Juridical Transfer of Seats in International Arbitration

Table of Contents

1. IntroductionPage 1

Definition of the Seat of ArbitrationPage 1

Importance of the Seat of ArbitrationPage 1

2. Determination of Seat of Arbitration in International ArbitrationPage 3

3. Changing the Seat of ArbitrationPage 4

ICC Case No. 10439Page 7

ICC Case No. 10623Page 9

4. ConclusionPage 10

5. BibliographyPage 12

IntroductionDefinition of the Seat of ArbitrationThe agreement on the seat of arbitration is a regular component of arbitration agreements, at least in international disputes and is a major component of practical importance in arbitration, as it determines or directly influences a number of issues, such as arbitrability, determination of the governing law, whether substantive or procedural, and determination of the place for the annulment proceedings of the arbitral award. The parties should therefore judiciously consider the seat of arbitration and the effect that it might have upon the conduct of arbitration and the potential enforceability.[footnoteRef:1] [1: http://www.mondaq.com/turkey/x/351536/Arbitration+Dispute+Resolution/Current+Practices+On+Determination+Of+Seat+Of+Arbitration+In+ICC+Arbitration]

Importance of the Seat of ArbitrationThe seat of arbitration majorly highlights one of the typical feature of arbitration, the autonomy of the parties and also demonstrates the weakening of the rhythm between the seat of arbitration and the arbitration itself, which is majorly due to the fact that litigation is always governed by the traditional procedural rules of a court (the principle of lex fori). Consequently, the procedural rules applicable to court proceedings would leave no discretion for the enforcing of awards made in conflict-of laws rules and methods. This is because the same is governed by the principle of territoriality, and the courts procedural rules clearly have a territorial nature.[footnoteRef:2] [2: http://www.ijal.in/sites/default/files/Volume%20I%20-%20Issue%201_0.pdf]

However, the arbitral tribunals cannot be considered as state authorities, despite the fact that their duties are somewhat similar to those of courts and hence are chiefly regarded as Different Authorities. Also, that the parties to arbitration are endowed with a major degree of autonomy and hence the choice of seat of arbitration is usually at the discretion of the parties themselves. The seat of arbitration then influences and determines other issues relating to arbitration, and the importance of the seat can then differ depending on the classification of arbitration in a given country.[footnoteRef:3] [3: http://unesdoc.unesco.org/images/0013/001354/135494e.pdf]

International arbitration usually enables the application of two or more legal systems, each of which regulates a different category of issues, thereby leading on to an interaction of multiple legal system which stands out as a typical of international arbitration. There is a possibility of encountering as many as five different legal systems which regulates the status of a particular arbitration and which may differ in the individual proceedings applicable.[footnoteRef:4] [4: https://www.academia.edu/10270800/Importance_of_the_Seat_of_Arbitration_in_International_Arbitration_Delocalization_and_Denationalization_of_Arbitration_as_an_Outdated_Myth]

1. The law applicable to the capacity of the parties to enter into an arbitration agreement and the law applicable to the arbitrability of the dispute;2. The law governing the arbitration agreement;3. The law governing the arbitral proceedings (lex arbitri);4. Applicable substantive law (the law applicable to the merits of the dispute);5. The law applicable to the recognition and enforcement of the arbitral award.[footnoteRef:5] [5: ibid]

This issues may be governed by one and the same law or may concurrently be governed by a different legal systems at the same time, and all will have to be considered in the same proceedings. The importance of the seat of arbitration for the determination of the law applicable to the individual issues will then be dependent on the theory which the state employs to classify arbitration in general, as well as the theory which the state uses to determine the importance of the seat of arbitration.[footnoteRef:6] [6: http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1329&context=njilb]

Localization TheoryThis theory entails that the existence of seat of arbitration connects arbitration to the legal system of a given state. This approach is called the localization approach and identifies law of the seat of arbitration with the lex arbitri of the arbitration. In other words, the law of the seat of arbitration, whether determined by the arbitrators or the court or whether chosen by the parties, shall govern the arbitration. This concept seemingly have been accepted in general and have influenced Geneva Protocol along with the New York Convention, which stipulates that the proceedings shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place. The trend is also affirmed to by the UNCITRAL Model Law and is majorly reflected in the contemporary arbitration laws.[footnoteRef:7] [7: https://www.academia.edu/10270800/Importance_of_the_Seat_of_Arbitration_in_International_Arbitration_Delocalization_and_Denationalization_of_Arbitration_as_an_Outdated_Myth]

