7 – SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

A critical issue in any international arbitration is the location of the arbitral seat (or place of arbitration). This chapter examines practical and legal issues arising in connection with the selection of the arbitral seat. First, the chapter examines the meaning and importance of the choice of the arbitral seat. Second, the chapter addresses the selection of the arbitral seat by agreement of the parties, including the enforceability of such agreements. Third, the chapter discusses the selection of the arbitral seat by the arbitral tribunal or by an arbitral institution. Finally, the chapter examines the role of national courts in selecting an arbitral seat.

A. MEANING AND IMPORTANCE OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

The location of the arbitral seat is a critical issue in any international arbitration.¹ The location of the arbitral seat can have profound legal and practical consequences, and can materially alter the course of dispute resolution. In the words of one English judicial decision, “[i]n international commercial arbitration the place or seat of arbitration is always of paramount importance.”²

The significance of the arbitral seat includes relatively mundane issues of convenience and cost. Although such factors are often given undue weight, they can be important to the conduct and outcome of an arbitration. Moreover, factors such as visa requirements, availability of air or other transportation, hearing facilities, hotel accommodations, support staff (such as interpreters, stenographers, secretaries), and the like can bear heavily on the smooth progress of an arbitration.

Much more significant than convenience and cost is the effect of the law of the arbitral seat, and particularly the arbitration legislation of the arbitral seat, on the arbitration. In most legal systems, the arbitration legislation of a state is territorial in scope, regulating arbitrations that have their seat within the territory of that state and not other arbitrations (that have their seats outside national territory).³ As discussed below, the territorial scope of national arbitration legislation is fundamental to the international arbitral process.⁴

The arbitration legislation of the arbitral seat governs a number of “internal” and “external” matters relating to arbitral proceedings. The “internal” matters potentially governed by the arbitral seat’s law include: (a) the parties’ autonomy to agree on substantive and procedural issues; (b) standards of procedural fairness in arbitral proceedings; (c) timetable of arbitral proceedings; (d) consolidation, joinder and intervention; (e) conduct of hearings, including the parties’ opportunities to be heard and the examination of witnesses; (f) rights of lawyers to appear, and their ethical obligations, in the arbitral proceedings; (g) pleading and evidentiary rules; (h) permissibility and administration of oaths; (i) disclosure, “discovery,” and related issues; (j) confidentiality, (k) rights and duties of arbitrators, (l) arbitrators’ remedial powers, including to grant provisional measures; (m) arbitrators’ relations with the parties, including liability, ethical standards, appointment and removal; and (n) form, making and publication of the award.⁵ In addition, and less clearly, the law of the arbitral seat sometimes governs: (o) “interpretation and enforceability of the parties’ arbitration agreement (including issues of nonarbitrability)” (p) conflict of laws rules applicable to the substance of the dispute; and (q) quasi-substantive issues, such as rules concerning interest and costs of legal representation.

The “external” matters potentially governed by the law of the arbitral seat concern judicial supervision of the arbitral proceedings by the courts of the arbitral seat. Among other things, these include: (a) arbitrators’ competence-competence and the allocation of competence to consider and decide jurisdictional challenges between arbitral tribunals and national courts; (b) annulment of arbitral awards; (c) selection of arbitrators; (d) removal and replacement of arbitrators; (e) evidence-taking in aid of the arbitration; and (f) provisional measures in support of the arbitration.⁶ In most instances, “external” matters entail affirmative actions of the local courts of the arbitral seat, which consider and decide applications seeking judicial intervention in, or support for, the arbitral process (e.g., annulling an award; selecting an arbitrator).

The materials excerpted below examine the concept of the arbitral seat in international commercial arbitration. They consider the territorial scope of national arbitration legislation, the consequences of selecting an arbitral seat and an overview of the selection of the arbitral seat.

PT GARUDA INDONESIA v. BIRGEN AIR

[2002] 1 SLR 393 (Singapore Ct. App.)

CHAO HICK TIN JA. This was an appeal against the decision of the High Court setting aside an order of the assistant registrar granting leave to the appellant to serve an originating motion out of jurisdiction on the respondent….

The facts giving rise to the institution of this originating motion were largely undisputed. The appellant (“Garuda”), an Indonesian company, and the respondent (“Birgen”), a Belgium company entered into an agreement dated 20 January 1996 whereby Birgen agreed to lease one DC 10-30 aircraft to Garuda for use by pilgrims to Saudi Arabia for the Hajj (“the lease agreement”). The lease agreement expressly provided that the governing law would be the law of Indonesia and that disputes arising therefrom were to be referred for arbitration in Jakarta. Subsequently a dispute arose because Birgen proposed to substitute the aircraft under the lease agreement and the dispute was referred to arbitration in accordance with the terms thereof, with Garuda as the claimant and Birgen, the respondent.

The arbitral tribunal consisted of Dr. Clyde Croft, as Chairman, and Professor Priyatna Abdurrasyid and Professor Nurkut Inan as co-arbitrators. From February 1999, the tribunal, through its Chairman, Dr. Croft, sought to set dates for the hearing of the arbitration. As regards the place of hearing, the Chairman informed the parties on 24 February that the tribunal thought that Jakarta was not an appropriate place given the then situation prevailing in Indonesia and proposed that the tribunal should sit in Zurich. On 11 and 12 March 1999, Birgen and Garuda respectively responded but neither made any comment on the tribunal’s proposal to have the hearing in Zurich. On 30 March 1999, Dr. Croft proposed that the hearing of the arbitration be carried out in Singapore rather than in Zurich.

On 7 April 1999, M/s Donald H Bunker and Associates (“Donald Bunker”), the lawyers for Birgen, replied requesting that the tribunal proceed to decide the case on the basis of the documents without any hearing but if that request were not granted then they were agreeable, inter alia, that “Jakarta is not an appropriate place for the hearing and accepts the tribunal’s proposal to sit in Singapore.”

On 21 May 1999, Dr. Croft wrote to the lawyers for the parties asking for their comments on certain matters, including Birgen’s application for “documents only arbitration.” Nevertheless, he also notified the parties that “the tribunal had decided that this matter will be heard on 4, 5 and 6 August 1999 in Singapore.” On 10 June 1999 Gani Djemat & Partners (“Gani Djemat”), lawyers for Garuda, wrote indicating, inter alia, that they agreed that “the hearing to take place on 4, 5 and 6 August 1999 in Singapore.” On 23 July 1999 by another letter to both Donald Bunker and Gani Djemat, the lawyers for the parties, Dr. Croft reiterated that “a hearing will take place in Singapore” on the appointed dates.

The hearing was duly held in Singapore and a final award, dated 15 February 2000, was handed down which was signed by two members, Dr. Croft and Prof. Inan. The third member, Prof. Abdurrasyid, declined to sign it and rendered a dissenting opinion. The final award stated that it was delivered at Jakarta and the tribunal in ¶39 also made the following comments: “It had not been suggested by either of the parties, nor is it the view of the arbitral tribunal, that the use of Singapore as a convenient place for the hearing had any substantive or procedural impact on the proceedings.”…

On 3 February 2001, Garuda filed a notice of originating motion (“OM”) in the High Court in Singapore to set aside the final award and the addendum, and for various other reliefs. The application was based on §24 of the International Arbitration Act (“the IA Act”) and Art. 34 of the Model Law. Article 34 sets out the grounds upon which an award governed by the Model Law may be set aside by the court. Section 24 sets out grounds, additional to those in Art. 34, upon which the High Court may set aside an award. In the view of the judge below, §24 and Art. 34 are closely linked—if Art. 34 is not applicable to an arbitration, then §24 will also not be applicable. We agree with this construction…. [The lower court also held that there were no grounds for serving Birgen out of the jurisdiction. In coming to his decision, the judge below found: … “This was not a proper case to grant leave to Garuda to serve the papers out of jurisdiction as the place of arbitration remained at Jakarta.”]…

[Under Singapore law, Garuda could only serve its motion outside of the jurisdiction if it could show, “first, that there were merits in the case and, second, that Singapore was a forum conveniens.”] Birgen’s case was that Garuda failed to satisfy both requirements by reason of the fact that the place of arbitration was not Singapore but Jakarta and thus Singapore courts did not have jurisdiction in the matter. However, the position taken by Garuda was that the parties had subsequently agreed to change “the place of arbitration” to Singapore….

Garuda relied upon the IA Act, an Act to make provision for the conduct of international commercial arbitrations based on the [UNCITRAL] Model Law. By §3(1) of the IA Act, the Model Law (except Ch. VIII thereof) shall have the force of law in Singapore. Section 24 empowers the Singapore High Court to set aside the award of an arbitral tribunal in certain specified circumstances, other than those described in Art. 34 of the Model Law.

Some of the relevant provisions of the Model Law are the following [quoting Article 1(2), 20 and 31(3)] … From Arts. 1(2) and 20 it will be seen that unless Singapore is the “place of arbitration” the Singapore courts can only intervene in relation to an arbitration governed by the Model Law in the limited instances set out in Arts. 8, 9, 35 and 36. Thus, Art. 34 only applies if an arbitration has its “place of arbitration” in Singapore.

Garuda did not dispute that the Model Law is only applicable where the place of arbitration is Singapore. Their main plank of argument was that Singapore was the place of arbitration and not Jakarta and thus, the Model Law applied.

It should be apparent from Art. 20 that there is a distinction between “place of arbitration” and the place where the arbitral tribunal carries on hearing witnesses, experts or the parties, namely, the “venue of hearing.” The place of arbitration is a matter to be agreed by the parties. Where they have so agreed, the place of arbitration does not change even though the tribunal may meet to hear witnesses or do any other things in relation to the arbitration at a location other than the place of arbitration.

Thus the place of arbitration does not change merely because the tribunal holds its hearing at a different place or places. It only changes where the parties so agree. The significance of the place of arbitration lies in the fact that for legal reasons the arbitration is to be regarded as situated in that state or territory. It identifies a state or territory whose laws will govern the arbitral process. The following passage of Kerr LJ in Naviera Amazonica Peruana SA v. Compania Internacional de Seguros del Peru [1988] 1 Lloyd’s Rep. 116 (“the Amazonica case”), while it did not relate to the Model Law, is nevertheless germane: “… it seems clear that the submissions advanced below confused the legal ‘seat’ etc. of an arbitration with the geographically convenient place or places for holding hearings. This distinction is nowadays a common feature of international arbitrations.…” … It will be seen that the English concept of “seat of arbitration” is the same as “place of arbitration” under the Model Law.

While the agreement to change the place of arbitration may be implied, it must be clear. This is in the interest of certainty. By choosing the “place of arbitration” the parties would have also thereby decided on the law which is to govern the arbitration proceedings.

We shall now refer to the relevant provisions of the lease agreement which have a bearing on the question of the place of arbitration.

         “Clause 16.8: Governing Law

                This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the Republic of Indonesia, including all matters of construction, validity and performance.

         Clause 16.9: Arbitration

                In the event that a commercial controversy or claim … such controversy or claim shall be settled by arbitration held before a board of three qualified arbiters. The parties agree that such arbitration shall be held in Jakarta, Indonesia and conducted in the English language in accordance with the Rules of Conciliation and Arbitration of the [ICC].”

Next we turn to the terms of reference of the arbitration which the parties had agreed. The following are pertinent:

         “6 Place of Arbitration

                6.1 The place of arbitration is Jakarta, Indonesia.

                6.2 The arbitral Tribunal and the Parties may convene at any other location if necessary, for example, for a view.”

From these two documents, it is clear that the parties had agreed that the governing law of the lease agreement was Indonesian law and that the place of arbitration was Jakarta. So was there a subsequent agreement to alter the place of arbitration? We have … set out the relevant correspondence. It would be recalled that in February 1999 the tribunal first suggested, in view of the turmoil in Indonesia, that it should sit in Zurich. It was on 30 March 1999 that the tribunal proposed Singapore in place of Zurich. On 7 April 1999 the lawyers for Birgen replied accepting the tribunal’s proposal to sit in Singapore. There was no reply from Garuda on the proposal. On 21 May 1999, the tribunal informed the parties of the hearing in Singapore on 4-6 August 1999. It was only on 10 June 1999 that the lawyers for Garuda, Gani Djemat, replied stating that they agreed to the hearing in Singapore on the specified dates. The hearing was accordingly held here.

From these, Garuda contended that there was an implied agreement to change the place of arbitration, and thus the lex fori, or curial law, from Jakarta to Singapore and they relied upon the Amazonica case. But this authority is hardly relevant. In Amazonica, the plaintiffs insured their vessels with the defendants. The policy provided that the city of Lima was to have jurisdiction over all disputes. However, it also provided that arbitration was to be governed by the conditions and laws of England. A dispute arose between the parties and the issue for determination by the court was whether the arbitration was to be held in London or Lima. Quite clearly there was ambiguity in the clauses of the policy.

At first instance, the High Court ruled that the arbitration was to be held in Lima but governed by English law as the lex fori. The Court of Appeal reversed that decision and held that the seat of arbitration should be London where it would be governed by English law, thereby avoiding the situation of an arbitration in country X being governed by the law of country Y. The Court of Appeal made the following proposition:

         “Prima facie, i.e., in the absence of some express and clear provision to the contrary, it must follow that an agreement that the curial or procedural law of an arbitration is to be the law of X has the consequence that X is also to be the ‘seat’ of the arbitration. The lex fori is then the law of X, and accordingly X is the agreed forum of the arbitration. A further consequence is then that the Courts which are competent to control or assist the arbitration are the Courts exercising jurisdiction at X.”

Also relying on the Amazonica case, and in view of the fact that the parties agreed to the tribunal’s suggestion of having the hearing in Singapore, Garuda made the alternative contention that it followed that the parties had chosen Singapore law as the law governing the arbitration, the curial law, and had thereby also impliedly chosen Singapore as the “place of arbitration.” This argument is circular and is also flawed because it is based on the false premise that the parties had chosen Singapore law as the curial law. In fact, the parties made no such choice. By stating in the lease agreement and the terms of reference, that the place of arbitration was Jakarta, it must follow that the curial law would be Indonesian law. The curial law would be Singapore law only if it was established that the parties had agreed to alter the “place of arbitration” from Jakarta to Singapore.

The second case relied upon by Garuda was Union of India v. McDonnell Douglas Corp [1993] 2 Lloyd’s Rep. 48 where the contract provided that the arbitration should be conducted in accordance with the procedures provided in the Indian Arbitration Act 1940 and that the seat of arbitration proceedings should be in London. The issue was whether the law governing the arbitration proceedings was English or Indian law. The court was of the view that by specifying London as the seat of arbitration, it was reasonable to assume from that choice that they attached some importance to the relevant laws of England, Saville J stated:

         “It is clear from the authorities cited above that English law does admit of at least the theoretical possibility that the parties are free to choose to hold their arbitration in one country but subject to the procedural laws of another, but against this is the undoubted fact that such an agreement is calculated to give rise to great difficulties and complexities, as Lord Justice Kerr observed in the Amazonica decision….

                [I]t seems to me that by their agreement, the parties have chosen English law as the law to govern their arbitration proceedings, while contractually importing from the Indian Act those provisions of that Act which are concerned with the internal conduct of their arbitration and which are not inconsistent with the choice of English arbitral procedural law.”

The court also felt that the jurisdiction of the English court under the Arbitration Acts over an arbitration in England could not be excluded by agreement between the parties to apply the laws of another country. We would emphasise that the court was there referring to an arbitration where the seat was in England. This was not the situation here. Clearly, if it was established that the parties had agreed to change the “place of arbitration” to Singapore, then it must follow that the curial law would be Singapore law.

It is incontrovertible that parties are at liberty to change the place of arbitration. In ABB Lummus Global v. Keppel Fels [1999] 2 Lloyd’s Rep. 24, there was such an express agreement to alter the place of arbitration from Singapore to London. ABB Lummus [therefore] cannot help us determine whether the parties here had, in fact, agreed to change the place of arbitration. We were unable to accept Garuda’s contention that just because the parties eventually agreed with the arbitrators’ suggestion that the hearing be held in Singapore, there was in consequence such an agreement to alter the place of arbitration from Jakarta to Singapore. What was changed was the “venue of hearing.” This comes out clearly from the language of the correspondence.

In our opinion, Garuda’s argument failed to give effect to the provisions of Art. 20(2) of the Model Law which expressly authorise the tribunal to meet at any place, other than the agreed place of arbitration, to hear witnesses and the parties. The opening words of Art. 20(2), “notwithstanding the provisions of paragraph (1) of this Article,” clearly mean that such a hearing by the tribunal at a different location from that of the place of arbitration does not alter what was the agreed place of arbitration….

Garuda seemed to have placed great emphasis on the fact that the hearing of the arbitration was held entirely in Singapore and nowhere else. But an arbitration proceeding does not comprise only of the oral hearing and the submission. It encompasses an entire process, commencing from the appointment of the arbitrator or arbitrators to the rendering of the final award.

