The three judgments of the Supreme Court in quick succession namely Union of India v. Hardy Exploration and Production (India) INC[1] (in short “Hardy’s Case”), Brahmani River Pellets Ltd. vs Kamachi Industries Ltd[2] (Brahmani’s Case) and the most recent BGS SGS SOMA JV v NHPC Pvt Ltd[3] (BGS’s Case), underscore the significance of identifying the “juridical seat” in an…
The three judgments of the Supreme Court in quick succession namely Union of India v. Hardy Exploration and Production (India) INC[1] (in short “Hardy’s Case”), Brahmani River Pellets Ltd. vs Kamachi Industries Ltd[2] (Brahmani’s Case) and the most recent BGS SGS SOMA JV v NHPC Pvt Ltd[3] (BGS’s Case), underscore the significance of identifying the “juridical seat” in an arbitration agreement clearly so as to avoid wholly unnecessary litigation. These Judgements also highlight, why legislature should accept the recommendations made in the 246th Law Commission Report to legislatively distinguish between “(legal) Seat” and “(mere) Venue” of Arbitration.
It is a matter of concern for the litigants, law practitioners and Courts that in less than fourteen months, the three Judges Bench in BGS’s Case has held the judgment of a coordinate bench in “Hardy’s Case” to be per-incurium. The Supreme Court’s observations in BGS’s Case relying on Shashoua’s Case[4] to the effect 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 criteria, the inexorable conclusion is that the stated venue is actually the juridical seat of arbitration“, however requires a closer look.
BALCO guideline
While the terms “seat” and “place” of Arbitration are often used interchangeably and generally means “juridical seat” of arbitration, the expression “venue” generally would refer to the place of convenience for holding arbitration hearings.[5] Yet however, the expression “seat” or “place” are not decisive always of juridical seat of arbitration[6] and similarly, it has also been held that the expression “venue” may have to be read as “juridical seat” of arbitration.[7] The Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Ltd. (BALCO’s Case)[8] has referred to the observations in Braes of Doune Wind Farm (Scotland) Ltd. v. Alfred McAlpine Business Services Ltd[9] to lay down that the observations made in the said case clearly demonstrate that the detailed examination which is required to be undertaken by the court is to discern from the “agreement” and “surrounding circumstances” the intention of the parties as to whether a particular place mentioned refers to the “venue” or “seat” of the arbitration.
Hardy’s Case
In Hardy’s Case, the arbitration agreement between international parties, interestingly, neither mentions the “seat” of arbitration nor had provided for the “law of arbitration”. The arbitration agreement provided that the governing law of the contract is the Indian law[10]; that the arbitration shall be conducted in accordance with UNCITRAL Model Law on International Commercial Arbitration of 1985[11]; and that the “venue” to be Kuala Lumpur[12], unless otherwise parties agree. The Court held that the fact that arbitrator held the meeting at Kuala Lumpur and signed the award does not amount to determination under Article 20 (1)[13] of UNCITRAL Model Law, which would require an expressive opinion. The Court, thereafter, did not enter into a detailed examination of the surrounding circumstances including the conduct of parties or that of the Tribunal. Having held that Kuala Lumpur is not the “seat” of arbitration, the Court does not give reasons why Indian Arbitration and Conciliation Act, 1996 would apply as law governing the arbitration to hold that s.34 application challenge to the Award before the Delhi High Court is maintainable. The Court does not state whether the Arbitration Agreement in question is governed by Bhatia Principle[14] or BALCO Principle[15].
Brahmani’s Case
In Brahmani’s Case, the parties were ad idem on the applicability of Part I of the Act, 1996. Clause 18 of the contract read “Arbitration shall be under Indian Arbitration and Conciliation Law 1996 and the Venue of Arbitration shall be Bhubaneswar”. The question for determination was whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996 when the clause stipulates that venue of arbitration shall be Bhubaneswar.
In both Hardy’s Case and Brahmani’s Case, the expression used in the arbitration agreement was “venue” and the dispute was about whether the expression “venue” meant the juridical seat of arbitration. But while in the Hardy’s Case, the “venue” was Kuala Lumpur, Malaysia (a place outside India); in Brahmani’s Case, the “venue” was mentioned to be Bhubaneshwar (a place within India). In Hardy’s Case, the dispute between the parties was linked to the applicability of Part I of the Arbitration and Conciliation Act, 1996 (“the Act,1996”) in order to decide the maintainability of a s.34 challenge to the Award before the Delhi High Court. In Brahmani’s Case, the parties were ad idem on the applicability of Part I of the Act, 1996, but the dispute was linked to the jurisdiction of Madras High Court to entertain an application under s.11(6) of the Act, 1996.
