30 October 2006
The seat of an international arbitration is a decision of some importance: get it right and the arbitration should proceed smoothly; get it wrong and the delays and costs that may result could frustrate any chance of resolving the dispute quickly.
Choosing a seat of arbitration is, however, more significant than many people think. It determines where the arbitration will be legally based, even though hearings may take place elsewhere. It is an entirely legal concept. In selecting the seat of arbitration, the parties are agreeing which laws will oversee their arbitration; which courts will be used, if necessary, to support the process; and where, as a matter of law, the arbitral award will itself be handed down. Unless the parties understand the implications of the laws of the seat of the arbitration, they could be exposing themselves to procedural intricacies of a legal system that is unfamiliar to them.
Yet in practice selecting the seat of arbitration is invariably a very quick decision, often taken at the end of a long, commercial negotiation process. There will have been little consideration, if any, of how the law of the chosen seat might impact upon the conduct of the arbitration; even less about what alternative options exist. It is often assumed that the seat of arbitration determines where the hearing will take place and so a neutral or convenient location will frequently be chosen as the seat of arbitration. By so doing, the parties are using the wrong factors to choose the seat and the legal significance of the seat continues to be ignored.
Differences in legislation
Although there are many similarities between the arbitration legislation implemented in the main seats of arbitration, notable differences still remain. These differences can be highlighted by consideration of a number of factors.
First, are there any mandatory rules (which cannot be excluded by agreement of the parties) that apply to arbitrations in the chosen seat of arbitration? If so, what are they and how will they impact on the arbitration process?Second, is the country of the seat of arbitration a signatory to the 1958 New York Convention (thereby aiding the recognition and enforcement of the eventual award)?Third, what procedures are available as a matter of local court procedure to assist the parties in support of the arbitration? Indeed, what is the attitude of the local courts towards arbitration and how far will they intervene in the process?Finally, will the local courts assist recognition and enforcement of an award in circumstances where the underlying dispute has no connection with the seat (as they will in England, but not for example in Sweden)? These questions can and should be considered prior to concluding an arbitration agreement.
What the parties should not be doing is selecting a seat of arbitration on the basis of where they would like the hearings in the arbitration to take place. The location of hearings will normally be influenced by convenience (location and mobility of evidence, witnesses, lawyers, counsel) or guided by a diplomatic need to agree a neutral venue (given a perceived advantage to one party in having the arbitration on its 'home turf'). These are factors that in reality offer little assistance in selecting a seat and can only be determined in a meaningful way once the arbitration has started.
The significance of the seat of arbitration is perhaps best explored by illustration. Assume two parties agree to arbitrate a dispute arising out of an English law-governed contract in an International Chamber of Commerce arbitration and select Zurich as the seat of arbitration, on the basis that it is a neutral venue. By selecting Zurich as the seat of arbitration, the parties are agreeing that the Swiss Federal Act on Private International law will govern the arbitration procedure, supported where necessary by the Swiss courts. It is simply irrelevant that the underlying dispute relates to a contract governed by English law.
Selecting a seat of arbitration in a familiar jurisdiction does not prevent the parties from agreeing to have the hearing elsewhere. Indeed, the ability to locate a hearing in an alternative location to the seat of arbitration is supported by the International Court of Arbitration rules, the United Nations Commission on International Trade Law (Uncitral) Rules and the Model Law on International Commercial Arbitration.
Taking our example: Zurich was chosen as the seat of arbitration on the basis that it was a neutral location for the hearing. Equally, the parties could have agreed an English seat of arbitration with hearings taking place in Zurich. The potential benefits are clear. The hearings will take place in the neutral location of Zurich, while the potential costs of having to engage lawyers to advise on matters of Swiss law are avoided. In addition, aligning the laws governing the seat of arbitration and the underlying contract could prevent conflicts arising between these laws at a later stage.
In considering where to have the seat of arbitration, consider the factors outlined above at an early stage and understand the implications of choosing a particular seat of arbitration. If the parties are keen to have a neutral or convenient location for hearings, is it acceptable to the parties to select a seat of arbitration in a familiar (although perhaps not neutral or even convenient) jurisdiction and have the hearings elsewhere? If so, when is the best time to determine which venue is convenient or neutral? And can the parties agree to postpone this decision until the arbitration has started?If the seat of arbitration has already been selected at the negotiation stage, or there is little room for manoeuvre in negotiations, all is not lost. It is still possible (although unusual) to agree to move the seat of arbitration once the dispute has arisen.
By considering the place of hearing and the seat of arbitration separately, parties can ensure that their arbitration is heard in a neutral or convenient location, pursuant to more familiar (and possibly advantageous) procedural rules. Indeed, by linking the seat of the arbitration with the substantive law of the dispute, the parties can save on the need to instruct further lawyers and ensure that the courts of the seat will support and assist the arbitration. -Greg Reid is head of international arbitration and Mark Deem is a solicitor advocate at Linklaters