While both Amazonica and Union Bank of India did not involve the Model Law, and could be distinguished on that basis, the real differentiating feature there lies in the fact that in both those cases the relevant clauses were far from clear. We have alluded to that before. But in the instant case, the lease agreement was abundantly clear: the lease agreement was to be governed by Indonesian law and the place of arbitration was Jakarta, which must also mean that the arbitration proceedings were subject to Indonesian law.

In the result, Art. 34 of the Model Law and §24 of the IA Act did not apply to the final award. [Therefore,] there was no basis for Garuda to file [its application to annul the award] in the Singapore High Court….

KARAHA BODAS CO., LLC v. PERUSAHAAN PERTAMBANGAN MINYAK

DAN GAS BUMI NEGARA

364 F.3d 274 (5th Cir. 2004)

ROSENTHAL, District Judge. Thirty years ago, the U.S. Supreme Court recognized that “[a] contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is … an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction.… Such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved.” [Scherk v. Alberto-Culver Co., 417 U.S. 506, 516 (1974).] When, as here, parties to international commercial contracts agree to arbitrate future disputes in a neutral forum, orderliness and predictability also depend on the procedures for reviewing and enforcing arbitral awards that may result. This appeal arises from an arbitral award (the “Award”) made in Geneva, Switzerland, involving contracts negotiated and allegedly breached in Indonesia. The Award imposed liability and damages against Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (“Pertamina”) … in favor of Karaha Bodas Company, LLC (“KBC”), a Cayman Islands company. KBC filed this suit in the federal district court in Texas to enforce the Award under the [New York] Convention, and filed enforcement actions in Hong Kong and Canada as well. While those enforcement proceedings were pending, Pertamina appealed the Award in the Swiss courts, seeking annulment. When that effort failed, and after the Texas district court granted summary judgment enforcing the Award, Pertamina obtained an order from an Indonesian court annulling the Award. Pertamina appealed to this court….

Pertamina urges this court to reverse the district court’s decision enforcing the Award on several grounds under the New York Convention. We conclude that the record forecloses Pertamina’s arguments that procedural violations … during the arbitration preclude enforcement. We reject Pertamina’s argument that the Indonesian court’s order annulling the Award bars its enforcement under the Convention; this argument is inconsistent with the arbitration agreements Pertamina signed and with its earlier position that Switzerland, the neutral forum the parties selected, had exclusive jurisdiction over an annulment proceeding. We reject Pertamina’s efforts to delay or avoid enforcement of the Award as evidencing a disregard for the international commercial arbitration procedures it agreed to follow….

KBC explores and develops geothermal energy sources and builds electric generating stations using geothermal sources. Pertamina is an oil, gas, and geothermal energy company owned by the Republic of Indonesia. In November 1994, KBC signed two contracts to produce electricity from geothermal sources in Indonesia. Under the Joint Operation Contract (“JOC”), KBC had the right to develop geothermal energy sources in the Karaha area of Indonesia; Pertamina was to manage the project and receive the electricity generated. Under the Energy Sales Contract (“ESC”), PLN agreed to purchase from Pertamina the energy generated by KBC’s facilities. Both contracts contained almost identical broad arbitration clauses, requiring the parties to arbitrate any disputes in Geneva, Switzerland under the [UNCITRAL] Rules.⁷

On September 20, 1997, the government of Indonesia temporarily suspended the project because of the country’s financial crisis. The government of Indonesia indefinitely suspended the project on January 10, 1998. On February 10, 1998, KBC notified Pertamina and PLN that the government’s indefinite suspension constituted an event of force majeure under the contracts. KBC initiated arbitration proceedings on April 30, 1998. In its notice of arbitration, KBC appointed Professor Piero Bernardini, vice-chair of the [ICC’s] International Court of Arbitration and member of the [LCIA], to serve as an arbitrator. Pertamina, however, did not designate an arbitrator in the contractually allotted thirty days. The JOC and ESC both provided that if a party failed to appoint an arbitrator within thirty days, the Secretary-General of [ICSID] was to make the appointment. After notifying Pertamina, PLN, and the government of Indonesia, the ICSID appointed Dr. Ahmed El-Kosheri, another vice-chair of the ICC, as the second arbitrator. As specified in the JOC and ESC, the two appointed arbitrators then selected the chairman of the arbitration panel, Yves Derains, the former Secretary-General of the ICC.

Pertamina raised threshold challenges to the Tribunal’s consolidation of the claims KBC raised under the JOC and the ESC into one arbitration proceeding and to the selection of the panel…. [T]he Tribunal issued a Preliminary Award, rejecting Pertamina’s threshold challenges and ruling that the government of Indonesia was not a party to the contracts or to the arbitration proceeding. KBC filed its Revised Statement of Claim in November 1999. Pertamina received a number of extensions before it filed its reply to the Revised Statement of Claim in April 2000. KBC filed a rebuttal to that reply in May 2000. In response to KBC’s rebuttal, Pertamina sought additional discovery and a continuance of the proceedings, claiming that KBC had raised assertions and added elements to its case-in-chief not contained in the Revised Statement of Claim.

From the outset, the parties vigorously disputed whether KBC could have obtained financing to build the project if the government of Indonesia had not issued the suspension decree. Pertamina contended that KBC could not have built the project—and therefore suffered no damages from the government decree suspending the work—because the precarious situation in Indonesia effectively made the necessary financing unavailable. Pertamina asserted that KBC’s rebuttal introduced a new theory as to how project financing could have been obtained. KBC changed from focusing on the availability of third-party financing and argued in the rebuttal that one of its direct investors, FPL Energy (“FPL”), would have provided project financing if no other source was available. Shortly before the scheduled hearing, Pertamina sought discovery of documents relating to FPL’s asserted willingness to finance the project.… [T]he Tribunal denied Pertamina’s request to obtain this discovery before the hearing and denied the request for a continuance. The Tribunal stated that it would decide at the conclusion of the hearing “whether any adjustment to the proceeding” would be required because of the discovery requested. The hearing on the merits proceeded as scheduled in June 2000….

During the hearing, Pertamina and PLN cross-examined KBC’s witnesses, including two witnesses who testified about KBC’s ability to finance the project, Robert McGrath, Treasurer of FPL Group, Inc., and Leslie Gelber, former Vice-President of Development at FPL Energy. Both witnesses submitted declarations stating that “FPL Energy was prepared in 1998 to provide bridge financing or direct capital to continue the Project through the phases of the Project that were scheduled to be completed during Indonesia’s period of instability.” At the hearing, counsel for Pertamina specifically questioned McGrath about the availability of project financing from FPL. During that questioning, a Tribunal member asked McGrath whether the investment in the project was protected by a form of political risk insurance. McGrath responded, “I am not sure of that. I know there were some discussions at the time, but I don’t recollect as to whether it was or wasn’t.” Counsel for Pertamina asked no follow-up questions. At the end of the hearing, counsel for Pertamina declined to pursue the previously requested discovery and stated that the record had been “fully” made.

In the Final Award, the Tribunal … interpreted the contracts as “putting the consequences of a Governmental decision which prevents the performance of the contract at Pertamina’s … sole risk.” The Tribunal awarded KBC $111.1 million, the amount KBC had expended on the project, and $150 million in lost profits. The Tribunal explained in detail why it rejected the lost profits amount KBC sought—$512.5 million—and how it arrived at the amount awarded.

In February 2001, Pertamina appealed the Award to the Supreme Court of Switzerland. While that appeal was pending, KBC initiated this suit in the federal district court to enforce the Award. Pertamina challenged enforcement of the Award in the federal district court on four grounds under Article V of the New York Convention: (1) the procedure for selecting the arbitrators was not in accordance with the agreement of the parties; (2) the Tribunal improperly consolidated the claims into one arbitration; (3) Pertamina was “unable to present its case” to the Tribunal; and (4) enforcement of the … Award would violate the public policy of the United States….

Pertamina continued its appeal seeking annulment of the Award to the [Swiss Federal Tribunal] while the enforcement action was pending in the district court in Texas. The Texas district court slowed the proceedings in deference to Pertamina’s request that the Swiss court first be allowed to decide whether to annul the Award. In April 2001, the Swiss [Federal Tribunal] dismissed Pertamina’s claim because of untimely payment of costs…. In December 2001, the district court enforced the Award, rejecting each of Pertamina’s grounds for refusal.… The district court [also] denied Pertamina’s Rule 56(f) request for additional discovery….

Having failed in its effort to annul the Award in the Swiss courts, Pertamina filed suit in Indonesia seeking annulment. In August 2002, an Indonesian court annulled the Award. KBC continued with enforcement suits in Hong Kong and Canada. In October 2002, … Pertamina discovered in the Canadian proceeding that FPL and one other KBC investor, Caithness, had held a political risk insurance policy covering the KBC project through Lloyd’s of London. Pertamina also learned that Lloyd’s had paid $75 million under that insurance policy to FPL and Caithness for the losses resulting from the Indonesian government’s suspension of the project.

In December 2002, Pertamina filed a motion in the district court to vacate the judgment on three grounds: (1) newly-discovered evidence of the political risk insurance policy …; (2) the Indonesian court’s annulment of the underlying arbitral Award and (3) satisfaction of judgment to the extent of the $75 million insurance payment.… Pertamina argued that the existence of political risk insurance coverage in favor of FPL undermined KBC’s claims that the contracts allocated political risks to Pertamina and that FPL would have financed the project in order to avoid losing its earlier investment. Additionally, Pertamina argued that the payment of the insurance proceeds undermined the Tribunal’s determination of damages.… [T]he district court denied the motion, finding that Pertamina failed to show that KBC had misled the tribunal or that KBC’s failure to produce the political risk insurance policy violated the rules governing the arbitration. The district court also rejected Pertamina’s claim that Indonesia had primary jurisdiction to decide to annul the Award and declined to give effect to the Indonesian court’s annulment order as a defense to enforcement.… Finally, the district court rejected Pertamina’s argument that the amount of the Award should be offset by the $75 million insurance payment.

This appeal followed. Pertamina argues that the Tribunal improperly consolidated the claims into one arbitration proceeding; the selection of the arbitrators violated the JOC and ESC; the Tribunal denied Pertamina a fair opportunity to present its case because the Tribunal reversed part of its Preliminary Award without notice, denied Pertamina’s request to postpone the arbitration, and denied Pertamina’s discovery requests; the Award is contrary to public policy because it violated the international law abuse of rights doctrine and because the district court’s decision holds Pertamina liable for complying with Indonesian law; and the Indonesian court’s annulment of the arbitral Award is a defense to enforcement under the New York Convention. Each ground is addressed below.

The New York Convention provides a carefully structured framework for the review and enforcement of international arbitral awards. Only a court in a country with primary jurisdiction over an arbitral award may annul that award. Courts in other countries have secondary jurisdiction; a court in a country with secondary jurisdiction is limited to deciding whether the award may be enforced in that country. The Convention “mandates very different regimes for the review of arbitral awards (1) in the [countries] in which, or under the law of which, the award was made, and (2) in other [countries] where recognition and enforcement are sought.” [Yusuf Ahmed Alghanim & Sons, WLL v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997) (quoted in Karaha Bodas Co., 335 F.3d at 364).] Under the Convention, “the country in which, or under the [arbitration] law of which, [an] award was made” is said to have primary jurisdiction over the arbitration award. All other signatory states are secondary jurisdictions, in which parties can only contest whether that state should enforce the arbitral award. It is clear that the district court had secondary jurisdiction….

Article V enumerates specific grounds on which a court with secondary jurisdiction may refuse enforcement. In contrast to the limited authority of secondary-jurisdiction courts to review an arbitral award, courts of primary jurisdiction, usually the courts of the country of the arbitral situs, have much broader discretion to set aside an award. While courts of a primary jurisdiction country may apply their own domestic law in evaluating a request to annul or set aside an arbitral award, courts in countries of secondary jurisdiction may refuse enforcement only on the grounds specified in Article V.

The New York Convention and the implementing legislation, Chapter 2 of the [FAA] provide that a secondary jurisdiction court must enforce an arbitration award unless it finds one of the grounds for refusal or deferral of recognition or enforcement specified in the Convention. [9 U.S.C. §207]. The court may not refuse to enforce an arbitral award solely on the ground that the arbitrator may have made a mistake of law or fact. “Absent extraordinary circumstances, a confirming court is not to reconsider an arbitrator’s findings.” [Europcar Italia, SpA v. Maiellano Tours, Inc., 156 F.3d 310, 315 (2d Cir. 1998); Nat’l Wrecking Co. v. Int’l Bhd of Teamsters, 990 F.2d 957, 960 (7th Cir. 1993).] The party defending against enforcement of the arbitral award bears the burden of proof. Defenses to enforcement under the … Convention are construed narrowly, “to encourage the recognition and enforcement of commercial arbitration agreements in international contracts.…” [Imperial Ethiopian Gov’t v. Baruch-Foster Corp., 535 F.2d 334, 335 (5th Cir. 1976); Parsons & Whittemore Overseas Co., Inc. v. Societe Generale de l’Industrie du Papier, 508 F.2d 969, 974, 976 (2d Cir. 1974).]

In the JOC and ESC, the parties stipulated that “the site of the arbitration shall be Geneva.” The Tribunal concluded that under the arbitration agreements, Swiss procedural law applied as the law of the arbitral forum.⁸ From 1998 to April 2002, Pertamina consistently and repeatedly took the position before the Tribunal, the Swiss courts, and the U.S. district court, that Swiss procedural law applied to the arbitration. In April 2002, after the Swiss court had rejected Pertamina’s annulment proceeding and the district court had held the Award enforceable in the United States, Pertamina moved in the district court for a stay of the Award pending the outcome of the annulment proceeding Pertamina had filed in Indonesia. For the first time, Pertamina raised in the district court the argument that Indonesian, not Swiss, procedural law had applied to the arbitration. Pertamina took this position in the district court as part of its argument that Indonesia had primary jurisdiction over the Award and therefore had the authority to set it aside rather than merely decline to enforce it.

Article V(1)(e) of the Convention provides that a court of secondary jurisdiction may refuse to enforce an arbitral award if it “has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.” Courts have held that the language, “‘the competent authority of the country … under the law of which, that award was made’ refers exclusively to procedural and not substantive law, and more precisely, to the regimen or scheme of arbitral procedural law under which the arbitration was conducted, and not the substantive law … applied in the case.” [Int’l Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, 745 F.Supp. 172, 178 (S.D.N.Y. 1990); Toys “R” Us, 126 F.3d at 21; M&C Corp. v. Erwin Behr GmbH & Co., 87 F.3d 844, 848 (6th Cir. 1996).] In this appeal, Pertamina and the Republic of Indonesia (the “Republic”), as amicus, argue that the Tribunal and the district court erred in finding that Swiss procedural law, rather than Indonesian procedural law, applied. Pertamina and the Republic argue that in the arbitration agreements, the parties chose Indonesian procedural, as well as substantive, law to govern the arbitration. [They] assert that, as a result: (1) the arbitration must be examined for compliance with Indonesian procedural law; and (2) the Indonesian court had primary jurisdiction to annul the Award, providing a defense to enforcement in the United States. KBC responds that the Tribunal properly interpreted the parties’ contracts in deciding that Swiss procedural law applied and the district court properly applied the Convention in affirming that decision. This court agrees with KBC.

Under the Convention, the rulings of the Tribunal interpreting the parties’ contract are entitled to deference. Unless the Tribunal manifestly disregarded the parties’ agreement or the law, there is no basis to set aside the determination that Swiss procedural law applied. The parties’ arbitration agreements specified that the site of the arbitration was Geneva, Switzerland and that the arbitration would proceed under the UNCITRAL Rules. Those Rules specify that the “arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute.” [1976 UNCITRAL Rules, Art. 33(1)]. It is undisputed that the parties specified that Indonesian substantive law would apply.⁹ It is also undisputed that the contracts specified the site of the arbitration as Switzerland. The contracts did not otherwise expressly identify the procedural law that would apply to the arbitration. The parties did refer to certain Indonesian Civil Procedure Rules in the contracts.¹⁰ Pertamina and the Republic argue that these references evidence an intent that while Switzerland would be the place of the arbitration, Indonesian procedural law would apply as the lex arbitri.

Under the Convention, an agreement specifying the place of the arbitration creates a presumption that the procedural law of that place applies to the arbitration. Authorities on international arbitration describe an agreement providing that one country will be the site of the arbitration but the proceedings will be held under the arbitration law of another country by terms such as “exceptional”; “almost unknown”; a “purely academic invention”; “almost never used in practice”; a possibility “more theoretical than real”; and a “once-in-a-blue-moon set of circumstances.” Commentators note that such an agreement would be complex, inconvenient, and inconsistent with the selection of a neutral forum as the arbitral forum.¹¹

In the JOC and ESC, the parties expressly agreed that Switzerland would be the site for the arbitration. This agreement presumptively selected Swiss procedural law to apply to the arbitration. There is no express agreement in the JOC or ESC that Indonesia would be the country “under the law of which” the arbitration was to be conducted and the Award was to be made. The Tribunal recognized the parties’ selection of Switzerland by issuing the Award as “made in Geneva.” In selecting Switzerland as the site of the arbitration, the parties were not choosing a physical place for the arbitration to occur, but rather the place where the award would be “made.” Under Article 16(1) of the [1976] UNCITRAL Rules, the “place” designated for an arbitration is the legal rather than physical location of the forum. The arbitration proceeding in this case physically occurred in Paris, but the Award was “made in” Geneva, the place of the arbitration in the legal sense and the presumptive source of the applicable procedural law. The references in the contracts to certain Indonesian civil procedure rules [supra p. 611 n. 10] do not rebut the strong presumption that Swiss procedural law applied to the arbitration. These references fall far short of an express designation of Indonesian procedural law necessary to rebut the strong presumption that designating the place of the arbitration also designates the law under which the award is made.

