Where Do You Sit If There Is No Seat? The Relevance Of The 'Procedural Law' In International Arbitration

Well-drafted arbitration clauses in international contracts

state that any arbitration is to have its seat in a particular

location — for example, to name some of the recognised

international arbitration centres, London, Paris or

Singapore.

This does not just mean that the arbitral tribunal will be

"sitting" in that particular place, and that hearings

will be conducted there. The choice of a seat brings with it

the adoption of the laws relating to arbitration of that

particular place. What happens if the arbitration clause does

not specify the seat? What issues may be affected by the law of

the seat — is it just procedural matters or can the law

of the seat have a more substantial impact? This article

reviews these questions.

The seat of the arbitration

Arbitration as a process is based on party autonomy, and the

ability of the parties to choose their own desired procedure:

procedural flexibility is often perceived as one of the

advantages of arbitration. But the law of the seat can impose

limits on that procedural freedom. The effect of the law of the

seat on an arbitration was recognised as long ago as the Geneva

Protocol on Arbitration Clauses 1923 (signed under the auspices

of the League of Nations):

" 2. The arbitral procedure, including the

constitution of the arbitral tribunal, shall be governed by the

will of the parties and by the law of the country in whose

territory the arbitration takes place..."

The UNCITRAL Model Law1, which has become the

basis for the arbitrations laws of many jurisdictions, provides

a legal framework that is supportive of arbitration, without

undue interference by national Courts in the parties'

private dispute resolution method. Adopting a country with

arbitration laws based on the Model Law as the seat may be a

relatively safe bet. But what if the commercial background is

such that the parties want another system of law (not that of

the seat) to be the governing law of the contract?

As we will see, it is quite possible to choose, for example,

Switzerland as the seat (thereby submitting to the provisions

of Swiss arbitration law) while specifying that the tribunal is

to apply English law when resolving the actual dispute.

International arbitrations frequently involve more than just

one system of law2.

Procedural and substantive laws may

differ

The concept of a separate system of law governing the

procedure of the arbitration (usually being the law of the

seat) has its origins in civil law. It has also been accepted

in common law jurisdictions: in a well-known decision, the

House of Lords described the reasons why parties might adopt a

dichotomy between the governing law and the law of the

seat3. In Compagnie Tunisienne de Navigation SA

v Cie d'Armement Maritime SA [1971] AC 572, their

Lordships said:

" My Lords, it is possible for parties to a contract

to choose one system of law as the proper law of their

contract and a different system of law as the curial law.

Although they may want their mutual rights and obligations

under the contract to be ascertained by reference to the

system of law of a country with which the transaction has

some close and real connection, they may nonetheless consider

that the arbitral procedure adopted in some other country, or

the high reputation and commercial expertise of arbitrators

available there, make the curial law of that country

preferable to the curial law of the country whose system of

law they have chosen as the proper law."

It may also be that the parties and arbitrators wish to hold

hearings in a place that is particularly convenient for them,

but which is not in the country that is the seat. This is

possible: the juridical seat of the arbitration and the place

where hearings are held may be distinct4. However,

the introduction of such a distinction means there is more

scope for confusion and getting the drafting wrong.

The importance of a clearly drafted arbitration

agreement

With several geographical locations and potentially relevant

systems of law comes a need for precise drafting. The English

Courts recently considered an arbitration clause that was

defective on its face, suffering from "seat

confusion". In Braes of Doune Wind Farm (Scotland) Ltd

v Alfred McAlpine Business Services Ltd [2008] EWHC 426

(TCC), Akenhead J was presented with an arbitration clause that

stated:

" (c) This arbitration agreement is subject to

English Law and the seat of the arbitration shall be Glasgow,

Scotland. Any such reference to arbitration shall be deemed

to be a reference to arbitration within the meaning of the

Arbitration Act 1996 or any statutory

re-enactment."

However, the Arbitration Act 1996 does not apply to

Scotland5. Was the express reference to Glasgow,

Scotland being the "seat" sufficient to override the

(equally express) references to English law found in the 1996

Act? Akenhead J found that on its true construction, Glasgow

was only intended to be the place where the arbitration

hearings would be held, but England was the true juridical seat

of the arbitration. The consequence of that finding was that

the English Courts had jurisdiction to hear any application to

appeal the award — an issue to which we will

return6.

