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What To Keep In Mind While Choosing Your Seat Of Arbitration

Author

Alankar Narula

Date

February 21, 2025

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What to keep in mind while choosing your seat of Arbitration.

Introduction

Arbitration is now one of the go-to methods for resolving disputes, particularly in international business. It involves an impartial third party who makes a final decision to resolve the issue. There is a significant amount of time devoted to discussion, negotiation, and drafting arbitration clauses to allow a proper arbitral process and adjudication in case of any dispute. Arbitration is normally a consensual and optional procedure, it is, raising the significant issue of all the main factors that are commonly present in an arbitral procedure. Without these, in the context of an arbitral agreement, the pivotal factor that will determine any of the other elements is the choice of seat of arbitration.

The seat or place of arbitration is defined to be the geographical location to which the arbitration is ultimately tried and which in the absence of the agreement otherwise prescribes the procedural law of the arbitration. In other words, it means that the seat of arbitration is the jurisdiction where the parties intend the law of arbitration to apply in their arbitration agreement or the applicable procedural law of the arbitration.

Arbitration is a voluntary process, so the parties to an arbitration are free to agree on the seat at any given time. Usually, it is agreed to in the arbitration agreement. If such an agreement is not made in the initial stage it might be agreed upon later. A key principle of arbitration is the freedom to choose where it happens. The seat of arbitration doesn’t have to be in the same place as the governing law of the contract. For instance, if a contract follows Indian law, the arbitration could still take place in Singapore. This would mean the arbitration process follows Singapore’s rules, but the contract’s legal matters are still governed by Indian law.

WHAT IS A SEAT OF ARBITRATION?

An arbitration seat extends well beyond merely serving as the venue or geographical location of the arbitration, which many are often confused about. The seat of arbitration represents a location chosen by the parties as the legal locus or the home of arbitration, thereby determining the procedural framework of the arbitration or lex arbitri that will be applicable whether it be international or domestic. Additionally, it also establishes which court possesses a ‘curial role’ or supervisory jurisdiction over the arbitration proceedings.

Significance of a Seat of Arbitration

Choosing a seat of arbitration is of utmost importance in order to minimize the disputes that have occurred between the parties with regard to the arbitration agreement. As the seat governs the laws of arbitration it is very important to choose a country, where the seat of arbitration is there and the arbitration must be friendly and must provide for an efficient arbitration process. Choosing the wrong seat of arbitration can gravely delay the process of arbitration which increases the risk of parallel court proceedings and could allow the award to be challenged. The awards then can be challenged in local courts that may not be reliable. Many seats of arbitration are considered safe, including the seats of Paris, London, Singapore, Geneva, and Hong Kong. These seats are considered to be arbitration-friendly. However, some countries restrict the choice of seats of arbitration such as China. 

It is crucial for parties to explicitly specify the seat of arbitration, especially in cases where a country or state has multiple courts with coordinated jurisdictions. As for domestic arbitration, the parties should specify a particular place within the country.

The absence of a specified seat can lead to ambiguity, allowing parties to file challenges to arbitral awards in various courts, potentially resulting in conflicting judgments and unnecessary litigation that is avoidable.

Choosing the seat of arbitration is important for many reasons:

  1. An arbitral process must be as rapid and efficient as possible and should have the minimum intervention at the seat by the courts except in case of a supporting role. Therefore, the seat of arbitration determines the extent to which the court can interfere in the arbitration proceedings. 
  2. Some of the laws provide that the court can interfere only in support of arbitration. Some laws allow the court to step in and even disrupt the arbitration process.
  3. Some laws allow the court to step in and even disrupt the arbitration process. The seat of arbitration also governs the law, it will also determine the grounds on which the award can be challenged. 
  4. The grounds may be limited or it may allow wide challenges that amount to reopening of the merits of the dispute. Therefore, it is important to choose a seat for a challenge with limited grounds.
  5. The award of an arbitration can be challenged in the court of the seat. Every country allows an award to be challenged on certain but limited grounds. For example, arbitrators who lacked the jurisdiction or those who were corrupt. However, some allow the challenge of the award to be based on errors of law or on the grounds of public policy, meaning different things in different jurisdictions. 
  6. Friendly arbitration is an important reason and where the arbitration is friendly, the court interference is less and the court interferes only in support of arbitration.
  7. The seat of arbitration matters with respect to the procedural issues i.e., whether the arbitral tribunal may award costs or interest, or whether a conflict of rule of law has to be applied. 

