Choosing an appropriate “seat” or “place” of arbitration is critical.
There are a few common misconceptions with respect to the seat. The seat need not be the same as the governing law of the contract, or be based in the same place as the chosen arbitral institution. Thus, there is no reason why a contract cannot be governed by English law but provide for ICC arbitration in Paris. Moreover, counsel do not need to be qualified in the law of the seat, so there is no reason why a party could not (if it wanted to) instruct French lawyers in an arbitration taking place in Singapore.
A “seat” or “place” of arbitration does not necessarily refer to where hearings will be held. It also does not necessarily reflect the law of a contract. But it typically provides the framework underlying the arbitration, giving courts of the seat supervisory jurisdiction over the proceedings. This has several important consequences, including:
- An arbitration award may be challenged in the courts of the seat. Every country will allow an award to be challenged on certain, limited grounds (for example, that the arbitrators lacked jurisdiction or were corrupt), but some also allow the challenge of the award based on errors of law or grounds of public policy, which means different things in different jurisdictions.
- The level of court intervention in each dispute varies significantly based on the seat of arbitration. In “arbitration-friendly” jurisdictions like France, the courts usually intervene only in support of arbitration, for instance to offer interim relief. Other jurisdictions, however, may intervene in the arbitration and even decline to respect the arbitration agreement, severely impacting the proceedings and slowing them to a crawl.
- The law of the seat is important with respect to certain procedural issues, for instance whether the arbitral tribunal may award costs or interest, or whether a conflict of law rule has to be applied.
- Some emerging markets, such as China, impose restrictions on the choice of the seat.
Choosing the wrong seat can severely delay the arbitration, increase the risk of parallel court proceedings and allow the award to be challenged on broad grounds in local courts, which may not be reliable or may be in a jurisdiction where the counterparty is very well-connected, posing evident risks.
There are many “safe” options in terms of seat, including Paris, London, Geneva, Singapore and Hong Kong. These seats are arbitration-friendly jurisdictions which are in countries that are parties to the New York Convention, which plays an important role in allowing the enforcement of arbitral awards internationally.
One potentially important legal difference relates to confidentiality. In arbitrations seated in Hong Kong, Singapore and London, the parties are subject (unless they agree otherwise) to a duty of confidentiality. No such obligation is imposed on the parties in Paris (other than in domestic arbitrations) or New York, unless agreed or contained in the applicable institutional rules. So, if you would like for an arbitration with its seat in Paris to remain confidential, then this should be requested.
There are other important differences. For example, in New York, an award may be challenged based on a “manifest disregard of the law,” which is not the case in Paris, where arbitral awards are more likely to be truly final and binding. Further, the New York courts will determine questions about the jurisdiction of a New York-seated tribunal unless there is clear and unmistakable evidence that the parties agreed that the tribunal should determine its own jurisdiction.
As another example, the English Arbitration Act allows for challenge of an award based on an error of law, but again the threshold is set very high (the decision must be obviously wrong or open to serious doubt). Moreover, the parties may opt out of this ground for challenge—and the major institutional rules contain such an opt-out provision.
The other seats are also unique in some ways. Paris is one of the safest seats of arbitration, but New York may be preferred by the parties to a contract for non-legal factors.
Is one of these seats more likely than the others to lead to a less expensive and more efficient arbitration process? Anecdotal evidence differs on this point, but an arbitration in one seat should not be significantly less expensive than in another, although the risk of arbitration costs spiraling out of control are higher in certain jurisdictions, especially American ones, due to the risk of burdensome disclosure obligations.
The seat can also play a role in the constitution of the tribunal—it is one factor institutions consider in choosing a sole arbitrator or chair. In turn, the nationality and background of the sole arbitrator or chair may inform his or her approach to the arbitration.
One of the most important factors is typically neutrality. The ability to select a neutral seat (i.e., not in either party’s “home” jurisdiction) is one of the key advantages of arbitration. But typically that will only rule out a few of these options, still leaving several seats to choose among.
Geography is another important consideration. This is partly driven by convenience—the seat will usually be the default venue for hearings, although hearings can take place elsewhere should the parties desire. Additionally, certain seats tend to be selected more in the context of transactions in different regions, although this is largely a matter of habit. For example, a New York seat is common in the South American context, whereas London and Paris are more typical choices in contracts relating to Africa and the Middle East. Similarly, Hong Kong and Singapore are steadily increasing their share of Asia-related arbitrations.
Logistical factors, such as availability in the seat of hearing rooms and associated services (particularly transcribers and interpreters), are sometimes cited as relevant considerations, especially when considering seats in developing countries. While such facilities are undoubtedly important in a hearing venue, they should not be decisive.
One practical issue worth considering is language. A well-drafted arbitration agreement will provide that the arbitration itself will be conducted in English or another language. Any court proceedings (including any challenge to the award), however, will be in the local language of the seat, which can be inconvenient and may increase costs to a certain extent.
– William Kirtley