Pertamina and the Republic have belatedly asserted that the district court should have conducted a choice-of-law analysis to determine the law that would apply to the interpretation of the parties’ contracts, rather than analyze the contracts under the Convention. Pertamina and the Republic assert that the result of such an analysis would have been to identify Indonesian law as the decisional law under which to interpret the contracts. This argument is inconsistent with the position Pertamina—and its experts on interpreting international commercial arbitration agreements—took earlier in this case, that the district court should review the Tribunal’s interpretation of the contracts under the Convention. A court conducts the multifactor choice-of-law analysis Pertamina now advocates in the absence of an effective choice of law by the parties to an arbitration agreement. In the JOC and ESC, the parties presumptively chose Swiss procedural law as the lex arbitri when they designated Switzerland as the site of the arbitration, and that presumption is unrebutted.¹²

As the district court, another panel of this court, and the Hong Kong Court of First Instance have all recognized, Pertamina’s previous arguments that Swiss arbitral law applied strongly evidence the parties’ contractual intent. Pertamina represented to the Tribunal that Swiss procedural law applied. As but one example, Pertamina cited Swiss procedural law in arguing that the Tribunal could not consolidate the claims under the JOC and ESC into one proceeding. Pertamina at no point argued to the Tribunal that Indonesian procedural law applied. Pertamina initially sought to set aside the Award in a Swiss court. Pertamina asked the Texas district court to stay its enforcement proceeding until Pertamina’s appeal in Switzerland was resolved. In making this argument, Pertamina stated that “the arbitration … was conducted according to the laws of Switzerland, and the Swiss court is empowered to vacate an award rendered in Switzerland … KBC is asking this Court to act prematurely to confirm an award that might be overturned in the country whose law governed the arbitration.”.

The combination of the parties’ selection of Switzerland as the site of the arbitration; the failure clearly or expressly to choose Indonesian arbitral law in their agreements, as required to select arbitral law other than that of the place of the arbitration; and the clear evidence provided by the parties’ own conduct that they intended Swiss law to apply to the arbitration, amply supports the district court’s determination that the Tribunal properly applied Swiss procedural law….

Under Article V(1)(d) of the Convention, a court may refuse to enforce an arbitration award if “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.” Pertamina argues that because the JOC and ESC were separate contracts with separate arbitration clauses, and because neither contract expressly allowed the consolidation of claims, the Tribunal improperly consolidated the claims into one arbitration proceeding. Pertamina also contends on appeal that because Indonesian rather than Swiss procedural law governed the arbitration, the Tribunal’s reliance on Swiss procedural law to consolidate the claims was erroneous.

The Tribunal carefully analyzed the parties’ contracts in concluding that a consolidated arbitration of KBC’s claims against Pertamina and PLN under the JOC and ESC was appropriate. In factual findings set out in the Preliminary Award, the Tribunal set out the basis for concluding that the two contracts were integrated such that “the parties did not contemplate the performance of two independent contracts but the performance of a single project consisting of two closely related parties.”¹³ The Tribunal continued:

         “In such circumstances, the conclusion of this Arbitral Tribunal is that KBC’s single action should be admitted, provided it is appropriate. The Arbitral Tribunal has not the slightest doubt in this respect. Due to the integration of the two contracts and the fact that the Presidential Decrees, the consequences of which are at the origin of the dispute, affected both of them, the initiation of two separate arbitrations would be artificial and would generate the risk of contradictory decisions. Moreover, it would increase the costs of all the parties involved, an element of special weight in the light of difficulties faced by the Indonesian economy….”

The record provides ample support for the Tribunal’s … conclusion that the two contracts were integrated such that the parties contemplated a single arbitration.

The Tribunal cited the Swiss law of concept of “connexity” in analyzing the legal relations among KBC and Pertamina under the JOC and KBC, Pertamina, and PLN under the ESC as one of the factors justifying the consolidation of claims under the two contracts into one arbitration proceeding. The Tribunal concluded that the relationship of the JOC and ESC exceeded the standard of “connexity” under Swiss law. “The use of the word ‘connexity’ to describe the relationship between the JOC and ESC would be an understatement. In reality, the two contracts are integrated.” Courts and arbitration tribunals have recognized that claims arising under integrated contracts may be consolidated into single arbitrations. [See, e.g., Conn. Gen. Life Ins. Co. v. SunLife Assur. Co. of Canada, 210 F.3d 771, 774 (7th Cir. 2000); Maxum Founds. v. Salus Corp., 817 F.2d 1086, 1087-88 (4th Cir. 1987).] The Tribunal cited one other factor that supported consolidation: “appropriateness.” The parties agreed to the application of the UNCITRAL Rules, which permit a tribunal to conduct an arbitration “in such manner as it considers appropriate.” [1976 UNCITRAL Rules, Art. 15(1); 2010 UNCITRAL Rules, Art. 17(1).] …

Courts are reluctant to set aside arbitral awards under the Convention based on procedural violations, reflected in cases holding that the Convention embodies a pro-enforcement bias. The Tribunal emphasized in its Preliminary Award that although the claims would be consolidated, “the position of each party has to be considered independently when discussing the substance of the case, on the basis of their respective legal and contractual situations.” The record reflects that the Tribunal kept this promise. There is no prejudice arising from the consolidation that would justify a refusal to enforce the Award.

Under Article V(1)(d), a court may refuse enforcement of an arbitral award if the composition of the tribunal is not in accordance with the parties’ agreement. The JOC provided for the appointment of arbitrators, as follows:

         “Each Party [KBC and Pertamina] will appoint an arbitrator within thirty (30) days after the date of a request to initiate arbitration, who will then jointly appoint a third arbitrator within thirty (30) days of the date of the appointment of the second arbitrator, to act as Chairman of the Tribunal. Arbitrators not appointed within the time limits set forth in the preceding sentence shall be appointed by the Secretary General of the [ICSID].”

The ESC procedure … was slightly different:

         “PLN on one hand, and [KBC] and PERTAMINA, on the other hand, will each appoint one arbitrator, in each case within thirty (30) days after the date of a request to initiate arbitration, who will then jointly appoint a third arbitrator within thirty (30) days of the date of the appointment of the second arbitrator, to act as Chairman of the Tribunal. Arbitrators not appointed within the time limits set forth in the preceding sentence shall be appointed by the Secretary General of the [ICSID, upon the request of any Party.”

Each contract required the appointment of arbitrators within thirty days of the notice of arbitration and provided for appointment by the ICSID in the event that a party did not do so. In its notice of arbitration sent to Pertamina, KBC appointed Professor Piero Bernardini to serve as an arbitrator. Pertamina did not designate an arbitrator within thirty days, nor did it object to KBC’s selection at that time. By letter dated June 2, 1998, KBC notified the ICSID of Pertamina’s inaction and requested the appointment of a second arbitrator under the default appointment provisions of the contracts. Pertamina did not respond to this letter. The ICSID questioned KBC about the consolidation of claims under the JOC and the ESC and KBC’s unilateral appointment of an arbitrator. KBC responded by letter dated June 22, 1998. The ICSID confirmed receipt of KBC’s letters and in a June 29, 1998 letter to all parties, recapped the prior correspondence, noted Pertamina’s failure to respond, and expressed its intent to grant KBC’s request to appoint the second arbitrator. The ICSID Secretary-General identified Dr. Ahmed El-Kosheri as its candidate and asked for any objections by July 13, 1998. The ICSID sent all the preceding correspondence to PLN by courier and to Pertamina by fax and courier. Despite the Secretary-General’s invitation to do so, neither Pertamina nor PLN lodged objections or responses to the proposed appointment. On July 13, 1998, having received no communications from Pertamina, the ICSID notified Pertamina and PLN of its intent to appoint Dr. El-Kosheri and made the appointment on July 15, 1998. Under the JOC and ESC, Professor Bernardini and Dr. El-Kosheri then selected the chairman of the arbitration panel, Yves Derains.

In its Preliminary Award, the Tribunal rejected Pertamina’s argument that KBC’s selection of an arbitrator violated the ESC’s requirement that KBC and Pertamina jointly make the nomination. The Tribunal found that the parties intended to limit that requirement to disputes in which PLN was opposed to KBC and Pertamina. Because the ESC did not expressly address the method for appointing arbitrators when KBC and Pertamina opposed each other, the Tribunal found that UNCITRAL Rules for appointment applied. The Tribunal ruled that the appointment procedures used did not violate these rules or create an inequality of treatment. The Tribunal emphasized Pertamina’s failure to nominate an arbitrator or object to those nominated. The district court agreed with the Tribunal … and added that Pertamina had failed to demonstrate any prejudice from the appointment proceedings.

On appeal, Pertamina reasserts its argument that KBC’s unilateral selection of an arbitrator violated the ESC’s requirement that “PLN on the one hand and [KBC] and Pertamina, on the other hand, will each appoint one arbitrator.” Pertamina contends that its interests would always be aligned with KBC under the ESC, which required PLN to purchase from Pertamina the electricity that KBC provided, and that this explains the contractual requirement that KBC and Pertamina agree on an arbitrator in a dispute arising under that contract. In response, KBC argues that the Tribunal correctly found that a dispute between KBC and Pertamina was possible under the ESC, but in the event of such a dispute, the ESC did not provide a procedure for choosing an arbitrator. KBC asserts that the Tribunal correctly found that the general UNCITRAL Rules for selecting an arbitrator would apply, under which KBC, Pertamina, and PLN would each appoint an arbitrator….

The ESC arbitration clause refers to “any dispute or difference of any kind whatsoever” arising among “the Parties.” Section 2 of the ESC defines “parties” to include PLN, Pertamina, and KBC. By its terms, the arbitration clause covers a dispute between KBC and Pertamina arising under the ESC, as well as a dispute in which the interests of KBC and Pertamina are aligned. If the ESC required KBC and Pertamina jointly to select an arbitrator for disputes in which KBC and Pertamina were opposed, as Pertamina contends, Pertamina could effectively block arbitration under the ESC simply by refusing to agree with KBC to the selection of an arbitrator. Such an interpretation would make the ESC arbitration clause illusory.

In addition, Pertamina had numerous opportunities early in the proceedings to object to KBC’s selection of Professor Bernardini as an arbitrator and to nominate its own arbitrator. Pertamina did not challenge the composition of the arbitral panel until after the entire panel had been selected and seated. Pertamina’s failure timely to object to Professor Bernardini’s selection and to nominate its own arbitrator was, as the district court noted, a strategic decision that Pertamina should not now be able to assert as a defense to enforcing the Award.¹⁴

Pertamina has failed to meet its burden of showing that the Tribunal was improperly constituted. The Tribunal reasonably interpreted the ESC’s arbitration provisions and reasonably applied the UNCITRAL arbitration rules. Despite numerous opportunities, Pertamina failed to challenge the Tribunal’s composition until after the arbitrators were selected. The procedural infirmities Pertamina alleges do not provide grounds for denying enforcement of the Award.

Under Article V(1)(b), enforcement of a foreign arbitral award may be denied if the party challenging the award was “not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present [its] case.” Article V(1)(b) “essentially sanctions the application of the forum state’s standards of due process,” in this case, U.S. standards of due process. [Iran Aircraft Indus. v. Avco Corp., 980 F.2d 141, 145 (2d Cir. 1992) (quoting Parsons & Whittemore Overseas, 508 F.2d at 975).] A fundamentally fair hearing requires that a party to a foreign arbitration be able to present its case. A fundamentally fair hearing is one that “meets ‘the minimal requirements of fairness’—adequate notice, a hearing on the evidence, and an impartial decision by the arbitrator.” The parties must have an opportunity to be heard “at a meaningful time and in a meaningful manner.” “The right to due process does not include the complete set of procedural rights guaranteed by the Federal Rules of Civil Procedure.”

Pertamina first contends that the Tribunal reversed the Preliminary Award in the Final Award without notice, denying Pertamina the opportunity to be “meaningfully heard.” … The Final Award shows that the Tribunal considered and rejected Pertamina’s argument in making its liability decision.… In this enforcement proceeding, Pertamina is essentially repeating the arguments it made to the Tribunal. The fact that those arguments were presented to and considered by the Tribunal is inconsistent with Pertamina’s claim that it had no notice of the need to make the argument to that Tribunal or the opportunity to do so. Pertamina did not suffer the fundamental unfairness it claims, so as to support a refusal to enforce the Award.

To challenge KBC’s contention that FPL was willing to finance the project, Pertamina sought in the arbitration … a continuance and discovery of [various categories of] documents from KBC, FPL, and Caithness regarding the financing of the KBC project…. The Tribunal denied Pertamina’s request. After Pertamina discovered that FPL and certain other investors in KBC owned a political risk insurance policy underwritten by Lloyd’s of London, which had paid $75 million after the project suspension, Pertamina sought reconsideration of the district court’s [decision enforcing the Award]. The district court found that Pertamina’s inability to introduce evidence of the insurance policy at the arbitration did not prevent the presentation of its case to the Tribunal. The district court also held that KBC’s failure to bring the insurance policy to the Tribunal’s attention did not make enforcing the Award a violation of public policy. We agree.

“An ‘arbitrator is not bound to hear all of the evidence tendered by the parties … [He] must give each of the parties to the dispute an adequate opportunity to present its evidence and arguments.’” [Generica Ltd v. Pharm. Basics, Inc., 125 F.3d 1123 (7th Cir. 1997) (quoting Hoteles Condado Beach, La Concha & Convention Ctr v. Union de Tronquistas Local 901, 763 F.2d 34, 39 (1st Cir. 1985)); see Slaney v. Int’l Amateur Athletic Fed’n, 244 F.3d 580, 592 (7th Cir. 2001) (cautioning that “parties that have chosen to remedy their disputes through arbitration rather than litigation should not expect the same procedures they would find in the judicial arena”).] It is appropriate to vacate an … award if the exclusion of relevant evidence deprives a party of a fair hearing. “Every failure of an arbitrator to receive relevant evidence does not constitute misconduct requiring vacatur of an arbitrator’s award. A federal court may vacate an arbitrator’s award only if the arbitrator’s refusal to hear pertinent and material evidence prejudices the rights of the parties to the arbitration proceedings.” [Hoteles Condado Beach, 763 F.2d at 40.]

Although the Tribunal denied Pertamina the specific discovery it sought on the issue of FPL financing, Pertamina was able to cross-examine the KBC witnesses who testified that FPL was willing to provide financing for the project, Leslie Gelber and Robert McGrath. Before those witnesses testified, Pertamina had already presented substantial evidence … as to why KBC would not have been able to secure financing for the project, emphasizing the depressed state of the Indonesian economy and its unattractiveness to investors. Pertamina argued to the Tribunal that KBC had presented no documentary evidence of FPL’s willingness to finance the project and asserted that FPL would have required such a high rate of interest because of the risk involved as to make the KBC venture unprofitable. The Tribunal found that “the issue remained open in 1998 of the terms and conditions upon which financing could have been obtained for the Project development.” The Tribunal noted that “the worsening of the economic and political situation in Indonesia at the time has to be taken into account as regards both the conditions at which financing could have been obtained and possible delays in arranging the same.” … The Tribunal found the testimony of KBC’s witnesses on financing credible, stating that it had “no reason … to cast doubts about KBC’s readiness, directly and/or through its shareholders, to make provision thereof.” In determining the lost profits, the Tribunal considered all the risks of the project, including the potential difficulties in arranging financing that Pertamina cited, and “significantly reduced” the amount of lost profits claimed by KBC.

In Generica, Ltd v. Pharm. Basics, Inc. , the party opposing enforcement of an international arbitration award argued that the tribunal curtailed cross-examination of a witness, in violation of the party’s due process right to present its case. The tribunal, recognizing that it had curtailed the cross-examination, placed diminished reliance on the witness’s testimony. The court found that by limiting the reliance on the witness’s testimony, the arbitrators eliminated the possibility of prejudice to the party claiming a due process violation. The court confirmed the award. As in Generica, the Tribunal appears to have given all the evidence as to damages, including the availability of financing, appropriate weight in determining liability and damages.

