Identifying The Arbitral Seat From Ambiguous Dispute Settlement Clauses—Has Supreme Court Muddied The Waters?

[Anirudh Lekhi is an associate at a law firm in New Delhi, having graduated from National University of Juridical Sciences in 2017]

The choice of the arbitral seat is fundamental to arbitration. The seat determines the lex arbitri as well as the courts that exercise supervisory jurisdiction over the arbitration. Although the distinction between the ‘venue’ and ‘seat’ of arbitration is well recognized in international commercial arbitration, imprecise drafting of arbitration agreements may obscure this difference.

Last year, the Supreme Court in Union of India v. Hardy Exploration (India) Inc. had to determine the seat of arbitration where the arbitration agreement only mentioned the venue of arbitration but not its seat. While holding that the courts in India would exercise supervisory jurisdiction over the arbitral proceedings, the Supreme Court displayed a scant analysis of the judicial precedents governing the subject. In fact, the Court fell short of providing an authoritative adjudication on the rubrics of identifying the arbitral seat from vaguely worded arbitration agreements. In this light, I submit that Hardy has turned a blind eye to key principles, which have aided the courts in ascertaining the arbitral seat in the past.

Facts in Issue

Certain disputes arose between parties to a Production Sharing Contract (PSC), which contained a vaguely worded arbitration agreement. In this regard, the arbitration agreement provided for Kuala Lumpur (KL) as the venue for arbitration but failed to mention its seat. When the award was rendered in KL, a challenge was made to the same before the courts in India.  However, given that challenges to awards are generally maintainable only before the courts of the seat, the Supreme Court was to determine whether India was the seat of arbitration even though the arbitration agreement provided for KL as the venue.

In order to determine the arbitral seat, the Court proceeded to interpret the curial law which, in the present case, was the UNCITRAL Model Law on International Commercial Arbitration (Model Law). Article 20(1) of the Model Law provides that should the parties fail to agree upon the place of arbitration, the same shall be “determined” by the arbitral tribunal. Thus, the Supreme Court opined that “determination” required a positive act, signifying the expression of an opinion by the arbitral tribunal. Since the tribunal had failed to express any opinion as to KL being the arbitral seat, the Court concluded that the courts in India would have jurisdiction over the arbitration instead.

English Jurisprudence

Certain English decisions also offer guidance to answer the question that was determined in Hardy. In Shashoua v. Sharma, the proceedings were to be conducted in accordance with the ICC rules and the arbitration clause provided that “the venue of arbitration shall be London, United Kingdom”. When certain disputes arose between the parties, the claimants sought an anti-suit injunction, restraining the defendants from pursuing any proceedings in India. However, the defendants submitted that the courts in India would have jurisdiction because the juridical seat was in India. The Court rejected this contention and held:

When therefore there is an express designation of the arbitration venue as London and no designation of any alternative place as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indicia, the inexorable conclusion is, to my mind, that London is the juridical seat and English law the curial law.

Further, in Naviera Amazonica v. Compania Internacional [1988] 1 Lloyd’s Rep. 116, disputes arose out of an insurance policy between certain ship-owners and insurers. The general conditions incorporated in the policy stipulated: “Whatever the domicile of the Insured, in the event of a judicial dispute he accepts, from now on, the jurisdiction and competence of the City of Lima, without any reservation of any nature.” On the other hand, the policy’s endorsements provided: “Arbitration under the conditions and laws of London”. Thus arose the issue whether the seat of arbitration was Lima or London? The Court held that in the absence of any provision to the contrary, an agreement as to the curial law of X has the consequence that X is also the arbitral seat. In this regard, the Court observed: “…therefore the forum of any arbitration which might arise under this policy was London, since the arbitration clause provided, in effect, that the law in force in London was to be the curial or procedural law of such arbitration.

Finally, one may also allude to the standards of identifying the arbitral seat, as mentioned in the seminal treatise on international commercial arbitration, Mustill and Boyd. According to Mustill and Boyd, factors requiring evaluation include “the proper law of the arbitration agreement, the nationality of the parties, the practices of a particular trade, and in cases involving state parties or nationalised corporations, the probability that the parties would have chosen a neutral seat of arbitration unconnected with either of them…Given that the Union of India was itself one of the parties to the arbitration in Hardy, the probability of the parties having chosen a neutral seat of arbitration cannot be brushed aside.

