exclude all other courts."

 

The judgement can be accessed from here (pdf).

Roundup of Prominent Developments in India and Abroad on Arbitration

Union of India v. Krafters Engineers (Supreme Court of India)

In Union of India v M/s Krafters Engineers, the Supreme Court of India clarified the law on the power of the arbitrator to award interest when the contract prohibits it. See the comments in the Indian Corporate Law Blog and the Lex Arbitri Blog.

Jivraj v Hashwani (UK Supreme Court) Nurdin Jivraj v Sadruddin Hashwani is an important case decided (pdf) by the UK Supreme Court. The issue was whether an arbitration clause requiring that the arbitrators should be from a particular religious community was valid. The English Court of Appeal had previously held that such a requirement violated the English Employment Equality (Religion or Belief) Regulations 2003 and was therefore void. The Court of Appeal had also held since the arbitration clause became substantially different if the void portion of the arbitration was severed, the entire arbitration clause was void. The UK Supreme Court overturned the decision of the Court of Appeal and held that the Employment Equality (Religion or Belief) Regulations 2003 was not applicable as arbitrators were not employees under the Regulations but were independent providers of service. Comments on the judgement can be found in UKSC Blog, Kluwer Arbitration Blog, Indian Corporate Law Blog and Lex Arbitri Blog.

Barclays Bank v Nylon Capital (English Court of Appeal on Expert Determination)

 
In this case, the English Court of Appeal had to decide on the question as to whether the court should stay proceedings brought for a declaration as to the interpretation of an agreement for the reason that the issue falls within the domain of the expert appointed as per the expert determination clause in that agreement. The said clause provided that the expert shall determine the matters in dispute between the parties and such determination may include dispute as to the interpretation of any provision of the agreement or even his jurisdiction. Such determination was to be final and binding on the parties. The court decided as follows:

• Even if the agreement confers jurisdiction on the expert to decide a question pertaining to the jurisdiction of an expert, the court is the “final decision maker” on the question.
• In construction of arbitration clauses, there is a presumption that sensible businessmen intended that any dispute arising out of an agreement should be decided by the arbitral tribunal. However, there is no such presumption as regards expert determination clauses. Therefore, the question as to whether a matter was to be referred to an expert or not is a matter of construction of the expert determination clause with “no presumption either way”.
• It is an established principle that courts would not interfere with the determination of experts except in narrow circumstances. Courts would interfere where the expert determines the issue referred to him in a manner contrary to the mandate conferred upon him by the parties. Whether the expert had acted contrary to his mandate is a question of law.
• Unlike an arbitrator who is bound to proceed with fairness, an expert can determine how he can proceed, subject, of course, to any stipulation in the agreement.
• Where the court is asked to determine whether a dispute is within the expert’s jurisdiction and if the agreement provides that such a question should be decided by the expert, the court should decide, first, if there is a dispute; second, the court should decide if it is in the interests of justice and convenience that it should decide the dispute.
• When an expert determines questions pertaining to his jurisdiction, such determinations are not final even if the parties agree. Such determinations can always be challenged.
• Where a party challenges the jurisdiction of the expert to determine a dispute, the said party could approach the court and the court would determine the issue of jurisdiction of the expert.

Use of And/ Or in Legal Documents:

Indian Corporate Law Blog had a small post a few days back providing the link to an article on the use “And/ Or” in legal writing.

Kishanganga Arbitration:

Lex Arbitri has a post on the latest developments in the Kishanganga arbitration between India and Pakistan.

Some Very Interesting Reads on Contract Law and Arbitration

Recently, two interesting articles were published in SSRN on contract law

The first article titled “Contract Law, Party Sophistication and the New Formalism”, penned by Meredith Miller, criticizes the law as it exists on the impact of party sophistication in the interpretation of contracts. The author does not wholly discount the party sophistication concept. Rather, according to the author, the courts have not addressed the issue of party sophistication in a meaningful way. Do check this article out (44 pages).

In the case of Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44, the UK Supreme Court dealt with the law pertaining to whether “without prejudice” communications during negotiations would form a part of factual matrix that is relevant extrinsic aid to contract interpretation.

This article titled “Without Prejudice Interpretation – With Prejudice Negotiations” by Adrian A. S. Zuckerman critically analyses the decision. Do check it out. Extremely interesting and short (10 pages).

Also do check out this case comment in the UK SC Blog on the said case.
A few interesting articles on arbitration. (ideally these must be a part of the monthly roundup of arbitration articles but then these are very hot reads.