Delocalization TheoryThis theory argues that international arbitration would be substantially simpler if reliance could be made on a universal lex arbitri which would not differ from the seat of the arbitration. Neither the arbitrators nor the parties would have to analyse the peculiarities of the individual leges arbitri. Consequently, the delocalization theory endeavours to separate international arbitration from the law of the state in whose territory the arbitral proceedings is conducted. The delocalization of arbitration would result in eliminating the former system of localization approach; in other words, the only system of supervision of the state would be in terms of petition for recognition and enforcement of the award international arbitration would be supranational (transnational, cross-border, or floating).[footnoteRef:8] [8: ibid]

Determination of Seat of Arbitration in International ArbitrationThe seat of arbitration is more important in international arbitration than in domestic (national) proceedings. International arbitration generally adheres to the principle according to which the parties may themselves choose the seat of arbitration; and they should indeed avail themselves of this opportunity, especially in ad hoc arbitration. Otherwise they run the risk that the seat of arbitration be determined contrary to their expectations, which might result in unexpected situations, for instance, in terms of the application of procedural rules, problems of recognition and enforcement, etc. The seat of arbitration may be chosen at any time before the commencement of the arbitral proceedings, i.e. both in the arbitration clause itself, and at any time after the dispute arises. In certain countries, it has also been advocated that the choice of the seat of arbitration may be made retroactively, after the arbitral award is made.The parties choice of the seat of arbitration may be either explicit or implied. For instance, the parties may choose a permanent arbitral institution and thereby either directly determine the seat of arbitration, or at least select the applicable arbitration rules which, in most cases, contain provisions regulating the mechanisms for the determination of the seat of arbitration. Most Rules adopted by permanent arbitral institutions presume that in the absence of a choice by the parties, the seat of arbitration coincides with the seat of the permanent arbitral institution.[footnoteRef:9] These Rules, however, mostly accommodate the autonomy of the parties where a seat of arbitration is different from the seat of the permanent arbitral institution. Ad hoc arbitration naturally allows only a direct choice of the seat of arbitration. In the absence of the parties agreement on the seat of arbitration and in the absence of any rule for determination thereof, the presumption is that the seat of arbitration will be determined by the arbitrators. This should naturally occur at an early stage of the proceedings, at best before the arbitrator(s) start discussing the case, so that the arbitrators and the parties have a clear idea of the laws and rules governing arbitrability, the validity of the arbitration agreement, and the appropriate procedure.[footnoteRef:10] [9: http://unctad.org/en/Docs/edmmisc232add39_en.pdf] [10: https://books.google.co.in/books?id=vNveGO1wcDsC&printsec=frontcover&dq=Ad+hoc+arbitration+naturally+allows+only+a+direct+choice+of+the+seat+of+arbitration.+In+the+absence+of+the+parties%E2%80%99+agreement+on+the+seat+of+arbitration+and+in+the+absence+of+any+rule+for+determination+thereof,+the+presumption+is+that+the+seat+of+arbitration+will+be+determined+by+the+arbitrators.+This+should+naturally+occur+at+an+early+stage+of+the+proceedings,+at+best+before+the+arbitrator(s)+start+discussing+the+case,+so+that+the+arbitrators+and+the+parties+have+a+clear+idea+of+the+laws+and+rules+governing+arbitrability,+the+validity+of+the+arbitration+agreement,+and+the+appropriate+procedure.&hl=en&sa=X&ved=0CCMQ6AEwAWoVChMI7s27nq2UyAIV0BmOCh01Hgmc#v=onepage&q&f=false]

Changing the Seat of ArbitrationProfessor Arthur Von Mehren in his report Arbitration between States and Foreign Enterprises, presented in September 1989 at the 64th Session of the Institut de Droit International, proposed a provision in the Draft Resolution, that declared that if a state renders it unduly difficult to carry on an arbitration on its territory, the arbitration tribunal would be entitled to remove the arbitration to such a place as it may decide, after consultation with the parties. Eventually a debate followed the series of events and the proposal was accepted with an overwhelming majority. No attempt was made to describe various situations in which the general principle proposed, would be advisable or necessary, but underlined that this principle would find its application in rebus sic stantibus or in changed circumstances.[footnoteRef:11] [11: Schwartz and Derains , Guide to the ICC Rules of Arbitration, (Second Edition, 2005).]

