WHICH SEAT TO CHOOSE-LONDON, STUTTGART, PARIS OR EDINBURGH?

Wednesday 20th May 2009 at Herbert Smith LLP

Why it has to be London.

Talk given by Stephen Bickford-Smith MA (Oxon) Barrister, FCIArb Chartered Arbitrator 1

Why is the seat in international arbitration important?

1. Most legal systems recognise the concept of a “seat” of the arbitration, which means

the legal jurisdiction to which the arbitration is tied. The seat dictates which national

law governs the procedure. The seat of arbitration need not be in the same country

as the venue, although in practice they are often the same. It is the parties to the

arbitration agreement that decide the seat of the arbitration, either by reference to

contractual provisions or by subsequent agreement. It is important to note that

whilst parts of the arbitration hearing may take place in several countries, there can

only ever be one seat of arbitration. By having only one such seat, say in England,

problems which might otherwise arise where the hearing of the arbitration is, say, in

Beijing, and where the procedural arbitrational law might otherwise be imported

into the proceedings will be avoided.

2. The seat of the arbitration is therefore significant since it will normally determine the

procedure or rules which the arbitration adopts, and the courts which exercise

jurisdiction over the seat will have a supervisory role over the conduct of the

1 Chairman of the London Branch of the Chartered Institute of Arbitrators.

arbitration. By selecting a given state as the place of arbitration, the parties place

the process within the framework of that country’s mandatory national laws

applicable to arbitration. If there are great differences between the laws of different

states, the parties’ choice of seat is likely to affect convenience, cost, and many

other procedural aspects of the arbitration.

3. The seat will also determine the extent to which the national court will support or

intervene in the arbitral process. Some states have laws which restrict party

autonomy in relation to procedure (for example, imposing restrictive conditions on

eligibility of arbitrators) and allow the courts to interfere in a process agreed by the

parties in their arbitration agreement. In contrast, other states have relatively

permissive national laws which allow the parties a high level of procedural

autonomy and restrict interference by the courts, reflective of the high level of

support for the arbitral process in that country. For example, supportive measures,

such as interlocutory relief, are more likely to be available to the parties in such

states.

4. The degree to which an arbitral award may be challenged will be determined

according to the seat of the arbitration since it is usually only the courts of the seat

of arbitration that are entitled to hear appeals of arbitral awards. In addition, the

extent to which judicial review is available to parties will be dependent on the choice

of jurisdiction. Both these factors will govern the extent to which an award is likely

to be final and it is often the case that, between commercial parties, finality is a

priority.

5. The regime for recognition and enforcement of an arbitral award will be influenced

by the choice of seat. The seat will be directly relevant in determining whether an

award is a New York Convention award or not, which will significantly affect whether

an award has reciprocal recognition and enforcement in other states. 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. 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.

6. 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.

7. 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.

8. The choice of seat will also have a bearing on such matters as the convenience of the

venue to the parties involved and the infrastructure available to allow the

arbitration to run smoothly.

The Parties’ perspective.

9. Parties resort to arbitration, as to litigation, for reasons which may be either tactical

or genuine. Tactical reasons include

the need to involve an independent resolver where the other party’s

representatives are unable or unwilling to make a decision,

concentrating minds on a settlement,

putting pressure on the on the other party via the probable costs and time of

the process

the implicit threat that the senior personnel of the other party involved with

the circumstances giving rise to the dispute may uncomfortable questions

covering up management mistakes,

Delay to payment.

10. Parties will usually want to achieve a negotiated settlement, in the interests of cost,

speed and the maintenance of personal relationships-including not forcing the other

side to lose face. If this fails they want hard-nosed but realistic advice from specialist

lawyers on their prospects, so as to evaluate costs and gains. Essentially they want

the dispute dealt with and off the table as soon as possible.

11. When the process starts they looking for the following:

A tribunal with the necessary expertise availability and reputation for being

expeditious

Wide party autonomy to cut costs and delays by agreeing such measures as

concision in statements of case, limited discovery, and limited or no oral

testimony.

