RG, RH, SS, ZS Assignment II

ABBREVIATIONS
FDI Foreign Direct Investment
OECD Organisation for Economic Cooperation and Development
UNCITRAL United Nations Commission on International Trade Law


TABLE OF CONTENTS
1.0 INTRODUCTION ............................................................................................. 1
2.0 WHAT IS THE SEAT OR PLACE OF ARBITRATION? ........................... 2
3.0 HOW IS IT DETERMINED? ............................................................................. 3
4.0 WHY IS IT IMPORTANT? ................................................................................ 5
5.0 CONCLUSION ................................................................................................. 5
REFERENCES ....................................................................................................... 6


1.0 INTRODUCTION
An important component of international economic integration is FDI. The OECD
(2013) defines FDI as:
...a cross-border investment by a resident entity in one economy with the objective of
obtaining a lasting interest in an enterprise resident in another economy.
However there is an associated risk with any type of FDI. The goal of the direct
investoris to identify, characterise, quantify and mitigate the risks associated with
FDI.The paper will focus on the mitigation of risk through the mechanism of
international arbitration in particular international commercial arbitration. Lew,
Mistelis, and Krll (2003) describe international arbitration as:
...specially established mechanism for the final and binding determination of disputes,
concerning a contractual or other relationship with an international element, by independent
arbitrators, in accordance with procedures, structures and substantive legal or non-legal
standards chosen directly or indirectly by the parties.
In international arbitration the dispute resolution clause in the main contract or the
separatearbitration agreement is the basis for any consensual arbitration(Onyema
2010).Article 7 of the UNCITRAL Model Law defines the arbitration agreement as:
...an agreement by the parties to submit to arbitration all or certain disputes which have
arisen or which may arise between them in respect of a defined legal relationship, whether
contractual or not. An arbitration agreement may be in the form of an arbitration clause in a
contract or in the form of a separate agreement.
The literature advises that the seat and/or the place of arbitration be stipulated when
preparing an arbitration agreement. The first part of the paper will discuss the seat
and the place of arbitration. Furthermore the paper will outline the concepts of the lex
arbitri and lex loci when dealing with arbitration. Part one of the paper will be
concluded with a discussion on the doctrine of separability.
The second part of the paper will concentrate on how the seat and/or the place are
determined. Finally the paper will present the importance of stating the place and/or
seat of arbitration when writing the arbitration agreement. A conclusion will be offered
to summarise the discussion and end the paper.



2.0 WHAT IS THE SEAT OR PLACE OF ARBITRATION?
The seat is the juridical seat (section 3), which is not necessarily the physical situation of the
hearings.(Monthly 2014)
On a more detailed note the seat refers to

...the legal, rather than physical, location of the arbitration proceedings. An arbitration legally exists
under the legal framework of the seat of arbitration and any award rendered is deemed to be made in
the seat. (Clayton 2012)
In essence the seat is a legal term rather than a physical location of the arbitration.
The seat governs the law to be implemented for the arbitral proceedings and
regulations. This law governing the arbitration proceedings is called, Lex arbitri.
Lex arbitri The law governing the arbitration proceedings. Generally the arbitration law at the seat of
the arbitration. (Clayton 2012)

Lex arbitris importance comes from the fact that, for an arbitration agreement, it is
important to distinguish between, the law that governs the issue in dispute and the
law governing the arbitration i.e. lex artitri.(Price 2013)
The place of arbitration, is the physical location where the arbitration takes place
and does not govern the law used for arbitration. But usually the seat and place of
arbitration are the same, unless stated otherwise. Therefore it should be a place
which can provide the necessary resources such as hearing rooms, interpreters,
transport, etc. (WOLFTHEISS 2014a)
In such a case as when the seat and place of arbitration are the same, the law
governing the arbitration is called lex loci arbitri, which is a latin term that means,
law of the place where arbitration is to take place. (Wikipedia 2014)
Another important consideration regarding the seat of arbitration that needs to be
considered is the doctrine of separability. The doctrine of separability states that,
the arbitration agreement of the contract is treated as an identity independent of the
other terms of the contract. This implies that even if the contract is voided, the
arbitration terms of the contract are not null. Hence if the contract states that the seat
of arbitration is Australia; even if the contract is voided, the arbitration part of the
contract stating Australia as the seat of arbitration is not. (WOLFTHEISS 2014b)


3.0 HOW IS THE SEAT OR THE PLACE DETERMINED?
As mentioned earlier, the seat determines the legal framework within which
arbitration takes place and the place is the physical location where one or more of
the hearings or other procedural steps take place (Watkins 2013). Generally, they
often coincide with each other but it is not necessary for the seat and place of
arbitration to be one.
The seat of arbitration is significant as it determines the procedural law which will
apply to an international arbitration. The seat is determined keeping in mind that the
selected seat of arbitration will be decisive in enforcing the law undertaken for
arbitration and the necessary framework for the proceedings.
If the seat is not specified in the arbitration agreement, the place becomes the seat, if
it is agreed upon by the parties. If the seat is not determined by the parties, the rules
selected by the parties decide how the seat is chosen. For example, the place of
arbitration will be Hong Kong, for geographical convenience. However the seat of
arbitration will be England and Wales. This means the arbitration will be heard under
the laws of England and Wales or Arbitration Act 1996.If there is no third party/
tribunal does not have the authority to decide on the seat of arbitration and the
parties cannot agree, then the matter may be decided by the courts (Guermonprez
2006).
Charts below gives the top influential factors on the choice of seat of arbitration.
Figure 1: Factors influencing choice of seat of arbitration



