Why it has to be London. - Landmark · PDF fileWHICH SEAT TO CHOOSE-LONDON, STUTTGART, PARIS...
Transcript of Why it has to be London. - Landmark · PDF fileWHICH SEAT TO CHOOSE-LONDON, STUTTGART, PARIS...
WHICH SEAT TO CHOOSE-LONDON, STUTTGART, PARIS OR EDINBURGH?
Wednesday 20th May 2009 at Herbert Smith LLP
Why it has to be London.
Talk given by Stephen Bickford-Smith MA (Oxon) Barrister, FCIArb Chartered Arbitrator 1
Why is the seat in international arbitration important?
1. Most legal systems recognise the concept of a “seat” of the arbitration, which means
the legal jurisdiction to which the arbitration is tied. The seat dictates which national
law governs the procedure. The seat of arbitration need not be in the same country
as the venue, although in practice they are often the same. It is the parties to the
arbitration agreement that decide the seat of the arbitration, either by reference to
contractual provisions or by subsequent agreement. It is important to note that
whilst parts of the arbitration hearing may take place in several countries, there can
only ever be one seat of arbitration. By having only one such seat, say in England,
problems which might otherwise arise where the hearing of the arbitration is, say, in
Beijing, and where the procedural arbitrational law might otherwise be imported
into the proceedings will be avoided.
2. The seat of the arbitration is therefore significant since it will normally determine the
procedure or rules which the arbitration adopts, and the courts which exercise
jurisdiction over the seat will have a supervisory role over the conduct of the
1 Chairman of the London Branch of the Chartered Institute of Arbitrators.
arbitration. By selecting a given state as the place of arbitration, the parties place
the process within the framework of that country’s mandatory national laws
applicable to arbitration. If there are great differences between the laws of different
states, the parties’ choice of seat is likely to affect convenience, cost, and many
other procedural aspects of the arbitration.
3. The seat will also determine the extent to which the national court will support or
intervene in the arbitral process. Some states have laws which restrict party
autonomy in relation to procedure (for example, imposing restrictive conditions on
eligibility of arbitrators) and allow the courts to interfere in a process agreed by the
parties in their arbitration agreement. In contrast, other states have relatively
permissive national laws which allow the parties a high level of procedural
autonomy and restrict interference by the courts, reflective of the high level of
support for the arbitral process in that country. For example, supportive measures,
such as interlocutory relief, are more likely to be available to the parties in such
states.
4. The degree to which an arbitral award may be challenged will be determined
according to the seat of the arbitration since it is usually only the courts of the seat
of arbitration that are entitled to hear appeals of arbitral awards. In addition, the
extent to which judicial review is available to parties will be dependent on the choice
of jurisdiction. Both these factors will govern the extent to which an award is likely
to be final and it is often the case that, between commercial parties, finality is a
priority.
5. The regime for recognition and enforcement of an arbitral award will be influenced
by the choice of seat. The seat will be directly relevant in determining whether an
award is a New York Convention award or not, which will significantly affect whether
an award has reciprocal recognition and enforcement in other states. First and
foremost, parties always should select a seat in a country that is a signatory to the
New York Convention to ensure recognition and enforceability of any award. This is
unlikely to present much difficulty given that there now are more than 140
signatories to the convention. Enforceability under the New York Convention is one
of arbitration’s major advantages over court litigation, and this international
framework should be taken advantage of.
6. It also is important to choose a seat where local arbitration laws (and national courts)
support international arbitration – enforcing arbitration agreements, preventing
court proceedings brought despite the arbitration clause and limiting judicial
intervention in ongoing arbitral proceedings. The choice of seat determines the
procedural law applicable to the arbitration (the so-called lex arbitri), and it is the
courts of the seat that will have a supervisory jurisdiction over the arbitral
proceedings.
7. Typically, the lex arbitri applies to determine the effect and validity of the arbitration
agreement, the constitution of the tribunal, challenges to arbitrators, the extent of
the parties’ freedom to agree on arbitral procedure, the availability of interim
measures, arbitrability (what kind of disputes can be the subject of an arbitration
agreement), the right of the tribunal to determine its own jurisdiction (Kompetenz-
Kompetenz), the availability of court measures in support of the arbitration and the
scope of any right to challenge the award.
8. The choice of seat will also have a bearing on such matters as the convenience of the
venue to the parties involved and the infrastructure available to allow the
arbitration to run smoothly.
The Parties’ perspective.
9. Parties resort to arbitration, as to litigation, for reasons which may be either tactical
or genuine. Tactical reasons include
the need to involve an independent resolver where the other party’s
representatives are unable or unwilling to make a decision,
concentrating minds on a settlement,
putting pressure on the on the other party via the probable costs and time of
the process
the implicit threat that the senior personnel of the other party involved with
the circumstances giving rise to the dispute may uncomfortable questions
covering up management mistakes,
Delay to payment.
