Originally from World Arbitration and Mediation Review (WAMR)

PREVIEW

I.     INTRODUCTION

Due to substantial growth in international trade and foreign investments, commercial transactions have become more complex.  This complexity demands legal certainty along with judicial expertise on the subject matter of the dispute, quick resolution, forum neutrality, party autonomy and confidentiality. For these reasons arbitration has now become the preferred method for domestic as well as international dispute resolution between states, corporations and individuals. 

The field of international arbitration has seen tremendous development in the last three decades, even in those countries where it has long been in practice, such as the United States.   Although there are numerous benefits to choosing arbitration over other methods of dispute resolution, it still lacks the deserved attention. Lawyers, while drafting the arbitration agreements, often overlook the importance of certain provisions of the arbitration clauses.  Arbitration clauses are commonly referred to as “Midnight Clauses” as they are usually drafted late at night or when all other provisions of the contract are completed.  

This paper begins by briefly discussing the dispute resolution process in international commercial transactions, and the meaning and scope of arbitration in international commercial disputes.  A critical issue in any international arbitration is the location of the arbitral seat (or place of arbitration).  There are practical and legal consequences flowing from the selection of the seat of the arbitration.  This makes the decision of choosing the seat, one of the most important aspects of any international arbitration agreement, forcing the parties to choose it carefully.   Some of the matters affected by the choice of the arbitral seat can be relatively mundane like convenience and costs (e.g., technical support, accommodations, transportation connections). However, the choice of the arbitral seat’s most important consequence is the applicability of the law of that place to the arbitral proceedings.   The applicability of the law of the seat to the arbitral proceedings is known as “the territorial approach” in international arbitration.

The territorial scope of national arbitration legislation is fundamental to the international arbitral process. The choice of a particular place of arbitration may have important and unintended consequences.  This is because the law of that place may confer powers on the courts or the arbitrators that the parties did not intend.  Choosing the wrong seat can severely delay or prove to be adverse for the arbitration proceedings.   It may also lead to other problems such as, inter alia, the risk of parallel court proceedings or the award being challenged on broad grounds in local courts.   This would defeat the parties’ objective and the purpose of arbitration as the preferred means of resolving the dispute(s). The latter part of this paper focuses upon the consequences that flow from the selection of the seat and the scope of intervention of national courts at the seat.