English decisions on the issue of Seat in International Commercial Arbitrations: Indian courts, be careful

“The seat of arbitration is … intended to be its centre of gravity.”

In international commercial arbitrations, the importance of the seat (or more accurately the juridical seat) of arbitration cannot be overstated. The seat is where the arbitration is anchored. The law to which such seat is subject (also called curial law) applies to matters relating to the conduct of the arbitration. The seat also carries with it something akin to an exclusive jurisdiction clause in favour of the courts exercising jurisdiction over it.

Sometimes, parties choose only a venue (or location) of the arbitration, which may just be an indication of the place where arbitration hearings could conveniently be held.

This paper examines some aspects of the approach of the English courts where parties have mentioned only the venue and not the seat, and how the Indian Supreme Court appears to have uncritically followed the English decisions.

A perusal of the aforesaid table shows that English courts have found London as the seat, whenever the contract has provided the venue to be London and even when this is not so, where the contract has provided some other connection with English law.

1. In Naviera Amazonica Peruana S.A. v Compania Nacional De Seguros Del Peru [1988 (1) Lloyds Rep 116], the English Court of Appeal found that the juridical seat was in London, so that English courts would have jurisdiction, even though the contract provided that the courts in Lima, Peru, had exclusive jurisdiction;

2. In Union of India v McDonnell Douglas [1993 (2) Lloyds Rep 48], the Queen’s Bench held that it was the English Court which had jurisdiction over the arbitral proceedings, since the parties had, in their contract, described London as the “seat”.

3. However, that did not deter the Queen’s Bench in Braes of Doune Wind Farm (Scotland) Ltd. v Alfred McAlpine Business Services Ltd. [2008 EWHC 426 (TCC)] from holding that London was the juridical seat of the arbitration, even though the parties had, in the contract, expressly described Glasgow, Scotland as the “seat”;

4. In Enercon GmbH v Enercon (India) Limited [2012 EWHC 689 (Comm)], the English Commercial Court (QBD), in its obiter opinion, decided that the juridical seat was in London.

   However, the Indian Supreme Court, in Enercon India, on the same facts and pertaining to the same contract, found that the seat was in Delhi, since the contract provided that the (Indian) Arbitration and Conciliation Act, 1996 applied to the proceedings. Yet, English and Indian Courts, in subsequent decisions, have relied on the aforesaid obiter opinion of the Queen’s Bench;

5. In last year’s decision in Process and Industrial Developments v Nigeria [2019 EWHC 2241], notwithstanding that the contract was a gas supply contract in Nigeria, subject to Nigerian Law and expressly providing application of Rules of the Nigerian Arbitration and Conciliation Act, the Queen’s Bench held that English courts had jurisdiction over the arbitral proceedings.

This approach of the English courts can be noticed even in cases where the dispute was not as regards the seat, but as regards the law applicable to the arbitration agreement. Unsurprisingly, English courts held that English law governed the arbitration agreements.

(i) Dicey, Morris and Collins have opined that,

“if there is an express choice of law to govern the contract as a whole, the arbitration agreement will also normally be governed by that law: this is so whether or not the seat of the arbitration is stipulated, and irrespective of the place of the seat.”

In Sulamerica, the English court held that the aforesaid observation was only a rebuttable presumption when there was no express choice of the law governing the arbitration agreement. It then went on to hold that since that agreement had its real and closest connection with English law, it was not the law governing the contract as a whole (i.e. Brazilian law), but English law that governed the arbitration agreement.

(ii) In its most recent decision in Kabab-Ji, the English Court of Appeal held that the arbitration agreement was governed by English law, because English law governed the underlying contract described as “This Agreement”, an expression the court held also covered the arbitration clause contained therein.

This reasoning, though in line with the principle enunciated in Dicey, Morris and Collins (supra), would render the decision in Sulamerica itself suspect, as in that case, the contract also provided that “this policy will be governed exclusively by the laws of Brazil”, and the arbitration clause too contemplated disputes under “this policy”.

