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DETERMINING THE SEAT OF AN INTERNATIONAL ARBITRATION: PARTY AUTONOMY AND THE INTERPRETATION OF ARBITRATION AGREEMENTS

Published online by Cambridge University Press:  19 June 2014

Jonathan Hill
Jonathan Hill*
Affiliation:
Professor of Law, University of Bristol, J.D.Hill@bristol.ac.uk.
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Abstract

The seat of arbitration is fundamental to defining the legal framework for international arbitral proceedings. Although parties are able to select the arbitral seat, arbitration clauses are frequently ‘pathological’, failing to designate the seat or failing to do so clearly. If the seat is not clearly identified by the parties’ agreement, the court may be called upon to decide which country is the seat (typically, in order to determine whether or not it has jurisdiction to entertain certain types of arbitration application). The simplest situations are ‘uni-directional’ cases in which, in procedural terms, the parties' agreement points expressly or impliedly towards a single location. More difficult are ‘pluri-directional’ cases in which the agreement refers to more than one possible location. While certain scenarios are relatively straightforward, what constitutes a choice by the parties is more complicated if the parties' agreement contains signposts pointing in different directions. In ‘uni-directional’ cases, the English courts have developed a series of interpretative guidelines which solve most of the problems posed by potentially ambiguous clauses. However, in ‘pluri-directional’ situations, the English case law is less convincing. In such cases, the courts have not approached the identification of the arbitral seat in a consistent way; they have not laid down a clear doctrinal framework; and they may be legitimately criticized for displaying a measure of ‘forum preference’.

Keywords

forum preferenceinternational commercial arbitrationpathological clausesprocedural lawseat
Type
Articles
Information
International & Comparative Law Quarterly , Volume 63 , Issue 3 , July 2014 , pp. 517 - 534
Copyright
Copyright © British Institute of International and Comparative Law 2014 

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References

1 See, generally, Petrochilos, G, Procedural Law in International Arbitration (OUP 2004)CrossRefGoogle Scholar ch 2 and 3.

2 Born, GB, International Arbitration: Law and Practice (Kluwer Law International 2012) 105Google Scholar.

3 See, for example, Blackaby, N et al. , Redfern and Hunter on International Arbitration (5th edn, OUP 2009)CrossRefGoogle Scholar para 3.51; Collins, Lord et al. (eds), Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet & Maxwell 2012)Google Scholar para 16–036; Kaufmann-Kohler, G, ‘Identifying and Applying the Law Governing the Arbitration Procedure – The Role of the Law of the Place of Arbitration’ in van den Berg, AJ (ed), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention (1998) 9 ICCA Congress Series 336Google Scholar.

4 For example, by referring parties to arbitration where court proceedings on the merits are brought in breach of the arbitration agreement (New York Convention, art II.3; UNCITRAL Model Law, art 8; Arbitration Act 1996, section 9), ordering interim measures of protection (UNCITRAL Model Law, arts 1.2, 9, 17H–J; Arbitration Act 1996, sections 2(3), 44) or deciding whether an arbitral award made in another country should be recognized or enforced (New York Convention, arts V–VI; UNCITRAL Model Law, arts 35–36; Arbitration Act 1996, Pt III).

5 The legal system of the seat ‘has materially greater legal significance for and control over a locally-seated arbitration than other legal systems’: Born, GB, International Commercial Arbitration (2nd edn, Kluwer Law International 2014) 1542Google Scholar. See also ICC Case No 5029, Interim Award (1987) XII YBCA 113 at [3] (arbitral procedure ‘is governed by the mandatory provisions of the arbitration law of the place of arbitration’); C v D [2007] 2 CLC 230 at [16] (‘by choosing London as the seat of the arbitration, the parties must be taken to have agreed that proceedings on the award should be only those permitted by English law’).

6 UNCITRAL Model Law, art 13.3; Arbitration Act 1996, section 24.

7 UNCITRAL Model Law, art 34; Arbitration Act 1996, sections 67–68.

8 See UNCITRAL Model Law, art 20.1; Arbitration Act 1996, section 3(a).

9 In the absence of party choice, the arbitral institution (in the case of institutional arbitration) or the arbitral tribunal, if so authorized, may determine the seat: see UNCITRAL Model Law, art 20.1; Arbitration Act 1996, section 3(b)(c). Under section 3 of the 1996 Act, it is provided that, in the absence of any such designation, the seat is to be determined ‘having regard to the parties’ agreement and all the relevant circumstances’. For the operation of section 3 where there has been no designation by the parties or the institution/tribunal, see Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc [2001] 1 Lloyd's Rep 65, discussed by Petrochilos, G, ‘On the Juridical Character of the Seat in the Arbitration Act 1996’ [2002] LMCLQ 66Google Scholar.