In view of the above, it is evident that English jurisprudence on the issue has considered a conspectus of factors and circumstances in determining the seat from vaguely worded arbitration agreements. Though there exists no straight jacket formula to ascertain the seat of arbitration, English case law has certainly carved out material considerations, which will be of relevance in matters concerning ambiguous arbitration agreements.

The Indian Paradigm

The difference between the arbitral seat and venue is well settled in Indian arbitration jurisprudence as well. In BALCO v. Kaiser Aluminium (I), the Supreme Court observed that it is a “matter of construction” of the individual arbitration agreement to determine whether the designation of the seat merely provides for a venue where hearings would be held, or whether it carries the force of that country’s curial law governing the arbitral proceedings. In other words, the choice the words “seat” or “venue” in an arbitration agreement is not crucial for ascertaining the arbitral seat. According to BALCO, the Court has to determine the seat after evaluating the intention of the parties from “the agreement” and the “surrounding circumstances”.

Similarly, the Supreme Court in Enercon (India) v. Enercon GmBH  held that where the proper law, the law governing the arbitration agreement and the curial law were Indian, the inescapable conclusion was that India would be the arbitral seat. The strong connection in favour of India was established by the fact that the three systems of law governing the arbitral relationship were all Indian.

However, it may be noted that where the systems of law governing an arbitration agreement belong to the same country (as in Enercon), it is easier to gauge the intention of the parties to identify the seat. This may not be true for other cases where different systems of law govern different parts of an arbitration agreement. In such cases, the practice adopted in Shashoua and Naviera to advert to the curial law would be useful in determining the seat.

Comment

Previous decisions of the Supreme Court offer little guidance in answering the question that was determined in Hardy. This is because the effect of the Model Law on the seat has not been decided in any of the Court’s decisions so far. Could the standards adopted in the above English decisions therefore be adopted to ascertain the arbitral seat?

It would be necessary to recall the decision in Shashoua where the absence of any alternative place as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indicialed the Court to infer London as the seat. Curiously, Hardy also concerned the application of a supra-national body of rules to the arbitral proceedings, having no alternative designation of the seat apart from KL. Even so, the Supreme Court held that the courts in India would exercise supervisory jurisdiction over the arbitration. While the Supreme Court is certainly not bound by English jurisprudence on the issue, it is strange how Shashoua skipped the Court’s eye despite being cited in Hardy itself.

Further, since the Union of India qualified as a “state party” belonging to India, the probability of the parties choosing a neutral seat would also be high. Accordingly, the designation of KL as the seat would have served the purposes of neutrality and guarded against the risk of biased adjudication from the same systems of law to which the Union of India belonged to. In this light, the standards prescribed in Mustill and Boyd above are of immense significance as well. Surprisingly though, this argument was never advanced against the Union of India and, consequently, the Supreme Court too overlooked it.

Conclusion

From the unique factual matrix of Hardy, it was palpable that the parties intended India to merely be a venue for arbitration. This was manifest from the fact that apart from KL, there was no alternate designation of seat. Further, since the Union of India qualified as a “state party”, one could safely assume that the interests of neutrality would have been served better if the seat was designated outside India.

Hardy failed to advert to fundamental principles that have aided the courts in the past in ascertaining the seat from ambiguous arbitration agreements. The paucity in its analysis is only second to its errors in appreciating the intention of the parties while designating the seat. In this light, Hardy leaves behind a deeply vacuous ruling with much else to be desired.

Anirudh Lekhi 

About the author

1 comment

  • OFFHAND

    Left wondering does the learned member of the profession have any sincere idea, innovative one at that, to share; so as to provoke the rest to seriously consider if at all there were any possible solution to the problems hinted at !?
    On a no less important but FAR MORE SERIOUS topic – over which there has been an ongoing woeful TALK for decades now , with no outcome worthy of even a remote mention – if so minded, may wade through

    >https://www.facebook.com/swaminathanv3/posts/2126624250747183

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