1. INTRODUCTION
1.1 The Seat of Arbitration Defined
The seat of arbitration in Kenya means the place of arbitration. Parties may agree in writing on the seat of arbitration and if not then the seat of arbitration shall be Nairobi, Kenya. The Arbitral Tribunal may also determine a more appropriate seat after considering all the circumstances including giving parties an opportunity to make written comments[1].It is imperative to note that the ‘place’ of arbitration does not necessarily mean the ‘seat’ of arbitration. The latter has a legal connotation and does not necessarily refer to a physical location.The concept “seat of arbitration” determines the application of a specific legal system to arbitration[2] establishing the link between arbitration and a system of arbitration law (lexarbitri).[3]
1.2 Theories of the Seat of Arbitration
1.2.1 LocalizationTheory
Proponents assert that there is a connection between the territory where arbitration takes place and the lexarbitri[4]. This theory imposes that the arbitration shall be governed by the law of the seat of arbitration leaving no room for choice of law to the parties or tribunal.[5]
1.2.2 Delocalization Theory
The theory endeavors to separate arbitration from the law of the state in whose territory the arbitral proceedings are conducted.[6] This theory rests on the principle of party autonomy; that arbitration lies exclusively upon the agreement of the parties.[7] This theory has been lauded as being in touch with the modern business world since arbitration is now on an international plane.
1.2.3 Hybrid Theory
It is a compromise between the traditional or jurisdictional theory and the contractual theory. It maintains that arbitration has both a contractual and jurisdictional nature.[8] Under this theory, the jurisdictional nature of arbitration will require the application of lexforiin regards to validity of the arbitration agreement, recognition and enforcement of the arbitral award.[9] This theory seems to be a more complete understanding of modern day arbitration law and practice and finds support under the Kenyan Arbitration Act.
2.0 CONSEQUENCES OF DESIGNATING A PLACE AS ‘SEAT OF ARBITRATION’
Whenever parties agree on the intended seat of arbitration, the law presumes that the parties intend such agreement to be followed in the events of a dispute between them. The agreement is binding and cannot be changed unless parties so decide. The arbitration law of the arbitral seat governs a number of internal as well as external matters. The internal matters include inter alia the parties’ independence to agree on substantive and procedural matters, the rights and duties of arbitrators, their remedial powers and relationships with the parties and the form of awards.On the other hand, the external matters include inter alia judicial supervision, annulment of arbitral awards, selection and removal and replacement of arbitrators.
The consequences following from the designation of a particular place as the “seat of arbitration” are as discussed under:
2.1 Applicable Laws and Jurisdiction
According to Dicey,Morris and Collins, ‘In general, arbitral proceedings aregoverned by the national law of the seat of the arbitration.'[10] This determines the arbitration procedure from the beginning to the issue of the award and give jurisdiction to the courts of the seat. In instances where only the lexarbitri is specified, the choice of seat may have a significant impact on the laws applied. Where there is an express choice of the seat, there is a presumption favouring consistency as stated in Travelers Casualty and Surety Co of Europe Ltd v Sun Life Assurance Co of Canada (UK) Ltd.[11] The same point was made by Moore-Bick LJ;[12] where there was no express indication of the fact, it is nevertheless’…probably fair to start from the assumption that, in the absence of any indication to thecontrary, the parties intended the whole of their relationship to be governed by the same systemof law.’ In Union of India v McDonnell Douglas Corporation[13] the contract provided that the Indian Arbitration Act 1940 was to be applied by the arbitral tribunal. At the same time, the parties settled on London as the seat of arbitration. The court held that by specifying London as the seat, it was reasonable to assume that the parties intended the relevant laws of England be applied in the arbitral proceedings.
In Kenya, the law applicable to the arbitration shall be the arbitration law of the seat[14]. The same was held in Rogers Shashoua& 2 Others v Mukesh Sharma[15]. The court inCrop Health Technologies Limited v Agritecno East Africa & another[16] also observed that the party seeking to enforce an arbitration agreement should firstly file such an application in Paris as it was the law of Paris that would govern it. The court concluded that it had no jurisdiction to entertain the Plaintiff’s case and the interlocutory application before Court.
