9 October, 2018
Last week, the Supreme Court issued its decision in the case of Union of India v. Hardy Exploration and Production (India) Inc[1]. The much-anticipated decision attempts to provide clarity on the venue-seat conundrum in arbitration cases — cases where an arbitration agreement fails to specify the ‘seat’ of an arbitration but does specify a ‘venue’.
Facts of the Case
Hardy Exploration and Production (India) Inc. (Hardy Exploration) entered into a production-sharing contract with the Indian Government for the extraction, development and production of hydrocarbons in a geographic block in India. Disputes arose between the parties, which were referred to arbitration. The arbitration clause specified Kuala Lumpur as the ‘venue’ of the arbitration. Arbitration was conducted in Kuala Lumpur and a final award was rendered in favour of Hardy Exploration. The award was challenged by the Indian Government under Section 34 before the Delhi High Court (Section 34 Challenge). Hardy Exploration resisted the Section 34 Challenge on the basis that Indian courts could not have jurisdiction to entertain the Section 34 Challenge because the seat of the arbitration was Kuala Lumpur and Part I of the Arbitration Act would not be applicable. The Delhi High Court ruled in favour of Hardy Exploration. The Indian Government appealed the Delhi High Court decision before the Supreme Court.
Court’s Decision
The Court ruled that the ‘venue’ of an arbitration could not, ipso facto, be considered to be its ‘seat’ and that the ‘place’ could be equated with ‘seat’ only if it had no conditions precedent attached to it: “The term ’place’ does not ipso factobecome equivalent to ’seat’, and only when one of the conditions precedent is satisfied can the ’place’ take the position of ’seat’. On the other hand, however, the term ’venue’ can become ’seat’ if something else is added to it as a concomitant.”
On the facts before it, the Court ruled that since the arbitration agreement did not provide for a seat, the determination of the seat would have to be made by the arbitral tribunal. The Court held that merely because the arbitrator had “held the meeting at Kuala Lumpur and signed the award… does not amount to determination… The sittings at various places are relatable to venue. It cannot be equated with the seat of arbitration or place of arbitration…” On this basis, the Court set aside the decision of the Delhi High Court and found that Indian courts would have jurisdiction to entertain the Section 34 Challenge.
Implications for Arbitration Law in India
The Supreme Court’s decision treads familiar ground. It reiterates that where a contract does not specify the ‘seat’ but specifies a ‘place’ or a ‘venue’, such ‘place’ or ‘venue’ cannot ipso facto be considered to be the ‘seat’. Whether a ‘place’ or ‘venue’ is the seat depends on a contextual analysis of the facts. This has long been accepted as the guiding principle for determination of a seat.
In Shashoua v Sharma[2] (Shashoua) the arbitration agreement provided for London as the ‘venue’ of the arbitration but was silent as to the ‘seat’. The English High Court concluded that London would be the seat of the arbitration because it was designated as the arbitral ‘venue’ and because the arbitration clause provided for arbitration to be conducted in accordance with the ICC Rules. The court held that if the parties had intended to name a ‘venue’ that was distinct from the ‘seat’, they would have specifically named both. Similarly, the Indian Supreme Court in Enercon (India) Ltd. v Enercon GMBH[3] held that where the seat was not specified by the parties, it would have to be determined by analysing which seat had “closest and most intimate connection” with the dispute.
While the Court’s decision in Hardy Exploration provides some incremental guidance, it largely follows these principles. That is also perhaps a criticism of the Court’s decision — the judgment is worded somewhat abstractly and fails to provide a comprehensive, pragmatic test by which a determination of the seat can be made. The Court’s eventual conclusion that Delhi (and not Kuala Lumpur) was the seat of the arbitration also does not seem to be borne out from the facts in keeping with the test adopted in Shashou – i.e. if Kuala Lumpur was only intended to be the ‘venue’ and not the ‘seat’, why did the parties not separately mention the seat?
Conclusion
The decision in Hardy Exploration would probably count as a missed opportunity. Given that the Supreme Court specially constituted a three-judge bench to determine the issue, the Court could have clarified, once and for all, the law on this point. In failing to lay down a clear cogent test, the Court missed an opportunity to provide greater clarity to arbitration law in India. Perhaps the biggest takeaway from such cases continues to be the need to draft arbitration clauses with care and precision.
For further information, please contact:
Shaneen Parikh, Partner, Cyril Amarchand Mangaldas
shaneen.parikh@cyrilshroff.com
[1] CIVIL APPEAL NO. 4628 OF 2018
[2] [2009] EWHC 957 (Comm)
[3] (2014) 5 SCC 1
