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The document discusses the principle of forum selection in international commercial arbitration, highlighting its acceptance in both civil and common law jurisdictions. It outlines the differences between domestic and international arbitration in India, as well as the legislative framework established by the Arbitration and Conciliation Act of 1996, which is based on UNCITRAL Model Law. Additionally, it examines the implications of arbitration agreements, the subject matter of arbitration, and the conventions governing arbitration in India.
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0% found this document useful (0 votes)
7 views13 pagesforum selection
The document discusses the principle of forum selection in international commercial arbitration, highlighting its acceptance in both civil and common law jurisdictions. It outlines the differences between domestic and international arbitration in India, as well as the legislative framework established by the Arbitration and Conciliation Act of 1996, which is based on UNCITRAL Model Law. Additionally, it examines the implications of arbitration agreements, the subject matter of arbitration, and the conventions governing arbitration in India.
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ar - frat fee
Critical Issues in
International Commercial Arbitration
Editers
Prot. Br.) S. Surya Prakash
Professor of Law (Dispate Settlement Process)
Chairperson, Cente for Business and Commercial Laws
National Law Institute University, Bhopal
Albin George Thomas
Student Convener (entre for Business and Commercial Laws)
Nalional Law Institute University, Bhopal Forum Selection in International Commercial Arbitration: An Overview
‘FORUM SELECTION’ IN INTERNATIONAL COMMERCIAL ARBITRATION:
AN OVERVIEW
Dr. Kondaiah Jonnalagadda’
In International Commercial Litigation the parties have the right of choice to choose forum as
well as the laws applicable between parties. This practice has accepted and practiced in civil
and common law countries. The principle of Forum Selection has also been incorporated in
various domestic and intemational legal documents to provide a way to resolve the disputes
in amicable manner. However, over a period of time the practice of forum selection rule
adopted by parties is in a method of selection of forum non conveniens rather forum
conveniens. There have been different views on adoption of forum selection and application
of choice based on common law and civil law traditions. Besides, the forum selection, the
appropriate or natural forum theories are also in practice. The present research paper will be
analyzing the mechanisms and practices of forum selection rule in the context of International
commercial legal texts like, UNCITRAL, Hague Model Law, Hague Conferences on Private
International Law, International Commercial Institute Law and also reference to be made to
Indian Commercial Arbitration Act, 1996. The approach of Indian judiciary for development
of jurisprudence of ‘forum selection’ in International Commercial Arbitration will be
analyzed in this paper.
International Commercial Arbitration:
“International commercial arbitration" is defined as an arbitration where at least one of the
parties is a national or habitual resident in any country other than India or a body corporate
which is incorporated in any country other than India or a company or association of an
individual whose "central management and control” is exercised in any country other than
India’. However the ‘Supreme Court of India in TDM Infrastructure Private Limited v. UE
Development India Private Limited,? has held that if both parties are incorporated in India,
then even if the control and management is from outside India, the arbitration would be
" Assistant Professor, National Law Institute University, Bhopal
2 See (Section 2({) of the Act), Arbitration and Conciliation Act,1996
22008 (2) Arb LR 439 (SC)
“9 Critical Issues in International Commercial Arbitration.
"domestic" and not "international". The difference between domestic and international
arbitration are firstly, is that if there is a failure of the parties' envisaged mechanism for
constitution of the arbitral tribunal, the appointment shall be made, in the case of a domestic
arbitration by the Chief Justice of the relevant High Court and in the case of international
arbitration by the Chief Justice of the Supreme Court of India
tion
The second difference is in relation to governing law. In international commercial arbi
the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by
the parties as applicable to the substance of the dispute and failing any such designation, the
rules of law the tribunal considers appropriate given all the circumstances. In domestic
arbitration (arbitration between Indian parties) however, the tribunal can only apply the
substantive law for the time being in force in India.
Background to arbitration legislation:
The Act is based on the 1985 UNICITRAL Model Law on International Commercial
Arbitration and the UNCITRAL Arbitration Rules 1976. The Statement of Objects and
Reasons of the Act recognizes that India's economic reforms will become effective only if the
nation’s dispute resolution provisions are in tune with international regime. The Statement of
Objects and Reasons set forth the main objectives of the Act as follows:
i, to comprehensively cover international and commercial arbitration and conciliation as
also domestic arbitration and conciliation;
ii, to make provision for an arbitral procedure which is fair, efficient and capable of
meeting the needs of the specific arbitration;
iii, to provide that the arbitral tribunal gives reasons for its arbitral award;
iv. to ensure that the arbitral tribunal remains within the limits of its jurisdiction;
v, _ to minimise the supervisory role of courts in the arbitral process;
vi. to permit an arbitral tribunal to use mediation, conciliation or other procedures during
the arbitral proceedings to encourage settlement of disputes;
vii. to provide that every final arbitral award is enforced in the same manner as if it were a
decree of the court;
viii, to provide that a settlement agreement reached by the parties as a result of conciliation
proceedings will have the same status and effect as an arbitral award on agreed terms
con the substance of the dispute rendered by an arbitral tribunal; and
50
cee Forum Selection in international Commercial Arbitration: An Overview
ix, to provide that, for purposes of enforcement of foreign awards, every arbitral award
made in @ country to which one of the two Intemational Conventions relating to
foreign arbitral awards to which India is a party applies, will be treated as a foreign
award.”
