Lex Fori Reigns Supreme: Indian High Court (Finally) Confirms Applicability of the Indian Law by ‘Default’ in all International Civil and Commercial Matters
Written by Shubh Jaiswal, student, Jindal Global Law School, Sonipat (India) and Professor Saloni Khanderia, JGLS.
In the landmark case of TransAsia Private Capital vs Gaurav Dhawan, the Delhi High Court clarified that Indian Courts are not automatically required to determine and apply the governing law of a dispute unless the involved parties introduce expert evidence to that effect. This clarification came during the court’s examination of an execution petition stemming from a judgment by the High Court of Justice Business and Property Courts of England and Wales Commercial Court. The Division Bench of the Delhi High Court invoked the precedent set by the United Kingdom Supreme Court in Brownlie v. FS Cairo, shedding light on a contentious issue: the governing law of a dispute when parties do not sufficiently prove the applicability of foreign law.
The Delhi High Court has established that in the absence of evidence proving the applicability of a foreign law identified as the ‘proper law of the contract’, Indian law will be applied as the default jurisdiction. This decision empowers Indian courts to apply Indian law by ‘default’ in adjudicating international civil and commercial disputes, even in instances where an explicit governing law has been selected by the parties, unless there is a clear insistence on applying the law of a specified country. This approach aligns with the adversarial system common to most common law jurisdictions, where courts are not expected to determine the applicable law proactively. Instead, the legal representatives must argue and prove the content of foreign law.
This ruling has significant implications for the handling of foreign-related civil and commercial matters in India, highlighting a critical issue: the lack of private international law expertise among legal practitioners. Without adequate knowledge of the choice of law rules, there’s a risk that international disputes could always lead to the default application of Indian law, exacerbated by the absence of codified private international law norms in India. This situation underscores the need for specialized training in private international law to navigate the complexities of international litigation effectively.
Facts in brief
As such, the dispute in Transasia concerned an execution petition filed under Section 44A of the Indian Civil Procedure Code, 1908, for the enforcement of a foreign judgment passed by the High Court of Justice Business and Property Courts of England and Wales Commercial Court. The execution petitioner had brought a suit against the judgment debtor before the aforementioned court for default under two personal guarantees with respect to two revolving facility loan agreements. While these guarantee deeds contained choice of law clauses and required the disputes to be governed by the ‘Laws of the Dubai International Finance Centre’ and ‘Singapore Law’ respectively, the English Court had applied English law to the dispute and decided the dispute in favour of the execution petitioner. Accordingly, the judgment debtor opposed the execution of the petition before the Delhi HC for the application of incorrect law by the Court in England.
It is in this regard that the Delhi HC invoked the ‘default rule’ and negated the contention of the judgment debtor. The Bench relied on the decision rendered by the Supreme Court of the United Kingdom in Brownlie v. FS Cairo, which postulated that “if a party does not rely on a particular rule of law even though it would be entitled to do so, it is not generally for the court to apply the rule of its own motion.”
The HC confirmed that foreign law is conceived as a question of fact in India. Thus, it was for each party to choose whether to plead a case that a foreign system of law was applicable to the claim, but neither party was obliged to do so, and if neither party did, the court would apply its own law to the issues in dispute. To that effect, the HC also relied on Aluminium Industrie Vaassen BV, wherein the English Court had applied English law to a sales contract even when a provision expressly stipulated the application of Dutch law—only because neither party pleaded Dutch law.
Thus, in essence, the HC observed that courts would only be mandated to apply the chosen law if either party had pleaded its application and the case was ‘well-founded’. In the present dispute, the judgment debtor had failed to either plead or establish that English law would not be applicable before the Court in England and had merely challenged jurisdiction, and thus, the Delhi HC held that the judgment could not be challenged at the execution stage.
Choosing the Proper Law
The mechanism employed to ascertain the applicable law under Indian private international law depends on whether the parties have opted to resolve their dispute before a court or an arbitral tribunal. In arbitration matters, the identification of the applicable law similarly depends on the express and implied choice of the parties. Similarly, in matters of litigation, courts rely on the common law doctrine of the ‘proper law of the contract’ to discern the applicable law while adjudicating such disputes on such obligations. Accordingly, the proper law depends on the express and implied choice of the parties. When it comes to the determination of the applicable law through the express choice of the parties, Indian law, despite being uncodified, is coherent and conforms to the practices of several major legal systems, such as the UK, the EU’s 27 Member States, and its BRICS partners, Russia and China – insofar as it similarly empowers the parties to choose the law of any country with which they desire their disputes to be settled. Thus, it is always advised that parties keen on being governed by the law of a particular country must ensure to include a clause to this effect in their agreement if they intend to adjudicate any disputes that might arise by litigation because it is unlikely for the court to regard any other factor, such as previous contractual relationships between them, to identify their implied choice.
