By: Adewole Oladimeji, ACArb
Introduction
The idea of a universal lex arbitri (Law of Arbitration) is as illusory as that of universal peace. Each state has its own national characteristics, its own interests to protect, and its own concepts of how arbitrations should be conducted in its territory.
The world is constantly moving towards globalisation. This is evident in current world trade and business investments. Arbitration is keeping up with this trend by harmonizing arbitral practices. In addition, these practices are supported by rules, which are further backed up by laws. This tends to ease professional practice of arbitration on an international scale as well as increase the effectiveness of the arbitral process by reducing court interference.
Further to state national laws, arbitral rules and laws are administered through recognised regional institutions and bodies. They include the Nigerian Institute of Chartered Arbitrators (NICArb), United Nations, International Chambers of Commerce Court of Arbitration (ICC), London Court of International Arbitration (LCIA), International Court of Arbitration, International Centre for Dispute Resolution and American Arbitration Association (AAA). In addition, conventions and treaties like the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention 1958) further support arbitration rules and laws. For example, the New York Convention provides that courts in various jurisdictions in the world ratify as well as enforce arbitral agreements and award.
The Law of Arbitration
International and National laws govern arbitral proceedings. However, one of the most important is the ‘lex arbitri’. This translates to ‘law of the arbitration’. It is the law that regulates the conduct of the arbitration itself.
The seat of the arbitration usually determines the lex arbitri. However, there are scenarios where parties, vide their agreement, may request that another law be used in place of the law of the seat of arbitration. Recourse is still made to the lex arbitri for the legality of using another system of law.
The lex arbitri differs from jurisdiction to jurisdiction. This is because countries or states are free to create and design their arbitration laws. However, many times the lex arbitri would not have any effect on the arbitral proceedings. This is because parties or Tribunals enjoy the flexibility of setting out the procedural rules for the conduct of the whole arbitration in an arbitration agreement.
The Seat of Arbitration
The seat of arbitration or loci arbitri simply means the law that governs an arbitration proceeding. The English Arbitration Act defines the seat of arbitration as ‘the juridical seat of the arbitration’ specifically chosen either by the parties, arbitral institutions or an arbitral tribunal. Thus, if an arbitration proceeding were held in Canada, the seat of arbitration would be Canada and thus subject to Canadian national law.
This is one of the major roles of the seat of arbitration on proceedings. It is said that there is a ‘territorial link’ between the seat of arbitration and the law governing the arbitration. In Nigeria for instance, the Court of Appeal in Emerald Energy Res. Ltd. v. Signet Advisors Ltd. the court held as follows:
“On issues involving arbitration and conciliation in Nigeria, the applicable law is Arbitration and Conciliation Act. The provisions of the Arbitration and Conciliation Act, regulate everything about arbitration and arbitral award. By the provisions of sections 31(1) and 51(1) of the Arbitration and Conciliation Act an arbitral award shall be recognized as binding and enforced in Nigeria. The application of the respondent at the trial court was for the recognition and enforcement of the arbitral award from London Court of International Arbitration, London. The procedure and the application were brought within the provisions of the Arbitration and Conciliation Act as stated above.”
Therefore, “when one says that London is the place of arbitration, one does not refer solely to a geographical location. One means that the arbitration is considered within the framework of the law of arbitration of England”. Alastair describes the concept of the seat of arbitration as ‘a legal construct, not a geographical location. The arbitral seat is the nation where an international arbitration has its legal domicile or juridical home’. Thus ‘parties do not make a direct choice of the laws applicable to their arbitration. Rather, they make a conscious choice of seat/place and the applicable lex arbitri flows from that’.
The ICC rules also gives such authority to the ICC in circumstances where there is no express choice for the place of arbitration. In the English case of Braes of Doune Wind Farm (Scotland) v Alfred McAlpine Business Service, there was no indication as to the seat of arbitration or choice of law of arbitration in the arbitration agreement. However, the court came to a decision concerning the seat of arbitration through the use of parties chosen procedural law. Parties were seen to have chosen English procedural law to govern their arbitral proceedings and thus the courts held that the seat of arbitration would be England.
