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Determination of seat in ambiguous arbitration agreement

15 May 2012


In (1) Enercon GmbH (2) Wobben Properties GmbH v Enercon (India) Ltd [2012] EWHC 689 (Comm), 23 March 2012 an arbitration agreement did not specify the seat of the arbitration, named the venue as London but also provided that the Indian Arbitration and Conciliation Act 1996 should apply.

The English court found that determination of the seat was a question for the Indian courts because the issue of the arbitral seat was already pending before them, the claimants had engaged fully in the Indian proceedings, and because of the comity between England and India. Nonetheless, the English court held, obiter, that the objective intention of the parties was for London to be the seat, and that there was no significant contra indicia to this.

Factual and procedural background

The first claimant and defendant entered into an Intellectual Property Licence Agreement in September 2006 (the IPLA). Clause 18 provided that all disputes were to be referred to arbitration. Clause 18.3 stated that "[a]ll proceedings in such arbitration shall be conducted in English"; that "[t]he venue of the arbitration proceedings shall be London"; and that "[t]he provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply". Neither clause 18.3 nor any other clause of the IPLA specifically mentioned the seat of the arbitration.

The claimant commenced arbitration proceedings in March 2008 and both parties nominated an arbitrator. However, the party appointed arbitrators declared that they were unable to nominate a chair and that the arbitration agreement in clause 18 of the IPLA was "unworkable". Simultaneous proceedings were then commenced by the claimants in the English courts and the defendant in the Indian courts. The claimants sought, among other things, a declaration that the seat of the arbitration was London, while the defendant sought a declaration from the Indian courts that it was not bound by the arbitration clause. Both parties sought anti-suit injunctions against the other’s proceedings. While the English proceedings stalled, the defendant’s anti-suit injunction was granted on an interim basis. The claimants successfully appealed, in the Indian courts, for the anti-suit injunction to be lifted and for an order requiring the defendant’s claims to be referred to arbitration. The defendant then appealed to the Bombay High Court, where the matter is still pending.

Current proceedings

An issue arose as to the location of the seat of the arbitration when the claimants tried to revive the dispute by issuing fresh proceedings in the Commercial Court for the appointment of a third arbitrator. The location of the seat was relevant to whether the English court could grant permission for an arbitration claim form to be served on the defendant in India. Under CPR 62.5(1)(c) the court may only do this if the seat is in England (or Wales or Northern Ireland), or if no seat has been designated and there is a sufficient connection with England to make it appropriate to do so. The court granted permission following an application without notice by the claimants, but the defendant challenged the decision. In March 2012 the parties came before Mr Justice Eder in the Commercial Court.

Should the English court leave the question of seat to the Indian courts?

Eder J noted the permissive language of CPR 62.5(1) ("The court may give permission…") and the following general principles of relevance: (i) the relevant natural forum should be taken into account; (ii) any elements of vexation or oppression should be considered; and (iii) discretion should be exercised with caution, with regard to the principles of comity.1

Eder J found that, while there was a risk of real injustice to the claimants given the significance of the appeal, in particular given the historic and potential delays in relation to the Indian proceedings, the English court should "be extremely cautious to intervene at this stage". The claimants had not pursued the original proceedings in the English courts, but had chosen to engage fully (albeit reluctantly) in the Indian proceedings. Wresting the proceedings back now, said Eder J, "would give rise to the ‘recipe for confusion and injustice’", per Lord Diplock in The Abidin Daver.

Given the procedural history in the Indian courts, considering the comity between England and India, and with a general desire to avoid confusion and injustice, Eder J stayed the English proceedings pending resolution of the appeals before the Bombay High Court. He did so for a limited period only, on grounds that the defendant should take all necessary steps to expedite the Indian proceedings. He noted that the English court should reconsider the position after the expiry of the stay, in light of the circumstances existing at that time.

Obiter determination of the seat of the arbitration

Having determined that the question of seat should be left to the Indian courts, there was no need for Eder J to determine this issue. Nonetheless, he chose to do so out of convenience, should the matter go further or come back before the English court.

The essential task was to give effect to the objective intention of the parties. Case law and commentary both signify that the seat is in most cases sufficiently indicated by the country chosen as the place of the arbitration, and that for such choice of place not to be given effect as the seat there would need to be clear evidence that (i) the parties agreed to choose another seat for the arbitration; and (ii) that choice would be effective to endow the courts of that country with the jurisdiction to supervise and support the arbitration.2 On this basis, subject to any contra indicia, Eder J found that it was "beyond any possible doubt" that London was the seat of the arbitration.

The final sentence of clause 18.3 of the IPLA, which stated that "[t]he provisions of the Indian Arbitration and Conciliation Act 1996 shall apply", was acknowledged as a potential contra indicia. Eder J believed it was difficult, if not impossible, to attempt to reconcile this sentence with the choice of London as the seat, and did not attempt to do so. Instead, he found that the sentence did not constitute India as the seat of any potential arbitration because (i) London was not a convenient geographical location for the disputes, therefore the designation of London had to have some other function for it to be explicable; (ii) agreements should be construed to accord with business common sense, and there was no business common sense in construing the agreement in a manner which would deprive the arbitrators of their discretion to hear evidence in a convenient geographical location; (iii) clause 18.3 of the IPLA referred to "arbitration proceedings", which meant the arbitration process as a whole, including the making of an award. The place designated for making an award is the seat; and (iv) desirability of enforceability of an award under the provisions of the New York Convention is a legitimate reason to construe the seat as London.

Comment

This case highlights the importance of clear and precise drafting of arbitration agreements and, in particular, just how vital it is to specify the seat of the arbitration. Parties should choose an arbitration-friendly jurisdiction which has ratified the New York Convention and where recourse to the courts for interim measures is possible.

The case also indicates the high regard in which the English courts hold the principle of comity and stresses the importance of acting swiftly in your desired jurisdiction whilst refraining from actively pursuing a case in the jurisdiction to which you are opposed. Eder J noted that, had the question of the seat been raised before the court by the claimants in 2008, shortly after the Indian proceedings were commenced, the English court may have been persuaded to grant at least some of the relief sought.

Footnotes

  1. Pathe Screen Entertainment Limited & ors v Handmade Films (Distributors) Ltd (11 July 1998); Tonicstar v American Home Ins [2005] Lloyd's Rep I&R 32.
  2. Shashoua v Sharma [2009] EWHC 957, per Cooke J; The Conflict of Laws, Dicey, Morris & Collins, 14th Edition at para 16-035.

Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.