By: Karan Rukhana
Deciphering the seat of arbitration from the agreement is an issue that has plagued courts, arbitrators, lawyers, and participants for quite some time. Despite the conspectus of decisions, the water remains muddy. However, through two recent decisions, the Supreme Court of India (‘the Court’) has sought to achieve some semblance of uniformity. In BGS SGS Soma JV v. NHPC Ltd. (‘BGS SGS’) and Mankastu Impex v. Airvisual (‘Mankastu’), the Court has not necessarily adopted a novel approach but has affirmed and applied established principles of contract interpretation.
Apart from the territoriality principle of arbitration, the five-judge bench the Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (‘BALCO’) reminded us that:
“a detailed examination … is required to be undertaken by the court to discern from the agreement and the surrounding circumstances the intention of the parties as to whether a particular place mentioned refers to the ‘venue’ or ‘seat’ of the arbitration.”
What exactly the courts should look at is illustrated in BGS SGS and Mankastu. Before dissecting the decisions, some background is necessary.
DECISION-MAKING IN BGS SGS AND MANKASTU
In BGS SGS, the Court was to determine whether the seat of the arbitration was New Delhi or Faridabad (a city in India). The arbitration clause was in two parts: first covered disputes with an Indian contractor and second covered disputes with a foreign contractor. Any dispute with the former was to be settled as per the Indian Arbitration and Conciliation Act 1996 (‘1996 Act’) and, any dispute with the latter, as per the 1996 Act read with the UNCITRAL Arbitration Rules. The arbitration agreement also provided that the “Arbitration proceedings shall be held at New Delhi/Faridabad.”
The Punjab and Haryana High Court was of the view that New Delhi was merely a convenient venue and that the court in Faridabad would have supervisory jurisdiction as part of the cause of action (i.e. subject-matter) had arisen in Faridabad.
The Court disagreed. It concluded that the parties had, in fact, chosen New Delhi/Faridabad, India as the seat of the arbitration for both categories of disputes. Having chosen so, they had the freedom to choose either Delhi or Faridabad as the seat. And, since, the proceedings were held, and the award was made, in New Delhi, the Court held that parties had chosen New Delhi as the “seat” of the arbitration. Given that the parties had selected a seat of the arbitration, the Supreme Court held that the place where the cause of action arose is immaterial.
Whilst discerning the parties’ intent on selecting the seat, the court felicitously relied on Roger Shashoua v. Mukesh Sharma. Based on this decision, the court held:
“wherever there is an express designation of a ‘venue’, and not the designation of any alternative place as the ‘seat’, combined with a supranational body of rules governing the arbitration, and no other contrary indicia, the inexorable conclusion is that the seated venue is actually the judicial seat of the arbitration proceeding.”
Applying the “Shashoua” principle, the Court found that with respect to disputes with foreign contractors, the reference to New Delhi/Faridabad, India amounted to designating either of the two places as the seat of the arbitration. This is particularly so as a supranational body of rules i.e. the UNCITRAL Arbitration Rules applied and there was no contrary indicia. The reference to and application of the 1996 Act was, in the Court’s opinion, explained by the fact that the chosen seat was New Delhi/Faridabad, India, which is why the 1996 Act would naturally apply. It was not a contrary indicium. Since the “seat” chosen by the parties for disputes with Indian and foreign contractors was the same, the Court had no hesitation in extending the above conclusion i.e. seat of the arbitration in New Delhi/Faridabad, India, to even disputes concerning Indian contractors. To answer the question, the court—primarily—looked at the arbitration agreement and, to an extent, the conduct of the parties.
In the allied decision of Mankastu, the fundamental question was whether the parties agreed on the seat of the arbitration to be Hong Kong. The relevant clause was divided into three parts. The first part provided that the MoU (the underlying contract) was governed by the laws of India without regard to its conflict of laws provisions and that courts at New Delhi had jurisdiction. The second part provided for disputes to be resolved by arbitration administered in Hong Kong along with the place for arbitration, also Hong Kong. The third part allowed the parties to seek provisional, injunctive or equitable other reliefs from a court having jurisdiction.
