Do Multiple Seats of Arbitration Vitiate the Arbitration Clause?

Recently the Delhi High Court laid this issue to rest by the judgment passed in Vedanta Limited v. Shreeji Shipping [Judgment dated February 8, 2024, in ARB.P. 342 of 2023].

Facts of the Case

In the case between Vedanta Limited and Shreeji Shipping, Vedanta, a multinational company, had an agreement with Shreeji Shipping for transporting goods by sea. Their contract included an arbitration clause meant to resolve disputes but mentioned several potential arbitration seats without clarifying how to choose one. The disputed part of the arbitration clause was as follows:

When a disagreement over shipping services arose, Vedanta moved to appoint an arbitrator based on the clause. However, Shreeji Shipping contested the arbitration agreement, arguing that the mention of multiple seats made the clause too uncertain to be enforceable. The case eventually reached the Delhi High Court, which was asked to decide whether the arbitration clause was valid despite the ambiguity.

Court’s Analysis

the Delhi High Court addressed an arbitration clause that mentioned several possible arbitration seats but didn’t specify a clear process for choosing the applicable one. The court acknowledged the importance of the arbitration seat but clarified that simply listing multiple options doesn’t automatically make the clause unenforceable. Instead, the court focused on interpreting the clause in a way that honored the parties’ intent to resolve disputes through arbitration.

Key Takeaways from the Judgment:

1. Dealing with Multiple Arbitration Seats

The crux of this case was an arbitration clause mentioning several possible seats of arbitration but lacking a mechanism to decide which seat would apply in a specific dispute. Shreeji Shipping argued that this lack of clarity made the clause void, but the Delhi High Court disagreed.

The court emphasized that arbitration clauses shouldn’t be invalidated just because of minor ambiguities. Instead, it took a purposive approach, interpreting the clause in a way that ensured its effectiveness. The ruling highlighted that if the parties’ intention to arbitrate is clear, ambiguities—like multiple potential seats—should not derail the process. The court found a way to infer that the first-mentioned location could serve as the default seat unless the parties agreed otherwise, preserving the arbitration agreement’s validity.

2. The Court’s Pro-Arbitration Approach

A significant aspect of the judgment is the court’s strong pro-arbitration bias, reflecting the broader trend in Indian courts to enforce arbitration agreements whenever possible. By citing previous cases, like Enercon (India) Ltd. v. Enercon GmbH and NTPC Ltd. v. Singer Company, the court reaffirmed that arbitration clauses should not be discarded unless there is no way to resolve the ambiguity.

This stance is consistent with the Arbitration and Conciliation Act, 1996 and international arbitration principles, where courts strive to give effect to arbitration agreements even if they are imperfectly drafted. The court’s decision reassures commercial parties that their arbitration clauses will likely be upheld, even if some aspects are unclear.

3. Choosing a Seat in Multi-Seat Clauses

The court also addressed how to select the seat when an arbitration clause lists multiple options. In Vedanta v. Shreeji Shipping, the court noted that if the clause doesn’t provide a clear way to choose a seat, the first-listed location or the most central one could serve as the default seat. This pragmatic approach allows arbitration proceedings to move forward without unnecessary delays. The court also pointed out that the parties could agree on a different seat after the dispute arose, but if they didn’t, the first-mentioned seat would prevail.

4. Impact of the Seat on Procedural Law

The seat of arbitration is critical because it determines the procedural law (or curial law) and the courts that have jurisdiction over the arbitration. In this case, the Delhi High Court emphasized the need to distinguish between the seat and the venue (where arbitration hearings are held). While hearings can happen in different locations, the seat is what determines the procedural rules and the supervisory court’s jurisdiction. By interpreting the clause to identify a default seat, the court ensured that there was clarity about the procedural framework governing the arbitration.

5. Presumption Against Voiding Arbitration Clauses

Finally, the judgment underlined the presumption against declaring arbitration clauses void for uncertainty. The court emphasized that commercial contracts should be interpreted in a businesslike manner, and minor ambiguities should not override the parties’ intention to arbitrate. The ruling is in line with the general philosophy of Indian courts, which prefer to uphold arbitration agreements, even if they are not flawlessly drafted, unless they are completely unworkable.

Conclusion

The Delhi High Court’s ruling in Vedanta v. Shreeji Shipping reinforces the court’s pro-arbitration approach by upholding an arbitration clause despite its mention of multiple seats. This judgment emphasizes the importance of respecting the parties’ intention to arbitrate, offering valuable guidance on drafting arbitration clauses and highlighting the court’s reluctance to declare such clauses void unless absolutely necessary. For businesses and legal practitioners, this decision provides reassurance that Indian courts are committed to giving effect to arbitration agreements, even when some aspects of the contract are ambiguous.