Scheme of the Act:
The Act is a composite piece of legislation. It provides for domestic arbitration; international
commercial arbitration; enforcement of foreign award and conciliation (the latter being based
on the UNCITRAL Conciliation Rules of 1980).
‘The more significant provisions of the Act are to be found in Part I and Part II thereof. Part 1
contains the provisions for domestic and international commercial arbitration in India. All
arbitration conducted in India would be governed by Part I, irrespective of the nationalities of
the parties. Part II provides for enforcement of foreign awards.
Part L is more comprehensive and contains extensive provisions based on the Model Law. It
provides, inter alia, for arbitrability of disputes; non-intervention by courts; composition of
the arbitral tribunal; jurisdiction of arbitral tribunal; conduct of the arbitration proceedings;
recourse against arbitral awards and enforcement, Part II on the other hand, is largely
restricted to enforcement of foreign awards governed by the New York Convention or the
Geneva Convention. Part II is thus, (by its very nature) not a complete code. This led to
judicial innovation by the Supreme Court in the case of Bhatia International v. Bulk Trading.
Here the Indian courts jurisdiction was invoked by a party seeking interim measures of
protection in relation to arbitration under the ICC Rules to be conducted in Paris, The
provision for interim measure (section 9) was to be found in Part I alone (which applies only
to domestic arbitration). Hence the Court was faced with a situation that there was no proprio
vigore legal provision under which it could grant interim measure of protection. Creatively
interpreting the Act, the Supreme Court held that the "general provisions" of Part | would
apply also to offshore arbitrations, unless the parties expressly or impliedly exclude
applicability of the same. Hence by judicial innovation, the Supreme Court extended
applicability of the general provisions of Part | to off-shore arbitrations as well.
Fortunately, the emergence of the ADR mechanisms is not viewed by the judiciary at the
highest level in India as leading to any institutional conflict between the Courts and the ADR.
si Critical Issues in International Commercial Arbitration
On the other hand, the successive Chief Justices and the judges have commended and
welcomed the new development as necessary and desirable, As was observed in
Mediterranean and Eastern Export Co. Ltd. V. Fortress Fabrics Hid.’ “the day has long
gone by when the Courts looked with jealousy on the jurisdiction of arbitrators.” In fact the
Fecent amendments to the Indian Civil Procedure Code (Section 89) clearly signal a readiness
{0 integrate the ADR methods into the existing court system by authorizing the Courts to
have recourse to arbitration and conciliation in appropriate cases.
The law of arbitration in India relating to domestic arbitration was governed by the Indian
Arbitration Act, 1940 and relating to intemational arbitration, was govemed by the
Arbitration (Protocol and Convention) Act,1937 and the Foreign Awards (Recognition and
Enforcement) Act , 1961 till the commencement of the Arbitration and Conciliation
Ordinance, 1996. The current law of arbitration covers the entire field of domestic and
international arbitration. It has now been replaced by The Arbitration and Conciliation Act,
1996.
Arbitration under the UNCITRAL rules:
A reference in a dispute settlement clause to the UNCITRAL Arbitration Rules or (in a
frequent, but inaccurate formulation) to "UNCITRAL arbitration” or any other provision to
the same effect means that the parties agree that an existing or a future dispute should be
settled in arbitral proceedings conducted in accordance with the UNCITRAL Arbitration
Rules,
Although UNCITRAL and its Secretariat have prepared legislative and contractual provisions
and rules relating to international commercial arbitration and conciliation, it is not within
UNCITRAL's mandate, as set out by the General Assembly, to become involved in individual
cases. UNCITRAL and its Secretariat do not act as an arbitral tribunal, administer arbitration
proceedings, or otherwise perform any function related to individual arbitration proceedings,
‘of any other system of public or private dispute settlement
*(1948) 2 All E R 186,
52 Forum Selection in international Commercial Arbitration: An Overview
Arbitration Agreement And Forum Selection Rules In Common Law:
‘The valiity, interpretation and effect ofthe agreement to arbitrate are governed by the proper
law of the agreement. The Rome Convention(given effect in England by the Contracts
(Applicable Law) Act,1990 does not apply to arbitration agreement, so the common law rules
of as the proper law of a contract remain applicable. This means if there is an express choice
of law in arbitration agreement, the chosen law will govern. The choice of the place where
the arbitration is to be conducted (its seat) may be treated as an implied choice of the
governing law*. This is so even if the contract of which the arbitration clause forms part is
governed by some other law.* Where there is neither an express choice nor implied choice of
law by the partes, regard must be had to all the circumstances in deciding with which the law
agreement is most closely connected.”