In Tempo Shain Corp. v. Bertek, Inc., [120 F.3d 16 (2d Cir. 1997)], the arbitral panel did not allow a potential witness to testify on the basis that the witness’s testimony was cumulative. The court vacated the arbitral award. The record showed that the witness would have testified to facts that only he could have known, making his testimony essential. Similarly, in Hoteles Condado Beach v. Union de Tronquistas Local 901, [763 F.2d 34 (1st Cir. 1985)], the court vacated an award because the arbitral panel refused to give any weight to the only evidence available to the losing party. In the present case, by contrast, the Tribunal’s language in the Final Award and the record show that the testimony about FPL’s willingness to provide financing was only one factor relevant to damages. KBC raised the possibility of FPL’s direct financing only in response to Pertamina’s affirmative defense that KBC could not have financed the project. Pertamina did not seek discovery on KBC’s efforts to finance the project in the arbitration proceeding until after KBC filed its rebuttal to the response to the Statement of Claim, despite the fact that Pertamina raised the issue as an affirmative defense.

The record shows that the Tribunal’s refusal to grant a continuance and additional pre-hearing discovery did not “so affect the rights of [Pertamina] that it may be said that [it] was deprived of a fair hearing.” [Newark Stereotypers’ Union No. 18 v. Newark Morning Ledger Co., 397 F.2d 594, 599 (3d Cir. 1968).] Pertamina was able to present comprehensive evidence of investment conditions in Indonesia and expert opinions on the availability of financing, as well as cross-examine Gelber and McGrath on FPL’s asserted willingness and ability to provide financing….

The Tribunal asked McGrath whether FPL had purchased “OPIC insurance,” a form of political risk insurance. McGrath responded that he did not know the answer to the question. Pertamina’s counsel did not follow up on the Tribunal’s questioning. At the conclusion of the hearing, the Tribunal chair asked the parties whether the discovery requests were “maintained, all of them, part of them, because we would like to know on what we have to decide.” The response from counsel for Pertamina was as follows:

         “The purpose of discovery is to prepare for the hearing, it is not to supplement the record after the hearing. So I think the discovery requests are moot, and if discovery is now permitted, then you have to re-open the proceedings and so on. So I treated, notwithstanding the fact that it was theoretically open, I treated this request as effectively being denied, and we went forward. Our request went to the purported financial ability, the purported financing that would have been made available and other things, and I think the record on that has been fully made. I am prepared to rest on that record, and so I think the discovery requests should no longer be in the picture.”

The parties submitted extensive post trial briefs. In the Final Award, issued in December 2000, the Tribunal stated that all parties had “waived their respective requests for discovery” at the conclusion of the hearing…. The record supports the Tribunal’s conclusion that the discovery requests made before the hearing had been waived. Pertamina did not ask for discovery into political risk insurance until … its Rule 60(b) motion in the district court.

The Tribunal’s denial of a continuance and additional discovery did not prevent Pertamina from presenting its case, so as to deprive it of a fair hearing. Pertamina presented ample evidence in support of its position that KBC would be unable to find financing. The Tribunal considered Pertamina’s evidence and gave it considerable weight, awarding KBC damages substantially lower than the amount it sought. Pertamina has failed to show the prejudice required to decline enforcement of the Award on this ground….

Pertamina filed an annulment action in the Central District Court of Jakarta, Indonesia in March 2002. That court annulled the Award on August 27, 2002. Pertamina now contends that the Indonesian court’s annulment is a defense to enforcement under the New York Convention. KBC responds that Indonesia cannot be a proper forum for annulment because Switzerland is the country of primary jurisdiction.

Pertamina argues that the Convention permits more than one country to have primary jurisdiction over an arbitration award. Pertamina contends that the Convention’s language permitting annulment by a court in “the country in which, or under the law of which, that award was made” allows for two potential primary jurisdiction countries—the country who hosted the arbitration proceeding, and the country whose arbitral procedural law governed that proceeding.¹⁵ … Pertamina suggests that both Switzerland (the host country) and Indonesia (the country of governing law) have primary jurisdiction over the arbitration in this case.

Pertamina correctly observes that the Convention provides two tests for determining which country has primary jurisdiction over an arbitration award: a country in which an award is made, and a country under the law of which an award is made. The Convention suggests the potential for more than one country of primary jurisdiction. Courts and scholars have noted as much. Pertamina cites one such scholar as support for its position:

         “Ambiguity is derived from the fact that the formula does not indicate whether the party seeking the annulment of the award must choose between the court at the seat of the arbitration and the one located in the country under the law of which the award is made—if the two are distinct—or whether it may seek annulment jointly or alternatively before both courts … Article V(1)(e) of the New York Convention could [] be construed as referring to the courts of only one country while giving the party seeking the annulment the possibility to choose between the two countries should the two be distinct.” [H. Gharavi, The International Effectiveness of the Annulment of An Arbitral Award (2002).]

Although an arbitration agreement may make more than one country eligible for primary jurisdiction under the New York Convention, the predominant view is that the Convention permits only one in any given case. “Many commentators and foreign courts have concluded that an action to set aside an award can be brought only under the domestic law of the arbitral forum.” [Toys “R” Us, 126 F.3d at 22 (citing commentary that the country of origin of the award is the only country with primary jurisdiction).] Pertamina’s expert on international arbitration filed a report in the district court, stating that “there can be only one country in which the courts have jurisdiction over an annulment.” [Supplemental Expert Report of Albert Jan van den Berg, p. 20.] In its motion … to set aside judgment under Rule 60(b), Pertamina conceded that “[a] primary jurisdiction has exclusive authority to nullify an award on the basis of its own arbitration law.” Such “exclusive” primary jurisdiction in the courts of a single country is consistent with the [Convention]’s purpose; facilitates the “orderliness and predictability” necessary to international commercial agreements; and implements the parties’ choice of a neutral forum.

In this case, both of the New York Convention criteria for the country with primary jurisdiction point to Switzerland—and only to Switzerland. The Award was made in Switzerland and was made under Swiss procedural law. The parties’ arbitration agreement designated Switzerland as the site for the arbitration. This designation presumptively designated Swiss procedural law as the lex arbitri, in the absence of any express statement making another country’s procedural law applicable…. Under the … Convention, the parties’ arbitration agreement, and this record, Switzerland had primary jurisdiction over the Award. Because Indonesia did not have primary jurisdiction to set aside the Award, this court affirms the district court’s conclusion that the Indonesian court’s annulment ruling is not a defense to enforcement under the … Convention….

Pertamina’s challenges to the district court’s decision affirming the Award are without merit. The summary judgment enforcing the Award is affirmed.

NOTES

    1. Territorial scope of national arbitration legislation. Consider the scope of the UNCITRAL Model Law, the English Arbitration Act and the SLPIL. What arbitrations does the Model Law (other than Articles 35 and 36) apply to? Consider Articles 1(2) and 18-20, excerpted at pp. 86 & 90-91 of the Documentary Supplement. What arbitrations does the SLPIL (other than Article 194) apply to? Consider Articles 176(1), 176(3) and 182 of the SLPIL, excerpted at pp. 157–59 of the Documentary Supplement. Suppose the Model Law is enacted in State A. Does the Model Law apply generally to arbitrations where the place of arbitration is outside State A? What about the SLPIL—does it apply to arbitrations seated outside Switzerland?

                Note that, under Article 1(2), most of the Model Law’s provisions apply only to arbitrations that are seated in the jurisdiction that adopted the Model Law (State A, in the above example). What exceptions are there to this general rule? Consider the same question under Article 176(1) of the SLPIL.

                What is the rationale for the territorial scope of the UNCITRAL Model Law? Is it based on notions of territorial sovereignty—i.e., that a state enjoys sovereign regulatory authority over actions occurring within its territory and not elsewhere? Consider:

         “it is still always necessary to connect the conduct of the arbitral proceedings to a national legal system, which will regulate, for example, the extent of autonomy which the parties are permitted to exercise in selecting the arbitral procedure (and any mandatory rules from which the parties cannot derogate); the assistance which the national courts will provide to the arbitration in the grant of provisional measure, collection of evidence etc.; and procedures for the review of awards.” L. Collins (ed)., Dicey, Morris & Collins on The Conflict of Laws (16-009 (15th ed. 2012).

                See also Mann, Lex Facit Arbitrum, reprinted in 2 Arb. Int’l 241, 244 (1986) (“every arbitration is a national arbitration, that is to say, subject to a specific system of national law”); Rubins, The Arbitral Seat Is No Fiction: A Brief Reply to Tatsuya Nakamura’s Commentary, 16(1) Mealey’s Int’l Arb. Rep. 23, 24-26 (2001) (“at its present stage of development, arbitration would not be served by a divorce from geography and State-based jurisprudence”). Compare:

         “The strict territorial criterion, governing the bulk of the provisions of the Model Law, was adopted for the sake of certainty and in view of the following facts. The place of arbitration is used as the exclusive criterion by the great majority of national laws….” Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, as amended in 2006 ¶14 (2008).

                What alternatives are there to the territorial scope of national arbitration legislation? Suppose that the SLPIL purported to govern arbitrations seated in Singapore.

    2. Concept of “arbitral seat.” What does it mean to refer to the “arbitral seat”? (The arbitral seat is also variously termed the “place of arbitration,” “siege,” “Ort,” arbitral “situs,” “locus arbitri,” or arbitral “forum.”) Is the arbitral seat just the place where the arbitration (and its hearings) take place physically? Or is it something different? Note the definition of the arbitral seat in §3 of the English Arbitration Act, 1996, excerpted at p. 112 of the Documentary Supplement. Compare Article 1(2) of the Model Law. Consider the Singaporean court’s analysis in Garuda. As you read the following Notes, continue to consider what it means to refer to the arbitral seat.

    3. “Internal” and “external” procedural issues governed by law of arbitral seat. Consider what issues are governed by the law of the arbitral seat. For example, what issues affecting an arbitration with its seat in a Model Law jurisdiction are governed by the Model Law?

        (a)   “External” issues. Some issues that are addressed by the Model Law and other national arbitration legislation can be described as “external.” They concern the relationship between the arbitral process and the courts and law of the arbitral seat and, in particular, the limited number of circumstances in which courts in the arbitral seat may exercise a judicial supervision role over the arbitral process. Among other things, “external” issues include the power of local courts to appoint arbitrators (Model Law, Art. 11), to remove arbitrators (Model Law, Art. 13), to consider jurisdictional issues (Model Law, Art. 16), to assist in evidence-taking (Model Law, Art. 27), and to annul arbitral awards (Model Law, Art. 34). Are there other “external” issues that are governed by the law of the arbitral seat?

        (b)   “Internal” issues. Other issues that are addressed by national arbitration legislation can be described as “internal.” These issues concern the conduct of the arbitration proceedings, rather than (the limited) instances where national courts intervene in the arbitral process. In general, the law of the arbitral seat addresses “internal” issues by imposing basic guarantees regarding party autonomy and due process. For example, Articles 18 and 19 of the Model Law provide mandatory requirements regarding the equal treatment of the parties and the recognition of the parties’ procedural autonomy. Are there any other instances in which the Model Law addresses “internal” issues in the arbitral process?

    4. Mandatory character of law of arbitral seat. Suppose the arbitral seat is in State A. Are the parties able to agree to exclude the arbitration legislation of State A? Consider two types of exclusion: (a) the parties agree that the law of State A will not apply to the arbitration and, instead, the procedural law of the arbitration will be that of State B; or (b) the parties agree to exclude particular provisions of the arbitration legislation of State A, such as the appointment or removal of arbitrators by State A courts. Are either or both types of agreement valid? What law is relevant to determining this question?

                Consider the English Arbitration Act. Does it permit parties to an English-seated arbitration to contract out of the provisions of the Act? Note §4(1) of the Act, which provides that various provisions of the Act are “mandatory” and have “effect notwithstanding any agreement to the contrary.” That provision expressly precludes the parties from contracting out of the Act’s basic framework; among other things, this does not permit parties to an English-seated arbitration to exclude application of the Act’s basic provisions regarding the court’s supervisory powers (including power to extend time limits, remove arbitrators, consider jurisdictional objections, assist in evidence-taking, secure attendance of witnesses and annul awards) or the tribunal’s duties of fairness. English Arbitration Act, 1996, §§12, 24, 31, 32, 43, 67-68, excerpted at pp. 113–32 of the Documentary Supplement.

                Does the UNCITRAL Model Law permit the parties to an arbitration agreement, seating the arbitration in a Model Law jurisdiction, to contract out of the statute’s terms? Is there any equivalent to §4(1) of the English Arbitration Act? Should such a prohibition nonetheless be implied? Or would such an implication contradict the basic premise of party autonomy in international arbitration?

    5. Effect of Articles II and V(1)(d) of New York Convention. Does the New York Convention permit Contracting States to impose mandatory limitations on the parties’ autonomy, forbidding parties from contracting out of the arbitration legislation of the arbitral seat? What provisions of the Convention might restrict the ability of a Contracting State to impose such limitations?

                Consider Article V(1)(d) of the Convention, providing that awards may be denied recognition if the arbitral procedures were not in accordance with the parties’ agreement; consider also Article II( 1), obligating Contracting States to recognize agreements to arbitrate. Do these provisions have the effect of requiring Contracting States to give effect to the parties’ agreed arbitral procedures—including provisions contracting out of the arbitration legislation of the arbitral seat? Suppose the parties agreed to arbitrate in State A, but provided that the courts of State A would not be competent to appoint or remove arbitrators and that, instead, the courts of State B would exercise such authority. If State A’s arbitration legislation denied effect to such an agreement—as with §4(1) of the English Arbitration Act—would that be consistent with Articles and V(1)(d) of the Convention?

    6. Selection of foreign procedural law. The decisions in Garuda and Karaha Bodas refer to the possibility of the parties choosing a foreign procedural law to govern their arbitration. That is, although the arbitral seat is in State A, the parties agree that the procedural law of the arbitration (variously also called the curial law or the lex arbitri) shall be that of State B. As the Karaha Bodas decision makes clear, it is unusual for parties to agree to arbitrate in one place, subject to the procedural law of another state. The choice of a foreign procedural law is discussed below, see infra pp. 625–40.

    7. Ascertaining location of arbitral seat—place the parties have agreed. Where is the arbitral seat located? This is often a straight-forward question: the arbitral seat is the place that the parties have agreed upon as the arbitral seat or place of arbitration. Consider Article 20(1) of the Model Law, which provides that the “place of arbitration” is located where the parties have agreed. Compare Article 176(1) of the SLPIL, excerpted at p. 157 of the Documentary Supplement. Consider how the Garuda court analyzes the question where the arbitral seat is located. The selection of the arbitral seat by the parties is discussed in greater detail below, see infra pp 640-58. Where was the arbitral seat in Garuda? In Karaha Bodas? How difficult is this question in each case?

    8. Ascertaining location of arbitral seat—the place chosen pursuant to procedures the parties have agreed. Arbitration agreements sometimes do not specify the seat (or place) of the arbitration, and instead incorporate institutional rules which provide a mechanism for selecting the arbitral seat—usually that the arbitral institution or the arbitral tribunal shall select the seat. This mode of selecting the seat is discussed in greater detail below, see infra pp. 653–55.

    9. Ascertaining location of arbitral seat—absent agreement, place the arbitrators have chosen. Arbitration agreements sometimes do not specify either the seat (or place) of the arbitration or any means for selecting the seat (for example, pursuant to the provisions of institutional rules). In these circumstances, how is the arbitral seat selected? Consider Article 20(1) of the UNCITRAL Model Law and Article 176(3) of SLPIL, providing that the arbitral tribunal shall, in the absence of agreement by the parties, select the arbitral seat. Is there any other means for selecting the arbitral seat in these circumstances?

  10. Issues affected by choice of arbitral seat and procedural law of arbitration. What issues are affected by designation of the arbitral seat? Consider the following:

        (a)   Where award is “made ” under New York Convention. The arbitral seat is usually (but not always) the place where the arbitral award will be “made” for purposes of the New York Convention. See infra pp. 1086–87. This has significant legal consequences for the enforceability of arbitral awards outside the country where they are rendered. If a state is party to the Convention, awards made within its territory will generally be subject to the Convention’s pro-enforcement rules in other Contracting States; conversely, if a state is not party to the Convention, its awards often will not enjoy the benefits of the Convention, and may instead be subject to parochial or archaic domestic legislation when sought to be enforced abroad. See infra pp. 1093–99.

        (b)   Supervisory jurisdiction. As Karaha Bodas illustrates, the courts of the arbitral seat will almost always possess supervisory (or primary) jurisdiction over the arbitral process. This includes the “external” issues detailed above, supra pp. 620–21, such as selection and removal of arbitrators, assistance in evidence-taking, and annulment of arbitral awards.

        (c)   Forum and standards for annulment of awards. The national courts in the arbitral seat are usually competent (and exclusively competent) to entertain actions to annul or set aside the arbitral award. Note the analysis to this effect in Garuda and Karaha Bodas, and infra pp. 1099–12. The scope and extent of judicial review of an award is primarily a matter of national law that varies from country to country. Under many national arbitration regimes, an arbitral award is subject to little or no review of the merits of the tribunal’s decision and little review of the arbitral procedures. See infra pp. 1156–63. In contrast, other states permit relatively extensive review of the merits of arbitral awards and of the procedures used in the arbitration, either explicitly or in the form of extensive public policy inquiries. See infra pp. 1163–68.

