SITTING AT A VIRTUAL TABLE: HOW TO DEFINE THE SEAT OF ARBITRATION IN VIRTUAL/ VIDEOCONFERECING PROCEEDINGS
“Once upon a time, there was a little girl named Goldilocks. She went for a walk in the forest…” Thus starts the fairy tale of Goldilocks and the Three Bears. We know the rest. The girl came upon a house and then tried food from the tree plates, and sat in three chairs, choosing the last one every time, because it felt just right. What does that have to do with choosing the seat of arbitration, one may wonder?
In this note we focus on choosing the seat of arbitration in the context of virtual proceedings conducted remotely, via video conferencing. As more and more parties choose to have their dispute resolved remotely, properly addressing the issue the seat of arbitration is more important than ever. Despite these developments, very little guidance exists on the subject.
Arbitration is a mechanism of alternative dispute resolution. Instead of going to court, the parties can choose to have their case decided by one or more arbitrators and according to the agreed upon set of rules. Some call it the private courts because the rules are sometimes as elaborate as those applicable to court proceedings. Arbitration is considered to be advantageous to all involved. The parties can control the process, the accompanying expenses, and the timeline, all of which are otherwise be dictated by the court. The attorneys still represent the parties in the usual fashion. The public benefits as the courts’ burden is lightened and more disputes can be resolved. In recognition of these advantages, there are international accords, such as the New York Convention, and a myriad of local laws, which enforce the process and the award issued by the arbitrators.
Because the right to seek redress in courts is fundamental, the parties need to observe certain requirements to submit their grievances to arbitration. Most importantly, the parties must agree in writing to submit their specific dispute to arbitration. This is usually done either in the form of a specific contract clause or a separate agreement to the same effect.
The seat of arbitration serves two purposes. The simpler purpose is to identify the location where the arbitration will take place. In this regard it is the equivalent of a choice of venue provision, but more open ended. It is independent of the choice of law, which governs the substantive relationship. The parties may choose their contract to be governed by the laws of Zimbabwe, but pick Moscow as the seat of arbitration. Or London. Or Deli. This is simple enough. Most drafters spend very little time considering this item aside from the geography. Is it close enough to the headquarters? Is the territory familiar? Are there existing relationships with counsel?
This second purpose is a bit of a trap for the unwary. Under the New York Convention and other applicable laws, the local statutes of the place of arbitration determine the enforceability of the award. If the arbitration was conducted in violation of the laws of the location where it took place, the whole award might be unenforceable. In other words, it is possible that a court in Libya will disavow an arbitration, which a London court might find perfectly acceptable. Further, local laws supplant any lacunae in the arbitration rules (for instance, provisions governing oaths). Further, in some jurisdictions, such as China, the powers of arbitrators to order interim measures are limited. Thus, it is not uncommon for parties to engage in procedural wrangling to secure a friendlier forum purely as the “seat of arbitration.”
With these two goals in mind, how does one go about defining the seat of arbitration where the parties agree to have their disputes settled online, via video? There is no magic formula, of course. There are no reported cases that strictly address the issue. This area of law will continue to develop once the courts are called upon to interpret the language in light of the local laws, customs, and, sometimes, the political currents. However, a drafter would do well to put together the language that serves the two goals described above.
To achieve the first goal, it is probably enough simply to state that the arbitration will be conducted online, via video conferencing and that such designation shall serve as the seat of arbitration or its “legal place” in the parlance of the London Court of International Arbitration, one of the preeminent providers. Indeed, the LCIA recommended arbitration clause is fairly laconic on the subject. The recommended language is merely that “[t]he seat, or legal place, of arbitration shall be [City and/or Country].” Thus, we can say that “The seat, or legal place, of arbitration shall be online, via videoconferencing.”
However, specificity is needed to ensure meeting the second prong, i.e., limiting the dispute to the laws of a certain jurisdiction to avoid unnecessary uncertainty. Thus, one would be well advised to state unequivocally that “for the avoidance of doubt, the seat of arbitration, or legal place thereof, shall be considered [City and/or Country and/or State] and the procedural and substantive laws thereof shall govern the arbitration proceedings insofar as the same supersede or supplant the Rules of [Tribunal], including, without limitation, the provisions governing setting aside the award.” Again, there appear no model clauses addressing the issue, so one can be fairly creative in drafting the appropriate language.
On a side note, there appear very few set rules for conducting remote proceedings. The instrument is fairly new and has become the predominant means of conducting judicial business only recently due to the COVID-19 pandemic. Thus, the parties will be well advised to create (or borrow) a set of processes to have a roadmap for the arbitrators and for themselves to avoid unnecessary costs, delays, and procedural disputes. For example, the American Arbitration Association has issued a Model Order and Procedures for a Virtual Hearing via Videoconference. This document is fairly comprehensive and can serve as a guide.
So, what happened to Goldilocks? The bears were quite unhappy to discover Goldilocks ruining their food and furniture. She narrowly escaped and “never returned to the home of the three bears.” Fortunately, a skilled practitioner can avoid this fate by choosing carefully the seat of arbitration to avoid making the same mistake.