Determination of seat of arbitration, and its legal significance

By Jiang Qiuju, BAC/BIAC
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仲裁地的确定及其法律意义 Determination of seat of arbitration, and its legal significance-BEIJING-ARBITRATION-COMMISSION-BEIJING-INTERNATIONAL-ARBITRATION-CENTRE

The seat of arbitration is a concept referring to location in the legal significance of international commercial arbitration. In the absence of parties’ agreement, the arbitration procedure shall be governed by the law of the seat of such proceeding, and supervised by the court of such seat, and receive relevant judicial support.

姜秋菊-Jiang-Qiuju-北京仲裁委员会-北京国际仲裁中心案件一处处长-Beijing-Arbitration-Commission-Beijing-International-Arbitration-Centre
Jiang Qiuju
Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC)

It is clear that the seat of arbitration is a legal concept, not a geographical one. The significance of the seat of arbitration is that it determines the applicable law when deciding the validity of the arbitration agreement and the arbitration procedure, as well as the nationality of the award.

The seat of arbitration plays a vital role in the development of arbitration practice in many aspects including: (1) Validity. The respect to parties’ autonomy in choosing arbitration as their dispute resolution means the validity of the arbitration agreement may not be easily negated. The relatively pro-arbitration policies in determining the validity of an arbitration agreement and interpreting arbitration clauses make a country or a region a popular seat of arbitration; (2) Efficiency. Under a specific legal framework, the assistance or support that a court or an institution can provide to the arbitration procedure determine the efficiency of arbitration proceedings; (3) Predictable enforcement. In the proceeding of challenging an arbitral award or non-enforcement, the court at the seat will carry out judicial review over the arbitration award. In that way, a pro-arbitration judicial attitude in the judicial review is undoubtedly a plus for the popularity of the seat.

In sum, to better choose a seat of arbitration is to determine whether the parties can start the arbitration procedure smoothly, whether the arbitration procedure can be carried out efficiently, and whether the arbitration results can be fully enforced.

In view of the important legal significance of the seat of arbitration, the competition among popular seats of arbitration is always a topical matter. According to the 2018 International Arbitration Survey, jointly released by Queen Mary University of London and law firm White & Case, the seats of arbitration often chosen include London, Paris, Singapore, Hong Kong, Geneva and New York.

Although none of the cities in mainland China is on the list, several laws and judicial interpretations of mainland China are worthy tries in acknowledging the important legal significance to the seat of arbitration. The Interpretation of the Supreme People’s Court concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China, and the Law of the People’s Republic of China on Choice of Law for Foreign-related Civil Relationships, are two examples.

In judicial practice of mainland China, the Longlide Packaging Co Ltd v BP Agnati SRL case in 2013, the Ningbo Beilun Licheng Lubricating Oil Company v Formal Venture Corp case in 2013, and the Ennead Architects International LLP v R&F Nanjing Real Estate Development Co Ltd case in 2016 reflect that Chinese mainland courts place a great importance to the seat of arbitration, and try to apply an open and inclusive attitude regarding international commercial arbitration to determine the validity of the arbitration agreement, the nationality of the award, or the application of law.

However, for legislative reasons the nationality of an arbitral award is still a controversial issue when a foreign arbitration institution or an international arbitration institution is involved and mainland China is the seat of arbitration. For example, in the case of Duferco AS v Ningbo Art & Craft Import and Export Co Ltd, the arbitral award made in Beijing by the International Chamber of Commerce was not considered as a domestic award by Ningbo Intermediate People’s Court, according to the New York Convention, article 1. However, considering the seat of arbitration, it should be a Chinese domestic award.

This contradiction arises mainly from the fact that China only recognizes the form of institutional arbitration in the process of legislation such as the Arbitration Law. Therefore, when determining the nationality of an arbitral award, the nationality of the arbitration institution shall become the standard for distinguishing the domestic award from the foreign-related/international award.

In spite of the fact that the courts in mainland China have gradually formed a comparatively clear train of thought in the judicial review at present — to take the seat of arbitration as the determinant when deciding the nationality of an arbitral award, which is in line with international mainstream theory – disputes have not disappeared because of the lack of clear definition and sufficient basis in legislation.

The author believes it is necessary to clarify the legal significance of the seat of arbitration when the Arbitration Law is revised, namely, the seat of arbitration shall be taken as the sole standard for determining the nationality of an arbitral award.

The legal complication and interactions in international commercial arbitration brings risk when drafting arbitration clauses. In addition to understanding the important legal significance of the seat of arbitration, one should also consider simplifying the choice of applicable laws as much as possible, and reducing parallel jurisdiction.

One should also consider which court of a certain country may impose judicial supervision on the corresponding dispute, and assure the certainty of the arbitral award under the special provisions of the relevant laws of the country. After all, to effectively use international commercial arbitration is to resolve the dispute between the parties efficiently.

Jiang Qiuju is a division chief at Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC). BAC/BIAC case managers Liu Nianqiong and Yang Yufei also contributed to the article