2.2 Domestic v International Arbitration
The seat of arbitration is one of the elements that determines whether arbitration is international or domestic; ‘In the case of domestic awards, the procedure is governed by the local law while in international awards, the courts will look at an agreement or convention in respect of the countries involved.’ [17]In Kenya, the Arbitration Act, 1995 in Section 2 (2) & (3)recognizes this.[18] Section 3(3) (b) provides that one of the conditions for international arbitration is, ‘the juridical seat or the place where a substantial part of the contract is to be performed or the place where the subject matter is most closely connected is outside the state in which the parties have their places of business.’ Section 36(2) of Cap 49 further states, ‘An international arbitration award shall be recognised as binding and enforced in accordance to the provisions of the NYC or any other convention to which Kenya is signatory and relating to arbitral awards.’ [19] The seat determines the lexarbitri and ‘which national authority will have supervisory jurisdiction over the arbitration.'[20]
2.3 Possible Consequences of not choosing a Seat
In Taizhou[21] case, failure to designate the seat of arbitration resulted into an unenforceable award. The parties (one foreign and one Chinese) had entered into an agreement governed by the laws of China and had included an arbitration clause without specifying the seat. When the Chinese party sued the foreign party for breach of one of the contract clauses, the foreign party invoked the arbitration clause to argue that the Chinese Court had no jurisdiction. The court ruled that it did have jurisdiction because in the arbitration clause, the parties had not agreed on the curial law or the lexarbitri. According to Chinese law this rendered it invalid. The foreign party was granted an arbitral award in a Hong Kong Court but failed in its application to have the same enforced by the Chinese Court on grounds of public policy considering the latter court had already ruled that the arbitration clause was invalid.
2.4 Enforcement and challenge of awards
The choice of seat (or lack thereof) can have serious consequences on the enforcement of an award. The English Court in Shashona v Sharma[22]distinguished between lexcausaeand lexarbitri by granting an injunction to prevent a party from challenging an arbitral award in India (whose laws were applicable to the contract) on the basis that the seat of arbitration was England where the principle was that an arbitral award could only be challenged in the courts of the seat of arbitration.
In C vs D,[23]the England Court of Appeal held that because England was the seat of arbitration in that dispute, a challenge of an arbitral award could not proceed in the US Courts and would have to be subject to English laws, specifically the English Arbitration Act (1996). The seat, as was expressed in this case, is also important where there is a conflict of laws because it determines which rules will apply.
Awards could be challenged on limited grounds as set out in Article V of the NYC[24] but in addition, different jurisdictions may allow challenges based on, for example public policy as in Centurion Engineers and Builders Ltd v Kenya Bureau of Standards.[25] It is important to determine the seat so as to establish whether or not an attempt to set aside an award has prospects of success.
2.5 Is the Seat of Arbitration safe and friendly?
A Seat of Arbitration will be considered to be safe if it: provides a framework for the facilitation of a fair and just resolution of a dispute, it limits the courts intervention and ensures that it strikes an appropriate balance between confidentiality and transparency. The judiciary of a particular seat of arbitration needs to be independent and competent to address the issues arising from the arbitration process. It should also offer well developed facilities to ensure that the arbitration process flows efficiently and measures for translation and transcriptions are put in place. [26]The headquarters of the International Chamber of Commerce (ICC) are in Paris. The 2018 International Arbitration Survey[27] listed the five most preferred seats of arbitration as London, Paris, Singapore, Hong Kong and Geneva.
2.6 Court Intervention
In arbitration friendly jurisdictions, there is a minimal court interference in the arbitration process except for example, to facilitate it with interim orders. Article 1448 of France’s Arbitration Laws for example states that, ‘Where a dispute subject to an arbitration agreement is brought before a court , such court shall decline jurisdiction, except if an arbitral tribunal has not yet been seized of the dispute and if the arbitration agreement is manifestly void or manifestly not applicable.’
In Kenya, the court can intervene in the proceedings as prescribed by the Arbitrations Act, and the scope of intervention is severely limited often to ‘external issues’ such as the number of arbitrators, the competence of the arbitrator and the removal and replacement of arbitrators.
