In Government of India v Petrocon India Ltd(1) the appellant and respondent entered into a production sharing contract in respect of the development of petroleum in the Ravva Oil and Gas Field in India.
Clause 34.12 of the production sharing contract provided that in the event of disputes, the venue of arbitration would be Kuala Lumpur, Malaysia and that English law would govern the arbitration agreement. Clause 35.2 further provided that the contract could be amended, modified, varied or supplemented only by the parties to the contract.
When disputes arose, a preliminary arbitration meeting was fixed to be held in Kuala Lumpur on May 19 2003. The arbitral tribunal was moved to Amsterdam due to the outbreak of the SARS epidemic. Subsequent proceedings were then held in London on November 14 2003 and November 15 2003.
By way of a November 15 2003 consent order made in London, the arbitrators recorded the shifting of the seat of arbitration to London. On March 31 2005 the arbitral tribunal published its partial award.
On May 10 2005 the appellant filed an originating motion before the Malaya High Court to set aside the partial award or, alternatively, for an order that the relevant part of the partial award be remitted to arbitration for reconsideration. The respondent objected.
The Malaya High Court held in favour of the respondent, stating that the juridical seat of arbitration had been shifted from Kuala Lumpur to London. In this respect, the Malaya High Court had no jurisdiction over the partial award.
The appellant appealed to the Malaysian Court of Appeal and filed simultaneous proceedings before the Delhi High Court, seeking a declaration that the seat of arbitration was Kuala Lumpur. On May 11 2011 the Supreme Court of India confirmed that the seat of arbitration was Kuala Lumpur.
On October 8 2012 the Malaysian Court of Appeal affirmed the Malaya High Court's decision and held that as English law was chosen to govern the arbitration, the seat of arbitration was England. The Court of Appeal found that the applicable venue was merely a matter of geographical convenience for the parties.
On April 8 2014 the appellant was granted leave to appeal to the Federal Court of Malaysia. The Federal Court held that the venue referenced in Clause 34.12 of the production sharing contract was more than a mere reference to the geographical or physical seat. In that respect, the Federal Court construed the term 'venue' to be the seat of arbitration.
The Federal Court further held that the seat of arbitration had not shifted to London, as the stipulation set out in Clause 34.12 that both parties agree to any changes was not met. Further, the Federal Court held that Clause 35.2 did not operate to alter the arbitration agreement, as the arbitration agreement was distinct from the underlying agreement.
The Federal Court held that the Supreme Court of India's earlier ruling did not bind the parties. The court held that estoppel did not arise against the respondent in this respect, because a decision issued by a court without jurisdiction does not give rise to res judicata. The Federal Court thus dismissed the appellant's appeal.
This case reaffirms the long-standing principle that the determination of the seat of arbitration is distinct from the choice of governing law. The factual circumstances surrounding the arbitration agreement also lend support to construe the venue of arbitration as the proper seat of arbitration.
The Federal Court also recognised a distinction between the terms of the arbitration agreement and the underlying contract. Any alteration to the seat of arbitration must be agreed by all parties to the arbitration.
In international arbitration, parties may seek determination from multiple courts, as in this case. The Federal Court's decision demonstrates that parties may not be bound by rulings and judgments from foreign courts where those courts have no jurisdiction to determine the issues in the first instance.
For further information on this topic please contact K Shanti Mogan or Chai Phing Zhou at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email ([email protected] or [email protected]). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
Endnotes
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