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The importance of seat arbitration

arbitration insights:WITH JACOB MUTEVEDZI

The seat of arbitration is an extremely important factor in any arbitration. The seat is the “home” of the arbitration. It determines the law which regulates the relationship between the arbitral tribunal and the courts and also determines which court has supervisory jurisdiction over the arbitration, thus conferring upon that court the power to, among other powers, set aside an arbitral award. The seat also determines where the award has been made, which is significant when enforcement proceedings are instituted.

According to Redfern & Hunter, Law and Practice of International Commercial Arbitration (2004), the seat of arbitration is less a matter of real geography than a link to the legal order of the place whose domestic law will govern many aspects of the arbitral proceedings. The physical location of an arbitral hearing does not have the same legal significance. Generally speaking, the location is decided based on convenience of all involved. The physical venue of arbitration does not need to be, and oftentimes it is not, the same as the legal seat of the arbitration.

I was recently involved as counsel in an international commercial arbitration concerning a mining dispute under the auspices of the International Chamber of Commerce’s International Court of Arbitration sitting at Paris (The ICC court). In this institutional arbitration, the parties chose Zambia as the seat of arbitration but the actual venue of the arbitral hearing was in Cape Town. It is interesting to note that the ICC Court itself is in Paris, the seat of arbitration in Zambia yet the arbitration took place in Cape Town.

The seat of arbitration does not need to be the place of the governing law of the contract. Further, the seat does not need to be the venue of the arbitral hearing or be based in the same place as the elected arbitral institution. As a result, a contract can be governed by Zimbabwean law but provide for ICC arbitration in Paris which arbitration can actually be physically held in Mauritius. Similarly, lawyers representing the parties do not need to be qualified in the law of the seat, a party can instruct South African lawyers in an arbitration taking place in Rwanda.

It is widely accepted that in international commercial arbitration established by private agreement between two disputing parties, the “law of the arbitration” commonly known as “the Lex Arbitri” will be the national law of the place where the arbitration takes place, namely, the seat of arbitration. The law of the seat will constitute the Lex Loci Arbitri which loosely translates to “law of the seat of arbitration”. Dr Francis A Mann in his work Lex Facit Arbitrum, International Arbitration: Liber Amicorum, 157, 161 (1967) forcefully argued the doctrine of Lex Loci Arbitri in the following terms: “the Lex loci arbitri cannot be the law of any country other than that of the arbitration tribunal’s seat. No act of the parties can have any legal effect except as the result of the sanction given to it by a legal system.”

As far back as 1923, the Geneva Protocol on Arbitration Clauses demonstrated an early global view that the law applicable to arbitration should be that of the arbitral seat. Article 2 of the above-mentioned Geneva Protocol states that “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 approach of the UNCITRAL Model Law, which is applicable in Zimbabwe, is that the law applicable to each arbitration will be the law of the place where the arbitration takes place and the election of a seat of arbitration generally results in the arbitration being conducted in terms of that jurisdiction’s legal framework, with such exemption or variation as may be allowed.

The seat of arbitration, therefore, does not necessarily refer to where hearings will take place. Further, it does not necessarily reflect the applicable contractual law. There is a definite distinction between the substantive and procedural laws of arbitration. The law of the seat typically provides the framework underlying the arbitration, giving courts of the seat supervisory jurisdiction over the proceedings. This is of fundamental importance because an arbitration award may be challenged in the courts of the seat. Almost every jurisdiction will permit a challenge against an arbitral award on certain, limited grounds; for instance that the tribunal did not have jurisdiction or was corrupt. Other jurisdictions also allow the challenge of the award on account of errors of law or grounds of public policy; the extent of judicial intervention in each dispute varies considerably based on the seat of arbitration. In “arbitration-friendly” jurisdictions like France, the courts usually intervene only in support of arbitration, for example to grant interim relief. Courts in other countries, however, may overzealously intervene in the arbitration and even refuse to respect the arbitration agreement thus significantly impacting the proceedings and slowing them to a snail’s pace; the law of the seat is imperative in relation to certain procedural issues, for example whether the arbitrators may award costs or interest, or whether a conflict of law rule has to be applied; and certain emerging markets, for instance China, impose restrictions on the choice of the seat.

It is gravely important to note that electing the wrong seat can acutely delay the arbitration, heighten the risk of parallel court proceedings and expose the award to challenge on broad grounds in local courts whose integrity and competence may be questionable. Additionally, the award challenge may be brought in a jurisdiction where the counter party is very well-connected thus posing clear risks. In the circumstances, when drafting an arbitration clause, it is important to consider an assortment of questions when deciding upon the seat, including how the arbitration law of the seat operates and whether the local courts are “arbitration-friendly”.

l Jacob Mutevedzi is a commercial lawyer and partner at Clairwood Chambers Attorneys and writes in his personal capacity. He can be contacted at +263775987784 or at jmutevedzi@gmail.com

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