The Seat of Arbitration: A Crucial Choice with Far-Reaching Implications
When parties decide to settle their disputes through arbitration, one of the first key decisions they face is choosing the “seat” of the arbitration. This seemingly innocuous choice carries significant weight, impacting the entire arbitration process and can potentially influence the outcome and even successful management of any dispute arising.[1]
What is the Seat of Arbitration?
The “seat” of arbitration refers to the jurisdiction where the arbitration is legally considered to take place. It’s the legal address of the arbitration, establishing its connection to a particular legal system.[2]
Typically, parties must agree on the seat which is confirmed in their arbitration agreement. If they fail to establish the seat, most arbitration rules will designate the arbitral institution or the appointed tribunal to determine the seat.
While the physical location of oral hearings might coincide with the seat, it is possible to have hearings in other places yet the seat remains elsewhere. It is also crucial to remember that the seat does not necessarily reflect the law governing the dispute’s substance. For example, a contract governed by New York law could have its arbitration seated in France, or a Contract governed by Nigeria law can have its arbitration seated in London.
Why Does the Seat Matter?
The choice of seat has a profound impact on various aspects of the arbitration:[3]
- Procedural Law: The seat determines the “lex arbitri,” the law governing the arbitration’s procedural aspects. While parties can establish their own procedures, the lex arbitri acts as a gap-filler, addressing procedural issues not explicitly agreed upon.
- Mandatory Requirements: Many jurisdictions impose mandatory rules on arbitrations seated within their territory. These rules cannot be waived. For instance, an arbitration seated in England is subject to English arbitration law, mandating arbitrators to adopt procedures suitable to the specific case while minimizing delays and expenses.
- Curial Role of Courts: Choosing a seat signifies an agreement to grant the courts of that jurisdiction a “curial role” in the arbitration. The courts of the seat hold exclusive jurisdiction to hear applications concerning annulment or setting aside the arbitral award. While other jurisdictions might refuse to enforce an award, they lack the authority to vacate it.
- Grounds for Annulment: The seat dictates the grounds for challenging the arbitral award. As different jurisdictions have distinct standards and procedures for such challenges, the choice of seat can significantly influence the success of a challenge.
- Interim Relief: Courts of the seat have jurisdiction to entertain applications for interim relief. They can compel reluctant parties to participate in the arbitration or assist in obtaining discovery.
Nigeria’s Position on International Arbitration
When parties to an international commercial arbitration expressly and unambiguously agree on Nigeria as the seat of their arbitration or that the arbitration is to be conducted in accordance with Nigerian law, the law governing the arbitration will be Nigerian law. Accordingly, the principal arbitration statute in Nigeria, the Arbitration and Mediation Act (AMA), will apply.[4] However, if the parties have not specified the applicable law or if the agreement is ambiguous, and the substantive contract is governed by Nigerian law, section 32 of the AMA will be used to determine the seat of arbitration. Section 32 of the AMA provides thus[5]:
“(1) The seat of the arbitration shall be designated (a) by the parties to the arbitration agreement;
(b) by an arbitral or other institution or person authorised by the parties with powers in that regard
(c) subject to subsection (2), by the arbitral tribunal.
(2) Where the parties have not designated the seat of the arbitration and they have not authorised any arbitral or other institutions to designate the seat of the arbitration, the seat of the arbitration shall be any place in Nigeria as the arbitral tribunal may determine, unless the arbitral tribunal decides that a place in another Country should be the seat of the arbitration having regard to all the relevant circumstances, including —
(a) the Country with which the parties and the transaction have the closest connection;
(b) the law that the parties have selected to govern their substantive rights under the contract, and
(c) any law that the parties may have chosen to govern the arbitration.
(3) Notwithstanding the provisions of subsections (1) and (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate to consult among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents.
(4) In this section the expression “seat of arbitration” means the juridical seat of the arbitration for purposes of determination of the law that will govern the arbitration proceedings (the curial law).”
Similarly, Article 18(1) of the Arbitration Rules[6] in the First Schedule to the AMA provides that:
“Where parties have not previously agreed on the seat of the arbitration, the seat of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the arbitration. The Award shall be deemed to have been made at the seat of arbitration.”
Based on the above mentioned provisions of the AMA and the Arbitration Rules, the failure of parties to be very clear in their selection of the seat of their arbitration invariably means that the determination of the seat is for the arbitrator(s) to make, having regard to both the circumstances of the case and the convenience of the parties. Such a scenario may present unexpected results for either one or both of the parties to the arbitration, the consequences of which, in certain cases, could be rather staggering. In this regard and for added context, it is worth taking a brief look at the dispute between the Federal Republic of Nigeria (FRN) and the company known as Process and Industrial Developments Limited (P & ID). In some respect, the FRN’s travails following its dispute with P & ID are traceable to the issue of the identity of the seat of the arbitration that emanated from the agreement between both parties, by reason of which it is useful to have a look at the circumstances of that case here.
The P & ID V FRN Case
The conflict between the Federal Republic of Nigeria (FRN) and Process and Industrial Developments Limited (P&ID) quickly gained significant attention, dominating headlines due to P&ID’s attempts to enforce an international arbitral award exceeding $9 billion against the FRN in both the United States and the United Kingdom. This award is potentially the largest ever issued against the Nigerian state. On January 11, 2010, the FRN and P&ID entered into a Gas Supply and Processing Agreement (GSPA), which involved a 20-year barter exchange of natural (wet) gas for natural gas liquids extracted from the wet gas. When a dispute arose under the GSPA, P&ID initiated arbitration proceedings against the FRN, relying on the dispute resolution provision in clause 20 of the GSPA. This clause stipulated, among other things, that:
“The Parties agree that if any difference or dispute arises between them concerning the interpretation or performance of this Agreement and if they fail to settle such difference or dispute amicably, then a Party may serve on the other a notice of arbitration under the rules of the Nigerian Arbitration and Conciliation Act (Cap A18 LFN 2004) which, except as otherwise provided herein, shall apply to any dispute between such Parties under this Agreement…The venue of the arbitration shall be London, England or otherwise as agreed by the Parties.”
