Lakshay
Conundrum between "Seat" and "Venue" of arbitration and case laws
Lakshay Parmar 4 Jan 2020

Conundrum between

Seat of the arbitration

 

The arbitration seat is a vital aspect of any method of arbitration. The situs is not just about where an organization is located, where trials are going to be held, or where a good pool of arbitrators can be found. It also deals with which courts have supervisory jurisdiction over the arbitration and the scope of those powers.  A recent Commercial Court decision reminds us that while the governing law of an arrangement may provide for one national law that may suit the nationality of one or both parties, it is the seat of arbitration that is essential for the security and enforceability of an arbitral award.

 

 

In cases where a seat in the arbitration clause has not been allocated by the parties and there is no default seat under the arbitration rules, confusion may arise as to which statute governs the proceedings and which courts administer the arbitration. It is always recommended that parties specify the seat of arbitration in the clause, in case of failure of specification the arbitral rules will usually decide the seat. However, the rules can differ significantly in the same.

 

Parties should avoid giving the respondent the unilateral right to select a seat, as was the case in the case of Taizhou, because unless the parties have agreed on the law governing the arbitration clause, this approach will not only lead to uncertainties, but will also give the recalcitrant respondent the opportunity to try to frustrate the arbitration by selecting a seat under the law of which the arbitrator is responsible.

 

Confusion between “seat” and “venue” of arbitration

 Place of arbitration.—(1) The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

 

The main difference between the “place/venue” of arbitration and seat of the same lies in the fact that place/venue only determines the physical location where arbitration will take place and “seat” of arbitration determines the court having jurisdiction over the nullity claim of an award

 

Cases with reference to the arbitration in Singapore and India.

 

Judgements:  The Supreme Court noted in the case of Union of India v Hardy Exploration and Production that “seat” and “place” of arbitration can be used interchangeably where there is no agreement between the parties on the place of arbitration, the arbitral tribunal the decide the same.

The Supreme Court stated that although the award had been signed and announced in Kuala Lumpur, the place of arbitration by the arbitral tribunal had not been specifically decided. The Court held that a constructive act and an express opinion would require "determination." The Supreme Court overturned the Delhi High Court's judgment and held that the Kuala Lumpur was the   venue. The Supreme Court held that the Indian courts would have jurisdiction to consider the appeal to set aside the award pursuant to s.34 of Part I of “The Arbitration And Conciliation Act, 1996”, as the award given is not an "international award."

 

Through this judgment, the Supreme Court has stipulated and reiterated the manner of determination of the seat of arbitration as below: Parties can expressly agree upon the seat or place of arbitration in their arbitration agreement; If the seat is not expressly agreed upon, it can be deduced from the arbitration clause and concomitant factors, such as the venue and an additional factor; The seat of arbitration can also be determined through the incorporation of rules such as the Model Law in the arbitration agreement, which stipulates that if parties do not agree on the place of arbitration, the same shall be determined by the arbitral tribunal.

 

Arbitration system in Singapore

 

Of 452 new cases earned in 2017, the Singapore International Arbitration Center or SIAC is one of the fastest growing arbitration institutions in the world. In compliance with the SIAC Arbitration Rules, the parties to a contract can agree to refer their disputes to arbitration. By doing so, the parties agree that their disputes will be decided in arbitration and that, in addition to any necessary rules at the arbitration seat, the arbitration proceedings will be controlled by the procedural rules in the SIAC Arbitration Rules. The arrangement between the parties is generally reported in an arbitration clause.

 

The Singapore courts ' approach to assessing the controlling or' proper' law of the contract is set out in Overseas Union Insurance Ltd v Turegum Insurance Co(' Teregum Insurance') and includes three phases not unlike those applicable in the arbitration agreement's governing rule:

 (a) Examine the contract itself to decide whether it clearly specifies what the governing law is.

(B) In the absence of an explicit clause, see whether it is possible to infer  from the circumstances the intention of the parties as to the governing statute.

(C) If none of the foregoing can be done, determine the legal system with which the contract has the most real and close connection.

 

 

Case law where the seat of arbitration was in question and further the law governing the arbitration

 

:BNA v BNB and another (2019) SGHC 142

The conflict between the parties emerged from a Takeout Agreement ("TA"). The agreement stated explicitly that it was regulated by PRC law. The arbitration provision provided for eventually "submitting disputes for arbitration in Shanghai to the Singapore International Arbitration Center" (SIAC), "which would be administered under the SIAC Arbitration Rules. Nevertheless, there was no clear choice of law provision in the arbitration clause.

