by Nakul Dewan.The Delhi High Court, by its recent judgment dated 30 June 2015, has ruled that two arbitration awards passed in a ICC arbitration held in Singapore between the American multinational car rental company Hertz International (Hertz) against its erstwhile partner Carzonrent India (Carzonrent), can be challenged by Carzonrent under Section 34 of the Arbitration Act 1996. The decision is based on the Court having accepted Carzonrent’s submission that the use of words “arbitration shall be held in Singapore”, coupled with the arbitration clause being a part of an Indian law governed substantive contract, was sufficient to hold that the proper law of the arbitration agreement would be Indian law and allow the Court to entertain a section 34 application..The Court’s decision is based on adopting the Sul America test, which was first set out by English judgment in SulAmérica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671, and is widely accepted as to its principles, but finds some criticism as to its actual application. Sul America sets out that the enquiry to determine the law of an arbitration agreement is a three-staged process: the first is to ascertain whether the parties have set out an express choice, the second whether in the absence of an express choice if there is an implied choice, and the third where parties have not made either an express or implied choice, to consider the proper law with which the arbitration agreement has its closest and most real connection. Most arbitration clauses or agreements do not have an express choice and leave the enquiry to be focused on whether there is an implied choice, or determining the closest or real connection to the arbitration agreement..The High Court’s judgment seemingly rests on the third facet of Sul America, but also relies on the implied exclusion doctrine set out under Bhatia International and can perhaps be said to be based on a merger of the second and the third facet. The basis for accepting Carzonrent’s submissions, according to the High Court’s judgment, is the English decision in Naviera Amazonica Peruana SA v. Compania International De Seguros Del Peru (1988) 1 Lloyds Law Reports 116 CA, which has relied upon by the Supreme Court in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (1998) 1 SCC 305, a decision under the 1940 Act..The High Court holds that,.“[i]n the present case, there is absolutely no connection between Singapore and the present contract except that the arbitration took place there. The Petitioner is an Indian party and the Respondent company is incorporated in the U.S.A. The contract was to be performed entirely in India. As already noted the governing law of contract is Indian law. Applying the “closest and most real connection” test, it can safely be concluded that there is no implied exclusion of the applicability of Indian law to the arbitration proceedings.”.Unfortunately the judgment missed an opportunity to consider the actual applicability of the Sul America test in the context of the issue of severability of an arbitration agreement, a fundamental facet of the Arbitration Act 1996 and legislatively provided for under section 16(a). That would have perhaps allowed the High Court to distinguish between how, in practice, Sul America’s implied choice test and the closest connection test would have worked out..Even Naviera Amazonica, a decision which preceded the 1996 English Arbitration Act that had legislatively incorporated the doctrine of severability under English law, set out the closest and real connection test as the basis of an enquiry into the place where the arbitration was held and not on the law of the substantive contract..In fact, a judgment which was perhaps not brought to the attention of the High Court is a recent Singapore High Court decision in FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others [2014] SGHCR 12. In FirstLink, the Singapore High Court ruled,.“…….it cannot always be assumed that commercial parties want the same system of law to govern their relationship of performing the substantive obligations under the contract, and the quite separate (and often unhappy) relationship of resolving disputes when problems arise…….. . There can therefore be no natural inference that commercial parties would want the same system of law to govern these two distinct relationships. The natural inference would instead be to the contrary. When commercial relationships break down and parties descend into the realm of dispute resolution, parties’ desire for neutrality comes to the fore; the law governing the performance of substantive contractual obligations prior to the breakdown of the relationship takes a backseat at this moment (it would take the main role subsequently when the time comes to determine the merits of the dispute), and primacy is accorded to the neutral law selected by parties to govern the proceedings of dispute resolution.”.This decision links the enquiry of the closest and real connection test to the arbitration agreement and not to the parent contract..The decision, though rendered in a contract covered under the pre-BALCO regime, will be applicable in the post-BALCO regime because it sets out the Indian law enquiry that should be conducted for ascertaining the closest and real connection of an arbitration agreement. By adopting the three stage test in Sul America the High Court has continued to drive India’s international arbitral jurisprudence in the right direction..However, not considering the concept of severability, whose basic essence is that it matters little whether an arbitration clause is simply a clause in a substantive contract or is a separate contract by itself, is a swerve on that path. That is a missed opportunity to further Indian jurisprudence on international arbitration. .Nakul Dewan is a practicing Advocate in India, and also in Singapore and London where he is a tenant at 20 Essex Street Chambers.
