ONLINE DISPUTE RESOLUTION: EXTENDING THE SCOPE OF SEAT-VENUE CONUNDRUM
Updated: Apr 22, 2021
This guest post is authored by Mr. Guillermo Coronado Aguilar, Partner at Coronado Arbitration, Mexico, and Pranav Tomar, Associate Editor at RFMLR.
Arbitration is at the center stage in adjudicating inter-state commercial disputes around the world. Whenever an arbitration clause is drafted, a reference to the arbitral seat is a fundamental characteristic. The arbitral seat defines the lex arbitri of the tribunal, and the exclusivity of the national courts for the annulment of an award or the possible granting of interim reliefs. Open-ended and vague drafting of arbitration clauses can lead to confusion between the ‘place’ and ‘seat’ of the arbitration. Moreover, amidst the pandemic, the global trend of Alternative Dispute Resolution (hereinafter ‘ADR’) has shifted to Online Dispute Resolution (hereinafter ‘ODR’), wherein the parties resolve their dispute through online mediums, instead of being physically present at the chosen venue. Due to ODR, the seat-venue conundrum is likely to get complicated, especially in cases where the seat of arbitration is clearly defined. The challenge that ODR poses is the determination of the jurisdiction in which the parties should seek the annulment of the award. The article discusses how the Indian courts have dealt with the seat-venue conundrum. The author also lays out the challenges that the courts will face with the introduction of ODR.
CONTRADICTORY JUDGMENTS OF INDIAN COURTS
The Indian courts have often wavered by giving contradictory judgments with respect to the seat of arbitration. In the case of Bharat Aluminum Co. (BALCO) v. Kaiser Aluminum Technical Service, the question pertained to the applicability of PART I of the Arbitration & Conciliation Act, 1996 (hereinafter, ‘A&C Act’) to the foreign seated arbitration. The Supreme Court held that even though PART I of the A&C Act governs domestic arbitration, the Indian courts shall have the jurisdiction for challenging the awards of foreign seated arbitration, if a grievance is raised by the parties. This case initiated the debate over the granting of interim relief or challenging of the award of a foreign seated arbitration. The Apex Court, by applying Part I of the Act in cases of foreign seated tribunal, overruled the judgment in Bhatia International v. Bulk Trading & Venture Global Engineering v. Satyam Computer Services, which declared Part I of the A&C Act to be ultra vires in cases of foreign seated arbitration. The same was reiterated in Union of India v. Hardy Exploration and Production (India) Inc. & Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd. In Antrix Corporation, the Delhi High Court held that the courts having jurisdiction under the seat of arbitration shall not have exclusive jurisdiction over the matter. Moreover, the principle of concurrent jurisdiction was established, wherein the courts falling under the seat would be entertaining the jurisdiction, while the courts through which the grievance has been raised shall be entitled to pass any interim measure. However, a contradictory judgment was delivered in the case of BGS SGS Soma JV v. NHPC Ltd., where the Apex Court stated that the rationale behind the order in BALCO has been misinterpreted, and the Shashoua principle, as established in the case of Roger Shashoua and Ors. v. Mukesh Sharma, was taken into consideration. The Shashoua Principle states that:
“…wherever there is an express designation of a “venue”, and no designation of any alternative place as the “seat”, combined with a supranational body of rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding”.
The principle of Venue = Seat + Condition (as agreed by the parties) was established after the abovementioned cases. This principle states that due to an incoherent arbitration clause in the agreement, if only a venue of the tribunal is given, then it shall be considered as the Seat of the arbitration, and the courts of such place shall enjoy the exclusive jurisdiction. This will ensure that there are no concurrent jurisdictions entertaining the issue. Concurrent jurisdictions will simply lead to the multiplicity of proceedings in different national courts, which will in turn wreak havoc on the party trying to execute the award.
PROBLEM OF SEAT-VENUE IN ODR
ODR simply refers to dispute resolution through technology. The parties can get the dispute resolved virtually at their own residence. The UNCITRAL Technical Notes on Online Dispute Resolution defines ODR as “a mechanism for resolving disputes through the use of electronic communications and other information and communication technology”. ODR, despite being a rescuer amidst the pandemic, has opened a pandora’s box with regard to the determination of the seat or venue of an arbitration proceeding. Choosing substantive and procedural laws for the arbitration agreement can be arduous for the parties if they lack agreement. In such cases, either of the parties can simply challenge the award in any national court. This even puts a strain on the exclusive jurisdictional argument in international arbitration.
In order to settle the debate of the seat-venue conundrum, it is pertinent to refer to the New York Convention. Certain methods have been laid down by the convention in order to determine the seat of the arbitration. Firstly, the law governing the arbitration shall be determined by the seat since the law is already governing the concerned contract between the parties. Secondly, the nation in which the dispute arose can be considered as the relevant seat of the arbitration, but it will raise problems in cases of international arbitration. This is because it will involve parties from different countries and the dispute might arise in a third country which may or may not be favourable to a party. If the arbitral clause is silent on the seat of the proceedings, discretion shall be given to the tribunal to decide upon it.
Various international associations have published their updated rules in order to cope up with the challenges posed by ODR. For example, the American Arbitration Association (AAA), in their Model Order and Procedures for a Virtual Hearing via Videoconference, has stated that if the parties agree that the proceedings shall take place via online medium, then it shall be deemed to have taken place at the designated venue stated in the clause. Further, Article 1b of the AAA Rules provides that in case the seat has not been decided upon by the parties, the tribunal shall choose the most suitable seat for conducting the proceedings. In order to do so, the tribunal takes into consideration factors such as the place where the agreement was made, domicile of the parties, amongst others.
In order to promote the discretion of the tribunal, the rules published by the China International Economic and Trade Arbitration Commission stated that unless a contrary seat has been specified by the parties in the agreement, the seat of the tribunal shall be Beijing.
In case of poorly drafted arbitration clauses that cause confusion as to the seat or place of the arbitration, the novel ODR mechanism brings unforeseen procedural challenges to the field of arbitration, such as handling evidence, maintaining confidentiality virtually, etc., which would be problematic. Moreover, the tribunal will have to examine the exact seat of the arbitration, in order to determine as to which court would have the exclusive jurisdiction over the annulment or execution of the award. Thus, the most secure step that can be taken by the parties is to let the tribunal designate the seat of the arbitration, instead of filing civil suits before the national courts. This will also resolve questions related to the validity or execution of an award by the courts.