Control of costs.

Enforceability of the resulting award.

Why London?

12. There are seven main reasons why London has consolidated its position as a leading

arbitration centre.

13. Firstly, there is the Arbitration Act 1996. Recent reviews of the Act, including by

arbitration “users,” suggest the legislation is a success. 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. The Act was enacted to make arbitration law more

accessible and user-friendly, harmonise English arbitration law with the laws of

other countries as much as possible and to preserve England (and London in

particular) as a centre of commercial arbitration. Before the 1996 Act, the tendency

of the English courts to intervene in arbitral proceedings meant that England was

perceived as insular and outdated.

14. The guiding principles which underlie the 1996 Act are:

The object of arbitration is to obtain a fair resolution of disputes by an

impartial tribunal without unnecessary delay or expense;

The parties should be free to agree how the disputes are resolved subject

only to such safeguards as are necessary in the public interest; and

The court should not intervene except as specifically provided in the 1996 Act.

15. Should parties select London as the seat of arbitration, the mandatory provisions of

the 1996 Act will apply regardless of the parties’ arbitration agreement, although the

non-mandatory provisions will only apply in the absence of any express contrary

agreement. The mandatory provisions deal with only indispensable matters such as

the power of the court to remove an arbitrator, duties of the arbitrator and of the

parties, enforcement and challenges to an award.

16. Notwithstanding the mandatory provisions, the guiding principle of party autonomy

is clear from the structure of the 1996 Act. Most of the non-mandatory provisions

allow the parties to "make their own arrangements by agreement, but provide rules

which apply in the absence of such agreement" and expressly highlight the right of

the parties to agree the relevant matter.

17. Often, instead of piecemeal agreements as to each aspect of procedure, the parties

will agree to use the standard terms of reference of a recognised arbitral body, such

as the London Court of International Arbitration (LCIA).

18. Without reciting the provisions of the Act one can just highlight the following salient

points.

19. 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 legal control on the result.

20. 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, single word

“arbitration” in a contract (far from any properly drafted clause) has been found

sufficient.

21. Anti-suit injunctions: The English Courts will, in appropriate cases, restrain a party

from commencing proceedings in foreign courts when the contract contains an

arbitration clause. This remedy is peculiar to England, and is a useful pragmatic

solution to the problem of disputes being delayed in a foreign court where there is

an English arbitration clause. The West Tankers decision2 based on EC regulation

44/2001 does mean that the use of such injunctions is not available against

proceedings in another member state of the EU. There have been concerns that this

may lessen London’s attraction. However, the damage is limited as the ruling only

applies to the European Union. Proceedings relating to the incorporation or validity

of arbitration clauses fall outside the scope of Regulation 44/2001, because they

came within the exclusion in art.1(2)(d) 3

22. 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

section 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, section 40

provides that the parties have a duty to do all things necessary for the proper and

expeditious conduct if the arbitral proceedings.

2 Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v West Tankers Inc (C-185/07) (2009) 1 All ER (Comm.)

435 ECJ (Grand Chamber) 3 National Navigation Co v Endesa Generacion SA (2009)

[2009] EWHC 196 (Comm.)

23. 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 sections 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.

24. 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.

25. The 1996 Act is supportive of arbitration in the sense that the English court is

empowered to make orders in support of the arbitral jurisdiction of a tribunal

including the granting of injunctive relief, making orders for the preservation of

evidence and compelling witnesses to give evidence. Such supportive measures may

be critical to the smooth running of an arbitration, particularly where a recalcitrant

party is involved.

26. In the Lesotho Highlands case4 Lord Steyn made it clear that :

International users of London Arbitration should, in my view, be able to rely on

the clear “user-friendly language” of the Act and should not have to be put to

the trouble or expense of having regard to the pre-1996 Act law on issues

where the provisions of the Act set out the law.