10 Research into ICC arbitrations in the 1980s found that, in two years (1987 and 1989), the proportion of arbitration clauses expressly designating the seat was only 57 per cent and 68 per cent respectively: Bond, S, ‘How to Draft an Arbitration Clause (Revisited)’ (1990) I(2) ICC Ct Bull 14Google Scholar, 18.

11 It has been noted that the notion of a ‘pathological’ arbitration clause goes back to a seminal article by Eisemann, F, ‘La clause d'arbitrage pathologique’ in Minoli, E, Arbitrage Commercial: Essais in memoriam Eugenio Minoli (Unione Tipografico-Editrice Torinese 1974) 128Google Scholar : Lew, JDM, LA Mistelis and SM Kröll, Comparative International Commercial Arbitration (Kluwer Law International 2003)Google Scholar para 7.71, n 105.

12 Some authorities use the expression ‘situs’ or ‘forum’: Born (n 5) 1540.

13 UNCITRAL Model Law, art 20; UNCITRAL Arbitration Rules, art 18; ICC Rules, art 18.

14 Arbitration Act 1996, section 3.

15 See, for example, SCC Rules, art 20; SIAC Arbitration Rules, art 18.

16 Sutton, DStJ, J Gill and M Gearing, Russell on Arbitration (23rd edn, Sweet & Maxwell 2007)Google Scholar para 2–100.

17 Arbitration Act 1996, section 4(1), sch 1.

18 Arbitration Act 1996, section 4(2), (3), (5). See also LCIA Rules, art 16.3.

19 Art 20.

20 Merkin, RM, Arbitration Act 1996: An Annotated Guide (LLP 1996) 18Google Scholar.

21 See, for example, UNCITRAL Model Law, art 20.2; UNCITRAL Arbitration Rules, art 18; ICC Rules, art 18.

22 See, for example, The Bay Hotel and Resort Ltd v Cavalier Construction Co Ltd [2001] UKPC 34 (seat in the Turks and Caicos Islands; hearing in Florida).

23 [2002] 5 LRC 560.

24 This does not mean that parties are not free to change the seat; it just means that a change of the seat has to take the form of a clear designation or decision (either by the parties or the tribunal). See ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyd's Rep 24 (in which the parties, having originally agreed to arbitration in Singapore, subsequently agreed to arbitration in accordance with the LCIA Rules in London).

25 [2002] 5 LRC 560 at [24]. See also Raguz v Sullivan [2000] NSWCA 240.

26 LCIA Rules, art 16.

27 ICC Case No 11869, Award (2011) XXXVI YBCA 47 at [26].

28 De Ly, F. ‘The Place of Arbitration in the Conflict of Laws of International Commercial Arbitration: An Exercise in Arbitration Planning’ (1991) 12 Northwestern Journal of International Law & Business 48Google Scholar, 56.

29 UNCITRAL Model Law, art 20; Arbitration Act 1996, section 3; UNCITRAL Arbitration Rules, art 18; ICC Rules, art 18; LCIA Rules, art 16.

30 Arbitral institutions recommend model clauses indicating phrases that will be effective. The UNCITRAL Arbitration Rules suggest that parties should consider adding, inter alia ‘The place of arbitration shall be … [town and country].’

31 LCIA Rules, art 16.

32 Dicey Morris and Collins on the Conflict of Laws (15th edn, Sweet & Maxwell 2012) para 16-035.

33 Russell on Arbitration (23rd edn, Sweet & Maxwell 2007) para 2-100.

34 [1994] 1 Lloyd's Rep 45.

35 See, for example, L Oppenheimer & Co v Haneef [1922] 1 AC 482.

36 MacKinnon J at (1927) 28 Ll L Rep 104, 107.

37 Dicey, and Morris, , The Conflict of Laws (7th edn, Sweet & Maxwell 1958) 1062Google Scholar.

38 See the judgment of Salmon LJ in Tzortzis v Monarch Line A/B [1968] 1 WLR 406, 414.

39 See Lord Kinnear in Talisker Distillery v Hamlyn & Co (1983) 21 R 204, 212.

40 [2009] 2 All ER (Comm) 477.

