By Michael Ostrove, Claudia Salomon, and Bette Shifman
The choice of where an arbitration is venued, known as the seat or the place of arbitration, has important implications and should not be made lightly. The venue of an arbitration impacts the role of local courts in relation to the arbitration, the conduct of the arbitration, and ultimately the enforceability of the award.
Careful selection of the venue of an arbitration is important for several reasons. First, state courts of the selected venue have a role in supervising the arbitration and can influence the process not only before the proceedings have been initiated, but also during the arbitral hearing. The parties, therefore, should pay attention to the local laws and general judicial attitude towards arbitration in the chosen jurisdiction. Second, the seat of arbitration may lead to the imposition of specific rules regarding the conduct of the arbitration, whether relating to the treatment of witnesses or even who may act as counsel or arbitrator. Third, the local laws of the seat of arbitration will be important for the enforcement of the ultimate award or for the applications seeking to annul it. The choice of venue impacts many other issues, including some that may significantly affect cost and convenience. For example, the venue is frequently (although not always) the location where the hearings are held. Thus, it is important to ensure parties and their witnesses have easy physical and legal access to the area.
Prior to the initiation of arbitral proceedings
Local courts of the selected jurisdiction are often called on to provide substantial assistance to the parties even before the arbitration process has been initiated. Although arbitration is largely an extra-judicial process, it is not uncommon that a party brings judicial proceedings seeking preliminary relief, challenging the validity of an arbitration clause or asserting that the particular dispute does not fall within the jurisdiction of the arbitral tribunal and instead should be litigated. Arbitration works most efficiently when courts quickly dismiss challenges to arbitral jurisdiction so long as the contract between the parties contains a valid and enforceable arbitration clause. The courts’ analysis, however, will be based on a variety of factors that vary substantially by jurisdiction. For example, most jurisdictions require that the contract and the arbitration clause be in writing. Yet, neither Stockholm nor Switzerland have such a requirement. The procedure itself for ruling on the jurisdiction of the arbitral tribunal will also be treated differently across venues. While many courts follow the principle that an arbitral tribunal is empowered to rule on its own jurisdiction, this doctrine has been undermined in India by a recent court decision, is not recognized at all in China, and varies according to the wording of the arbitration clause in the United States.
Many parties believe that, once the arbitral process has started, the local courts of the venue no longer have influence over it. That is, however, frequently not the case. The courts can — and do — intervene in the arbitral process. Before selecting a venue, the parties should fully understand the circumstances that may trigger such intervention. One of the most important considerations in this category is the local courts’ position on compelling testimony and evidence. Fact-gathering is critical to successful dispute resolution, yet arbitral tribunals have limited power over third-parties. Thus, parties may need assistance from local courts to secure testimony from third-parties or compel them to produce evidence. The assistance that local courts can provide, however, varies by jurisdiction. For example, a German court cannot compel the production of evidence, while a French court might exercise that power. On the other hand, although courts in Germany and Switzerland can order provisional measures even after arbitral proceedings have started, other courts (for example, in France) have authority to order such measures only before the start of the arbitration.
Some of the most important effects of the choice of venue are revealed only at the post-award stage. Thus, the grounds for annulment of the arbitral award vary from venue to venue. For example, while most local courts will revoke an award for “violation of public policy,” the interpretation of what constitutes a violation of public policy can vary tremendously between venues. The timeframe during which the parties can demand annulment also varies significantly by jurisdiction. Finally, the parties should remember that the award can be set aside only in local courts of the venue under their local rules and procedures, and the proceedings are conducted in the local language. Thus, the time and cost associated with annulment actions will vary greatly from one venue to another.
With the variety of ways in which local courts can influence the effectiveness and cost of arbitral proceeding, it is important to recognize the importance of venue selection. The parties should always carefully consider their options and discuss them early in their contract negotiations.
Michael Ostrove is the Head of International Arbitration at DLA Piper (Paris). Claudia Salomon is Global co-chair of Latham & Watkins’ International Arbitration practice. Bette Shifman is Vice-President, Director of Publications & Special Counsel at CPR International Institute for Conflict Prevention & Resolution. They are the co-editors of Choice of Venue in International Arbitration, published by Oxford University Press (2014).