David Schwartz hates using the term “mandatory arbitration” to the situation where the party that solely drafted the contract enforces the arbitration clause contained in it against the other party which has weaker bargaining power and had no positive role to play in the drafting of the contract. He wants to call such arbitration as “claim-suppressing arbitration” in this article titled “Claim-Suppressing Arbitration: the New Rules”. Do check it out. He is in favour of the passing of the Arbitration Fairness Act (USA). Interesting read.

Empirical Legal Studies Blog has come up with links to a couple of empirical studies on arbitration. I have not read the articles but the description in the ELS blog post projects the articles to be very interesting. The links to the said articles are provided below (subscription required):

An Empirical Study of Employment Arbitration: Case Outcomes and Processes, 8 Journal of Empirical Legal Studies 1 (2011) by Alexander Colvin

Punitive Damages in Securities Arbitration: An Empirical Study, 39 Journal of Legal Studies 497, 518 (tbl. 4) (2010) by Stephen J. Choi & et al.

Liability of the Purchaser for the Electricity Dues of the Previous Owner

Haryana State Electricity Board v. Hanuman Rice Mills & Ors.

Civil Appeal No. 6817 of 2010

20 August 2010

RV Raveendran & HL Gokhale, JJ.

This case involved an interesting issue. Haryana Financial Corporation (HFC) could not repay the money it had taken as loan from Durga Rice Mills (Durga). So HFC auctioned its rice mills to repay the dues. Hanuman Rice Mills (Hanuman) purchased it for a particular sum. At the time of purchase, the electricity connection was disconnected. So Hanuman obtained its own electricity connection in 1991. In 1995, Hanuman received a notice for payment of Rs. 2,39,251 towards arrears of electricity charges due by Durga. Against the said notice from the Haryana State Electricity Board (HSEB), Hanuman filed a suit for permanent injunction. Hanuman failed in the trial court and the first appellate court but succeeded in the High Court. So HSEB appealed against the HC decision. The fundamental issue was whether Hanuman was liable for clearing the dues of Durga. The Supreme Court, citing the previous cases (especially the case of Isha Marbles v. Bihar SEB), summarized the principles laid down in this connection:

“(i) Electricity arrears do not constitute a charge over the property. Therefore in general law, a transferee of a premises cannot be made liable for the dues of the previous owner/occupier.

(ii) Where the statutory rules or terms and conditions of supply which are statutory in character, authorize the supplier of electricity, to demand from the purchaser of a property claiming re-connection or fresh connection of electricity, the arrears due by the previous owner/occupier in regard to supply of electricity to such premises, the supplier can recover the arrears from a purchaser.”

In this case, since there were no statutory rules or terms authorizing the supplier of electricity to demand arrears of electricity charges due by the previous owner from the purchaser of a property who has been given a fresh connection. The court also took note of the case of Dakshin Haryana Bijli Vitran Nigam Ltd. v Paramount Polymers Pvt. Ltd., where the Supreme Court held that the subsequent purchaser was liable for the arrears of electricity charges due by the previous owner in view of the clear stipulation in the terms and conditions of supply. In Paramount Polymers, the said stipulation read:

"21-A (a) When there is transfer of ownership or right of occupancy of a premises, the registered consumer shall intimate the transfer of right of occupancy of the premises within 15 days to the Assistant Engineer/Assistant Executive Engineer concerned. Intimation having been received, the service shall be disconnected unless application for transfer is allowed. If the transferee desires to enjoy the service connection, he shall pay the outstanding dues, if any, to the Nigam and apply for transfer of the service connection within 30 days and execute fresh agreement and furnish fresh security. New Consumer number shall be allotted in such cases canceling the previous number.

(b) Reconnection or new connection shall not be given to any premises where there are arrears on any account due to the Nigam unless these are cleared in advance. If the new owner/occupier/allottee remits the amount due from the previous consumer, the Nigam shall provide reconnection or new connection depending upon whether the service remains disconnected/ dismantled as the case may be. The amount so remitted will be adjusted against the dues from the previous consumer. If the Nigam get the full or partial dues from the previous consumer through legal proceedings or otherwise, the amount remitted by the new owner/occupier to whom the connection has been effected shall be refunded to that extent. But the amount already remitted by him/her shall not bear any interest.

(c) The above proposed provisions of clause 21-A(a) & (b) shall be applicable to existing consumers also where defaulting amount exists against premises occupied by such consumer."

Note that 21-A(a) covered cases where the purchaser sought transfer of the connection of the previous owner and 21-A(b) covered cases where the purchaser sought a new connection. In both the cases, the obligation rested on the purchaser to clear the dues. Since the above term was notified only in 2002, it was not applicable to Hanuman.

The “moral of the story” is that purchasers of property ought to be careful when they buy property. It is better to include a clear indemnity clause in the transaction documents protecting the purchaser from such liability. As a preventive measure, enquiries may be made in the State Electricity Board if such dues are pending.