        (d)   Effects on selection of arbitrators. The selection of an arbitral seat will often have a material influence on the selection of the arbitrators. Some states impose idiosyncratic nationality or religion requirements on the identities of arbitrators, infra pp. 696, 712–14, 732–40, the number of arbitrators, infra pp. 687–88, or procedures for selecting and removing arbitrators, infra pp. 715–16, 758–76. Even absent such laws, choosing the arbitral seat often has an important indirect effect on the identity, nationality and legal training of the arbitrators, who are more likely to be drawn from the arbitral seat than otherwise. See infra pp. 698–99. In turn, this will often influence the parties’ selections of co-arbitrators or their agreement on a sole or presiding arbitrator. Consider why this might occur.

        (e)   Effects on choice of procedural and substantive laws. The local law of the arbitral seat may have a material influence on the substantive or procedural issues that arise in the arbitration. For example, local law may purport to mandatorily impose particular choice-of-law, infra pp. 969–73, or particular rules regarding the arbitral procedures, infra pp. 793–95. Further, although local procedural rules (applicable in national court litigation) should not be understood to apply to international arbitral proceedings with a local seat, infra pp. 634, 639, local law can nonetheless have an important indirect impact on the arbitral procedures. As a practical matter, it is sometimes the case that local procedural rules and practices will influence the arbitrators’ procedural decisions (e.g., an international arbitration seated in England, with English substantive law applying, will more likely entail common law document disclosure and cross-examination than an arbitration seated in Switzerland with Swiss substantive law applying), infra pp. 818–19.

        (f)   Convenience and cost. The selection of the arbitral seat is also relevant to issues of logistics, cost and convenience. If the hearings are conducted in an expensive place (e.g., where hotels, meetings rooms, or support services are costly), this might preclude some individuals or other parties from pursuing their claims or presenting their defenses. Conversely, an inconvenient forum without developed support facilities can make the arbitral process cumbersome and inefficient.

  11. Arbitral tribunal may hold hearings at places other than arbitral seat. Consider what occurred in Garuda: the arbitral tribunal held hearings in Singapore, notwithstanding the fact that the arbitral seat was Indonesia. Compare what occurred with regard to the location of the arbitral hearings in Karaha Bodas. In each case, was there any question that the holding of hearings outside the arbitral seat was permitted? Did holding hearings outside the arbitral seat affect the location of the seat or have other significant legal consequences? Consider also Article 18(2) of the 2010 UNCITRAL Rules, Article 18(2) of the 2012 ICC Rules and Article 16(3) of the 2014 LCIA Rules, excerpted at pp. 168, 189 & 265 of the Documentary Supplement. What power does each provision give to the arbitral tribunal and in what circumstances could this power be used?

                Why would it not merely be simpler to provide that the tribunal can change the place or seat of the arbitration? What are the differences in the legal consequences of changing the arbitral seat and of changing the place where hearings and meetings are held? See supra pp. 620–24.

  12. Territorial scope of national arbitration legislation revisited. Recall the discussion above of the foundational principle that national arbitration legislation is territorial in scope. What exactly does that mean? Note that most arbitration legislation applies to arbitrations that have their “arbitral seat” in national territory. See supra pp. 619–20; UNCITRAL Model Law, Art. 1(2); English Arbitration Act, 1996, §§2, 3; SLPIL, Art. 176(1).

                Note also, however, that the concept of the arbitral seat has almost nothing to do with physical actions within territorial boundaries; the arbitral seat is where the parties agree that it is, even if nothing in the arbitral process takes place physically on the territory of the arbitral seat. What then is the rationale for the territorial scope of arbitration legislation? Does it have to do with national sovereignty? Or with providing a stable and predictable international legal regime for international arbitration?

  13. “A-national” arbitration. It is often said that an arbitration proceeding must be governed by the law of some nation. As noted above, the late Dr. F.A. Mann is routinely cited for his declaration that “every arbitration is subject to the law of a given State.” Mann, Lex Facit Arbitrum, reprinted in 2 Arb. Int’l 241 (1986). List the various ways in which this statement is ambiguous. List the ways in which it is misleading. Try and formulate an interpretation of the statement that is both accurate and useful.

                Some commentators have suggested that an arbitration does not need to be governed by a national law. See Paulsson, Delocalisation of International Commercial Arbitration: When and Why It Matters, 32 Int’l & Comp. L. Q. 53 (1983). What would it mean to conclude that an international arbitration need not be governed by any national law? Would it mean, using the terminology of Karaha Bodas, that the law and courts of the arbitral seat have no “primary jurisdiction” over the arbitration? Is that imaginable? That no national court could annul the award? Remove or appoint arbitrators? Consider: Kloeckner Industrien-Anlagen GmbH v. Kien Tat Sdn Bhd, 3 Malayan L.J. 183 (Malaysian High Ct. 1990) (holding, under Malaysian arbitration legislation, that Malaysian courts had no “jurisdiction to exercise supervisory function over arbitration proceedings held” under the Rules of the Regional Centre for Arbitration at Kuala Lumpur).

  14. Arbitral seat in inter-state arbitrations. The concept of the arbitral seat in inter-state arbitrations is generally less significant than in international commercial arbitrations. Consider:

         “The Tribunal’s place of session is selected by the parties. Failing this selection the Tribunal sits at The Hague. The place thus fixed cannot, except in case of necessity, be changed by the Tribunal without the assent of the parties.” 1899 Hague Convention, Art. 36.

                Note the general recognition of the parties’ autonomy to select the “place of session,” coupled with a default choice (of the Hague, Netherlands); note also, however, the tribunal’s authority “in case of necessity,” to move the place of the arbitral sessions.

                What is the legal significance of the “place of session”? Does the “place of session” have the same significance as the “arbitral seat” in a commercial arbitration? In an inter-state arbitration (for example, between the United States and India), would national courts in the place where the arbitration was conducted have the authority to review and annul an award? Would national arbitration legislation apply to awards in an inter-state arbitration? Why not?

  15. Arbitral seat in investment arbitrations. Consider Articles 62 and 63 of the ICSID Convention. What do they provide with regard to the arbitral seat? What is the legal significance of the fact that ICSID “arbitration proceedings shall be held” in a particular place? Are the legal consequences of conducting an ICSID arbitration in a particular place the same as locating the arbitral seat in a commercial arbitration in that place? In particular, can an ICSID award be annulled by a national court in the place where the arbitration is conducted? See ICSID Convention, Arts. 50-54, excerpted at pp. 23–25 of the Documentary Supplement. Can ICSID arbitrators be removed by a national court in the place where the arbitration is conducted? See ICSID Convention, Art. 56-58, excerpted at p. 25 of the Documentary Supplement. If not, what would be so unimaginable about an a-national international commercial arbitration?

B. APPLICABLE PROCEDURAL LAW IN INTERNATIONAL ARBITRATION

Particularly in international commercial arbitration, national arbitration legislation, judicial decisions and academic commentary frequently refer to the “procedural law of the arbitration.” As noted above, the procedural law of the arbitration is sometimes referred to as the “curial law,” the “lex arbitri” or the “loi de l’arbitrage”¹⁶

The term “procedural law” is not uniformly defined, but typically encompasses a range of “internal” and “external” issues (outlined above) that are central to the arbitral process.¹⁷ Importantly, the procedural law of the arbitration is almost always the arbitration legislation of the arbitral seat; in the words of one authority, a foreign procedural law (other than that of the arbitral seat) applies to an arbitration only “once in a blue moon.”¹⁸ Nonetheless, parties theoretically have the freedom to select a foreign procedural law,¹⁹ and there are rare cases where the parties attempt to agree upon a foreign procedural law. Where it is permitted, the application of a foreign procedural law to an arbitration can have significant consequences, altering the legal standards which are otherwise applicable to the “internal” and “external” aspects of the arbitral process.

Determining whether the parties have agreed to a foreign procedural law raises difficult issues, which are explored in the materials below. Equally, the parties’ choice of a foreign procedural law raises issues of validity—with many states imposing significant restrictions on parties’ ability to contract out of the arbitration law of the arbitral seat, whether by selecting a foreign procedural law or otherwise. The materials excerpted below explore the concepts of the procedural law of the arbitration and the choice of a foreign procedural law.

KARAHA BODAS CO., LLC v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

364 F.3d 274 (5th Cir. 2004)

[excerpted above at pp. 605–19]

UNION OF INDIA v. MCDONNELL DOUGLAS CORP.

[1993] 2 Lloyd’s Rep. 48 (Comm) (English High Ct.)

MR. JUSTICE SAVILLE. By a written agreement dated July 30, 1987 the plaintiffs contracted with the defendants for the latter to undertake services for the former in and about the launch of a space satellite. Article 11 of the agreement provided that the agreement was to be governed by, interpreted and construed in accordance with the laws of India. The agreement also contained an arbitration clause (Art. 8) in the following terms:

         “In the event of a dispute or difference arising out of or in connection with this Agreement, which cannot be resolved by amicable settlement, the same shall be referred to an Arbitration Tribunal consisting of three members. Either Party shall give notice to the other regarding its decision to refer the matter to arbitration. Within 30 days of such notice, one Arbitrator shall be nominated by each Party and the third Arbitrator shall be nominated by agreement between the Parties to this Agreement. If no such agreement is reached within 60 days of the mentioned notice, the President of the [ICC] shall be requested to nominate the third Arbitrator. The third Arbitrator shall not be a citizen of the country of either Party to this Agreement. The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act of 1940 or any reenactment or modification thereof…. The seat of the arbitration proceedings shall be London, United Kingdom….”

[The parties’] dispute or difference has been referred to arbitration under the provisions of Art. 8. The hearing before the arbitrators is presently fixed to begin in London on Jan. 11, 1993. The question before me is as to the law governing the arbitration proceedings….

In essence the plaintiffs contend that the words: “The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act 1940” make clear that the parties have chosen Indian law, or at least those parts of Indian law found in the 1940 Act, to govern any arbitration proceedings arising under Art. 8. The defendants, on the other hand, contend that by stipulating London as the “seat” of any arbitration proceedings under Art. 8, the parties have made clear not merely that any arbitration will take place in London, but that English law will govern the arbitration proceedings.

An arbitration clause in a commercial contract like the present one is an agreement inside an agreement. The parties make their commercial bargain, i.e., exchange promises in relation to the subject matter of the transaction, but in addition agree on a private tribunal to resolve any issues that may arise between them. The parties may make an express choice of the law to govern their commercial bargain and that choice may also be made of the law to govern their agreement to arbitrate. In the present case it is my view that by Art. 11 the parties have chosen the law of India not only to govern the rights and obligations arising out of their commercial bargain but also the rights and obligations arising out of their agreement to arbitrate. In legal terms, therefore, the proper law of both the commercial bargain and the arbitration agreement is the law of India.

The fact that the law of India is the proper law of the arbitration agreement does not, however, necessarily entail that the law governing the arbitration proceedings themselves is also the law of India, unless there is in that agreement some effective express or implied term to that effect. In other words, it is, subject to one proviso, open to the parties to agree that their agreement to arbitrate disputes will be governed by one law, but that the procedures to be adopted in any arbitration under that agreement will be governed by another law: see James Miller & Partners v. Whitworth Street Estates (Manchester) Ltd [1970] 1 Lloyd’s Rep. 269 [(House of Lords)]. Thus, in an international bargain of the present kind, the parties, subject to the proviso mentioned (to which I shall return below) may make a choice of a law to govern their commercial bargain, of a law to govern their arbitration agreement, and of a law to govern the procedures in any arbitration held under that agreement. In theory at least … the parties could chose a different law for each of these purposes.

If the parties do not make an express choice of procedural law to govern their arbitration, then the Court will consider whether they have made an implicit choice. In this circumstance the fact that the parties have agreed to a place for the arbitration is a very strong pointer that implicitly they must have chosen the law of that place to govern the procedures of the arbitration. The reason for this is essentially one of common sense. By choosing a country in which to arbitrate the parties have, ex hypothesi, created a close connection between the arbitration and that country and it is reasonable to assume from their choice that they attached some importance to the relevant laws of that country, i.e. those laws which would be relevant to an arbitration conducted in that country….

In the present case, … the defendants place[] great stress on the fact that the parties have expressly selected London as the “seat” and not just the place of the arbitration. The word “seat,” [they] suggest[], is a legal term of art, meaning the legal place of the arbitration proceedings. By choosing the legal place of the arbitration proceedings the parties ipso facto choose the laws of that place to govern their arbitration proceedings. Indeed, although the choice of a “seat” also indicates the geographical place for the arbitration, this does not mean that the parties have limited themselves to that place…. [I]t may often be convenient to hold meetings or even hearings in other countries. This does not mean that the “seat” of the arbitration changes with each change of country. The legal place of the arbitration remains the same even if the physical place changes from time to time, unless of course the parties agree to change it. In short, [the defendants] suggested that the word “seat” carried with it much more clearly the meaning conveyed by the French word “siège” than the English word “place” though [its] submission was that this word too in an arbitration agreement would be primarily concerned with the legal rather than the physical place of the arbitration.

[The plaintiff] accepted that in the absence of agreement to the contrary, the choice of a “seat” would carry with it the choice of the law of that place as the law governing the arbitration proceedings, though [it] categorized that result as arising from implication rather than from the meaning of the word “seat” itself. In the present case, however, [the plaintiff’s] submission was that the parties, by stipulating that the arbitration should be conducted in accordance with the procedure provided in the Indian Arbitration Act, had made an express choice of Indian law to govern the arbitration proceedings and that this choice must, on ordinary principles, prevail over anything inconsistent that might otherwise be implied.

These arguments are nicely balanced. It is clear from the authorities cited above that English law does admit of at least the theoretical possibility that the parties are free to choose to hold their arbitration in one country but subject to the procedural laws of another, but against this is the undoubted fact that such an agreement is calculated to give rise to great difficulties and complexities.… For example (and this is the proviso to which I referred earlier in this judgment) it seems to me that the jurisdiction of the English Court under the Arbitration Acts over an arbitration in this country cannot be excluded by an agreement between the parties to apply the laws of another country, or indeed by any other means unless such is sanctioned by those Acts themselves. Thus, to my mind, there can be no question in this case that the English Courts would be deprived of all jurisdiction over the arbitration. However, much of that jurisdiction is discretionary in character so that if the Court were convinced that the parties had chosen the procedural law of another country, then it might well be slow to interfere with the arbitral process. Again, for the sake of avoiding parallel Court proceedings, the Court might be minded to regard the choice of a foreign legal procedure as amounting to an exclusion agreement within the meaning of §3 of the Arbitration Act, 1979 [permitting parties to exclude certain grounds for annulment of awards made in England]. Be that as it may, the choice of a procedural law different from the law of the place of the arbitration will, at least where that place is this country, necessarily mean that the parties have actually chosen to have their arbitral proceedings at least potentially governed both by their express choice and by the laws of this country.

Such a state of affairs is clearly highly unsatisfactory: indeed in Black Clawson Int’l Ltd v. Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd’s Rep. 446, 453, Mr. Justice Mustill (as he then was) described the converse situation (i.e. a foreign arbitration suggested to be governed by English procedural law) as producing an absurd result. In the end, therefore, the question is whether the parties have agreed to such a potentially unsatisfactory method of regulating their arbitration procedures. In my judgment, they have not because, as [the defendants] submitted, there is a way of reconciling the phrase relied upon by [the plaintiff] with the choice of London as the seat of the arbitration, namely by reading that phrase as referring to the internal conduct of the arbitration as opposed to the external supervision of the arbitration by the Courts. The word used in the phrase relied upon by [the plaintiff] is “conducted” which I agree with [the defendants] is more apt to describe the way in which the parties and the tribunal are to carry on their proceedings than the supervision of those proceedings by the Indian courts, for example through the Special Case provisions of the Indian Act. It is true, as [the plaintiff] pointed out, that this would mean that only §3 and Schedule 1 of the Indian Act would be applicable (though many of the other provisions are still to be found in the English statutes and so would be applicable in the English Courts) but the construction for which [the plaintiff] contends would, to my mind, not only have the unsatisfactory and possibly absurd results to which I have referred, but would also necessarily give the word “seat” a meaning which excluded any choice of London as the legal place for the arbitration. In my view, such a change from the ordinary meaning to be given to that word in an international arbitration agreement (the ordinary meaning being that submitted by [the defendants]) cannot be accepted, unless the other provisions of the agreement show clearly that this is what the parties intended. I am not persuaded that this is the case here. On the contrary, for the reasons given, it seems to me that by their agreement the parties have chosen English law as the law to govern their arbitration proceedings, while contractually importing from the Indian Act those provisions of that Act which are concerned with the internal conduct of their arbitration and which are not inconsistent with the choice of English arbitral procedural law.

The question … before me is whether upon the proper construction of Art. 8 … the pending arbitration between the parties an any award made by the arbitral tribunal is subject to the supervisory jurisdiction of the Indian Courts or the English Courts. For the reasons given my answer to this question is that it is the latter.

