Upcoming Mallesons seminarsWhy 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
David Bateson and Paul Starr, two partners in our Hong Kong office, have recently been enrolled in the Panel of Arbitrators kept by CIETAC, China's principal arbitration regulator. There are very few non-Chinese CIETAC panellists making their appointment both an honour and a significant achievement.
Parties facing a contractual dispute in China may now ask CIETAC to appoint David or Paul either as their own arbitrator (on a panel of three), or as Chairman of the arbitration panel. CIETAC can make similar appointments if it so chooses.
David and Paul jointly head the Construction Group in the Mallesons' Hong Kong office and have extensive experience in international arbitration. As well as acting as arbitrators, they have also participated as parties' lawyers in many of Asia's largest infrastructure disputes, either in court, arbitration or mediation/conciliation.
A source close to CIETAC informs us that David and Paul's appointment is not only in recognition of their knowledge and expertise, but also their commitment to China and the region since the early 1980s.
You may wish to consider the issues outlined in this article when drafting a contract which contains an arbitration agreement.
The number of arbitrators together with the identity and appointment of the arbitral tribunal is a matter of consensus between the parties to an arbitration agreement. Parties are unlikely to agree to the actual identity of the members of a tribunal, particularly at the time of entering into a contract containing an arbitration agreement. However, parties are likely to be in agreement as to how the tribunal will be formed, should a dispute arise. For example, the parties may agree to specific, tailor-made, provisions or they may adopt a set of Rules (such as the UNCITRAL Arbitration Rules, ICC Rules of Arbitration, SIAC Rules or LCIA Arbitration Rules) to govern the arbitration.
If no provision has been made by the parties for the formation of the tribunal, then the parties can rely on default provisions in the international arbitration legislation of the agreed seat of the arbitration to govern its formation. In Australia, these default provisions are set out in the Model Law. The Model Law is also substantially adopted in a number of other jurisdictions, including Hong Kong, Singapore and New Zealand. This article assumes that if the seat of the arbitration is in Australia, the parties have not opted-out of the Model Law (which would result in the relevant State or Territory Commercial Arbitration Act applying).
Number of arbitrators
In deciding the number of arbitrators, you may wish to consider:
(a) cost (a greater number of arbitrators will naturally increase costs)
(b) the likely complexity of a dispute and possible areas of technical or legal expertise
(c) timing requirements (the greater the number of arbitrators the more diaries will need to be consulted when agreeing a timetable), and
(d) the parties' personal preferences.
In international arbitrations, the parties often choose to have three arbitrators, thus ensuring at least one of the arbitrators meets each party's desired legal and/or technical and/or cultural background. If you have not expressly agreed to the number of arbitrators, but have agreed to a set of Rules to govern the arbitration, then those Rules will likely allow for a default position of one or three arbitrators and may provide a mechanism for the number of arbitrators to be determined by the agreed appointing authority.
If you have not agreed to the number of arbitrators and you have not agreed to a set of Rules, then the default provisions in the international arbitration legislation of the agreed seat will govern the decision. If the seat of the arbitration is in Australia, Article 10 of the Model Law states that the parties are free to determine the number of arbitrators and, should they fail to do so, the default position will be three arbitrators (note, however, that if the seat of the arbitration is Singapore, the default position under the Model Law has been changed in that jurisdiction to one arbitrator).
It should be noted that the adoption of Rules which have a different default position to the Model Law on the number of arbitrators, or which allow an appointing authority to determine the number of arbitrators, is not inconsistent with the operation of the Model Law(see Articles 2(d) and (e)).
Nationality of arbitrators
Article 11 of the Model Law provides that an arbitrator cannot be precluded on the basis of nationality unless the parties have agreed otherwise. However, you may wish to agree to exclude nationalsof either party from participating on a tribunal or, more commonly, from taking the role of chairperson of a tribunal or acting as a sole arbitrator, to avoid concerns regarding impartiality.
Appointment of a tribunal
If you agree to a tribunal of three arbitrators, and there are two parties to the dispute, each party will generally appoint an arbitrator and the two appointed arbitrators will then appoint a third arbitrator (the chairperson). This is reflected in most sets of Rules as well as the Model Law.
When you are considering who to appoint as an arbitrator, you should consider the qualifications (including legal background) of the arbitrator, the arbitrator's reputation and standing, the availability and existing workload of the arbitrator, the arbitrator's location and, depending upon the Rules adopted, the fees of the arbitrator. Of course, a party-appointed arbitrator must be independent of the parties, providing no basis for a reasonable apprehension of bias. Most arbitral authorities and appointing authorities (including Australian Centre for International Commercial Arbitration (ACICA)) maintain lists of arbitrators, and can assist you in determining potentially suitable arbitrators.
Problems may arise during the appointment process where there are more than two parties to an arbitration and only three places to fill in the arbitral tribunal. However, Rules such as those of the LCIA and ICC can overcome the problems created by the potential for multiple parties participating in the appointment process by allowing the relevant institution to appoint the tribunal if agreement cannot be reached.
Most Rules will include a procedure to deal with a breakdown in the appointment process. For example, in an ICC arbitration the Court of International Arbitration will "step up to the plate", in an LCIA arbitration the LCIA Court will do likewise and in arbitration conducted in accordance with the UNCITRAL Arbitration Rules the nominated appointing authority (such as ACICA or the HKIAC) will undertake the role. If the process set out in the Rules fails, then the Model Law default position remains.