Questioning the Assumed: Manoeuvring through the Intricate Terrain of Private International Law and Party Autonomy in the Indian Judicial System
By reiterating the ‘default rule’ in India and presenting Indian courts with another opportunity to apply Indian law, this judgment has demonstrated the general tendency on the part of the courts across India to invariably invoke Indian law – albeit in an implicit manner – without any (actual) examination as to the country with which the contract has its closest and most real connection. Further, the lack of expertise by the members of the Bar in private international law-related matters and choice of law rules implies that most, if not all, foreign-related civil and commercial matters would be governed by Indian law in its capacity as the lex fori. Therefore, legal representatives should actively advocate for disputes to be resolved according to the law specified in their dispute resolution clause rather than assuming that the court will automatically apply the law of the designated country in adjudicating the dispute.
Foreign parties may not want Indian law to apply to their commercial contracts, especially when they have an express provision against the same. Apart from being unclear and uncertain, the present state of India’s practice and policy debilitates justice and fails to meet the commercial expectations of the parties by compelling litigants to be governed by Indian law regardless of the circumstance and the nature of the dispute—merely because they failed to plead the application of their chosen law.
This would inevitably lead to foreign parties opting out of the jurisdiction of the Indian courts by concluding choice of court agreements in favour of other forums so as to avoid the application of the Republic’s ambiguous approach towards the law that would govern their commercial contracts. Consequently, Indian courts may rarely find themselves chosen as the preferred forum through a choice of court agreement for the adjudication of such disputes when they have no connection to the transaction. In circumstances where parties are unable to opt out of the jurisdiction of Indian courts – perhaps because of the lack of agreement to this effect, the inconsistencies would hamper international trade and commerce in India, with parties from other jurisdictions wanting to avoid concluding contracts with Indian businessmen and traders so as to avert plausible disputes being adjudicated before Indian courts (and consequently being governed by Indian law).
Therefore, Indian courts should certainly reconsider the application of the ‘default rule’, and limit the application of the lex fori in order to respect party autonomy.
Difficult to understand why the Indian High Court ventured into a conflict-of-laws analysis at all. If I understand correctly, the court was merely asked to enforce an English judgment. In most countries, it is prohibited for the enforcing court to review the merits of the case, including the applicable law (no “révision au fond”). Thus, the Indian court should not have controlled whether the English court applied the correct substantive law.
The court ventured into the applicable law question in the case because the judgment debtor had contested the assumption of jurisdiction by the High Court of England and the application of laws framed by Parliament. The judgment debtor argued that the guarantee agreements specifically designated the Dubai International Financial Centre laws and the laws of the Republic of Singapore as the governing law. The judgment debtor questioned the assumption of jurisdiction by the High Court of England and the application of English law, citing the governing law clauses in the guarantee agreements. The court addressed this issue to determine the validity of the judgment and the enforceability of the foreign judgment in India.
Did the court address the issue of the distinction between the presumption of similarity and default rule? From the recent UKSC Brownlie’s case, the default rule applies where foreign law is not pleaded at all, whilst the presumption of similarity applies where foreign law is not proved to the satisfaction of the court. Of course, I am of the view that the presumption of similarity and default rule usually leads to the application of the lex fori, but the UKSC stated that the presumption of similarity may not always lead to the application of the lex fori. Is this a point that was considered by the Indian court, or the court simply treated it as a case of default rule in applying the lex fori?
Finally, if you don’t support the lex fori approach, what other approach is better?
