As the dust begins to settle on the first round of the battle between Boris Berezovsky and Roman Abramovich, and as a further duo of Russian oligarchs prepare to enter the gladiatorial arena of the London courts, one might be forgiven for thinking that with London apparently becoming an “obvious” venue for litigation, the decision of where to base arbitration is similarly easy. After all, English is the international business language, the English legal system is highly regarded, the quality and integrity of its lawyers is well-known and the independence of the judiciary means that state intervention in decision-making is at a minimum. If all this is true of the courts system, why not just carry it across and have England defined as the seat for any arbitration in a contractual disputes clause?
But of course, it is not as simple as that. However welcome the oligarch battles are to our UK exports, there can be all sorts of reasons why parties considering an arbitration clause can be advised to look elsewhere. The initial point to make is that the seat of arbitration should be arrived at as a conscious decision and not by default. Maybe it is because traditionally dispute clauses appear towards the end of agreements and battle-weariness may have set in by the time it comes to consider them; maybe because parties have not actually given (or been advised to give) much thought as to how an arbitration would actually go; but for whatever reason there are a number of factors to consider before agreeing a venue or a suite of rules to govern the arbitration.
Very often parties will be unwilling to submit to an arbitration conducted in the country or under the national rules of the other party, in the view (whether this is accurate or not) that to “play on the other side’s turf” is automatically to be at a disadvantage. At the very least this is a spectre which needs to be discussed with the client, so one can form a view of how important (and in some jurisdictions, how realistic) a problem it might actually be.
One of the perceived advantages of arbitration in the UK is that the Courts, in whatever part of the UK, are available to enable an arbitration, to make it more efficient, but not to hinder its proper conduct. There is a long tradition in this country of the arbitration and judicial systems working alongside each other. This is not always the case in some countries, particularly maybe those where the concept of an independent judiciary is itself relatively novel and where the idea of parties being able to settle large commercial disputes without state involvement or interference has not had time to take root.
On the other hand, some parties welcome an arbitration system under which the process is quite heavily controlled by the governing body; while others value the framework that a recognised code provides, while still wanting the freedom to conduct the actual arbitration process as they see fit. The ICC for example adopts a highly interventionist role, as structured as any English High Court judge through formal case management; whereas the LCIA generally leaves much more to the parties and is there as a backstop in case of inertia setting in. Which of those approaches appeals most will obviously depend on the parties and the circumstances.
Politics also plays a role. International arbitration is effective so long as its outcomes can be internationally executed. Where one nation does not recognise another (for some time the position between India and China for example) the chances of a smooth upholding of an award between such states are obviously reduced. Traditional allies make better arbitration bedfellows than traditional enemies. Stability and endurance of governments is a positive sign which most clients will want to see when they are choosing a seat for their arbitration.
International arbitration is big business and a desirable activity for all developed nations. This has led to more recognition of the needs of the international commercial community and a growing willingness to change traditional mores. Recent changes by Hong Kong, New York and Singapore have increased the attractiveness of these centres. China has recently introduced new arbitration rules which allow parties to separate the arbitration and mediation functions which traditionally were run side by side with compensatory losses of confidentiality.
Of course choice of seat is only available where there is freedom of bargaining power and regional preferences will often dictate where the arbitration is to be held. Asian businesses outside China will often choose Singapore as a seat, while in China where there is so much inter-connection between the state and private ownership the choice of seat may be limited to Beijing or Shanghai under the CIETAC rules. The growth of the Dubai International Arbitration Centre has added extra impetus to arbitrations involving Middle Eastern commercial ventures.
Even where the seat might be decided easily (or chooses itself), the extent to which the relevant procedure will be user-friendly is something else to consider. Does heavy disclosure (as in the US-style kitchen sink approach) appeal or would the client prefer a jurisdictional choice which would lead to a minimum disclosure threshold? To what extent can procedural matters be handled from abroad without the need for active local agents? Is language an issue? Who is available from the pool of international arbitrators who work within the particular jurisdictional framework?
The world may be getting smaller and the use of arbitration more commonplace. For the moment however the need to avoid having a default setting on the choice of arbitral seat remains acute – even if the client is unaware of that fact.