Where you sit affects the view: how to choose the seat of arbitration.

Commercial lawyers and dispute counsel frequently skim over the dispute resolution clauses in contracts, failing to appreciate the importance of the “place” of arbitration (the “seat”). This brief paper explains why you should not discount this issue. I also make the case that my own jurisdiction – Alberta, Canada – should be at the top of your list to consider as the seat of your next arbitration.

What is the place or seat of arbitration, and why is it important?

The seat or place of arbitration is the legal place of the arbitration. To explain, an arbitration agreement may name London, UK as the seat of the arbitration. This means that, absent an agreement to the contrary, the law applicable to the arbitration procedure will be the law of London, UK. The seat can dictate the relevant law that will govern arbitration procedure:

“For the most part, modern laws of arbitration are content to leave parties and arbitrators free to decide upon their own particular, detailed rules of procedure, so long as the parties are treated equally. Under these modern laws, it is accepted that the courts of law should be slow to intervene in an arbitration, if they intervene at all. Nevertheless, rules need the sanction of law if they are to be effective and, in this context, the relevant law is the law of the place or seat of the arbitration. This is referred to as the lex arbitri.”1 (Emphasis mine.)

The seat of the arbitration is not necessarily where the arbitration will physically occur.2 Parties may hold proceedings elsewhere. Problems might occur if this is done if the parties are not clear as to which law is selected as the “lex arbitri”, or the law of the arbitration. Absent agreement to the contrary, the law of the seat becomes the lex arbitri. The lex arbitri may determine fundamental issues, even such issues as the capability of a dispute to be referred to arbitration.3 Disputes may arise as “the selection of a lex arbitri by the parties is often neglected, sometimes mistaken, and almost always the harbinger of further litigation.”4 Hence, a party should speak with qualified arbitration counsel about this issue.

“The seat of the arbitration is not necessarily where the arbitration will physically occur.”

Different theories of arbitration take a different view as to the importance of the notion of seat.

Admittedly, there are different theories of arbitration, suggesting different levels of importance of the seat. This depends on whether the arbitrator’s authority is viewed as stemming from (for example) the jurisdiction that serves as seat, the agreement of the parties, or some combination of the two. The debate in lecture halls on this point is lively. Irrespective of which academic theory you might find convincing, the practical reality for clients is that the law of the seat remains essential. This is because the local courts of that jurisdiction will assist in determining specific issues that may arise during the arbitration or in taking to steps to enforce a decision following the arbitration.5 These issues may be fundamental to the arbitration. They can extend even to the appointment of an arbitral panel in the absence of agreement between the parties. Suppose you do not address this issue at the outset: you might find yourself with a very disappointed client who thinks they had a great arbitration clause in their commercial agreement, but who then finds it puts them at a disadvantage, or that is is, in practical terms, unenforceable. Clients may even find that they have chosen a seat in which the local courts are unwilling to enforce an arbitration clause, or are otherwise unable or unwilling to assist in the conduct of the arbitration.

How can counsel protect their clients?

A key attraction of international arbitration is the ability of the litigants to choose their own process and set the terms for that, and avoid such risks.6 Wise counsel can help by considering the issue of the seat of arbitration at the outset of a commercial relationship or at the onset of the resulting dispute. This choice should be made early. It must ensure that the client chooses an appropriate arbitration-friendly seat and governing law to govern the dispute. Some factors to look at include:

  • Whether the law of the jurisdiction respects private international arbitration
  • Whether local courts have experience in facilitating private arbitration. A review of local case law may be useful in this regard
  • Whether qualified arbitrators and counsel are available
  • Whether local court judgments enforcing the arbitration decision are, in turn, recognised by courts in other jurisdictions where enforcement is necessary.

Parties should consider, for example, having their commercial disputes “seated” in Alberta, Canada. As a result of its robust energy, technology and natural resources sectors, Alberta law (with its roots in the English common law system) is well-advanced in terms of the governance of arbitration proceedings. Alberta also offers other key benefits as a physical location for the arbitration, such as having numerous counsel experienced in commercial arbitrations and a sophisticated judiciary respectful of private arbitrations. To make the arbitration experience just a bit more pleasant, there are also numerous venues in Alberta appropriate to host arbitrations either in person or remotely. Many of these destinations are internationally recognised (such as Banff or Jasper), and travel from any international destination is straightforward.

Alberta is also suitable for the economically-minded client: prices for experienced counsel and arbitrators based in Alberta are highly competitive compared to European or US-based counterparts, and many lawyers in Alberta are internationally qualified in major jurisdictions such as the United Kingdom or the United States.

Conclusion

While there are different theories surrounding the importance of the seat, the practical reality is that the law of the seat may dictate the lex arbitri. The arbitrator will use it to determine procedural issues in the arbitration. For this reason, counsel should consider the issue early. Wise counsel should consider an arbitration-friendly jurisdiction such as Alberta as the “seat” of the arbitration.