Malaysia’s Landmark Judgement: Government of India vs Petrocon India Limited

Siew Suet Mey, Advocate & Solicitor / siew.suet.mey@skrine.com

INTRODUCTION – SEAT vs. VENUE

The terms ‘seat’ and ‘venue’ of arbitration have often been used interchangeably to refer to the legal jurisdiction of an arbitration. The ambiguity in the terms ‘seat’ and ‘venue’ is often a result of poorly drafted arbitration agreements.

The ‘seat’ of arbitration is defined in section 2 of the Arbitration Act 2005 as the place where the arbitration is based. The seat of arbitration determines the primary legal jurisdiction to which the arbitration is attached and gives the courts supervisory jurisdiction over the arbitration. On the other hand, the ‘venue’ of arbitration is usually given a literal meaning, i.e. the location where the arbitral tribunal carries on hearing witnesses, experts of the parties. The ‘venue’ of arbitration does not have any legal significance to the conduct of the arbitration proceedings or the enforcement of the award.

The difficulty lies in contracts where the seat of arbitration is not expressly agreed by the parties and where parties instead agree on the venue of the arbitration, whether intentionally or otherwise. This leads to the question of whether it may be implied that the venue of arbitration is also the chosen seat of arbitration. This issue was answered in the English High Court case of Shashoua v Sharma, where the arbitration agreement provided for the venue of the arbitration to be London, but was silent as to the seat. The English Court decided that in cases where the seat of arbitration is not agreed by the parties, there is a strong presumption that the seat of arbitration would follow the venue of arbitration. In this case, the seat of arbitration was held to be London.

However, in cases where the seat of arbitration has been agreed between the parties but there is a subsequent change in the venue of the arbitration proceedings, the issue then is whether there is a shift in the seat of arbitration. The Singaporean Court of Appeal case in PT Garuda Indonesia v Birgen Air decided this case in the negative. In this case, the parties agreed that “such arbitration shall be held in Jakarta, Indonesia”. However, the situation then prevailing in Jakarta made it an inappropriate place for the hearing of the arbitration. Singapore was proposed and decided upon instead. The Singaporean Court of Appeal agreed with the High Court which held that the seat/place of arbitration does not change simply because the tribunal holds the arbitration proceedings at a different location. It only changes where the parties so agree. The Court of Appeal added that the only thing that changed in this situation was the venue of hearing.

The Malaysian courts recently faced a combination of these issues in the case of Government of India v Petrocon India Limited. The Government of India (“GOI”) entered into a Production Sharing Contract (“Contract”) with Petrocon India Limited (“Petrocon”) and 3 others namely, The Oil & Natural Gas Corporation Limited, Cairn Energy India Private Limited and Ravva Oil (Singapore) Pte. Ltd. The Contract was for the development of petroleum resources in an area in India known as Ravva Oil and Gas Field. Disputes arose between Petrocon and GOI and pursuant to this, Petrocon issued a notice to arbitrate in 2002.

Arbitration proceedings began in 2002. The Contract was silent on the choice of seat of arbitration but Article 34.12 of the Contract stated that “the venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia”. However, owing to the SARS outbreak at that time, the arbitral tribunal was of the view that the proceedings ought not to take place in Kuala Lumpur, and decided to conduct the proceedings in Amsterdam instead, where a preliminary meeting was held. Parties subsequently moved the proceedings to London via a Consent Order dated 15.11.2003 (“Consent Order”) which read “by consent of parties seat of the Arbitration is shifted to London”.

The Partial Award was rendered by the arbitral tribunal on 31.3.2005, which decided the parties’ liabilities under the Contract but retained jurisdiction to determine the quantum should parties be unable to agree on this (“Partial Award”).

WHAT WAS THE ISSUE?

Sometime in May 2005, GOI applied to set aside the Partial Award by filing an Originating Motion (“Motion”) at the Kuala Lumpur High Court, which GOI argued was the supervisory court of the arbitration. GOI obtained leave from the High Court to serve this Motion out of the jurisdiction. Petrocon then filed an application to set aside GOI’s Motion and leave to serve the Motion out of the jurisdiction on the ground that the High Court lacked jurisdiction to hear the Motion as the seat of arbitration had been shifted from Kuala Lumpur to London.

The main issue before the High Court was whether it was indeed the supervisory court of the arbitration and had jurisdiction to hear GOI’s Motion. In deciding this issue, the High Court had to consider whether there was a shift of the seat of arbitration from Kuala Lumpur to London. It was undisputed between the parties that the jurisdiction of the Kuala Lumpur High Court to hear the Motion would depend on the determination of the seat of arbitration.

THE HIGH COURT’S DECISION

The High Court held that the seat of arbitration had shifted from Kuala Lumpur to London and accordingly, it did not have the jurisdiction to hear GOI’s Motion. Any challenge sought by GOI against the Partial Award should be filed in London and leave to serve the Motion out of the jurisdiction should not have been granted. In arriving at its decision, the High Court dealt with the following issues:

Whether the parties were referring to the juridical seat of arbitration or the physical seat of arbitration in the Consent Order

The High Court was of the view that both parties had agreed to shift the juridical seat of arbitration, as opposed to the venue of arbitration. This was, according to the High Court, evident from the conduct of GOI and they were thus estopped from denying this position as they had participated fully in the arbitration proceedings without any comment or protest.

The High Court stated that it was unlikely that GOI would have been unaware of the implications of the Consent Order which expressly used the phrase “the seat of arbitration”, given that GOI was legally represented. Further, the parties and arbitral tribunal (made up of three eminent retired judges) must have intended the phrase “the seat of arbitration” to mean the juridical seat. Otherwise, the word “seat” would not have been used. It was highly unlikely that the arbitral tribunal was unaware of the meaning of the word “seat”.

Whether the Consent Order was amended according to the terms of the CONTRACT

The issue of whether the seat of arbitration had been shifted to London is to be decided in accordance with the English Arbitration Act 1996, as it was the agreed law governing the arbitration agreement. Article 34.12 of the Contract allows the parties to shift the seat of arbitration by consent.

GOI contended that as there were three others parties to the Contract which were not involved in the arbitration proceedings, it was not possible for “all the Parties” to have amended the Contract via the Consent Order without the consent of the other three parties, as required by Article 35.2 of the Contract. Article 35.2 of the Contract states that “[t]his Contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the Parties…”.

This argument was not accepted by the High Court which held that the arbitration agreement is separate and distinct from the other terms of the Contract. Thus, any amendment to the arbitration agreement would also be a separate and distinct procedure. The High Court was of the view that the agreement to change the seat of arbitration as stated in the Consent Order was made according to the arbitration agreement in Article 34.12 of the Contract. Article 35.2 of the Contract did not apply as this was not an amendment of the terms of the Contract itself. As such, there was no need for the amendment to be “signed by all the Parties”.

THE COURT OF APPEAL AGREED, BUT ON DIFFERENT GROUNDS

On appeal by GOI against the High Court decision, the Court of Appeal upheld the High Court’s decision, but did so from a different perspective. The Court of Appeal held that where the seat of arbitration is not specified in the contract, then the seat of arbitration shall follow the law governing the arbitration agreement which, in this case, was the English law. Thus, the seat of arbitration was held to be England.

The Court of Appeal was also of the view that given that the Contract was executed by the President of India, it could only have been “a conscious and precise intention” that Kuala Lumpur was merely the geographical seat of arbitration and was subject to change by agreement between parties, which was done by way of the Consent Order.

COMMENTARY

This matter is currently pending in our apex court. It will be interesting to see how the Federal Court will decide this issue and what factors will be taken into account.