Vexed Issue of Seat and Venue in Indian Context: A Critical Analysis - Part II

Click here to refer to part I of this article.

SETTLED POSITION OF LAW IN OTHER JURISDICTIONS

Before we analyze more on this conundrum, it is important to take a look at the settled position of law in other/foreign jurisdictions to get a better understanding.

United Kingdom

In the case of Sulamerica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A.,[1] the high court of Justice Queen’s Bench had laid down the three-stage analysis test. This test dwelled into the following three aspects: the express choice of the parties, implied choice of the parties, and the closest and most real connection. It was ruled that in the event of the absence of an express choice of applicable arbitration law, the implied choice must be used to select the law governing the contract.

In the case of Shagang South-Asia (Hong Kong) Trading Co. Ltd. v. Daewoo Logistics,[2] the arbitration agreement had the following clause; “arbitration to be held in Hong Kong.” The petitioner herein submitted that “clause 23 provides for arbitration in Hong Kong subject to the procedural or curial law there applicable, being the HK Ordinance. Clause 19 of the Gencon form is inconsistent with clause 23 and is not incorporated or otherwise applicable. It follows that the Arbitrator had no jurisdiction pursuant to either clause 19 or the English Act.” The respondent contended that “clause 23 when read together with clause 19 provides for Hong Kong to be the geographical location for the arbitration but for the arbitration to be subject to the English Act and English curial law.” The English high court had to deal with the issue whether the seat of arbitration is subject to English law or the Honk Kong law. The court ruled that “in this case clear wording or other contrary indicia sufficient to displace the prima facie conclusion that the agreement that the arbitration is to be held in Hong Kong carries 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.” In other words, the court laid down that there needs to be proper words or ‘significant contrary indicia’ which specify that the parties indicated some other seat than the mentioned venue.

The high court of Justice Queen’s Bench Division Commercial Bench Division (English high court) dealt with the case of Roger Shashoua Rodemadan Holdings Limited Stancroft Trust Limited v. Mukesh Sharma[3], wherein the agreement provided that the contract law was to be governed as per Indian Law and arbitration was to be conducted as per International Chamber of Commerce (ICC) rules. It was noted that the agreement did not explicitly provide for the ‘seat’ of the arbitration, but it did mention the ‘venue’ which was London. The court in this case ruled that if the parties had any intention to be governed by laws other than the laws of the mentioned ‘venue’, then the parties would have properly stated the same. Therefore, it was ruled that London was the ‘seat’ of arbitration.

Singapore

In the case of FirstLink Investments Corp Ltd v. GT Payment Pte Ltd and Ors.[4], the high court ruled that it is the law of the seat of arbitration that would determine the arbitration agreement and not the law governing the underlying contract. The court simply followed the doctrine of severability which states that arbitration agreement is severable or different than the main contract.

But the court corrected its stand in the case of BCY v. BCZ.[5] In this case, the parties had negotiated contract for sale of shares but the same was never executed. The contract also provided that any disputes shall be settled through arbitration, and would be binding due to the doctrine of severability. The parties herein argued whether the New York or Singapore law would have been applicable in case the contract would have been valid. The court passed its judgment for settling several divergent views taken by the courts in the past. It stated that the doctrine of severability is to be applied only in situations where the parties intend for the arbitration clause to survive, even if the main contract is ineffective. The arbitration clause cannot be effective, if the main purpose for which the commercial contract was formed could not be executed. So, arbitration agreement is severable not separate. The court also upheld the three-step test as laid down in the case of Sulamerica.[6] The court stated that “the governing law of the main contract should only be displaced if the consequences of choosing it as the governing law of the arbitration agreement would negate the arbitration agreement even though the parties have themselves evinced a clear intention to be bound to arbitrate their disputes.” The court also emphasised that doctrine of severability is to be applied only if the contract is found to be invalid, indicating that arbitration clause is not independent from the contract.

In the case of Hilton International v. Sun Travels,[7] the parties had entered into an agreement wherein the arbitration clause provides that Singapore International Arbitration Court (SIAC) shall be the ‘venue’ of arbitration and the disputes shall be governed by the rules of ICC. The court ruled that arbitration clause was silent on what was the seat of arbitration rather it was only the ‘venue’ of arbitration which was stated in the agreement. Therefore, the Singapore high court ruled that Singapore is the seat of arbitration. In this case, there was no expressed choice of law, therefore, the second choice was taken i.e. considering intentions of the parties at the time of entering into contract. The court stated that “the governing law of the main contract should only be displaced if the consequences of choosing it as the governing law of the arbitration agreement would negate the arbitration agreement even though the parties have themselves evinced a clear intention to be bound to arbitrate their disputes.”