In Brahmani’s Case, the Court refers to the earlier judgment of Supreme Court in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. and others[16] and very abruptly concludes that the parties by specifying Bhubaneshwar as ‘Venue’ intended to exclude jurisdiction of all other courts, even though Indus Mobile (supra) does not deal with a similar arbitration clause. Interestingly, in Indus Mobile, the parties did not express the “venue” or “seat” of arbitration in the agreement but agreed that “All disputes & differences of any kind whatever arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of courts of Mumbai only”. The Court there, after referring to the judgments in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.,[17] Enercon (India) Ltd. v. Enercon Gmbh[18], Reliance Industries Ltd. v. Union of India[19], Harmony Innovation Shipping Limited v. Gupta Coal India Limited and Another, Union of India v. Reliance Industries Limited and Others[20], Eitzen Bulk A/S v. Ashapura Minechem Limited and Another[21], held that that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. The Court further held on the facts of the case, “the seat of arbitration is Mumbai and Clause 19 further made it clear that jurisdiction exclusively vests in the Mumbai courts”. Brahmani’s Case therefore left with many more questions than answers, particularly in the context of a domestic arbitration.
BGS’s Case
In BGS’s Case, the arbitration agreement is expressly governed by Arbitration and Conciliation Act, 1996 and it was agreed that “Arbitration Proceedings shall be held at New Delhi/Faridabad.” There was no use of the expressions “venue” or “seat”. The Court read the choice of two places Delhi and Faridabad as alternative ‘seats’ of arbitration. The Court, however, quite interestingly, analysed the decision in Hardy’s Case and held the same to be contrary to the five judges Bench in BALCO, in that it failed to apply the Shashoua Principle to arbitration in clause in question, which was affirmatively cited in BALCO. It is important to bear in mind that in BALCO’s Case was not directly concerned with a dispute as to when the expression “venue” is to be read as “seat” and Shashoua’s Case was cited therein in a slightly different context in that the Courts of the Seat of Arbitration have exclusive jurisdiction to supervise the arbitration.
View Point on Shashoua Principle
In Shashoua’s Case, the England and Wales High Court (Commercial Court) was dealing with an international arbitration agreement which provided that the “venue of arbitration shall be in London, UK” and arbitration to be conducted in accordance with the Rules of ICC in Paris. It is difficult to read Cooke, J’s observations in Shashoua’s Case as laying down a general principle that in all cases, the “venue”, when combined with a supra-national body of rules governing the arbitration and no other significant contrary indicia, should be accepted as a “seat”. The observation of Cooke. J was clearly in the context of London Arbitration which he described as a ‘well-known phenomenon’ because of “the legislative framework and supervisory powers of the Courts in London which many parties are keen to adopt“. Cooke J. therefore concluded “When therefore there is an express designation of the arbitration venue as London 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 in- exorable conclusion is, to my mind, that London is the juridical seat and English law the curial law…”.
Cooke’s observations may not hold good where the “venue” is not a place recognised as a preferred “seat” for international arbitration like “London”. In similar circumstances, it is doubtful if English Courts would readily interpret “venue” to be “seat”, if an Indian City is named as “venue” with a supra-national law and no other contrary indicia. This is so because the inordinate delay in the disposal of cases does not make India a ‘well-known phenomenon’ for Arbitration like “London” or “Singapore”. The Court may in such cases also examine the conduct of the parties to determine “juridical seat”. In Shashoua’s Case, it is interesting to observe that Cooke J. has made a brief reference to the conduct of the parties during arbitration showing that parties treated London as seat at an earlier stage. So, where reading of “venue” as “seat” may lead to serious inconvenience to parties (including inordinate delay in resolution of disputes) or where the parties’ have conducted in a certain manner suggesting that parties did not understand “venue” to be “seat”, English Courts may not treat “venue” as “seat” of arbitration, despite parties agreeing to a supra national law and may rather treat the said factors itself as strong contrary indicia.
In international commercial arbitrations, the nuances of the expression “venue” and “seat” have a major significance in determining the law of arbitration. This is so because, if the ‘seat’ is outside India, Part I of the Arbitration and Conciliation Act, 1996 is automatically excluded and the law of the seat becomes the law governing the arbitration or lex arbitri. It is possible that international parties are unable to agree on a neutral “juridical seat”. In such a scenario, parties may only provide for a “venue” as a mere convenient geographical location with a supra-national procedural law, while leaving the determination of “juridical seat” to the Tribunal. It may also be convenient for the international parties to conduct the arbitration proceedings entirely in a third country or at the place where the contract is performed in order to make it more business friendly and economical by making it less expensive for lawyers and witnesses to travel and for taking evidence. To give an illustration, two Asian Companies (e.g. one Indian and the other Japanese) may agree on the “venue” for holding the arbitration proceedings at a mid-point in Asia (e.g. Jakarta, Indonesia) or even at the place where the contract is to be performed (eg. Vadodara, Gujarat, India) with a supra national law (UNCITRAL Model law)[22] for conducting the entire Arbitration proceedings. The choice of a supra-national law may only suggest that Parties intended the Tribunal to determine the “seat” uninfluenced by Parties’ choice of any express national law. Article 31(3) of the UNCITRAL Model Law provides that “The award shall state its date and the place of arbitration as determined in accordance with article 20(1). The award shall be deemed to have been made at that place.”[23] On a conjoint reading of Article 20(1) and Article 31(3) of UNCITRAL Model Law, it is clear that regardless of “venue” where the arbitration proceedings are conducted (wholly or partly) or the Award is passed, the Award shall be deemed to be made at the “juridical seat” of Arbitration determined as per Article 20(1).