In coming to his conclusion, Akenhead J explained the

concept of the "juridical seat":

" The word "juridical" is not an

irrelevant word or a word to be ignored in ascertaining what

the "seat" is. It means and connotes the

administration of justice so far as the arbitration is

concerned. It implies that there must be a country whose job

it is to administer, control or decide what control there is

to be over an arbitration."

Such statements are unsurprising coming from an English

Judge. In 1981, the Court of Appeal made it plain that English

law did not recognise "arbitral procedures in the

transnational firmament unconnected with any municipal system

of law"7 and, despite commentators

imagining what such a truly international and self-policing

arbitration might be like, the attitude of the English Courts

has not changed in the last 27 years.

In the Peruvian Insurance case, the Court of Appeal

explained that8:

" There is equally no reason in theory which

precludes parties to agree that an arbitration shall be held

at a place or in country X but subject to the procedural laws

of Y. The limits and implications of any such agreement have

been much discussed in the literature, but apart from the

decision in the instant case there appears to be no reported

case where this has happened. This is not surprising when one

considers the complexities and inconveniences which such an

agreement would involve. Thus, at any rate under the

principles of English law, which rest upon the territorially

limited jurisdiction of our Courts, an agreement to arbitrate

in X subject to English procedural law would not empower our

Courts to exercise jurisdiction over the arbitration in

X."

The adoption of the procedural or arbitration laws of a

place gives a strong indication that the parties wanted that

place to be the seat of their arbitration9 (and in

Braes, Akenhead J effectively concluded that despite

the parties referring to another place as their

"seat", that other place was not in fact the intended

seat). In practical terms, it would simply be too cumbersome to

embark on an arbitration held in France, with the French Courts

supervising the proceedings but applying foreign, English

arbitration law.

Finding a seat: interpreting badly drafted

arbitration clauses

So where does that leave arbitration clauses drafted in a

less than ideal manner? "Finding a seat" may be seen

as two-step process. First, attempting to construe the

arbitration clause to see if it might nevertheless be possible

to work out an answer as specifically agreed by the parties.

Second, if the contract fails to assist, or if there is a

dispute between the parties, the matter will have to be

referred to the arbitrator, the supervisory body of any

arbitral institution or (as a last resort) a national

Court.

It should be recalled that the concept of the

"juridical seat" is generally understood as a

particular state or territory associated with a distinct and

recognisable system of law. With that in mind, we suggest the

following guidelines when interpreting an arbitration

clause:

Where the parties have stated that their arbitration is

to be held in a particular place (even if the word

"seat" is not used), that place should be the seat

unless the clause makes it clear that this is only meant to

be the place for hearings.

Where the parties have referred to a particular

procedural law as applying to any arbitration (or

"lex arbitri", "curial law",

"law of the arbitration" or "law of the

arbitration agreement"), but have not referred to a

place where the arbitration is to be held or mentioned its

seat, then the seat should be the state or territory

corresponding to the system of law.

Where the parties have referred both to a place and a

system of law, but these do not correspond, the seat is

likely to be the state or territory corresponding to the

system of law — because the Courts of that country will

then have the power to apply that system of law in

supervising the arbitration.

It may however be necessary to seek the assistance of the

arbitrator or the arbitral institution to determine the seat.

Many of the major rules confer jurisdiction to determine the

seat to the tribunal, and by adopting these rules, the parties

agree that someone else can fix the seat if they fail to do so

in the contract.

The LCIA Rules, perhaps unsurprisingly, favour London as the

seat. Article 16.1 confirms this as the

"default" position whilst giving the LCIA Court (the

institutional supervisory body, not the arbitrator(s)) a power

to designate a different seat if deemed appropriate. The ICC

Rules (Article 14) also confirm that the ICC International

Court of Arbitration will fix the seat. Involving the

supervisory body of an arbitral institution such as the LCIA

and ICC may allow the seat...