The Singapore high court had again dealt with this question in the case of BNA v BNB and another.[8] The agreement stated that the contract for takeout agreement shall be governed by PRC law. Further, an arbitration clause was provided which stated that “If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules.” The defendant initiated the arbitration proceedings in SIAC. But this was challenged by the plaintiff on the ground of jurisdiction, arguing that arbitration taken place in SIAC should be as per PRC law. The main issue was that there was no clear choice of law provisions in the arbitration clause. The High court ruled that the Singapore is the seat of arbitration. The matter was appealed and was approved by the Singapore court of Appeal. It was observed that there was no express choice of law for the arbitration agreement, therefore the implied choice must be the law which is governing the contract law, i.e. the PRC law. It was stated that high court erred in the decision because “(i) the arbitration agreement, in providing for arbitration in Shanghai, should naturally be read to be a choice of Shanghai as the seat arbitration (ii) there having been a choice of the seat, Rule 18.1 of the SIAC Rules 2013, which provides that in the absence of the parties’ agreement, the default seat of the arbitration shall be Singapore, does not come into play and (iii) there was nothing to displace the natural reading of the phrase arbitration in Shanghai. Further, the court stated that in accordance to the three-stage analysis, the third stage was not met which states that arbitration agreement must be read which has the closest and most real connection”. Thus, the hon’ble court of appeal ruled that the seat of arbitration should have been Shanghai and not Singapore.

ANALYSIS AND CONCLUSION

The Indian Arbitration Act has been silent on the conundrum of the ‘seat’ and ‘venue’. There can be certain changes in the Indian Arbitration Act and the approach of the Indian courts while interpreting the contract as well as the arbitration agreement while resolving the conundrum.

· One of the important things for the parties is to ensure that when the parties enter into an arbitration agreement, there must be a provision which expressly provides for the ‘seat’ of arbitration.

· There is a need for an amendment in the Arbitration and Conciliation Act, wherein there is insertion of definitions such as ‘seat’ and ‘venue’ which will assist the courts while interpreting the agreements.

· Further, it must also be ensured that the there is a clear demarcation regarding the law governing the contract, and the law governing the arbitration proceedings.

· There is also a possibility that for the convenience of the parties, different locations might be chosen other than the designated seat for conducting hearings of the tribunal. It becomes important to understand that by conducting few arbitration hearings at different locations does not result in change of seat of arbitration.

· Proper care needs to be taken for international arbitration matters. If the seat is kept outside India and parties provide for arbitration proceedings under any arbitration institutions or any such equivalent bodies, a proper examination of such rules of the body is necessary. The parties must be cautious of the fact that the rules do not provide anything contrary to what was intended by them. Also, with the recent cases of Inox Renewables[9] and PSAL,[10] the scenario regarding the concept of ‘seat’ and ‘venue ‘has now evolved. There might be situation where Indian parties may select a foreign seat of arbitration and their venue might be an Indian city, thus creating further complications for the judiciary during the interpretation of seat and venue conundrum.

· With regard to the judicial interpretations, the law laid down by the hon’ble supreme court in the case of BGS Soma[11] was the most proper and appropriate approach to decide upon the conundrum of ‘seat’ and ‘venue’. In the absence of an express clause which provides for the ‘seat ‘of arbitration but there is a mention of the ‘venue’, then the ‘venue’ should be considered as the ‘seat’, unless there are no other clauses or ‘significant contrary indica’ which indicate that the parties intended otherwise. This approach shall help in reducing unnecessary conflicts with regard to jurisdictions of courts and avoid concurrent jurisdictions.

· Another approach which is found to be acceptable and suitable in cases of conflict for the ‘seat’ and ‘venue’ is the test laid down in the case of Sulamerica.[12] The three-stage analysis test laid down in this case follows a proper method of deciding which laws shall be governing the arbitration proceedings. The support to the three-stage analysis test can also be found in the cases of Hilton International[13] and BCY[14] of Singapore. In this method, first there is a proper check if there is an express provision, second to see whether there was any implied indication which hinted towards applicable law and the third step is to see the real and close connection which can be interpreted by the courts. This three-stage internationally approved method, after interpretating every aspect and proper analysis, ensures which court shall have the jurisdiction.