PRELIMINARY AWARD IN ICC CASE NO. 5505

XIII Y.B. Comm. Arb. 110 (1988)

G. MULLER, Arbitrator. [The claimant was a Mozambique purchaser; the respondent was a Netherlands seller. The parties entered into a contract for the sale of seed potatoes, which contained the following provision: “[the parties] must finally undertake to submit the matter according to the regulation for agreement and arbitration of the [ICC] to one or more arbitrators as per the said laws. The arbitration will take place in Switzerland, the law applicable is that known in England.” Disputes arose under the contract and arbitration ensued. The parties disagreed about the meaning of the words “the law applicable is that known in England.”]

The parties to an agreement are free, under the [1988] ICC Rules [Article 13(3)], to adopt the substantive law which should govern their agreement and an arbitral tribunal has to apply the law so adopted. It is only if there is no designation by the parties of the applicable law that the arbitral tribunal shall resort to a rule of conflict of laws. An arbitral tribunal should probably also deviate from the law chosen by the parties if it would appear that such a choice, if applied by the arbitral tribunal, could prevent that the award be implemented (Article 26 of the ICC Rules.)

In making [the] decision [as to applicable law], one has first to select which system or principles of law one has to apply. One could construe the disputed sentence by applying English law as being the law presumably chosen by the parties, or by applying Swiss law as the “lex fori,” or by resorting to principles of law generally admitted. It does not seem adequate to apply English law to determine the issue as it could lead to preempting the solution. Therefore, the arbitrator will be guided by Swiss law and general principles of law. It has to be noted that in the present instance there is no absolute need to resort to a specific system of law to construe the said sentence. Under Swiss law, the wording of contracts forms the basis of their construction, but Swiss judges also look at all the circumstances which seem appropriate to establish the common intention of the parties [and various other rules of construction]….

The arbitrator is of the opinion that the parties to the contract did not include inadvertently the said sentence.… In the said context, one may elaborate four possible meanings, that is [a] a choice of substantive law; [b] a choice of procedural law; [c] a choice of a rule of conflict of laws; and [d] a choice of a law to determine the validity and effect of the arbitration clause.… In reviewing the possible meanings of the disputed sentence, the arbitrator will apply the following test: How could that sentence be understood in good faith by a reasonable man active in the international trade? [Initially], the arbitrator notes that the word “law” appears twice in the arbitration clause.… The first reference is to “as per said laws.” The “said laws” obviously refer to the [ICC] Rules…. The second reference to the word “law” appears in the disputed sentence, in connection with the word “applicable.” The defendants allege that “the law applicable” could refer to “as per said laws.” This does not seem, however, to be a valid construction of these words….

It is quite uncommon to find in an arbitration clause an indication of the law which shall govern the procedure under which the arbitration shall take place. Parties adopting an arbitration clause expect mostly to escape procedural particularities of local courts; the designation of a municipal law is most often contrary to the advantages sought in an arbitration clause.

In this case, the choice of the ICC Rules was well sufficient to settle the problems of procedure (Article 11 of the [ICC] Rules). The choice of Switzerland as the place of arbitration implied in any case the application of the Swiss mandatory provisions. Nothing indicates that the parties could have reason to avoid the application of Swiss procedural law and to choose specifically English procedural law. Moreover, such a choice could bring with it numerous difficulties. Therefore, quite clearly, if the parties intended a reference to procedural law, they would have made it plain and would not have used the words “the law applicable” which designate ordinarily the substantive law. Further, one cannot understand why the parties would have chosen such an extraordinary law of procedure under the circumstances, but not a substantive law….

It seems unlikely that parties to an international contract choose a rule of conflict of laws, but not the substantive law: it is hard to understand how the parties cannot agree to a proper law, but can agree to the rules of conflict that determine the proper law. This may sometimes happen, but for certain reasons. In this case, there is no evidence of any reason of that kind. Further, one may assume that, if the parties had in mind to refer to a rule of conflict of laws, as opposed to a substantive law, they would have made it clear. Finally, it would have been contradictory and therefore unreasonable to choose at the same time a rule of conflict of laws and a substantive law, as this is assumed by the defendants….

Parties may submit an arbitration agreement to a law which is not the substantive law of the main contract. But in that case, they almost always designate the law governing the arbitration agreement and the law applying to the contract. If not, they indicate that the selected law applies specifically to the arbitration agreement. Obviously, the parties to an international contract are likely to have in mind the problems of jurisdiction or arbitration, possibly of substantive law, but not of the law governing the arbitration clause itself, which is mostly thought to be governed either by the selected law or by the “lex fori” (the law of the place of arbitration). In this case, there is no evidence that the parties might have intended or at least had reasons to submit the arbitration clause to a specific law….

Universally, the words “the law applicable” or “the law which applies” are used in the context of the determination of the substantive law governing private international relationships (example: Article 13(3) of [1988 ICC] Rules.) In contracts containing no arbitration clause, the choice of the “applicable law” unambiguously refers to the substantive law, the procedure being in any case governed by the “lex fori.” The word “substantive” therefore never or very rarely appears in connection with the expression “the law applicable,” although always implied….

The parties had valid reasons to refer to the substantive law known in England. English law is neutral; its provisions are adapted to the needs of international commerce; it is fairly well accessible and known to lawyers of other countries, such as Switzerland, Mozambique, and the Netherlands; English is far more common than Dutch, Portuguese, or even French. The arbitrator is therefore of the opinion that a reasonable man active in the international trade should have understood the disputed sentence as a reference to a substantive law. Although somewhat unusual, the expression “the law known in England” is not ambiguous. It is wide enough to include, as appropriate, international rules and usages recognized in England….

The argument has been made by the defendants that a clause of choice of substantive law should be clear and unambiguous. Under Swiss law, the choice of the applicable law is considered as the result of a contract between the parties, which is separate from the main contract. This “choice of law” is not subject to any formality and can be express or implied In this case, the arbitrator [also] finds that the express election in favor of English law is sufficiently clear to be regarded….

The defendants allege that the parties were not free to choose English law as the law applicable to their contract, for there being no connection between the matter and English law. Whether English law is a valid choice of law has to be scrutinized both under Swiss law and English law. Under Swiss law, the freedom of the parties as to their choice of the applicable law has not been finally settled. Swiss courts do not require the existence of a “natural connection between the matter and the chosen law” and recognize the validity of a choice of law in each case where the parties have a reasonable interest in the application of the chosen law. Such an interest exists for example when the chosen law contains a regulation of the matter which seems appropriate, when the parties are willing to submit their relationship to certain usages assuming the application of the chosen law or when the contract is in connection with another business submitted on the chosen law. It does not seem that any decision of a Swiss court has ever denied the existence of a reasonable interest of the parties in the application of a chosen law….

Under English law, the question of the connection between the matter and the chosen law seems to be somewhat controversial. There seems to be no reported case in which an English court refused to give effect to an express choice of law because of the deficient connection between the contract and the chosen law. In Vita Food Products Inc. v. Unus Shipping Co. (1939, AC 277 (PC)), it was stated that “a connection with English law is not, as a matter of principle, essential.” In this decision, the judge mentioned in particular the importance of English law in international commercial relationships, even unconnected with England. He considered it reasonable for the parties to commercial contracts to submit their transaction to English law, although that law might have nothing to do with the facts of the particular case.

Swiss and English laws largely reflect the international practice.

         “In most countries, the parties to transnational contracts enjoy a large degree of autonomy in selecting the proper law of their contract. Except in those situations in which compliance with mandatory rules is required, the parties are generally free to choose by way of express stipulation the law applicable to their relationship. In the overwhelming majority of cases, the law stipulated applicable is the domestic law of a specific country to which the contracts bears some connection or the law of a ‘third’ country selected for reason of expertise (such as English law in regard to maritime matters) or of neutrality (such as Swedish, Swiss, or French law)….” G. Delaume, Transnational Contracts Chapter VII, p. 2.

In this case, the arbitrator finds that the parties have a reasonable interest in the application of English law. The choice of English substantive law cannot be held invalid for there being no connection between the matter and English law.

There is further no indication that the choice of English substantive law was made to escape some mandatory provisions of the laws of the Netherlands or Mozambique. Nor is there any indication that an award which would be based on English substantive law would not be enforceable in the Netherlands or in the Mozambique. Therefore, the arbitrator considers that the parties have made a valid choice in favor of English substantive law. In accordance with Article 13(3) of the [1988 ICC] Rules, the arbitrator shall apply English substantive law.

SAPPHIRE INT’L PETROLEUM LTD v. NATIONAL IRANIAN OIL CO. Award in Ad Hoc Case of 15 March 1963, 35 I.L.R. 136 (1963)

CAVIN, Sole Arbitrator. Article 39 of the [parties’] agreement provides that … the only way of settling any difference concerning the interpretation or performance of the agreement is arbitration of the kind set out in Article 41 of the agreement. The parties have thus unequivocally shown their mutual desire to use arbitration in order to obtain a decision which will settle once and for all their possible differences concerning the interpretation and performance of the agreement, including claims for damages. [Among other things, the parties’ arbitration] clause provides for the determination of a seat for the arbitration, which is a necessary element in the activity of any judicial authority. The judicial authority thus conferred upon the arbitrator necessarily implies that the arbitration should be governed by a law of procedure, and that it should be subject to the supervision of a State authority, such as the judicial sovereignty of a State.

Authority is to be found, in doctrine and case law, which gives the parties the right to make a free choice of the law of procedure to be applied to the arbitration, as for example, the State to whose judicial sovereignty the arbitration is submitted, or in other words “the location” of the arbitration. In the present case the parties agreed to leave the arbitrator free to determine the seat of the arbitration, if they failed to agree it themselves. Thus by agreeing beforehand to whatever seat was fixed by the arbitrator, who would make his choice under express delegation from the parties, they committed themselves to accept the law of procedure which results from his choice. In this case it is the law of [the Swiss canton of] Vaud, since the seat of the arbitration has been fixed at Lausanne [located in Vaud].

Even if this interpretation of the parties’ intention is wrong, the rule is that, in default of agreement by the parties, the arbitration is submitted to the judicial sovereignty of the seat of the arbitration at the place where the case is heard. Resolution of the Institute of International Law, Articles 8, 9, 10, 12; Geneva Protocol, Article 2. Thus, in the present case, Lausanne is at the same time the headquarters of the judicial authority which has jurisdiction to appoint the arbitrator, the seat of the arbitration, the domicile of the sole arbitrator, and the place where all the arbitration procedure up to and including judgment has taken place.

The present arbitration, then, is governed by the law of procedure of Vaud and is subject to the judicial sovereignty of Vaud. Therefore, as far as procedure is concerned, it is subject to the binding rules of the Code of Civil Procedure of Vaud, and in particular to the 8th Title of this Code. The case has been heard in accordance with the rules prescribed by the Order of June 13, 1961, in which the arbitrator laid down the arbitral procedure, as he was entitled to do under Article 41(7) of the agreement if the parties failed to agree upon the procedure to follow, and in accordance with Article 511 of the Code of Civil Procedure of Vaud. Article I of the above Order laid down that the Federal Law of Civil Procedure of December 4, 1947, was applicable where there was no contrary provision in the Order.

The defendant NIOC has refused to co-operate in the procedure and has deliberately made default. Article 41(8), of the agreement lays down that the absence or default of one party should not be an obstacle to the arbitral proceedings in any of their stages. Accordingly, despite the default of the defendant, the arbitrator has proceeded to hear the case and to give judgment on the merits.

According to Article 15 of the arbitrator’s Order, which is in accordance with Article 12 of the Federal Law of Civil Procedure, the default of one party and the omission of a procedural step simply means that the case proceeds without the step which had been omitted. By virtue of Article 3 of the Federal Law of Civil Procedure, the judge cannot base his judgment on facts other than those which have been alleged during the case. As a result, the present award is based upon the facts pleaded by the plaintiff, who alone has taken part in the procedure. But in applying these rules, the arbitrator has accepted only those facts which have been satisfactorily proved to him during the procedure….

NOTES

    1. Procedural law of arbitration distinguished from law governing arbitration agreement and law governing underlying contract. It is important to distinguish the procedural law governing the arbitration from other laws relevant to the arbitral process, including the law governing the arbitration agreement and the law governing the underlying contract and/or substance of the parties’ dispute. Consider how the courts in Karaha Bodas and Union of India and the tribunal in ICC Case No. 5505 distinguish between these categories.

    2. Procedural law of arbitration distinguished from arbitral procedures. It is also critical to distinguish between the procedural law governing the arbitration and the procedures applied in the arbitral proceedings. As detailed below, most contemporary arbitration statutes impose virtually no specific procedural requirements on the arbitration proceedings and prescribe only very general due process requirements. See infra pp. 786–95. In most cases, the parties and the arbitrators are left almost entirely free by national arbitration legislation to formulate whatever procedures and procedural rules they deem best-suited for their arbitration. See infra pp. 788–90, 793–95. The procedures which are adopted in particular cases by the parties and arbitrators constitute the arbitral procedures; in contrast, the procedural law of the arbitration generally refers to the arbitration legislation of a jurisdiction, which in most developed jurisdictions prescribes only minimal procedures for an arbitration, and instead leaves the parties and the arbitrators to tailor such procedures to their particular arbitration. See supra pp. 620–21 & infra pp. 636–37, 638–39.

    3. Procedural law of arbitration distinguished from local rules of civil procedure in arbitral seat. It is also important to distinguish between the arbitration legislation in the arbitral seat and the local rules of civil procedure applicable in judicial proceedings in the arbitral seat. The “procedural law” of the arbitration refers to the former, and not to the latter, which are only applicable to litigations in national courts, not to international arbitrations seated on local territory. See G. Born, International Commercial Arbitration 1530-34 (2d ed. 2014); Kaufmann-Kohler, Identifying and Applying the Law Governing the Arbitration Procedure—The Role of the Law of the Place of Arbitration, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 336 (ICCA Congress Series No. 9 1999); G. Petrochilos, Procedural Law in International Arbitration

(2004).

    4. Parties’ autonomy to agree on foreign procedural law. Are parties permitted to agree to select a foreign procedural law, so that the law of State B provides the procedural law for an arbitration seated in State A? If so, will the arbitration law of the arbitral seat impose limitations on the parties’ autonomy to contract out of its provisions? Are there different answers for different issues governed by the procedural law of the arbitration (e.g., the various “internal” and “external” issues discussed above)?

        (a)   Parties’ general autonomy to agree on foreign procedural law. How did Karaha Bodas and Union of India deal with the parties’ autonomy to select a foreign procedural law for the arbitration? Note that Union of India held: “[t]here is … no reason in theory which precludes parties to agree that an arbitration shall be held at a place or in country X but subject to the procedural laws of Y,” quoting Naviera Amazonica Peruana SA v. Compania Internacional De Seguros del Peru [1988] 1 Lloyd’s Rep. 116, 119. Consider Article 182(1) of the SLPIL, which provides: “[t]he parties may, directly or by reference to arbitration rules, determine the arbitral procedure; they may also submit it to a procedural law of their choice.” Consider also the tribunal’s conclusion in Sapphire. See also Nat’l Thermal Power Corp. v. Singer Co., XVIII Y.B. Comm. Arb. 403, 407 (1993) (Indian S.Ct. 1992) (“if the parties have specifically chosen the law governing the conduct and procedure of arbitration, the arbitration proceedings will be conducted in accordance with that law so long as it is not contrary to the public policy or the mandatory requirements of the law of the country in which the arbitration is held.”). Why are parties permitted to select a foreign procedural law for their arbitration? What purposes do such agreements serve? What risks do they entail?

        (b)   Limitations on parties’ autonomy to agree upon foreign procedural law. Is the parties’ autonomy to agree upon a foreign procedural law unlimited? What does the Union of India court mean when it says: “it seems to me that the jurisdiction of the English Court under the Arbitration Acts over an arbitration in this country cannot be excluded by an agreement between the parties to apply the laws of another country, or indeed by any other means unless such is sanctioned by those Acts themselves. Thus, to my mind, there can be no question in this case that the English Courts would be deprived of all jurisdiction over the arbitration.” Why would there be “no question” that the parties could not deprive the English courts of all jurisdiction over the arbitration? What jurisdiction would the English courts mandatorily retain? Consider the provisions of the English Arbitration Act, 1996. Do they permit parties to an arbitration seated in England to contract out of English arbitration law, whether by choice of a foreign procedural law or otherwise? Consider in particular §4(1) and Schedule 1 of the Arbitration Act, 1996, excerpted at pp. 112 & 141-42 of the Documentary Supplement; what provisions of the Act are mandatory for arbitrations seated in England?

                        Consider the provisions of the UNCITRAL Model Law, excerpted at pp. 88–96 of the Documentary Supplement. Does it permit the parties to an arbitration seated in a Model Law jurisdiction to select a foreign procedural law? What is the meaning of Article 1(2) of the Model Law? Can the parties to an arbitration seated in State A (a UNCITRAL Model Law state) agree that the following functions will be governed by the law of State B (as applied by the courts of State B): (a) selection and removal of arbitrators; (b) annulment of arbitral awards; (c) provision of judicial assistance in aid of the arbitration? Does the text of the Model Law address these issues?

