India: Seat , Venue Or Place Of Arbitration: Analysis Of Hardy Exploration And Production (India) Inc

Every International Commercial Arbitration (ICA) or International Arbitration (IA) deals with the multiple interactions of laws. These laws may be municipal laws of more than one country or general principles of Public International Law. The interaction between multiple laws in an ICA or IA arises from the concept of separability of an arbitration agreement. It is a settled law that an arbitration agreement is a separate agreement than the main or matrix contract.8 Thus, in a contract the parties can have two different set of laws - one, governing the main contract which will determine the respective rights and liabilities of the parties and another, related to arbitration. However, the law governing arbitration is further sub divided into two aspects - law governing the procedural aspects and law governing the substantive aspects of arbitration.9 For the sake of brevity the same is illustrated below:

1. Governing law It is the law governing the main contract. It determines the respective rights and obligations between the parties. (Governing law)
2. Substantive Law governing arbitration Substantive law governs the validity of arbitration agreement, answers the questions on whether dispute lies within the ambit of arbitration agreement, validity of notice of arbitration, constitution of arbitral tribunal, whether the award lies within the jurisdiction of arbitral tribunal, parties have discharged their obligation to arbitration future dispute. (Substantive Law)
3. Curial (or procedural) law governing arbitral proceedings It governs the manner of individual reference, procedural powers and duties of arbitrator, questions of evidence.2 ("Curial Law")

Such law is generally the same as Substantive Law; however, the parties can opt out and subject themselves to other laws such as the rules of an institution governing arbitration to determine the conduct of arbitral proceedings to the extent it is permissible to deviate from under the Substantive Law.

In case of contradiction between Substantive Law and Curial Law it is the Substantive Law that will prevail.

Substantive Law and Curial Law are collectively known as 'Lex arbitri' or the law applicable to arbitration and Governing Law is the law applicable in arbitration.10 The parties are free to determine which set of national laws (subject to the limitation for e.g. two Indian parties cannot make a foreign law as the governing law of their contract11) will apply to all the aforementioned laws in an arbitration agreement. For instance - Parties in a contract can agree upon Governing Law to be Indian Law, and Arbitration may be subject to English Law, however, the Curial Law can be SIAC Rules or Singaporean Law.

The determination of lex arbitri will determine which court(s) will have the supervisory jurisdiction before, during and post arbitration in relation to the arbitral proceedings or arbitration agreement, although parties can expressly mention the law applicable to arbitral proceedings in their arbitral clause say for e.g. the arbitration shall be governed by English Law. In such a situation the courts in England will have the supervisory jurisdiction over the arbitration or arbitral proceedings.12 However in addition to this, parties may provide for place/seat of arbitration, say, arbitration shall take place in London or the place of arbitration shall be London or the seat of Arbitration shall be London or the venue of arbitration is London. It is important that arbitral clause be drafted properly as the moment the parties designate a place as 'seat' the same tantamount to the designation of an exclusive jurisdiction clause (contrary to designating a venue which is merely a convenient place of hearing) and later on parties cannot wriggle out of the agreed terms.13

Therefore, the moot question is how to determine whether the place mentioned in an arbitral clause is a "juridical seat" or "venue".

The aforementioned moot question came before the consideration of the three-Judge bench of Hon'ble Supreme Court (by the way of reference from DB) in Union of India v. Hardy Exploration and Production (India) Inc. (Hardy Case)14. In the aforementioned case, the agreement provided:

  • Governing law of the Contract: Laws of India
  • Governing law of Arbitration: UNCITRAL Model Law on International Commercial Arbitration
  • Venue of arbitration or conciliation: Kuala Lumpur or as decided by the Parties.

Thus, the question before the court was whether designation of place, ipso facto, will assume the nature of 'seat'. The court answered the question in negative and held that place will not ipso facto assume the status of seat unless one of the following conditions precedents is satisfied. Thus, a place mentioned in an arbitral clause will be deemed to be the 'juridical seat' if:

  • Law governing arbitration agreement is same as the law of the place mentioned as venue.15 For e.g. if the governing law of arbitration agreement in the aforementioned case provided that law in Malaysia shall apply then the seat Kuala Lumpur would have been deemed to be seat of Arbitration.
  • Law of the Matrix Contract and law of the venue/ place of arbitration are same.16 For e.g. if the law governing the contract in abovementioned case is Law of Malaysia rather than Law of India then Kuala Lumpur would have been the seat of Arbitration.
  • If the parties provide for an Institutional Rules.17 It is settled law that the lex arbitri determines the seat of arbitration and consequently, which court will have the supervisory jurisdiction.18 The question is what if the 'lex arbitri' is not a national law and is merely an Institutional Rules, then which court will have the supervisory jurisdiction. The Hon'ble Supreme Court in Roger Shashoua v. Mukesh Sharma19 (Roger Shashoua) held that since the parties provided for ICC rules, Paris for arbitration and place of arbitration was London, hence London will be deemed to be seat of Arbitration. The Arbitral Clause in Hardy Case and Roger Shashoua Case were identically worded:
Criteria Hardy Case Roger Shashoua
Governing Law of Matrix Contract India India
Law Governing Arbitration UNCITRAL Model Law.

Article 20 provides that Parties or Arbitral Tribunal shall decide the Seat
ICC, Rules.