DIFFERENCE BETWEEN SEAT AND VENUE OF ARBITRATION

The seat of arbitration is very different from the venue where the hearings take place. It is important because the courts in the seat have control over the arbitration process. The choice of a seat has become a key part of drafting an arbitration clause. The seat determines the laws that govern the arbitration process and more importantly, affects how the arbitration award can be enforced.

The seat of arbitration doesn’t have to be the same as where the hearings happen. Even if the hearings are held in different countries, the seat stays the same and doesn’t change based on where the hearings take place.

IMPORTANT FACTORS TO CONSIDER WHILE CHOOSING YOUR SEAT :

  1. Choice of substantive law: Parties in arbitration can freely choose the governing laws, arbitrators, seat of arbitration, and substantive law for resolving disputes, offering flexibility. Indian and Singaporean laws allow mutual agreement on substantive laws, while London provides an added advantage by permitting parties or tribunals to outline additional considerations for governing disputes. This makes London a preferred arbitration seat for greater customization. 
  2. Constitution of the tribunal: The seat of arbitration also plays a vital role in the constitution of the arbitral tribunal. It is one of the factors considered by institutions when choosing a sole arbitrator or tribunal. The background and nationality of the sole arbitrator or tribunal could inform their approach to the arbitration proceedings. 
  3. Geographical location: Choosing the seat of arbitration is important because of the location. It is partly convenient that the seat will generally be the default place for hearings. There are certain seats that are selected more in the context of transactions in different regions. For example, in the South American context, the common seat of arbitration is the New York seat. While the usual choice in contracts relating to Africa, and the Middle East is the London and Paris seat.
  4. Jurisdiction neutrality and impartiality: Another important factor to consider is the neutrality of the state chosen as the seat of arbitration. Neutrality means that neither party has any vested interest or stake in that jurisdiction. It also ensures that neither party has a place of business or residence in the country selected as the arbitration seat.
  5. Confidentiality: Parties in disputes often prefer arbitration for its confidentiality, unlike litigation, where court judgments disclose case details. While countries like Hong Kong, Singapore, and London impose a duty of confidentiality by default, places like Paris and New York require parties to explicitly agree on it. Choosing the right arbitration seat is key to ensuring privacy.
  6. Award finalisation: Arbitration laws universally recognize awards as final and binding, but courts may set aside or remand awards when concerns about their validity or legality arise. The seat of arbitration plays a crucial role in ensuring efficiency, as remanding or setting aside awards can be time-consuming. Choosing a seat that minimizes delays aligns with arbitration’s goal of prompt dispute resolution.
  7. Challenge to Arbitral Award: Courts at the seat of arbitration hold supervisory powers to review arbitral awards and address challenges. Key considerations include violations of natural justice, corruption by arbitrators, invalid agreements, and conflicts with public policy. Additionally, courts may invoke public policy concerns, influenced by political or religious factors, to set aside awards, highlighting the need to analyze judicial trends in such cases.
  8. Length of the proceedings: The main aim of arbitration is to resolve disputes between the parties speedily and efficiently. It also seeks to prevent the exponential number of hearings held in the litigation. The parties must determine the seat of arbitration in order to have the minimum judicial intervention or where the proceedings are conducted rapidly.
  9. Enforcement of Foreign Arbitral Awards: Once an arbitral tribunal makes a decision, it must be enforced in the right country. When choosing the seat of arbitration, it’s important to ensure the award can be enforced there. The local court’s interpretation of public policy and other factors can greatly influence whether the enforcement is successful.
  10. Convenience for the parties and Arbitrators: It’s important to make sure there are good venues and support for the arbitration. The seat should be easy for everyone involved, such as the parties, witnesses, arbitrators, and lawyers, to get to. It should be easy to reach by international flights and have good hotels, hearing rooms, and reliable communication facilities. The language spoken by the arbitrators should be one that both parties can understand. Other things to consider include where the records and evidence are stored, where the chairperson lives, and whether there has been any previous court involvement.
  11. Cost of Arbitration: When choosing the seat of arbitration, consider the costs involved, such as fees for arbitrators, administration, and expenses for lawyers, experts, and witnesses. Party costs typically make up most of the total and can vary based on location and lawyers. It’s helpful to compare these costs with going to court and also think about travel expenses for arbitrators and witnesses.
  12. Quality of Judiciary and Political Stability: In international business arbitration, it’s important to resolve disputes quickly and reliably. This makes the quality of the judiciary, court system, and political stability key factors when choosing the seat of arbitration. If the courts are needed during the process, it’s important to assess whether they can handle the matter efficiently and predictably, especially when dealing with complex commercial cases. While many countries have adopted the UNCITRAL model law, the actual practice can vary, and this may take time to establish. Additionally, the local courts’ experience with arbitration and the country’s political stability, like concerns about neutrality in places like Hong Kong, should also be considered.
  13. Choosing Arbitration organisation directly: In many cases, it’s beneficial to either directly choose the seat of arbitration or leave the decision to an arbitration organization. These organizations provide neutral platforms and have their own rules for handling the arbitration process. Some well-known ones include the International Court of Arbitration (ICC), the London Court of International Arbitration (LCIA), and the International Centre for Dispute Resolution (ICDR).

