India: "Seat Of Arbitration" And "Venue Of Arbitration" Cannot Be Used Synonymously

Last Updated: 22 January 2019
Article by AMLEGALS  

IN THE HIGH COURT OF DELHI AT NEW DELHI
DREDGING CORPORATION OF INDIA Vs. MERCATOR LIMITED
ARISING OUT OF O.M.P (COMM.) 334/2018, O.M.P (COMM.) 335/2018 & O.M.P (COMM.) 336/2018
DATE – 10.10.2018

FACTS

The Petitioner had entered into three Time Charter Party Agreements (hereinafter referred to as the "Agreements") with the Respondent which were identical to each other. The said Agreements contained an Arbitration Clause in Clause 24.

The Clause 24 dictated that the Contract would be "governed by and construed in accordance with Indian Law" and that any "dispute arising out of or in connection with this contract shall be referred to arbitration in London in accordance with the Arbitration Act, 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this clause."

Vide letter dated 22.12.2010, the Respondent had sought the change of Seat of Arbitration to New Delhi.

The Petitioner vide letter dated 27.12.2010 agreed to the Respondent's request and only a formal document making amendment to the Arbitration Agreement was to be executed thereafter.

On 27.12.2010 the Petitioner had sent an email to the Respondent to inform them that the change in contract conditions would require an approval from the Board of Directors of the Respondent.

Thereafter, on 11.03.2011 the approval of the Board of Directors was taken and the "seat of arbitration" was shifted from London to New Delhi, with consent of both parties.

The Respondent then, vide Notice dated 07.03.2011, invoked the Arbitration Clause of the Agreement. The Petitioner responded to the notice vide letter dated 14/17.03.2011 and stated that the parties had mutually agreed that the arbitration would be in India to avoid unnecessary expenditure.

On 18.03.2011 the Respondent sent a letter to the Petitioner refuting the facts stated in the Petitioner's reply dated 14/17.03.2011 and denying the existence of any agreement moving the Arbitration from London to New Delhi.

On 23.03.2011 the Petitioner, vide its letter, informed the Respondent that the "venue of arbitration" could be New Delhi, the Arbitration would still be governed by the English Arbitration Act, 1996 and the procedure as prescribed by the London Maritime Arbitrators Association Rules (LMAA Rules) would apply.

On 25.03.2011, the Respondent responded to the Petitioner's letter agreeing to change the "venue of arbitration" from London to New Delhi on the condition that all other conditions of the Arbitration Clause remain unchanged and un-amended.

A further clarification was made that the Arbitration Act specified in the Arbitration Agreement was the English Arbitration Act, 1996 and it would apply to the arbitration proceedings between the parties.

On the same day, the Petitioner responded by agreeing to the aforementioned terms specified by the Respondent in their letter.

The current petitions have been filed by the Petitioners under Section 34 of the Arbitration and Conciliation Act, 1996 to challenge the award.

The Petitioner has challenged these Petitionson the ground that the "seat of arbitration" was London and therefore, Part-I and Section 34 would not be applicable to these Arbitration Proceedings.

ISSUES BEFORE HIGH COURT

The issues before the Honorable High Court of Delhi were:

  1. Whether the jurisdiction of the court can be determined on the basis of "venue of arbitration".
  2. Whether "seat of arbitration" and "venue of arbitration" can be given the same meaning and interpretation.

OBSERVATION

Reference was made by the Hon'ble Court to the case of Union of India vs. Hardy Exploration and Production (India) INC [2018 SCC OnLine SC 1640], where the Hon'ble Apex Court observed as follows:

"34. On a perusal of Articles 20 and 31(3) of the UNCITRAL Model Laws, we find that the parties are free to agree on the place of arbitration. Once the said consent is given in the arbitration clause or it is interpretably deduced from the clause and the other concomitant factors like the case of Harmony Innovation Shipping Ltd. which states about the venue and something in addition by which the seat of arbitration is determinable. The other mode, as Article 20 of the UNCITRAL Model Law provides, is that where the parties do not agree on the place of arbitration, the same shall be determined by the Arbitral Tribunal. Such a power of adjudication has been conferred on the Arbitral Tribunal. Article 31(3) clearly stipulates that the Award shall state the date and the place of arbitration as determined in accordance with Article 20(1).

xxxxx

37. In the present case, the place of arbitration was to be agreed upon between the parties. It had not been agreed upon; and in case of failure of agreement, the Arbitral Tribunal is required to determine the same taking into consideration the convenience of the parties. It is also incumbent on the Arbitral Tribunal that the determination shall be clearly stated in the "form and contents of award‟ that is postulated in Article 31. There has been no determination.