The seat of arbitration becomes more important with regards to disputes with an ‘international character’. This includes, disputes concerning an agreement between two parties from different countries. For example, one from Finland and the other from Denmark. Both parties would be anxious to adopt their national law to govern the agreement. In order for fairness, a neutral ground would have to be chosen and incorporated into the agreement. This neutral ground would be another country, for instance, Nigeria. Since the seat of arbitration is now Nigeria, the law governing the arbitration would be Nigerian law i.e. the Arbitration and Conciliation Act. This is the rule of the law of the place of arbitration (lex loci arbitri). In Mekwunye v Imoukhuede, Nigeria’s apex court held that; ‘Arbitration in Nigeria is governed by the Arbitration and Conciliation Act’.
However, it is apt to note that even if an arbitration agreement expressly states a particular country as the seat of arbitration, parties may decide to include clauses that provide that a different rule govern the proceedings. In the example above, parties may choose that the Model Law in place of Nigerian law to govern the arbitration.
On the other hand, in Nigerian National Petroleum Corporation (NNPC) v Lutin Investment Ltd it was held that arbitrators are empowered to determine the place of sitting in the absence of an agreement by parties and invariable the lex abitri.
Further, the seat of arbitration does not change because parties held a hearing or meeting in another jurisdiction. An English Court of Appeal in Naviera Amazonia Peruana SA v Compania Internacional de Seguros del Peru (Peruvian Insurance case) held that parties might find it expedient to hold meetings in other countries and this will not nullify their original seat of arbitration, except again it is the wish of the parties to do so.
Law of The Seat of Arbitration
International arbitration has about five different stages where various laws or rules may come into the scene, and have an effect on the conduct of the arbitral proceedings. The first stage, the foundation of the arbitration itself, is the law governing the agreement to arbitrate as well as the interpretation of the rest of the agreement.
Second is the law governing the place of arbitral proceedings or the lex arbitri, as well as the composition of the arbitral tribunal. Third is the law that governs the substantive issues between the parties, which is also described as the proper law.
Fourth are the general rules and guidelines that may be applicable to the given case. It has been described as soft or procedural law. Last and one of the most important is the law that governs the ratification and enforcement of the arbitral tribunal’s award. As a result of the international character of a dispute, two or more of these laws may be required from various states. The winning party may require the enforcement of the award in more than one country and thus would make use of each enforcing country’s legal system.
The law of the seat of arbitration is ‘cast in very broad terms. For instance, the Model Law provides that parties should be treated as equal in every case as well as given ample opportunity to present their claim or defence. Similar provisions can be found in other governing rules. Thus, what effect does the law of the seat of arbitration have on arbitral proceedings?
The trajectory of laws governing International Arbitration is to keep arbitral proceedings flexible. Therefore, parties and arbitrators are allowed to fashion and determine the procedures governing the arbitration in accordance to the peculiarity of their case.
Swiss law allows parties choose whatever procedural law they may like. Thus, the seat of arbitration may be Switzerland but the arbitral tribunal can be following the procedural laws applicable in England. As stated earlier, recourse would be made to Swiss law to determine if and to what extent it permits the use of procedural laws other than its own.
The role of the law of the seat of arbitration in the conduct of any given arbitration becomes especially important when the doctrine of separability is considered. This doctrine connotes that a general contract between two parties is separate and distinct from the arbitration agreement found within it. Therefore, for the purpose of arbitration there are two different agreements. One is the general contract governing the transaction between the parties and second is the arbitration agreement found within the said contract.
Furthermore, the law of the seat determines the procedural law to be adopted during the conduct of arbitration. Therefore, the law of the seat may govern issues such as ‘scope of discovery, the extent to which national courts may aid or intervene in the arbitration, and perhaps even the nationality or gender of the arbitrators and counsel. When there is no express or implied indication as to choice of law for the arbitration agreement, the law of the seat of the arbitration may be resorted to.
