Kara Sears
The governing law of an arbitration agreement and the seat of arbitration are two different concepts, and they can be different. The governing law of an arbitration agreement refers to the law that the parties choose to govern the arbitration process and resolve disputes. On the other hand, the seat of arbitration is the physical location where the arbitration takes place. The choice of seat can have important legal and practical consequences, as it determines the lex arbitri, or the law governing the arbitration's procedure. While the governing law and the seat of arbitration can be the same, they don't have to be, and it is possible for the parties to designate one place as the seat and hold hearings in a different place for convenience.
| Characteristics | Values |
|---|---|
| Can the governing law and seat of arbitration be different? | Yes |
| What happens if the law governing the arbitration agreement is not specified? | The governing law of the contract (if specified) would apply, unless additional factors suggest otherwise. |
| What if the governing law of the contract is also not specified? | The arbitration agreement will be governed by the law most closely connected with the arbitration agreement. |
| What happens if the law of the substantive contract is not expressly provided for? | The system of law the arbitration agreement is most closely connected with would be considered the law governing the arbitration agreement. |
| What are the implications of choosing a seat of arbitration? | The choice of seat can affect local conduct rules, annulment grounds and remedies. It also determines the courts that will exercise a 'curial role' over the arbitration. |
| What are the mandatory requirements imposed on arbitrations? | If an arbitration is seated in England, it is subject to English law on arbitration, which requires an arbitrator to adopt procedures suitable to the circumstances of the case, avoiding unnecessary delay or expense. |
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What You'll Learn
The law governing the contract
The law governing a contract is usually chosen by the parties involved. This is the substantive law that the parties agree will govern the main contract and any disputes arising from it. However, in some cases, the law governing the contract may not be specified. In such cases, the law governing the contract will be determined by the law of the seat of arbitration, i.e. the place where the arbitration takes place. This is because the choice of seat is assumed to imply that the parties have chosen the law of that jurisdiction to govern the arbitration.
In some cases, the law governing the contract may be different from the law governing the arbitration agreement. This is because the arbitration agreement is a separate contract in its own right and can be governed by a different law than the substantive contract. This separability reflects the parties' intention to keep their agreed procedure for resolving disputes separate from the main contract.
The choice of seat can have important legal and practical consequences. It affects the law governing the arbitration's procedure, known as the lex arbitri. The lex arbitri plays a crucial role in deciding procedural issues on which the parties have not reached an agreement. Additionally, the choice of seat determines the grounds on which awards can be annulled and the courts that will exercise a 'curial role' over the arbitration.
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The law governing the arbitration agreement
In the absence of an express agreement, courts will consider whether a governing law can be implied. This involves examining the terms of the arbitration agreement, the underlying contract, and the parties' intentions. The choice of law governing the substantive contract is a strong indication of the parties' intentions for the arbitration agreement. However, other factors, such as the consequences of choosing the substantive contract's law, may point towards a different governing law for the arbitration agreement.
In international arbitration, it is common for the laws of multiple states to be applicable. The choice of seat, or lex arbitri, carries important legal and practical consequences. It determines the procedural law that will govern the arbitration, including local conduct rules and annulment grounds. However, the choice of seat does not determine the governing law of the arbitration agreement, which must be explicitly chosen by the parties.
To summarise, the law governing the arbitration agreement is a critical aspect that should be carefully specified to avoid conflicts and ensure a smooth and efficient arbitration process.
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The law governing the conduct of arbitration proceedings
In the absence of an express agreement, courts and tribunals may apply different choice-of-law rules to determine the applicable law. This process can be time-consuming and costly, impacting the efficiency of the arbitral proceedings. It is therefore considered good practice to specify the law governing the arbitration agreement in the contract.
The choice of seat, or location, for the arbitration proceedings can have significant implications for the governing law. The seat of arbitration is subject to the mandatory requirements and local conduct rules of the jurisdiction in which it is located. For example, arbitrations seated in England are subject to English law on arbitration, which imposes certain duties on arbitrators, such as adopting procedures suitable to the circumstances of the case. Additionally, the choice of seat determines the courts that will exercise a 'curial role' over the arbitration, with the courts of the seat having sole jurisdiction to hear applications to annul or set aside an arbitral award.
In some cases, the law governing the substantive contract may be a strong indication of the parties' intention regarding the agreement to arbitrate. However, this may not always be the case, and other factors, such as the terms of the arbitration agreement itself, may point towards a different governing law. For instance, in the Sulamerica case, the main agreement was governed by Brazilian law, but London was chosen as the seat of arbitration, resulting in legal proceedings in Brazil.