In fairness, it must be conceded that in the abovementioned cases in Tables I and II, the English courts, inter alia, interpreted dispute resolution clauses in the contracts based on the specific language employed in each (though such language broadly fits into the headings mentioned in those Tables).

It is also true that Tables I and II above do not reflect the entirety of the English case law on the subject (though they do mention all the important cases relied on in subsequent cases). But the fact that in virtually every case of importance, the English courts have reached the same conclusion, regardless of the differing circumstances in each of them, could perhaps justifiably raise eyebrows.

In arriving at their decisions, English courts also considered factors other than just the contractual provisions, such as the subsequent conduct of the parties and any previous proceedings instituted in English courts by any of them. But these ought not to have been considered, as it is not legitimate to use as an aid in the construction of a contract anything which the parties said or did after it was made.

It is no doubt true that London is often chosen as the seat of the arbitration, precisely to ensure that conduct of the arbitral proceedings and the resultant award are subject only to English jurisdiction, due to its legislative framework and arbitration friendly approach.

This may be why in most of the cases mentioned above, London was chosen as the venue of the arbitration. However, it is one thing for the parties to choose to seat their arbitration in London and quite another for English courts to conversely infer that the parties must have wanted them to have jurisdiction and hence London should be regarded as the seat.

Indian Decisions

The Indian Supreme Court has largely followed the English decisions. But the fact that in the garb of interpreting contracts, the English have found novel ways to hold that jurisdiction vests in their courts, has been overlooked.

The Indian Supreme Court has, contrary to the approach of the English courts, consistently ceded jurisdiction in cases where parties chose a foreign land as the venue or location for the arbitration, regardless of whether the law governing the contract was Indian or foreign, and even where the contract provided that Indian Courts would have exclusive jurisdiction, except where the enactment applicable to the arbitration was the (Indian) Arbitration Act, 1996.

The only outlier to this approach was the decision of the Court in Hardy Exploration. In BGS SGS Soma, this was sought to be corrected by declaring that the decision in Hardy was not good law, though the manner in which this was done, would make that declaration itself not good law (The decisions in both BGS SGS Soma and Hardy were delivered by Benches of 3 judges each. It is settled law that judgment of a Bench is binding on another Bench of co-ordinate strength and if the latter disagrees with the judgment of the former, then it must refer the matter to be considered by a Bench of larger strength).

In its most recent decision in BGS SGS Soma, the Indian Supreme Court has, after a thorough examination of various English and Indian decisions, attempted to cull out the following principle therefrom:

Absent any significant contrary indicia, if the parties have provided that a particular place “shall be” the venue of the “arbitration proceedings”, then that would imply that the venue is really the seat of the arbitration.

However, this conclusion is derived from the reasoning in Enercon GmbH, which decision, as stated above, contradicts the decision of the Indian Supreme Court in Enercon India.

In BGS, the Court further held that as an additional circumstance, if the parties have provided that a supranational body of rules is to govern the arbitration, then that too would mean that the venue is the seat.

However, this conclusion is derived from the decision in Roger Shashoua, where Cooke J. referred to the principle, not in the general sense understood in BGS, but as being applicable when the venue was proposed to be London.

The case law discussed above makes one wonder if the English decisions are based on a predisposition towards jurisdiction of their own courts.

This is not to suggest that Indian courts must usurp jurisdiction even where they don’t have it. But in relying on English decisions, they should certainly not be unmindful of what the English courts have ultimately decided. Indian courts have faced much criticism for ostensibly rendering arbitration-unfriendly judgments.

Though the criticism may be justified in some cases, over the last decade, their decisions have been largely consistent, pro-arbitration and reflective of policy of least interference in arbitration. It is time they developed confidence in their own judgments.

In this author’s view, to determine the seat of arbitration or the law governing the arbitration agreement, Indian courts would be better served by not regarding English decisions as their “centre of gravity”.

The author is an Advocate practicing before the Supreme Court and the Delhi High Court.