Choice of the seat of arbitration

'Formal legal infrastructure', the law governing the contract and convenience are important factors that drive the choice of the seat of arbitration.


Summary

  • Choice of seat is mostly influenced by 'formal legal infrastructure', the law governing the contract and convenience.
  • London is the most preferred and widely used seat of arbitration.
  • London, Paris, New York and Geneva are the seats that were used most frequently by respondents over the past five years. The level of user satisfaction for these seats is high. For all four seats a majority of users described them as either 'excellent' or 'very good'.
  • Singapore has emerged as a regional leader in Asia.
  • Respondents have the most negative perception of Moscow and mainland China as seats of arbitration.


What drives decisions about the seat of arbitration?

We asked questionnaire respondents to rate the importance of a list of factors in influencing their corporations' choices about the seat of arbitration (the legal place of arbitration). Respondents could rate a particular factor as 'very important', 'quite important', 'somewhat important', 'not very important' or 'not important at all'. Respondents were also free to add and rate additional factors. We weighted the results to reveal the highest ranked influences on choice of seat (as a percentage of the maximum possible weighted score for each factor).

The most important factor is the 'formal legal infrastructure' at the seat (62%), which includes the national arbitration law and also the track record in enforcing agreements to arbitrate and arbitral awards in that jurisdiction and its neutrality and impartiality. This was followed by the law governing the substance of the dispute (46%), reflecting the findings on the nexus between law and seat in Section 1. Convenience is also an important factor (45%) including location, industry specific usage, prior use by the organisation, established contacts with lawyers in the jurisdiction, language and culture and the efficiency of court proceedings. Also consistent with the results in Section 1 regarding the order of choices about law, seat and institution and the influences between them, the choice of institution is of low importance in influencing the choice of seat.

As with the choice of governing law, corporations are focused on both the technical and practical issues when they choose a seat. Similarly, the location of the relevant people involved in the arbitration and the recommendations of external counsel are the least important factors.

We also asked respondents to further specify which aspects of formal legal infrastructure, general infrastructure, convenience and the location of people most influence the choice of seat. Respondents were asked to rank the top three factors from a list under each of these headings. We weighted the results to reveal the highest ranked influences on choice of seat (as a percentage of the total score allocated by respondents across all factors).

What aspects of the formal legal infrastructure of a seat are most important?

Neutrality and impartiality (34%) and 'arbitration-friendliness' of a seat (i.e. the record of the courts in enforcing agreements to arbitrate and arbitral awards) (25%) are the aspects of 'formal' legal infrastructure that most influence the choice of seat. Also important is whether the country concerned is a signatory to the New York Convention 1958 (20%), a factor that might be expected to be a higher priority for corporations, but given the wide acceptance of the New York Convention internationally it appears to be expected in most countries. Whether the national arbitration law is based on the UNCITRAL Model Law, the ability to join third parties and the availability of appeals against awards are relatively unimportant compared to these factors.

It appears that parties will usually first negatively delimit the seats that meet a basic neutrality and impartiality threshold by excluding those they consider do not meet this basic requirement, which would normally include the home jurisdictions of the two parties. They will then positively select from amongst the acceptable seats depending on which is considered to be most 'arbitration‑friendly'.

What aspects of the general infrastructure of a seat are most important?

Cost is the most important aspect of general infrastructure that influences that choice of seat (42%), followed by good transport connections (26%) and hearing facilities (including translators, interpreters and court reporters) (21%). Respondents also listed safety and the absence of bribery as important factors.

What aspects of the convenience of a seat are most important?

Efficiency and promptness of court proceedings is the most important aspect of the convenience of a seat (20%), followed by language (16%), established contacts with specialised lawyers operating at the seat (15%) and the location of the parties (11%). Cultural familiarity is also an important factor (10%). Interestingly, previous experience of the seat is not a particularly important factor (7%), nor is the location of the arbitrators (6%).

What aspects of the location of people are most important?

The location of specialised lawyers is the most important aspect of the location of people that affects the choice of seat (39%). This is an interesting finding that would confirm an anecdotal impression that high quality legal services are a wealth generating resource: they attract people and consequently income to that country. The location of the organisation's employees (27%) and the availability of hearing staff (20%) are the next most important factors.

Which seats do corporations prefer?

Respondents were asked to indicate their preferred seat of arbitration and the reasons for their preference. According to the responses,5 London is most preferred (30%), followed by Geneva (9%) and Paris, Tokyo and Singapore (each 7%) and New York (6%). Respondents also referred to a broad range of other seats, suggesting that parties may be increasingly looking beyond the 'traditional' seats of arbitration.