                        Note that the tribunal in ICC Case No. 5505 goes out of its way to say that the mandatory provisions of the law of the arbitral seat (Switzerland) apply even where the parties agree on a foreign procedural law. Consider Article 182 of the SLPIL. Are there limitations on the parties’ freedom to select a foreign procedural law?

        (c)   Parties’ autonomy under FAA to agree on foreign procedural law. In the United States, the text of the FAA does not expressly address the question whether parties to an international arbitration may agree to a foreign procedural law. As Karaha Bodas indicates, the few U.S. authorities to consider directly whether the FAA permits parties to agree upon the procedural law governing their arbitration answer in the affirmative. Remy Amerique, Inc. v. Touzet Distr., SARL, 816 F.Supp. 213, 216-17 (S.D.N.Y. 1993) (“parties are free to include in their agreement a choice-of-law provision which impacts upon procedural rules”); Intercarbon Bermuda, Ltd v. Caltex Trading & Transp. Corp., 146 F.R.D. 64, 72 (S.D.N.Y. 1993) (“agreement between the parties here did not establish any particular arbitral procedure, so the question is whether the procedure was in accordance with the law of the United States”); Restatement (Second) Conflict of Laws §220 comment c (1971). There is no direct U.S. precedent on the extent to which agreement on a foreign procedural law would affect the authority of U.S. courts to exercise powers of judicial supervision—including annulment of awards and selection of arbitrators—in connection with arbitrations conducted in the United States. There is also no direct U.S. precedent on the extent to which agreement on a foreign procedural law would override otherwise applicable U.S. standards of procedural fairness in U.S.-seated arbitrations. How should these issues be dealt with?

        (d)   Rationale for mandatory restrictions on choice of foreign procedural law. Why do countries, such as England and Switzerland, require application of local arbitration legislation to arbitrations conducted locally? What values or objectives are served by such an approach? Suppose two large, highly-sophisticated international companies (e.g., U.S. and Argentine) agree to arbitrate in England, but want U.S. (or Argentine) procedural rules to apply. Why should England’s legislature refuse to permit this? What provisions of local arbitration law should be regarded as mandatory? Consider first “external” procedural issues and then “internal” ones. Note the provisions that the English Arbitration Act treats as mandatory.

        (e)   Parties’ autonomy to select foreign procedural law revisited. How much autonomy should parties have to select a foreign procedural law? Recall that the concept of an “arbitral seat” is a legal construct: an arbitration can be conducted completely outside the arbitral seat, without anything ever occurring in the territory of the arbitral seat. See supra p. 624. If the parties are free to select an arbitral seat that has nothing to do with actual territorial boundaries and physical conduct, why are they not free to select a different procedural law from that of their notional arbitral seat? If an inter-state or investment arbitration can be conducted with no supervision at all by the courts of the arbitral seat, why can’t an international commercial arbitration?

    5. Potential consequences of parties’ choice of foreign procedural law. Assume the parties to an arbitration seated in State A choose a foreign procedural law (that of State B) for their arbitration and that this choice is given full effect. What are the consequences of this choice? What courts may annul the arbitral award, and pursuant to what legal standards? Consider the decision in Karaha Bohas. What courts may appoint arbitrators (assuming that the parties have not done so)? What courts may remove arbitrators? What legal standards apply to issues such as the fairness of the arbitral proceedings, the confidentiality of the arbitral proceedings and the rights of counsel to appear in the arbitral proceedings?

    6. Reasons for selecting foreign procedural law. Why might parties choose a procedural law to govern an arbitration that is different from the law of the arbitral seat? What benefits might this provide? Suppose a U.S. and a German company wish to arbitrate any disputes that arise between them at the location of a construction project on which they are collaborating in Saudi Arabia, but that they wish to apply German (or U.S.) procedural rules in such an arbitration. Is this preference understandable? Suppose the U.S. and German company wish to arbitrate in Saudi Arabia, but do not want Saudi courts to have the power to annul the award. Are there reasons that they might have this preference? Suppose a Russian company enters into a joint venture with a Brazilian company; the Russian company is willing to arbitrate in Miami, but insists that Russian courts have the power to decide applications to annul any award. Is this a plausible negotiating position?

                If parties do not want their arbitration to be governed by the arbitration law of the arbitral seat, why don’t they select a different arbitral seat? Note that, as discussed above, arbitral proceedings can be conducted outside of the arbitral seat. See supra p. 624. If parties want their arbitration to be governed by the procedural law of State B, why don’t they just agree upon State B as the arbitral seat and conduct hearings elsewhere (in State A or wherever)?

    7. Interpretation of choice-of-law clauses. Consider the choice-of-law clause at issue in ICC Case No. 5505. How did the arbitral tribunal interpret this provision? Is that a sensible interpretation of the parties’ agreement? Compare Judgment of 1 February 1996, Osuuskunta METEX Andelslag VS v. Türkiye Elektrik Kurumu Genel Müdürlügü Gen. Directorate, Ankara, XXII Y.B. Comm. Arb. 807 (1997) (Turkish Yargitay) (interpreting Turkish choice-of-law clause in underlying contract as selecting Turkish law as procedural law of arbitration seated in Switzerland). Compare the similar issues that arise with respect to the effect of a choice-of-law clause in the underlying contract on the law governing the arbitration agreement. As discussed above, parties sometimes intend a general choice-of-law clause to encompass the arbitration clause in their contract (even though it is separable). See supra pp. 90–93, 287–315. Does the same view apply to the procedural law governing the arbitral proceedings?

                When will a choice-of-law clause be interpreted as selecting a foreign procedural law to govern the arbitral proceedings? Suppose the parties agree that the arbitral seat shall be in State A, and also include one of the following provisions in their agreement:

         “The arbitration and the arbitral proceedings shall be governed by the law of State B.”

         “The procedural law of the arbitration shall be the law of State B.”

                As noted above, these types of provisions are rare. If the parties included such a provision in their agreement, would they be interpreted as selecting a foreign procedural law? Consider the text of the parties’ agreements in Karaha Bodas and Union of India. Did the parties’ agreements choose a foreign procedural law?

    8. Presumption against choice of foreign procedural law. As discussed in Karaha Bodas, Union ofIndia and ICC Case No. 5505, the procedural law of the arbitration will virtually always be the arbitration law of the arbitral seat. Parties almost never include a choice-of-law provision in their arbitration agreement specifying a foreign procedural law. And, as the same decisions also illustrate, general choice-of-law provisions are virtually never interpreted as selecting a foreign procedural law for the arbitration.

                Consider the choice-of-law provision in Union of India. Is there not a serious argument that this provision was intended to select the procedural law of the arbitration? What is meant by the following sentence, included in the arbitration agreement in Union of India: “The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act of 1940 or any reenactment or modification thereof”? If that language does not constitute the choice of Indian law as the procedural law of the arbitration, then what would? How does the (English) court interpret this sentence? Consider §§3, 33, 34 and 53 of the English Arbitration Act, 1996 (enacted after the Union of India decision, and excerpted at pp. 112, 121 & 127 of the Documentary Supplement); how would Union of India be decided under the 1996 Act?

                Consider again the choice-of-law and other provisions of the agreement in Karaha Bodas. Is there not a serious argument that these provisions were intended to select Indonesian law as the procedural law of the arbitration? What else would explain the language used by the parties?

                Where the parties have chosen an arbitral seat, and not chosen any procedural law governing the arbitration, what law will provide the procedural law of the arbitration? Consider the answers provided in Union of India and in Sapphire. Is there any doubt as to the correctness of this analysis?

                Note the court’s holding in Karaha Bodas that there is a presumption in favor of application of the law of the arbitral seat as the procedural law of the arbitration: “Under the New York Convention, an agreement specifying the place of the arbitration creates a presumption that the procedural law of that place applies to the arbitration.” Karaha Bodas Co., 364 F.3d at 291. See also Compagnie d’Armement Maritime SA v.

Compagnie Tunisienne de Navigation SA [1971] A.C. 572, 604 (House of Lords) (“An express choice of forum by the parties to a contract necessarily implies an intention that their disputes shall be settled in accordance with the procedural law of the selected forum and operates as if it were also an express choice of the curial law of the contract.”). Is the presumption that the law of the arbitral seat provides the procedural law of the arbitration appropriate? What do you think parties usually expect, as to applicable procedural law, when they site an arbitration in a particular country?

    9. Effect of New York Convention on parties’ autonomy to select foreign procedural law. Consider Articles II(1) and V(1)(d) of the New York Convention, excerpted at pp. 1–2 of the Documentary Supplement. Article II(1) obliges Contracting States to give effect to agreements to arbitrate, while Article V(1)(d) provides that an award may be denied recognition if “[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.” What effect do these provisions have on an agreement by the parties selecting the procedural law of an arbitration? Do they require Contracting States to give effect to the parties’ selection of a foreign procedural law to govern an arbitration? That is, if a national law forbids or does not enforce the parties’ selection of the procedural law governing an arbitration, does this violate the Convention?

                Note that Article V(1)(d) merely allows Contracting States to refuse to recognize arbitral awards that disregard the parties’ agreed arbitral procedures and does not expressly require Contracting States affirmatively to give effect to the parties’ agreed arbitral procedures. What about Article II(1)? Does Article II(1)’s reference to the parties’ arbitration agreement include their agreement on a foreign procedural law? Is there any reason it should not?

  10. Applicable procedural law not ordinarily affected by holding hearings elsewhere for convenience. As discussed above, most institutional rules and national laws permit arbitral tribunals to conduct hearings at locations other than the arbitral seat. See supra p. 624. As a consequence, parties often agree to arbitration in State X, but thereafter, arbitral proceedings are physically conducted in other places, for reasons of convenience, without any intention to change either the arbitral seat or the procedural law applicable to the arbitration. See supra p. 636 and infra pp. 638, 652–55. When this occurs, is the procedural law affected by the location of the hearings?

                Virtually all authority answers the foregoing question in the negative. Consider the analysis in Garuda (and the conduct of the arbitration in Karaha Bodas). Even the late Francis Mann, Lex Facit Arbitrum, reprinted in, 2 Arb. Int’l 241, 248 (1986), who attached overriding weight to the arbitral seat’s law, wrote: “For the convenience of arbitrators or parties or for other reasons hearings may be held in different places. Such a practice will not ordinarily involve a change of the seat and, therefore, of the lex fori.” See also Hirsch, The Place of Arbitration and the Lex Arbitri, 34 Arb. J. 43, 45 (1979); Park, The Lex Loci Arbitri and International Commercial Arbitration, 32 Int’l & Comp. L.Q. 21 (1983).

                On the other hand, if an arbitral proceeding is physically conducted in a particular jurisdiction, are that jurisdiction’s laws really irrelevant to the arbitral proceedings? What about basic standards of procedural fairness? What about prohibitions against swearing an oath or penalties for perjury?

  11. Meaning of parties’ choice of procedural law governing the arbitration. Although it rarely occurs, suppose the parties agree that the law of State A should govern the arbitral proceedings. What does this agreement mean? Does it mean that rules of civil procedure applicable in local judicial proceedings in State A should be binding on the arbitral tribunal? Or does it mean that the arbitration legislation and arbitration law of State A should apply? For analysis, see ICC Case No. 5505. Compare the reasoning in Sapphire. Which decision is more persuasive?

        (a)   Applicability of local rules of civil procedure. Note the procedural law applied by the tribunal in Sapphire. In general, Sapphire’s resort to the domestic rules of civil procedure applicable in local courts for the procedural law of an international arbitration is unusual, particularly in contemporary international commercial arbitration. Why is that so? Why wouldn’t it make sense to apply relatively detailed (and predictable) local rules of civil procedure in international arbitrations? Is this application of judicial procedures what parties intend in agreeing to arbitrate?

        (b)   Applicability of national arbitration statute. In contrast to Sapphire, most contemporary authorities interpret an agreement selecting a national law as the procedural law in an international arbitration as agreement on the arbitration statute of the seat, rather than the local rules of judicial procedure. In many jurisdictions, the local arbitration statute (i) will not specify detailed procedural rules that apply in particular arbitral proceedings, (ii) will allow the parties substantial autonomy to agree upon procedural rules, and (iii) may set out a few general procedural principles (e.g., equality of treatment, adversarial procedure, and an opportunity for all parties to be heard). See infra pp. 793–95. Consider in this regard the UNCITRAL Model Law and SLPIL, excerpted at pp. 85–96 & 157-60 of the Documentary Supplement.

  12. Refusal of foreign procedural law selected by parties to allow itself to be chosen. The national legal regime that the parties select for the procedural law may not permit itself to be selected, at least in some respects, for application to a foreign arbitration. That is particularly true with respect to the so-called “external” procedural law of the arbitration, focusing on judicial supervision of and assistance to the arbitral process. Thus, English courts have held that, even where parties have agreed to conduct an arbitration in a foreign state, with English law providing the applicable procedural law, English courts will not appoint an arbitrator (although they would do so in an “English” arbitration in England). Naviera Amazonica Peruana SA v. Compania Internacional De Seguros del Peru [1988] 1 Lloyd’s Rep. 116, 119.

                Would a court in an UNCITRAL Model Law jurisdiction be permitted, by the Model Law, to exercise supervisory functions with respect to an arbitration seated in another state? Consider again the text of Article 1(2), excerpted at p. 86 of the Documentary Supplement. Note that the provisions of the Model Law generally apply “only if the place of arbitration is in the territory of this State.” Why might national courts refuse to exercise supervisory power in support of an international arbitration located abroad, if the parties desired their aid?

  13. Potential conflicts in jurisdiction arising from selection of foreign procedural law. Consider what might have occurred in Union of India if the English court had held that Indian law was the procedural law of an arbitration conducted in London; among other things, this would have meant that Indian courts (applying Indian law) could annul awards made by the tribunal in London. See supra pp. 622–23 & infra pp. 1091–92, 1157–58. Is this a desirable result? Suppose Indian law (the procedural law) requires acts that English law (the arbitral seat’s law) forbids—or vice versa. Suppose English courts confirm the award while Indian courts annul it. See infra p. 1110. Note the remarks in Union of India about the confusion resulting from application of multiple procedural laws to the same arbitration. Or, as one court reasoned, permitting an action to annul an award in two jurisdictions: “would be a recipe for litigation and (what is worse) confusion which cannot have been intended by the parties…. It could scarcely be supposed that a party aggrieved by one part of an award could proceed in one jurisdiction and a party aggrieved by another part of an award could proceed in another jurisdiction.” C v. D [2007] EWCA Civ. 1282 (English Ct. App.). Is this so bizarre? What if it is what the parties agreed? Note the court’s observations in Karaha Bodas about the possibility of awards being annulled in two different jurisdictions.

C. SELECTION OF ARBITRAL SEAT BY PARTIES’ AGREEMENT OR ARBITRAL TRIBUNAL IN INTERNATIONAL ARBITRATION

DUBAI ISLAMIC BANK PJSC v. PAYMENTECH MERCHANT SERVS. INC.

[2001] 1 All ER (Comm) 514 (English High Ct.)

AIKENS J. This case raises [a] new and interesting point[] concerning the application of the [English] Arbitration Act 1996…. [H]ow should the court apply §3 when determining what is the “juridical seat of the arbitration,” if neither the parties to the arbitration agreement nor any arbitral or other institutions have designated the “seat” of the arbitration? … [This question arises] upon the application of the respondent [seeking] the following relief: … an order setting aside the award under §67, [§68 or §69] of the 1996 Act….

The applicant (“the bank”) is a public joint stock company whose business is and was that of the Islamic banking. Its business is conducted from premises in Dubai and in the United Arab Emirates (“the UAE”).… The bank operated a payment card scheme pursuant to a written agreement between Visa International Service Association (“VISA”) and the bank which was concluded in England on 13 December 1990. That agreement incorporated For the reasons discussed above, it is both common (and very advisable) for international arbitration agreements to designate the arbitral seat.²⁰ Alternatively, the parties may agree upon institutional rules that permit either an appointing authority or the arbitral tribunal to choose the arbitral seat. As detailed below, most national arbitration statutes and institutional rules permit parties to specify their arbitral seat by agreement.

by reference the by-laws and operating regulations of VISA which were then in force or might come into force from time to time.

The respondent (“Paymentech”) is also a member of VISA. Paymentech’s business is that of credit card payment processing, which includes payments made pursuant to the VISA credit card system…. It is an “acquirer,” which means that it can “sign” a merchant and process a merchant’s VISA card transaction through the VISA system. [The court described a complex process in which authorization for a credit card transaction is obtained in the VISA system.]

If there is a dispute about a particular transaction then a process called “chargeback and representment” is instigated.… If the acquirer is … not satisfied [with the results of this process,] then it may initiate an arbitration procedure to resolve the dispute. The VISA International Operating Regulations set out the system for resolving disputes between card issuers and acquirers at ch 7.7 of vol. 1…. There are two tiers of arbitration. At the first tier arbitrations are conducted by the VISA International Arbitration Committee. At the second tier, which is an appellate level that only operates in limited circumstances, the arbitrations are conducted by VISA’s international board of directors…. There are no provisions indicating (expressly or impliedly) what law governs the arbitration provisions in the regulations or the arbitral procedure itself. Indeed there is no proper law provision in the regulations at all. There is no specific reference to either the “seat” or the place of any arbitration under the regulations….

