Arbitration: selecting your seat

In its Statistical Report, published in Spring 2002, the ICC found that the number of parties involved in arbitration from Central and Eastern Europe increased by 68 per cent in 2001. France, Germany, England and Switzerland all featured prominently in the survey, coming second to fifth respectively in terms of the number of parties involved in ICC arbitrations. According to the report, France was the most popular venue, probably because the ICC is based in Paris, while Switzerland had the greatest number of arbitrators, perhaps reflecting their tradition of neutrality.

With the increasing prominence of international arbitration in the resolution of trade disputes, a party with an understanding of the mechanics of arbitration in different jurisdictions may well be at a considerable advantage. France, Germany, England and Switzerland are all established centres for arbitration with well-deserved reputations, but parties to prospective arbitrations in those jurisdictions should be aware that there are significant differences in the way arbitrations may be conducted in accordance with the national laws in each country.

In 1985 the UNCITRAL Model Law of Arbitration was published and was based in broad terms, around three internationally recognised principles of arbitration law, namely:

• Limitation of court assistance and supervision
• Freedom of the parties to determine the rules of procedure
• Recognition and enforceability of awards

The UNCITRAL Model Law enshrines those principles by providing that the parties are free to agree the procedures applicable to arbitration, but providing rules that apply in the absence of agreement between the parties. This mechanism allows parties to adopt wholesale rules for the conduct of arbitration, by reference to institutional rules or to select specific arrangements in ad hoc arbitrations by reference to the relevant arbitration clause or agreement.

Subsequently many jurisdictions reformed their arbitration laws incorporating those principles.

In Germany, new legislation was introduced on 1 January 1998 reforming German Arbitration Law, largely adopting the structure and wording of the UNCITRAL Model Law. In England, the Arbitration Act 1996, which came into force on 31 January 1997, codified the existing piecemeal legislation and brought English law more into line with the internationally recognised principles. In Switzerland too, international arbitration law was codified, with effect from 1 January 1998. Both the English and Swiss legislation borrowed from the UNCITRAL Model Law. In France the legislation pre-dates the 1985 UNCITRAL Model Law but, even so, provides a relatively modern and flexible framework for arbitration.

Despite the common source of much of the law, significant differences remain and before signing an arbitration clause or agreement, great care should be taken to consider those differences to identify which country would be a better venue (or seat) to suit the parties’ needs in the event of a dispute. This is particularly important if the arbitration clause or agreement results in an ad hoc arbitration (as is often still the case), rather than by reference to any particular institutional set of rules. For example, absent specific agreement between the parties, if a single arbitrator is to hear disputes but the parties want to preserve a right to appeal on a point of law, the most appropriate venue (or seat) of the arbitration would be England. The same arbitration in Germany would be heard by three arbitrators with very limited rights of appeal.

Arbitration is a consensual process: parties refer their dispute to arbitration by agreement. Accordingly, much of the procedure for arbitration is still within the control of the parties as they can agree between themselves how the arbitration should be conducted. However, experience shows that, despite plenty of lip service being paid to openness and co-operation, there is no guarantee of any real co-operation between the parties once a dispute has arisen.

Opportunity for disagreement and much uncertainty can be removed at the time of negotiating the arbitration clause, while goodwill abounds, by making provision in the clause for the key aspects of procedure or by carefully choosing the institutional arbitration rules which are most likely to suit the parties. These issues are not always high on the parties’ agenda when making a commercial deal. Therefore, the party with its own jurisdictional preferences (or hierarchy) for the determination of international disputes by arbitration may avoid later concern over the conduct of arbitration proceedings, or worse, costly battles over the venue (or seat), by the selection of the appropriate arbitration clause suitable to the circumstances. That clause should normally identify an institutional set of rules to apply, the language in which the arbitration is to be heard, the number of arbitrators and, of course, the venue (or seat) of the arbitration.

For further details please contact Guy Pendell at [email protected] or tel +44 (0)20 7367 2404.