The Supreme Court of India in Enercon (India) v.Enercon GmBH (Civil Appeals 2086 & 2087 of 2014; judgment dated February 14, 2014) has decided several important questions pertaining to the law of arbitration and private international law. To summarize, the Court has held:
i. An arbitration agreement cannot be avoided on the basis that there is no concluded contract between the parties. A reference to arbitration can only be avoided (in the context of international commercial arbitration) if the arbitration agreement is ‘null and void, inoperative or incapable of being performed’. An averment that the underlying contract containing the arbitration clause is not a concluded contract does not, in the view of the Court, fall within the scope of these phrases. The Court held, “The submission is that the matter cannot be referred to arbitration as the IPLA, containing the arbitration clause/agreement, is not a concluded contract. This, in our opinion, would not fall within the parameters of an agreement being “null and void, inoperative or incapable of being performed.” In such circumstances, in the absence of a “fundamental legal impediment”, whether the underlying contract is a concluded contract or not is required to be left to the arbitral tribunal. It is important to note that these observations were in the context of a purported agreement where, there was a specific arbitration clause which was expressly stated to be legally binding. In these circumstances, the Court held that the “intention to arbitrate has continued without waiver…”
ii. In determining whether an arbitration clause is unworkable or incapable of being performed, “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.” The Court strongly agreed with Lord Diplock’s statement in Salen Rederiema  1 AC 191: “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…” The clause that ‘each party shall appoint an arbitrator… making it in all three arbitrators’ was not unworkable; and the Court could supply the omission by a process of implication. The Court held, “the missing line that ‘the two Arbitrators appointed by the parties shall appoint the third Arbitrator’ can be read into the arbitration clause… The court would be well within its rights to set right an obvious omission.”
iii. The mention in the arbitration clause that London was the ‘venue’ of the arbitration could not lead to the inference that London was to be the seat. This was so in particular because although London was termed as the ‘venue’, the law governing the substantive contract, the law governing the arbitration agreement and the law governing the conduct of the arbitration were chosen to be Indian law; and the closest and most real connection was with India. “Given the connection to India of the entire dispute between the parties, it is difficult to accept that parties have agreed that the seat would be London and that venue is only a misnomer. The parties having chosen the Indian Arbitration Act, 1996 as the law governing the substantive contract, the agreement to arbitrate and the performance of the agreement and the law governing the conduct of the arbitration; it would, therefore, in our opinion, be vexatious and oppressive if Enercon GMBH is permitted to compel EIL to litigate in England…”
iv. The Court notes, in its analysis of what the seat is, “it would be rare for the law of the arbitration agreement to be different from the law of the seat of arbitration.” While the Court’s observations were in the context of determining the seat, it may be of relevance in analyzing the issue of whether the law governing the arbitration agreement is to be presumptively considered as the law of the seat or as the proper law of the underlying contract. The Court expressly cites C v. D  EWCA Civ 1282 for this proposition; and also examines the decision of the English High Court in Sulamerica – unfortunately, the decision of the Court of Appeal in Sulamerica  EWCA Civ 638 was not considered by the Court; nor was the judgment in Arsanovia  2 All ER 1. The English High Court has more recently summarized the position in Habas Sinai  EWHC 4071 (Comm).
v. Once the seat was in India, Indian Courts would have exclusive supervisory jurisdiction; English Courts cannot have concurrent jurisdiction. An anti-suit injunction was therefore granted restraining the Respondents from continuing English proceedings.
vi. Having “supplied the omission” in the arbitration clause by implying that the two party-appointed arbitrators were to then nominate the third arbitrator, the Court decided against relegating the parties to this procedure. Instead, the Court itself appointed the presiding arbitrator. “In the normal circumstances, we would have directed the parties to approach the two learned arbitrators… to appoint the third arbitrator who shall also act as the presiding arbitrator. However, keeping in view the peculiar facts and circumstances of this case and the inordinate delay which has been caused due to the extremely convoluted and complicated proceedings indulged in by the parties, we deem it appropriate to take it upon ourselves to name the third arbitrator.”
We shall discuss the judgment and its implications in future posts.