This article is written by Shristi Roongta from Amity Law School, Kolkata. This article discusses the significance of choosing a seat of arbitration. 

Introduction

In any arbitration proceedings, the seat of arbitration is a vital aspect. The seat is not just about where an institution is based but also where hearings will be held or where there may be a good pool of arbitrators. In this article, some seats are mostly compared to those in India, Singapore, London, Paris, and Hong Kong. Generally, the seat of Singapore or London is preferred by the people.

What is a seat of arbitration?

A seat of arbitration is the “situs” of arbitration which means the place where the arbitration will take place. The seat of arbitration defines curial law or the procedural law that governs the arbitration proceedings and it also determines which court or courts will exercise the supervisory jurisdiction over the arbitration proceedings. Let’s understand with the following example. 

In an arbitration proceeding, the seat is in New Delhi. Therefore, the Arbitration and Conciliation Act, 1996 will govern the arbitration. Any application challenging an award or an order of an arbitrator shall lie before the Delhi High Court. 

In the case of international arbitrations, the seat has greater significance as it acts as the indicator for both curial law and as a supervisory jurisdiction. The Supreme Court in Enercon (India) Limited v. Enercon GmBH observed that “Once the seat of arbitration has been fixed in India, it would be the nature of exclusive jurisdiction to exercise the supervisory powers over the arbitration.”

The term seat is neither defined under the Arbitration and Conciliation Act, 1996 nor under the Arbitration Act, 1940. Although Section 20 of the Arbitration and Conciliation Act, 1996 defines the term ‘Place of Arbitration’ which could be used interchangeably for both seat and venue. Often people are confused between the seat of arbitration and the venue of arbitration. As mentioned above, the seat of arbitration also determines the law governing the arbitration whereas the venue just defines the geographical location where the arbitration is conducted and it is not related to the governing law of arbitration. For example, if the arbitration is taking place in India, the laws governing the arbitration can be in London. Therefore, India is the “venue” of arbitration and London is the “seat” of arbitration. 

In the case of Bharat Aluminium Company v Kaiser Aluminium Technical Services Inc., the Hon’ble Supreme Court did not pay due importance to the seat or place of arbitration. The courts in India until Balco’s decision had been taking the view that the place of arbitration did not confer any jurisdiction to courts for deciding any matters arising out of or relating to such arbitration proceedings.

It was held by the Supreme Court in the Balco case that the seat of arbitration is the center of gravity and the Arbitration and Conciliation Act, 1996 has adopted the territorial principle recognized by UNCITRAL Model Law. In Balco which was an international commercial case of arbitration with London as the chosen seat of arbitration, it was held by the Supreme Court that Part I will not apply that and that the courts in India will have no jurisdiction to entertain the petition under Section 9 of the Act. It was further held by the Supreme Court that the seat of arbitration, is London, the governing laws for the arbitration proceedings would be English laws, and the court shall be in England. The court of England would have supervisory jurisdiction over the arbitration proceedings and also the arbitral award. 

In Indus Mobile Distribution Pvt Ltd. v. Datawind Innovation (P) Ltd, it was held that the moment the seat of arbitration is determined, the fact that the seat is at Mumbai would vest courts with exclusive jurisdiction for the purpose of regulating the arbitration proceedings arising out of the agreement between the parties. 

Why does choosing a seat of arbitration matter?

Choosing the seat of arbitration is important for many reasons:

• An arbitral process must be as rapid and efficient as possible and should have the minimum intervention at the seat by the courts except in case of a supporting role. Therefore, the seat of arbitration determines the extent to which the court can interfere in the arbitration proceedings. 
• Some of the laws provide that the court can interfere only in support of arbitration. Whereas other laws allow the court to interfere or even hinder the arbitration proceedings. 
• As the seat of arbitration is where the arbitration proceedings take place, it is also a place where the award is deemed to have been made. The seat of arbitration also governs the law, it will also determine the grounds on which before the award can be challenged. 
• The grounds may be limited or it may allow wide challenges that amount to reopening of the merits of the dispute. Therefore, it is important to choose a seat for a challenge with limited grounds.
• The award of an arbitration can be challenged in the court of the seat. Every country allows an award to be challenged on certain but limited grounds. For example, the arbitrators who lacked the jurisdiction or those who were corrupt. However, some allow the challenge of the award to be based on errors of law or on the grounds of public policy, meaning different things in different jurisdictions. 
• Friendly arbitration is an important reason and where the arbitration is friendly, the court interference is less and the court interferes only in support of arbitration.
• The seat of arbitration, matters with respect to the procedural issues i.e., whether the arbitral tribunal may award costs or interest, or a conflict of rule of law has to be applied. 