41 Born (n 5) 1540.

42 [1999] 2 Lloyd's Rep 24, 35.

43 See Christopher Clarke J, [2009] 2 All ER (Comm) 477 at [27] (‘provision that the venue of the arbitration shall be London, United Kingdom does amount to the designation of a juridical seat’).

44 In Arab-African Energy Corp v Olieprodukten Nederland BV [1983] 2 Lloyd's Rep 419 it seems to have been assumed that a clause which comprised the words ‘English law – arbitration, if any, London according ICC Rules’ was a binding arbitration clause. In Mangistaumunaigaz Oil Production Association v United World Trade Inc [1995] 1 Lloyd's Rep 617, Potter J held that a very similar clause (‘Arbitration, if any, by ICC rules in London.’) was a valid and binding arbitration clause with England as the seat.

45 See, for example, The Ioanna [1978] 1 Lloyd's Rep 238; Verity Shipping SA v NV Norexa [2008] 1 CLC 45. See also Tritonia Shipping Inc v South Nelson Forest Products Corporation [1966] 1 Lloyd's Rep 114 (‘Arbitration to be settled in London’) and, to a similar effect, ICC Case No. 11869, Award (2011) XXXVI YBCA 47 (‘arbitration in Vienna, Austria in accordance to the rules of arbitration’: seat—Austria).

46 A practitioner, speaking at a conference in the 1990s and reflecting upon the drafting of arbitration clauses for inclusion in maritime contracts, had this to say: ‘When I first started in practice, I spent most of my time dealing with disputes arising out of charterparties. Almost without exception they contained an arbitration clause. In some cases they were part of the printed text but frequently the arbitration clause was one of the additional clauses specifically agreed by the parties. They were usually terse and to the point and on many occasions were confined to the two words ‘Arbitration–London’: B Drewitt and G Wingate-Saul, ‘Drafting Arbitration Clauses’ (1996) 62 Arbitration 39. It is worth noting that the speaker goes on to display the sort of terminological inconsistency noted in section II (above) by adding that the two words ‘Arbitration – London’ are effective because ‘they specify the venue’. Surely, the word ‘seat’ or ‘place’ would have conveyed better what the speaker meant.

47 This methodology for identifying the seat parallels that formulated under the common law for determining the proper law of an international contract. See Dicey, and Morris, , The Conflict of Laws (11th edn, Stevens 1987)Google Scholar ch 32 and 33.

48 See Mann, FA, ‘Lex facit arbitrum’ (1986) 2 ArbInt 241Google Scholar. See also Hirsch, A, ‘The Place of Arbitration and the Lex Arbitri’ (1979) 34 ArbJ 43Google Scholar, 46.

49 [1988] 1 Lloyd's Rep 116, 119–20.

50 ‘Whatever the domicile of the Insured, in the event of judicial dispute he accepts … the jurisdiction and competence of the City of Lima.’

51 ‘Arbitration under the Law and Conditions of London.’

52 [2001] UKPC 34.

53 Lord Cooke at [37].

54 See Garnett, R, ‘Coexisting and Conflicting Jurisdiction and Arbitration Clauses’ (2013) 9 JPrivIntL 361Google Scholar; Briggs, A, Agreements on Jurisdiction and Choice of Law (OUP 2008) 137–9Google Scholar.

55 The Messiniaki Bergen [1983] 1 All ER 382; William Co v Chu Kong Agency Co Ltd [1993] 2 HKC 377 (High Ct, HK).

56 Shell International Petroleum Co Ltd v Coral Oil Co Ltd [1999] 1 Lloyd's Rep 72 (substantive disputes within the scope of the arbitration clause; disputes ‘about the proper law’ within the scope of the jurisdiction clause).

57 [1991] 2 Lloyd's Rep 127. See also The Nerano [1996] 1 Lloyd's Rep 1, Axa Re v Ace Global Markets Ltd [2006] EWHC 216 (Comm) and the discussion by Garnett (n 54) 361, 373–9.

58 [1991] 2 Lloyd's Rep 127, 129.

59 (2009) XXXIV YBCA 758.

60 It is a well-established principle that ‘[i]n construing a contract all parts of it must be given effect where possible, and no part of it should be treated as inoperative or surplus’: Lewison, K, The Interpretation of Contracts (5th edn, Sweet & Maxwell 2011)Google Scholar section 7.03. As Moore-Bick LJ pointed out in Dwr Cymru Cyfyngedig v Corus UK Ltd [2007] EWCA 285 Civ at [13], ‘it is unusual for parties to include … a whole clause which is not intended to have contractual effect of any kind’.

