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The selection of an appropriate “seat” is arguably one of the most important decisions parties to an arbitral agreement are called upon to make. Generally, the “seat” refers to the city and the “law of the seat” refers to the seat’s legal jurisdiction (e.g. for an arbitration seated in London, the law of the seat would be the English Arbitration Act)
Like many aspects of international arbitration, the parties have significant flexibility when selecting the arbitration’s seat. The seat is often, but does not necessarily have to be, the city where the hearing takes place. The seat also may, but does not necessarily have to, be in the same legal jurisdiction as the governing law of the contract. This flexibility, however, can result in confusion as to which jurisdiction’s laws apply to the various aspects of the arbitral process.
Parties would be well served to consider the following when selecting a seat for an international arbitration.
1. Court Intervention and Procedure
Domestic courts play a “supervisory role” over arbitrations in their jurisdiction. As such, the law of the seat impacts international arbitration in a number of significant ways. For example, disputes regarding arbitrator appointment, applications to stay concurrent proceedings, and interlocutory injunctions will all be brought before domestic courts.
While these procedural steps may not determine the merits of the dispute, domestic courts in certain jurisdictions can be significantly more disruptive than others.
The law of the seat can also determine procedural law on issues where the applicable arbitration rules are silent.
For example, arbitration rules often do not include the law of privilege, meaning the law of the seat with respect to privilege will apply to the arbitration. Another example is cost awards – unless the parties agree otherwise, rules with respect to the costs of legal fees will be determined by the law of the seat.
Intervention by courts can also vary significantly based on the seat of arbitration. Certain jurisdictions are considered more “arbitration-friendly” because their courts give significant deference to arbitration agreements and decisions of arbitrators. Other jurisdictions are less “arbitration-friendly”, which can involve a domestic court refusing to enforce an arbitration agreement or arbitral award.
2. Enforcement and Challenges
With respect to enforcement, it is essential to make sure the country in which the seat is located is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Fortunately, approximately 150 countries are currently parties to the New York Convention, including all of the world’s developed countries. If an arbitral award is issued in a seat that is in one of these countries, it can be enforced in the domestic courts of any other country that is a party to the New York Convention.
The viability of a successful challenge to an interim or final arbitral award may also be determined by the seat. The legal tests to enforce or set aside an arbitral award differ based on the jurisdiction and the case law has evolved somewhat differently in each country. For example, in New York, an award may be challenged based on a “manifest disregard of the law”, whereas a challenge in England and Wales would be based on the higher threshold of an “error of law”.
3. Non-legal factors
Parties often wish for the seat to appear neutral, which can mean being in neither party’s home jurisdiction. Second, the availability of desirable hearing venues, well-trained translators, and specialized lawyers operating at the seat is important. Third, many parties cite cultural familiarity, quality of transport and accommodation, safety, and the absence of bribery as other considerations that may persuade them to choose a particular seat.