by Nakul Dewan.The Delhi High Court, by its recent judgment dated 30 June 2015, has ruled that two arbitration awards passed in a ICC arbitration held in Singapore between the American multinational car rental company Hertz International (Hertz) against its erstwhile partner Carzonrent India (Carzonrent), can be challenged by Carzonrent under Section 34 of the Arbitration Act 1996. The decision is based on the Court having accepted Carzonrent’s submission that the use of words “arbitration shall be held in Singapore”, coupled with the arbitration clause being a part of an Indian law governed substantive contract, was sufficient to hold that the proper law of the arbitration agreement would be Indian law and allow the Court to entertain a section 34 application..The Court’s decision is based on adopting the Sul America test, which was first set out by English judgment in SulAmérica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671, and is widely accepted as to its principles, but finds some criticism as to its actual application. Sul America sets out that the enquiry to determine the law of an arbitration agreement is a three-staged process: the first is to ascertain whether the parties have set out an express choice, the second whether in the absence of an express choice if there is an implied choice, and the third where parties have not made either an express or implied choice, to consider the proper law with which the arbitration agreement has its closest and most real connection. Most arbitration clauses or agreements do not have an express choice and leave the enquiry to be focused on whether there is an implied choice, or determining the closest or real connection to the arbitration agreement..The High Court’s judgment seemingly rests on the third facet of Sul America, but also relies on the implied exclusion doctrine set out under Bhatia International and can perhaps be said to be based on a merger of the second and the third facet. The basis for accepting Carzonrent’s submissions, according to the High Court’s judgment, is the English decision in Naviera Amazonica Peruana SA v. Compania International De Seguros Del Peru (1988) 1 Lloyds Law Reports 116 CA, which has relied upon by the Supreme Court in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (1998) 1 SCC 305, a decision under the 1940 Act..The High Court holds that,.“[i]n the present case, there is absolutely no connection between Singapore and the present contract except that the arbitration took place there. The Petitioner is an Indian party and the Respondent company is incorporated in the U.S.A. The contract was to be performed entirely in India. As already noted the governing law of contract is Indian law. Applying the “closest and most real connection” test, it can safely be concluded that there is no implied exclusion of the applicability of Indian law to the arbitration proceedings.”.Unfortunately the judgment missed an opportunity to consider the actual applicability of the Sul America test in the context of the issue of severability of an arbitration agreement, a fundamental facet of the Arbitration Act 1996 and legislatively provided for under section 16(a). That would have perhaps allowed the High Court to distinguish between how, in practice, Sul America’s implied choice test and the closest connection test would have worked out..Even Naviera Amazonica, a decision which preceded the 1996 English Arbitration Act that had legislatively incorporated the doctrine of severability under English law, set out the closest and real connection test as the basis of an enquiry into the place where the arbitration was held and not on the law of the substantive contract..In fact, a judgment which was perhaps not brought to the attention of the High Court is a recent Singapore High Court decision in FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others [2014] SGHCR 12. In FirstLink, the Singapore High Court ruled,.“…….it cannot always be assumed that commercial parties want the same system of law to govern their relationship of performing the substantive obligations under the contract, and the quite separate (and often unhappy) relationship of resolving disputes when problems arise…….. . There can therefore be no natural inference that commercial parties would want the same system of law to govern these two distinct relationships. The natural inference would instead be to the contrary. When commercial relationships break down and parties descend into the realm of dispute resolution, parties’ desire for neutrality comes to the fore; the law governing the performance of substantive contractual obligations prior to the breakdown of the relationship takes a backseat at this moment (it would take the main role subsequently when the time comes to determine the merits of the dispute), and primacy is accorded to the neutral law selected by parties to govern the proceedings of dispute resolution.”.This decision links the enquiry of the closest and real connection test to the arbitration agreement and not to the parent contract..The decision, though rendered in a contract covered under the pre-BALCO regime, will be applicable in the post-BALCO regime because it sets out the Indian law enquiry that should be conducted for ascertaining the closest and real connection of an arbitration agreement. By adopting the three stage test in Sul America the High Court has continued to drive India’s international arbitral jurisprudence in the right direction..However, not considering the concept of severability, whose basic essence is that it matters little whether an arbitration clause is simply a clause in a substantive contract or is a separate contract by itself, is a swerve on that path. That is a missed opportunity to further Indian jurisprudence on international arbitration. .Nakul Dewan is a practicing Advocate in India, and also in Singapore and London where he is a tenant at 20 Essex Street Chambers.
