Seat Theory in International Commercial Arbitration

In the field of international commercial arbitration, there are different theories and doctrines that are used to explain the extent of national law or national court’s intervention in the arbitration process, award and proceedings, one of these is the seat theory. The seat theory argues that it is the seat of arbitration which determines that national law and courts of the seat of the arbitration have an automatic and legitimate right to govern arbitral proceedings when the arbitration takes place in their jurisdiction. However, as this essay will discuss, the seat theory is not always applied by national courts and there are varied approaches taken by the national courts to determination of which courts would have jurisdiction to govern the proceedings. The following sections of this essay will discuss the convention, national legislation, and case law that demonstrates how the practice amongst different states may vary and what that means for the seat theory. The seat theory is premised on the view that national laws and courts of the seat of arbitration have an automatic and legitimate right to govern arbitral proceedings when the arbitration takes place in their jurisdiction. This essay critically discusses this seat theory by reference to convention, national legislation, and case law, the merits and problems involved in adopting seat theory in international commercial arbitration.

The seat of arbitration considered to be an important aspect of the arbitration proceedings because it is the site where the arbitration proceedings are conducted as well as the jurisdiction where the courts may have supervisory power over the arbitration proceedings. The seat theory approach is considered to have the merit of promoting the finality and efficiency in international arbitration as well as upholding the international rule of law. This can be because the seat theory is able to delineate the jurisdiction of courts and laws to those that are in the seat of arbitration and this helps to avoid any confusion when different courts and laws may be applied. By limiting the jurisdiction of national courts and laws to those that are in the seat of the arbitration, efficiency is maintained.

The consequences of seat approach is that the arbitration award may be challenged in the courts of the seat, and there is a degree of local court intervention. The disadvantage of the seat theory application is that it varies from jurisdiction to jurisdiction, which means that the objective of upholding the finality of international arbitration and even uniformity may not be achieved. The significance of seat of arbitration in the arbitration proceedings was recently reiterated in a ruling of the Commercial Court in England, where it becomes notable that even where the governing law of an agreement expressly chooses a law, the seat of the arbitration remains crucial to the protection of an arbitral award and its enforceability. In Atlas Power v National Transmission, the application before the Commercial Court was for a final anti-suit injunction to restrain the defendant from challenging a Partial Final Award made in an LCIA arbitration. The court ordered the final injunction, and held that the seat of the arbitration being London, the claimant could permanently restrain the defendant from challenging the Final Partial Award in another country. This despite the fact that the governing law of the main agreement and the arbitration agreement was the law of Pakistan and the argument was made that this being the case, the provisions as to the choice of seat must be determined on the basis of the law of Pakistan.

Atlas Power v National Transmission suggests that where the seat of the arbitration is, the courts and national laws may acquire jurisdiction over the arbitration. This principle has been followed in a number of cases in England and Wales. For instance, in C v D, the Court of Appeal held that having chosen London as the seat of arbitration, the parties must be taken to have agreed that proceedings on the award should only be those permitted by English law. This proposition was rejected by the Court of Appeal. In this case, the appeal was related to an arbitration whose seat was in London and which was subject to the internal laws of New York. The insurers wanted to challenge the award received in London arbitration before a federal court in the United States and the insured had obtained an anti-suit injunction from the Commercial Court against which the appeal had come to the Court of Appeal. Upholding the anti-suit injunction, Longmore LJ observed that the proper laws of the underlying insurance contract and the arbitration agreement were distinguishable because the arbitration agreement is separable from the main contract. A question raised by the court was that if the arbitration agreement identifies no express law then the agreement has its closest and most real connection with the seat of the arbitration.

1. Matthew Barry, ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (2015) 32(3) Journal of International Arbitration 289, 289.
2. Gary B Born, International commercial arbitration (Kluwer Law International BV 2020).
3. Atlas Power v National Transmission [2018] EWHC 1052 (Comm).
4. Ibid.

The principle of closest and most real connection is an important point here and one that has been considered recently in a Supreme Court decision as well. In Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb, the Supreme Court held that when there is no choice of law expressed for the arbitration agreement, the law is the one to which it is most closely connected. In case there is no express choice of law for the main contract, seat of the arbitration may not by itself be enough to infer that the arbitration agreement is intended to be governed by the law of that place but if the seat is the closest connection to the agreement, then that shall be the basis for identifying the law of the arbitration agreement. In Enka Insaat judgment, the court itself identified the seat as the law for the arbitration agreement.

The approaches of different national courts towards interpreting the significance of seat of arbitration themselves vary to a great degree, which leads to the supposition that the law related to seat theory is not settled and that there are differing views on the New York Convention application on this point itself. Cases in point are American courts that tend to defer to the decisions of the courts at the seat of the arbitration on one hand, and the French courts that tend to disregard them on the other hand. The Federal Court of Australia held in the case of Gujarat NRE Coke Limited v Coeclerici Asia, that it would be inappropriate for an Australian court that has been called upon to enforce an arbitral award under the International Arbitration Act 1974 (Cth) (IAA), to reach a different conclusion from the one reached by the court at the seat of arbitration on the same question. In other words, similar to the American courts’ approach, the Australian Federal Court also adopted the same deferential approach to the decisions taken at the seat of arbitration.