The regulation … details “Filing Procedures.” In a case such as this which involves two VISA members that are of different regions, the “Requesting Member” must file its arbitration request with the filing authority. In this case that authority will be VISA in California. Arbitration documentation has to be sent to the VISA International Arbitration/Compliance Committee in California. If the request is held to be valid, then VISA will notify both the requesting member and the opposing member and will forward a copy of the case to the opposing member. The opposing member is entitled to forward any additional information or substantiating documentation to VISA and the requesting member. The arbitration committee will use all available information in making its decision. It will notify the members of its decision.

[Following this decision, there] is the appeal process. This is available in respect of disputed amounts of over US$100,000, but only if the member wishing to appeal can provide new evidence. Then the matter will be dealt with by the VISA international board, acting as the appeal authority. [I]nternational board appeals will be submitted to the arbitration/compliance committee for consideration prior to board review.

In 1997/8 a large-scale fraud was perpetrated on the bank by its chief executive officer with the assistance of other personnel in the bank. One of the people allegedly involved in the fraud (but not a bank employee) was Mr Foutanga Babadi Sissoko. He held a VISA card that had been issued by the bank. Between November 1997 and January 1998 Mr Sissoko’s VISA card was used for 18 purchases of jewellery at Mayor’s Fine Jewellers in Miami, Florida, USA. The total involved in the 18 transactions was US$1,064,000. The bank says that the misuse of the VISA credit card was such that Mayor’s accounts department and/or its vice president at the time (Mr Leon Benzrihem) must have colluded with Mr Sissoko to misuse the VISA card….

The bank challenged its liability to pay the sum of US$1,064,000, using the chargeback and representment procedure [and then the arbitration procedure] laid down in the VISA regulations.… The arbitration procedure before the VISA International Arbitration Committee (the VIAC) was conducted entirely on paper. The bank answered various questions put to it by the VIAC. On 16 and 17 March 1999 the VIAC issued two awards that were in Paymentech’s favour. The VIAC held that there was no evidence of any collusion between Mayor’s employees and Mr Sissoko to defraud the bank. It also held that … the bank had failed to support the chargeback with the required documentation. Accordingly, Paymentech’s account was credited with the sum in dispute.

In May 1999 the bank appealed to the VISA international board of directors. The bank submitted a series of lengthy written submissions through its lawyers…. There was no oral hearing before the international board of directors…. [T]he matter was heard at an international board meeting that took place in London on 8 November 1999.… No formal awards were produced by the board. Instead, after the board meeting, the assistant secretary to the board advised Miss Kris Misfeldt, the director of VISA International Arbitration and Compliance, of the board’s unanimous decision. The board decided to dismiss the appeals and upheld the VIAC’s awards.

On 15 November 1999 Miss Misfeldt wrote to the bank (from an office in San Francisco, California, USA), informing it of the international board’s decision. The letter first sets out the reasons why the VIAC had reached its decision against the bank. The letter then states that (in accordance with the appeal procedure), the arbitration committee had considered further information that had been submitted by the bank at the appeal stage, before the matter was reviewed by the board. The arbitration committee had concluded that this further information did not conclusively demonstrate: “a purposeful attempt by the merchant to defraud the Issuer and did not meet Visa’s traditional view of merchant collusion, such as counterfeit card schemes intended to defraud the broader Visa payment system.” The letter then stated that the international board of directors had agreed with this view. The letter continued: “As all permissible actions with the Visa Arbitration process have been exhausted, Visa International now considers the matter closed. The Issuer will retain responsibility for all transactions and case processing fees associated with the above reference cases.”

This letter was received by Jonathan Rosenn of Fine & Associates, the Florida lawyers acting for the bank, on 29 November 1999.… [Mr. Rosenn inquired] of VISA where the international board of VISA sat when it made its decision [and] was told by Miss Misfeldt that it was in London….

[The bank applied to the English courts to annul the award] under §§67, 68 and 69 of the 1996 Act.… Whether the bank can pursue these applications depends on … [whether] for the purposes of §§2 and 3 of the 1996 Act, is the “seat of the arbitration” in England and Wales? … Both parties agree that the court has no jurisdiction to hear or determine the bank’s applications under §§67 to 69 unless the court is satisfied that the seat of the arbitrations is in England and Wales….

By §53 of the 1996 Act: “Unless otherwise agreed by the parties, where the seat of the arbitration is in England and Wales … any award in the proceedings shall be treated as made there, regardless of where it was signed, despatched or delivered to any of the parties.” In this case it is agreed that there was no particular agreement by the parties as to the place where the relevant awards were made.… Therefore the English court can only consider the bank’s applications if the bank establishes that the seat of the arbitrations was in England, so that (under §53) the awards will be treated as having been made in England.

Section 3 of the 1996 Act provides:

         “In this Part ‘the seat of the arbitration’ means the juridical seat of the arbitration designated—(a) by the parties to the arbitration agreement, or (b) by any arbitral or other institution or person vested by the parties with powers in that regard, or (c) by the arbitral tribunal if so authorised by the parties, or determined in the absence of any such designation, having regard to the parties’ agreement and all the relevant circumstances.”

It is accepted that none of the circumstances set out in (a), (b) or (c) of §3 apply in this case. In particular it is agreed that there is nothing in the arbitration provisions of the VISA regulations that identifies the seat of any arbitration conducted under the regulations.… Therefore it is for the court to determine the seat of the arbitration “having regard to the parties’ agreement and all the relevant circumstances.”…

Paymentech submitted as follows…. The “seat” of the arbitration is its “juridical seat,” as opposed to the physical place where the proceedings generally or particular hearings occur. The “seat” is the central point of the arbitration or its centre of gravity, viewed overall.… The court is entitled to look at the arbitration agreement of the parties and the conduct of the reference from the beginning to the end as part of “all the relevant circumstances” within §3…. [T]he court must reach an objective view of where the “seat” of the particular arbitration is located….

[Paymentech argued that,] although the VISA regulations make no specific reference to a “seat,” place or governing law of arbitrations …, the centre of gravity of any arbitrations under those provisions is clearly at the VISA headquarters in California. That is where the request for arbitration must be filed and the arbitration documentation must be sent in accordance with the VISA regulations. VISA headquarters will notify the members of the process and the arbitration committee’s decision.… In particular, in relation to the appeal procedure: (a) the notification of appeal was sent by the bank to VISA in California; (b) the lengthy submissions of the bank were sent by its lawyers, Fine & Associates, to VISA in California; (c) Paymentech’s responses were sent to VISA in California; (d) the procedure on appeal is dealt with by VISA’s director of arbitration and compliance, Miss Misfeldt, who is based in California; (e) the appeal had to be dealt with by the international board as part of the agenda for one of its four monthly meetings. The location of the board meeting at which the appeal is heard will be adventitious. In fact it was London; (f) the decision of the international board on the appeal was notified to the parties from VISA in California….

[The] bank submitted the following…. The task of the court under §3 is to make an objective determination of the “seat.” The parties’ intention (in the absence of an express choice of “seat”) is irrelevant…. The court can take all factors into account in deciding the location of the seat…. In a case involving transnational trade and services such as this one, the location of the seat of the arbitration can (and frequently will) be different from the country whose law governs either the substantive contract or the law governing the parties’ arbitration agreement…. The relevant arbitration is the appeal process…. The key factor here that makes England the seat of the appeal arbitration is that the appeal was held, heard and determined by the appellate tribunal (the international board of VISA) in London. There are no countervailing factors that make California the seat.… The fact that all correspondence concerning the arbitration was routed through the administrative centre of VISA in California is not a strong factor. All ICC arbitrations are organised through Paris; it does not make France the seat of all ICC arbitrations….

It is clear from §2(1) of the 1996 Act that the concept is used in order to define which arbitrations will be subject to the statutory regime in Pt 1 of the 1996 Act. Part 1 of the 1996 Act gives the English court important powers in relation to arbitration proceedings which will be exercisable at different states of an arbitration. Therefore, in general, only those arbitrations that have their “seat” in England and Wales should be subject to the exercise of the court’s powers in Pt 1 of the 1996 Act. The 1996 Act uses the concept of the “seat” as the test for the exercise of Pt 1 powers rather than the choice of procedural law made by the parties in their arbitration agreement…. Section 4(1) and (2) stipulate that there will be “mandatory” and “non-mandatory” provisions in Pt 1. The Pt 1 regime applies “whether or not the law applicable to the parties’ agreement is the law of England and Wales…. But if the parties have chosen another procedural law for the arbitration or particular aspects of it, then, in relation to non-mandatory provisions in Pt 1, the effect will be as if the parties had made a specific agreement dealing with those matters.” English Arbitration Act, §4(5).

Section 3 states that “the seat of the arbitration means the juridical seat of the arbitration.” It is clear that “seat” is intended to refer to some state of territory; hence the reference to “the seat of the arbitration [being] in England and Wales” in §2(1) of the 1996 Act…. [T]he location contemplated is a particular state or territory which is associated with a recognisable and distinct system of law. So the “juridical seat of the arbitration” means the state or territory where, for legal purposes, “the arbitration” is to be regarded as situated….

[T]he powers conferred on the court by Pt 1 … are exercisable at different stages in the arbitral process. The power to appoint an arbitrator (§18) will arise usually at the start of the process. The power to remove an arbitrator (§24) could be exercised at any stage up to and even after an award. Self-evidently the powers of the court in relation to awards (§§66-70) will only be exercisable at the end of the arbitration process. I draw attention to these factors only to emphasise the point that the issue of whether an English court can exercise these various powers depends (with exceptions) on the answer to the threshold question of whether, in accordance with §§2 and 3, the “seat” of “the arbitration” is England and Wales? …

The key circumstance that the bank relies on is that the actual appeal hearing by the international board took place at the board meeting in London on 8 November 1999. The only other “English connections” that the bank can rely on really have nothing to do with the individual appeal arbitration at all. First, there is the English connection concerning the original agreement between the bank and VISA. Secondly there is the fact that the point of contract generally between the bank and VISA was the VISA centre at Basingstoke. Thirdly there is the point that, at the start of the payment procedure, the bank as issuer would have received a request for authorisation from Basingstoke and (if it had been given) it would have gone to Basingstoke….

[The question of where the “seat” is located concerns the seat of] the individual arbitration with which the case is particularly concerned.… In this case the relevant arbitration is clearly the appeal arbitration…. So I am concerned with discovering the “seat” of that individual appeal “arbitration.”

The next question is at what stage of the relevant arbitration does the court have to examine “the parties’ agreement and all the relevant circumstances” in order to determine the “seat of the arbitration.” As I have already pointed out, the issue of the jurisdiction of the court to exercise one of its Pt 1 powers might arise at either an early or a late stage of the arbitral process. Thus if the issue arose when the court was being invited to appoint an arbitrator under §18, then there might be very much fewer “relevant circumstances” … to consider compared with a case when the issue arose after an award had been made.

[Paymentech] accepted that once the “seat” has been determined for §3 purposes, then it cannot move, unless the parties agree that it should or one of the mechanisms set out in §3 is operated…. In Union of India [supra pp. 626–29], which was a case before the 1996 Act, Saville J took the view that once the “seat” of the arbitration was fixed it could not move unless the parties agreed to change it. In a case under the 1996 Act, ABB Lummus Global Ltd v. Keppel Fels Ltd [1999] 2 Lloyd’s Rep 24 at 33, Clarke J said that he agreed with Saville J’s view…. I respectfully agree with both judges…. My conclusion … is that if the court has to determine the “juridical seat of the arbitration” in the circumstances set out in §3, then it must do so at the point at which the relevant arbitration begins. In this case that point would be when the bank invoked the appeal process in May 1999 and Paymentech submitted to it.

My reasons for this conclusion … are the following.… Under English law an arbitration must always have a “seat.” As the Departmental Advisory Committee on Arbitration Law Report on the Arbitration Bill commented: “English law does not at present recognise the concept of an arbitration which has no seat and we do not recommend that it should do so.” This means that an arbitration must have a seat when the arbitration starts. In this case that must mean that a “seat” must exist when the appeal process started in May 1999…. Once an arbitration starts and it has a “seat” then I cannot see how it can be changed, unless it is by one of the mechanisms envisaged in §3…. It would be contrary to the whole idea of a “juridical seat” that its location should somehow be peripatetic. The purpose of locating a “seat” of an arbitration under the 1996 Act is to identify a state or territory whose laws will (subject to exceptions) govern the arbitral process. If the “seat” could change from one point in the arbitral process to the next then the parties would never know whether the English court could exercise its Pt 1 powers…. The procedural law regime of an arbitration surely cannot change capriciously from one point in the arbitral process to the next.… Therefore … if the particular mechanisms identified in §3 are not used, then once a “seat” has been identified, it cannot move.

If this conclusion is correct, then I have to examine the “agreement of the parties and all the relevant circumstances” as at May 1999. The reference to the “the parties’ agreement” means, I think, the agreement that contains the original contract to submit disputes to arbitration…. If this is correct, then “the parties’ agreement” here must mean the VISA regulations. They contain the agreement to submit disputes to the VISA arbitration process and the arbitration appeal process. I take the phrase “all the relevant circumstances” to mean … that a court has to have regard to any connections with one or more particular countries that can be identified in relation to: (i) the parties; (ii) the dispute which will be the subject of the arbitration; (iii) the proposed procedures in the arbitration, including (if known) the place of interlocutory and final hearings; and (iv) the issue of the award or awards.

If I consider those matters then it is clear that the “seat” of the appeal arbitration process is not in England, but is probably located in California. Thus—(1) Paymentech is based in Texas. The bank is based in Dubai. VISA is based in California. (2) The VISA regulations have no express proper law provisions either as to the substantive regulations or as to the appeal arbitration process between members. (3) The VISA worldwide payment card scheme has its headquarters in California. (4) The dispute arose out of transactions in Florida. Although the bank had to grant authorisation for those transactions (as issuer) through Basingstoke, Paymentech had to deal with its authorisation (as acquirer) through California. (5) The regulations appear to contemplate that the appeal arbitral process will be handled through the VISA offices in California. Thus it is contemplated that notifications will be sent there; the process will be handled by the arbitration and compliance department in California. The merits will be considered by the arbitration committee which is based at VISA headquarters in California before being considered by the board. It is contemplated that the board will consider the merits of the appeal at a board meeting which could be anywhere in the world. (6) The regulations appear to contemplate that notification of the result of the appeal process will be handled by VISA headquarters in California.

Is this conclusion on the “seat of the arbitration” altered if … [a] court should consider circumstances relating to all the subsequent stages in the arbitral process in order to determine the “seat” of the arbitration? In my view this cannot alter my conclusion that the “seat” of the appeal arbitration is not in England and is probably in California. The reasons for this conclusion are the following. (1) The only additional factor pointing to England as the “seat” is that the international board meeting at which the appeal of the bank was heard took place in London. But the location of the board meeting was adventitious. It was not contemplated by anyone, in the bank, VISA or Paymentech, that the appeal would necessarily be heard in London. (2) Nor was the fact that the hearing was in London of any particular significance. The preparatory administrative work for the appeal and the consideration by the arbitration committee were not done in London. It was done in California. After the decision of the international board the parties were informed by Miss Misfeldt of the result by letter from the VISA office in California….

Therefore, on either approach, I have concluded that “the seat” of the appeal arbitration is this case was not in England and Wales. Accordingly the court has no jurisdiction in this case to exercise the powers set out in §§67 to 69 of Pt 1 of the 1996 Act….

PT GARUDA INDONESIA v. BIRGEN AIR

[2002] 1 SLR 393 (Singapore Ct. App.)

[excerpted above at pp. 600–05]

IN THE MATTER OF CHARLES R. STEVENS v. COUDERT BROTHERS

662 N.Y.S.2d 42 (N.Y. App. Div. 1997)

The arbitration agreement in issue provides for arbitration pursuant to the Rules of the [AAA], except that “whenever any of the foreign branches of [respondent law] firm shall be involved in [a] dispute or controversy [arising under respondent’s partnership agreement], such arbitration shall take place in the city where the foreign branch has its principal office, if the New York principal office shall have requested the arbitration.” Because several of respondent’s foreign branch offices are “involved” in its claim that petitioner, among other things, wrongfully recruited its attorneys to another firm, there is no city where “the” foreign branch office is located and it therefore cannot be said that respondent failed to comply with the agreement by demanding arbitration in New York. Where parties have agreed to arbitration, courts should proceed with “great caution” in interfering with the processes of the selected tribunal, particularly with respect to procedural threshold questions such as venue (Matter of D.M.C. Constr. Corp. v. Nash Steel Corp., 51 A.D.2d 1040, 1041 [dissenting mem], rev’d on dissenting mem 41 N.Y.2d 855). The parties having agreed to arbitrate their dispute pursuant to the Rules of the American Arbitration Association, and there being no clear violation of the exception to that agreement for foreign branch offices, the issue of venue was properly referred to the AAA for resolution….

ADF GROUP INC. v. UNITED STATES OF AMERICA