UNIVERSITY OF DAR ES SALAAM SCHOOL OF LAW
TAUGHT LL.M PROGRAMME
PROCEDURAL LAW AND INTERNATIONAL LEGAL PRACTICE
LW 720: INTERNATIONAL COMMERCIAL ARBITRATION
INDIVIDUAL ASSIGNMENT
STUDENT NAME: ALBERT GASPER MSANDO.
REG. NO: 2018-06-01263.
What consequences follow from the designation of a particular place as the seat of an
arbitration? How can the seat be determined if the parties themselves do not agree to designate
a seat?
1.0 INTRODUCTION
Arbitration terms are generally a prerogative of the parties. Parties to an arbitration agreement
decide on the manner and procedure to be adopted in dealing with their disputes when they arise.
One of the crucial issues to be agreed by the parties is the seat (also referred to as place) of
arbitration. Selecting a suitable seat of arbitration is quite important in modern commercial
arbitration because it has legal implications to the arbitral proceedings.
The concept of the seat or place of arbitration can easily be misconceived by one who is not
legally trained in arbitration. The concept that, arbitration is governed by the law of the place in
which it is held, which is the seat of the arbitration is well established in both theory and practice
of international arbitration.1 It should not be confused with a geographical location. The seat
does not need to be the same as the governing law of the contract, or be based in the same place
as the chosen arbitral institution. Laws on arbitration such as the New York Convention on
Recognition and Enforcement of Arbitral Awards,2 the Geneva Convention,3 the LCIA Rules4
and the Model law5 all provide for the ‘seat theory’. The seat theory is more pronounced in
domestic laws of England.6
2.0 CONSEQUENCES FOLLOWING THE DESIGNATION OF A SEAT OF
ARBITRATION
The English Commercial Court decision in Atlas Power Limited & Others versus National
Transmission and Despatch Company Limited7 provides a clearer picture of the legal position on
the consequences of designating a seat of arbitration by the parties. The brief facts of the case
were that the Claimants were a group of independent power producers (IPPs) supplying energy
to the defendant, National Transmission and Despatch Company Limited, a company duly
registered in Pakistan and owned by the government of Pakistan.
1
Blackaby, N., Partasides, C., Redfern, A. and Hunter, M., Redfern and Hunter On International Arbitration. Sixth
2
Article V(1)(a) and (e)
3
Article 3
4
Article 14
5
Article 20(2)
6
The Arbitration Act, 1966
7
(2018) EWHC 1052 available at http://www.babyarbitration.com
2
The arbitration clause provided Lahore, Pakistan as the situs in general, but under certain
circumstances the arbitration clause provided that the arbitration would be conducted in London,
England. When a dispute arose it was determined through expert determination. The defendant
challenged the expert determination in a Lahore court and obtained an injunction preventing any
reliance by the parties on that determination.
The Court of first instance ruled that, as the seat of arbitration is London, supervisory jurisdiction
over arbitration is exclusively a matter for the courts of England and Wales. The Court of Appeal
upholding that decision of the court of first instance held, “having chosen London as the seat of
the arbitration, the parties must be taken to have agreed that proceedings on the award should
only be those permitted by English law”
The reasoning of the Court of Appeal was that “no doubt New York has its own judicial remedies
for want of jurisdiction and serious irregularities but it could be scarcely supposed that a party
aggrieved by one part of an award could proceed in one jurisdiction and a party aggrieved by
another part of an award proceed in another jurisdiction…there will be a serious risk of parties
to rushing to get the first judgment or of conflicting decisions which the parties cannot have
contemplated”
The Court of Appeal concluded that, “it follows from this that a choice of a seat for arbitration
must be a choice of the forum for remedies seeking to attack the award. A party’s attempt to
challenge an award in any other place than England and Wales is a breach of an exclusive
jurisdiction clause or a breach of an arbitration agreement”
Therefore, once parties have designated a seat of arbitration they will be bound by the mandatory
provisions of the law of the seat of arbitration. The seat theory typically provides the framework
underlying the arbitration, giving courts of the seat supervisory jurisdiction over the proceedings.