International Contracts are generally formal documents drafted by intelligent draftsman and lawyers. When expression “venue” is used, the Courts should begin with a presumption that parties were mindful of the distinct purposive connotation. This approach would be consistent with the idea of the having two places for distinct and different purposes, as envisaged in UNCITRAL Model Law. Parties can leave the “seat” to be determined at an appropriate time either by parties themselves or by the Tribunal depending on the nature or financial value of the disputes. For example, in the illustration given above, where the contract spans over a long period of time (typically the case in Oil and Gas exploration contracts), there may be several references to arbitration. In disputes, which does not involve huge financial stakes, Parties may agree before the Tribunal to determine the “seat” within India rather than in “London” and prefer a neutral “foreign seat”, only when stakes are higher. Similarly, in multi-party arbitration agreement involving parties of different nationalities, parties may defer the determination of “seat” till such time when the disputes arise to reflect the choice of international parties, who are actually concerned with the dispute.
However, where the applicability of Part I of the Arbitration and Conciliation Act, 1996 is not in dispute i.e where parties agree that seat is within India like in the Brahmani’s Case, the nuances of the expression “venue” and “seat” become less significant and the expression “venue” may overwhelmingly indicate, in absence of any contrary indicia, the intention to treat “venue” as “seat”.
It is interesting to notice that in BCG’s Case, the Court had cited with approval observations of Eder J. in Enercon GmBH v Enercon (India) Pvt Ltd [24] which Eder. J himself qualified as strictly obiter. In the connected lis between same parties in Enercon (India) Pvt Ltd vs Enercon GmBH[25], the Supreme Court of India had arrived at a conclusion opposite to what Eder J has reached. This may likely lead to more confusion. Minute textual analysis and overemphasis on the choice of expression “arbitration proceedings” to hold that the same includes not just one or more individual or particular hearings but the arbitration proceedings as a whole including the making of an award, may not reflect the parties’ intention correctly. This is more particularly so, when there is nothing in the UNCITRAL Model law which requires arbitration proceedings to be conducted wholly or partly in the “juridical seat” to demonstrate anchorage of arbitration at that place. The entire arbitration proceedings can be conducted at the “venue”, while the Award clearly states the “juridical seat” of arbitration.
Hardy’s Case is significant to emphasise the significance of Arbitral Tribunal to determine “juridical seat” by an expressive opinion under Article 20(1) of UNCITRAL Model law. Where Parties have failed to designate the “juridical seat” expressly, the Arbitral Tribunal should at the very beginning determine the “juridical seat” by an expressive opinion. This will obviate the risk of protracted litigation before multiple jurisdictions, if a party has to approach a Court at any interim stage for assistance. At every stage of Arbitration from its commencement till the Award, it is necessary that the Arbitration is anchored to a juridical seat as international Arbitrations cannot float around in a transnational firmament without a “seat”.
The dispute between the parties in Hardy’s Case is a classic example of wholly avoidable lis in three countries resulting from the Tribunal’s failure to specify the “juridical seat” in the Award. Besides the lis between the parties in India which culminated in the Judgment by Supreme Court, Hardy simultaneously had filed a petition before the District Court at Colombia, United States for confirmation of the Arbitration Award which came to be rejected on 7th June, 2018[26]. Hardy has also filed enforcement proceedings before the U.K. Court and had obtained an interim third party debt order on 28th February 2018 on the premise that that there is a debt due or accruing due by third party/ IIFC (UK) to the judgment creditor i.e Government of India. By Judgment dated 25th July 2018[27], the English Court dismissed the Hardy’s application for third party debt order on the ground of lack of jurisdiction.
Even in domestic arbitration, where parties have failed to designate the “juridical seat” an expressive determination of “seat” by the Tribunal under s.20(2) of the Arbitration and Conciliation Act, 1996 at the very beginning of arbitration proceedings, would put at rest unnecessary litigation and wastage of time later over discerning the juridical seat of arbitration.
It is important that parties very carefully apply their mind to the arbitration agreement to avoid unnecessary and protracted lis on questions of ‘juridical seat’ which may arise at any stage of the arbitration proceedings (from its commencement till final Award) and even thereafter, defeating the very purpose of an alternative dispute resolution process. A lot of Court’s time is wasted in litigations trying to discern the real intent of parties hidden behind the expressions “venue” and “seat”. This is counterproductive as it delays the adjudication of the disputes on merits.
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