2.7 Legal Framework
Arbitration friendly countries also have a favourable legal framework – they are parties to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The NYC), the national arbitration laws are neutral and impartial and they have a good track record of enforcement of arbitral awards. Conditions that are conducive to arbitration limit unnecessary delays in the arbitration process for example of simultaneous court proceedings. This is clearly important when choosing the seat.
2.8 Confidentiality
It is important when deciding on the seat of arbitration to consider whether there is a legal obligation for confidentiality or whether this has to be requested. It is noteworthy that the Arbitration Act of Kenya does not make provisions for privacy and this has to be included in the arbitration agreement if the parties desire confidentiality.
2.9 Influence of Arbitrator
The seat of arbitration plays a role in the constitution of the tribunal in that where the arbitration panel has a sole arbitrator, the nationality may inform his or her approach to the arbitration; the parties may have minimum control.[28]
3.0 DETERMINING SEAT OF ARBITRATION
Section 21(1) of the Arbitration Act states ‘…The parties are free to agree on the juridical seat of arbitration and the location of any hearing or meeting. Section (2) states, ‘Failing an agreement under subsection (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case and convenience of the parties.Where the parties have failed to choose the laws applicable to the dispute, the arbitral tribunal shall apply the rules of law it considers to be appropriate giving consideration to all the circumstances at hand.[29]
Thus, in cases where the parties fail to indicate their agreement on the seat of arbitration, the statute authorizes the arbitral tribunal to decide on the place that is convenient to both parties, and in clear consideration of the prevailing circumstances at the time. This however should be in good faith to show trust in the arbitration process. The statute further provides that the arbitral tribunal may, unless the parties otherwise agree meet at any location to conduct hearings and meetings if they consider such location appropriate for consultation and adduction of evidence relating to the matter.
Additionally, as alluded to above in discussing the ‘presumption favouring consistency,’ where the parties fail to indicate the seat but have expressed that a particular law should govern the arbitral process the choice of law will decide the seat of arbitration. For example, if the parties agree that the arbitration will be governed by the ICC rules the place of arbitration shall be fixed by the ICC court as per Article 18 of the ICC rules.[30]
Where there is no third party such as an institution and the arbitrator lacks the authority to decide on the seat of arbitration, the court can intervene if the parties are unable to agree on the seat of arbitration.[31] This however should occur after the arbitral tribunal has recommended to the parties to comment on a suitable seat of arbitration, in proper consideration of the circumstances.
Nonetheless, as much as party autonomy is placed on a pedestal when it comes to arbitration, the Model Law and the Arbitration Act have delegated certain powers to the arbitral tribunal/panel. In situations where parties to the dispute have failed to provide an agreement on matters to do with the choice of language, rules of procedure or even the seat of the arbitration, the tribunal can step in and do the necessary in order to ensure expediency and a speedy process.
The 1961 Geneva Convention provides a mechanism to address the situation where no tribunal has been constituted. Article IV (3) provides that, in such cases, a provisional seat will be established at the request of the claimant or the respondent, by the president of a competent chamber of commerce of the country in which the respondent’s habitual place of residence or a special committee referred to in the treaty annex[32]. However, this provisional seat is subject to the final approval by the tribunal once it’s been constituted.
In some instances some jurisdictions such as the US, parties will adopt a “floating seat” that is to say; the arbitration agreement is ‘stateless’ or merely floating across international borders since it’s unclear. In scenarios such as these, the arbitration clause may provide that if a party commences arbitration, the seat of arbitration shall be in the respondent’s jurisdiction and in so doing, it is intended to discourage the parties from commencing arbitration, as they would have to do so in the other parties’ home jurisdiction[33]. In such a case the seat crystallizes as soon as the arbitration is commenced, and so such a method should also be avoided because it could potentially result into parallel arbitrations where a respondent has counterclaims but decides to raise its claims by commencing fresh proceedings in the claimant’s jurisdiction.In addition, if a respondent proceeds, it might be hard to consolidate the two arbitrations even if the arbitrations are to be conducted under the same arbitration rules, as the proceedings are not governed by the same national arbitration laws.[34]
4.0 CONCLUSION
In summary therefore, according to Laura Warren, the significance of designation of the seat of arbitration encompasses the following aspects; “it determines the law governing the arbitration process, the process of rights relating to enforcement of the arbitration award, the involvement/intervention which the courts exercising jurisdiction over the seat will have, the extent to which the local court will involve itself in the arbitral process, the degree to which anarbitral award may be challenged and lastly the extent to which judicial review may be available to the process.”[35]
[1] The Nairobi Centre for International Arbitration (Arbitration) Rules, 2015. Rules 2 and 18
[2]Alexander J Belohlavek, ‘Importance of the Seat of Arbitration in International Arbitration: Delocalization and Denationalization of Arbitration as an Outdated Myth’ (2013) 31 ASA Bulletin 262.
