When Does A Venue Become A Seat of Arbitration: Comparison Between India, Singapore and the UK

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On 25 September 2018, the Supreme Court of India (SCI) in Union of India v Hardy Exploration (https://indiankanoon.org/doc/85584373/ ) [Civ.App. 4628 of 2018] (Hardy) promulgated the appropriate approach to determine the place/seat of arbitration in a situation where the arbitration clause specifies a ‘venue’ instead of a ‘seat’.The impugned arbitration clause set out to be governed by Indian law and arbitration to be conducted as per the UNCITRAL Model Law (MAL) specifying the venue to be Kuala Lumpur. The SCI had to decide whether the venue can be taken as the seat/place of arbitration.

This issue was not res integra in Indian scenario. In NTPC vs. Singer Company (https://indiankanoon.org/doc/633347/ ) [AIR 1993 SC 998] (NTPC), the SCI, while recognising the test of the closest and most real connection, inter alia, held that in exceptional circumstances and in the absence of defined substantive law, the law of the seat will deemed to be the governing law as the law bearing the ‘NTPC vs. Singer Company’ to the dispute. This test was inversely applied by SCI in Enercon (India) Ltd. v. Enercon GmbH (https://indiankanoon.org/doc/146487961/ ) [(2014) 5 SCC 1] (Enercon). As per the arbitration clause in Enercon, the law governing the underlying contract, as well as the law governing the arbitration agreement was Indian law. Further, instead of the seat, the venue of arbitration was chosen to be London. The issue before SCI was whether the venue can be interchangeably used with the seat or place of arbitration. The SCI rejected the notion that the venue ought to be read as the seat based on the assumption that by expressly making Indian law as the governing law of the arbitration agreement and the underlying contract, the parties have designated India to be the seat of arbitration thereby making Indian law as the curial law of arbitration.

Although Singaporean courts had a similar approach as NTPC while determining the seat of arbitration where the arbitration clause is silent on it, yet it appears that the venue can be taken as the seat in some situations. In Who Hup (Pte) Ltd v Property Development Ltd [1991] 1 SLR(R) 473, the court applied an assumption that arbitration agreement was governed by the same law as the proper law of the contract where there was no indication to the contrary. Recently, in Hilton International v Sun Travels (http://www.singaporelawwatch.sg/Portals/0/Docs/Judgments/[2018]%20SGHC%2056.pdf ) [2018] SGHC 56 (Hilton), the arbitration clause in question stipulated that the venue of arbitration shall be SIAC and any dispute between the parties shall be settled in accordance with the Rules of ICC. It was argued before the Singapore High Court (SHC) that the clause did not stipulate the seat of the arbitration rather it merely provided that the venue of the arbitration shall be SIAC. The SHC held that, by choosing, ICC Rules as the applicable law, the parties are bound by ICC’s decision which had fixed Singapore as the seat of arbitration.

The position in UK is similar to Singapore, however it is in stark contrast from that in India. In Shashoua & Ors v Sharma (https://www.bailii.org/ew/cases/EWHC/Comm/2009/957.html ) [2009] EWHC 957 (Shashoua UK), a similar question was before the Commercial High Court of the England & Wales (EWHC) wherein the governing law of the underlying contract was Indian law, and arbitration proceedings were to be conducted in accordance with ICC Rules. The EWHC held that in the light of a clause that stipulates the venue of the arbitration shall be London, the UK does amount to the designation of a juridical seat. It is interesting to note that subsequently the same parties were before SCI in Roger Shashoua v. Mukesh Sharma. (https://indiankanoon.org/doc/70870056/ ) [(2017) 14 SCC 722] (Shashoua India) and SCI concurred with EWHC in Shashoua UK.

The difference, therefore, in the two positions is that in Shashoua UK and Hilton, in addition to deciding London and Singapore as venues respectively, the parties had also chosen a supranational body of rules (ICC). Meaning thereby, that in Shashoua UK and Hilton, the parties had made a choice of the seat by expressly choosing ICC Rules which had provisions regarding determination of the seat of the arbitration. By choosing to arbitrate under the ICC Rules without any specific agreement as to the seat of the arbitration, the parties had effectively agreed to allow the ICC Court the discretion to fix the seat of the arbitration as per the ICC Rules, and were bound by the ICC Court’s decision. While in Enercon, the parties had not chosen any supranational body of rules to govern the arbitration. On the contrary, the parties have expressly chosen the Indian Arbitration Act as the governing law of arbitration and therefore, SCI held it to be the law applicable to the arbitration proceedings.