Such a limited enquiry will be focused on in a case, either in ad hoc or institutional arbitrations, when the place of an arbitration had been agreed upon by the parties (a State or State enterprise and a foreign private company) and when an unforeseen or exceptional change of circumstances (including a change of attitude of the State party, or of its political regime) has made it unduly difficult to conduct normal arbitral proceedings in that venue.[footnoteRef:12] [12: ibid]

When so ever a request for transfer of seat of arbitration comes up, the tribunal will proceed from the same starting point, pacta sunt servanda; once agreed upon the parties the venue should not be changed except by the parties or the agreement between them. However, like any agreement, such a clause should be interpreted and implemented in accordance with the common intention of the parties at time when the original agreement was executed.[footnoteRef:13] [13: http://www.arbitration-icca.org/media/0/12319088070580/transfer_of_seat.pdf]

A common feature of all such rules is that, subject to the public policy, the parties are free to exercise their autonomy of will on a number of questions, questions which they can choose to regulate, or to leave to the future decision of arbitrators, say the number of arbitrators, the law applicable to the merits, still others are the choice of language or that of the place, or seat of arbitration.[footnoteRef:14] [14: ibid]

In the hierarchy of importance of the various components or elements constituting an arbitration agreement, the rank of the contractual provision fixing the place of arbitration will, in most cases be a secondary than to the basic requirement of an impartial decision by independent arbitrators and to the finality of the award rendered in accordance with due process, and other fundamental requirements. It is only in special or exceptional circumstances that the choice of a particular place may have been for one of the parties and recognised as such by the other, a condition sine qua non of the agreement to arbitrate.[footnoteRef:15] [15: http://www.arbitration-icca.org/media/0/12771033387160/ww_park_accuracy_and_arbitration.pdf]

Irrespective of what the condition were, the choice of place must undoubtedly have been made upon the implied condition or on the common understanding that such a choice must not jeopardise or render impossible the effectiveness of the arbitration agreement itself. The agreement must be interpreted in a way that in all cases the integrity and fairness of the arbitration process would be fully preserved, in accordance with the common expectations of the parties.[footnoteRef:16] [16: supra number 12]

It may be noted that the rules of arbitral institutions (including the ICC Rules) and the UNCITRAL arbitration rules provides no answer, or no clear answers, as to who has the authority, in certain circumstances, to change a place of arbitration agreed by the parties. For instance, Article 18 of the ICC Rules is silent on the subject, and the power, recognised by Article 18 para 2, granted to the Arbitral Tribunal, to conduct hearings and meetings at any location it considers appropriate, after consultation with the parties, elsewhere than at the seat, is obviously no answer. Such a change of physical venue does not alter the legal significance of the chosen place of the arbitration. This silence has led a minority of commentators to contend that the ICC Court would have no authority to refuse to confirm an agreed seat of arbitration and/or to transfer the seat if circumstances, so mandates.[footnoteRef:17] [17: ibid]

However, there exists a contention that, whatever the new circumstances may be, no authority can decide to change the seat of arbitration. This contention here is certainly contrary to elementary principles of interpretation. Furthermore, no reliable inference can be drawn in favour of this contention from the fact that, when the ICC Rules of Arbitration were revised in 1998, a proposal to introduce a provision explicitly granting the Court the authority to change the (agreed) seat was not adopted.[footnoteRef:18] In particular, a doctrinal refusal to recognise such an authority, in absence of an explicit rule to that effect, cannot be justly based on purely administrative and non-judicial role of the ICC Court. Whatever is or may be the precise legal nature of that Court's functions, it cannot be asserted that a decision to change the (agreed) seat in exceptional circumstances is of a totally different nature or of a vastly greater importance than, for instance, that of appointing or removing the chairman of the arbitral tribunal.[footnoteRef:19] [18: ibid] [19: https://books.google.co.in/books?id=Z-Bbba13DZAC&pg=PA1389&lpg=PA1389&dq=arbitration+n+10623&source=bl&ots=p-rYaVpLCm&sig=BMFO_zcQeF2wTAgWCQzIbWwtzHQ&hl=en&sa=X&ved=0CCUQ6AEwAmoVChMIqbuu166UyAIVxwOOCh1m_AZ-#v=onepage&q=arbitration%20n%2010623&f=false]

