One of the more important recent controversies over the Indian Arbitration Act has been the interpretation of the “express or implied exclusion” to the rule in Bhatia International. As is well known, the Supreme Court held in Bhatia International that Part I of the Indian Arbitration Act applies to international commercial arbitrations held outside India, unless it is “expressly or impliedly” excluded by the parties. Although the decision is seen in some quarters as unhelpful to international arbitration, and is proposed to be nullified by the Government, it remains binding law today, and it has become necessary to determine exactly what constitutes an “implied exclusion”.
We have discussed three cases that considered this matter – Indtel Technical Services, Citation Infowares and Venture Global. In Indtel and Citation, the governing law of the contract was English and American law respectively, and the parties had not explicitly specified a seat of arbitration. It was argued that the mere designation of foreign law as the proper law of contract constitutes an implied exclusion for the purposes of Bhatia International, and reliance was placed on the decision in NTPC v Singer, where the Supreme Court was said to have held that the proper law of arbitration is presumed to follow the proper law of contract. These contentions were rejected by Kabir J. in Indtel and Sirpurkar J. in Citation, and it was explained that the “presumption” referred to in NTPC operates only when the parties designate a seat of arbitration, giving room for the inference that they intended all aspects of their relationship to be governed by the law of that country.
If this is true, however, the question arises what suffices to “impliedly” exclude the application of Part I of the Act. While an obvious answer is that specifying the seat of arbitration and a foreign proper law would suffice, it was not clear that courts would acceded to that proposition in the wake of Indtel, Citation and Venture. With one qualification that we will discuss below, the Supreme Court now appears to have clarified that this is the case, in Dozco India v Doosan, decided on 5 October, 2010.
Dozco India, an Indian company, had entered into a Distributorship Agreement [“DA”] in 2004 with a company incorporated in Seoul, South Korea. Art. 22.1 of the DA provided that the “agreement shall be governed and construed in accordance with the laws of the Republic of Korea” – a clause that is materially identical to the clause in Citation and Indtel. However, Art. 22.2, unlike the clauses in Citation and Indtel, went further and provided that all disputes would be finally settled by “arbitration in Seoul, Korea (or such other place as the parties may agree in writing), pursuant to the rules of agreement then in force of the International Chamber of Commerce”.
Disputes arose, and Dozco filed a petition under s. 11(6) of the Indian Arbitration Act, seeking the appointment of an arbitrator. Doosan conceded the existence of an arbitration clause but argued that the petition is not maintainable since the Indian Act has been excluded. Interestingly, this case too came up before Sirpurkar J.* as the designate. The Court held, for two reasons, that the application is not maintainable. First, the Court found that the parties had concluded an agreement that committed disputes to be resolved by arbitration in Seoul, Korea. The expression “or such other place as the parties may agree in writing” was held not to alter this conclusion, because a “bracket cannot be allowed to control the main clause”. Secondly, the Court held that the designation of a seat of arbitration in Art. 22 took this case out of the purview of the rule established in Citation and Indtel, since the parties could now be taken to have intended to use the law of Korea to govern their relationship.
Two points are noteworthy. First, the Court held that the designation of the seat of arbitration and the foreign law constitutes an “express exclusion of Part I of the Act”. It is submitted, with respect, that this is not so. The distinction between an “express” and an “implied” finding arising out of any document or circumstance is that the finding is stated in terms in the former, and is inferred, albeit by necessary implication, in the latter. Thus, even the strongest implied finding, on which no reasonable person would take a different view, is not an “express” finding. The reference of the Supreme Court in Bhatia International to” an express or an implied exclusion seems, therefore, to contemplate either an explicit statement in the contract that the Indian Act, or Part I thereof, does not apply, or a court finding that that was the intention of the parties, through usual principles of document construction. This distinction is of more than semantic importance, since Citation, Indtel and Venture were decided on the basis that there was no implied exclusion. Thus, it is possible, although not likely, that this judgment is read not to constitute authority for the proposition that designating a foreign seat of arbitration and a foreign applicable law constitutes an implied exclusion – and that could become significant if courts differ on whether this constitutes an express exclusion in the first place. Secondly, the Court distinguished Citation and Venture on the basis that the parties had not designated a seat of arbitration in those cases. It is submitted that this is correct.
It is clear that the last word has not been said on this subject.
* It is often thought that a judge is entitled to “clarify” passages in prior judgments delivered by him. However, as Lord Hoffman points out in a famous passage in Deutsche Morgan Grenfell, [2007] 1 AC 558, 568, “[o]nce a judgment has been published, its interpretation belongs to posterity and its author and those who agreed with him at the time have no better claim to be able to declare its meaning than anyone else.” Fortunately, the Court was not called upon in Dozco to interpret ambiguous passages in Citation since it was clear that the seat of arbitration had not been designated in Citation.