IMPORTANT POINTS
An arbitration clause is a collateral term in the contract, which relates to resolution of disputes, and not performance.
Merely because the parties have agreed that the venue of arbitration shall be Hong Kong, it does not follow that Laws in force in Hong Kong will apply.

JUDGMENT

R.V. RAVEENDRAN, J.—

This petition under section 11(5) of the Arbitration and Conciliation Act, 1996 (‘Act’ for short) is filed for appointing a sole arbitrator to adjudicate upon the disputes between the petitioner and respondent.

2.The petitioner alleges that the respondent entered into an agreement dated 28.2.2005, agreeing to purchase from the petitioner 40,000 MT (plus or minus 10%) of iron-ore fines at FOB price of US$ 50 per dry MT, subject to the terms and conditions of the said agreement. Clause 17 of the said agreement providing for settlement of disputes by arbitration is extracted below :

“17. Arbitration: Any dispute arising out of or in this connection with this contract or the execution thereof shall, to the extent possible, be settled amicably by negotiation and mutual agreement between the Seller and the Buyer. If no settlement can be reached in this way, the matter in dispute shall then be referred to and finally resolved by arbitration in Hong Kong in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any other statutory modification, enactment or amendment thereof for the time being in force.”

3.The petitioner alleges that respondent failed to nominate the vessel in terms of the contract in spite of several reminders and ultimately refused to take delivery of the cargo; that in view of breach by the respondent, the petitioner had to sell the cargo at Rs.1010/- per MT (as against the contract price of Rs.2190/-) incurring a loss of Rs.1180/- per MT; that it had to incur storage charges for storing the cargo for more than five months; that it had to incur freight charges for moving a part of the cargo from Karwar Port to Mangalore Port; that the amount invested in the cargo was locked up for considerable period involving loss of interest on the value; and that as a consequence, respondent is liable to pay a sum of Rs.11,50,57,488/- (= US $26,27,568). The alleged refusal/repudiation by the respondent gave rise to a dispute and the petitioner by a notice dated 21.9.2005 through counsel, invoked the arbitration agreement and furnished a panel of three names to enable the respondent to give concurrence for appointment of any one of them as the sole arbitrator. The respondent sent a reply refusing to comply. This led to the filing of the present application under section 11(5) of the Act, seeking appointment of the sole arbitrator.

4.The respondent has resisted the petition. The contentions of respondent in brief are :

(a)It had complied with its contractual obligation by nominating a vessel to collect the cargo, but the petitioner failed to accept in time; that the port was subsequently closed due to monsoon and therefore it was no longer feasible to continue the contract on FOB terms; and that at a meeting held at Shanghai on 25.4.2005, the representatives of parties had agreed to cancel the contract dated 28.2.2005 which was on FOB terms and decided to enter into new negotiations for a fresh contract on CFR terms. As a result, the agreement dated 28.2.2005 including the arbitration agreement which is apart of it, is no longer in force and therefore, the petition for appointment of an Arbitrator in terms of the clause 17 of the agreement was not maintainable.

(b)Part I of the Act applies only where the place of arbitration is in India. As place of arbitration is Hong Kong, outside India, the provisions in Part I including section 11 of the Act are inapplicable and this Court has no jurisdiction to appoint an arbitration. The arbitration agreement requires that the disputes to be referred and resolved at Hong Kong. Therefore, the law of arbitration, as in force in Hong Kong, will govern the arbitration. Consequently, the reference to “Arbitration and Conciliation Act, 1996" in clause 17, is meaningless and redundant. As per the Hong Kong law, the Arbitrator can be appointed only by the Hong Kong International Arbitration Centre.

5.On the aforesaid contentions, the following questio