Sunday, March 1, 2015

The Bombay High Court on Implied Exclusion

The Bombay High Court has recently given an important judgment in Harkirat Singh v Rabobank. It has revisited the law on the implied exclusion of Part I of the Indian Arbitration and Conciliation Act, 1996, which we have considered this on a number of occasions on this Blog. The point remains of great practical importance even though Bhatia International has been overruled because it is a live issue for any dispute arising under an arbitration agreement entered into before 6 September 2012.

As readers will know, the context in which this problem arises is the Supreme Court’s conclusion in Bhatia International that Part I of the 1996 Act applies even if the seat of arbitration is outside India. In paragraph 32 of its judgment, the Court said that the parties could, by agreement, expressly or impliedly exclude Part I. At first sight, this seems no more than a question of construction which should be approached in the light of the modern approach to interpretation, which is associated in particular with Lord Hoffmann. However, it has given rise to a long and (one might respectfully observe) unsatisfactory line of authorities which are not entirely consistent. Indeed, one can find support in this line of cases for (at least) all of the following propositions: (i) the choice of a foreign law to govern the main contract does not impliedly exclude Part I (Citation, Indtel); (ii) the choice of a foreign seat does not impliedly exclude Part I (Yograj, Dozco—see further below); (iii) the choice of a foreign seat coupled with a foreign law governing either the arbitration agreement (Reliance, Videocon) or the conduct of the arbitration (Yograj) impliedly excludes Part I. It is not clear that these propositions are correct. For one thing, if, as the Supreme Court appears to accept, the choice of a foreign lex arbitri impliedly excludes Part I, it is difficult to see why this is the case only when the foreign lex arbitri is chosen, as in Yograj (through Rule 32 of the SIAC Rules 2007*). As Hamblen J has recently pointed out, the choice of a foreign seat is itself usually an implied choice of that country’s law as the lex arbitri: so the Supreme Court’s own reasoning dictates that the mere choice of a foreign seat impliedly excludes Part I, though this is a conclusion it has thus far rejected.

In Harkirat Singh, a Share Subscription Agreement (‘SSA’) designated London as the seat of arbitration and Indian law as the law governing the main contract. It also chose the UNCITRAL Arbitration Rules. In due course, the Tribunal passed an award which neither party challenged in the English courts (the supervisory court). Mr Singh then filed a petition under section 34 of the 1996 Act in the Bombay High Court seeking to have the award set aside as contrary to Indian public policy. Notably, the SSA did not specifically choose the English Arbitration Act 1996 but it was plain that that Act was the lex arbitri in view of the choice of London as the seat and this is likely to be the case even if the 1996 Act had not contained any mandatory provisions. The Bombay High Court held that the parties had impliedly excluded Part I of the Act. It thought that this conclusion was consistent with Yograj even though (as it recognised) the parties had specifically chosen the lex arbitri:

We are of the clear view that in the present case, the parties, having chosen the juridical seat of arbitration at London, had subjected themselves to [sic] the English law by virtue of section 2, read with section 4 and sections 67 and 68 of the English Arbitration Act 1996. We are, therefore, of the firm view that the award in question could be challenged by the appellant only in the English courts…and not under section 34 of the Arbitration and Conciliation Act 1996…It is true, as submitted by Mr Advani, that in Videocon and Dozco the agreement was specific with reference to the law governing the arbitration. However, that would make no difference. All these judgments clearly lay down, including the judgment in Yograj, that once the parties have chosen the law governing the arbitration to be foreign law, then Part I is necessarily excluded.

The Bombay High Court’s analysis is largely correct in principle. However, it is respectfully submitted that three conclusions are questionable. First, the Court relies on the fact that the English Act is applicable in terms in order to find that Part I is impliedly excluded: indeed it refers to particular provisions of the English Act to establish that that Act applies to an arbitration with an English seat. The better analysis is that the choice of London as a seat has a negative significance: regardless of the applicability of the English Act, it demonstrates that the parties did not wish the Indian courts to supervise the arbitration. Secondly, the Bombay High Court’s conclusion that the choice of a London seat is on its own enough to impliedly exclude Part I (though correct in principle) is inconsistent with four Supreme Court cases: Videocon, Yograj, Dozco and Reliance. It is inconsistent with Reliance, Videocon and Dozco because there the Supreme Court held that the parties had impliedly excluded Part I by choosing, in addition to a foreign seat, a foreign law (English and Korean respectively) to govern the arbitration agreement. It is inconsistent with Yograj because the Supreme Court in that case held that the parties had impliedly excluded Part I by choosing, in addition to a foreign seat (Singapore), the SIAC Rules 2007 to govern the arbitration, which provided that the lex arbitri would be the Singapore International Arbitration Act 2002. Thirdly, the Bombay High Court does not distinguish between the law governing the arbitration and the law governing the arbitration agreement: for jurisdictional questions (such as implied exclusion), it is the former that is likely to be decisive.

These points do not mean that the Bombay High Court’s analysis is wrong: indeed, it is submitted that the view it has expressed is preferable as a matter of principle, although, given the current state of the authorities, it is one that is not open at any level below a Constitution Bench of the Supreme Court. The reason (in principle) the mere choice of a foreign seat should be taken to exclude Part I is that it is a powerful indication of which courts the parties intended should supervise the arbitration. This, in a different context, is the point that Hamblen J makes in his recent judgment in Shagang, which we will consider in a separate post.

* The distinction between express and implied choice is not as straightforward as it is often thought to be. In Yograj, the so-called ‘express’ choice of the Singapore Act was in fact a result of the parties having chosen the SIAC Rules, which provided that that Act would apply. It is hard to see how this is any more ‘express’ than the choice of a foreign seat.


Anonymous said...

What do you think of the latest judgment of the SC in Harmony Innovation? (

Pratik said...

It is always interesting to read your articles on this blog, forever informative and perceptive.

I think the Judges have quite diverted from the litany of judgments you have rightly mentioned in your blog. However, their divergence also stems from the fact that they truly believed that the seat must guide everything and let this pass the test of Supreme Court.

You funnily did not mention the very insightful conclusive paragraph of the judgment by drawing an analogy to a motorist..

It observes and I think this was the basis of their rightful divergence

"If that law contains provisions that are mandatory so far as
arbitrations are concerned, those provisions must be obeyed. It is not a matter of choice, any more than the notional motorist is free to choose which local traffic laws to obey and which to disregard"