18 October, 2015
We are often asked: where is the safest place to arbitrate? Is it better to stay in Japan or go abroad? When negotiating with an Asian counter-party, where can I go that is neutral and non- controversial? While sometimes subject to "11th hour" drafting, choosing the right seat of arbitration is important. This newsletter introduces ten principles (the "London Principles") recently devised by the Chartered Institute of Arbitrators ("CIArb") to keep in mind when drafting your next arbitration clause.
What is a "seat" and why is important?
Arbitration can be an effective means for resolving international disputes. For most arbitrations, the starting point is usually in the underlying commercial agreement. The parties need to agree to arbitration (excluding local courts) and this is usually done with an arbitration clause.
When drafting your arbitration clause, it is important to set out the "seat" or legal place of the arbitration. Other essential elements include specifying an arbitral institution (e.g. ICC, LCIA, SIAC), the number of arbitrators (one or three), the language of the arbitration (English or other common language of the parties) and confidentiality obligations.
The seat of the arbitration will dictate the procedural law of the arbitration and which national (or state) courts have supervisory jurisdiction over the arbitration. For example, where an arbitration has its seat in London, the procedural law will be the English Arbitration Act 1996 and the English courts will have supervisory jurisdiction.
The law of the seat also dictates the grounds on which an arbitration award can be challenged.
As a general rule of thumb, it is usually preferable to choose a seat that is "arbitration-friendly", meaning the courts at the seat will intervene only to support the arbitral process and the arbitration agreement. Arbitrations in jurisdictions that permit a greater level of court intervention usually take more time to conclude and are more expensive (e.g. India).
Failure to agree a seat leaves the choice to the tribunal or the arbitral institution. When contested, this determination can also contribute to cost and delay.
The "London Principles"
Although still in draft form (to be finalised in the coming weeks), the London Principles are intended to embody the key characteristics of an effective and efficient seat to conduct arbitral proceedings. The London Principles deal not only with legal concerns (e.g. whether or not the judiciary is arbitration-friendly), but also with practical concerns (e.g. availability of appropriate facilities).
Below, we set out in full the draft London Principles.1 While each transaction / dispute should be considered on a case-by-case basis, the draft Principles can serve as a useful tool when considering potential seats of arbitration. They can also be useful when trying to justify your proposed choice to your negotiation counterparty.
1. Law
A clear, effective, modern international arbitration law, which recognises and respects the parties' choice of arbitration as the method for settlement of their disputes by: a) providing the necessary framework for facilitating fair and just resolution of disputes through the arbitration process; b) limiting court intervention in disputes that parties have agreed to resolve by arbitration, subject to permitting appropriate court support for the arbitration process.
2. Judiciary
An independent judiciary, experienced in international commercial arbitration and respectful of the parties' choice of arbitration as their method for settlement of their disputes.
3. Legal expertise
A legal profession experienced in international commercial arbitration and international dispute resolution providing significant choice for parties who seek representation in the courts of the seat or in the international commercial arbitration proceedings conducted in the seat.
4. Education
A commitment to the education of counsel, arbitrators, the judiciary, experts, users and students of the character and autonomy of international commercial arbitration and to the further development of learning in the field of arbitration.
5. Right of representation
A clear right for parties to be represented by party representatives (including but not limited to legal counsel) of their choice.
6. Accessibility and safety
Easy accessibility to the seat, free from unreasonable constraints on entry for parties, witnesses and counsel in international commercial arbitration, and adequate safety and protection of the participants, their documentation and information.
7. Facilities
Functional facilities for the provision of services, including transcription services, hearing rooms, document-handling and translation services.
8. Ethics
Professional norms – which embrace a diversity of legal traditions and international ethical principles – governing the behaviour of arbitrators and counsel.
9. Enforceability
Adherence to international treaties and agreements governing and impacting the ready recognition and enforcement of foreign arbitration agreements, orders and awards made at the seat in other countries.
10. Immunity
A clear right to arbitrator immunity from civil liability for anything done or omitted to be done by the arbitrator in good faith in his or her capacity as an arbitrator.
Observations
Of the ten principles, three are of particular importance for Japanese and multinational companies.
First, it is important to choose a seat with a modern arbitration law (see Principle 1 above). As a general rule of thumb, it may be preferable to start with jurisdictions that base their arbitration law on the UNCITRAL Model Law (as amended in 2006).2 The Model Law serves as the basis for the national arbitration law of over sixty jurisdictions, including Japan, Singapore and Hong Kong.
Second, it is usually cost-effective to seek jurisdictions that allow you to be represented by lawyers of your choice (Principle 5). This is not limited to lawyers that are based in the proposed seat. If your lawyers are based in Japan, you may wish to choose a seat that allows them to represent you in arbitral proceedings based there. Singapore, for example, has become a more popular seat over the last ten years because of legislative amendments to allow foreign lawyers to represent clients in Singapore (even if the contract is governed by Singapore law).3
Third, and most importantly, choose a jurisdiction that readily recognises and enforces arbitration agreements and awards (Principle 9). This usually means checking whether or not the proposed seat is a signatory to the New York Convention.4 Depending on the structure of the transaction, this may require obtaining specialist advice on other international instruments (e.g. bilateral investment treaties) to ensure that your investment is adequately protected.
1 The principles can also be found on the CIArb website: https://www.ciarb.org/docs/default-source/centenarydocs/london/ciarb- principles.pdf?sfvrsn=0
For further information, please contact:
Peter Godwin, Partner, Herbert Smith Freehills
peter.godwin@hsf.com