The seat theory continues to have significance for the national courts who take a hands off approach if the parties have specified the seat to be outside their territory; in that context, the seat theory is useful for its ability to restrict courts from interfering in with the arbitration award or the process of arbitration and allows the international law to be applied and foreign arbitral awards enforced in their territory. The point is that seat makes a difference in how a supervisory court is determined. An Indian Supreme Court decision is suggestive of the significance of the seat of arbitration from this perspective. The case is Bharat Aluminium Company vs Kaiser Aluminium Technical Services Inc (BALCO), and in this case the Supreme Court was faced with a question whether there can be equivalence drawn between an international arbitration award rendered by an arbitral tribunal in a seat outside India and an international arbitration award rendered by an arbitral tribunal with its seat in India; the Court rejected this contention holding that under the UNCITRAL Model Law on International Commercial Arbitration or the Model Law, the seat is the centre of gravity in an international arbitration. The court observed that “the acceptance of the territorial principle in UNCITRAL has been duly recognized by most of the experts and commentators on international commercial arbitration” and went on to hold that “[w]e are unable to accept the submission of the learned counsel for the appellants that the Arbitration Act 1996 does not make seat of the arbitration as the centre of gravity of the arbitrations.” The principle that the Supreme Court of India premises its judgment on is based on the view that the parties’ choice of seat of an international arbitration reflects on the party autonomy to exclude from the arbitration any interference except from the court of the seat.

1. C v D [2008] 1 Lloyd’s Rep 239.
2. Ibid.
3. Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38.
4. Matthew Barry, ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (2015) 32(3) Journal of International Arbitration 289.
5. Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109.
6. Bharat Aluminium Company vs Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

What is significant here is that Article V(1)(e) of the New York Convention provides that national courts can refuse the recognition or enforcement of an award if the party opposing enforcement establishes that the award (i) has not yet become binding on the parties or (ii) has been set aside or suspended. However, an argument based on this provision in BALCO that New York Convention recognises two possible courts where an international arbitration award could be set aside, was rejected by the Supreme Court of India. The principle for rejecting this argument is that any interpretation which hindered the process of the consensual resolution of international commercial disputes through arbitration should be rejected, thus bringing the focus back on the need to allow consensual resolution without unjustified interference. The point that the Supreme Court of India brings to the fore is that the seat of the arbitration is a central point which determines which courts and laws cannot be used to interfere with the arbitration. It can be argued that this case reflects on the merits of the seat theory in that it reduces interference by national courts and allows implementation of the national law. This case can also be seen to be a decision which is in line with decisions taken by the Federal Court of Australia in Gujarat NRE Coke Limited v Coeclerici Asi and by the Commercial Court in England in Atlas Power v National Transmission and to an extent by the UK Supreme Court in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb.

However, there are still many grey areas with respect to the practice on seat of arbitration, which means that the theory still can be said to come in the way of establishing a universal practice and theory. One such problem is the New York Convention Article V(1)(e), which allows the national court to refuse enforcement of arbitral award and which may allow interpretations such as one raised in BALCO before Indian Supreme Court on recognition of two possible courts. Indeed, there are instances of courts in certain jurisdictions like Turkey disregarding the seat theory entirely to support arbitral proceedings in Turkey. On the other hand, the setting aside of the arbitral award in the seat of the arbitration may have no impact for another country to enforce it; the Yukos arbitrations exemplify the still contested approach to seat of arbitration and its impact for the courts’ supervisory powers.

1. Ibid
2. Ibid, paragraphs 74 and 75.
3. Ibid
4. 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards 330 UNTS 3.
5. Bharat Aluminium Company vs Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.
6. Ibid, paragraph 154.
7. Marina Filina, ‘Evaluation of Whether the Awards Annulled at the Seat of Arbitration Should Be Enforced in Other Jurisdictions in the Context of Juridical Theories of Arbitration’ (2020) 7 SOAS LJ 110.
8. M. Talat Birgonul, Irem Dikmen and Sinasi Bektas, ‘Comparison of an Emerging Seat of Arbitration and Leading Arbitration Seats and Recommendations for Reform’ (2018) 10(1) Journal of Legal Affairs and Dispute Resolution in Engineering and Construction 04517023.
9. Yukos Universal v. Russia Yukos Universal Limited (Isle of Man) v. The Russian Federation (PCA Case No. 2005-04/AA227).

To conclude this essay, the seat theory remains central to determination of a court’s supervisory powers over an arbitration. This means that there are many national courts that have taken deferential approach towards the seat of the arbitration. However, the approach to the seat theory is not uniform in all countries. This essay has demonstrated how courts in different countries have taken a varied approach to this. Many national courts like American, Indian, Australian, do accord a deferential approach to the seat of the arbitration. However, there are others like France and Turkey that do not do so. It also does not help that the language of New York Convention 1958 in Article V(1) leads to some confusion on the possibility of two national courts having supervisory powers. As per this, there is a possibility that it may be interpreted that there are two national courts that can have jurisdiction over the arbitration proceedings.

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Cases

Atlas Power v National Transmission [2018] EWHC 1052 (Comm).

Bharat Aluminium Company vs Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

C v D [2008] 1 Lloyd’s Rep 239.

Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38.

Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109.

Yukos Universal v. Russia Yukos Universal Limited (Isle of Man) v. The Russian Federation (PCA Case No. 2005-04/AA227).

Books

Born GB, International commercial arbitration (Kluwer Law International BV 2020).

Journals

Barry M, ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (2015) 32(3) Journal of International Arbitration 289.

Birgonul MT, Irem Dikmen and Sinasi Bektas, ‘Comparison of an Emerging Seat of Arbitration and Leading Arbitration Seats and Recommendations for Reform’ (2018) 10(1) Journal of Legal Affairs and Dispute Resolution in Engineering and Construction 04517023.

Filina M, ‘Evaluation of Whether the Awards Annulled at the Seat of Arbitration Should Be Enforced in Other Jurisdictions in the Context of Juridical Theories of Arbitration’ (2020) 7 SOAS LJ 110.