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Choosing the Seat in International Arbitration: Overview of the Leading European Arbitral Centres
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April 27, 2009
(This article first appeared in the December 2008 edition of Decisions, Decisions, Howrey’s eNewsletter on International Arbitration and Dispute Resolution.
By Markus Esly
Howrey LLP
Choosing the seat for an international arbitration has important consequences. It is more than simply a decision as to where the arbitration hearings will take place because the law of the seat will apply to determine certain key questions in any proceedings.
Parties in international transactions may agree to a seat in a neutral country other than their home jurisdictions by way of compromise. However, a compromise purely based on perceived neutrality may not necessarily be the most appropriate choice from a legal perspective.
Consideration should be given to the legal implications of choosing a particular seat when drafting any arbitration clause.
The Most Important Considerations
First and foremost, parties always should select a seat in a country that is a signatory to the New York Convention to ensure recognition and enforceability of any award. 1/ This is unlikely to present much difficulty given that there now are more than 140 signatories to the convention. Enforceability under the New York Convention is one of arbitration’s major advantages over court litigation, and this international framework should be taken advantage of.
It also is important to choose a seat where local arbitration laws (and national courts) support international arbitration – enforcing arbitration agreements, preventing court proceedings brought despite the arbitration clause and limiting judicial intervention in ongoing arbitral proceedings. The choice of seat determines the procedural law applicable to the arbitration (the so-called lex arbitri), and it is the courts of the seat that will have a supervisory jurisdiction over the arbitral proceedings.
Typically, the lex arbitri applies to determine the effect and validity of the arbitration agreement, the constitution of the tribunal, challenges to arbitrators, the extent of the parties’ freedom to agree on arbitral procedure, the availability of interim measures, arbitrability (what kind of disputes can be the subject of an arbitration agreement), the right of the tribunal to determine its own jurisdiction (Kompetenz-Kompetenz), the availability of court measures in support of the arbitration and the scope of any right to challenge the award. As between jurisdictions where the lex arbitri is supportive of international arbitration and is based on internationally accepted principles set out in the UNCITRAL Model Law, one would expect choice of one seat over another to make little difference.
The Law of the Seat Still Matters Despite International Standards
The last two decades have witnessed a convergence of the approach to international arbitration in the leading European arbitral centres. This has been both influenced by and reflected in recent legislation (e.g., the adoption of legislation based on the UNCITRAL Model Law on arbitration in an increasing numbers of countries), recognition of core principles such as the severability of the arbitration agreement from the underlying contract and international procedural standards of arbitral practice and procedure (such as the International Bar Association Rules on the Taking of Evidence). Despite this convergence, there remain significant differences in the approach to international arbitration in leading seats.
Differences in approach
Most obviously, the civil-common law divide still affects the approach that practitioners and decision-makers accustomed to one legal tradition or the other will take. 2/ When it comes to document production, interim measures, cross-examinations and written submissions, an arbitration conducted in France with a tribunal of three civil lawyers may be a very different experience from an arbitration in England with three common lawyers as the tribunal.
Choosing a civil law seat does not, of course, necessarily mean a civil law tribunal. The parties always can appoint the decision-maker of their choice. However, in reality, choosing Paris as the seat may well mean a civil lawyer as arbitrator. For instance, the ICC generally appoints arbitrators from its national panels, depending on the seat. These national panels consist primarily of lawyers trained in the relevant jurisdiction. So, cultural differences stemming from differing legal traditions should not be ignored.
There also are substantive differences between the leading arbitration centres.
Features of and differences between some of the international arbitration centres include:
England and Wales
Since the Arbitration Act 1996, England has consolidated its position as a leading international arbitration centre. Recent reviews of the Act, including by arbitration “users,” suggest the legislation is a success. 3/ It is based on the UNCITRAL Model Law and is supportive of arbitration and the freedom of the parties to tailor proceedings to their needs. England and Wales is, of course, a common law jurisdiction.
Appeal on a point of law: English law provides for an appeal on a point of law in limited circumstances. Since this right is not mandatory and can be excluded by the parties, it provides an additional option of a check as to whether the right result has been reached.
Validity of arbitration agreement: English law is slow to question the validity of arbitration clauses and generally gives them a broad effect. In the past, a single word “arbitration” in a contract (far from any properly drafted clause) has been found sufficient.
Efficiency of the Commercial Court: Arbitration applications are heard by specialist judges in the Commercial Court. The process generally is seen as streamlined. Judges in the Commercial Court are well-respected and will support international arbitration. Enforcement of New York Convention awards generally is a formality, and challenges to international arbitral awards are only rarely allowed.