In addition to the traditional methods of resolving arbitration disputes, parties may also consider utilizing Online Dispute Resolution (ODR) platforms. ODR refers to a broad set of technologies meant to either supplement or replace ways in which people have traditionally resolved their disputes. ODR shares and builds upon the foundational characteristics of alternative dispute resolution (ADR), emphasizing easier and more efficient methods of addressing conflict. 

ODR platform makes use of various technologies and dispute-resolution methods. An ODR platform might walk one party through all the issues to be resolved in a case. Then the second party would review the first party’s desires and indicate what they agree and disagree with. The parties might go back and forth until they resolve all they can or be referred to mediation either in person or online for further assistance.

ODR platforms that are seeking to resolve something more narrow such as negotiating a dollar amount for a settlement might support an exchange of chat messages between parties. They could convey demands and offers using the platform. This could happen synchronously or asynchronously and a mediator may or may not be involved.

In another form of ODR, parties might participate in something that is more like a traditional mediation but is conducted via video conferencing with a mediator controlling who talks with whom and when. Depending on the platform, the parties may be able to jointly draft settlement language and access other documents during the mediation.

Conclusion

Arbitration offers parties the flexibility to customize the process based on their requirements. They can choose the governing law, appoint arbitrators, and decide on the seat of arbitration. However, this flexibility comes with the responsibility to carefully evaluate factors such as the legal framework of the chosen jurisdiction, the ease of enforcing awards, confidentiality provisions, and the arbitration-friendliness of local courts. For instance, London provides greater freedom in framing rules for disputes, while jurisdictions like Singapore and India focus on mutual agreement regarding substantive laws.

To fully leverage arbitration, parties need to approach the drafting of arbitration agreements with care. By thoughtfully selecting the seat and considering all relevant aspects, they can take full advantage of arbitration’s benefits, including confidentiality, cost-efficiency, and a streamlined process. A carefully planned arbitration agreement ensures the process remains effective, predictable, and a strong alternative to litigation.

Selecting the seat of arbitration is a critical step that significantly influences how the arbitration process unfolds. It determines the extent of court involvement and directly impacts the speed and efficiency of resolving disputes. An appropriate choice of seat ensures minimal judicial interference while fostering a legal framework that supports arbitration’s primary aim—resolving disputes effectively and without unnecessary delays.

 

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