Subsequently the defendants commenced the proceedings against the plaintiff in the SIAC (Singapore International Arbitration Centre). The plaintiff then challenged the tribunal’s jurisdiction stating that the arbitration was invalid PRC law as it prohibits any foreign arbitral institution such as SIAC from administering a PRC seated administration.

 

Singapore’s High Court decision-

The Court found that the arbitration clause applied to two geographical locations, namely Singapore and Shanghai, in deciding the seat of arbitration selected by the parties. The arbitration clause did not state clearly that Shanghai was the legal seat or just the location. The seat decides which legislation regulates and supervises the arbitration proceedings. The empirical site, on the other hand, is simply the geographical location where trials and other proceedings are conducted.

 

The Court noted that the SIAC Rules, which had been incorporated by reference into the arbitration clause, established that Singapore was the seat of any arbitration under the SIAC Rules in the absence of a counter-agreement by the parties or a counter-agreement by the court. The Court concluded that the specific reference to the SIAC Rules was the clearest possible expression of the intention of the parties to have all potential arbitrations under their Singapore arbitration clause.

The Court put particular importance on the fact that the arbitration clause of the parties merely referred to Shanghai as a city, rather than the PRC, being a "law district" that could be perceived as a reference to a location rather than a position. The Court contrasted this with the (indirect) reference to Singapore as the seat under the rules of the SIAC.

The problems in this case could have been avoided if the seat of arbitration was designated in clear terms and by avoiding giving mere references to geographical locations without designating them as “seat”.

The parties must also keep in check whether any restrictions under any applicable national law may apply as in this case the PRC law.

 

 

In case where “seat” of arbitration is not specified or there is conundrum on the determination of “seat” or the “venue” in the arbitration agreement, what can the parties sort to-

 

There can be sometimes a defect in the arbitration agreement with respect to either  “seat” or the “venue” of the proceedings. Firstly the difference between both the terminologies was given by the supreme court in the case of Union of India v Hardy exploration and production as mentioned earlier in the article that-

 

 The arbitration seat is a vital aspect of any method of arbitration. It  is not just about where an organization is located, where trials are going to be held, or where a good pool of arbitrators can be found. It also involves which courts are responsible for supervising the arbitration and the extent of those powers. The “seat” of the arbitration will decide which law will govern the dispute(if any arises)

in the future between the parties. There should be a clarity in the agreement by the parties as to the determination of the seat of the proceedings as in absence of that clarity it will lead to confusions and large amount of time and resources can be wasted.

 

Whereas the “venue” only means a physical location as to where the arbitration proceedings will be held it does not confer which law or institution will govern the proceedings. In an agreement “venue” only means where the case will be constituted physically and does not relate to the law governing unless there is no specific condition precedent attached to it or something, reference to the case of Union of India v Hardy exploration and production court held that “mere the arbitrator meeting and signing the award in Kuala Lumpur does not amount to the determination of the seat unless a condition is attached to it as a “concomitant”.

 

In case where there is a dispute which is subject to arbitration and in the agreement parties are failing to determine a “seat” for the proceedings and also there is a confusion as to which law will govern the proceedings, the issue will be settled as mentioned in the case of BNA v BNB and another  and it also provided the clarity on the what law will govern the proceedings. This case followed a three stage approach while determining the law governing the case, that approach was adopted by the tribunal from the “Sulamérica”  case. That approach involved three determinants as to find the seat in the arbitration agreement:

a)      Have the parties expressly chose the proper law on which the proceedings will be governed?

b)      If not, is there any implied intention by the parties of choosing the law governing?

c)       If there is no express or implied intention as to which law will govern the dispute, it is said to be the law which will have the most close and real connection with the dispute.

 

The cases mentioned above were adjudicated by the courts but in the end there was still a sense of ambiguity and confusion among the people as to the respective decisions and the court while deciding the cases also held that (a) the arbitration agreement must be treated as any commercial agreement, (b) the agreement should be construed as to reflect the parties intention to arbitrate,(c) if there is any defect in the arbitration the whole agreement should not considered void ab intio unless the defect is fundamental to the extent that it negated the parties interest to arbitrate.

 

In the end it is always recommended that while constituting an agreement parties should have a clarity and must clearly specify the “venue” and “seat” in the agreement if they want them to be distinct from each other.

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