Driving from Back Seat: Role of determinative factors in ascertaining seat of arbitration and court of jurisdiction

Bar & Bench October 14 2018
Anshuman Pande and Mahima Sareen

Anshuman Pande and Mahima Sareen

Where do we go / (Oh) where do we go now.” ~ Guns N’ Roses (Sweet Child O’ Mine)

The Supreme Court’s  decision in Bharat Aluminium Company v Kaiser Aluminium Technical Service [BALCO] became the fountainhead for a series of subsequent decisions by the Supreme Court on the lines that arbitration is seat-centric - i.e. choosing the seat is analogous to choosing the jurisdiction of the (domestic or foreign) court of the place of the seat.

However, identification of the seat of arbitration has always been challenging. There are various determinative factors in the contract that drive the eventual identification of the seat, often involving intricate interpretations and even conflicting judgments by courts.

Moreover, even if the seat has been identified, these determinative factors may lead to a conclusion that the court of the seat does not possess exclusive jurisdiction. Such factors include choice of arbitral and curial laws, choice of governing laws, courts of jurisdiction, nomenclature used for place of arbitration, identity of parties etc.

These are usually looked into by courts to determine the seat by the ‘closest connection’ approach, or under a conflict of laws principles. In this article, we have studied issues and instances (admittedly non-exhaustive), where these determinative factors have played a blatant or a latent role in the identification of seat and/or jurisdiction, to arrive at certain broad conclusions. These issues and their implications are provided hereafter.

Use of the term ‘venue’

‘Venue’ of arbitration connotes a place of convenience for the arbitrator(s), or the parties, or both. In Enercon India Ltd. v. Enercon Gmbh [‘Enercon’], the SC held that designating a place to be the ‘venue’ does not ordinarily make it the seat of arbitration.

Drawing on the distinction between Sections 20(1) and 20(3) of the Arbitration and Conciliation Act, 1996 (‘Act’), the decision repeatedly stresses on the fact that London was explicitly stated to be the ‘venue’ of arbitration in the underlying contract and could not be presumed to be the seat of arbitration. But the nomenclature was not conclusive ipso facto.

What cemented the decision of the SC is the fact that all other determinative factors, i.e. contractual conditions in the said contract appeared to point to India as the seat of arbitration. Specifically, the law of the contract, as well as the (governing and curial) laws of arbitration were Indian. None of the parties were English and the contract was not to be
performed there.

Thus, the SC undertook an exercise in determining the closest causal connection between the contract and the two jurisdictions (namely India and England) and arrived at the finding that India was the actual seat and the use of the term ‘venue’ in the contract did actually mean a geographically convenient place alone. In other words, the nomenclature was harmonious with the other determinative indicators.

 ‘Venue’ may be the seat in certain cases

Axiomatic from the above, is the principle that if the Enercon position was reversed, i.e. if the determinative factors evidence an intention to make a particular place as a seat, then even the nomenclature ‘venue’ may be read to be a ‘seat’.

This position appears to be cemented especially after the recent decision of the SC in Union of India v. Hardy Exploration and Production [Hardy Exploration’]. Hardy Exploration examined previous precedents and agreed that a ‘venue’ may be read to be a seat if there are other concomitants, or “something else is appended” in the contract that lead to this determination.

This implies that the courts will look to other determinative factors to verify whether the ‘venue’ was intended to be the seat. These factors, it is reiterated, would include the choice of the curial laws, the courts of exclusive jurisdiction and the other usual factors for determining closest causal connection and may (but not necessarily) even extend to the nationality or location of the parties and the place of the contractual performance.

 ‘Place’ may sometimes not be determinative of the ‘seat’

The BALCO decision interchangeably used the terms ‘place’ and ‘seat’ and some subsequent judgments also did the same. However, Hardy Exploration adds a caveat to the above. It states that if the word ‘place’ comes with explicit riders, or conditions precedent, then ‘place’ will not be held to be a seat unless the riders have been carried out. For instance, in Hardy Exploration, the parties and/or the arbitral tribunal were to specifically determine the seat of arbitration. The SC held that failure of such explicit determination would imply the absence of fulfillment of a condition precedent. In such a case, the issue will once again devolve on the other determinative factors to identify the seat.

The determinative factors may even lead to situations where the ‘seat’ is held not to be an exclusive jurisdiction clause

In the above points (1) to (3), we had noted as to how determinative factors may have a material bearing in determining seat / ‘place’, or ‘venue’. Such factors may also lead to the determination of the competent court of jurisdiction, independent of the seat, especially in domestic arbitrations. On first blush, this appears to be contrary to the ruling of the SC from BALCO onwards, especially the decision in Indus Mobile Distribution v. Datawind Innovations [‘Indus Mobile’].