Anti-suit injunctions: Although this area of law is changing, the English Courts will, in appropriate cases, restrain a party from commencing proceedings in foreign courts when the contract contains an arbitration clause (soon, possibly only for countries outside the European Union). This remedy is peculiar to England.
Duties aimed at reducing cost and delay: Reducing cost and delay in arbitrations was a focus of the reforms that led to the 1996 Act. This concern is reflected by §33 imposing a duty on the tribunal to avoid unnecessary delay and expense. No such duty is found in the UNCITRAL Model Law. In a similar vein, §40 provides that the parties have a duty to do all things necessary for the proper and expeditious conduct if the arbitral proceedings.
Powers of the tribunal: The 1996 Act confers useful powers on tribunals, including the power of the tribunal (and, with the permission of the tribunal, the court) to enforce compliance with a “peremptory order” (see §§41 and 42 of the 1996 Act). These sanctions can prevent a recalcitrant party from disrupting arbitration proceedings in an attempt to render an award unenforceable.
Liability for legal costs: Under the 1996 Act, unless parties agree otherwise, the successful party generally is to be awarded its legal costs from the losing party (reflecting the English rule that “costs follow the event”). Adopting international rules such as those of the ICC or the London Court of International Arbitration will disapply the presumption that the losing party must pay, leaving costs in the discretion of the tribunal.
France
Paris also is recognised as a leading international arbitral centre. The Nouveau Code de Procedure Civile provides for limited judicial interference in international (as opposed to domestic) arbitration cases. Arbitration in Paris, in common with the other centres considered here, also is supported by a well-regarded community of international practitioners based in the city.
International nature of arbitration: French law singles out international arbitrations and treats them very differently from domestic proceedings. International arbitration in Paris has certain unique features. The question whether an arbitration is international or domestic is not based on the residence of the parties (as in most other jurisdictions that a draw the distinction). Even an arbitration in which both parties are French could be international so long as international commercial interests are implicated (see Article 1492).
State parties: French law generally will not allow a state to rely on its own national law as rendering it incapable of being bound by an arbitration agreement. (Societe Gatoil v National Iranian Oil Co., Cour d’appel de Paris, 17 Dec 1991) However, care must be taken to ensure that a state party expresses its intent to arbitrate clearly. Otherwise, the award may be set aside (as in Cour d’appel de Paris, 12 July 1984.)
Validity of the arbitration clause: The validity of the agreement to arbitrate may be established without reference to any national system of law, instead being determined by reference to party autonomy (“volonte des parties”) and subject only to international public policy (see Dalico: Cour de cassation, 1ere Ch. Civ, 20 Dec. 1993).
Transnational legal principles: French law has gone far in the internationalisation of arbitration proceedings and gives the parties autonomy to choose whatever system of law should govern their contract. Tribunals seated in France have had recourse to international jurisprudence and practice rather than any fixed, national law when deciding substantive points. See, for example, the well-known decision of the Paris Court of Appeal in Dow Chemicals, confirming application of the “group of companies doctrine” (allowing one group company to recover losses suffered by another company of the same group). 4/ This may not always be an advantage, depending on the nature of the dispute over uncertainty as to precisely what international legal principles are.
Challenges to jurisdiction: French courts will not hear any challenge to the jurisdiction of an arbitrator until the end of the arbitration (Article 1458 of the Nouveau Code de Procedure Civile). This means that once the arbitral tribunal has ruled on its jurisdiction, the parties will need to proceed with the arbitration and await a final award before a review on the narrow grounds of Article 1504 can be sought, potentially an expensive and wasteful process.
Switzerland
Switzerland long has attracted complex international arbitrations because of its perceived neutrality, but in truth Switzerland is no more neutral than any other of the leading arbitration seats. The Swiss Private International Law Act (“PIL”) is arbitration friendly, and there are a number of renowned international arbitration practitioners based in Geneva and Zurich. Switzerland is a civil law jurisdiction.
Recourse only before the highest court: Swiss arbitration law has adopted a minimalist role for its national courts in exercising their supervisory jurisdiction over international arbitrations. In particular, all recourse against an arbitral award must be before the Tribunal Federal/Bundesgericht, the country’s highest court, unless expressly agreed otherwise.
Validity of arbitration agreement: A lack of capacity to arbitrate under domestic law cannot be relied on if the other party could not in good faith have known of it (PIL, Article 36).
Waiver of right of challenge before the Swiss courts: Parties are entitled to waive all rights of challenge to an arbitral award before the Swiss courts. (PIL, Article 192) If that is done, it is not possible to ask the Swiss courts to set aside an award because of a serious procedural irregularity. If the waiver under Article 192 is made, the only recourse against an award before the Swiss courts would be under the New York Convention if the award were to be enforced in Switzerland. It should be noted that the standard provision on finality in the ICC Rules (which operates to exclude an appeal on a point of law) would be such a waiver.