‘The parties can not only choose the law which governs their agreement to arbitrate but also
the Taw which governs their agreement to arbitrate but also the law which concems the
‘arbitration proceedings. Example: for partes to agree that state A shall be the seat of
arbitration but the procedure shall be that of state B. in such a case, the parties “choice of
Procedure law: will be respected but only subject to any mandatory provisions of the law of
State A. in the absence of any choice by the partes, the law ofthe seat ofthe arbitration will
govern procedure.
Most legal systems recognize the concept of a "seat" of the arbitration, which is a
Beographical and legal jurisdiction to which the arbitration is tied. The seat will normally
determine the procedural rules (lex arbitri) which the arbitration follows, and the courts
which exercise jurisdiction over the seat will have a supervisory role over the conduct of the
arbitration,
Parties to the arbitration are free to choose the seat of arbitration and often do so in practice.
{F they do not, the arbitral tribunal will do it for them. Whereas it is possible to detach
Procedural law from the seat of arbitration (e.g seat in Switzerland, English procedural law)
{his creates confusion as it subjects the arbitration to two controlling and possibly conflicting
laws. The procedural law of arbitration, normally determined by the seat, ought to be
Aistinguished from the procedure that the arbitration panel will follow, The latter refers to
ee
{Hamnlyn V. Talisker Distillery (1894) A.C.202
; Deutsche Schahtbau v. Shell International Petroleum Ltd (1990) 1 Ac, 298
" Moms, “The conflict of laws’ Sweet &Maxwell, p.177 para 8.003
53 Critical tssues in international Commercial Arbitration
daily operation of the arbitration and is normally determined either by the institution in
question (if arbitration is institutional, e.g. ICC Rules) or by reference to a ready-made
procedure (such as the UNCITRAL Rules).
The seat of arbitration might not be the same as the place whete proceedings are actually
happening. Thus, for instance, ICC arbitration may have its seat in London (and therefore be
governed by the English lex arbitri and ICC procedural rules) and most sessions may take
place outside the UK.
Section 7 of Arbitration & Conciliation Act, 1996 says that it means an agreement by the
parties to submit to arbitration all or certain disputes which have arisen or which may arise
between them in respect of a defined legal relationship, whether contractual or not. It may be
in the form of a clause in a contract or in the form of a separate agreement and should be in
writing. Agreement shall be considered in writing if it is contained in a document signed by
the parties or an exchange of letters, telex, telegrams or other means of telecommunication
which provide a record of the agreement or an exchange of statements of claim and defence
in which the existence of the agreement is alleged by one party and not denied by the other.
In theory, arbitration is a consensual process; a party cannot be forced to arbitrate a dispute
unless he agrees to do so. In practice, however, many fine-print arbitration agreements are
inserted in situations in which consumers and employees have no bargaining power.
Moreover, arbitration clauses are frequently placed within sealed users’ manuals within
Products, within lengthy click-through agreements on websites, and in other contexts in
which meaningful consent is not realistic. Such agreements are generally divided into two
types:
* agreements which provide that, if a dispute should arise, it will be resolved by
arbitration. These will generally be normal contracts, but they contain an arbitration
clause
+ agreements which are signed after a dispute has arisen, agreeing that the dispute
should be resolved by arbitration (sometimes called a "submission agreement")
The former is the far more prevalent type of arbitration agreement. Sometimes, legal
significance attaches to the type of arbitration agreement, For example, in certain Forum Selection in International Commercial Arbitration: An Overview
Commonwealth countries, itis possible to provide that each party should bear their own costs
in a conventional arbitration clause, but not in a submission agreement.