This judgment adopted the BALCO principles (as to exclusive jurisdiction being determined through seat) and applied the same to domestic (India-seated) arbitrations.

However, a number of recent decisions by certain High Courts, relating to domestic arbitrations, appear to swim against the tide. These include the decisions of the Hon’ble Delhi High Court in Antrix Corporation v. Devas Multimedia and Priya Vandervala v. Niranjan Hiranandani; as well as the decision of the Hon’ble High Court of Calcutta in Hinduja Leyland Finance Ltd. v. Debdas Routh.

In these cases, it was noted that the seat of arbitration was in a place different to the court of jurisdiction as provided in the contracts. In such cases, the said High Courts stated that both the courts (the court of the seat and the court of
jurisdiction) could have concurrent jurisdiction. This, in turn, would lead to a situation in which one out of the two concurrent courts would be barred from exercising jurisdiction, under Section 42 of the Act, if the other was approached first. Effectively, the party moving first to court would get an advantage

Interestingly, the above decisions stridently rely upon BALCO’s oft-quoted para 96 to arrive at their findings. Some have preferred to distinguish Indus Mobiles in light of its fact that the underlying contract provided for only one place both for seat and jurisdiction. However, the authors respectfully feel that the final word on this issue is yet to be stated, even assuming Indus Mobiles can be distinguished. A reading of BALCO, as well as various post-BALCO decisions of the SC, stress on seat-centricity and do not appear to favour the concept of two courts exercising concurrent jurisdiction (e.g., Paras 137-145 of Enercon).

Further, since the principle of seat-centricity has been held to be the cornerstone of the entire Act, its play should not be restricted only to foreign-seated arbitrations. Finally, the said High Court precedents themselves appear to contradict various other precedents. For instance, the aforementioned decisions of the Hon’ble High Court of Delhi appear to be at variance with the findings of the same court in Cable Corporation of India v. Jay Pee Sports and RITES v. Govt. Of NCT of Delhi.

Regardless, the above illustrates the continuing importance of determinative factors (in this case, factors like court of exclusive jurisdiction, or location of the parties or the transaction), even when the seat is not in question, if it is held to be correct that the courts of the seat do not have exclusive jurisdiction.

Conclusion

As seen in the above instance, various determinative factors play an increasingly important role in determining seat and/or court(s) of jurisdiction. It is open to question as to whether specific factors weigh over the others and it is debatable as to whether some factors should even be determinative. The law is still dynamic on these issues (including some of the more recent High Court precedents mentioned above, which may be open to challenges/appeals). It has to be accepted that there will always be an element of uncertainty, given that precedents are usually based on the interpretation of individual contracts.

For the time being, we would advise contract drafters and managers to ensure clarity and transparency, as to their intentions, when drafting arbitration clauses/agreements. The points to be carefully considered should include, inter alia, the following:

(a) Fixation of a specific seat of arbitration, preferably using the term ‘place’/’seat’ instead of ‘venue’;

(b) If ‘venue’ is to be used to denote seat, to ensure that the law of arbitration and law of contract corresponds to the ‘venue’. At the very least, the curial law of arbitration should be connected to the ‘venue’;

(c) For both (a) and (b) above, the court of exclusive jurisdiction occurring within the arbitration agreement or otherwise, should ideally be the same as that of the seat. If two courts are specified, then it may be clearly demarcated as to which court has jurisdiction in arbitration matters (to avoid ambiguities);

(d) If no ‘place’ or seat is to be fixed and the same is to be determined by the arbitrator(s) or by an Institution, to ensure that the same is specifically fixed at the earliest;

(e) Multiple seats may be avoided to reduce ambiguity; however, multiple venues may be pre-decided and added provided the fixation of seat is clear.

The above are only some of the factors that are to be kept in mind while framing the arbitration agreement and are based on laws prevalent as on date. The above factors should also guide decisions as to the appropriate laws governing the arbitration/courts of competent jurisdiction.

 

About the authors: Anshuman Pande is a Partner and Mahima Sareen is a Senior Associate at Archeus Law.

The authors are grateful for the guidance of Mr. Ranjit Prakash, Chief Executive Partner, Archeus Law. Archeus Law is a boutique law firm specializing in the areas of Project Advisory, Contract Management and International Dispute practices in various areas of businesses including Infrastructure, Real estate and Mining. It may be reached at mail@archeuslaw.com . This article is correct as on October 1, 2018