No, the court did not delve into the presumption of similarity at all. Although technically, the lex fori should only apply if the parties have not proved the contents of foreign law to the court’s satisfaction. After reading this judgment, the past decisions in international contractual and non-contractual matters suddenly made sense to me – because until then it was never clear why the court kept applying Indian law to matters that clearly contained foreign elements. They’ve prescribed the method to identify the proper law, but no court has ever seemed to apply that method! I’ve dealt with this in detail in my forthcoming article on Law governing Letters of Credit before Indian courts in JPIL which should be out in print later this month! I certainly advocate the ‘ex officio’ method, where courts should identify the applicable law suo moto. But what use? In India, like I mentioned, very few judges are trained in private international law in matters of litigation. Therefore, a comparative approach is lacking. Although we do have some excellent judges specialising in international commercial arbitration.
U.S. courts follow a similar approach. When the parties do not brief the court on the content of foreign law, the court will apply the law of the forum as a default. The blog posts below discuss a number of U.S. cases where this has occurred:
https://tlblog.org/waiving-choice-of-law/
https://tlblog.org/optionality-in-choice-of-law/
Thanks a lot, John (if I may!). This is indeed very valuable information about how other major jurisdictions, such as the US, also perceive choice of law questions. I’m certainly going to refer to this in my Conflicts of Law courses and my future publications!
I see no basis for complaint of question. Section 44A of the Code of Civil Procedure allows for a copy of the English judgment to be filed and then enforced as though it were a decree of the registering court. But the respondent may raise any of the six objections in Section 13 in seeking to have registration set aside. There was, at least, the basis for an argument about (c), (d), (e), and (f), and as a result the court was required to conduct such enquiry into what went on before the English court to see whether any of these defences could be made out. The fact that the English court applied English law to the contract is a fact; the question whether that provides a defence to the judgment debtor, in terms of any of the six points in Section 13, was properly a matter for the Indian court’s enquiry. Its approach follows from the language of the Code of Civil Procedure; what may be said to be the law ‘of most countries’ is of no relevance to that,
I agree with Mathias’ comment. I had the same impression when reading the summary of the case.
The parties can raise all the defenses they want, but ultimately it is up to the court to make the right decision. Challenging the enforcement of a foreign judgment on the ground that the foreign court applied the wrong law is no longer considered a legitimate ground for non-enforcement.
I’m pleased to learn that you support the ex officio application of foreign law. I find your argument very convincing.
Read Section 13.
Here is Section 13: I do not see a ground for refusal on the basis that the foreign court applied the incorrect law (except where international law or Indian law is involved). The applicable laws in the case, as described in the post, were DIFC law and Singaporean law, as chosen by the parties.
Section 13. When foreign judgment not conclusive.Previous Next
A foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon between the same parties or between parties under whom they or any of them claim litigating under the same title except–
(a) where it has not been pronounced by a Court of competent jurisdiction;
(b) where it has not been given on the merits of the case;
(c) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of 1 [India] in cases in which such law is applicable;
(d) where the proceedings in which the judgment was obtained are opposed to natural justice;
(e) where it has been obtained by fraud;
(f) where it sustains a claim founded on a breach of any law in force in 1 [India].
Assuming that this is the case, the rule, which dates back to 1908, is outdated and not in line with the major developments ‘in most countries’.
Dear Beligh, Indian private international law is indeed very confusing. Although we blindly follow English common law in most cases – at least as far as international civil and commercial cases are concerned, it is generally very difficult to follow the principles because they are not codified. As you yourself have experienced right now, one has to constantly refer back and forth to several other cases and statutory principles and speculate. I would say that Indian private international law is marred by speculation! Also, Indian law is particularly complicated for scholars and practitioners from civil law jurisdictions because we have not kept up with the developments in the rest of the world. if you notice, the entire law on the recognition and enforcement of foreign judgments predominantly hinges on ascertaining the international jurisdiction (aka indirect jurisdiction) of the court of origin. But where are the rules to ascertain the international jurisdiction mentioned? Not in the statute. So one has to constantly find the latest case law. This increases transaction costs.
In this case, as Prof Briggs mentioned (and thank you very, very much Prof Briggs, for the comment!) that the Delhi High Court refused the judgment debtor’s argument to refuse recognition on the ground that the decision of the English court was founded on an incorrect understanding of international law. But did you notice: the court did not even mention it. Therefore, one has to speculate that this is what transpired. Which is why I argue in most of my writings that we cannot get to becoming the second largest economy by 2030 as aimed by our government unless we completely transform our PIL. The training must start at the law school level. Currently, JGLS is the only law school teaching this course in a substantial manner!