The Court observed that “the mere expression ‘place of arbitration’ cannot be the basis to determine the intention of the parties that they have intended that place as the ‘seat’ of arbitration.” The intention of the parties “should be determined from other clauses in the agreement and the conduct of the parties”. On a textual reading of the clauses, the Court held that the reference to Hong Kong as the place of arbitration coupled with the obligation to refer and finally resolve a dispute by arbitration administered in Hong Kong clearly evidenced the parties’ intent to seat the arbitration in Hong Kong. As for the courts at New Delhi having jurisdiction, the Court held that the parties included this part and the third part to allow a party to seek interim reliefs from Delhi courts, as per Indian law.
COALESCED UNDERLYING PRINCIPLES
In sum, the Court in BALCO held that the “agreement” and the “surrounding circumstances” must be considered while determining the seat; accordingly, the text of the arbitration agreement and the conduct of the parties i.e. holding arbitration hearings in Delhi were considered in BGS SGS to define the seat of the arbitration. The court in Mankastu also broadly followed suit. Although it primarily relied on the text of the agreement to decide the case, it did recognize that generally, the conduct of the parties may have a role to play in choosing the seat. Clearly, the Court in both the cases considered two aspects to discern the seat: the text of the agreement as a whole and surrounding circumstances, a specie of the contextual approach of contract interpretation.
Based on a collective reading it emerges that courts are likely to consider the following aspects of an arbitration agreement to decide the seat of the arbitration: taking a cue from the Shashoua principle, a reference to only one place or venue, agreement to apply a supranational body of rules and absence of any contrary indicia are determinative. The use of the phrase “arbitration proceedings shall be held” is also a strong indicator that the place/venue that follows the expression is the seat of the arbitration. The mandatory obligation (testified by ‘shall’) to hold arbitration proceedings (in plurality) dictate, as it did in that the place/venue reflects the seat of arbitration chosen by the parties. The Court drew attention to the language and was persuaded by, the parties’ choice of words. Its decision was influenced by the clause which did not state that some or all of the hearings will be held in New Delhi/Faridabad, India; neither did it “use language such as ‘the Tribunal may meet’ or ‘may hear witnesses, experts or parties’”. If it had, the conclusion may have been different. In case the arbitration agreement provides, as in Mankastu, for the arbitration to be administered at a particular place, that too would evidence the parties’ choice of the seat.
Broadly, the Court has applied settled principles of interpretation; but, a closer reading of the two cases shows that they have innocuously travelled beyond settled principles. The BGS SGS decision goes beyond the contextual approach as it considers the subsequent conduct of the parties as well, which is generally not permissible in most common law jurisdictions.1 There are certain exceptions to this rule but to go into them would be to open a pandora’s box. In Mankastu, the court overlooks BALCO’s finding that “the terms ‘seat’ and ‘place’ are often used interchangeably” by not considering only the clear and unambiguous language of the contract i.e. “[t]he place of arbitration shall be Hong Kong”, but also the other parts of the arbitration clause. This approach resulted in a satisfactory outcome—but only given the simplicity and uniformity of the clause. The outcome might not be so if the Court ignores the clear intent of the parties’ choice of seat or place. By looking at other clauses of the agreement and conduct of parties it would introduce ambiguity where there is none. This may lead to an outcome contrary to parties’ intent expressed in clear terms. In the interest of uniformity and predictability, it would behoove courts to apply the contextual approach of construction, within the established boundaries, but only absent a clear choice of the parties.
1 Richard Canlan, Principles of Contractual Interpretation, 58, 59 (2nd ed. 2017); Transmission Corporation of Andhra Pradesh Ltd. v. GMR Vemagiri Power Generation Ltd., (2018) 3 SCC 716, 727.
(Karan is a counsel at the Chambers of Darius Khambata SC, Bombay High Court. He specialises in domestic and international arbitration based in Mumbai. He has completed his LLM from Georgetown Law in 2018 with a Certificate in International Dispute Resolution where he worked as an extern at Dechert LLP in their international arbitration team. He has also worked in International Arbitration at Three Crowns LLP at their Washington, DC office. He may be contacted at firstname.lastname@example.org.)