Article 18 provides for similar provision as in Article 20, UNCITRAL Model Law.
Venue of Arbitration Courts which will have jurisdiction (as decided by Hon'ble Supreme Court) Kuala Lumpur

India
London

London

It is pertinent to note that in the Hardy case, as noted above, court has held that Kuala Lumpur is not the seat of arbitration and courts in India will have the jurisdiction. However, in Roger Shashoua case the fact that ICC Rules, Paris was provided, the Court held that London was the seat of arbitration. Unlike MCIA Rules which provides for Mumbai as default Seat of Arbitration, ICC rules doesn't provide for a default seat.20 Thus, contradiction in the reasoning of the Court is evident. However, the same can be explained that it was the intention of parties which is evident in Roger Shashoua case that they didn't intend to submit themselves to the supervisory jurisdiction of Indian Courts when they opted for ICC rules, Paris. However, the same was missing in Hardy Case as UNCITRAL Model Law is a delocalized law and doesn't refer to any particular National law.

The above mentioned are just a few surrounding circumstances which give an impression that place/ venue used in arbitration agreement is intended by the parties as 'seat' in an arbitral agreement.

Second contention which was raised before the court was whether the fact that arbitral award was signed in Kuala Lumpur will designate Kuala Lumpur as the seat of Arbitration and will exclude the jurisdiction of Indian Courts over the subject matter of arbitration. The Court held that the word 'determine' in Article 20(1), UNCITRAL Model Law (or its corollary Section 20(2), Arbitration and Conciliation Act, 1996) means a positive determination and an expressive opinion by the Arbitral Tribunal. The mere signing of an award at a place will not be construed as the determination of that place as seat by an arbitral tribunal under Article 20(1).

Conclusion

Aftermath of Hardy Case is that the Supreme Court has now settled the law that venue or place can be termed as seat of arbitration if something else is added to it as concomitant. The Court in Hardy Case didn't lay down the condition precedent(s)/situations in which 'place' in an arbitral clause can be construed as the Seat of arbitration as there are no exhaustive situations in which place can be construed as a seat and it depends on the facts and circumstances of each case. As noted above, the same can be construed only by holistic reading of an arbitral clause in the light of surrounding circumstances. Thus, the Court has allowed the place to be used interchangeably with seat keeping intact the sanctity and concept of 'juridical seat'. However, it is suggested that the exercise of determination of 'seat' shall be done in initial stages of arbitration and such determination should be left for arbitral tribunal. The court should refrain from encroaching upon such powers of arbitral tribunal keeping in mind the mandate of Section 5 read with Section 20 of the Act.

Further, the parties should aim at drafting an 'exhaustive' arbitral clause through mutual negotiation to avoid unnecessary and prolong litigation as the proper determination of seat and 'lex arbitri' are of prime significance and consequence to any arbitration.

Footnotes

8. National Agriculture Coopr Marketing v. Gains Trading co, AIR 2007 SC 2327

9. Naviera Amazonica Peruana SA v Cia Internacional de Seguros del Peru [1988] 1 Lloyd's Rep 116.

10. Alastair Henderson, Lex Arbitri, Procedural Law and the Seat of Arbitration, 26 SAcLJ 886 (2014).

11. TDM Infrastructure Pvt. Ltd. v. UE Development Pvt Ltd, (2008) 14 SCC 271.

12. Reliance India Limited v. Union of India, (2014) 7 SCC 603 where in court held that law which would apply to the filing of the award, to its enforcement and to its setting aside would be the law governing the agreement to arbitrate and the performance of that agreement will be Law in England and hence the English Court will have the supervisory jurisdiction over the arbitration.

Also see, Enercon (India) v. Enercon GMBH, (2014) 5 SCC 1 ('Enercon'), where in parties have agreed that governing law of the contract shall be Indian law, Law governing arbitration was Indian Arbitration and Conciliation Act, 1996 and place of arbitration was mentioned to be London. In that case court held that it India which the seat of arbitration not London.

13. Bharat Aluminium v. Kaiser Aluminium, (2012) 9 SCC 552 ("BALCO").

14. Civil Appeal no. 4628 of 2018 decided on 25.09.2018 (Supreme Court).

15. Harmony Innovation Shipping Ltd v. Gupta Coal India Limited and anr, (2015) 9 SCC 172.

16. Dozco India v. Doosan Infrastructure, (2011) 6 SCC 179 wherein Law governing Matrix Contract was Korean Law and Place of Arbitration was Seoul.

17. See for e.g. Yograj Infrastructure v. Ssang Yograj Engineer, (2011) 9 SCC 735. However, in that case parties also designated Singapore as the place of Arbitration.

18. See, Videocon Industries v. Union of India, (2011) 6 SCC 161, in that case Law governing matrix contract was Indian Law, Governing Law of Arbitration Agreement was English Law and Venue of Arbitration was Kuala Lumpur. The Court held that Seat of Arbitration was London not Kuala Lumpur.

19. Roger Shashoua v. Mukesh Sharma, (2017) 14 SCC 722.

20. Naviera Amazonica Peruana v Cornpania Internacional De Seguros Del Peru [1988] 1 Lloyd's Rep 116, wherein Court held that: [T]he relevant rules of such bodies are incorporated by reference into the contract between the parties, and their binding effect will be respected and enforced by the Courts of the forum except in so far as they may conflict with the public policy or any mandatory provisions of the lex fori.

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