[3]Jonathan Hill, ‘Determining the Seat of an International Arbitration: Party Autonomy and the Interpretation of Arbitration Agreements’ (2014) 63 International and Comparative Law Quarterly 517.
[4]ibid (n 1).
[5]Ali Tunçsav, ‘The Gravity of the Seat and Seat Designation in International Commercial Arbitration with a Focus on London, Singapore and Istanbul Legislation and Practice’ (LLM International Business Law, Tilburg University 2017).
[6]Belohlavek, (n 1).
[7]ibid
[8]’A Theoretical Overview of the Foundations of International Commercial Arbitration’ (2008) 1 Contemporary Asia Arbitration Journal 255
[9]ibid
[10]Dicey,Morris and Collins on the Conflict of Laws, 14th Edition, 2006
[11] [2004] EWHC 1704 (Comm)
[12]ibid (n 19)
[13] [1993] Llyod’s Rep 48 Queen’s Bench Division Commercial Court
[14] Rule 19 of The Nairobi Centre for International Arbitration (Arbitration) Rules, 2015
[15][2009] EWHC 957(COMM)
[16][2019] eKLR
[17]’The Seat of Arbitration-Why Is It so Important? : Clyde & Co (En)’ (n 2).
[18]The Arbitration Act, 1995 section 2.
[19] Cap 49 Section 36(2).
[20]’Seat of Arbitration – YouTube’ <https://www.youtube.com/watch?v=EiP9l2ieFZ0> accessed 5 March 2020
[21]Taizhou Hoopu Investment Co. Ltd v Wicor Holding AG, Taizhou Court P.R. China, Case Docket Number: [2015] Tai Zhong Shang Zhong Shen Zi. No. 00004 (2 June 2016)
[22]Shashona v Sharma (2009) EHWC 957 (COMM); (2009) 2 All ER (COMM) 477
[23](2007) 2 All ER (COMM) 557
[24] The Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1959
[25] [2017] eKLR
[26] Amy Edwards, ‘Defining the seat of arbitration: when “venue” means legal seat’ (ALLEN & OVERY, 22 October 2019) https://www.allenovery.com/en-gb/global/news-and-insights/publications/defining-the-seat-of-arbitration-when-venue-means-legal-seat accessed 4 March 2020
[27]http://www.arbitration.qmul.ac.uk/research/2018/ accessed on 4/4/2020
[28]Jiang Qiuju, ‘Determination of seat of arbitration, and its legal significance’ (China Business Law Journal, 19th March 2019) https://www.vantageasia.com/determination-seat-arbitration-legal-significance/ accessed 4 March 2020
[29] Section 29 (3) Arbitrations Act.
[30]Arbitration Rules’ (ICC – International Chamber of Commerce) https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/
[31]Yann Guermonprez, ‘How do you Determine the Procedural Law Governing an International Arbitration?’ https://www.fenwickelliott.com/file/38/download?token=XZgVd9jC
[32]Dominique T Hascher, ‘European Convention on International Commercial Arbitration of 1961’ 59.
[33]P Nicholas, ‘Choice of Law for (2012) 24 SAcLJ Enforcement of Arbitral Awards 113, A Return to the Lex Loci Arbitri?’ LLB (Summa) (Singapore Management University).
[34] ibid
[35]’The Seat of Arbitration-Why Is It so Important? : Clyde & Co (En)’ (n 2).