Enercon v. Enercon: Indian Supreme Court on arbitration/conflict of laws

The Supreme
Court of India in Enercon (India) v.Enercon GmBH (Civil Appeals 2086 & 2087 of 2014; judgment dated
February 14, 2014) has decided several important questions pertaining to the
law of arbitration and private international law. To summarize, the Court has held:
i.                    
An arbitration agreement cannot be avoided on
the basis that there is no concluded contract between the parties. A reference
to arbitration can only be avoided (in the context of international commercial
arbitration) if the arbitration agreement is ‘null and void, inoperative or
incapable of being performed’. An averment that the underlying contract
containing the arbitration clause is not a concluded contract does not, in the
view of the Court, fall within the scope of these phrases. The Court held, “The submission is that the matter cannot be
referred to arbitration as the IPLA, containing the arbitration
clause/agreement, is not a concluded contract. This, in our opinion, would not
fall within the parameters of an agreement being “null and void, inoperative or
incapable of being performed.
” In such circumstances, in the absence of a “fundamental legal impediment”, whether
the underlying contract is a concluded contract or not is required to be left
to the arbitral tribunal. It is important to note that these observations were
in the context of a purported agreement where, there was a specific arbitration
clause which was expressly stated to be legally binding. In these circumstances,
the Court held that the “intention to
arbitrate has continued without waiver…
ii.                  
In determining whether an arbitration clause is
unworkable or incapable of being performed, “the court ought to adopt the attitude of a reasonable business person,
having business common sense as well as being equipped with the knowledge that
may be peculiar to the business venture. The arbitration clause cannot be construed
with a purely legalistic mindset, as if one is construing a provision in a statute.

The Court strongly agreed with Lord Diplock’s statement in Salen Rederiema [1988] 1 AC 191: “If detailed semantic and syntactical analysis of words in a commercial
contract is going to lead to a conclusion that flouts business common sense, it
must be made to yield to business common sense…
” The clause that ‘each party shall appoint an arbitrator…
making it in all three arbitrators
’ was not unworkable; and the Court could
supply the omission by a process of implication. The Court held, “the missing line that ‘the two Arbitrators
appointed by the parties shall appoint the third Arbitrator’ can be read into
the arbitration clause… The court would be well within its rights to set right
an obvious omission.
iii.                 
The mention in the arbitration clause that
London was the ‘venue’ of the arbitration could not lead to the inference that
London was to be the seat. This was so in particular because although London
was termed as the ‘venue’, the law governing the substantive contract, the law
governing the arbitration agreement and the law governing the conduct of the
arbitration were chosen to be Indian law; and the closest and most real
connection was with India. “Given the
connection to India of the entire dispute between the parties, it is difficult
to accept that parties have agreed that the seat would be London and that venue
is only a misnomer. The parties having chosen the Indian Arbitration Act, 1996
as the law governing the substantive contract, the agreement to arbitrate and
the performance of the agreement and the law governing the conduct of the arbitration;
it would, therefore, in our opinion, be 
vexatious
and oppressive if Enercon GMBH is permitted to compel EIL to litigate in England…
iv.                
The Court notes, in its analysis of what the
seat is, “it would be rare for the law of
the arbitration agreement to be different from the law of the seat of
arbitration.
” While the Court’s observations were in the context of
determining the seat, it may be of relevance in analyzing the issue of whether
the law governing the arbitration agreement is to be presumptively considered
as the law of the seat or as the proper law of the underlying contract. The
Court expressly cites C v. D [2007]
EWCA Civ 1282 for this proposition; and also examines the decision of the
English High Court in Sulamerica
unfortunately, the decision of the Court of Appeal in Sulamerica [2012] EWCA Civ 638 was not considered by the Court; nor
was the judgment in Arsanovia [2013]
2 All ER 1. The English High Court has more recently summarized the position in
Habas Sinai [2013] EWHC 4071 (Comm).
v.                  
Once the seat was in India, Indian Courts would
have exclusive supervisory jurisdiction; English Courts cannot have concurrent
jurisdiction. An anti-suit injunction was therefore granted restraining the
Respondents from continuing English proceedings.
vi.                
Having “supplied the omission” in the
arbitration clause by implying that the two party-appointed arbitrators were to
then nominate the third arbitrator, the Court decided against relegating the
parties to this procedure. Instead, the Court itself appointed the presiding
arbitrator. “In the normal circumstances,
we would have directed the parties to approach the two learned arbitrators… to appoint
the third arbitrator who shall also act as the presiding arbitrator. However,
keeping in view the peculiar facts and circumstances of this case and the
inordinate delay which has been caused due to the extremely convoluted and
complicated proceedings indulged in by the parties, we deem it appropriate to
take it upon ourselves to name the third arbitrator.
We shall discuss the judgment and its implications in future posts.

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Mihir Naniwadekar

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