The main reasons cited by respondents for their preferences mirrored the top reasons for the selection of seat indicated above. Overall, factors such as proximity, availability of quality arbitrators and expert legal advice, 'arbitration‑friendliness', the national arbitration law, neutrality, reliability, track record and stability were mentioned by respondents.

In the 2006 School of International Abitration/ PricewaterhouseCoopers survey, we also asked respondents about their preferred arbitration venues. In that survey, respondents were asked to rank their top three preferred venues. Of the first choices (using the terms adopted in that report), 38% preferred England, 12% each preferred Switzerland and United States, 10% preferred France, 5% preferred Japan and 3% preferred Sweden. A further 21% of respondents chose other seats as their first choice. Taking into account the differences of the current respondent sample, it appears that the general pattern of preferences has remained similar over the past four years, with corporations displaying a strong preference for London. In the 2010 results, it appears that the wider sample has diluted some of the preferences for more 'traditional' seats, reflecting the broad range of preferences regarding seat.

Which seats have corporations used most frequently over the past five years, why were they selected and how do their users rate them?

We asked respondents to note the five seats their organisation has used most frequently over the past five years (or a shorter specified period), indicate the top three reasons why the seat was selected and rate each of them overall as either 'excellent', 'very good', 'good', 'adequate' or 'poor' without reference to any specific criteria.

The most commonly referred to seat was London (45 respondents). 29% of respondents rated London 'excellent' and 40% rated it 'very good', i.e. almost 70% are very happy with London as a seat of arbitration. Some of the main reasons parties used London were its reputation as a neutral and impartial jurisdiction, the law governing the substance of the dispute and established contacts with specialist lawyers. Language and cultural familiarity were also mentioned by some respondents.

Paris was the second most referred to seat (28 respondents). 18% rated it as 'excellent' and 64% said it was 'very good', i.e. 82% rated Paris at least as very good as a place to arbitrate. The main reasons parties came to Paris were its reputation as a neutral and impartial jurisdiction, its 'arbitration-friendliness' and more practical aspects such as hearing facilities and transport connections.

New York was mentioned by 23 respondents, 17% of which rated it as 'excellent' and 39% as 'very good', i.e. 56% had high praise for New York as an arbitral seat. The attractions of New York were its reputation as a neutral and impartial jurisdiction, transport connections, language, location of arbitrators and other key participants in the arbitration and established contacts with specialist lawyers.

17 respondents mentioned Geneva, 24% rating it as 'excellent' and 59% as 'very good', i.e. 83% rated Geneva at least very good. The two key factors for Geneva are its reputation as a neutral and impartial jurisdiction and its 'arbitration-friendliness'.

Singapore was the next most commonly referred to seat (15 respondents), 27% rating it 'excellent' and 20% as 'very good', i.e. 47% rated Singapore very good or excellent. Respondents identified a broad range of factors that led them to select Singapore as a seat. Although the sample from Asia was slightly higher in the present survey, this suggests that Singapore has grown as a regional leader since the 2006 survey. Singapore is a new entry and it appears that the promotion of Singapore as an arbitral seat with conferences and the active involvement of more arbitral institutions (such as ICC and AAA/ICDR) have paid dividends and Singapore clearly emerges as the most popular Asian seat. Its movement (and those of regional institutions discussed in Section 4) are evidence of the trend towards regionalisation in arbitration we identified in 2006.

Other seats mentioned by respondents included Stockholm, Vienna, Hong Kong, Zurich, Tokyo and mainland China.

We did not ask respondents to further define the terms 'neutral and impartial', which was mentioned by a number of respondents in relation to London, Paris, New York and Geneva. From the interviews, it appears that this factor has two main components: neutrality and impartiality in relation to the parties (i.e. a third country for both/all of them and not otherwise disposed towards them) and a broader concept of the neutrality and impartiality of the jurisdiction as a whole, including its national courts. In relation to the latter, a number of interviewees referred to Geneva and its tradition of being politically neutral which is reflected in respondents' perceptions of it as a neutral seat.

What are the perceptions held by corporations of seats they have not used before?

Respondents were invited to rank up to five seats that they and their organisation have not used before, based on their perception of those seats. The options were 'excellent', 'very good', 'good', 'adequate' or 'poor'. However, the uptake of this question was low and only a small number of respondents shared their perceptions.

Moscow was the lowest rated in terms of perception – all nine respondents rated it as 'poor'. Mainland China was rated as 'poor' by nine respondents and 'adequate' by four respondents.

Highest rated was Singapore – three respondents rated it as 'excellent', four respondents rated it as 'very good' and three respondents 'good'. Following Singapore was Hong Kong – two respondents rated it as 'excellent', three 'very good', two 'good' and one each 'adequate' and 'poor'.

5 A small number of respondents listed more than one equally preferred seat and these were taken into account in the final statistics.

 

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