This has several legal and non-legal consequences, including;
i. An arbitration award may be challenged in the courts of the seat (annulment
proceedings). Every country will allow an award to be challenged on certain, limited
grounds (for example, that the arbitrators lacked jurisdiction or were corrupt), but some
also allow the challenge of the award based on errors of law or grounds of public policy,
which means different things in different jurisdictions. In consequence an arbitral award
may be annulled if successfully challenged under the laws of certain jurisdictions.
3
For example, if parties choose a seat and the law applicable is Sharia an award that
includes interest cannot be enforced. The level of court intervention in each dispute varies
significantly based on the seat of arbitration. In “arbitration-friendly” jurisdictions like
France, the courts usually intervene only in support of arbitration, for instance to offer
interim relief. Other jurisdictions, however, may intervene in the arbitration and even
decline to respect the arbitration agreement, severely impacting the proceedings and
slowing them to a crawl. In a recent research by the International Bar Association, the
Current State and Future of International Arbitration: Regional Perspectives (2015),
Court intervention in the arbitral process was identified as a particular issue in some
jurisdiction, for example, Ukraine and Russia. Conversely, in Africa it was observed that
there is often lack of support generally from the courts.
ii. The law of the seat is important with respect to certain procedural issues, for instance
whether the arbitral tribunal may award costs or interest, or whether a conflict of law rule
has to be applied. In recent developments the issue of Third Party funding has emerged
whereas some jurisdiction allow the practice while in many other jurisdictions it is not
allowed or there is uncertainty whether it is allowed or not. Parties need to be aware as to
the practice in the seat of arbitration otherwise one of the party may find himself in a
disadvantaged position which may either lead to prolonged objections and disagreements
or general perceptions of unfairness which is not the goal of arbitration.
Choosing the wrong seat can severely delay the arbitration, increase the risk of parallel
court proceedings and allow the award to be challenged on broad grounds in local courts,
which may not be reliable or may be in a jurisdiction where the counterparty is very well-
connected, posing evident risks. There are many “safe” options in terms of seat, including
Paris, London, Geneva, Singapore and Hong Kong. These seats are arbitration-friendly
jurisdictions, which are in countries that are parties to the New York Convention, which
plays an important role in allowing the enforcement of arbitral awards internationally.
iii. Applicability of certain legal requirements in a different manner in various jurisdictions.
One potentially important legal difference relates to confidentiality. For example, in
arbitrations seated in Hong Kong, Singapore and London, the parties are subject (unless
they agree otherwise) to a duty of confidentiality.
4
No such obligation is imposed on the parties in Paris (other than in domestic arbitrations)
or New York, unless agreed or contained in the applicable institutional rules. So, if you
would like for arbitration with its seat in Paris to remain confidential, then this should be
requested.
Again, for example, in New York, an award may be challenged based on a “manifest
disregard of the law,” which is not the case in Paris, where arbitral awards are more likely
to be truly final and binding.8 Further, the New York courts will determine questions
about the jurisdiction of a New York-seated tribunal unless there is clear and
unmistakable evidence that the parties agreed that the tribunal should determine its own
jurisdiction.9
iv. One practical issue worth considering is language. A well-drafted arbitration agreement
will provide that the arbitration itself will be conducted in English or another language.
Any court proceedings (including any challenge to the award), however, will be in the
local language of the seat, which can be inconvenient and may increase costs to a certain
extent.
As it has been shown above the consequences of designation a seat of arbitration are mixed, that
is, they both have legal impacts, convenience, cost, perceptive and practicability effects. It
emphasized that parties must carefully choose the seat of arbitration. Lawyers must be well
acquainted with the special features of different seats that are now increasingly dispersed around
the globe. In Africa, the emerging seats are Johannesburg, Kigali and Lagos. It is important to
consider which seat will have positive consequences to the arbitral proceedings.
