- Introduction to the Significance of Seat in International Commercial Arbitration:
The 21st century have witnessed a rapid growth in field of commercial and financial transaction leading to economic growth, and creating multiple job opportunities, but the same have created a burden on multilevel dispute settlement mechanism present in India. This created a space for Arbitration to entre, Indian judiciary being tagged as time consuming and costly which leads to damage parties on multiple fronts. While arbitration is considered as a quick and efficient way of dispute settlement in commercial space, considered as time efficient and respects party autonomy while deciding the matter. But settling disputes could be challenging if the arbitrator or the tribunal does not know the seat of arbitration, as it could affect the ‘lex arbitri’ (law governing the arbitration proceeding) and the award passed by the tribunal, therefore determination of seat became fundamental.
As per the Journal of International Arbitration, there could be three reasons[2] why parties have not decided the seat before commencement of the proceeding, firstly, the arbitration clause might be silent or the parties have not reached an agreement of seat before the case is initiated. The clause may not be clear and vague geographic indications could be affecting the possible conclusion, whereas each institution like ICC in Paris or ICDR in New York or SIAC in Singapore have its own rules while determining the seat; like Paragraph 4 Schedule 1 of SIAC Rule 2016 specifies that:
[1] “Dimpal Rathod, Unlocking The Efficiency Of Arbitration: The Significance Of The Seat And Governing Law Of The Arbitration, KHURANA AND KHURANA, March 8th of 2024, MONDAQ.COM.https://www.mondaq.com/india/trials–appeals–compensation/1433794/unlocking-the-efficiency-of-arbitration-the-significance-of-the-seat-and-governing-law-of-the-arbitration”
[2] “Aníbal Sabater, When Arbitration Begins Without a Seat, JOURNAL OF INTERNATIONAL ARBITRATION, October 2010, WOLTER KLUWER.https://www-kluwerarbitration-com.elibrarynlunagpur.remotexs.in/document/kli-ka-1046001-n?q=Seat”
Siac Rule 2016
Paragraph 4 Schedule 1
- “If the parties have agreed on the seat of the arbitration, such seat shall be the seat of the proceedings for emergency interim relief.”
“Failing such an agreement, the seat of the proceedings for emergency interim relief shall be Singapore, without prejudice to the Tribunal’s determination of the seat of the arbitration under Rule 21.1.”
- Theories and Determination of Seat:
While referring to Coeclerici Asia v. Gujrat Coke, 2013, Emmanuel Gaillard (Attorney) proposed three theories essential in relation to seat in Australian Federal Court, firstly, The Monolocal Theory derives its authority and legal validity entirely from seat, it follows that the validity of the arbitral award derives exclusively from the law and courts of the territory in which the arbitration takes place. This creates a sphere which intact the tribunal from discovering new characteristics for determination of the seats. Secondly the Multilocal Theory derives the validity of the award not only restricted to the seat of arbitration, but from all legal orders in which recognition and enforcement of the award are sought, like ‘lex contractus’ or law governing the main contract which in absence of seat could be a determining factor. Another possible way could be my considering the ‘lex fori’ or the law governing the forum or ‘lex loci’ law of the land.
Where are the third theory of the transnational theory, holds that the validity of the arbitral award derives from a distinct arbitral legal order, or simply put it derives from the state positivism, or how the state’s proper law will handle the arbitration proceeding where it
[1] “SIAC Rules, 2016, Singapore International Arbitration Centre, 6th Edition, August 1st of 2016.https://siac.org.sg/wp-content/uploads/2022/06/SIAC-Rules-2016-English_28-Feb-2017.pdf”
[2] “Coeclerici Asia (Pte) Ltd v. Gujarat NRE Coke Limited (2013) FCA 882 (30 August 2013) (Australia).”