Upon the commencement of the arbitration and at its initial stage, the question of the seat of the arbitration was apparently not an issue or dispute between the parties. However, during the course of the arbitration, the question of the seat of arbitration arose, by reason of which the arbitral tribunal had cause to interpret clause 20 of the GSPA and give a determination of what it considered to be the seat of arbitration. Although in a Part Final Award made on 3rd July 2014 the Tribunal had referred to England as the seat of arbitration in the determination of some other issues, a formal determination of the question of the seat of arbitration subsequently became of fundamental importance owing to the fact that the FRN had approached the Nigerian Federal High Court to seek injunctive relief in respect of and inimical to the arbitration. The FRN also subsequently approached the High Court of Lagos State for an Order setting aside an award that had been made on 17th July 2015 on the liability of the FRN to P & ID (The Liability Award).[7]
In determining that the seat of arbitration was England and not Nigeria, the arbitral tribunal held in its Procedural Order 12 that: “…the parties’ selection of London as ‘the venue of the arbitration’ rather than of any particular steps (such as hearings) in the arbitration indicates that London was selected under section 16(1) (of the ACA) as the place of the arbitration in the juridical sense, invoking the supervisory jurisdiction of the English court, rather than in relation to any particular events in the arbitration…the parties and the Tribunal have consistently acted upon the assumption that London was the seat of the arbitration…the Tribunal considers that the Government must be taken to have consented to this being the correct construction of the GSPA.” Based on this determination of the seat by the tribunal, although the Nigerian courts had granted the FRN the injunctive reliefs earlier sought in respect of the arbitration and also set aside the liability award, the arbitral tribunal pointedly ignored the decisions of the Nigerian courts and in that regard stated that “… As the parties will be aware from Procedural Order No 12, the Tribunal has decided that the seat of the arbitration is England. It follows that the Federal Court of Nigeria had no jurisdiction to set aside its Award.”[8]
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Popular Seat Locations
London, Singapore, Hong Kong, Paris, and Geneva are popular choices for international arbitration seats. In Africa, Cairo, Lagos, and Kigali are often selected. The favorability of different jurisdictions is continuously assessed,[10] and some are considered more reliable than others.[11]
In the US, New York is the most popular seat[12], accounting for over half of ICC arbitrations seated in the country.[13]
Conclusion
The choice of seat is a critical decision in any arbitration. It can profoundly affect the procedural rules, the judicial oversight, the grounds for challenging awards, and the remedies available.[14]
Given the significant implications of the seat choice, parties must carefully consider the legal and practical consequences of each potential seat. Factors such as the jurisdictional rules, the courts’ approach to arbitration, and the general business environment play a crucial role in determining the most suitable seat.[15]
By carefully navigating the intricacies of the seat choice, parties can lay a strong foundation for a fair, efficient, and ultimately successful arbitration process.
References
[1] Jonathan H. (2014). Determining The Seat of An International Arbitration: Party Autonomy and The Interpretation of Arbitration Agreements, International & Comparative Law Quarterly, No. 63.
[2] Loukas M. (2016). Seat of Arbitration and Indian Arbitration Law Indian Journal of
Arbitration Law, No. 4.
[3] Alain, H. (1979). The Place of Arbitration And The Lex Arbitri Arbitration Journal, No.34
[4] Arbitration and Mediation Act 2023
[5] Section 32 of the Arbitration and Mediation Act 2023
[6] Arbitration Rules
[7] https://nigeria-pandidcase.org/high-court-sets-aside-us11-billion-arbitral-award-refuses-p-id-permission-to-appeal/
[8] Nigeria v P&ID [2023] EWHC 2638.
[9] 2018 International Arbitration Survey: The Evolution of International Arbitration accessed on 4th August 2024 from https://arbitration.qmul.ac.uk/research/2018/#:~:text=Once%20again%2C%20the%20five%20most,Singapore%2C%20Hong%20Kong%20and%20Geneva.&text=They%20believe%20that%20its%20’formal,to%20continue%20to%20support%20arbitration.
[10]GAR – CIArb Seat Index published 15 November 2018 accessed on 4th August 2024 from https://globalarbitrationreview.com/survey/gar-ciarb-seat-index/2020
[11] William, W. P. (2012). Arbitration of International Business Disputes: Studies in Law and Practice, Oxford.
[12] https://www.lexisnexis.co.uk/blog/research-legal-analysis/arbitration-statistics-2023-rising-caseloads-repeat-appointments
[13] Loukas, M. and Brekoulakis, S. (2008). Arbitrability, International & Comparative Perspectives, Boston.
[14] Olawoyin A. O. (2009). Charting New Waters with Familiar Landmarks The Changing Face of Arbitration Law and Practice in Nigeria Journal of International Arbitration, No 26.
[15] Kaufmann-Kohler, G. (1999). Identifying and Applying The Law Governing The Arbitration Procedure- The Role of The Law of The Place of Procedure, [in] Improving The Efficiency of Arbitration Agreements and Awards: 40 Years of The Application of The New Year Convention AJ van den Berg (ed), Netherlands.
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