The choice of an arbitration forum can significantly affect the arbitral process. Prakash Pillai and Cynthea Zhou argue that parties should not just settle for a neutral jurisdiction
Arbitration clauses, which are usually dealt with at the end of the negotiation process, are often the most poorly conceived and badly understood clauses in cross-border agreements. They are also frequently mishandled by negotiating parties who are overeager to draw the process to a close.
Functioning on autopilot
One aspect of this problem is the seemingly simple issue of choosing the right forum for dispute resolution through arbitration. Negotiating parties often use a set formula to determine the forum and it goes like this: party A chooses his home jurisdiction; party B disagrees and choose his home jurisdiction; parties finally settle by choosing a city that neither is particularly connected with and which is located halfway in between both.
This simplistic approach is not just lazy, it is also risky as it severely underestimates the importance of the task at hand.
Choice of forum is important as it determines the seat of the arbitration and thereby the procedural laws by which it will be conducted. The forum provides the legal infrastructure for the arbitration and that translates to the laws supporting the arbitration. The legal infrastructure can be broken down into two main categories: statutes and judicial pronouncements.
Commonality breeds complacency
Part of the reason for the complacent attitude displayed by contracting parties when choosing a forum is that there is a great deal of common ground shared by most commercial nations in respect of statutes. Nearly all commercial nations have national arbitration legislation, which performs the same basic functions and contains similar basic rules. Arbitration statutes typically provide that arbitration agreements are irrevocable and enforceable. This means that when parties have agreed to arbitrate disputes that might arise under a contract, neither can change its mind, and the courts must give deference to the jurisdiction of the arbitral tribunal.
These statutes also typically empower courts to assist the arbitral process, for example, in terms of appointing of arbitrators, or granting interim relief while an arbitration is pending. They facilitate arbitration proceedings by conferring various powers on arbitral tribunals to decide on matters such as security for costs, discovery of documents, interrogatories and giving of evidence. They also provide the foundation for derailment challenges in the form of setting aside of awards and enforcement challenges. However, they usually limit such challenges to situations where the making of the award is tainted by fraud or corruption, where there is a breach of the rules of natural justice, or where the award is in conflict with the public policy of the country.
But significant differences can appear between forums in respect of judicial pronouncements. Essentially, the key to assessing the strength of legal infrastructure lies in how well the courts interpret the intended effect of national laws.
In the context of arbitration, parties should look for a judicial attitude that favours the approach of minimal interference towards the arbitration process. In addition, a judiciary that gives effect to the primary objectives of the legislative framework of arbitration by preserving party autonomy and ensuring that principles of natural justice are complied with is vital.
The Singapore example
In this regard a jurisdiction like Singapore has an exemplary track record. This is demonstrated by recent judicial pronouncements in cases such as Soh Beng Tee & Co Ltd v Fairmount Development Pte Ltd. In it the Singapore court clearly expressed its support of the legislative framework by strictly adhering to the narrow scope for challenging arbitral awards and emphasized that the courts in Singapore would seek to support and not subvert the arbitration process. More significantly, in PT Asuransi Jasa Indonesia (Pesero) v Dexia Bank SA, the Singapore court considered, but ultimately departed from the reasoning of the Supreme Court of India in ONGC v SAW Pipes Ltd. The Indian judgment had held that an error of law was contrary to the public policy of India if it was “patently illegal”, and that meeting this threshold would constitute sufficient grounds for setting aside the award under the country’s arbitration act. The Singapore court’s view was that errors of law did not per se warrant judicial intervention. To justify setting aside an award on public policy grounds, it was necessary to meet the stringent threshold of showing that upholding the award would “shock the conscience” of the public or violate its most basic notions of morality and justice. Recently, the Singapore Court of Appeal maintained its policy of exercising restraint in interfering with the arbitral process in AJU v AJT by reversing the decision of the high court, which had set aside an arbitral award on public policy grounds. In it the Court of Appeal cited section 19B (1) of the Singapore International Arbitration Act, which stipulates that an international arbitration award shall be final and binding on parties and called for the court to give “primacy to the autonomy of arbitral proceedings and upholding the finality of arbitral awards”.
Careful consideration is vital
Judicial attitudes vary from country to country and it is imperative that parties understand the arbitration regime of the forum they are choosing in order to safeguard their interests. As such, the current practice of choosing a “neutral” venue should be replaced by a considered analysis of the legal implications of locating any future arbitration in a particular forum.
Prakash Pillai is the head of the South Asia practice and partner in the international arbitration practice at Rajah & Tann LLP in Singapore. Cynthea Zhou is an associate at the firm’s international arbitration practice.