4 [2005] 3 WLR 129

27. A further important point this case establishes is that the tribunal is entitled to get

the answer wrong without the courts being involved. This spirit is also evident in the

Fiona Trust case5 in which, in the context of section 7 of the 1996 Act, Lord Hoffman

emphasised that the starting point should be the assumption that the parties as

rational businessmen, are likely to have intended any dispute arising out of their

relationship to be decided by the same tribunal.

28. The 1996 Act imparts a finality to the proceedings, which is often considered

important to business. Whilst the 1996 Act entitles parties to challenge an award as

of right on the basis of lack of substantive jurisdiction, in practice this provision has

been applied sparingly by the English courts. Further, the statutory waiver in

sections 73(1) and (2) mean that where a party has participated in the arbitration it

cannot resist enforcement by relying on a jurisdictional objection not raised in due

time before the tribunal except in limited circumstances. If the jurisdictional

objection has been ruled on and rejected by the tribunal, enforcement of the award

or subsequent awards cannot be resisted by reference to that objection. In relation

to enforcement, Part III of the 1996 Act provides that an arbitral award will be

recognised and enforced with the same effect as if it was an order of the court.

29. Secondly, there is the universality of the English language as a means of business

communication even between those whose mother tongues are not English. This

greatly facilitates the ability to instruct lawyers and experts, and understand the

proceedings without the use of interpreters.

5 Fili Shipping v Premium Nafta Products Ltd [2007] 4 All ER 951

30. Thirdly, there is an immense body of English law especially in the commercial and

shipping fields. This also has the effect that English lawyers and arbitrators are

treated with respect. In much of the world commercial law concepts have been

borrowed from English law, which means that even where foreign law is the proper

law, there will be similarities.

31. Fourthly, London’s professional services industry offers an unrivalled choice of

lawyers and experts. Leaving aside the well-resourced and numerous law firms

handling international shipping, construction and other work reference should be

made of course to a highly experienced and well-trained Bar where several hundred

barristers are available specialising in commercial disputes at varying level. To this

one should add the availability of technical expertise. The Baltic Exchange Expert

Witness database, to take only one example, contains the details of shipping

professionals who are available to provide independent judgements on a wide range

of maritime related disputes. All are members of the Baltic Exchange great

experience.

32. Fifthly, there is an extensive corps of experienced arbitrators located in London. In

many cases these have grouped themselves into associations which also provide

arbitration rules. One only has to mention LMAA, LCIA and the Society of

Construction Arbitrators. The Chartered Institute of Arbitrators provides an

unrivalled level of training and qualification.

33. Sixthly, the Commercial Court, which deals with the majority of Arbitration Appeals,

is staffed by judges (currently 17 in number) of high calibre all of whom come from

backgrounds of successful commercial law practitioners. This ensures that decisions

are well-reasoned, consistent and give effect to the policy of the 1996 Act. Lead in

times for applications are short. Based on the current information the times are

30 mins – May 2009

1 hr – May 2009

1½-2hrs – May 2009

½ day – May 2009

1 day – June 2009

34. As to costs, London is perceived as an expensive place to do legal business. Sir

Rupert Jackson’s review of costs has extended to the Commercial Court, and there is

some suggestion that contingency fees for group litigation might be introduced. But

Commercial Court users remain united behind retention of the rule that the loser

pays the winner’s costs. The Jackson Review of Civil Litigation Costs Preliminary

Report Para 2.33 concludes:

The results demonstrate that with the exception of Moscow, the average earnings of

solicitors in England and Wales is broadly consistent with earnings in other parts of

the world.

35. Seventhly, London is relatively easy to access from many areas of the globe. There

are 5 international airports serving the capital, and a high speed rail link to Paris and

Brussels.

Summary

36. London remains one of the most popular jurisdictions for international arbitration

due to the availability of fairly extensive supportive measures from the court, a lack

of court intervention restricting party autonomy and a comprehensive regime in the

form of the 1996 Act.

37. The question for international business is why buy the rest when you can get the

best? London is the best.

Stephen Bickford Smith

Landmark Chambers

180 Fleet Street

London EC4A 2HG