Why is the place of the arbitration still poorly valued when negotiating contracts? It is often said that the arbitration clause should not be taken as a “midnight clause”, quickly negotiated on the corner of a table and that it is essential to take the time to analyse its provisions. Among such provisions is the place where the arbitration procedure is deemed to be located, referred to as the “place” or “seat” of the arbitration.
On which criteria do parties choose the place of the arbitration? There are several: naturally, parties may wish for a neutral place, more acceptable to them than the country of the other party, including when one of the parties is a public entity. They may also prefer a country, the language and culture of which they are familiar with, or a place geographically close to the evidence and witnesses to reduce the costs of the arbitration.
However, it is key that parties measure, when negotiating, the legal consequences of the choice of a seat. Elements to be taken into account when making this choice include the following elements:
- The place of arbitration is not necessarily the place where the arbitral tribunal meets or hears the parties: both places may coincide, but under most national laws and arbitration rules, the arbitral tribunal may, after having consulted the parties, decide to hold meetings and hearings in any place it deems appropriate. Incidently, this may reduce the travel expenses of the arbitrators, parties, witnesses and experts for the hearing – the costs of the arbitration are thus not necessarily linked to the place of the arbitration;
- Contrarily to what one may think, the law of the place of the arbitration is not that applicable to the contract or to the merits of the dispute ; by contrast, the law of the place of the arbitration is applicable to certain aspects of the procedure. For example, it determines the extent of the arbitral tribunal’s powers, e.g., its power to order provisional measures with penalties attached to the order, or to order the production of pieces of evidence to third parties;
- State courts of the place of the arbitration have jurisdiction to assist the arbitral tribunal in its mission – they are then referred to as the “judge acting in support of the arbitration” or “juge d’appui”. The juge d’appui knows of problems regarding the constitution of the arbitral tribunal and may order provisional and interim measures prior to the constitution of the arbitral tribunal or thereafter, when the tribunal does not have the power to do so;
- Once the award is rendered, State courts of the seat of the arbitration also have jurisdiction to decide challenges brought against the award. When choosing the seat of the arbitration, it is thus a key element to take into consideration: for the legal certainty of awards, a place favorable to the arbitration should be chosen in order to prevent in so far as possible the risk of having the award annulled. For example, choosing a State having signed the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and which courts take independent and impartial decisions in favour of arbitration guarantees that the award will only be annulled on strictly limited and regulated grounds;
- Finally, the place of the arbitration may influence the profile of arbitrators composing the arbitral tribunal: one of the members of the arbitral tribunal is frequently a national of the seat of the arbitration, or at least, has knowledge of its arbitration law. This is especially so if the arbitral tribunal is constituted with the help of an appointing authority.
Parties must thus carefully analyse the different criteria hereabove prior to choosing the place of arbitration, as it has a major impact not only on the conduct of the procedure, but also on a better efficiency of the award.