Seat versus venue

Written by Indu Bhan | Indu Bhan | Updated: Feb 27 2014, 08:26am hrs
Today, arbitration is being flaunted as a cheap and fast alternative to resolve intricate commercial disputes. In many instances, however, much time is lost in agreeing to where the actual arbitration will take place. Though arbitration clauses generally leave no ambiguity, thanks to legal experts who draft them with precision, yet clarity on the most important features like seat and venue seem to get buried in bulky commercial contracts.

Selection of the seat of arbitration not only determines the law governing the arbitration procedure but also the rights relating to enforcement of the arbitration awards. Even courts have understood the practical difficulties while dealing with faulty arbitration clauses having two different places as seat and venue(at which hearings may be held).

In a judgment, which may be significant for any cross-border dispute, delivered by the Supreme Court a few days ago in the case of Enercon India vs Enercon GmBh, the problem was discussed and the court ultimately sided with the seat of the arbitration for resolving any dispute in an appropriate court rather than the venue. Venue which is not the same as seat of arbitration is merely a geographical location of the arbitration proceedings chosen on the basis of convenience. However, its the seat that actually decides the appropriate court which will have exclusive jurisdiction to support the arbitration proceedings. The only exception is when the agreement is completely silent on the seat. In such situations, its the venue which will emerge as a crucial factor in deciding the appropriate court.

In this case, the apex court differed with the Bombay High Courts ruling, saying merely because the venue of arbitration is chosen to be London, it could not lead to the inference that UK courts could be approached by either the Indian or the German entity to seek interim measures during arbitration proceedings. Otherwise, it would lead to utter chaos, confusion and unnecessary complications.

What weighed heavy in the minds of the judges to decide in favour of arbitration in India is: Although the venue of arbitration was London, the seat of arbitration was India, substantive law of the contract is Indian law; law governing the arbitration is Indian Arbitration law; curial law is that of India; patents law is that of India; IPLA is to be acted upon in India; enforcement of the award is to be done under the Indian law; joint venture agreement between the parties is to be acted upon in India; relevant assets are in India.

On what the seat of arbitration means, the Supreme Court held that it would be rare for the law of the arbitration agreement to be different from the law of the seat of arbitration. Accordingly, once the seat was in India, Indian courts would have exclusive supervisory jurisdiction; English courts cannot have concurrent jurisdiction.

However, the top court partly endorsed the High Courts decision asking both the companies to arbitrate and also gave the Indian courts exclusive jurisdiction over the long-standing dispute over a wind energy joint venture in India between Enercon (India) and Enercon GmBH. The case since 2008 involved a number of courts along the waythe trial and appellate courts of Daman, the High Court, and the English High Court.

Besides, the Supreme Court, which is committed to a pro-arbitration policy, has held that an averment that the underlying contract containing the arbitration agreement was not a concluded contact was not sufficient to avoid an international commercial arbitration and the same was to be left for the arbitrator to decide.

On determining whether an arbitration clause is unworkable or incapable of being performed, the judgment stated: the courts have to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration agreement or arbitration clause. Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition. In other words, a common sense approach has to be adopted to give effect to the intention of the parties to arbitrate. In such a case, the court ought to adopt the attitude of a reasonable business person, having business common sense as well as being equipped with the knowledge that may be peculiar to the business venture. The arbitration clause cannot be construed with a purely legalistic mindset, as if one is construing a provision in a statute.

In other words, if the clause indicates a clear intention to arbitrate, then that intention should not be voided simply because the drafters did not articulate this intention well.

It cited words of Lord Diplock in the Antaios Compania Neviera SA v Salen Rederierna AB case: If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.

According to the Supreme Court, no party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances.

In view of the above, when drafting the details of an arbitration clause in a new contract, it is important to consider a myriad of questions particularly while deciding upon the seat of arbitration.