If the seat of the arbitration is in Australia, and if there is a failure to follow an agreed appointment process, the default position under the Model Law is that the Supreme Court in the relevant State or Territory may appoint the arbitrator(s). In contrast, if the seat of the arbitration is Hong Kong the HKIAC is authorised to appoint the arbitrator(s) and similarly, if the seat is Singapore the authorised person is the Chairman of the SIAC. Thus, a recalcitrant party cannot stop the formation of an arbitral tribunal.
Closing thought
When drafting an arbitration agreement, it is important that you give due consideration to how your arbitral tribunal will be formed, for this is the body that will finally determine any dispute that arises, and the process set in place for formation of the tribunal will impact on how quickly the arbitration can commence.
Stephen Barrett-White
Senior Associate
T +61 2 9296 2305
stephen.barrett-white@mallesons.com
Chinese Chess or Xiangqi has been played for thousands of years. The game shares common ancestry with the more familiar International Chess, but it also has differences that make it unique. Likewise, resolving disputes by arbitration in China is similar to that conducted at any major international arbitration centre - except that there are some features unique to China.
CIETAC (China’s main international arbitration body) has revised its arbitration rules several times in an effort to strengthen China's arbitration governance. It recognises that a strong dispute resolution regime boosts confidence in foreign investors in the Mainland. The recent round of amendments to the CIETAC rules, effective 1 May 2005, seeks to do just that. This is the first set of amendments since 2000, and is a significant step for CIETAC.
Highlights of the changes in the rules:
- Previous CIETAC rules required parties to appoint arbitrators from the CIETAC's panel of arbitrators only, unlike major international centres which allow freedom in appointing arbitrators. The new rules now permit parties to choose a non-CIETAC arbitrator, provided both parties agree. However, CIETAC still needs to confirm the arbitrator nominated by the parties.
- The new rules also modify the procedure for appointing the presiding arbitrator, where there is a panel of three arbitrators. The choice of the presiding arbitrator is an important one, given that the presiding arbitrator chairs the tribunal and has the tie-breaker vote in the event of a stalemate.
The new rules allow each party to provide a list of candidates for the presiding arbitrator position. If no agreement is reached, CIETAC will choose the presiding arbitrator from outside the lists provided by the parties.
- The new rules expressly spell out that the arbitrator does not represent any party, shall be independent of all parties, and shall treat all parties equally. While this is a given for many international arbitrators, the CIETAC provision does put to rest any doubt a party-appointed arbitrator may have concerning their role.
- CIETAC has also tightened the rules for disclosure of any conflicts of interest, and requires an arbitrator to sign a declaration disclosing any fact or circumstance that "may" cause reasonable suspicion about his or her independence and fairness.
- The new rules shorten the timeframe for various steps in an arbitration proceeding. They also require a tribunal to make its determination within six months of its constitution instead of the previous nine months.
- An important new provision expressly allows a tribunal to convene preliminary hearings and issue procedural directions. This is helpful in clarifying procedures and facilitating an efficient hearing.
- The previous rules restricted a winning party's compensation for costs to 10% of the total award. This restriction is now removed, and the tribunal has wider discretion to award costs to the winning party.
- Another significant change is that a dissenting arbitrator is now required to attach their opinion to the award. This acts as a check on the majority arbitrators and prevents factual and legal assertions without proper basis.
- In the new rules, CIETAC retains the right to determine the jurisdiction of the arbitral tribunal, eg on the existence and validity of an arbitration agreement. On the other hand, the commission may also authorise the tribunal to determine its own jurisdiction. The latter is more in line with international practice. However, should a party apply to a court for such a determination, it is the Chinese People's Court, rather than the arbitral tribunal, which decides issues on the jurisdiction of the tribunal.
Peter Chow
Registered Foreign Lawyer
T +852 3443 1016
peter.chow@mallesons.com
Footnote
* This is an extract from an article that first appeared in the Asian Legal Business, June 2005. Peter Chow was also recently interviewed by South China Morning Post, a leading English language daily in Hong Kong about the latest changes to the Chinese arbitration rules. - Editor
Christopher Tung
Partner
Dispute resolution and commercial arbitration
Christopher is a partner based in our Hong Kong office. He practises construction, environmental and sustainable development law. Chris studied at the Centre for International Commercial Arbitration Studies, Queen Mary College London (1991-92). He is admitted as a solicitor in England, Wales (1995) and Hong Kong (1994), and is a Member of the Chartered Institute of Arbitrators (1993).
Chris has been involved in some of the largest arbitration cases in Hong Kong including the Queen Mary Hospital, Hong Kong Cultural Centre and Tsing Ma Bridge arbitrations which were conducted under the Hong Kong Domestic Arbitration Rules.
Internationally, he has acted in ICC, CIETAC and UNCITRAL arbitration proceedings involving infrastructure projects in Thailand and Mainland China. These international arbitration proceedings have taken him to a number of cities around the world including, Bangkok, Guangzhou, Montreal, Ottawa, Singapore, Shanghai and Vancouver. He has also been involved in a number of construction mediation cases in Hong Kong and is currently in the process of working on what may become the first environmental mediation in Hong Kong regarding disputes over permitted noise levels and equipment for carrying out a major capital works project.
Chris is a key member of the Construction Dispute Resolution team in Hong Kong that won "Best Construction Practice" in 1999, 2002 and 2003, as well as the Asian Legal Business Arbitration Law Firm of the Year Award 2004.