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Reference to Arbitration in case of Multiple Agreements between the Parties

Updated: Sep 26, 2023

by Aditi & Hrishabh


Introduction

Parties frequently enter into multiple agreements with respect to the same transaction. Such parties may enter into some sort of an umbrella/general agreement which sets out the general terms of performance of obligations between the parties and also subsequent agreements which lay down the specific details of the performance. These subsequent agreements commonly take the form of purchase orders issued under general agreements or hire agreements for equipment. The parties may sometimes execute a number of documents forming part of the contract. In some of the cases, these documents may contain different arbitration clauses.

In such situations, when any dispute arises, the Courts have to identify which arbitration clause would govern the arbitration. The Supreme Court of India [‘SC’] has time and again recognized that the intention of the parties holds absolute primacy while interpreting the agreements amongst parties. The same is deduced by perusing contractual documents, the communications between the parties, and the conduct of the parties. The present article discusses and analyzes the settled stance and general trend of the courts in these different sets of situations where there exist multiple agreements referring to arbitration in different, sometimes overlapping ways.


Main Agreement v. Subsequent Agreements

In Balasore Alloys Limited v. Medima LLC, the parties entered a transaction for the supply of High Carbon Ferro Chrome. Numerous purchase orders were placed specifying the details of the supply to be made. The parties also entered into an agreement referred to as a “pricing agreement” relating to the same transaction. Both the purchase orders and the pricing agreement contained different arbitration clauses. The main issue for consideration before the Hon’ble SC was to determine which arbitration clause would be applicable when the multiple agreements containing different arbitration agreements had concurrent jurisdiction over the dispute.

The SC relied on its judgment in the case of Olympus Superstructures Pvt. Ltd. vs. Meena Vijay Khetan & Ors. and called for harmonizing the two clauses as per the parties' intention to avoid overlapping the conflicts covered by the two agreements. Thus, reconciling both clauses and avoiding conflicting awards, the Apex Court held that the parties should get the dispute resolved under the main agreement and if the dispute is not covered under the main agreement, then only the clause of the subsequent related agreement would come into play.


When the Purchase Orders Submit to the Courts’ Jurisdiction

In Sanghvi Movers Limited v. Vivid Solaire Energy Private Limited, the respondent argued that the parties had not submitted to the process of arbitration in relation to the disputes raised by the petitioner. The purchase orders contained no arbitration clause but rather submitted to the jurisdiction of the courts in Delhi. The respondent contended that the relationship between the parties arose out of and was governed by the purchase orders as the same did not make any mention of the contract dated 18.01.2021, which was contended to be the umbrella/main agreement. In such a scenario, the dispute cannot be referred to arbitration under the main contract.

The High Court of Delhi found that the purchase orders in fact made reference to the equipment packages as described in the contract dated 18.01.2021. The court, therefore, concluded that the said contract prescribes the general agreement between the parties, and the purchase orders give a description of the specific quantities which are required for specific periods. Therefore, the contract and the purchase orders were intrinsically intertwined with each other and are connected fundamentally to the transaction between the parties. Relying on the Supreme Court judgment in Balasore Alloys, the court held that when there is a dispute under the main contract then the parties can be referred to arbitration. The court allowed the appeal as the disputes raised by the petitioner related to the non-performance of an obligation under the main agreement, i.e., failure to secure the right of way.


When the Main Agreement is Entered into at a Later Date than the Purchase Orders

In Balasore Alloys, the counsel for the applicant pointed out the date on which the pricing agreement was entered into and contended that the same cannot be applicable to purchase orders entered before. But the court again referred to the intention of the parties and found that the contractual terms itself provided for the retrospective date of enforcement of the contract and covered all purchasing orders. While the purchase orders contained the arbitration clause, the same was for the limited purpose pertaining to more specific matters. Essentially, if the disputes could be referred to under the comprehensive terms and conditions of the main agreement, the arbitration clause of the main agreement would be placed reliance on while the arbitration clause provided in the purchase orders is for a limited purpose, not provided for in the main agreement. Thus, in the case of Balasore Alloys, the arbitration clause in the main agreement was adjudged to govern the dispute that has arisen among the parties with regard to price and terms of payment instead of the arbitration clause in the purchase order which is for the limited purpose of supply of the produce with more specific details.

Even in Sanghvi Movers, the purchase order was issued prior to the main agreement. However, the letter of intent for the purchase order clearly mentioned that the detailed contract shall be executed for the purpose of billing and capturing detailed terms and conditions. This clearly signified the intention of the parties to be governed by the main contract.


Multiple Arbitration Clauses contained within Different Documents Forming Parts of Same Agreement

The Delhi High Court, in the case of Johnson Controls-Hitachi Air Conditioning India Ltd. v. Mahamaya Infrastructure Private Limited, dealt with the issue of contradictory arbitration clauses under different contract documents executed under a single contract. Unlike Balasore, the Letter of Acceptance (the LOA), the General Conditions of Contract (the GCC) and the Special Conditions of Contract (the SCC) in the present case formed parts of a single integrated agreement. Furthermore, no harmonization was possible between the arbitration clauses contained in the LOA and SCC since both laid a completely different procedure for the appointment of the arbitral tribunal .

In the said case, the court relied on a particular clause of the General Conditions of the Contract which accords an order of precedence to different contract documents if the provisions in different documents govern the same aspect. As per the aforementioned clause of GCC, the LOA would take precedence over the SCC. The court, therefore, ordered for the constitution of the tribunal as per the procedure laid down in the LOA.

Another interesting aspect of this case is that the arbitration clause contained in the LOA provided for the unilateral appointment of the arbitrator. The Court agreed that the method of appointment would not hold good in light of the Supreme Court judgment in Perkins Eastman and TRF v. Energo Engineering. However, this consideration did not convince the court to prefer the arbitration clause contained in the SCC over the one contained in LOA.


Conclusion

Analysing the trend followed by the courts, it can be concluded that the courts, while reconciling the conflict between the contradictory clauses, have primarily referred to the intention of the parties. The intention of the parties has been further gauged from the contractual terms agreed upon by the parties and further, the focus has been also placed upon the nature of dispute between the parties. While there is no straight jacket formula that the courts have agreed upon to be applied in case of contradictory arbitration clauses, the common chain between the above-discussed and similar cases is reconciliation of the conflicting clauses with the aid of the intention of parties taken in totality. Arbitration is chosen over litigation for its efficiency and speed and at the same time, the binding character of the awards. However, the conflicting awards arising due to different arbitration clauses, varying in the grant of jurisdiction or the forum of arbitration or for some other reasons, of the same transaction may render the whole process of arbitration inefficient. Hence, the courts’ stance of harmonisation and reconciliation is well appreciated in the yet booming landscape of arbitration in India.


Aditi is a third year student at RGNUL, Punjab at the time of this Publication. You can reach her here.

Hrishabh is a final year student at RGNUL, Punjab at the time of this Publication. You can reach him here.

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