61 This second scenario is the situation which would have arisen in the Peruvian Insurance case had the contract not provided a clear solution to the apparent conflict between the printed and typewritten clauses.

62 Art V(1)(e) (emphasis added).

63 The courts of some countries have interpreted the law ‘under which’ the award was made as referring to the law governing the arbitration agreement and/or the law governing the merits of the parties’ dispute: see, for example, decisions of the courts of (or cases involving the setting aside of foreign awards by the courts of) Pakistan (Hitachi Ltd v Rupali Polyester 1998 SCMR 1618; American Construction Machinery & Equipment Corp v Mechanised Construction of Pakistan Ltd, 659 F Supp 426 (SDNY, 1987), India (National Thermal Corp v The Singer Corp [1991] 3 SCC 551; Venture Global Engineering v Satyam Computer Services Ltd [2008] 4 SCC 190), Indonesia (Karaha Bodas Co LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F 3d 274 (5th cir, 2004)), the Philippines (Steel Corporation of Philippines v International Steel Services Inc 354 Fed Appx 689 (3rd cir, 2009)) and Qatar (International Trading and Industrial Investment Co v DynCorp Aerospace Technology 763 F Supp 2d 12 (DDC, 2011)). The Supreme Court of India, which had previously subscribed to such an interpretation, which is almost universally regarded as erroneous, recently overruled its earlier decisions and accepted that, for the purposes of art V(1)(e) of the New York Convention, the law ‘under which’ an award was made is the procedural law of the arbitration: Bharat Aluminium Co v Kaiser Aluminium Technical Service Inc (2012) XXXVII YBCA 244.

64 See, for example, Kerr LJ in Naviera Amazonica Peruana SA v Cia Internacional de Seguros del Peru [1988] 1 Lloyd's Rep 116, 120; Clarke J in ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyd's Rep 24, 34.

65 [1993] 2 Lloyd's Rep 48.

66 [1988] 1 Lloyd's Rep 866.

67 See also ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyd's Rep 24 in which the parties had chosen London as the seat and the law of Singapore as the procedural law.

68 Arbitration Act 1996, section 2(1).

69 ibid section 4(1).

70 ibid section 4(3).

71 ibid section 4(5).

72 [2012] 1 Lloyd's Rep 519.

73 [2008] 1 CLC 487.

74 [2013] 1 CLC 456.

75 [2012] 1 Lloyd's Rep 519.

76 [2009] 2 All ER (Comm) 477 at [34].

77 [2012] 1 Lloyd's Rep 519 at [61].

78 Not surprisingly, in subsequent proceedings in India, the Indian Supreme Court held that India was the seat of arbitration: Enercon (India) Ltd v Enercon Gmbh, Civil Appeal No 2086 of 2014, dated 14 February 2014.

79 [2008] 1 CLC 487.

80 For example, art 1.1 of the CIMA rules states: ‘These Rules are to be read consistently with the Arbitration Act 1996 (the Act), with common expressions having the same meaning.’

81 (2009) XXXIV YBCA 758, 777.

82 ‘Coexisting and Conflicting Jurisdiction and Arbitration Clauses’ (2013) 9 JPrivIntL 361, 379.

83 [2013] 1 CLC 456.

84 See also Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWHC 42 (Comm); affirmed [2013] 1 WLR 102 in which the parties’ contract included not only a Brazilian choice-of-law and exclusive jurisdiction clause but also a conflicting arbitration clause designating England as the seat. The reasoning in Braes of Doune would have led to the conclusion that Brazil was the seat—on the basis of the Brazilian jurisdiction clause—notwithstanding the parties’ express designation of England as the seat. There is, however, nothing in the Sul America case to suggest that the seat might have been anywhere other than England. If the Brazilian jurisdiction clause had no impact on determining the seat in the Sul America case, why should an implication from the English jurisdiction clause have prevailed over the parties’ express designation of Scotland as the seat in Braes of Doune?

85 Redfern and Hunter on International Arbitration (5th edn, OUP 2009) para 2.04.

86 See, for example, Clarkson, CMV and Hill, J, The Conflict of Laws (4th edn, OUP 2011) 365Google Scholar. See also Sedler, R, ‘Interest Analysis and Forum Preference in the Conflict of Law: A Reply to the “New Critics”’ (1983) 34 MercerLRev 593Google Scholar.