Source: White and Case (2012)


Figure 2: Preferred seats of arbitration

Source: White and Case (2012)






4.0 WHY IS THE SEAT OR THE PLACE IMPORTANT?
One of the most effective elements of arbitration is the designation of the seat and
the place. As discussed above, the place may be a geographical location of mutual
convenience whereas the seat governs the lex arbitri, the law of arbitral proceedings.
Thetwo most important factors that should be taken into consideration when
designating the seat and place of an arbitration are whether or not the seat is in a
country that belongs to an arbitral convention, such as the New York Convention of
which 149 states belong and that the seat should be conducted in a state of well-
developed arbitral law (Price 2013). Arbitral awards are final and binding, however
can only be imposed under the jurisdiction of any country that belongs to the same
treaty that the arbitration was performed under. Therefore, by selecting a seat that is
part of the New York Convention, the award of the arbitration is internationally
enforceable over 149 countries giving the disputing parties reassurance of the finality
of the award (ParisArbitration 2010).
The selection of the seat also determines the amount that a state court can intervene
with arbitral proceedings, in some instances, the civil court of the seat can only
interfere with the arbitral process under certain conditions, whereas other civil courts
may expect a higher degree of control over an arbitral dispute (Price 2013).
Some other important factors include the language spoken (in France, French will be
chosen as the language unless otherwise specified), venue (necessary resources/
hearing rooms, transport, catering needs, interpreters etc.) of where the arbitration is
conducted and the choice of arbitrators (unless chosen, the arbitrator is assigned by
the institution or the appointed authorities) (WOLFTHEISS 2014b).
5.0 CONCLUSION
As presented in the paper, by only nominating the place in the arbitration agreement,
the contracting parties choose the geographic place of arbitration and by default the
place becomes the seat of arbitration. In this particular case the lex arbitri or the law
governing the arbitration will be the law applicable to the place. This might not be a
positive outcome.


Stating the seat of arbitration is one of the fundamental factors of a desirable
international commercial arbitration agreement. Priority should be given to a seat in a
state that is a party to the New York Convention to benefit from the protections of that
treaty. Also the jurisdiction of the seat should have a well-developed arbitration law
with experienced courts in arbitration issues who support and respect international
arbitration agreements and awards.
REFERENCES
Clayton, UTZ. 2012. A Guide to International Arbitration.
http://www.claytonutz.com/docs/Guide%20to%20IA_2012.pdf.
Guermonprez, Yann. 2006. How Do You Determine the Procedural Law Governing
an International Arbitration? . FenwickElliott. Accessed 07/04/2014,
http://www.fenwickelliott.com/files/Arbitration%203%20-
%20How%20do%20you%20determine%20the%20procedural%20law%20gov
erning%20an%20international%20arbitration.pdf.
Lew, Julian D. M., Loukas A. Mistelis, and Stefan Michael Krll. 2003. Chapter 1
Arbitration as a Dispute Settlement Mechanism, Comparative International
Commercial Arbitration: Kluwer Law International.
Monthly, Arbitration Law. 2014. Seat of Arbitration.
http://www.arbitrationlawmonthly.com/arbitration/seat-of-arbitration/.
OECD. 2013. "Foreign Direct Investment", in Oecd, Oecd Factbook 2013: Economic,
Environmental and Social Statistics: OECD Publishing.
Onyema, Emilia. 2010. International Commercial Arbitration and the Arbitrators
Contract. 1 ed. Hoboken: Taylor and Francis.
http://CURTIN.eblib.com.au/patron/FullRecord.aspx?p=496371.
ParisArbitration. 2010. Why the Seat of Arbitration Matters. Accessed 07/04/2014,
http://www.parisarbitration.com/seat-matters.php.
Price, Jennifer L. 2013. Why Where Matters: The Seat of Arbitration in International
Energy Contracts. Accessed 07/04/2014,
http://www.kslaw.com/library/newsletters/EnergyNewsletter/2013/August/articl
e1.html.
Watkins, Latham &. 2013. Guide to International Arbitration.
http://www.lw.com/thoughtLeadership/guide-to-international-arbitration-2013.
White, and Case. 2012. "Choice of the Seat of Arbitration." 2012 International
Arbitration Survey:
Current and Preferred Practices in the Arbitral Process.
http://www.whitecase.com/files/Uploads/Documents/Arbitration/Queen-Mary-
University-London-International-Arbitration-Survey-2012.pdf.
Wikipedia. 2014. Lex Loci Arbitri. 21 September 2011 Accessed 07/04/2011,
http://en.wikipedia.org/w/index.php?title=Lex_loci_arbitri&oldid=451755932.
WOLFTHEISS. 2014a. Seat of Arbitration.
http://www.wolftheiss.com/index.php/acdaa_c_sota.html.
. 2014b. Separability of the Arbitration Agreement.
http://www.wolftheiss.com/index.php/Severability.html.