BY JACOB MUTEVEDZI
It is often said that no arbitration takes place in a vacuum. Every arbitration is subject to a legal regime. The legal regime applicable is the law at the seat of arbitration; popularly referred to as “the lex loci arbitri”. It is the law that governs the relationship between the arbitration tribunal and the courts. The courts of the seat wield an assortment of powers, including, but not limited to, supervisory jurisdiction and setting aside of arbitral awards.
Redfern & Hunter, in the Law and Practice of International Commercial Arbitration (2004), observe that the seat of arbitration is not so much a matter of real geography than a link to the legal order of the place whose domestic law will regulate many aspects of the arbitration. The physical venue of arbitral proceedings lacks the same legal significance. Frequently, the location of the arbitral hearing is determined by the convenience of the parties involved. The venue of arbitration does not need to be the same as its legal seat.
A few years ago, I acted as counsel in an international commercial arbitration conducted in the International Chamber of Commerce’s International Court of Arbitration sitting at Paris. The parties to that arbitration chose Zambia as the seat of their arbitration yet the actual hearing was held in Cape Town. Therefore, the arbitration was held under an institution located in Paris, yet its juridical seat was in Lusaka and the actual hearing was convened in Cape Town.
It is imperative, therefore, to understand that the seat of arbitration does not need to be the place of the governing law of the contract. Moreover, the seat does not need to be the location of the arbitral proceedings or be based in the same place as the chosen arbitral institution. Consequently, a contract can be governed by Zimbabwean law, but provide for arbitration in the London Court of International Arbitration which arbitration can actually be physically convened in Dubai. Further, legal counsel representing the parties do not need to be qualified in the law of the seat; a party can instruct Zimbabwean lawyers in an arbitration taking place in Nigeria.
In international commercial arbitration established by private agreement, the law of the arbitration, popularly called “the Lex Arbitri”, is the national law of the place where the arbitration takes place, namely, the seat of arbitration. The law of the seat is the “Lex Loci Arbitri’ which loosely translates to “law of the seat of arbitration”. In his work, Lex Facit Arbitrum, International Arbitration (1967), FA Mann asserts the following: “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.”
The Geneva Protocol on Arbitration Clauses, as far back as 1923, demonstrated an early global view that the law applicable to arbitration should be that of the arbitral seat. Article 2 of the Geneva Protocol on Arbitration Clauses 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.”
In terms of the UNCITRAL Model Law, which is applicable in Zimbabwe, the law applicable to an arbitral hearing is 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.
The seat of arbitration, therefore, does not necessarily equate to the physical venue of arbitration. Moreover, it does not necessarily reflect the applicable contractual law. There is a clear 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. The seat of arbitration must be chosen with great caution for the following reasons:
l an arbitration award may be challenged in the courts of the seat. Most jurisdictions permit a challenge against an arbitral award on certain, limited grounds; for instance, that the tribunal lacked jurisdiction or was corrupt. Other jurisdictions also allow awards to be challenged on account of errors of law or grounds of public policy;
l the extent of judicial intervention in each dispute varies considerably based on the seat of arbitration. In “arbitration-friendly” jurisdictions like France, for instance, the courts usually intervene only in support of arbitration, for example to grant interim relief. Courts in other countries, however, may overzealously interfere with the arbitral process. In extreme circumstances, some courts may actually refuse to respect the arbitration agreement thus significantly impacting the proceedings or slowing the process:
l the law of the seat is important 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
l certain emerging markets, for example China, impose restrictions on the choice of the seat.
Choosing the wrong seat of arbitration can significantly delay the conclusion of the arbitration, increase the risk of parallel court proceedings and expose the award to challenge on various grounds in local courts whose integrity and competence may be questionable. Also, the award may be challenged in a jurisdiction where the counter party is very well-connected thus exposing you to clear risks. Therefore, when drafting an arbitration clause and deciding on the seat of arbitration, counsel should consider a number of questions, including but not confined to, how the arbitration law of the seat operates and whether the local courts are arbitration-friendly.
Generally, a conducive seat of arbitration should provide a supportive legal environment, a neutral and non-partisan legal system, courts with a reputation of enforcing arbitration agreements and awards, political stability and the availability of competent arbitrators and legal counsel who are familiar with the seat.
- Jacob Mutevedzi is a commercial lawyer and arbitration practitioner. He can be contacted on email@example.com, on Twitter @jmutevedzi_ADR and on +263775987784. He writes in his personal capacity.