Introduction

Arbitration is the proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to a dispute have agreed will be final and binding. It is the equivalent to litigation in the courts and entirely distinct from the various forms of non-binding dispute resolution mechanisms. A dispute may be arbitrated because the original contract between the parties provides for the arbitration of any dispute arising or because the parties subsequently agree to arbitrate once the dispute has arisen. Arbitration is today most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions.

Advantages of arbitration

Parties often seek to resolve their disputes through arbitration because of a number of real and perceived potential advantages over judicial proceedings. Firstly, when the subject matter of a dispute is highly technical, arbitrators with an appropriate degree of specialist expertise can be appointed. Arbitration is often faster than court proceedings and arbitral proceedings and awards are generally private. Arbitration also usually has a greater degree of flexibility than the court system.

In terms of enforcement, the provisions of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) make arbitration awards generally easier to enforce abroad than court judgments (as signatory states agree that they will recognise and enforce awards made in territories of other contracting states). In addition, in most legal systems, there are limited avenues for appeal of an arbitral award, which can mean swifter enforcement and less scope for a party to delay matters. Due to the international recognition and support that arbitration has achieved, there is widespread acceptance that agreements to refer disputes to arbitration should be upheld by the courts and awards enforced, regardless of the jurisdiction in which the agreements were made. The growth in cross-border commerce has made this increasingly important.

Why is the seat in international arbitration important?

Most legal systems recognise the concept of a “seat” of the arbitration, which means the legal jurisdiction to which the arbitration is tied. The seat dictates which national law governs the procedure. The seat of arbitration need not be in the same country as the venue, although in practice they are often the same. It is the parties to the arbitration agreement that decide the seat of the arbitration, either by reference to contractual provisions or by subsequent agreement. It is important to note that whilst parts of the arbitration hearing may take place in several countries, there can only ever be one seat of arbitration. By having only one such seat, say in England, problems which might otherwise arise where the hearing of the arbitration is, say, in Beijing, and where the procedural arbitrational law might otherwise be imported into the proceedings, will be avoided.

The seat of the arbitration is therefore significant since it will normally determine the procedure or rules which the arbitration adopts, and the courts which exercise jurisdiction over the seat will have a supervisory role over the conduct of the arbitration. By selecting a given state as the place of arbitration, the parties place the process within the framework of that country’s mandatory national laws applicable to arbitration. If there are great differences between the laws of different states, the parties’ choice of seat is likely to affect convenience, cost, and many other procedural aspects of the arbitration.

The seat will also determine the extent to which the national court will support or intervene in the arbitral process. Some states have laws which restrict party autonomy in relation to procedure (for example, imposing restrictive conditions on eligibility of arbitrators) and allow the courts to interfere in a process agreed by the parties in their arbitration agreement. In contrast, other states have relatively permissive national laws which allow the parties a high level of procedural autonomy and restrict interference by the courts, reflective of the high level of support for the arbitral process in that country. For example, supportive measures, such as interlocutory relief, are more likely to be available to the parties in such states.

The degree to which an arbitral award may be challenged will be determined according to the seat of the arbitration since it is usually only the courts of the seat of arbitration that are entitled to hear appeals of arbitral awards. In addition, the extent to which judicial review is available to parties will be dependant on the choice of jurisdiction. Both these factors will govern the extent to which an award is likely to be final and it is often the case that, between commercial parties, finality is a priority.

The regime for recognition and enforcement of an arbitral award will be influenced by the choice of seat. The seat will be directly relevant in determining whether an award is a “New York Convention award” or not, which will significantly affect whether an award has reciprocal recognition and enforcement in other states.

The choice of seat will also have a bearing on such matters as the convenience of the venue to the parties involved and the infrastructure available to allow the arbitration to run smoothly.

Why London?

In England, arbitrations will be conducted pursuant to the applicable provisions of the Arbitration Act 1996 (the 1996 Act) which was enacted to make arbitration law more accessible and user-friendly, harmonise English arbitration law with the laws of other countries as much as possible and to preserve England (and London in particular) as a centre of commercial arbitration. Before the 1996 Act, the tendency of the English courts to intervene in arbitral proceedings meant that England was perceived as insular and outdated.

The guiding principles which underlie the 1996 Act are as follows:

The object of arbitration is to obtain a fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

The parties should be free to agree how the disputes are resolved subject only to such safeguards as are necessary in the public interest; and

The court should not intervene except as specifically provided in the 1996 Act.

Should parties select England as the seat of arbitration, the mandatory provisions of the 1996 Act will apply regardless of the parties’ arbitration agreement, although the non-mandatory provisions will only apply in the absence of any express contrary agreement. The mandatory provisions deal with only indispensable matters such as the power of the court to remove an arbitrator, duties of the arbitrator and of the parties, enforcement and challenges to an award.

Notwithstanding the mandatory provisions, the guiding principle of party autonomy is clear from the structure of the 1996 Act. Most of the non-mandatory provisions allow the parties to "make their own arrangements by agreement, but provide rules which apply in the absence of such agreement" and expressly highlight the right of the parties to agree the relevant matter. Often, instead of piecemeal agreements as to each aspect of procedure, the parties will agree to use the standard terms of reference of a recognised arbitral body, such as the London Court of International Arbitration (LCIA).

Arbitration in London has a deservedly high reputation throughout the commercial world and, as a result, many disputes are determined in England even where parties have no connection to England and where the contract was neither made nor performed in England.

One significant benefit of arbitrating in London is the availability of experts to act as arbitrators who are specialised in dealing with a broad range of commercial disputes, often of a complex and technical nature, particularly in relation to commodities.

The 1996 Act is supportive of arbitration in the sense that the English court is empowered to make orders in support of the arbitral jurisdiction of a tribunal including the granting of injunctive relief, making orders for the preservation of evidence and compelling witnesses to give evidence. Such supportive measures may be critical to the smooth running of an arbitration, particularly where a recalcitrant party is involved.

The 1996 Act imparts a finality to the proceedings, which is often considered important to business. Whilst the 1996 Act entitles parties to challenge an award as of right on the basis of lack of substantive jurisdiction, in practice this provision has been applied sparingly by the English courts. In relation to enforcement, Part III of the 1996 Act provides that an arbitral award will be recognised and enforced with the same effect as if it was an order of the court.

Overview

London remains one of the most popular jurisdictions for international arbitration due to the availability of fairly extensive supportive measures from the court, a lack of court intervention restricting party autonomy and a comprehensive regime in the form of the 1996 Act.