Review of the tribunal’s jurisdiction: While Swiss law generally is seen as supportive of arbitration, one decision of the Tribunal Federal has been the subject of criticism. An ICC award was set aside on the basis that the tribunal lacked jurisdiction because arbitration proceedings should have been commenced earlier, within a specified time limit. (Vekoma v Maran Coal Co., Tribunal Federal, 17 Aug. 1995) In reaching that conclusion, the court paid less respect to the tribunal’s own findings (confirming jurisdiction) than might have been expected and reviewed the question anew. The Swiss court felt it had a greater role to play when reviewing the tribunal’s findings of law rather than findings of fact.
Sweden
Arbitration in Sweden under the rules of the Stockholm Chamber of Commerce has become increasingly popular, particularly for disputes involving Russian, Commonwealth of Independent States (CIS or former Soviet states) and Chinese parties. The Stockholm Chamber’s list of arbitrators includes several who are fluent in Russian, and a Chinese national is on the board of the institution. When a counterparty insists on a venue other than London or Paris or objects to London Court of International Arbitration or ICC Rules, Stockholm may be an alternative.
Sweden generally is seen as a civil law jurisdiction although Swedish court procedure shares similarities with the common law tradition. It is, therefore, difficult to categorise the “typical” Swedish arbitrator as adhering to one school or the other. By way of illustration, a Swedish arbitrator may be more active in cross-examining witnesses (rather than leaving it to the parties) but may be unlikely to take the initiative in brokering a settlement in international cases (something that a German arbitrator, from a civil law background, generally is required to do).
Following the Model Law: The Swedish Arbitration Act generally follows the Model Law although arbitrators do not have some of the powers usually found elsewhere, including the power to order that witnesses give evidence under oath. There have been some suggestions that the Swedish courts do not always readily grant interim measures, such as injunctions, in support of arbitrations. 5/
Role of the Chamber. The rules of the Stockholm Chamber of Commerce provide that a request for arbitration is to be dismissed if it is clear that the Stockholm Chamber manifestly lacks jurisdiction (similar to the role of the ICC’s International Court of Arbitration).
The Stockholm Chamber rules also offer an expedited arbitration procedure as an alternative. It should be noted that the Swedish Arbitration Act requires arbitrators to decide cases in a “practical and speedy” manner – not unlike the duty under the English Arbitration Act.
Consolidation of proceedings. By agreeing to arbitration under Stockholm Chamber rules, the parties accept its power to consolidate their arbitration with any another proceedings between the same parties and concerning the same “legal relationship.” This power may avoid there being more than one arbitral reference between the same parties in respect of closely connected or associated contracts.
Grounds for challenge. Under Swedish law, as in every other major arbitration centre, arbitrators must be impartial and unbiased. Unlike many other national arbitration laws, the Swedish Arbitration Act provides a (non-exhaustive) list of circumstances deemed to amount to sufficient grounds for challenging an arbitrator. The Stockholm Chamber’s board, like the ICC Court, hears challenges to arbitrators.
Confidentiality. Arbitration in Sweden generally is confidential (as it is elsewhere). However, the Swedish Supreme Court has ruled that there is no implied obligation of confidentiality under Swedish law. Because the Stockholm Chamber rules (Article 46) only impose a confidentiality obligation on the Stockholm Chamber and not the parties, it is prudent to expressly provide for a duty of confidentiality in the arbitration clause.
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For more information about the issues covered in this report, please contact Markus Esly in our London office at (44) (20) 7 936 5356 or at EslyM@howrey.com or contact your Howrey attorney. For more information about Howrey’s Construction Practice Group, click here.
ENDNOTES
| 1/ | The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which provides that an arbitral award made in one signatory state will be enforced, with very limited exceptions, by the courts of any other signatory state. The United Nations’ Web site for the New York Convention has an interactive status map showing signatory states. www.uncitral.org/uncitral/en/uncitral_texts/
arbitration/NYConvention.html
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| 2/ | In general terms, civil law (as opposed to common law) traditionally favours a more pro-active tribunal that takes the initiative in establishing the facts and places less emphasis on document production, witness evidence and oral advocacy.
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| 3/ | The strength of London as an arbitral centre may be attributed to several reasons: the non-interventionist approach to international arbitration under national law and the focus on party autonomy in permitting parties to opt out of non-mandatory features of the Act.
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| 4/ | England has taken the opposite view on this point.
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| 5/ | The Stockholm Chamber’s rules were amended in 2006 to give the arbitral tribunal the power to order interim measures.
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©2009 Howrey LLP
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