3.0 HOW CAN THE SEAT BE DESIGNATED IF PARTIES DO NOT AGREE TO
DESIGNATE
Parties are free to choose their own place of arbitration. However, in case they do not make an
express choice of the place of arbitration or there is a possibility of choosing more than one seat
of arbitration, the choice will have to be made for them, either by the arbitral tribunal itself or by
a designated arbitral institution.
8
Kluwer Arbitration Blog, (2018), The Seat of Arbitration is Important. That’s That Simple, available at
http://www.acerislaw.com
9
Ibid.
5
3.1 Selected Rules of International Commercial Arbitration
a) London Court of International Arbitration Rules, 2014
Article 16 of the Rules is the relevant article in respect of the seat of arbitration. The said article
provides,
“Parties may agree in writing the seat (or legal place) of their arbitration at any time
before the formation of the Arbitral Tribunal and after such formation with the prior
written consent of the Arbitral Tribunal”
When parties have not agreed to designate the seat of arbitration is Article 16.1 of the Rules
becomes relevant, it provides that,
“In default of any such agreement the seat of arbitration shall be London (England)
unless the Arbitral Tribunal otherwise order in view of the circumstances and after
having given the parties a reasonable opportunity to make written comments to the
Arbitral Tribunal that another seat is more appropriate. Such default seat shall not be
relevant in terms of Article 5, 9A, 9B, 9C and 11” (Emphasis supplied).
In the Atlas case (supra), parties had selected Lahore, Pakistan and London as seats of arbitration
depending on certain circumstances. When one of the parties elected London as the seat of
arbitration and the other party objected the LCIA decided that matter and selected London as the
seat of arbitration. Therefore, under the LCIA Rules the seat of arbitration is automatic, i.e.
London, if parties fail to designate. It should be noted that after formation of the Arbitral
Tribunal, if parties had not agreed on the seat of arbitration, they could only agree with a prior
written consent of the Arbitral Tribunal.
b) The International Chamber of Commerce Rules, 2017
Under the ICC Rules the effect of an Arbitration Agreement is that once made and parties have
selected to submit to arbitration under the Rules, they shall be deemed to have submitted ipso
facto to the Rules.10 Article 18.1 of the ICC Rules provides that, “The place of arbitration shall
be fixed by the Court unless agreed upon by the parties” (Emphasis added)
10
Article 6 of the Rules
6
In case parties have not chosen the place of arbitration, the ICC is called upon to choose a place
of arbitration under this provision of the Rules. The ICC generally selects the country of the sole
or presiding arbitrator.
c) UNCITRAL Model Law,
In Ad Hoc arbitrations, Article 18 (1) of the UNCITRAL Rules, 2010 (Revised), provides that,
“If the parties have not previously agreed on the place of arbitration, the place of arbitration
shall be determined by the arbitral tribunal having regard to the circumstances of the case. The
award shall be deemed to have been made at the place of arbitration”. (Emphasis added)
3.2 Circumstances of the case to be considered by the Arbitral Tribunal in determining
the Seat of Arbitration:
The Arbitral Tribunal shall have regard to the circumstances of the case when determining the
seat of arbitration where parties did not designate one. The commonly used principle is known as
‘the closest and intimate connection principle’. The principle was laid down by an English court
in Naviera Amazonica Peruana v. Compania Internacional De Seguros Del Peru, (1988) 1
Lloyd's Rep 116. This principle mean that if the parties do not choose the seat of arbitration, the
arbitral tribunal or any relevant authority will determine by looking on which law the agreement
had its closest and most real connection. Often, but not necessarily, the seat ends up being related
to the agreement’s governing law.
