14 January 2019

LEGAL UPDATE | SUPREME COURT RULES ON “VENUE” AND “SEAT” OF ARBITRATION

INTRODUCTION

In a recent case of Union of India v. Hardy Exploration and Production (India) INC, a 3 Judge Bench of the Supreme Court of India was called upon to determine the “seat” of an arbitration in order to determine the law that would govern post-award enforcement proceedings. The Supreme Court held that where the parties to an arbitration agreement have agreed to the “venue” and not the “seat” of arbitration, the surrounding circumstances must be examined to determine the “seat” of arbitration.

FACTS OF THE CASE

• The Union of India (Appellant) and Hardy Exploration and Production (India) INC (Respondent) had entered into a production sharing contract in November 1996 (Agreement) for the extraction, development and production of hydrocarbons in a geographic block in India. Disputes arose between the parties when the Appellant cancelled the rights of the Respondent under the Agreement. The Agreement was governed by Indian laws and contained an arbitration clause which provided inter alia that:
  
  
  • arbitration proceedings would be conducted in accordance with UNCITRAL Model Law on International Commercial Arbitration, 1985 (UNCITRAL Model Law);
  • the venue of the arbitration proceedings would be Kuala Lumpur, unless otherwise agreed by the Parties.
• The Respondent referred the disputes to arbitration and the arbitral tribunal ruled in its favour by an award that was signed and declared in Kuala Lumpur (Award). The Appellants challenged the Award under Section 34, Part I of the Arbitration and Conciliation Act, 1996 (Act) before the Delhi High Court. The Respondents opposed the challenge on the ground that the Award was a foreign award since the “seat” of arbitration was Kuala Lumpur and as a result Part I of the Act would not applyThe Single Judge and Division Bench of the Delhi High Court (on appeal) dismissed the case on the grounds pleaded by the Respondent. The Appellants then appealed to the Supreme Court.

DECISION OF SUPREME COURT

The Supreme Court examined the arbitration clause, the provisions of the UNCITRAL Model Law and inter alia relied on the ruling of the Supreme Court in Harmony Innovation Shipping Limited v. Gupta Coal India Limited where the seat of arbitration was held to be London since the contract was governed by English Law, the arbitration clause provided that the arbitration was to be conducted in London by members of the London Arbitration Association and small claims were to be decided in accordance with the procedure of the London Maritime Arbitration Association) to hold that:

• the place of arbitration (place and seat can be used interchangeably) was to be agreed between the parties and absent such agreement it was to be determined by the arbitral tribunal. Determination requires a positive act signified by an adjudication and expression of opinion and merely because the arbitration was held at Kuala Lumpur and the Award signed there, this would not amount to a determination of the place / seat of arbitration by the arbitral tribunal;
  
  
• a venue can become a seat only if something else is added to it as a concomitant as was the case in the Harmony Case;
  
  
• in view of the above, the Courts in India have jurisdiction to consider the Appellants challenge under Section 34 of the Act .
  

MHCO Comment: The Supreme Court’s decision in this case illustrates the importance of carefully wording an arbitration clause in a contract to ensure that there is no confusion on the “place” or “seat” of arbitration to determine the law that would govern post-award proceedings. However, the Supreme Court did not examine whether India was the seat of arbitration to conclude that Part I of the Act would be applicable. This seems to be a departure from the earlier decisions of the Supreme Court that laid great emphasis on determining the seat of arbitration before deciding which law would govern the arbitration proceedings.

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