India: UK Court Reaffirms The Significance Of Seat In An International Arbitration

Last Updated: 1 March 2014
Article by Alipak Banerjee, Prateek Bagaria and Vyapak Desai
  • Even when an agent is acting in excess of its authority, agrees to the choice of seat, the applicable law which will determine whether the arbitration agreement is valid will generally still be that of the putative seat of arbitration.
  • The Court has held that the terms of the arbitration clause on its own may suggest an implied choice of law.

The Commercial Court ("Court") in Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd1 reaffirmed the principle laid down in Sul America Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A.2 ("Sul America") and Arsanovia Ltd v Cruz City Mauritius Holdings3 ("Arsanovia"). In particular, the Court held that in order to determine the law governing the arbitration agreement, the choice of the seat and also the terms of the arbitration agreement plays a huge significance as they give a strong indication about the proper law of the arbitration agreement.

FACTS

The Applicant, Habas Sinai Ve Tibbi Gazlar Istihsai Endustrisi AS, a Turkish company ("Habas"), and the Respondent, VSC Steel Company Ltd, a Hong Kong company ("VSC"), entered into a contract for the sale and purchase of 15,000 mts of steel ("Contract"). The Contract had been negotiated by VSC, Habas and two companies acting on behalf of Habas, Steel Park Limited ("Steel Park") and Charter Alpha Limited ("Charter Alpha").

The negotiation continued for approximately two months and the governing law and arbitration clause of the Contract were subject to a number of amendments. According to the last draft of the Contract, which was signed by Habas, the agreement was to be governed by the Turkish law and the disputes were to be referred to "Turkish arbitration". However, Steel Park and Charter Alpha continued to negotiate with VSC, and Steel Park eventually signed and sent a version of the Contract to VSC by email, which although did not specify a governing law but provided for disputes to be referred to ICC arbitration in Paris. After further negotiations between Charter Alpha and VSC, it was agreed that the seat of the arbitration would be changed to London.

Subsequently, a dispute arose when no delivery of steel was made and VSC commenced arbitration proceedings claiming damages pursuant to the London arbitration agreement. The Tribunal concluded that it had substantive jurisdiction and that Habas' agents had ostensible authority to conclude the contract and the arbitration agreement; there was a binding contract made containing a binding arbitration agreement.

Habas challenged the jurisdiction of the Tribunal and its Award pursuant to section 67 of the English Arbitration Act 1996 ("Act") on the grounds that the Tribunal erred in finding that there was a binding arbitration agreement because: (i) there was no binding consensus on the terms of the London arbitration agreement; and (ii) Habas' agents had known that it would only accept a Turkish law contract which provided for arbitration in Turkey and they did not have actual or ostensible authority to conclude the London arbitration agreement on behalf of Habas.

ISSUE

Whether the Tribunal was correct in arriving at the decision that English law is the applicable law of the arbitration agreement.

CONTENTION BY APPELLANT

Habas submitted that the Court ought to disregard the seat of the arbitration agreement while identifying the law with which it has the closest connection. It stressed that Charter Alpha/ Steel Park exceeded their actual authority when agreeing to the London arbitration agreement and it was only because they did so that it was possible to say that the arbitration agreement had its closest connection with English law.

Habas argued that the choice of seat in the arbitration agreement should not be taken as determinative of the law applicable to the arbitration agreement on the facts of the case, since this had been agreed by VSC in excess of authority. It was also submitted that English private international law rules ought to determine the law governing the validity of the arbitration agreement as the London arbitration agreement was agreed in excess of authority. Therefore, the correct applicable law governing the arbitration agreement should be the Turkish law, being the law with the closest connection to the matrix contract.

Habas submitted that even if there was ostensible authority to enter into the arbitration agreement, by reasons of the Regulations, the Turkish law requirement for the formal validity of the arbitrations had to be met, and they were not met in this case.

CONTENTION BY RESPONDENT

VSC maintained that by agreeing to London arbitration, the parties had chosen English law as law applicable to arbitration agreement.

DECISION

While arriving at his decision, Hamblen J applied the guidance provided in Sul America and Arsanovia, which suggest that if an underlying contract does not contain a governing law clause, the significance of the choice of seat of the arbitration agreement contained therein is likely to be "overwhelming" in determining the applicable law of the arbitration agreement. Further, Hamblen J added to the discussion by opining that the terms of the arbitration agreement may themselves connote an implied choice of law. Hanblen J concluded that as the Contract contained no express choice of law clause and the seat of the arbitration was London, the applicable law of the arbitration agreement was English law.

The Court summarized the principles laid down in Sul America and Arsanovia, including the three stage test that the proper law is to be determined by undertaking a three stage enquiry into: (i) express choice; (ii) implied choice; and (iii) the system of law with which the arbitration agreement has the closest and most real connection. The Court added that the terms of the arbitration agreement may also indicate an implied choice of law of the arbitration agreement. It referred to Cie. Tunisienne v Cie d'Armement4 and Egon Oldendorff v Liberia Corp5, wherein it was recognized that the terms of an arbitration agreement may operate as an implied choice of law for the substantive contract. Further, the Court observed that in a situation where the terms of an arbitration agreement eventually operates as an implied choice of the law of the substantive contract, then in such instances, they must equally operate as an implied choice of law for the arbitration agreement as well.

Hamblen J held that even assuming that the underlying contract was governed by Turkish law and accepting that there was no actual authority to agree to the London arbitration clause, the applicable law to the arbitration would still remain English law based on the choice of seat in the arbitration agreement. The Court held that there is no logical or principled link between the issue of authority and the issue of the law with which a contract has its closest connection. The Court was of the opinion that determining the latter question involves a consideration of the terms of the contract as made, rather than the authority with which it was made and held that it would potentially make major and uncertain inroads into the well-established common law doctrine that validity of a contract is determined by the putative proper law of the contract. It would mean according special treatment to actual authority for conflicts of law purposes, but as a matter of English law, actual authority is not a stronger or more effectual form of authority than ostensible authority.

The Court found that Habas' agents had ostensible authority to agree to the London arbitration agreement and that Habas had not shown that the agents had no actual authority to enter into the arbitration agreement; even if it was the case that there was no actual authority to agree the London arbitration clause, the applicable law of the arbitration agreement would be English law.

The Court held that even assuming that the requirements under the Turkish law had to be met (i.e. the arbitration agreement had to be in writing and signed), the requirements had been met because the agreement was in writing and was contained in a signed contract. The amendment to refer to London was either inserted by the signatory, Mr. Kurtoglu, or expressly approved by him and this would satisfy the signature requirements under the Turkish law.

ANALYSIS

The case adds to the principles cited in cases such as Sulamerica and Arsanovia on how to determine the applicable law of an arbitration agreement, in the absence of any express choice. It highlights, in particular, that the terms of the arbitration clause themselves may suggest an implied choice of law.

The practical takeaway from this case is the importance of expressly including a governing law clause in the arbitration agreement in international commercial contracts. It is safe to expressly state the governing law as applicable to the arbitration agreement to avoid any confusion at a later date.

Footnotes

1 [2013] EWHC 4071 (Comm)

2 [2012] 1 Lloyd's Rep 671

3 [2013] 2 All ER 1

4 [1971] A.C. 572

5 [1996] 1 Lloyd's Rep 380

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alipak Banerjee
Prateek Bagaria
Similar Articles
Relevancy Powered by MondaqAI
Dhaval Vussonji & Associates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Dhaval Vussonji & Associates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions