Author: Boma Briggs *
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Introduction: May I Have a Seat?
Businesses across the globe have continued to show a preference for international commercial arbitration in resolving their cross-border disputes. It is estimated that over 90% of all international commercial contracts contain arbitration agreements on a standalone basis or in conjunction with other alternative dispute resolution provisions. This is not surprising as arbitration provides parties with the choice of a neutral forum, a flexible process, and an award enforceable in most jurisdictions. As of 2023, over 168 State parties have signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (commonly called the “New York Convention”). Theoretically, one could receive an award in Geneva and enforce it in over 168 nations. This is an advantage that litigation does not offer.
One of the key advantages of arbitration is the freedom of choice and control given to the parties, known as party autonomy. By the arbitration agreement, the parties exercise a certain degree of control over resolving their dispute. The standard arbitration agreement specifies key terms, including the seat of the arbitration. The American Arbitration Association developed the Clause Builder online tool—a simple, self-guided process–to assist individuals and organizations in developing clear and effective arbitration and mediation agreements. Globally, the leading arbitral institutions receive thousands of new international commercial arbitration cases, expected to increase rapidly over the coming years. In 2021, an International Arbitration Survey conducted by Queen Mary University in London listed London, Singapore, Hong Kong, Paris, and Geneva as the five most preferred seats for international commercial arbitration. Based on data from the ICC, New York and Zurich have also seen a high number of international commercial arbitration. These preferred seats (including New York and Zurich) accounts for approximately 80% of the institutional international commercial arbitration globally. The survey revealed that the following items influence the party’s choice for those seats: 1) a pro-arbitration judiciary, 2) independence of the legal system, and 3) a track record of award enforceability. In popular words, parties recognize these seats as “safe seats” for arbitration.
While the argument in favor is clear, this post seeks to challenge this normalized practice of a safe seat. It reviews the criteria that go into defining a seat as safe and makes a case for more diversity in the choices made as to the seat of the arbitration. The post concludes that the diversification of the seats of arbitration is a key factor in promoting the development of global expertise and experience in arbitration.
“Did you Reserve a Seat?”
The seat of the arbitration is popularly referred to as the legal “anchor” of an arbitration.[1] The parties in the arbitration agreement select the seat. Failing such an agreement, the tribunal may choose one.[2] Most arbitrators recognize the profound impact the choice of the seat of your arbitration can have on your arbitration.[3] By selecting a specific seat, the parties also consent to conduct the arbitration within the legal framework provided by the laws of that jurisdiction. Therefore, the mandatory provisions of national law in the chosen seat will apply to the arbitration.[4]
National arbitration legislations based on the UNCITRAL Law on International Commercial Arbitration (1985; amended 2006) (the “Model Law”) have been adopted in about 120 jurisdictions worldwide.[5] Therefore, the drafters of the Model Law have achieved, to a considerable degree, their intent—a universal framework that harmonizes the treatment of international commercial arbitration in different jurisdictions. This begs the question: if there is a significant level of harmonization of the laws applicable to international commercial arbitration, why does the term safe seats continue to apply to only a handful of jurisdictions?
Seat Reservation for Big Boys Only
In 2015, to commemorate its 100th anniversary, the Chartered Institute of Arbitrators set out a set of principles, known as the “London Principles,” to be considered when determining an effective, efficient, and “safe” seat in international arbitration. The London Principles covered the following factors: 1) modern International Arbitration law, 2) an independent judiciary, 3) the enforceability of the awards and arbitration agreements, 4) legal expertise, 5) a sound legal education system, 6) right of representation, 7) accessibility and safety, 8) good logistical support & facilities, 9) professional norms and ethics, and 10) immunity for arbitrators.
The principles identified what is generally considered “rule of law principles” applicable in a jurisdiction. Interestingly, none of the preferred seats for arbitration ranks in the top ten of the 2022 World Justice Report: Rule of Law Index.
However, a comparison of the London Principles vis a vis the survey results from the 2021 Queen Mary University study shows a similarity of conditions that parties consider in choosing a seat. This post summarizes and discusses two main issues: arbitration-friendly legislation and an independent judiciary with a track record of enforcing arbitral awards. Other issues, such as venue, education, and logistics, may be less relevant to most parties, because they are prevalent in most jurisdictions.
Arbitration-Friendly Legislation: As discussed earlier, over 120 jurisdictions have adopted, to varying degrees, the provisions of the Model Law, thereby providing a legal framework that meets international best practices. With respect to the safe seats, only the Arbitration Act of Singapore incorporates the Model Law and gives it the force of Law in Singapore. The arbitration Laws applicable in Switzerland, the United Kingdom, New York, and Paris have similar principles as the Model Law but do not incorporate the Model Law. For other jurisdictions that adopted the Model Law, there was a hope that this would encourage foreign investment and enhance their attractiveness as a safe seat for international commercial arbitration. The Indian Supreme Court, in Konkan Railway Corpn. Ltd. & Ors v. M/S. Mehul Construction Co., 7 SCC 201 (2000)., stated that “to attract the confidence of the international mercantile community [. . .] the Indian Parliament was persuaded to enact the Arbitration and Conciliation Act of 1996 in UNCITRAL Model and, therefore, in interpreting any provisions of the 1996 Act, Courts must not ignore the objects and purpose of the enactment of 1996.” It is arguable, though, if the adoption of the Model Law has had any impact on the attractiveness of India as a safe seat for international commercial arbitration. Therefore, the qualification of a safe seat must go beyond adopting modern international arbitration legislation.
Enforcement: The question of an independent judiciary with a track record of enforcing arbitral awards is a more subjective test. It also creates a catch-22 scenario, as a jurisdiction cannot build a “competent” track record unless it receives many arbitration enforcement cases. A key factor parties consider is if the jurisdiction is known to have a pro-arbitration stance, i.e., the non-interventionist nature of the courts.
The classic example used to define a non-interventionist jurisdiction is the case of Halliburton Company v Chubb Bermuda Insurance Ltd. UKSC 48 (2020), wherein the U.K. Supreme Court confirmed that arbitrators have a legal duty to disclose matters that would, or might, lead to the conclusion that there is a real possibility that they are biased but chose not to intervene in the removal of the arbitrator in question holding that an informed observer would not conclude that there is a real possibility of bias. This non-interventionist approach of the U.K. Supreme Court rubs against a key principle in arbitration of independence and impartiality of the arbitrators, and a Court that chooses to hold a stricter standard should not necessarily be viewed as anti-arbitration. In Commonwealth Coatings Corp. v. Continental Casualty Coe, 393 U.S. 145, 89 S. Ct. 337 (1968), the U.S. Supreme Court set aside an award for failure to disclose on the arbitrator’s part. In Dallah Real Estate & Tourism Holding Co v. Ministry of Religious Affairs, Government of Pakistan, UKSC 46 (2010), the U.K. Supreme Court while applying French Law, refused enforcement of an award made in France because the arbitral tribunal lacked jurisdiction. A key holding in the case is the declaration by the U.K. Supreme Court that a party resisting enforcement can expect a full re-hearing of the issue of jurisdiction, even though the arbitral tribunal may have already heard extensive evidence and made a reasoned decision. In a contrary opinion, the French Cour d’Appel, when reviewing the same issue in the case, arrived at the opposite conclusion by holding that the tribunal had jurisdiction to hear the case and affirmed the award.[6] The above cases[7] show that the risk of interference by local courts could exist in every jurisdiction. Also, irrespective of the seat, there could be some variance in decisions made by the Courts when presented with similar facts.
Another important enforcement question relates to the standards for annulment of the arbitral awards in the seat of arbitration. For parties in international contracts, the ability to enforce an arbitration award in about 168 jurisdictions under the New York Convention is often the driving force behind the choice of arbitration to resolve disputes. However, a party to an international arbitration is not required to challenge an award or enforce an award in the courts of the seat of arbitration. In practice, international commercial arbitration awards granted in a particular seat (usually a preferred seat) have been enforced successfully outside the seat of arbitration. In certain limited instances, an arbitral award set aside at the seat of arbitration, which would not have been set aside at the country of enforcement, may still be enforced. In Société Hilmarton Ltd v. Société Omnium de traitement et de valorisation, (OTV) / 92-15.137, the Court of Cassation decided to enforce an award set aside in Switzerland as the enforcement of that award in France would not contradict the international public policy.[8]
As shown, independence and impartiality do not mean that the courts will come to the same decision each time. In the case of Kabab-ji v. KFG, UKSC 48 (2021), the contract was governed by English Law, while the seat of arbitration was Paris. In determining the law applicable to the arbitration clause’s validity, the U.K. Supreme Court held that English law as the governing law of the entire agreement extended to the law governing the validity of the arbitration clause. In the same case, where a similar challenge was brought in France, the French Supreme Court arrived at a different interpretation, stating that the substantive rules of the seat, i.e., France, govern the arbitration clause, not the governing law of the entire agreement.
A look at the enforceability practice in several jurisdictions will indicate that there is much more flexibility for the parties in choosing the seat of arbitration than currently presented by scholars or counsel. In most cases, the choice of the seat of arbitration for international commercial contracts is influenced by counsel during the contract drafting stage of the transaction. The lack of diversity within counsel leads to counsel recommending seats that are familiar to them. However, this practice does a disservice to the advancement of pro-arbitration, as further explained in this post, and in some instances, results in parties incurring excessive costs when made to hold their arbitration in certain seats.
Perhaps Everyone Should Stand?
The International Centre for Settlement of Investment Disputes (“ICSID”) arbitration is distinguished by the absence of an arbitral seat. This means the dispute is not bound by any national law and is governed entirely by the provisions of the ICSID convention. Consequently, an ICSID award cannot be challenged before a national court. Instead, there is a delocalized internal ICSID procedure for annulment and a facilitated procedure for the recognition and declaration of enforceability by ICSID.[9] The application of the delocalized system to international commercial arbitration was initially proposed in the 1950s by Frédéric Eisemann, then Secretary-General of the ICC International Court of Arbitration. Prof. Julian D.M. Lew KC reiterated the concept in her article titled “Achieving the Dream: Autonomous Arbitration.”[10] Prof. Lew asserted that “international arbitration is and should be recognized to be, an autonomous process for the determination of all types of international business disputes. At the very least, the existence, structure, procedure, and effect of international commercial arbitration are, or at least should be, above the direct controls of national laws and courts.”
The suggestion of delocalization of international commercial arbitration remains a theoretical concept. On the contrary, stakeholders in the arbitration domain, including governments, have actively promoted their jurisdictions as attractive or safe seats for arbitration. This is partly in recognition of the financial benefits to the economy of attracting international dispute resolution within its borders. As such, the possibility of an autonomous system seems unlikely to materialize.
Could We Try Open Seating?
A case for diversity, specifically in the arbitrator pool, has long been discussed within the arbitration community. Most people acknowledge that there has been some progress in moving beyond the “pale, male and stale” tradition.
The conversation has birthed several organizations, notably: 1). Equal Representation in Arbitration seeks to increase the representation of women on international arbitration tribunals on an equal opportunity basis. 2). Equal Representation of Expert seeks to increase the representation of women as experts on international arbitration tribunals on an equal opportunity basis. 3). African Promise is a pledge to improve the profile and representation of African arbitrators, especially in arbitrations connected to Africa on an equal opportunity basis.” 4). Rising Arbitrators Initiative supports rising arbitrators (typically younger than 45 years old) worldwide in international arbitration by, inter alia, creating a support network and encouraging best practices.
In 2018, Jay-Z criticized the “Large and Complex Cases” database of the American Arbitration Association (AAA) for not having a diverse list. In his complaint requesting injunctive relief to avoid arbitration, Jay-Z argued that the “AAA’s failure to provide a venire of arbitrators that includes more than a token number of African Americans renders the arbitration provision in the contract void as against public policy.” This request for a preliminary injunction[11] was later withdrawn.[12]
The organizations mentioned, as well as the case above, reflect a call for increased diversity. It has been argued, and rightly so, that by promoting diverse representation of tribunal members, counsel, and experts, the arbitration process can ensure that parties receive a fair and impartial ruling. Diverse representation can also lead to more creative and effective solutions to complex disputes while promoting greater trust in arbitration.
The case for a diverse seat of arbitration stands strong for a few additional reasons. First, diversity not only champions the universal application of arbitration as an effective tool for resolving disputes but also paves the way for the evolution of a worldwide expertise in arbitration. As this global knowledge and experience burgeons, so does the representation of various backgrounds in the pool of arbitrators, legal counsel, and experts. Second, economically, diversifying arbitration’s seat can reduce its associated costs. Parties often find solace in regional seats that align with their linguistic and cultural sensibilities, making the process more cost-effective and congenial. This diversity gives parties a broader spectrum of choices, truly emphasizing their autonomy. Third, different jurisdictions stand to gain substantially in terms of revenue. This financial incentive often translates to a heightened focus on fostering education, expertise, and overall growth in the realm of arbitration. An indirect yet profound consequence of this is the elevation of global legal practices, extending their impact beyond just arbitration.
If we must go beyond diversity greenwashing, then institutions, counsel, and parties need to look beyond the traditional seats of arbitration when making choices. Institutions could consider setting up more regional offices to encourage diversity of seats and provide comfort that similar support will be provided. Institutions are uniquely placed to encourage cross-border training and development of international arbitration practices across regions. For counsel, proper consideration in line with an objective assessment of the merits, risks, and costs must be given when advising on the options available to parties in choosing their arbitral seats. Counsel could consider if certain disputes within a defined threshold value could be arbitrated in a seat in the region where the contract is performed. Finally, perhaps an objective assessment of the various arbitral seats by regions, as initially suggested during the establishment of the London Principles, could help provide some comfort toward diversification.
Do I Build My Own Seat?
In 2020, the SOAS University of London survey gathered data from 34 countries in Africa, Asia, the Middle East, North America, and Europe on their attitudes towards arbitration in Africa. Eighty Eight percent (88%) of the respondents said they would recommend African arbitral centers to arbitration users. Almost one-third selected Cairo as the most popular seat of arbitration in Africa, with Lagos, Johannesburg, Kigali, and Cape Town among the top six. A review by the law firm of White & Case of “Institutional Arbitration in Africa” indicates that it would take some time to develop the level of trust—international following, and performance track record required to compete against the established seats of arbitration even for international commercial arbitration disputes originating in Africa. Still, Africa’s arbitration institutions appear to be headed in the right direction. It is encouraging to see sustained development of international arbitration seated within the African continent. One challenge African states must address is the expedited process for claims and broader and faster recourse to interim and conservatory measures. These challenges are not unique to arbitration seated in African jurisdictions but addressing them will help build the parties’ confidence in choosing an African seat of arbitration for international transactions. A unique approach for consideration could include the setting up of specialized commercial courts enjoined with specific jurisdiction over international arbitral challenges in the first instance. The practicality of this approach will depend largely on the legal system in the jurisdiction. The setup of specialized courts could help speed up decision-making, which would help establish a faster enforcement track record and build confidence in the judiciary. It will also facilitate sharing best practices, cross-border training, and education on international arbitration for counsel and judges within the specialized court system.
Conclusion
The jury of peers is a phrase that originated from the Magna Carta in England and was adopted in several jurisdictions, including the U.S. Constitution, to denote the principle of fairness in adjudication. A lack of diversity of opinions, backgrounds, and cultures can lead to unfair decisions by an arbitral tribunal. As international commerce continues to advance, so will international commercial arbitration. There is a need to ensure diversity is entrenched in international arbitration, and the diversity of seats is an essential part of the diversity puzzle.
The monopoly enjoined by a few jurisdictions identified as “safe” seats should be discouraged as it does not advance the efficiency principles or party autonomy principle of international commercial arbitration.
* Boma Briggs is an LLM graduate of Columbia Law School. She has over 14 years of legal experience as corporate counsel for an international energy company providing litigation, corporate, and commercial legal support to various ventures in Mauritania, Morocco, Nigeria, Egypt, Jordan, Gabon, and Albania.
[1] The place of the hearing is simply the location of the proceeding, and it could be the same as the seat of the arbitration or different, as seen during COVID.
[2] Article 20(1) of the Model Law.
[3] Based on the provisions of the UNCITRAL Law on International Commercial Arbitration (1985), with amendments as adopted in 2006 (the “Model Law”), the seat of the arbitration can determine the procedural laws applicable to the arbitration, the scope for review and challenges made to the arbitral award as well as the enforceability of the award by the courts in the chosen seat.
[4] Articles 1(2), 6, 27 and 34(2) of the Model Law.
[5] See the UNCTRAL Status Report.
[6] French courts also have oversight over arbitral awards and conduct a de novo review as restated in Valeri Belokon v Kyrgyz Republic – Arrêt de la Cour de cassation 17-17.981.
[7] This is not a comprehensive review of the enforcement proceedings of these jurisdictions and so the post is limited in that regard. It serves as more of a teaser of the assumptions generally made on enforcement in these jurisdictions.
[8] The principle was also applied in the 2009 Yukos arbitration award by the Amsterdam Court of Appeal, where an award set aside by the Russian Courts was held enforceable in the Netherlands. The principle was initially upheld in the US in the Chromalloy case but has been widely criticized in the US as going against the International Comity Rule.
[9] Article 54 of the ICSID Convention.
[10] Arbitration International, Volume 22, Issue 2, 1 June 2006, Pages 179–204.
[11] The arguments for preliminary injunction on behalf of Shawn Carter (Jay Z) were made essentially by Caucasian men.
[12] The AAA apparently disagreed with the assertion that the list was not diverse and claims to have a robust policy promoting diversity of arbitrators on its panel.