To ensure clarity and reduce the cost of arbitration proceedings, careful drafting of the arbitration agreement is essential. Standard arbitration agreements often lack a provision for the governing law, which can lead to expensive satellite proceedings. The UNCITRAL Arbitration Rules provide a comprehensive set of procedural rules that parties can use to guide the conduct of arbitral proceedings, helping to enhance efficiency and clarity.
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Choice of seat determines the grounds on which awards can be annulled
The choice of seat in arbitration can have significant consequences, impacting the conduct of arbitration and the fate of an arbitral award. The seat is the legal concept referring to the jurisdiction in which the arbitration is deemed to take place, and it is usually determined by the parties in their arbitration agreement.
The choice of seat determines the grounds on which awards can be annulled. For example, if an arbitration is seated in England, it is subject to English law on arbitration, which imposes certain duties on arbitrators. The choice of seat also amounts to an agreement by parties to designate the courts that will exercise a 'curial role' over the arbitration. While courts of other jurisdictions may decline to enforce an award, they do not have the authority to vacate one.
In the case of Baker Marine, an award made and subsequently annulled in Nigeria was refused enforcement in the United States. The US court recognised that going against the primary jurisdiction would undermine the finality of arbitral proceedings and produce conflicting judgments. This is the more common approach, with foreign courts typically refusing to enforce awards set aside at the seat of arbitration.
However, there are instances where courts have enforced awards annulled at the seat. In the Pemex decision, the US court enforced an award made in Mexico that was later annulled by a Mexican court. In Yukos, an award made in Russia and annulled by the Russian court was enforced in Amsterdam. French law also provides for limited grounds for refusing enforcement of awards, and French courts have held that an award annulled at the seat can still be enforced in France.
Therefore, while the choice of seat does determine the grounds for annulment, it is not the sole factor in whether an award can be enforced in another jurisdiction.
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The law with the closest connection with the arbitration
When parties fail to agree upon the law governing their arbitration agreements, courts and tribunals apply different choice-of-law rules to find the applicable law. One such rule is to apply the law with the closest connection with the arbitration.
In the absence of an express agreement, courts will consider whether a governing law can be implied. An express choice of law governing the substantive contract is a strong indication of the parties' intention concerning the agreement to arbitrate. However, there may be other factors present that point to a different conclusion, such as the terms of the arbitration agreement itself or the consequences for its effectiveness of choosing the proper law of the substantive contract.
In the Sulamérica v Enesa case, the policies contained a Brazilian governing law clause and an arbitration clause with a London seat. There were powerful factors in favour of an implied choice of Brazilian law as the governing law of the arbitration agreement. However, two important factors pointed towards English law as the law with the closest and most real connection to the arbitration. Firstly, the choice of London as the seat of arbitration suggested an acceptance that English law relating to the conduct and supervision of arbitrations would apply. Secondly, the judge noted that there was a serious risk that a choice of Brazilian law would significantly undermine the agreement, as there was nothing to indicate that the parties intended to enter into a one-sided arrangement.
The choice of seat can affect many dimensions of an arbitration, from local conduct rules to annulment grounds and remedies, and so it is not a choice to be made lightly. The seat of arbitration determines the jurisdiction of the courts that will exercise a 'curial role' over the arbitration. Courts of the seat have sole jurisdiction to hear applications to annul or set aside an arbitral award. Therefore, the choice of seat also determines the grounds on which awards can be annulled.
In many arbitrations, the seat and the physical place of an oral hearing are the same. However, it is possible for parties to designate one place as the seat and hold hearings in a different place for convenience. The seat need not be located in the jurisdiction whose law governs the substance of the dispute. For example, an arbitration may involve a contract governed by New York law but be seated in France.
In the absence of an express or implied agreement between the parties as to the applicable law of the arbitration agreement, the law of the seat of arbitration shall be applied. This is because the chosen seat is the place of performance of the arbitration agreement, and therefore its law is most closely related to the arbitration agreement. When considering the reasonable commercial expectations of the parties, especially those who have chosen a neutral forum to arbitrate, the law of the seat is most likely to uphold their expectations.
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Frequently asked questions
The seat of arbitration is the physical place of an oral hearing. The choice of seat can affect many dimensions of an arbitration, from local conduct rules to annulment grounds and remedies.
Yes, the governing law can be different from the seat of arbitration. In international arbitration, it is not unusual for the laws of more than one state to apply.
If the law governing the arbitration agreement is not specified, the court will consider if a governing law can be implied. If not, the law of the substantive contract will be considered the implied choice of law for the arbitration agreement.
If the law of the substantive contract is not specified, the system of law with the closest connection to the arbitration agreement will be considered the law governing the arbitration agreement.
If the seat of arbitration is designated by the parties, then the law of the seat will be considered to have the closest connection and will be the law governing the arbitration agreement.
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