DISPUTE RESOLUTION: International Arbitration: Why Where Matters: The Seat of Arbitration in International Energy Contracts

by King & Spalding
Contact

The Seat of Arbitration and the New York Convention

The June 2012 issue of the King & Spalding Energy Newsletter included an article summarizing "Tips for Arbitration Agreements in International Energy Contracts."
[1] Among those tips was the need to evaluate carefully and expressly designate in the contract the official site, or seat, of arbitration of any dispute arising out of or in connection with the parties' agreement(s). This follow-on article explains in more detail why that choice is so important.

Designating the seat of arbitration is one of the most important elements of an effective international commercial arbitration agreement. Parties should keep two key factors in mind in making that decision: (1) the seat should in most cases be in a state that is a party to the New York Convention to benefit from the protections of that treaty; and (2) the seat should be in a jurisdiction that has a well-developed body of arbitration law, courts experienced with arbitration issues, and a tradition of supporting and respecting international arbitration agreements and awards.

The New York Convention

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
[2] to which 149 States are now party, is the primary multilateral treaty with respect to international commercial arbitration. Known as the New York Convention, it applies to arbitral awards made in the territory of another State or considered not domestic under the law of the State in which enforcement is sought. [3]

While arbitration provides a neutral forum and allows parties to craft by agreement the process by which their contractual disputes will be resolved, international arbitration often requires the assistance of national courts to function effectively. The New York Convention provides a legal framework for the national courts of its Contracting States to review, recognize, and enforce those agreements and the awards flowing from them.

Among other things, the Convention provides for the courts of Contracting States to recognize an agreement in writing by which the parties undertake to submit their disputes to arbitration, unless it finds that the agreement is null and void, inoperative, or otherwise incapable of being performed.
[4] It further provides for each Contracting State to recognize and enforce an arbitral award made in another state, except under the limited bases for refusing recognition or enforcement defined in the Convention. [5]

While the Convention does not require reciprocity, many parties, including the United States, have declared that they will only apply the Convention to awards made in the territory of another Contracting State. [6] By siting the arbitration in a state which is a party to the Convention, the parties ensure they may obtain the benefits and protections of the Convention with respect to the aid of the local courts in recognizing and enforcing their arbitration agreement, the arbitral process, and any arbitral award.

Application of Local Law at the Seat of Arbitration

The New York Convention provides for each Contracting State to adopt local law applying the Convention in its territory, setting terms for the recognition and enforcement of agreements and awards consistent with conditions set out in the Convention.
[7] In the United States, for example, this was done through Chapter 2 of the Federal Arbitration Act. [8] The Convention thus places local law at the center of its implementation. The significance of local law, however, goes well beyond implementing the New York Convention.

When it comes to arbitration agreements, it is important to distinguish between a law governing the substantive issues in dispute and a law governing matters concerning arbitration under the contract (the lex arbitri). Regardless of the contractual designation of substantive law, the seat of the arbitration ordinarily governs arbitral procedure, including any local court involvement in aid of the arbitration or review and recognition of the award.
[9] For example, if a Production Sharing Agreement provides it is governed by English law, the arbitrators will apply English law to substantive issues; but if the arbitration is seated in Geneva, Swiss law will apply to the conduct of the arbitration. While some jurisdictions recognize that parties may expressly choose the procedural law of another jurisdiction, this is rarely done and is ill-advised. It is simpler to agree upon and designate a neutral seat having arbitration law with which the parties are comfortable. [10]

Setting Aside the Award Distinguished from Enforcing the Award

In evaluating an arbitral seat, it is also important to distinguish between setting aside an arbitral award and enforcing (or refusing to enforce) an arbitral award.