38. Be it noted, the word "determination‟ requires a positive act to be done. In the case at hand, the only aspect that has been highlighted by Mr. C.U. Singh, learned senior counsel, is that the arbitrator held the meeting at Kuala Lumpur and signed the award. That, in our considered opinion, does not amount to determination. The clause is categorical. The sittings at various places are relatable to venue. It cannot be equated with the seat of arbitration or place of arbitration which has a different connotation as has been held in Reliance Industries Ltd. (I), (II) (supra), Harmony Innovation Shipping Limited (supra) and in Roger Shashoua (supra).

39. The word "determination‟ has to be contextually determined. When a "place" is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms "place‟ and "seat‟ are used interchangeably. When only the term "place" is stated or mentioned and no other condition is postulated, it is equivalent to "seat" and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term "place", the said condition has to be satisfied so that the place can become equivalent to seat.In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place. As is evident, there is no agreement. As far as determination is concerned, there has been no determination. In Ashok Leyland Limited and State of T.N., the Court has reproduced the definition of "determination" from Law Lexicon, 2nd Edition by Aiyar, P. Ramanatha and Black's Law Dictionary, 6th Edition. The relevant paragraphs read thus:—

"Determination or order— The expression "determination‟ signifies an effective expression of opinion which ends a controversy or a dispute by some authority to whom it is submitted under a valid law for disposal. The expression "order‟ must have also a similar meaning, except that it need not operate to end the dispute. Determination or order must be judicial or quasi-judicial. Jaswant Sugar Mills Ltd. v. Lakshmi Chand (Constitution of India, Article 136)."

"A determination‟ is a final judgment for purposes of appeal when the trial court has completed its adjudication of the rights of the parties in the action. Thomas Van Dyken Joint Venture v. Van Dyken OMP(COMM.)

40. The said test clearly means that the expression of determination signifies an expressive opinion. In the instant case, there has been no adjudication and expression of an opinion. Thus, the word "place" cannot be used as seat. To elaborate, a venue can become a seat if something else is added to it as a concomitant. But a place unlike seat, at least as is seen in the contract, can become a seat if one of the conditions precedent is satisfied. It does not ipso facto assume the status of seat. Thus understood, Kuala Lumpur is not the seat or place of arbitration and the interchangeable use will not apply in stricto sensu."

The Hon'ble Court observed that it is evident from the correspondence between the parties that they were very well aware of the distinction between the 'seat' and 'venue'.

Hence, the Respondent insisted that while the 'Seat' of arbitration would remain at London, it was only the 'venue' which could be shifted to New Delhi.

Further, the Petitioner also agreed to the same because the change of 'venue' would not require any amendment to the Charter Party Agreement, while a change in "seat" would have required such an amendment.

Hence, the parties only agreed to change the "venue" of Arbitration from London to Delhi but the "seat" remained unchanged.

CONCLUDING VIEW

The Hon'ble Court, based on the aforementioned Judgment, the factual matrix and the conduct of the Parties held that it lacks jurisdiction to entertain the Petition under Section 34 of the Arbitration and Conciliation Act, 1996 as the seat of Arbitration was London and hence, Part I of the Act would not apply.

The petitions were dismissed. Further, this Hon'ble Court specified that this order shall in no way affect the proceedings filed by the Petitioner before the Competent Court of jurisdiction.

AMLEGALS REMARKS

The Hon'ble Delhi High Court in this case has clearly set the law straight that the terms "seat of arbitration" and "venue of arbitration"cannot and should not be used interchangeably.

It has also been established that mere terminology cannot be the basis to determine the intention of the parties. 

Further, it has been emphasized that the intention of the parties should be determined by the Hon'ble Court based on the conduct of the parties as well as the facts and circumstances of each case.

Hence, it is always insisted that Agreements should be drafted with very clear terminology and crisp drafting so that multiple interpretations cannot be drawn from such words or expressions. The parties should also refrain from casual interpretations of the terms of the contract.

It must be realised that more than 60% times, disputes crop up due to possibility of dual interpretation of any word or expression deployed in the body of a contract. This has to be avoided at any cost.

This decision should also be taken as a lesson that simplicity should be preferred while picking up words and drafting of any expression in a sentence in an arbitration agreement so that the one and the sole intention of any contract is read, understood, analysed and interpreted at any given point of time.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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