Thursday, October 6, 2011

The Role of the Seat of Arbitration in Implied Exclusion


It is becoming increasingly difficult to state with confidence the prevailing position of law in India on a question that should, in principle, have a straightforward answer: in what circumstances will the Indian courts decline to exercise jurisdiction under the Arbitration and Conciliation Act, 1996 [“A and C Act”] and what must a contracting party which wishes to achieve this result insert in its agreement? The Supreme Court's judgment last month in Yograj Infrastructure v Ssang Yong Engineering has added to the difficulty.
Before attempting an account of the effect of this decision on the law, it may be helpful to briefly recapitulate. As we have previously discussed, this controversy revolves around what suffices to trigger the “implied exclusion” of Part I of the A and C Act which the Supreme Court accepted in paragraph 32 of Bhatia International. So far, five possibilities have been put to the Supreme Court: (i) the designation of a foreign proper law but no designation of a seat of arbitration; (ii) the designation of a foreign proper law and a foreign seat of arbitration, with or without the further designation of a foreign lex arbitri; (iii) the designation of a foreign seat of arbitration, Indian proper law and a foreign lex arbitri (iv) the same as case (iii) but with a foreign law governing the arbitration agreement, as opposed to the arbitration itself; and (v) the designation of foreign seat of arbitration simpliciter. The Supreme Court has held that Part I of the Indian Act is excluded in cases (ii), (iii) (Dosco v Doozan; Hardy Oil) and (perhaps) (iv) (Videocon v Union of India); and that it is not excluded in case (i) (Indtel Technical Services; Citation Infowares v Equinox). The contention that the lex arbitri is “presumed” to follow the designation of a foreign proper law was rejected in the decisions cited for case (i).
In Ssang Yong,* the respondent (Ssang Yong) was awarded a contract by the NHAI which it sub-contracted to Yograj [“the Agreement”]. The Agreement provided in clause 28 that it would be governed by the laws of India, and clause 27, the arbitration clause, read as follows:
27.1 All disputes, differences arising out of or in connection with the Agreement shall be referred to arbitration. The arbitration proceedings shall be conducted in English in Singapore in accordance with the Singapore International Arbitration Centre (SIAC) Rules as in force at the time of signing of this Agreement. The arbitration shall be final and binding.
27.2 The arbitration shall take place in Singapore and be conducted in English language.
27.3 None of the Party shall be entitled to suspend the performance of the Agreement merely by reason of a dispute and/or a dispute referred to arbitration.  
In accordance with the Agreement, Yograj furnished a Performance Bank Guarantee in 2006, and commenced work. However, on account of disputes that subsequently arose, Ssang terminated the Agreement on 22 September, 2009. Both Yograj and Ssang filed applications for interim relief before the District Judge in Madhya Pradesh, and subsequently, the dispute was referred to SIAC arbitration. Once again, Yograj and Ssang filed applications for interim relief, and the arbitrator’s order directed Yograj to inter alia release plant, machinery and equipment for Ssang’s use. Yograj challenged this order before the District Judge in Madhya Pradesh purportedly under section 37(2)(b) of the A and C Act, and the question arose whether such an application is maintainable.
The Supreme Court held that Part I of the Act is impliedly excluded. In short, the Court gave two reasons: first, that the designation of Indian proper law is, in principle, sufficient to permit the inference that Indian law of arbitration (ie the A and C Act) applies, but secondly, that the designation of SIAC Rules as the “curial law” excludes Part I of the A and C Act because Rule 32 of the SIAC Rules provides that the law of arbitration for an arbitration under the SIAC Rules shall be the Singapore International Arbitration Act, 2002.
In discussing the first issue, the Court began by noting that the question it had to answer was “what would be the law on the basis of which arbitral proceedings would be conducted”, and relied on Clause 28 above to hold that the governing law of the arbitration agreement is the A and C Act. The observations the Court made immediately after this finding are of crucial importance, and therefore set out in full:
The learned Counsel for the parties have quite correctly spelt out the distinction between the "proper law" of the contract and the "curial law" to determine the law which is to govern the arbitration itself. While the proper law is the law which governs the agreement itself, in the absence of any other stipulation in the arbitration clause as to which law would apply in respect of the arbitral proceedings, it is now well-settled that it is the law governing the contract which would also be the law applicable to the Arbitral Tribunal itself [emphasis added].   
Two points may be made. First, it appears that this observation, whether correct in principle or not, is not entirely consistent with cases involving a foreign proper law. In these cases, the Supreme Court has (despite NTPC v Singer) consistently rejected the suggestion that the designation of foreign proper law implies that foreign law governs the arbitration agreement or the conduct of arbitral proceedings as well. For example, as we discussed, the Court held in Citation Infowares that the designation of American law as the proper law of the contract does not warrant the inference that American law applies to the arbitration. 
Secondly, this case raised an issue the Court did not need to resolve in Doosan and Videocon – is the designation of a foreign seat of arbitration in and of itself sufficient to impliedly exclude Part I? The Court’s reasoning in Doosan suggests that it is (see paragraph 15), while the emphasis in Videocon on the designation of a foreign lex arbitri suggests that it is not. Indeed, the decision in Bhatia International itself may indicate that a foreign seat is not sufficient, because there the seat of arbitration was Paris, but an added complication is that there is a view that section 9 may have to be treated differently from other agreements. The Court’s answer in Yograj – that Rule 32 resulted in implied exclusion – strongly suggests that the A and C Act would have applied in the absence of Rule 32, even though Singapore was the seat of arbitration. In short, while this may be the result dictated by authority, the seat of arbitration in Indian law has perhaps a more marginal role than it deserves in determining whether Part I has been impliedly excluded.
Another analysis of the case is available here.

