STEP 2: Choosing the seat of arbitration59
If the Parties select arbitration60 (as opposed to court litigation) as their dispute resolution mechanism, it is absolutely critical to specify a seat of arbitration. The importance of the seat (typically a major city) is that it places the arbitration within the legal framework of a particular jurisdiction (regardless of where any hearings in the arbitration are physically held). See Section 8.3, Sample Drafting 8, Clause (15).
There are three key reasons why the Parties should carefully consider the choice of seat:
(1) The national courts at the seat have "supervisory" jurisdiction over the arbitration. This can be significant because those courts can influence the arbitral process by, for example, staying concurrent court proceedings or granting injunctive relief to protect assets subject to the arbitration. It is also the courts of the seat that will generally be competent to hear applications to set aside an arbitral award. It is important to choose a seat of arbitration in a jurisdiction where the local courts are supportive of the arbitration process and are not excessively interventionist.
(2) Most national arbitration laws incorporated through selection of the seat include mandatory procedural provisions (e.g. regarding rights of appeal or the power of the courts to remove arbitrators) which will apply regardless of any contrary stipulation in the parties' arbitration agreement. A careful assessment of such laws is therefore important.
(3) An arbitral award is often only as good as the ability to enforce it effectively. Companies operating internationally typically hold assets in many jurisdictions. Before concluding an agreement providing for arbitration, it be should verified that the chosen seat of arbitration, as well those countries in which enforcement of any award may be sought (which may or may not be the State of the Contracting Authority), are party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Usually referred to as the "New York Convention", there are now 156 State parties to this Convention. An arbitral award rendered by a tribunal "seated" in a New York Convention State should be enforceable in all other New York Convention states without a review of the merits, although it should be noted that there are limited grounds on which a court may refuse enforcement and local advice should always be sought as to the practices of the courts where enforcement is likely to be sought.
| CIVIL AND COMMON LAW DIFFERENCES The courts in civil and common law jurisdictions often have different approaches to dispute resolution. However, where resolution of disputes is by arbitration then, generally speaking, it does not matter whether the arbitration has its seat in a civil law or a common law jurisdiction (nor does it matter whether the parties are from civil or common law jurisdictions). As highlighted above, the key selection factors are whether a jurisdiction is considered to be "arbitration friendly" (the national arbitration law and local courts are supportive of the arbitration process and will not interfere with arbitral proceedings unnecessarily) and whether it is a signatory to the New York Convention. |
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59 Choosing the seat may be the Parties' first step in forum selection but this may coincide with the selection of institutional rules (see Step 1).
60 This does not apply to ICSID arbitration which is de-localized.