4 October, 2019
The overarching theme of arbitration is choice. Amongst other things, parties are free to choose the place where the arbitration is legally based out of. This choice of place or ‘seat’ is an important one – it includes not only procedural laws relating to matters internal to the arbitration such as composition and appointment of the tribunal but also covers provisions that regulate the external relationship between the arbitration and the courts. The “seat” of the arbitration is therefore a legal construct of particular relevance in international arbitration as it is where the arbitration is ‘legally domiciled’. “the arbitral seat is the nation where an international arbitration has its legal domicile or juridical home”.
Ordinarily in international arbitration, the “venue” of the arbitration has been distinguished from the “seat” by being considered as merely the geographical location of the proceedings with no legal implications. However, failure to specifically designate a “seat” in arbitrations clauses while providing for the “venue” of the proceedings and ambiguity concerning the difference between the same under statutes has led to a plethora of judicial precedents on this issue in India.
In 2018, the question of “seat vs venue” was considered to be settled in the case of Union of India vs Hardy Exploration and Production (India) Inc. where the Supreme Court opined that if an arbitration clause merely specifies the “venue” and does not prescribe the “seat”, the “venue” does not ipso facto assume the status of the seat and the courts are required to consider concomitant factors for determining the same. Such concomitant factors may include:
a. There could be an express reference to the law governing the arbitration – for instance, if the venue in an arbitration agreement is mentioned as London and English Law is also specified as governing the arbitration, then it may reasonably be inferred that London is the designated seat of arbitration.
Another factor could be a reference to the courts of a particular location having exclusive jurisdiction to adjudicate disputes, subject to the arbitration clause. This location may then be inferred as the seat.
b. In the above context, the recent judgment in Brahmani River Pellets Limited vs Kamachi Industries Limited (delivered on July 25, 2019) can only be described as an anomaly as it equates venue with seat without taking into account concomitant factors and thus ignores settled principles on this subject.
Brahmani River Pellets (“Brahmani”) and Kamachi Industries (“Kamachi”) entered into an agreement for the sale of iron ore pellets. The loading port was located in Odisha and the destination port was Chennai. Dispute arose between the parties regarding the payment terms and delivery of goods. Kamachi invoked the arbitration clause in the agreement that read as follows:
“Arbitration shall be under the Indian Arbitration and Conciliation Law 1996 and the venue of the Arbitration shall be Bhubaneshwar”.
Subsequently, Kamachi filed an application under Section 11(6) of the Arbitration and Conciliation Act 1996 before the Madras High Court. Brahmani contested the application challenging the jurisdiction of the Madras High Court on the grounds that the parties agreed that the seat of arbitration would be the Bhubaneshwar and therefore, the Orissa High Court had exclusive jurisdiction. The Madras High Court held that in the absence of an express clause ousting the jurisdiction of other courts, both Madras and Orissa High Courts had jurisdiction over the arbitration proceedings.
Brahmani appealed the above order before the Supreme Court which held:
“16. Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts. In the present case, the parties have agreed that the “venue” of arbitration shall be at Bhubaneswar. Considering the agreement of the parties having Bhubaneswar as the venue of arbitration, the intention of the parties is to exclude all other courts. As held in Swastik, non-use of words like “exclusive jurisdiction”, “only”, “exclusive”, “alone” is not decisive and does not make any material difference”.
The conclusion reached by the Supreme Court in Brahmani viz. that Bhubaneswar was the seat of arbitration cannot be faulted. One of the parties (the seller) was located in Bhubaneshwar, the payment was to be made in Bhubaneshwar and the place of performance (for loading the goods) was also in Bhubaneshwar.
Unfortunately, however, the reasoning employed by the Supreme Court that designation of a venue may be equivalent to the designation of a seat is at odds with established precedent.
The Court does not appear to take into account settled principles and seems to equate venue with seat even while setting out past precedent on the subject which had held to the contrary. Specifically, the Court seems to fail to note the reasoning of the 3 judge bench in Hardy that had categorically held that the choice of venue did not amount to a choice of the lex arbitri unless there were concomitant factors (such as an express choice of the lex arbitri).
The course that the Supreme Court should have adopted in Brahmani has already been laid down in Enercon. In Enercon, the Supreme Court held that since parties had not specified the seat of arbitration, the Court should employ the ‘closest connection’ test to determine the seat. If this test were followed, the Court would still have come to the same conclusion, i.e. Bhubaneshwar was the seat of arbitration.
The Supreme Court’s decision in Brahmani was rendered in the context of a fairly simple factual matrix but appears to have complicated the position of law on this issue. In the context of clearly contrary findings by larger Benches of the Supreme Court on this issue, the judgment in Brahmani may only be considered, with respect, as per incuriam. The judgment is also another reminder for parties to employ clear and precise language in drafting their arbitration clauses so that Courts seldom get a chance to employ interpretative gymnastics.
For further information, please contact:
Daksh Trivedi, Partner, AZB & Partners
daksh.trivedi@azbpartners.com