· One of the important section of the Indian Arbitration Act is section 42[15] which states that “Notwithstanding anything contained elsewhere in this part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a court, that court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that court and in no other Court.” In simpler words, this section entails that a specific court shall have jurisdiction to try the case, if previously any application has been filed with respect to an arbitration agreement. Now, if there is an arbitration agreement which is drafted in such a way that there is no specific mention of the seat but the clause provides for the ‘venue’ of the arbitration, then the courts located within the jurisdiction of ‘venue’ shall have the right to try the case. Also, this section is applicable only in cases where the arbitration takes place in India. In BALCO, it was stated: “It is held that only if the agreement of the parties is construed to provide for the seat / place of arbitration being in India, Part I of the Arbitration Act, 1996 would be applicable. Part I would be inapplicable to the extent inconsistent with the arbitration law of the seat, even if the agreement purports to provide that the Arbitration Act, 1996 shall govern the arbitration proceedings.”

· In a particular case if the arbitration agreement is silent on the ‘seat’ or when the agreement mentions a designated ‘venue’ as per convenience. This leads to a situation where several courts may have jurisdiction. Section 9[16] of the Arbitration Act, 1996 can be preferred before a court where the part of the cause of action arose in cases where the parties have not agreed on the ‘seat’ of arbitration, and before such ‘seat’ may have been determined, by the Arbitral Tribunal under Section 20(2)[17]of the Arbitration Act, 1996, based on the facts of the case. Therefore, in such circumstances it is believed that earliest application having been made to a court, in which a part of the cause of action arises, would then be the exclusive court under Section 42[18] and it would have control over the arbitral proceedings.

· It is quite noticeable that the approach to the subject may vary but the underlying points of determination which contribute to solving the issue showcase some similarity across majority jurisdictions.[19] It can be concluded that the following things are vital to the courts while deciding upon the ‘seat’ and ‘venue’ – i) terms of the arbitration agreement, ii) parties’ conduct, iii) governing law and iv) tests of interpretation.

It can be concluded that the confusion with regard to ‘seat’ and ‘venue’ shall continue in the future unless necessary amendments are made to the Indian Arbitration Act and there is a consistent approach taken by Indian Courts while interpreting the arbitration agreement.

Endnotes

[1] Sulamerica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A., (2012) EWHC 42 (Comm); (2012) EWCA Civ 638 (England).

[2]Shagang South-Asia (Hong Kong) Trading Co. Ltd. v. Daewoo Logistics, (2015) EWHC 194 (Comm) (England).

[3] Roger Shashoua & Ors v. Mukesh Sharma, (2009) EWHC 957 (Comm) (England).

[4] FirstLink Investments Corp Ltd v. GT Payment Pte Ltd and Others, (2014) SGHCR 12 (Singapore).

[5] BCY v. BCZ, (2017) 3 SLR 357 at 64 (Singapore).

[6] Sulamerica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A., (2012) EWHC 42 (Comm); (2012) EWCA Civ 638(England).

[7] Hilton International v. Sun Travels, (2018) SGHC 56 (Singapore).

[8] BNA v. BNB and Anr, (2019) SGCA 84 (Singapore).

[9] M/s Inox Renewables Ltd v Jayesh Electricals Ltd, LL 2021 SC 219.

[10] PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd, LL 2021 SC 226.

[11] BGS SGS Soma JV v. NHPC Ltd, (2019) SCC OnLine SC 1585.

[12] Sulamerica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A., (2012) EWHC 42 (Comm); (2012) EWCA Civ 638 (England).

[13] Hilton International v. Sun Travels, (2018) SGHC 56(Singapore).

[14] BCY v. BCZ, (2017) 3 SLR 357 at 64 (Singapore).

[15] Arbitration Act, No. 26 of 1996, § 42 (India).

[16] Arbitration Act, No. 26 of 1996, § 9 (India) .

[17] Arbitration Act, No. 26 of 1996, §20 (2) (India) .

[18] Supra note 15.

[19] Shreyas Jayasimha, Srikanth Navale and Spandana Ashwath, The Test of Seats: A Comparative Lens Over the Proper Law of Arbitration Agreements in India and Singapore, Lexology (Apr 20, 2020), https://www.lexology.com/library/detail.aspx?g=81214678-8504-4980-a288-c7db55ad4009.