In Hardy the SCI had taken the similar approach to that in Enercon. The SCI held that the venue and the seat are not synonymous and “a venue can become a seat if something else is added to it as a concomitant”. In this case, the parties have chosen a supranational body of rules i.e. MAL. Under Article 20(1) of MAL, in case parties fail to decide the place of arbitration then it is upon the arbitral tribunal to decide such a place. Further, under Article 20(2), the arbitral tribunal can choose any venue to meet, other than the agreed place of the arbitration. This was the position taken by Singapore Court of Appeal in PT Garuda Indonesia v Birgen Air [2002] SGCA 12, wherein the Court had distinguished place of arbitration from venue of hearing.

A very important aspect which SCI failed to consider was the presumption of the seat under MAL. Under Article 31(3) of MAL, the words “the award shall be deemed to have been made at that place” makes it amply clear that place of arbitration is the same as the place where the award is made. The Explanatory Note of MAL (Notes) appended with MAL states “Article 31(3) provides that the award shall state the place of arbitration and that it shall be deemed to have been made at that place. As to this presumption, it may be noted that the final making of the award constitutes a legal act”. This position was supported by the renowned authors of Mustill & Boyd, Commercial Arbitration, 2nd ed. in following words:

“Thus if the arbitration is to be held in the territory of a state which is party to the New York Convention on the Recognition and Enforcement of Awards, section 5(2)(b) of the Arbitration Act 1975 [now section 103(2)(b) of the Arbitration Act 1996] appears to give rise to a rebuttable presumption that the law governing the validity of the arbitration agreement is the law where the award is to be made.”

Hardy also ignores the interpretation of closest and most real connection test as described in Dicey, Morris & Collins, The Conflict of Laws, 14th ed. as follows:

“If no such choice, express or implied, can be discerned, then it will often be the case that the arbitration agreement will be found to be most closely connected with the law of the place where the arbitration has its seat, which is also the place where the award is to be treated as “made” for the purpose of the New York Convention.”

It is pertinent to note that the above-mentioned books have been cited in the English authority of Sulamerica v. Enesa [2012] EWCA Civ 638 (https://www.bailii.org/ew/cases/EWCA/Civ/2012/638.html ) and the dictum of Sulamerica has been relied in Enercon by SCI.

The SCI had also overlooked Article 1(2) of MAL which clearly mentions that its provisions, except Articles 8, 9, 35 and 36 would apply only if the place of arbitration is in the territory of “this state” referred to in Article 1(2). The Notes on Article 1(2) states “[a]ccording to article 1(2), the Model Law as enacted in a given State would apply only if the place of arbitration is in the territory of that State”. In the present case, it would mean the Republic of Malaysia particularly because Article 34 of MAL is in pari materia to Section 37 of the Malaysian Arbitration Act, 2005. The Court observed that the arbitral tribunal had failed to “determine” the seat of arbitration and went a step ahead by interpreting the ambit of “determination” of arbitral tribunal clearly disregarding the doctrine of kompetence kompetence.

In light of Hardy, it would be interesting to see the fate of similar disputes under institutional rules which have designated default seat of arbitration such as London Court of International Arbitration Rules, 2014 (London), the Hong Kong International Arbitration Centre Administered Arbitration Rules, 2013, (Hong Kong) and Nani Palkhivala Arbitration Centre Rules, (Chennai) unless otherwise agreed between the parties. In absence of “determination” by arbitral tribunal, which is clearly not required in case of such institutional rules, does that mean the seat would not be the default seat?

2 Comments Add yours

  1. Chen Delin says:

    I am a fellow for you.And very pleased to read your article and comments on arbitration aspect.
    Lawyer from mainland China

    Liked by 1 person

  2. Ananya Pratap Singh says:

    Dear Chen,

    Thank you so much for your kind words. Will try to keep up the good work.

    Best regards,
    Ananya

    Like

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