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Rajvansh Singh on Hardy Exploration: A Missed Opportunity

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Every International Commercial Arbitration involves interplay of multiple laws. This is because of the concept of ‘severability of an arbitration agreement’, which means an arbitration clause is taken to be autonomous and to be separable from other clauses in the agreement.Thus, a contract involves two sets of laws- one dealing with the main contract i.e. governing law and another deals with arbitration, which is further sub divided i.e. procedural and substantive.

The proper law of the contract i.e. the law that governs the main contract (“Governing law”). The curial law i.e. the law that governs procedural aspect of arbitration (“Procedural law”). The proper law of the arbitration agreement i.e. the law that governs the validity of an arbitration agreement. (“Substantive law”).

‘Seat’ is considered to be the cornerstone of an arbitration agreement. It determines the court that will have supervisory jurisdiction over the arbitration proceedings. ‘Venue’, on the other hand, is a place of convenience i.e. a  place for the parties where the arbitral tribunal can conduct the arbitration proceedings. Now, often a pertinent issue arises in the arena of international arbitration as to when the parties specify a venue but fail to designate a seat then on what basis and by which principle a seat will be decided.

Gary B. Born (International Commercial Arbitration, 2ndEdition) opines that when parties do not specify the arbitral seat in the arbitration agreement, following will make the selection –

  • The arbitral institution
  • The arbitral tribunal
  • When the parties have not mentioned any institutional arbitration rules and thereafter fail to constitute an arbitral tribunal, the national court selects the ‘seat’.

A three- judge bench of the Supreme Court in Union of India v. Hardy Exploration and Production(“Hardy Exploration”) sought to answer on the abovementioned issue. In this blog, the author will dispraise the said judgement. This is primarily because the said judgement fails to settle the law conclusively and has left several aspects of the issue unanswered.

Agreement between the parties provided-

Venue of the arbitration – Kuala Lumpur

Governing law – Law of India

Curial Law – UNCITRAL Model Law

It is pertinent to note that award was signed at Kuala Lumpur.

 

Judgment-

The Supreme Court was of the opinion that in absence of a seat, the course of action is as follows-

  • Article 20 of the Model Law empowers the arbitral tribunal to make a ‘determination’ regarding the judicial seat. The court held that the term ‘determination’ signifies an expressive opinion and held that a positive act has to be done to constitute ‘determination’. In the present case, there was no expression of opinion and the only act done by the arbitral tribunal was conducting the meeting and signing the award at Kuala Lumpur.
  • The seat of an arbitration can be determined if the venue of the arbitration is coupled with ‘other concomitant factors’ pointing towards the venue.

 

Criticism-

 

The Supreme Court relied on Ramanatha Aiyer’s Law Lexicon and Black’s Law Dictionary to interpret the word ‘determination’. The author is of the view that the sources relied upon are construed in different context and has nothing to do with arbitration. UNCITRAL’s digest on the Model lawmentions that if the parties and arbitral tribunal fails to determine on seat, the court will have to determine the same.  In such a case effective place of arbitration has to be determined. Effective place is a place where majority of actions pertaining to arbitration might have materialized or the place of last oral hearing. Thus, Kuala Lumpur should be the seat of arbitration.

 

Needless to mention, the arbitration law regime of India is developed under the guidance of UNCITRAL Model Law and any aspect of arbitration law has to be construed in the light of UNCITRAL Model Law and academic works pertaining to the same.

 

The author is also of the opinion that the Supreme Court failed to appreciate the judgement of Roger Shashoua v. Mukesh Sharma(“Roger”). In the said case, arbitration agreement provided London as the venue, Indian law as the governing law and ICC Rules as Procedural law but was silent on ‘seat’. The court concluded that the seat will be London as the venue was London and the arbitration will be conducted according to ICC Rules. Further, the court held that if the intention of the parties was to have seat distinct from the venue, the parties would expressly mentioned by specifying the seat.

In Hardy Exploration, the Supreme Court refused to abide by the law put forth in Roger and held that Kuala Lumpur is just a place of convenience and the Courts in India will have exclusive jurisdiction. On a prima facie view, there seems to be a clear contradiction in reasoning of the court.

However, an alternative argument to the abovementioned issue can be that in Roger the parties intended to exclude the laws of India by specifying ICC rules as the curial law. Whereas, in Hardy Exploration, the curial law was UNCITRAL Model Law, which is a delocalized law and doesn’t refer to any particular law.

 

Issues unanswered-

The author believes that court should have vividly discussed three issues-

  • The court should have given a clear test to assess ‘determination’ of the seat by arbitral tribunal. Further, whether the ‘determination’ made by the arbitral tribunal is final or not.
  • The court should have decided as to which ‘law’ is supreme in the absence of explicit agreement on seat and substantive law. Is it procedural or substantive law?
  • The court should have given an exhaustive meaning to ‘other concomitant factors’, which is otherwise couched in vague and expansive terms.

 

Conclusion –

The Supreme Court specially constituted a three-judge bench to settle the law conclusively. However, the author feels that the bench has failed to fulfill its obligation and left certain aspects of the issue unanswered. This may lead to uncertainty. Seat is considered to be the cornerstone of arbitrationand uncertainty over any issue related to seat will discourage the parties to choose arbitration as a dispute resolution mechanism.

At this juncture it is pertinent to mention that judicial intervention is anathema for the process of arbitration. On a plain reading of the judgement, the author believes that it should be mandatory for the parties or arbitral tribunal to determine the seat before starting the arbitration proceedings. If not done so, a conniving party with an aim to delay the arbitration process will invoke the jurisdiction of court to determine the same.

 

 

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