Significance of choosing a seat 

Choosing a seat of arbitration is of utmost importance in order to minimize the disputes that have occurred between the parties with regard to the arbitration agreement. As the seat governs the laws of arbitration it is very important to choose a country, where the seat of arbitration is there and the arbitration must be friendly and must provide for an efficient arbitration process. Choosing the wrong seat of arbitration can gravely delay the process of arbitration which increases the risk of parallel court proceedings and could allow the award to be challenged. The awards then can be challenged in local courts that may be not reliable. Many seats of arbitration are considered safe, including the seats of Paris, London, Singapore, Geneva, Hong Kong. These seats are considered to be arbitration-friendly. However, some countries restrict the choice of seats of arbitration such as China. 

Length of the proceedings 

The main aim of arbitration is to resolve disputes between the parties speedily and efficiently. It also seeks to prevent the exponential number of hearings held in the litigation. The parties must determine the seat of arbitration in order to have the minimum judicial intervention or where the proceedings are conducted rapidly. Due to the backlog of cases in India, the arbitration proceedings take an enormous amount of time and because of this, the judiciary almost interferes in the process. In the case of Pam Developers Pvt Ltd v. State of West Bengal, the arbitration was started in 1995 and lasted for 21 years for an award to be decided. 

Confidentiality 

Mostly the parties involved in a dispute want to keep the information confidential pertaining to the dispute. Arbitration provides confidentiality and also resolves disputes in a friendly manner. Therefore, the parties do not want to go for litigation as the Court publishes the judgment in the journal which reveals the details of the proceedings and the parties do not get the option of confidentiality. In this case, it is important for a party to choose a seat of arbitration among a few countries which provide confidentiality throughout the proceedings. Nevertheless, the concept of confidentiality in the arbitration proceeding is in a grey area. Section 42A in the Arbitration and Conciliation (Amendment) Act, 2019 provides a provision that requires the parties, the arbitral institutions, and the arbitrators to maintain confidentiality in the arbitration proceedings. 

In case the seat of arbitration is in Hong Kong, Singapore, and London, the parties are subject to unless they have agreed otherwise to the duty of confidentiality. However, no such obligation is levied on the parties in Paris or New York unless the parties agreed otherwise. Hence, if parties would like to go for a seat in Paris to maintain confidentiality then that has to be requested. 

Award finalisation

It is claimed by the arbitration law of every country that the awards passed are final and binding. However, it can be seen that usually, the legislation provides for the scope of setting aside or remanding an arbitral award back to the tribunal. These decisions can be exercised by the courts, when they have a pressing concern against the validity and legality of such an award or when they have reasons for passing it. The seat of arbitration must be chosen since the main purpose of arbitration is to quickly resolve the dispute. Remanding an award from the tribunal consumes enormous time and setting aside an award and again going for arbitration is too lengthy. Therefore, the seat of arbitration should be such which takes a lesser amount of time for the entire process of remanding an award or setting aside one. 

For example, London takes less time as compared to India which takes almost 1 year and 3 months. Whereas London takes 3 months and 28 days. Therefore, the seat of London would be preferred over the seat of India.

Choice of substantive law

This means that the parties are free to choose the governing laws of the arbitration. The parties can make the arbitration proceedings according to their needs and wants. In the case of an ad-hoc arbitration, the parties can agree to appoint the arbitrators of their choice, they can choose the seat of arbitration and can choose the substantive law for the dispute to be decided. The laws of India and Singapore both provide similar approaches when it comes to choosing the substantive law that would be applicable to the arbitration. Both the laws allow the parties to mutually agree on the substantive law which they require for the dispute resolution. Whereas in London, the parties have an advantage. The parties or the tribunals are allowed to outline further any considerations that may govern the dispute which is to be decided on the condition and to which both the parties have agreed. Hence, here London becomes an attractive option.

Constitution of the tribunal

The seat of arbitration also plays a vital role in the constitution of the arbitral tribunal. It is one of the factors considered by institutions in choosing a sole arbitrator or tribunal. The background and nationality of the sole arbitrator or tribunal could inform their approach to the arbitration proceedings. 

Geographical location 

Choosing the seat of arbitration is important because of the location. It is partly convenient that the seat will generally be the default place for hearings. There are certain seats that are selected more in the context of transactions in different regions. For example, in the South American context, the common seat of arbitration is the New York seat. While the usual choice in contracts relating to Africa, and the Middle East is the London and Paris seat.

Conclusion

In an arbitration, the parties must choose a seat of arbitration where the judicial involvement is low and where the courts also adopt an arbitrational approach. There are other factors also which the parties keep in mind while deciding the seat of arbitration but those points discussed are considered to be the important reasons. 

References

• https://www.latestlaws.com/articles/importance-of-choosing-a-seat-of-arbitration-an-analysis/

• https://www.international-arbitration-attorney.com/importance-seat-arbitration/
• http://parisarbitration.com/en/why-the-seat-matters/

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