This was an action by the plaintiffs (the Union of India) against the defendants (McDonnell) Douglas Corporation) for decision of the question whether the arbitration between the parties was to be governed by the laws of India or the laws of England.
Mr. Justice Saville. By a written agreement dated July 30, 1987 the plaintiffs contracted with the defendants for the latter to undertake services for the former in and about the launch of a space satellite. Article 11 of the agreement provided that the agreement was to be governed by, interpreted and construed in accordance with the laws of India. The agreement also contained an arbitration clause (art. 8) in the following terms:
“In the event of dispute or difference arising out of or in connection with this Agreement, which cannot be resolved by amicable settlement, the same shall be referred to an Arbitration Tribunal consisting of three members. Either Party shall give notice to the other regarding its decision to refer the matter to arbitration. Within 30 days of such notice, one Arbitrator shall be nominated by each Party and the third Arbitrator shall be nominated by agreement between the Parties to this Agreement. If no such agreement is reached within 60 days of the mentioned notice, the President of the International Chamber of Commerce shall be requested to nominate the third Arbitrator.
The third Arbitrator shall not be a citizen of the country of either Party to this Agreement. The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act of 1940 or any reenactment or modification thereof. The arbitration shall be conducted in the English language. The award of the Arbitrators shall be made by majority decision and shall be final and binding on the Parties hereto. The seat of the arbitration proceedings shall be London, United Kingdom. Each Party shall bear its own cost of preparing and presenting cases. The cost of arbitration including the fees payable to Arbitrators, shall be shared equally by the Parties to this Agreement. …”
The parties’ dispute or difference has been referred to arbitration under the provisions of art. 8. The hearing before the arbitrators is presently fixed to begin in London on Jan. 11, 1993. The question before me is as to the law governing the arbitration proceedings. The parties are, as I understand it, agreed that this Court should decide this question, and should do so on the basis that there is no difference on this issue between English and Indian law.
In essence the plaintiffs contend that the words:
…The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act 1940…
make clear that the parties have chosen Indian law, or at least those parts of Indian law found in the 1940 Act, to govern any arbitration proceedings arising under art. 8. The defendants, on the other hand, contend that by stipulating London as the “seat” of any arbitration proceedings under art. 8, the parties have made clear not merely that any arbitration will take place in London, but that English law will govern the arbitration proceedings.
An arbitration clause in a commercial contract like the present one is an agreement inside an agreement. The parties make their commercial bargain, i.e. exchange promises in relation to the subject matter of the transaction, but in addition agree on a private tribunal to resolve any issues that may arise between them. The parties may make an express choice of the law to govern their commercial bargain and that choice may also be made of the law to govern their agreement to arbitrate. In the present case it is my view that by art. 11 the parties have chosen the law of India not only to govern the rights and obligations arising out of their agreement to arbitrate. In legal terms, therefore, the proper law of both the commercial bargain and the arbitration agreement is the law of India.
The fact that the law of India is the proper law of the arbitration agreement does not, however, necessarily entail that the law governing the arbitration proceedings themselves is also the law of India, unless there is in that agreement some effective express or implied term to that effect. In other words, it is, subject to one proviso, open to the parties to agree that their agreement to arbitrate disputes will be governed by one law, but that the procedures to be adopted in any arbitration under that agreement will be governed by another law….In an international bargain of the present kind, the parties, subject to the proviso mentioned may make a choice of a law to govern their commercial bargain, of a law to govern their arbitration agreement. And of a law to govern the procedures in any arbitration held under that agreement. In theory at least (and subject to the proviso) the parties could chose a different law for each of these purposes.
If the parties do not make an express choice of procedural law to govern their arbitration, then the Court will consider whether they have made an implicit choice. In this circumstance the fact that the parties have agreed to a place for the arbitration is a very strong pointer that implicitly they must have chosen the law of that place to govern the procedures of the arbitration. The reason for this is essentially one of common sense. By choosing a country in which to arbitrate the parties have, ex hypothesi, created a close connection between the arbitration and that country and it is reasonable to assume from their choice that they attached some importance to the relevant laws of that country, i.e. those laws which would be relevant to an arbitration conducted in that country. Indeed, English law at least has turned its face against the notion that it is possible to have arbitral procedures that are wholly unconnected with any national system of law at all.
In the present case, Mr. Veeder, Q.C. for the defendants places great stress on the fact that the parties have expressly selected London as the “seat”, he suggests, is a legal term of art, meaning the legal place of the arbitration proceedings. By choosing the legal place of the arbitration proceedings the parties ipso facto choose the laws of that place to govern their arbitration proceedings. Indeed, although the choice of a “seat” also indicates the geographical place for the arbitration, this does not mean that the parties have limited themselves to that place… It may often be convenient to hold meetings or even hearings in other countries. This does not mean that the “seat” of the arbitration changes with each change of country. The legal place of the arbitration remains the same even if the physical place changes from time to time, unless of course the parties agree to change it. In short, Mr. Veeder suggested that the word “seat” carried with it much more clearly the meaning conveyed by the French word “siege” than the English word “place” though his submission was that this word too in an arbitration agreement would be primarily concerned with the legal rather than the physical place of the arbitration.
