Sunday, October 7, 2012

Enercon India – Alloys Wobben Saga: Bombay High Court Directs Parties to Arbitrate

I had earlier blogged on the judgment of a Division bench of the Delhi High Court in Dr.Alloys Wobben v. Yogesh Mehra & Ors. delivered on January 20, 2012, in which the the DB had held that both a counter-claim and a revocation petition could be explored simultaneously against the same patent.

In a related contractual dispute between the parties which appears to be the root of all contentions between the parties, the Bombay High Court delivered its decision (available here) on October 5, 2012 in Writ Petitions filed by Enercon India against orders passed by the District Judge of Daman. According to the decision, both warring factions have been directed to resolve their disputes through arbitration provided for in the Intellectual Property License Agreement (IPLA) previously entered into between the parties.

The detailed facts leading to the writ petitions are as follows:

1. Petitioners/Plaintiffs: Enercon India, Yogesh Mehra and Ajay Mehra (Mehra brothers are directors of Enercon India)
2. Respondents/Defendants: Enercon GmBh (Dr.Alloys Wobben is its Director) and Wobben Properties Gmbh
3. Shareholding Pattern in Enercon India (Joint Venture Company): Enercon GmBh- 56%, Mehra Brothers- 44%
4. Owner of Patents on Windmill technology- Wobben Properties Gmbh, Licensor- Enercon GmBh, Licensee- Enercon India
5. A Technical Know-How Agreement was entered into in 1994 between Enercon GmBh and Enercon India under which Enercon Gmbh agreed to transfer to Enercon India the right and the technology to use the technical know-how for the manufacture of E-26 Wind Turbine Generators 
6. A Supplementary Technical Know-How Agreement entered into in 2000 amended the 1994 agreement and granted a licence to Enercon India to manufacture the E-30 and E-40 Wind Turbine Generators.
7. The Agreement expired in 2004, however Enercon GmBh continued to supply Wind Turbine Generators and components to Enercon India.
8. In 2006, parties entered into a comprehensive arrangement by the name “Agreed Principles” which governed the use and supply of windmill technology. Under the Agreed Principles, parties further entered into an Intellectual Property License Agreement ("IPLA") on September 29, 2006, which was the subject matter of the dispute between the parties in the Writ Petitions.

According to Enercon India:
A. “the Agreed Principles are the binding principles agreed between the parties, and which records an agreement that all definitive agreements between the parties that were to be prepared and finally executed would be on the basis of the binding principles agreed therein. One of the agreements contemplated by the said Agreed Principles was the IPLA

B. “the IPLA signed in September 2006 was merely a draft of the oral terms and not a concluded contract between the parties. It was their case that the said document was an unincorporated and inchoate document and was not a concluded contract

C. This, according to Enercon India, was supported by a communication received by it from a representative of Enercon Gmbh dated October 4, 2006 in which it was conveyed by the representative that she “would try her best to prepare/adapt the agreements according to the Agreed Principles”.

D. On October 18, 2006, the same representative informed Enercon India that the IPLA signed in September 2006 was the final document.

Subsequent to this, parties exchanged notices arguing on whether or not the IPLA was final and binding. Enercon GmBh stopped supplying generators and components to Enercon India and litigation ensued, which is captured in brief below:

Litigation between the Parties
i. Enercon India filed a suit before the Bombay HC seeking an interim relief to the effect that supply of generators and components be resumed. Enercon GmBh did not comply with the order, resulting in the filing of a contempt petition against it by Enercon India.
ii. In response, Enercon GmBh moved the Company Law Board, Delhi for removal of Mehra brothers as directors of Enercon India. The Mehra brothers in turn filed a company petition against Enercon BmBh for oppression and mismanagement.
iii. Besides, Enercon GmBh also secured an ex parte injunction from the Hamburg District Court against Enercon India restraining the latter from supplying generators under the trademarks of Enercon GmBh. The injunction was subsequently set aside by the Hamburg Court on grounds of lack of evidence against Enercon India.

Finally in March 2008, Enercon GmBh evinced interest in settling all outstanding disputes with Enercon India, including the question of the IPLA, and invoked the arbitration clause provided for in the IPLA. Enercon India responded stating that since the IPLA was not a concluded contract, there was no valid arbitration agreement in place. Also, according to Enercon India, by its litigious conduct Enercon GmBh had waived the arbitration agreement.

Enercon GmBh then filed for a declaratory judgment in a UK Court against Enercon India, inter alia seeking an anti-suit injunction against Enercon India to restrain it from continuing with the suit proceedings before the Bombay High Court.

On its part, Enercon India filed a suit before Senior Division Judge, Daman seeking – “a declaration that the IPLA was not a concluded contract and correspondingly that there was no Arbitration Agreement between the parties; for a declaration that the initiation of proceedings before the English Court by the Respondents was void and illegal; and for a permanent injunction restraining the Respondents from continuing with the proceedings before the English Court”.