The High Court in Nigeria had an opportunity to expound the principle in the case of Zenith
Global Merchant Limited v. Zhongfu International Investment (Nigeria) FZE & another, (2017) 7
CLRN 69. The arbitration agreement had a clause, which stipulated that,
“Any dispute, controversy or claim arising out of or relating to this Agreement, or the
breach, termination or invalidity thereof, shall be settled by arbitration in Singapore
under the UNCITRAL Arbitration Rules in accordance with the SIAC Procedures for the
Administration of International Arbitration in force at the date of this this Agreement.
The language to be used in the course of the arbitration shall be English. And the arbitral
award shall be final and binding on the parties”.
7
The Court held that, “Nigeria has a closer and more intimate connection to the arbitration than
Singapore, and is therefore the seat of the arbitration, while Singapore is no more that the venue
of the Arbitration...the preponderance of facts and surrounding circumstances convince me that
their intention was to choose Nigeria as the seat of Arbitration' thereby making Nigerian courts
the courts with the power to exercise supervisory and support jurisdiction to the arbitral tribunal
on matters such as granting of interim and preservative orders, securing the attendance of
witnesses, removal of arbitrators and enforcement of the award.”
The decision of the Court brings to the fore the legal difference between the seat of arbitration
and the venue of arbitration. Generally speaking these are two different issues. The Arbitral
Tribunal may be decide to conduct hearings and take evidence from witnesses or location from
different locations depending on the convenience of the parties (which is in line with the
advantage of arbitration in flexibility of the proceedings) but that does not mean the seat of
arbitration is the geographical area proceedings are held.
4.0 Conclusion
The most important effect of the seat of the arbitration is that it determines the applicability of
the arbitration law. The arbitration law of a certain jurisdiction, the lex loci arbitri, applies to
arbitration as soon as the seat of that arbitration has been fixed in that jurisdiction. Fixing the seat
in a certain country, therefore, establishes a legal relationship between the arbitration on the one
hand, and the arbitration law and the courts of that country on the other ("territorial theory").
It follows from its limited function that the seat of arbitration must not be understood in a
naturalistic, empirical fashion. Rather, it is a term of art and provides the ‘formal legal domicile’
(formales Legaldomizil) or ‘juridical home’ of the arbitration. This function of the seat means
that arbitration is subject to a legal and regulatory regime.11 This regime is the law at the seat of
the arbitration, the lex loci arbitri. The parties cannot escape this consequence. The ‘juridical
seat’ of an arbitration functions as a connecting factor in conflict of laws.
11
Commentary to Trans-Lex Principle, available at https://www.trans-lex.org/969040
8
In arbitral practice, the connection of the arbitration to the arbitration law of its seat is rarely felt
because most provisions of modern arbitration laws are non-mandatory and may thus be
modified by agreement of the parties, e.g. by reference to a set of institutional arbitration rules.12
12
Ibid.
9
REFERENCES
Blackaby, N., Partasides, C., Redfern, A. and Hunter, M., Redfern and Hunter On International
Arbitration. Sixth edition. Oxford, United Kingdom: Oxford University Press, 2015
Commentary to Trans-Lex Principle, available at https://www.trans-lex.org/969040
International Legislation
Geneva Convention (European Convention on International Arbitration), 1961
New York Convention on the Recognition and Enforcement of Arbitral Awards, 1958
London Court of International Arbitration Rules, 2014
The International Chamber of Commerce Rules, 2017
UNCITRAL Rules, 2010 (Revised)
Case Law
Atlas Power Limited & Others versus National Transmission and Despatch Company Limited
(2018)EWHC 1052
C v. D [2008] 1 Lloyd’s Rep. 239
Naviera Amazonica Peruana v. Compania Internacional De Seguros Del Peru, (1988) 1 Lloyd's
Rep 116.
Zenith Global Merchant Limited v. Zhongfu International Investment (Nigeria) FZE & another,
(2017) 7 CLRN 69.
10