[3] “Alison Ross, Obituary – Emmanuel Gaillard, April 16th of 2021, GLOBAL ARBITRATION REVIEW.https://globalarbitrationreview.com/article/obituary-emmanuel-gaillard-1952-2021”
[4] “Antoine Cottin & Florian Renaux, Exclusive Application of UNIDROIT Principles to Cure the Parties’ Disagreement on the Lex Contractus: a View from France, May 9th of 2020, KLUWER ARBITRATION BLOG.https://arbitrationblog.kluwerarbitration.com/2020/05/09/exclusive-application-of-unidroit-principles-to-cure-the-parties-disagreement-on-the-lex-contractus-a-view-from-france/”
[5] “Francis Hornyold-Strickland, What Law Governs the Separability of an Arbitration Agreement?, December 25th of 2016, KLUWER ARBITRATION BLOG.https://arbitrationblog.kluwerarbitration.com/2016/12/25/what-law-governs-the-separability-of-an-arbitration-agreement/”
[6] “William W. Park, The Lex Loci Arbitri and International Commercial Arbitration, 1983, BOSTON UNIVERSITY SCHOOL OF LAW.https://scholarship.law.bu.edu/cgi/viewcontent.cgi?article=3487&context=faculty_scholarship”
is going to take place will definitely affect the conclusive outcome of the award. The seat being the crucial part of arbitration proceedings has to be decided wisely in absence of express mention in agreement.
- The choice I: Analyzing Expressed and Implied:
In the land mark judgement of English court in Sulamerica v. Enesa, 2012, which says that the seat can be determined by various potential factors like ‘Expressly mention in the Arbitration Agreement or In absentia, Implied choice of law or its closest and real connection.’ The determination of seat is solely based this three factors, which are some times consider as two only, first, Express choice and second, Closest connection, which was held incorrect in the case of Enercon v. Enercon, 2014 unless the law governing the underlying contract and the seat of the arbitral tribunal is the same. Parties while framing the agreement has to be care full while deciding the seat of the arbitration, which could affect the long-term implications, parties must specifically mention few term explicitly like what will be the ‘seat’ of arbitration, what will be the place of arbitration and which court has the jurisdiction to successfully implement the interim as well as final award.
One of the most crucial finding of the Sulamerica was the express choice of seat in the arbitration agreement, it is the duty of each party to carefully frame the arbitration agreement and explicitly mention that the party’s intent to agree on seat and entire jurisdiction will be in parlance with decided seat. In the case of Bharat Aluminum v. Kaiser Aluminum, 2016 (BALCO) where the seat decided by the parties was London which was expressly mentioned in their arbitration agreement which made it an foreign seated arbitration, where in another case of Amazon v. Future, 2021 (Amazon) the express mention of seat was India making it a domestic arbitration or simply India seated arbitration.
[1] “Matthew Barry, The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts, Jun 2015, JOURNAL OF INTERNATIONAL ARBITRATION, WOLTERS KLUWER.https://www-kluwerarbitration-com.elibrarynlunagpur.remotexs.in/document/kli-ka-joia-320302?q=Seat”
[2] “Sulamérica Cia. Nacional de Seguro’s S.A . and Others v. Enesa Engenharia S.A. and Others, High Court of
England and Wales, Queen’s Bench Division, Commercial Court, Folio No.1519, 146 (2012) (United Kingdom).”
[3] “Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1 (India).”
[4] “K.J. Chendhil Kuma, The Governing Law of Arbitration Agreement: Settling the Unsettled, May 13th of 2021, SCC ONLINE TIMES.https://www.scconline.com/blog/post/2021/05/13/the-governing-law-of-arbitration-agreement-settling-the-unsettled/#_ftn23”
[5] “Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc (2016) 4 SCC 126 (India).”
[6] “Amazon COM NV Investment Holdings LLC v. Future Coupons (P) Ltd 2021 SCC Online Del 1279 (India).”
