The Seat vs Venue Conundrum in Cases of Unclear Arbitration Clauses: Hardy and Antrix Bad in Law?

[Purvi Kaya is a 5th Year B.A. LL.B. (Hons.) student at O.P. Jindal Global University]

The choice of the arbitral seat is fundamental to arbitration. This is because the seat not only determines the lex arbitri, but also 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.

On 10 December 2019, the Supreme Court, in a three-judge bench judgment in BGS SGS Soma JV v. NHPC Ltd., held that the cases of Union of India v. Hardy Exploration and Production (India) Inc. and Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd. have incorrectly interpreted Bharat Aluminium Co. (BALCO) v. Kaiser Aluminium Technical Service, Inc.

Facts in issue

The parties had entered into an agreement wherein the arbitration clause merely stated “Arbitration Proceedings shall be held at New Delhi/Faridabad, India” and in pursuance of the same, proceedings of a three-member arbitral tribunal took place at New Delhi. It is the respondents’ case that New Delhi was only a ‘venue’ and not the ‘seat’ of arbitration, as part of the cause of action arose in Faridabad, as a result of which the courts in Faridabad would have exclusive jurisdiction to decide an application under section 34 of the Arbitration and Conciliation Act, 1996 (the “Act”). While the petitioners argued that even if both New Delhi and Faridabad had jurisdiction, with New Delhi being the choice of parties, the courts in New Delhi would have exclusive jurisdiction over the matter.

The Supreme Court has analysed the law on what constitutes the ‘juridical seat’ of arbitral proceedings and whether, once the seat is delineated by the arbitration agreement, courts at the place of the seat would alone thereafter have exclusive jurisdiction over the arbitral proceedings. In the course of its analysis, the primary focus was on the important tests in order to determine whether the ‘seat’ of the arbitral proceedings has, in fact, been indicated in the agreement between the parties.

In Roger Shashoua, the English Court held that that wherever there is an express designation of a ‘venue’, 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 that the stated venue is actually the juridical seat of the arbitral proceeding.

In the case of Shagang South-Asia (Hong Kong) Trading Co. Ltd. v. Daewoo Logistics, the arbitration clause stated: “arbitration to be held in Hing Kong.” The Queen’s Bench Division (Commercial Court) held that an agreement that the arbitration is ‘to be held in Hong Kong’ would ordinarily carry with it an implied choice of Hong Kong as the seat of the arbitration and of the application of Hong Kong law as the curial law. Clear words or ‘significant contrary indicia’ are necessary to establish that some other seat or curial law has been agreed.”

After analysing its decision in cases like Enercon (India) Ltd., Harmony Innovation Shipping and Brahmani River Pellets, the Supreme Court in the present case held that whenever there is the designation of a place of arbitration in an arbitration clause as being the ‘venue’ of the arbitration proceedings, the expression ‘arbitration proceedings’ would make it clear that the ‘venue’ is really the ‘seat’ of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the ‘venue’, which may lead to the conclusion, other things being equal, that the venue so stated is not the ‘seat’ of arbitral proceedings, but only a convenient place of meeting.

Further, the fact that the arbitral proceedings ‘shall be held’ at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a ‘venue’ and not the ‘seat’ of the arbitral proceedings, would then conclusively show that such a clause designates a ‘seat’ of the arbitral proceedings.

Relying on the Shashoua principle, it was held that in an international context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that ‘the venue’ so stated would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Act as applying to the ‘stated venue’, which then becomes the ‘seat’ for the purposes of arbitration.

Is Antrix bad in law?

According to the Supreme Court, the Delhi High Court incorrectly understood the case of BALCO to mean that it allows concurrent jurisdiction i.e., the seat court and the court within whose jurisdiction the cause of action arises. This is because the High Court has missed the main finding in BALCO that the choice of a ‘seat’ amounts to choice of the exclusive jurisdiction of the courts at which the ‘seat’ is located.

(In)Correctness of the judgment in Hardy?

The arbitration clause stated: “Arbitration proceedings shall be conducted in accordance with the UNICITRAL Model Law on International Commercial Arbitration of 198… The venue of conciliation or arbitration proceedings pursuant to this Article unless the parties otherwise agree, shall be Kuala Lumpur.” It was held that Kuala Lumpur is not the seat or place of arbitration and therefore, the courts in India have jurisdiction. In the present case, the Supreme Court has criticised the three judge bench judgment for not applying the Shashoua principle, according to which the answer would have been that Kuala Lumpur, which was stated to be the ‘venue’ of arbitration proceedings, being governed by the UNCITRAL Model Law, would be governed by a supranational set of rules, and there being no other contrary indicator, it would be clear that Kuala Lumpur would therefore be the juridical ‘seat’ of the arbitration. Moreover, the five-judge bench case of BALCO had approved the Shashoua principle. The result of Hardy is such that a foreign award, which would be delivered in Kuala Lumpur, would now be liable to be challenged in the courts at Kuala Lumpur, and also be challenged in the courts in India under section 34 of Part I of the Act. There would be a clear risk of conflicting decisions. This would add to the problems relating to enforcement of such decisions. Such a situation would undermine the policy underlying the New York Convention or the UNCITRAL Model Law.

Analysis

Applying the Shashoua principle delineated above, it is clear, therefore, that New Delhi/ Faridabad, India has been designated as the ‘seat’ of the arbitration proceedings. However, the fact that the proceedings were finally held at New Delhi, and the awards were signed in New Delhi, and not at Faridabad, would lead to the conclusion that both parties have chosen New Delhi as the ‘seat’ of arbitration under section 20(1) of the Act. This being the case, it was concluded that both parties have chosen that the courts at New Delhi alone would have exclusive jurisdiction over the arbitral proceedings.

Considering that the present case and Hardy Exploration were both three-judge bench judgments, it remains to be seen whether a larger bench would be dealing with this issue in order to clarify the position of law.

Purvi Kaya

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