ICC Case No. 10439In an ICC case, the dispute involved an American corporation on one hand and, the Republic of Serbia and a State enterprise of that country, on the other. The parties had chosen Belgrade as the place of arbitration in a Contract entered by both the parties in the year 1990. Nine years later, disputes arose between the parties, leading to claims and counterclaims, and the American corporation requested the Arbitral Tribunal, and then the ICC Court of International Arbitration to consider its application to change the place of arbitration and designate Geneva instead of Belgrade.[footnoteRef:20] [20: Thomas H. Webster, Dr Michael Buhler, Handbook of ICC Arbitration: Commentary, Precedents, Materials]

A controversial procedural question arose, as to who had the authority to decide on the requested change of place, the Arbitration Tribunal or the Arbitration Institution, in the absence of any specific provision in the ICC Rules. It was argued, on the Serbian side, surprisingly and convincingly, that in cases where the place of arbitration has been agreed by the parties, no one has any authority to modify such a choice, even in the most extreme circumstances, since the Court has merely administrative and not judicial functions. The theory obviously was contrary to the needs of practice but was adopted in the case.[footnoteRef:21] [21: ibid]

In this case mentioned, the request for transfer of seat was based on two grounds, one legal (an interpretation of the contractual clause choosing Belgrade), and the other factual, that the situation allegedly prevailing in Belgrade 2000 under the Milosevic regime was different. On the first point, it is reasonable to assert that the initial choice of place had been, or must have been based on the common understanding and assumption that Belgrade was, and would remain, a legal environment conducive to fair and effective international arbitration, in accordance with the ICC Rules.[footnoteRef:22] In other words, the arbitration agreement as a whole, and in particular its provision on the seat was based upon, and implied the continuing trust of the parties in a Belgrade legal environment in accord with the fundamental principles of international arbitration, i.e., regarding the equal treatment of the parties, and the fairness, independence and impartiality of the proceedings and of the arbitrators.[footnoteRef:23] [22: http://www.arbitration-icca.org/media/0/12319088070580/transfer_of_seat.pdf] [23: ibid]

It was however contended that arbitration in Belgrade 2000 (allegedly the very antithesis of the place chosen in 1990 by the parties) was not, and could not be normal, given the fact that the Milosevic Government had degraded, intimidated, manipulated and purged the Yugoslav judiciary and had placed the Courts in the service of the Governments ironfisted crackdown on political expression by citizens and its xenophobic hatred for the United States with the result, among others, that any future award in favour of the claimant would inevitably be annulled in Belgrade. It was also recognised by the claimant that the fact that a State is a party to an arbitration is not sufficient, as such and in itself, to justify or compel the transfer of the (agreed) place away from its own territory. But it was stressed upon that the dispute involved a de facto expropriation of property by the direct action of the local judiciary.[footnoteRef:24] [24: ibid]

Some support for a positive decision was however drawn from Public and Private International Law in the matter of forum selection clauses. A number of cases such as the Fisheries jurisdiction case, Re Halliburton Co. case and others had confirmed that it was a principle of customary international law that a fundamental change of the circumstances which induced parties to accept a treaty may be grounds for termination of the treaty if the change radically transforms the extent of the obligations undertaken.[footnoteRef:25] [25: ibid]

Also, two specific circumstances (in addition to the general totalitarian context created by the Milosevic regime) were invoked which appeared to give some force to the request for a transfer of seat by either the arbitral tribunal or by the ICC Court of Arbitration. A further fundamental change alleged by the foreign claimant was the unilateral assignment by the State of its contractual obligations, against the will of the foreign party, to another (statecontrolled) contractual partner. And a third, even more, fundamental change of circumstances, in the Claimants view, was the fact that the Serbian State, acting directly or through its own judiciary (and with its active assistance) had caused a de facto expropriation or confiscation of the foreignowned enterprise. In other words, the State, or rather its State controlled assignee (and allegedly new contracting party) had caused the disturbances and difficulties at the core of the dispute submitted to arbitration, thereby effectively frustrating or destroying the legitimate expectations of the regarding the neutrality of the place of arbitration and the normal and correct functioning of the arbitral process.[footnoteRef:26] [26: ibid]