Under both the New York Convention and pre-existing arbitration jurisprudence, the courts of the place in which the arbitration was held or whose procedural law governed an arbitration have primary jurisdiction to review an award and determine its validity. That is, the only place where an arbitration award may be set aside or invalidated is at the place where the award was issued; i.e., the seat of arbitration. The courts of other jurisdictions have secondary jurisdiction and may only determine whether to enforce the foreign award in their jurisdiction.
[11]

Further, rather than the New York Convention, the local law at the seat of an arbitration determines whether an award may be set aside. Consistent with this rule, the New York Convention does not address or restrict the grounds for setting aside an arbitration award; instead, it addresses – and significantly restricts – the grounds on which the courts of other Convention parties may refuse to enforce an award falling under the Convention. [12] Notably, one of the grounds on which a court may refuse to enforce a foreign award is that the award has been set aside in the country in which or under the law of which it was made. [13]

As a practical matter, the parties and arbitrators may agree to hold hearings in a location other than at the seat of arbitration, without changing the seat or the place from which an award is issued. [14] This flexibility may be expressly provided for in an arbitration agreement, including through the choice of rules under which the arbitration will be conducted, or in procedural orders issued by a tribunal in a particular proceeding. [15]

Given the importance of local law, parties should be careful to choose a place of arbitration with well-developed arbitration law and jurisprudence, and with courts experienced in international arbitration matters and sympathetic to the arbitral process. The most popular sites for international arbitration all have differences, but share these essential qualities.
___________________

[1] As in that article, this article also deals with international arbitration of disputes pursuant to commercial contracts rather than arbitration pursuant to bilateral or multilateral investment treaties.
[2] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 330 UNTS 38; 21 UST 2517; 7 ILM 1046 (New York 1958).
[3] New York Convention art. I. An agreement or award may be considered non-domestic, for example, if it is between citizens of the same state but involves property in another state, envisages execution or performance in another state, or otherwise reasonably concerns foreign states. See, for example, Federal Arbitration Act, 9 U.S.C. § 202.
[4] New York Convention art. II(1)-(3).
[5] New York Convention arts. III, V.
[6] See New York Convention art. I(3). The current status of the Convention, including all parties and reservations, is available at www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html.
[7] New York Convention art. III.
[8] Federal Arbitration Act, 9-U.S.C. §§ 201-208.
[9] For a more thorough discussion, see Nigel Blackaby and Constantine Partasides, REDFERN AND HUNTER ON INTERNATIONAL ARBITRATION ¶¶ 3.34-3.87 at 173-193 (Oxford Univ. Press 2009) ("REDFERN & HUNTER").
[10] See REDFERN & HUNTER, supra, ¶¶ 3.63-3.66 at 185-186; Jack J. Coe, Jr., INTERNATIONAL COMMERCIAL ARBITRATION: AMERICAN PRINCIPLES AND PRACTICE IN A GLOBAL CONTEXT § 3.2.1 at 52-53 (Transnational Pub. 1997).
[11] See, e.g., Gulf Petro Trading Co. v. Nigerian National Petroleum Corp., 512 F.3d 742, 746-47 (5th Cir. 2008).
[12] See id.; see also Albert Jan van den Berg, THE NEW YORK ARBITRATION CONVENTION OF 1958 at 20 (Kluwer 1981). The New York Convention expressly allows any interested party to take advantage of an arbitral award in any manner and to the extent allowed under the local law of the place in which enforcement is sought. New York Convention art. VII.
[13] New York Convention art. V(1)(e). As van den Berg notes, this and the corollary provision in Article VI allowing a court before which an enforcement application is pending to stay the decision on enforcement pending a decision on an application to set aside at the seat of arbitration "affirm the well-established principle of current international commercial arbitration that the court of the country of origin is exclusively competent to decide on the setting aside of the award." van den Berg, supra, at 20.
[14] See REDFERN & HUNTER, supra, ¶¶ 3.55-3.59 at 181-83.
[15] Some of the most well-known rules of arbitration expressly provide for hearings and meetings to be held at places other than the official seat of the arbitration. See, for example, ICC Arbitration Rules art. 18 (2012); LCIA Arbitration Rules art. 16 (1998); UNCITRAL Arbitration Rules art. 18 (2010).


 

Written by:

King & Spalding
Contact
more
less

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.