The next popular approach taken by the courts is of interpreting the arbitration agreement, by interpreting the agreement even though the parties have not expressly mentioned the seat, the courts can take the responsibility of determining the seat without neglecting party autonomy, which is called as implied choice of seat. The Apex court in Roger Shashoua v. Mukesh Sharma, 2017, deciding the matter on implied choice of law to determine the seat, as the seat of the dispute was London which was originally only mentioned as an ‘venue’ for the arbitration and not seat. But due to lack of express mention of seat, the court concluded that the ‘venue’ of an arbitration will be the seat for the arbitration proceeding. Considering the same in few cases like Axalta v. Madhuban, 2024 and UOI v. Hardy, 2019 the court in absence of express mention of seat considered the venue as the ‘closest and real connection’ while determining seat.
- The Choice II: Exploring Closest and Most Real Connection:
The third method used by the courts is by determining the closest and most real connection between the seat and dispute around, derived from Sulamerica. In international commercial arbitration parties conduct their business in multiple territories and jurisdictions, making it tough for courts to determine the closest connection. In the case of BNA v. BNB, 2019 that the parties must give careful attention to the drafting of arbitration clauses and clearly state their intensions.
‘Lex Arbitri’ is considered as one of the closest connections while determining the seat, ‘lex arbitri’ is also called as ‘curial law’ or the law applicable to the arbitration agreement while was referred in the case of Reliance v. UOI, 2014. The law applicable to the agreement which could be of any nation or tribunal like SIAC or DIAC, which is one of the valid closest connection while determining the seat. The proper law (substantive law) of the nation plays an important role in the procedural aspect of the arbitration, the next closest connection is in relation to the proper law of the nation which is ‘Lex Contractus’ or where the agreement was formed. While discussing the case of Enka v. Chubb, 2020 the court also noted that in absence of ‘lex arbitri’ or express mention of seat, ‘lex contractus’ become the important factor while deciding the seat for the tribunal.
[1] “Roger Shashoua v. Mukesh Sharma 2017 14 SCC 722 (India).”
[2] “M/S Axalta Coating Systems India Pvt. Ltd v. M/S Madhuban Motors Pvt. Ltd. (2024) Live Law (Del) 173
(India).”
[3] “Union of India v. Hardy Exploration & Production (India) Inc, (2019) 13 SCC 472 (India).”
[4] “BNA v BNB and another (2019) SGCA 84 (Singapore).”
[5] “Reliance Industries and another v. Union of India, (2014) 7 SCC 603 (India).”
[6] “Enka v. Chubb (2020) UKSC 38 (United Kingdom).”
Most of the parties pre-decides which institution they wanted to opt for, for deciding the matter, the institutions like SIAC or LCIA (London) could become one of the closest connection in absence of express mention, such thing becomes ‘Lex Fori’ or law of the forum in which the parties are intent to settle their respective disputes, this usually becomes easier for the tribunal to decide upon. But if the question comes before the tribunal that, weather to follow the ‘lex contractus’ or ‘lex arbitri’ and ‘lex fori’, the ‘lex contractus’ and ‘lex arbitri’ will prevail. The arbitration institutions have power to decide, but does not extend beyond party autonomy.
- Conclusion:
The confusion around seat is still among the courts and institutions which today also struggle to determine seat without any legal dispute, from one of the land mark judgement of English court that is Sulamerica the court have concluded three basic methods to determine seat like ‘express choice or implied choice or by closest and most real connection’. There are few more multiple ways to determine the seat in respect of international commercial arbitration like where the arbitrator is seating or where is the business of the parties or any intent of the parties while framing the arbitration agreement at the time of drafting.
The new trend of online dispute resolution process has come forward after the pandemic, parties intend to settle disputes online but could not decide over the seat of the arbitration tribunal, here the arbitrator’s location plays an important role and the location of the servers (AWS, Azure or Oracle Cloud) could also be considered as closest and real connection while determining the seat. A brief research and an amendment in model law could help the parties to determine the seat without any substantial legal mechanism.
Article written by
Shree S. Shingade, NLU Nagpur (Intern at RKS Associate)
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