This case however did not face its conclusion and the same went unreported. However, it is indeed necessary to take note of the observation made by the Arbitral tribunal about the purely administrative and non-judicial role of the ICC Court and the reasons adduced by the arbitrators to try to justify their negative conclusion, contrary to the solution adopted by the Institute of International Law under the proposal of Arthur Von Mehren. In any case, the ICC Court of International Arbitration abstained itself from deciding on the request for the transfer of seat.[footnoteRef:27] [27: ibid]

Case No. 10623The Arbitral Tribunal in this case had to address and overcome a number of problems and issues recurrent in international arbitration: e.g. the possibility to convene hearings at venues outside the place of arbitration, interference by the courts of the country of origin of a party, necessity or absence of necessity to stay the proceedings in case of anti-arbitration injunctions issued by the courts at the place of arbitration, and the interpretation of potentially conflicting arbitration clauses. The arbitrators, in their findings, recall a number of rules which can be considered as general principles of international arbitration and will no doubt attract proper practitioners attention since they tend to continue to haunt international arbitrations.[footnoteRef:28] [28: http://www.lalive.ch/data/publications/msc_place_or_seat_of_arbitration_ASA2003.pdf]

It was held in this case that Events subsequent to the signature may render the performance of an arbitration agreement partially or entirely impossible, e.g., the death or non-availability of an arbitrator named in the agreement, the disbanding of the selected arbitration institution, etc. Changed circumstances may also render the proceedings at the agreed place of arbitrations difficult or impossible. In certain cases, a change of hearing venue might be sufficient to bypass the difficulty, for instance, in cases where physical access to the location is difficult due to lack of infrastructure, civil unrest or wars, or where a member of the Tribunal, a party or its counsel is not allowed to be on the territory of the State. In other cases, removing the venue of a hearing may not be sufficient. Among these cases are situations where a State interferes, directly or through its courts, with the arbitration (to which it might be, directly or indirectly, a party). A change of the place of arbitration may have to be envisaged.[footnoteRef:29] [29: ibid]

From a contractual point of view, a change of the place of arbitration agreed by the parties leads inevitably to a clash between two fundamental principles of contract law: pacta sunt servanda and rebus sic stantibus. To the extent that the latter is widely considered as being the security valve and exception to the former, the question will boil down to whether the changed circumstances prevailing in a case justify the transfer of the agreed place of arbitration.[footnoteRef:30] [30: ibid]

Most parties who choose to arbitrate a dispute do so primarily in light of the neutrality of the arbitration process. Thus, the essential part of an arbitration agreement is the parties consent to settle their disputes before one or more independent and impartial arbitrators of their choice, as opposed to bringing the dispute before a state court. The place of arbitration will in these cases be a mere modality of the arbitration agreement, on the same level as the agreement on the applicable law, the language of the proceedings and other provisions implementing the parties fundamental agreement to arbitrate. Even if the parties select a place of arbitration in a country of origin or domicile of one of the parties, this choice should not interfere with and not appear to impair the neutrality of the proceedings or that of the Arbitral Tribunal.[footnoteRef:31] [31: ibid]

ConclusionIn summary, a change of the agreed place of arbitration should not be lightly accepted. The seat or place is part and parcel of the arbitration agreement (pacta sunt servanda). It should, however, go without saying that an arbitration agreement, just like any other contract, is and must be subject to interpretation. In most cases, proper interpretation will lead to the conclusion that the place of arbitration while being an important part of the arbitration agreement, was only one of a number of modalities (like, for instance, the applicable law, language of the proceedings, selection of arbitrators, etc.) of the parties more general agreement: to arbitrate their disputes before an independent and impartial Arbitral Tribunal as opposed to litigate them in courts of law. As a further consequence of the contractual nature of the arbitration agreement, it must be admitted that this agreement is not immune from the rules which generally apply to contracts, in particular the rule of rebus sic stantibus; changed circumstances must be duly considered.There is a panoply of possibilities available to an Arbitral Tribunal to stave off interference of the courts at the place of arbitration, including holding hearings outside the agreed place, or disregarding injunctions from the courts which would frustrate the parties commitment to arbitrate. In many instances, these remedies will suffice, as the courageous award in ICC Arbitration no. 10623 has shown. Sometimes, however, a change of seat would seem to be the only effective means to ensure that the parties legitimate expectations and common intentions at the time they entered into the arbitration agreement are respected.

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