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Factors to consider in choosing a seat of arbitration

by Luke Lofthouse on 23 Mar 2017

seat_of_arbitration

In recent years, the arbitral process and applicable rules have, according to some commentators, become greatly homogenised. In light of this, the concept of the arbitral seat, fixing it to one location so as to take advantage of a given country's legal system, has seemingly diminished in importance. Indeed, the rise in ostensible "delocalised awards" has produced outcomes for parties that are not seen as solely dependent on the legal order of the country in which they were issued. The New York Convention’s reformulation of the 1927 Geneva Convention has enabled awards to be enforced in all signatory countries. In many cases, parties no longer need to be concerned with a prior declaration of enforceability when seeking enforcement outside of the award-origin country.

So, do parties still care?

This mutuality of recognition belies the fact that many parties to arbitration agreements place the choice of seat at the forefront of their considerations. In a survey entitled "Choices in International Arbitration", White & Case identified the legal infrastructure of the seat as parties' most important factor (62 per cent) when deciding where to base an arbitration. Within this choice, parties identified: the national arbitration law, the track record of enforcing agreements to arbitrate/arbitral awards in that jurisdiction, and its neutrality and impartiality as to why they would specifically focus on where a seat of arbitration is located.

One would be mistaken for thinking that, given the New York Convention's influence and the wide – in a global context - adoption of the UNCITRAL Model Law, specifically targeting a given locality would be superfluous. Nevertheless, it is notable that of the top six venues for ICC Arbitration, only one (Singapore) is an UNCITRAL country. Paris, London, Geneva, Zurich and New York have all resolutely declined to fall in line.

Legislative differences

Within the morass of arbitral legislation that covers all venues (and not just the most popular), there are specific material differences that highlight why, in many respects, the location of a seat is not merely tangential to a party’s concerns. Arbitral statutes are not alike. For example, under French law an arbitrator has the power to impose penalties (astreintes) on parties that refuse to comply with his/her interim orders – no such power is found in most other arbitration legislation. Likewise, there is a correlation between Article 13.3 of the UNCITRAL Model Law - that a party challenging an arbitrator may apply to a court to decide on a challenge if said challenge is unsuccessful – and section 24 of the English Arbitration Act 1996 (even though England has not adopted the Model Law). There is, however, no comparable provision in the laws of France and Switzerland: the prevailing view being that the courts should not intervene once a challenge has been decided by an arbitrator, lest his or her independence and impartiality be called into question.

Two very different legal belief systems underlie these two approaches and exemplify why parties might choose one locale over another. The English consider that there is a positive to putting an issue of arbitral bias behind the parties as early as possible, so that the award itself isn’t threatened. The French/Swiss approach, on the other hand, is intended to ensure that recourse to the courts during an arbitration is not disruptive to proceedings.

Case specifics

These divergences in legal philosophies can be seen not just through the lens of legislative analysis, but also through juridical decisions made in different countries. On 17 February 2011, in Gouvernement du Pakistan – Ministère des Affaires Religieuses v. Dallah Real Estate and Tourism Holding Company (Case No. 09/28533), the Paris Court of Appeal rejected an application by the Government of Pakistan to set aside three ICC awards delivered in Paris, holding that the tribunal was correct in finding that it had jurisdiction over the Pakistani Government - despite it not being a signatory to the arbitration agreement. Interestingly, the same awards were, the previous November, refused enforcement by the UK Supreme Court – which had applied French law to the matter – on the basis that the same tribunal had incorrectly decided that it had jurisdiction.

Dallah – a Saudi trading group – had initially entered into a memorandum of understanding with the Pakistani Government in relation to the construction of housing for Pakistani Pilgrims visiting holy sites within Saudi Arabia. Following this, Dallah entered into a contract with the Awami Hajj Trust – created by a Pakistani presidential Ordinance – to move forward with the housing project. Said project never came to fruition and, following a change of government in Pakistan, the Trust ceased to exist as a legal entity; the contract contained an arbitration agreement, under which all disputes were to be referred to the ICC.

On analysis, the UK Supreme Court applied French Law in a way which set the standard of proof very high. It seems likely that the Court framed its analysis through the English paradigm: that of traditional English notions of privity of contract and separate legal personality. It is unsurprising, therefore, that the Pakistani Government was not joined as a non-signatory party. Conversely, the Paris Court of Appeal took into account, in a typically French way, the surrounding context of the contract (including pre-contractual negotiations).

This case illustrates how the vagaries of different countries' legal forms can have a massive impact on the outcome of an arbitration. While it possibly also hints at the competition between London and Paris as international centres of arbitration, at the very least, it proves that arbitration in a global sense is hardly delocalised. It is salient that the UK Courts decided to proceed with the matter and apply French law, given the fact that at the time annulment proceedings had already begun in the Paris Court of Appeal. One wonders whether the UK Courts would have acted differently had the French Court ruled first.

Further divergence

Similar disparities in approach exist in relation to whether judicial assistance is available with the taking of evidence in an arbitration. Article 27 of the UNCITRAL Model Law evidences a restrictive position: traditionally it has been understood to only apply to domestically-seated arbitrations, and does not permit courts to order relief in relation to a foreign arbitration. This position has been explicitly codified in the Swiss context – Private International Law Act (Article 184). Contrastingly, Section 2(3)(a) of the English Arbitration Act 1996 confers discretion on the English Courts to compel witnesses in the United Kingdom to appear before a foreign tribunal, produce documents and/or other material evidence.

Conclusions

In evaluating both country-specific legislative differences and jurisprudence, it's evident that there are at times significant differences jurisdiction to jurisdiction. Further, it’s clear that for parties, whether or not a jurisdiction comes within the ambit of the New York Convention is not the only concern. When one factors in other considerations, such as the – often fiscal – choice of the administering arbitration institution and, similarly, the various institutional rules available, there are potentially a plethora of factors that may come to the fore. As things currently stand, there is no all-encompassing supranational legal form that the most popular jurisdictions subscribe to. This state of affairs, therefore, will likely continue for the time being.

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Topics: International Arbitration, Arbitration

Luke Lofthouse

Written by Luke Lofthouse