The law of the seat is usually resorted to over that of the choice of law for the original contract in order to achieve ‘decisional harmony’ over the conduct of the arbitration. This connotes the ease of proceedings between the law governing the arbitral proceedings and that governing the law applicable to the arbitration agreement. Klaus Peter adds that ‘this approach takes account of the fact that the arbitration clause is a contract intended to achieve procedural effects, i.e. the establishment of a system of private justice for the parties.
Since the law of a place is determined by the state itself, states can design their arbitration laws in a way to control the ‘effective conduct’ of the arbitration. For example, many countries entrust rules of enforcement to the regulation of their national courts. Thus, even though an arbitral tribunal has the power to make orders for seizures of goods or inspection of property, these orders are still subject to the ratification of National courts.
In addition, the law of the seat of arbitration may permit arbitral tribunals to do certain things that parties did not expect. For instance, it may grant them the power to consolidate cases. This power enables arbitrators join two or more cases with similar fundamental issues into a single case. This may be unexpected and unfavourable to some parties who do not want to involve other parties from other cases. Furthermore, the lex loci arbitri may reserve exclusive jurisdiction with courts over certain matters.
Thus, states or countries tend to differ in degree to which issues are allowable for arbitration. Some tend to be liberal while others not so liberal. This further leads to forum shopping, which entails parties picking out laws of places that are favourable to their business. For instance, Geneva and London are known for their liberal approach to intellectual property disputes, particularly those dealing with issues of trademark. Therefore, parties would gravitate towards those states.
It is apt at this point to reiterate three important stages where different laws may be used in the conduct of arbitration. First is the law governing the contract between the parties, second is the law governing the seat of arbitration and last the law governing the place of enforcement of the arbitral award. Thus, regardless of forum shopping, the law governing the contract as well as the seat of arbitration may permit parties to go ahead with arbitration however, the law of the place of enforcement may deem otherwise. An arbitral award that cannot be enforced is ineffectual to a winning party.
Conclusion
The main purpose of International arbitration is to harmonize rules and procedures as well as ensure the enforcement of agreement and awards across different jurisdictions. However, these jurisdictions have varying arbitration laws governing them. From the above it is evident that the seat of arbitration plays a significant role from the very start of the conduct of arbitral proceedings to the end.
REFERENCES
• Berger, Klaus Peter. “Re-examining the Arbitration Agreement: Applicable Law– Consensus or Confusion?” International arbitration (2006): 301-334
• Blackaby, Nigel, Constantine Partasides, Alan Redfern, and Martin Hunter. Redfern and Hunter on international arbitration. Oxford Univ Pr, 2009
• Henderson, Alastair. “Lex Arbitri, Procedural Law and the Seat of Arbitration.” SAcLJ 26 (2014): 886
• Murray, Laura M. “Domestic Court Implementation of Coordinative Treaties: Formulating Rules for Determining the Seat of Arbitration Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.” Va. J. Int’l L. 41 (2000): 859
• Braes of Doune Wind Farm (Scotland) v Alfred McAlpine Business Service [2008] EWHC 426 (TCC)
• Emerald Energy Res. Ltd. v. Signet Advisors Ltd. (2021) 8 NWLR (Pt. 1779) 579,627-628
• Mekwunye v Imoukhuede, (2019) 13 NWLR (Pt. 1690) 439,501 15
• Naviera Amazonia Peruana SA v Compania Internacional de Seguros de Peru [1988] 1 Lloyd’s Rep 116
• Nigerian National Petroleum Corporation (NNPC) v Lutin Investment Ltd (2006) 2 NWLR (Pt. 965) 506
• Arbitration Act 1996
• Arbitration and Conciliation Act Cap 19 LFN 1990,
• Federal Arbitration Act of 1925
• International Chambers of Commerce Rules
• London Court of International Arbitration (LCIA) Rules
• Model Law on International Commercial Arbitration 1985 (Model Law)
• New York Convention 1958
• Swedish Arbitration Act
• Swiss Private International Law Act 1987 (Swiss PIL)
• UNCITRAL arbitration rules
