Update

Why the answer shouldn't simply be "somewhere halfway between me and my counterparty"

As noted in earlier editions of this Update, international arbitration is the preferred method for resolving cross-border commercial disputes. A key issue is "where shall we hold the arbitration?" The answer should not simply be: "I’m in Australia and you’re in Europe, so let's pick somewhere half way between us."

"Seat/place" v "venue"

The "place" of the arbitration, or what is often referred to as the "seat", is the jurisdiction in which the arbitration will have its legal grounding (discussed in more detail below). But the place or seat of the arbitration should be distinguished from, and can be different to, the venue in which arbitral hearings are held.

For example, the seat or place of the arbitration may be, say, Australia, whilst for reasons of convenience, arbitral hearings may be held in different venues outside Australia. Despite this, because the parties have chosen Australia as the seat or place of their arbitration, any resulting award is still an Australian international arbitral award.

Most international arbitration statutes and institutional rules recognise this distinction between the seat of the arbitration and the "venue" in which hearings may be held from time to time (see, for example, Article 20 of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (Model Law), Article 14 of the International Chamber of Commerce (ICC) Arbitration Rules and Article 16 of the London Court of International Arbitration (LCIA) Arbitration Rules).

Implications and factors influencing choice of seat/place

The key implication stemming from the seat of arbitration is that the international arbitration statute in force in the chosen jurisdiction will govern the procedural framework and overall conduct of that arbitration. Thus, for example, where the parties choose Australia as the seat or place of arbitration, the Australian International Arbitration Act 1974 (Cth) will govern that arbitration.

That is not to say the relevant arbitration statute will render irrelevant any institutional arbitration rules chosen by the parties (for example, the arbitration rules of the ICC, the LCIA or the Singapore International Arbitration Centre (SIAC)). This is because the statute will generally contain non-mandatory "default" rules on procedure that only apply in the absence of separate agreement on those matters. By agreeing to use an institution's arbitration rules, the parties have agreed on matters of procedure for the purpose of the non-mandatory rules in the arbitration statute.

However, the seat's arbitration statute will also contain some mandatory provisions the parties cannot avoid. These include the powers of the arbitrator, the circumstances in which a court of that jurisdiction can make orders in support of the arbitration (eg injuctive relief, replacement of an arbitrator) and the grounds upon which a party may apply to the local courts of the seat of the arbitration to set aside the arbitral award. As noted in an earlier Update, in most arbitration statutes, these grounds are narrow, and are generally limited to matters such as excess of jurisdiction or serious procedural defects in the conduct of the arbitration.

Another important factor will be whether or not the jurisdiction under consideration for the seat of the arbitration is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention). This is because countries who are party to the New York Convention will only recognise and enforce a foreign arbitral award under the Convention if that foreign arbitral award has been rendered by an arbitral tribunal sitting in a country which is also a party to the New York Convention (referred to as the "reciprocity reservation"). Given approximately 133 countries are now party to the New York Convention, this issue will rarely cause difficulties in practice. For the sake of completeness, it should be confirmed that the country being considered is a signatory.

The choice of seat of arbitration should never be for reasons of geographic convenience alone. You should be asking:

• What is the arbitration statute in force in the country being considered? Am I satisfied with its content in terms of the non-mandatory rules and the grounds upon which I or my counterparty may apply to set aside the award?
• What are the attitudes of the local courts of the proposed seat to international arbitration? Are they known to understand the key principle of party autonomy, and take a restrictive approach to involving themselves in the arbitration? What are their attitudes to applications to set aside awards?
• Is the country being considered a New York Convention country, in the event I need to take action in a different country to enforce the award against my counterparty?
• In addition, cost should be taken into account (cost of getting to the seat, hotels/arbitration room hire at the seat etc). It should also be noted that the arbitrator or arbitrators need not come from the seat or place of arbitration, and in most cases, will not do so.

Countries commonly chosen as a seat/place of arbitration

Having determined the importance of the choice of seat of arbitration, what country should you chose?

In 1985, UNCITRAL published the Model Law, in an effort to harmonise international arbitration statutes across jurisdictions. Countries were encouraged to adopt the Model Law as their international arbitration statute, or at least base their arbitration statute upon the principles contained in the Model Law. To date, approximately 42 countries have adopted the Model Law or legislation based heavily on it, including Australia, New Zealand, Singapore and Hong Kong. Accordingly, any country which has adopted the Model Law will have a developed and modern arbitration statute, which respects the principle of party autonomy in international arbitration.

Further, jurisdictions in this region in respect of which you can feel comfortable that their courts will take a proper approach to international arbitration (eg not overly involve themselves in the arbitration, or be too ready to set aside an arbitral award) include Australia, Singapore, Hong Kong and New Zealand. Looking further a field, other popular international arbitration seats (by reason of having developed arbitration statutes and local courts that are supportive of the international arbitration process) include London, Paris, Stockholm, New York and Geneva.

Conclusion

The guiding rule? Don't chose the seat of arbitration simply because it's "half-way between us". Convenience will always be a factor, but ignore the more important implications of the choice of seat of arbitration.

Sally Fitzgerald
Senior Associate
T +61 2 9296 2082
sally.fitzgerald@mallesons.com