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Perspectives
29 Feb 2016

Arbitration agreements to be interpreted in the way parties intended

Indian Supreme Court issues new BALCO ruling: arbitration agreements to be interpreted in the way parties wanted and intended
-Ms Detty Davis & Mr Sameer Bindra, Juris Corp

In Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc, 2016 (2) SCALE 60, the Indian Supreme Court considered the scope of an arbitration agreement and whether the parties had agreed to exclude, expressly or impliedly, in whole or in part, Part I of the Arbitration and Conciliation Act 1996.

Speedread

The Indian Supreme Court has issued a new ruling in the dispute between Bharat Aluminium Company and Kaiser Aluminium Technical Services Inc, commonly referred to as BALCO. The court held that, as Indian law was not the applicable law, the parties had excluded Part 1 of the Arbitration and Conciliation Act 1996. (Bharat Aluminium Company v Kaiser Aluminium Technical Services Inc, 2016 (2) SCALE 60.)


In the long running dispute between Bharat Aluminium Company and Kaiser Aluminium Technical Services Inc (BALCO), the Indian Supreme Court has held that, under the terms of the relevant arbitration agreement, the parties had excluded the application of Part 1 of the Arbitration and Conciliation Act 1996 (the 1996 Act).
In 2012, the Supreme Court of India held that Part I of the 1996 Act) was only applicable to arbitrations which take place within the territory of India

The question before the Supreme Court on this occasion was whether the parties had agreed to exclude, expressly or impliedly, in whole or in part, Part I of the 1996 Act. The appellant had filed this appeal against the order of the Indian High Court which had held that an application to set aside the award under section 34 of the 1996 Act could not succeed because the parties had excluded the provisions of Part 1 of the 1996 Act.

The arbitration agreement in the relevant contract clearly stipulated that disputes or claims arising out of or relating to the agreement, if not amicably settled by negotiation, would be settled by arbitration pursuant to English Arbitration Law. The Supreme Court interpreted the expression "pursuant to" using the definition in the Concise Oxford English Dictionary, which defines the term as "in accordance with".
After interpreting the terms of the arbitration agreement, the Supreme Court held that the terms of the contract should be interpreted and understood in the way the parties wanted and intended them to be. It further stated this was of particular importance where party autonomy governs the arbitration procedure.

Accordingly, the Supreme Court held that because the applicable law governing the arbitration agreement was not Indian law, it would uphold the High Court order. Lastly, the Supreme Court further clarified that its ruling here was to be applied prospectively to arbitration agreements executed post 6 September 2012. This means that proceedings based on arbitration agreements executed prior to 6 September 2012 will be still governed by the principles enunciated in the decision of Bhatia International v Bulk Trading SA and another (2002) 4 SCC 105

DISCLAIMER: This update was first published on Practical Law Arbitration