The Senior Division Judge, Daman passed an ex parte order restraining Enercon GmBh from proceeding with the suit before the UK Court. Subsequently, Enercon GmBh appeared before the Daman Judge and moved an application under Section 45 of the Arbitration Act contending that the suit must be referred to arbitration under the IPLA. The Senior Division Judge dismissed Enercon GmBh’s application and confirmed the anti-suit injunction.

Enercon GmBh appealed to the District Judge, Daman who set aside the decision of the Senior Division Judge on the grounds that since the Mehra Brothers had signed in the IPLA in September 2006, it was a concluded contract, and hence the arbitration clause was valid.

Against this decision of the District Judge, Enercon India and Mehra brothers preferred writ petitions before the Bombay High Court.

Writ Petitions before the Bombay High Court
In the Writ Petitions filed by Enercon India and the Mehra Brothers (Petitioners), the Bombay High Court concluded that the IPLA was a concluded contract, and that the arbitration agreement too was valid, based on the following reasons:

A. 19.The inquiry contemplated under Section 45 is therefore of a prima facie nature of the existence of an Arbitration Agreement. If the Court comes to a prima facie conclusion that there is an Arbitration Agreement and the same is legal and valid, the matter must be referred to the Arbitral Tribunal for further consideration which can thereafter conclusively decide either way. If the Court comes to the prima facie conclusion that there is either no Arbitration Agreement or that the same is not valid in law, the Court must then proceed to determine the same finally and conclusively.

B. 22.... The aforesaid Judgments of the Apex Court as well as the United States Supreme Court, make it clear that the Arbitration Agreement would survive even in case of invalidity of the main agreement or the underlying contract. It is only in cases where the underlying contract is vitiated by fraud, coercion or misrepresentation that the same would impact the Arbitration Agreement. 23 The principles of severability and separability of the Arbitration Agreement is common both under the English Arbitration Act, 1996 and the Indian Arbitration Act 1996...

C. 24....The Learned Senior Counsel for the Petitioners laid much store on the correspondence post 29-9-2006 i.e. the date when the IPLA was signed, to contend that the IPLA was not a concluded contract. However, the correspondence prior thereto between the parties indicates otherwise. If the said correspondence is seen, to which my attention is drawn by the Learned Senior Counsel appearing for the Respondents, the same discloses that it was on 27-6-2006 i.e. a good three months prior to its execution,that the draft IPLA was sent to the Petitioners. The said IPLA had already undergone changes on the basis of the suggestions of both the parties and the final document was kept ready on 29-9-2006 as the Petitioner No.2 had shown his inability to come to Aurich on 17-9-2006 when it was to be executed.

D. 24.... The most important letter if it can be said so, is the letter dated 30-9-2006 which is addressed by the Petitioner No.2 Yogesh Mehra in his own handwriting stating therein that he has executed not one but more than one agreement on 29-9-2006. Pertinently in paragraph 2 of the said letter, the Petitioner No.2 has in fact referred to the patent of E-82 being the subject matter of the IPLA and not the Agreed Principles

E. 29. The defining aspect is the intention of the parties to go for arbitration which intention is clearly manifest in the IPLA.

F. 37 This Court has taken a prima facie view that there is in existence an Arbitration Agreement and therefore the parties can be referred to arbitration. In so far as instant Petition i.e. Writ Petition No.7636 of 2009 is concerned, the question is whether the Petitioners are entitled to an anti suit injunction, and whether the English Courts have jurisdiction.

G. 38 The adjudication of the said aspect therefore revolves around the interpretation of clause 18.3 of the IPLA. For the sake of convenience, the said clause 18.3 is revisited herein under for the purposes of the present Petition. "Clause 18.3---- All proceedings in such arbitration shall be conducted in English. The venue of the arbitration proceedings shall be London. The arbitrators may (but shall not be obliged to) award costs and reasonable expenses (including reasonable fees of counsel) to the Party(ies) that substantially prevail on merit. The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply"

On the basis of this clause, the Bombay High Court finally concluded as follows in Para 55:

55. On an interpretation of clause 18.3 of the IPLA this Court has reached a conclusion that the curial law or Lex Arbitri would be the Indian Arbitration Act. Though the Indian Arbitration Act would apply, however, in view of the fact that the parties have chosen London as the venue for the arbitration meetings, the English Courts would have concurrent jurisdiction and therefore the jurisdiction of the English Courts can also be invoked by the parties for taking such measures as are required in support of arbitration. The judgment and order of the Lower Appellate Court on the aspect of anti suit injunction is, therefore, sustained but on a different ground which is mentioned in the body of this Judgment.

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