When parties decide to arbitrate, one of the key decisions they have to make is choosing a seat of arbitration. But what factors should parties take into account when choosing a seat of arbitration and are these factors actually reflected in the choices that are made?
The significance of the seat
The seat is the legal home of the arbitration and is not to be confused with the venue of the arbitration where any hearings may take place (though in practice hearings may well be held at the seat). The seat has a very specific legal effect. It determines which country’s procedural laws will apply to many practical aspects of the arbitration including any rights of appeal, the availability of interim remedies and the extent to which the local courts will support or supervise the arbitration. The seat will also determine where an award has been made, which may have significant consequences for the purposes of recognising and enforcing the award.
For all of these reasons, the choice of seat is an important decision and something that all parties should consider when drafting and negotiating arbitration clauses.
What factors should a party take into account when choosing a seat of arbitration?
In 2015, the Chartered Institute of Arbitrators (CIArb) developed the so-called “London Principles”, which sought to encapsulate the key elements of a “safe seat” for international arbitrations.
At the end of last year, CIArb announced that it is going to build on this work to develop an index of the world’s arbitral seats and information, so that parties can readily assess which seat to choose.
The London Principles identify characteristics that an arbitral seat would have in order to ensure that an international arbitration can be conducted effectively and efficiently. The key characteristics include:
Modern and effective arbitration law. Does the seat provide a clear, effective and modern international arbitration law that recognises and respects the parties’ choice of arbitration as the method by which they want to resolve their disputes? This is achieved by a law that:
- Provides a framework for facilitating the fair and just resolution of the dispute.
- Limits court intervention.
- Strikes an appropriate balance between confidentiality and transparency.
Quality of the judiciary. Does the seat provide an independent and competent judiciary with expertise in international arbitration? This will ensure that the courts at the seat are respectful of the parties’ decision to arbitrate their disputes and should limit the risk of unnecessary intervention or inappropriate interference by local courts.
International treaties and conventions. Is the jurisdiction a signatory to any relevant international treaties or agreements governing the recognition and enforcement of foreign arbitral awards, such as the New York Convention?
The London Principles also identify other, more practical considerations that may also influence a party’s choice of seat. These include:
Good facilities. Does the seat offer well-developed facilities to ensure that the arbitration proceedings can function, such as hearing rooms, translation services and transcription services?
Safety and accessibility. Does the seat offer ease of access for parties and their legal advisors, without any unreasonable constraints on entry or work for the parties, witnesses and counsel, as well as adequate safety of the participants and protection of their documentation and information?
What factors do parties consider when choosing a seat?
In practice, a key consideration for parties choosing a seat of arbitration tends to be neutrality. Parties from different jurisdictions with competing “home” seats are often keen to find a “neutral” option. But neutrality is not the only factor that influences the choice of seat.
The 2015 Queen Mary University of London (QMUL) International Arbitration Survey considered the factors that influenced respondents when choosing a seat of arbitration. The results of the survey indicated that reputation and recognition were primary factors driving the choice of seat. In addition, preferences for certain seats were mainly based on an assessment of the seat’s formal legal infrastructure, the neutrality and impartiality of the legal system, the national arbitration law and its track record for enforcing arbitration agreements and awards. All of these factors are very much in line with the safe seat principles outlined by the CIArb, and highlight the fact that parties are looking for seats that offer both a robust legal framework and practical resources to run an effective international arbitration.
The 2015 QMUL Survey found that the five most popular and widely used seats were London, Paris, Hong Kong, Singapore and Geneva. Unsurprisingly, all of these seats satisfy the CIArb safe-seat principles. They offer both the legal framework and practical resources that are required to run an effective international arbitration.
Since then, we have seen increased competition between popular arbitral seats and the establishment of new arbitration centres worldwide, giving parties and their advisers very real alternatives to the established seats of arbitration.
CIArb and Global Arbitration Review (GAR) have sought submissions from the arbitration community on how Geneva, Hong Kong, London, New York, Paris, Singapore and Zurich continue to perform as seats in relation to the London Principles. Ratings for each will be published this year to show how each seat performs against the 10 London Principles, including “AAA- Highly desirable” or “CCC – Some risk to the process and/or the result”.
It will be interesting to see how these established seats of arbitration perform against this new rating system and whether they continue to maintain their preferred status in the years to come.