On 14.07.2017, a two-judge Bench of the High Court of Madras passed a judgement in the case of Raj TV v Thaicom (OSA No. 113/2017 & CMP 7665/2017)(MANU/TN/2117/2017). The judgement deals with choice of law in international arbitration and is an important reason why commercial Benches are to be set up in the Madras High Court and in the State of Tamil Nadu. In this post, we will not be doing a detailed case comment on the decision but will identify certain portions of the judgement which are erroneous and require correction.
To give a brief factual background, the dispute arose out of a Transponder Service Agreement entered into between the parties in 2003. Clause 19 of the Agreement provided that the agreement, rights and responsibilities of the contracting parties, including any dispute, controversy, or claims arising out of the said contract or breach shall be subject to and construed according to Singaporean laws. Clause 23 provided that all disputes shall be referred to arbitration to be held in Singapore under UNCITRAL Arbitration Rules.
From Clause 19, it could be inferred that the substantive law of contract was Singaporean law. Further, since the seat was agreed to be Singapore, the lex arbitri or the law governing arbitration was Singaporean law. But what about the law of the arbitration agreement? Note that Clause 19 comprehensively covered all aspects of the Agreement such as rights, responsibilities, disputes, controversies, and claims, etc. Given this, the law of arbitration agreement, which was nothing but a clause in the Agreement, was Singaporean law. It is a presumption that where the arbitration clause forming a part of the agreement the law of the arbitration agreement is same as that of the agreement. Note that the latest law on international commercial arbitration provides for a three fold test in determining the law of the arbitration agreement. The below quoted portion of this post apltly sums the current legal position:
"[I]n the absence of any indication to the contrary, parties are assumed to have intended the whole of their relationship to be governed by the same system of law, and the natural inference is that the proper law of the main contract should also govern the arbitration agreement. While seat choice could be a mitigating factor, it would be insufficient in and of itself to negate this presumption."
The aforesaid post also neatly summarises the legal position under the English and the Singaporean laws. Even the Indian postition is similar to this, as can be seen from this post. The Indian position can be summarised as below, as noted in the said blog post:
- In the absence of express choice of the law of arbitration agreement, the choice of the proper law of the contract will also govern the arbitration clause.
- However, in exceptional circumstances, even if the proper law of the contract is chosen, such may not be the law of the arbitration agreement where the agreement is silent.
- Where neither the proper law of contract nor the proper law of arbitration agreement is chosen, it would be presumed that the latter would be the seat of arbitration.
Contrary to the prevailing international and the Indian legal position, the Madras High Court held that it was the law of the seat which determined the law of the arbitration agreement in the aforesaid factual situation. Although the conclusion that the Singaporean law was the law of the arbitration agreement was correct, the reasoning was wholly errenous as the High Court relied on the choice of seat as being determinative but the correct position was that the choice of the substantive law of contract determined the law of the arbitration agreement in this case. Further, the court seems to have held that curial law (that is, the law governing the arbitration) was the same as the law of the arbitration agreement, which is not the case: See the quoted portions of the judgement containing the errors:
"4(q)... In other words, it is not in dispute that the seat of arbitration is Singapore. Therefore, there can be no two views or dispute about the fact that the 'proper law' for the 'arbitration agreement' is Singaporean law. In other words, the Curial Law is Singaporean Law."...
"4(v)(i) (i) While proper law for arbitration agreement (Curial Law) is indisputably Singaporean Law, what is the proper law for the contract qua the said contract dated 10.9.2003?" ... (issues framed by the court)(emphasis supplied)
"4(z) In our opinion, this makes the task very simple and easy. The reason is, Curial Law or proper law for the arbitration agreement is directly evident (not even inferred) from the agreed seat of arbitration. The moment contracting parties agree on the seat of arbitration, it goes without saying that proper law for the arbitration agreement shall be the law of land, which is the seat of arbitration."
This reasoning is faulty and is also against settled Indian precedents and the international position.
On another related note, administration of justice in the State of Tamil Nadu has not been upto the mark. The High Court is a typical case. The website of the High Court is one of the most user unfriendly ones in India. The Cause-Lists are uploaded only at 2230/2300 hrs for the next day making it absolutely inconvenient for litigants and even lawyers. The icing in the cake is the failure by the High Court to set up Commercial Benches. For some time, the Court could give the excuse of the lack of Bench strength. But now there are enough judges. Even so, it is perplexing why the Court has not set up even a single Commercial Bench.