Lloyd's Law Reporter
ARSANOVIA LTD V CRUZ CITY 1 MAURITIUS HOLDINGS
[2012] EWHC 3702 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Andrew Smith, 20 December 2012
Arbitration - Jurisdiction - Law applicable to arbitration agreement - Arbitration Act 1996, section 67
Arsanovia and Burley, subsidiaries of Unitech, entered into a joint venture with Cruz City for slum clearance in Mumbai. A
company, Kerrush, was formed, with Arsanovia and Cruz City as shareholders under a shareholders' agreement (SHA) to which
Burley was also a party. Under a separate agreement entered into by Unitech, Burley and Cruz City, the Keepwell Agreement,
Unitech agreed to put Burley in funds so that it could make payments under the SHA. Both the SHA and Keepwell Agreements were
governed by the law of India, but each contained arbitration clauses providing for arbitration in London under the rules of
the London Court of International Arbitration. The parties specifically agreed that they would not seek any interim relief
in India under the LCIA Rules or under the Arbitration and Conciliation Act 1996 of India, and that the provisions of Part
I the Indian Act were excluded. Even though the seat of the arbitration was England, both the SHA and Keepwell Agreements
were stated to be governed by Indian law. It will be noted that there was no choice of the law governing the arbitration agreement.
On 14 July 2010 Arsanovia served a notice under the SHA triggering buy-out provisions as against Cruz City on the basis that
the controller of Cruz City - Lehman Brothers - had filed for Chapter 11 bankruptcy protection in the US. By way of response,
on 13 September 2010 Cruz City purported to exercise a put option under the SHA, whereby Arsanovia was required to buy out
Cruz City by reason of the fact that the project had not been completed, but on terms much more favourable to Cruz City than
under the bankruptcy buy-out. Two arbitrations followed, the arbitrators ruling in favour of Cruz City. Arsanovia, Burley
and Unitech appealed. They argued in respect of the award in respect of the SHA that the arbitration agreement was governed
by Indian law, and that under Indian law Burley was not a party and the award was void because the arbitration had been commenced
against both Arsanovia and Burley, a non-party. As regards the Keepwell award, Unitech argued that it was not possible to
determine its own liability until liability under the SHA had been resolved.
The Court of Appeal held as follows.
(1) By excluding specific provisions of the Indian Arbitration Act 1996, the parties had impliedly chosen Indian law to govern
the arbitration clauses.
(2) Whether English or Indian law was applied, Burley was not a party to the arbitration agreement in the SHA.
(3) Under Indian law, if Burley was not a party then the proceedings brought against Arsanovia and Burley were void. Accordingly,
the first award should be set aside under section 67 of the 1996 Act.
(4) The arbitration clause in the Keepwell Agreement was governed by English law.
(5) The arbitrators had jurisdiction to make the second award. Indian law did not preclude a ruling on the liability of Unitech
under the Keepwell Agreement before issues under the SHA had been resolved, and the arbitrators were required to reach a decision
on the point.