10. Parties will usually want to achieve a negotiated settlement, in the interests of cost,
speed and the maintenance of personal relationships-including not forcing the other
side to lose face. If this fails they want hard-nosed but realistic advice from specialist
lawyers on their prospects, so as to evaluate costs and gains. Essentially they want
the dispute dealt with and off the table as soon as possible.
11. When the process starts they looking for the following:
A tribunal with the necessary expertise availability and reputation for being
expeditious
Wide party autonomy to cut costs and delays by agreeing such measures as
concision in statements of case, limited discovery, and limited or no oral
testimony.
Control of costs.
Enforceability of the resulting award.
Why London?
12. There are seven main reasons why London has consolidated its position as a leading
arbitration centre.
13. Firstly, there is the Arbitration Act 1996. Recent reviews of the Act, including by
arbitration “users,” suggest the legislation is a success. It is based on the UNCITRAL
Model Law and is supportive of arbitration and the freedom of the parties to tailor
proceedings to their needs. The Act was enacted to make arbitration law more
accessible and user-friendly, harmonise English arbitration law with the laws of
other countries as much as possible and to preserve England (and London in
particular) as a centre of commercial arbitration. Before the 1996 Act, the tendency
of the English courts to intervene in arbitral proceedings meant that England was
perceived as insular and outdated.
14. The guiding principles which underlie the 1996 Act are:
The object of arbitration is to obtain a fair resolution of disputes by an
impartial tribunal without unnecessary delay or expense;
The parties should be free to agree how the disputes are resolved subject
only to such safeguards as are necessary in the public interest; and
The court should not intervene except as specifically provided in the 1996 Act.
15. Should parties select London as the seat of arbitration, the mandatory provisions of
the 1996 Act will apply regardless of the parties’ arbitration agreement, although the
non-mandatory provisions will only apply in the absence of any express contrary
agreement. The mandatory provisions deal with only indispensable matters such as
the power of the court to remove an arbitrator, duties of the arbitrator and of the
parties, enforcement and challenges to an award.
16. Notwithstanding the mandatory provisions, the guiding principle of party autonomy
is clear from the structure of the 1996 Act. Most of the non-mandatory provisions
allow the parties to "make their own arrangements by agreement, but provide rules
which apply in the absence of such agreement" and expressly highlight the right of
the parties to agree the relevant matter.
17. Often, instead of piecemeal agreements as to each aspect of procedure, the parties
will agree to use the standard terms of reference of a recognised arbitral body, such
as the London Court of International Arbitration (LCIA).
18. Without reciting the provisions of the Act one can just highlight the following salient
points.
19. Appeal on a point of law: English law provides for an appeal on a point of law in
limited circumstances. Since this right is not mandatory and can be excluded by the
parties, it provides an additional option of a legal control on the result.
20. Validity of arbitration agreement: English law is slow to question the validity of
arbitration clauses and generally gives them a broad effect. In the past, single word
“arbitration” in a contract (far from any properly drafted clause) has been found
sufficient.
21. Anti-suit injunctions: The English Courts will, in appropriate cases, restrain a party
from commencing proceedings in foreign courts when the contract contains an
arbitration clause. This remedy is peculiar to England, and is a useful pragmatic
solution to the problem of disputes being delayed in a foreign court where there is
an English arbitration clause. The West Tankers decision2 based on EC regulation
44/2001 does mean that the use of such injunctions is not available against
proceedings in another member state of the EU. There have been concerns that this
may lessen London’s attraction. However, the damage is limited as the ruling only
applies to the European Union. Proceedings relating to the incorporation or validity
of arbitration clauses fall outside the scope of Regulation 44/2001, because they
came within the exclusion in art.1(2)(d) 3
22. Duties aimed at reducing cost and delay: Reducing cost and delay in arbitrations
was a focus of the reforms that led to the 1996 Act. This concern is reflected by
section 33 imposing a duty on the tribunal to avoid unnecessary delay and expense.
No such duty is found in the UNCITRAL Model Law. In a similar vein, section 40
provides that the parties have a duty to do all things necessary for the proper and
expeditious conduct if the arbitral proceedings.
2 Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v West Tankers Inc (C-185/07) (2009) 1 All ER (Comm.)
435 ECJ (Grand Chamber) 3 National Navigation Co v Endesa Generacion SA (2009)
[2009] EWHC 196 (Comm.)
23. Powers of the tribunal: The 1996 Act confers useful powers on tribunals, including
the power of the tribunal (and, with the permission of the tribunal, the court) to
enforce compliance with a “peremptory order” (see sections 41 and 42 of the 1996
Act). These sanctions can prevent a recalcitrant party from disrupting arbitration
proceedings in an attempt to render an award unenforceable.