Mr. Colman, Q.C. for the plaintiffs accepted that in the absence of agreement to the contrary, the choice of a “seat” would carry with it the choice of the law of that place as the law governing the arbitration proceedings, though he categorized that result as arising from implication rather than from the meaning of the word “seat” itself. In the present case, however, his submission was that the parties, by stipulating that the arbitration should be conducted in accordance with the proce3dure provided in the Indian Arbitration Act, had made an express choice of Indian law to govern the arbitration proceedings and that this choice must, on ordinary principles, prevail over anything inconsistent that might otherwise be implied.
These arguments are nicely balanced. I is clear from the authorities cited above that English law does admit of at least the theoretical possibility that the parties are free to choose to hold their arbitration in one country but subject to the procedural laws of another, but against this is the undoubted fact that such an agreement is calculated to give rise to great difficulties and complexities, as Lord Justice Kerr observed in the Amazionica decision. Fro example (and this is the proviso to which I referred earlier in this judgment) it seems to me that the jurisdiction of the English Court under the Arbitration Acts over an arbitration in this country cannot be excluded by an agreement between the parties to apply the laws of another country, or indeed by any other means unless such is sanctioned by those Acts themselves. Thus, to my mind, there can be no question in this case that the English Courts would be deprived of all jurisdiction over the arbitration. However, much of that jurisdiction is discretionary in character so that if the Court were convinced that the parties had chosen the procedural law of another country, then it might well be slow to interfere with the arbitral process. Again, for the sake of avoiding parallel Court proceedings, the Court might be minded to regard the choice of a foreign legal procedure as amounting to an exclusion agreement within the meaning of Section 3 of the Arbitration Act, 1979. Be that as it may, the choice of a procedural law different from the law of the place of the arbitration will, at least where that place is this country, necessarily mean that the parties have actually chosen to have their arbitral proceedings at least potentially governed by their express choice and by the laws of this country.
In the end, therefore, the question is whether the parties have agreed to such a potentially unsatisfactory method of regulating their arbitration procedures. In my judgment, they have not because, as Mr. Veeder submitted, there is a way of reconciling the phrase relied upon by Mr. Colman with the choice of London as the seat of the arbitration, namely by reading that phrase as referring to the internal conduct of the arbitration as opposed to the external supervision of the arbitration by the Courts. The word used in the phrase relied upon by Mr. Colman is “conducted” which I agree with Mr. Veeder is more apt to describe the way in which the parties and the tribunal are to carry on their proceedings than the supervision of those proceedings by the Indian courts, for example through the Special Case provisions of the Indian Act. It is true, as Mr. Colman pointed out, that this would mean that only Sec. 3 and Schedule 1 of the Indian Act would be applicable (though many of the other provisions are still to be found in the English statutes and so would be applicable in the English Courts) but the construction for which he contends would, to my mind, not only have the unsatisfactory and possibly absurd results to which I have referred, but would also necessarily give the word “seat” a meaning which excluded any choice of London as the legal place for the arbitration. In my view, such a change from the ordinary meaning to be given to that word in an international arbitration agreement (the ordinary meaning being that submitted by Mr. Veeder) cannot be accepted, unless the other provisions of the agreement show clearly that this is what the parties intended. I am not persuaded that this is the case here. On the contrary, for the reasons given, it seems to me that by their agreement the parties have chosen English law as the law to govern their arbitration proceedings, while contractually importing from the Indian Act those provisions of that Act which are concerned with the internal conduct of their arbitration and which are not inconsistent with the choice of English arbitral procedural law.
The question posed in the amended summons before me is whether upon the proper construction of art. 8 of the Launch Agreement the pending arbitration between the parties and any award made by the arbitral tribunal is subject to the supervisory jurisdiction of the Indian Courts or the English Courts. For the reasons given my answer to this question is that it is the latter.
Questions to be discussed:
1. What kind of arbitration under the arbitration agreement in the case: ad hoc or institutional?
2. What is the issue before the judge?
3. How to interpret “The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act of 1940 or any reenactment or modification thereof” in the arbitration agreement?
4. How to interpret the sentence “The seat of the arbitration proceedings shall be London” in the arbitration agreement?
5. What is the relationship between above-mentioned two sentences in the arbitration agreement?
6. Do you agree with the judge’s decision on the law applicable to the arbitration proceedings?
7. How to decide the applicable law to the arbitration procedure in international commercial arbitration? What law should be applied to the arbitration procedure in the present case?