The Relationship Between the Situs and Lex Arbitri in International Commercial Arbitration
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I was born and raised in Limassol, Cyprus. After graduating from high school and finishing my obligatory military service I studied Law at the University of Reading, where I acquired an LLB (Hons). At the University of Reading I served as Secretary-General for the local branch of ELSA (European Law Students’ Association) and participated at the University’s pro bono program. In 2018, at the age of 23, I enrolled at the University of Durham as a postgraduate student and became a member of Ustinov College. At Durham University I gained my LLM (Dunelm) with a specialisation in International Trade and Commercial Law. During my studies at Durham University I gained an interest in International Commercial arbitration. International Arbitration has played an important role as an alternative dispute resolution method in international trade and has a potential to play an even greater role in the future, since Arbitration can also be both faster, cheaper and more confidential than traditional litigation. That it is why I wish to learn even more about this topic and share my knowledge with other future advocates and academics who (like myself) wish to embark on further with Arbitration professionally and/or academically in the future.
-Christos Georgiou, Author
Introduction
International Commercial Arbitration (ICA) is a dispute resolution method alternative to litigation, a private system of adjudication. The disputing parties choose one (or three) private individual(s) to consider the facts and be the decision-maker of their dispute, an ‘arbitrator’. The result of the arbitration is a final and binding decision, which produces an award that is enforceable in a national court.
Arbitration offers many advantages like finality as there is no appeal of the decision like in courts but, decisions can be challenged on limited procedural grounds. Other advantages of arbitration include: flexibility, speedy procedures, confidentiality and privacy (the procedure and the resulting award are not published), cheaper costs than litigation and enforceability of the final arbitral award because an arbitral award is generally easier to enforce internationally compared to a national court judgment. This is by virtue of the ‘New York Convention’, in whom 159 states arecurrentlysignatories.
Additionally, ICA offers party autonomy (parties must agree to arbitrate and also get to choose the arbitrator(s) and the place (seat) of arbitration) and a neutral forum ( the parties choose a neutral place and a neutral tribunal to resolve their dispute, out of any party’s national court).
Nonetheless, because of the complex nature of ICA and the fact that the parties get to choose the Situs (Seat) of arbitration, laws from more than one jurisdiction might be involved in an arbitral dispute and this will sometimes result in choice-of-law complexities. The four choice-of law issues which can arise in international arbitration are the substantive law of the commercial contract, the substantive law of the arbitration agreement itself, the procedural law applicable to the arbitral proceedings (lex arbitri) and the conflict-of-laws rules applicable to determine each of the above-mentioned laws.
Academics have argued that the focus on the neutrality and convenience of the Situs usually overshadows any other possible effects the choice of the Situs could have on the arbitral process, something which might create unforeseeable complexities and uncertainty. Each country has its own unique arbitration laws and a certain quirk of the legal system of a particular country might bring a party into an unfavourable position because they had not considered the lex arbitri of that country when they had chosen the Seat of arbitration. Thus, the choice of the seat is one of the most crucial elements of the arbitration agreement when it is drafted.
For this reason, a great jurisprudential debate has been going on for decades about the extent which the Situs of Arbitration should affect an ICA. This debate has resulted in two conflicting theories. The first (and traditional) theory is known as the ‘Seat Theory’ and its proponents support that every ICA must be attached to a legal seat of arbitration and to be governed by the local lex arbitri. On the other hand, there is the more radical ‘Delocalisation Theory’ whose supporters claim that there should not be any connection between the Seat of arbitration and the proceedings of any arbitral tribunal which operates within the Seat’s jurisdiction. Both of these theories have advantages and disadvantages and both have influenced judicial decisions around the world as we will see below.
Moreover, other than the lex arbitri, the Situs of arbitration can affect the arbitration agreement, the degree of influence the national courts could have on arbitration, the recognition and enforcement of the award and also the arbitrability of the subject-matter of the arbitration. So, in order to get a more pragmatic view on the current arbitration practices around the world, we will emphasise on and compare the attitudes of various jurisdictions, including the most popular countries for international arbitration, towards the relationship between the Seat and the applicable law.
After the analysis and evaluation of the two theories and the effects the Seat currently has on various stages of arbitration, we will also try to evaluate the possible future role of the Situs with the rise of online arbitration and the general impact of technology on arbitration.
Finally, the goal of this dissertation will be to understand the significance the Situs currently has in the arbitral world and try to envision the future of this significance in the foreseeable future.