24. Liability for legal costs: Under the 1996 Act, unless parties agree otherwise, the
successful party generally is to be awarded its legal costs from the losing party
(reflecting the English rule that “costs follow the event”). Adopting international
rules such as those of the ICC or the London Court of International Arbitration will
disapply the presumption that the losing party must pay, leaving costs in the
discretion of the tribunal.
25. The 1996 Act is supportive of arbitration in the sense that the English court is
empowered to make orders in support of the arbitral jurisdiction of a tribunal
including the granting of injunctive relief, making orders for the preservation of
evidence and compelling witnesses to give evidence. Such supportive measures may
be critical to the smooth running of an arbitration, particularly where a recalcitrant
party is involved.
26. In the Lesotho Highlands case4 Lord Steyn made it clear that :
International users of London Arbitration should, in my view, be able to rely on
the clear “user-friendly language” of the Act and should not have to be put to
the trouble or expense of having regard to the pre-1996 Act law on issues
where the provisions of the Act set out the law.
4 [2005] 3 WLR 129
27. A further important point this case establishes is that the tribunal is entitled to get
the answer wrong without the courts being involved. This spirit is also evident in the
Fiona Trust case5 in which, in the context of section 7 of the 1996 Act, Lord Hoffman
emphasised that the starting point should be the assumption that the parties as
rational businessmen, are likely to have intended any dispute arising out of their
relationship to be decided by the same tribunal.
28. The 1996 Act imparts a finality to the proceedings, which is often considered
important to business. Whilst the 1996 Act entitles parties to challenge an award as
of right on the basis of lack of substantive jurisdiction, in practice this provision has
been applied sparingly by the English courts. Further, the statutory waiver in
sections 73(1) and (2) mean that where a party has participated in the arbitration it
cannot resist enforcement by relying on a jurisdictional objection not raised in due
time before the tribunal except in limited circumstances. If the jurisdictional
objection has been ruled on and rejected by the tribunal, enforcement of the award
or subsequent awards cannot be resisted by reference to that objection. In relation
to enforcement, Part III of the 1996 Act provides that an arbitral award will be
recognised and enforced with the same effect as if it was an order of the court.
29. Secondly, there is the universality of the English language as a means of business
communication even between those whose mother tongues are not English. This
greatly facilitates the ability to instruct lawyers and experts, and understand the
proceedings without the use of interpreters.
5 Fili Shipping v Premium Nafta Products Ltd [2007] 4 All ER 951
30. Thirdly, there is an immense body of English law especially in the commercial and
shipping fields. This also has the effect that English lawyers and arbitrators are
treated with respect. In much of the world commercial law concepts have been
borrowed from English law, which means that even where foreign law is the proper
law, there will be similarities.
31. Fourthly, London’s professional services industry offers an unrivalled choice of
lawyers and experts. Leaving aside the well-resourced and numerous law firms
handling international shipping, construction and other work reference should be
made of course to a highly experienced and well-trained Bar where several hundred
barristers are available specialising in commercial disputes at varying level. To this
one should add the availability of technical expertise. The Baltic Exchange Expert
Witness database, to take only one example, contains the details of shipping
professionals who are available to provide independent judgements on a wide range
of maritime related disputes. All are members of the Baltic Exchange great
experience.
32. Fifthly, there is an extensive corps of experienced arbitrators located in London. In
many cases these have grouped themselves into associations which also provide
arbitration rules. One only has to mention LMAA, LCIA and the Society of
Construction Arbitrators. The Chartered Institute of Arbitrators provides an
unrivalled level of training and qualification.
33. Sixthly, the Commercial Court, which deals with the majority of Arbitration Appeals,
is staffed by judges (currently 17 in number) of high calibre all of whom come from
backgrounds of successful commercial law practitioners. This ensures that decisions
are well-reasoned, consistent and give effect to the policy of the 1996 Act. Lead in
times for applications are short. Based on the current information the times are
30 mins – May 2009
1 hr – May 2009
1½-2hrs – May 2009
½ day – May 2009
1 day – June 2009
34. As to costs, London is perceived as an expensive place to do legal business. Sir
Rupert Jackson’s review of costs has extended to the Commercial Court, and there is
some suggestion that contingency fees for group litigation might be introduced. But
Commercial Court users remain united behind retention of the rule that the loser
pays the winner’s costs. The Jackson Review of Civil Litigation Costs Preliminary
Report Para 2.33 concludes:
The results demonstrate that with the exception of Moscow, the average earnings of
solicitors in England and Wales is broadly consistent with earnings in other parts of
the world.
35. Seventhly, London is relatively easy to access from many areas of the globe. There
are 5 international airports serving the capital, and a high speed rail link to Paris and
Brussels.
Summary
36. London remains one of the most popular jurisdictions for international arbitration
due to the availability of fairly extensive supportive measures from the court, a lack