Agreements to refer disputes to arbitration generally have a special status in the eyes of the
law. For example, in disputes on a contract, a common defence is to plead the contract is void
and thus any claim based upon it fails. It follows that if a party successfully claims that a
contract is void, then each clause contained within the contract, including the arbitration
clause, would be void. However, in most countries, the courts have accepted that a contract
can only be declared void by a court or other tribunal; and if the contract (valid or otherwise)
Contains arbitration clause, then the proper forum to determine whether the contract is void or
not, is the arbitration tribunal
Subject Matter Of Arbitration:
Any commercial matter including an action in tort if it arises out of or relates to a contract
can be referred to arbitration. However, public policy would not permit matrimonial matters,
criminal proceedings, insolvency matters anti-competition matters or commercial court
matters to be referred to arbitration. Employment contracts also cannot be referred to
arbitration but director - company disputes are arbitrable (as there is no master servant
relationship here). Generally, matters covered by statutory reliefs through statutory tribunals
would be non-arbitrable,
CONVENTIONS AND LAWS GOVERNING ARBITRATION IN INDIA:
India is a party to the following conventions:
+ the Geneva Protocol on Arbitration Clauses of 1923
+ the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927; and
+ the New York Convention of 1958 on the Recognition and Enforcement of Foreign
Arbitral Awards. It became a party to the 1958 Convention on 10th June, 1958 and
ratified it on 13th July, 1961
Further, the Indian law of arbitration is contained in the Arbitration and Conciliation Act
1996. The Act is based on the 1985 UNICITRAL Model Law on Intemational Commercial
55 Critical tssues in international Commercial Arbitration,
Arbitration and the UNCITRAL Arbitration Rules 1976. The Act, 1996 covers all the above
conventions.
Choice of Law Rules And Connecting Factor:
{F the parties have an Indian nationality (and'in the case of companies if they are incorporated
jn India) the tribunal can only apply Indian law to the substance ofthe dispute. In other cases,
the parties may either make an express choice of law or the proper law may be inferred from
the terms of the contract and surrounding citcumstances. It isthe law with which the contract
| most closely connected with. Factors such as the nationality of the parties, the place of
Performance of the contract, place of entering into of the contrac, place of payment under the
Contract etc. can be looked at to ascertain the intention of the partes.
The proper law of the arbitration agreement is normally the same as the proper law of the
contract, Where, however, there is no express choice of the law governing the contract as a
whole, of the arbitration agreement as such, @ presumption may arise that the law of the
Country where the arbitration is agreed to be held is the proper law of the arbitration
agreement. But this is only a rebuttable presumption®,
Section 2(f) while defining the International commercial Arbitration dealt in its clauses the
concept of i) Nationality ii) Habitually Residence iii) Central Management principles for
determining the international commercial arbitration and section 34(2)(a) provides an arbitral
award may be set aside by court only if (i) a party was under some in capacity or (ji) the
arbitration agreement is not valid under the law to which the parties have subjected it or,
failing any indication thereon, under the aw forthe time being in force. It is in this context,
{0 point out, whether incapacity of parties are decided by nationality or habitually resident.
‘The parties may have one nationality and also more than one habitual residence. Today, there
's no settled principle and meaning for habitual residence. However, the habitual residence
appears in various international legal texts.®
(NTPC v. Singer Co, (1992) 3 SCC 551.)
* Rome conventiona on Intemational commercial contracts, 1991; Art. of UN Convention on the Use of
¢lectronie communications in Intemational contrats; UNCTRIAL Model Law and other Hague Convencion on
intemational contracts Forum Selection in international Commercial Arbitration: An Overview
‘There have been several cases reported over the last few years on the ‘meaning of “habitual
residence”. This new phrase is as much in use not only in domestic legislation but also in
various Hague Conventions on the reform of private international law.and it is in widespread
use by the European Commission™ For example, it has been proposed by the European
Commission as a replacement for domicile in the new Convention on Jurisdiction and
Enforcement of Judgments in Civil Matters. Habitual residence is also extremely important in
connection with tax matters and social security.” [t is additionally used in the Immigration
Act 1971. Other than its purpose in allocating jurisdiction, habitual residence is beginning
10 be adopted as a connecting factor for choice of law, for instance the Rome Convention on
Choice of Law in Contract." A consumer's habitual residence may determine the law
applicable to consumer contracts (where there is no express choice of law) and a consumer is
Protected by the mandatory rules of the law of his or her habitual residence. In addition, a
Party may in some cases rely on the law of the country of his or her habitual residence to
establish that he or she did not consent to enter into the contract. Lord Brandon of Oakbrook
held that the term habitually resident is to be understood “according to the ordinary and
natural meaning” of the two words “habitual” and “residence” 5 Further, he said that the
'ssue of where someone is habitually resident is a mater of fat to be decided by reference to
all the circumstances of the case.!* Couched in Such circumstances, it appears that a
