"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, December 24, 2019

The Mystery of Seat and Place in International Arbitration: History & the Indian Connection

There is considerable confusion over the use of the term "place" to designate the seat of arbitration. This short post traces the history behind the preference to the term "place" over "seat" in international arbitration despite the considerable confusion that ensues as a result. 

The UNCITRAL Arbitration Rules, 1976 is one of the earliest significant attempts at harmonising procedural rules relating to international arbitration. The 1976 Arbitration Rules was a precursor to the UNCITRAL Model Law and most of the arbitration taxonomy used world over and concepts in the subject can be traced back to the 1976 Arbitration Rules.

In the early 1970s, UNCITRAL decided to come up with rules for use in ad hoc arbitrations arising in the course of international trade. Report of the United Nations Commission on International Trade Law on the work of its sixth session, 2-13 April 1973, Official Records of the General Assembly: Twenty-eighth Session, Supplement No. 17 (A/9017), para. 85, (UNCITRAL Yearbook, vol. IV: 1973, part one, II, A).]

UNCITRAL advised its Secretariat that the rules should be prepared in consultation with centres of international commercial arbitration. The Secretariat, in turn, invited the International Council for Commercial Arbitration to establish a representative group for consultation in the preparation of the above rules. Based on the consultation with the group, the Secretariat came up with a preliminary draft. [UNCITRAL, Report of the Secretary-General: Preliminary Draft Set of ArbitrationRules for Optional Use in Ad Hoc Arbitration relating to International Trade (UNCITRAL Arbitration Rules) (4 November 1974), A/CN.9/97.]

Article 14(1) as was discussed at that time read as follows:

1. Unless the parties have agreed upon the place where the arbitration is to be held, such place shall be determined by the arbitrators.
2. If the parties have agreed upon the place of arbitration, the arbitrators may determine the locale of the arbitration within the country or city agreed upon by the parties.
3. The arbitrators may decide to hear witnesses, or to hold interim meetings for consultation among themselves, at any place they deem convenient.
4. The arbitrators may meet at any place they deem appropriate for inspection of goods, other property, or documents...

This provision was based more or less on Article 14 of the Arbitration Rules of the United Nations Economic Commission for Europe, which stated: Unless the parties agree on the place where the arbitration is to be held, such place shall be determined by the arbitrators.. Note that the precursor of the Arbitration Rules, the New York Convention employed the phrase “where the arbitration took place” but did not use the term “seat”. 

What is interesting from an Indian point of view is that the draft was discussed in the fifth international arbitration congress was held at New Delhi from 7 to 10 January 1975. In the New Delhi congress, it was held that “place” of arbitration in Article 14 should be replaced with the term “seat” of arbitration. [A/CN.9/SER.A/1975, 1975 Yearbook, p. 35.] Another suggestion was that the tribunal should determine the seat at the commencement of the arbitral proceedings. The Commission took note of these suggestions. The Congress also felt that these changes would be in line with the New York Convention since the Convention accorded a special place to the seat of arbitration. [UNCITRAL 1975 Yearbook, p. 183]

A further suggestion was that the model arbitration clause drafted along with the rules should provide: “The seat of the arbitration shall be …” Thus, at one point in the drafting of the 1976 Rules, the expressions “seat” and “place” found their place in the draft.[ UNCITRAL, Summary Records of the One Hundred And Sixty-Fourth Meeting (of the Committee of the Whole II), A/CN.9/SR.164(see, comments from representative of the USA and the Federal Republic of Germany).] There were also misgivings expressed on the floating nature of arbitration. The retention of the term “seat” did not find favour with the UNCITRAL Secretariat. The reason why is not known. Perhaps, it is buried deep inside the archival vaults of the UNCITRAL.

Consequently, the draft rules retained the term “place” instead of “seat”. The final version of the 1976 Rules use the term “place” instead of “seat”.

Hindustan Construction Company v UoI: A Critical Appraisal (Part I)

A critique should not be suppressed because it is unpopular. In line with the mandate of this blog (which reproduces the words of HM Seervai), as noted at the top of this page, this post along with subsequent posts critically appraises the recent decision of the Supreme Court in Hindustan Construction Company v  UoI (pdf)(2019: SC).

Readers of this blog, we are sure, would have read the decision. Therefore, we do not present a descriptive comment of the decision and instead move straight to criticisms of the decision and possible arguments that go against the said criticisms.

Our task in this endeavour is to explore the justifiability of justifications proffered in the said decision. It is not only the eventual conclusions that are important, but the justifications offered therefor. The first criticism is addressed in this post.

Criticism 1: The Supreme Court entertained a writ under Article 32 filed by commercial entities questioning the constitutional validity of a law that is avowedly economic in nature

A set of writ petitions were filed by commercial/ corporate entities directly in the Supreme Court and claimed violation of the fundamental rights, including the rights under Articles 14, 19, and 21, and the constitutional right to property under Article 300A. The Supreme Court entertained it, without any whisper as to the maintainability of a writ petition on what is really a commercial issue by commercial organisations directly in the Supreme Court. How could the Supreme Court directly entertain a writ petition in an issue relating to commercial affairs?

In the recent times, the Supreme Court has refused to hear more serious issues, directly affecting life and liberties of persons, in at least two matters, whose news reports are here and here. Surprisingly, the SC did not give any justifications as to why it was entertaining the writ petitions in Hindustan Construction, despite the settled law. 

The court did not even justify why it was directly hearing the writ petition without even a justification.

Contra Arguments: Ideally, the Supreme Court should have explained why it was doing so: the law has been in disarray several times in the past four years, and it was in the interest of commerce that there is a finality to the issue as regards the retrospective applicability of the 2015 amendments. An uncertain legal state of affairs would affect the economy of the nation, and therefore, it was important to settle the law swiftly and surely. 

Think of a counterfactual: Assume that a scenario where the Supreme Court dismissed the writ petitions and directed the parties to approach the relevant High Courts. It is possible that the amendment could have been challenged in different High Courts and it is possible that different High Courts could have reached opposite conclusions just like how they had post-2015 on the question of retrospective applicability of the 2015 amendments. Again, it would have taken a few months or so for the matter to reach the Supreme Court, by which time several HC decisions would have been rendered and parties could have altered their stance based on outcomes of such decisions. Therefore, it was important for the Supreme Court to immediately settle the law. 

Another important argument against the aforesaid criticism is that if a High Court hold the statute unconstitutional, it would bring again to the fore the territorial applicability of the decision of the High Court. To avoid such uncertainties, it was perhaps important for the Supreme Court to address the situation on an urgent basis. The decision does not record if this issue was ever raised before the Supreme Court. It would be interesting to have a look at the record to see if it was. 

More on the decision in another post.