*Readers may wish to note that there are a few typographical errors in the judgment of the Supreme Court that may cause confusion: (i) it is stated in paragraph 3 that the parties had agreed that the law governing the arbitration was the A and C Act, 1996 – clause 27 actually provides that the law of India shall govern the agreement, not the arbitration; (ii) in paragraph 36, it is stated that the question in Bhatia International was whether the A and C Act applies when the seat of arbitration is in India – the question was in fact whether the Act applies when the seat is outside India. Readers may also wish to note that the Respondent in the SLP was Ssang, but that the Respondent before the single arbitrator was Yograj, and references to “Respondent” in the judgment should be read accordingly. 

4 comments:

vswami said...

ARBITRATION - an essentially 'common law concept' to begin with, but over the times turned into a 'legal concept'>

As the write-up rightly observes, providing a profoundly 'prophetic' clue to know as to what is in store:

" It is becoming increasingly difficult to state with confidence the prevailing position of law in India on a question that should, in principle, have a straightforward answer: in what circumstances will the Indian courts decline to exercise jurisdiction under the Arbitration and Conciliation Act, 1996 [“A and C Act”] and what must a contracting party which wishes to achieve this result insert in its agreement? The Supreme Court's judgment last month in Yograj Infrastructure v Ssang Yong Engineering has added to the difficulty."

Reaction:
The battle of 'wits' and the ensuing long winding debate in the so called legal circles (having a vested interest in the plethora of issues coming up to surface unwittingly or otherwise, with almost a marked regularity), as may be readily but unmistakably seen or inferred from the write-up below, particularly rdw the preceding ones, is, in the nature of things, bound/could only be expected,- to go on and on and on and on....... with no end or conclusiveness.....
The valuable , rather (should one call it,-!) invaluable, contribution the legal circles (minds) are perceived to be determined to make in accomplishing the ultimate goal of, - 'no end' or 'inconclusiveness' is, for obvious reasons, really 'commendable'.

Deepak Kumar Thakur said...

It may be interesting to note that the Rule 32 of SIAC Rules, 2007, which has been relied heavily in this case, and apparently the ratio descendi is based on the said rule, now no more exists in SIAC Rules, 2010. Thus, as per the positive implication of this judgement, it may mean that the Part I will be applicable in the similar facts as of this case.

Renu Gupta said...

I have not understood that if Indian law, A&C Act is the proper law of arbitration, and SIAC Rules constitute the curial law of arbitration, for what rights/remedies would be really look at A&C Act?

SIAC Rules, deal with the procedural aspects, such as constitution of the tribunal, as well as the substantive rights, such as interim relief.

What role, if any, does A&C Act play as the proper law of arbitration?

Anonymous said...

What case qualifies (v) the designation of foreign seat of arbitration simpliciter as an implied exclusion of A&C,1996?