Article By Snigdha Roy,University Of Dhaka
Prospects of Seat theory or Localization:
The traditional Seat theory equates to Lex Arbitri and Lex Loci Arbitri. It has given a strong assumption that arbitration shall be governed by the law of the seat of the arbitration without giving the choice of law to the parties or Tribunal. The reasoning behind this traditional approach is quite complicated. The seat of arbitration plays a significant role as there exists a relation between the jurisdiction of a seat and arbitration itself. Where the arbitration is supposed to take place, the state should provide a legal body to execute the arbitration procedure properly. The court of the seat has exclusive authority to control the legal effects of any acts within its jurisdiction. So, it is essential to administer an award to a certain jurisdiction for its enforcement. Any legal power can only be exercised within a certain jurisdiction or under a certain system of national law. Therefore, arbitration within a territory cannot be executed without a touch of national law. Where the arbitrator is unfamiliar with the applicable law, the court of the seat is considered the most ‘competent and effective’ authority over Tribunal. So, the arbitration ad hoc or Institutional cannot escape from the law of the seat of arbitration. However, Seat theory also ensures the enforcement and recognition of arbitral awards by granting nationality to them. NYC provides the grounds for enforcing and recognition of arbitral awards by referring to the law of the seat of arbitration or the law of the place where the award was made. By this NYC expressly showed a territorial relation between the seat and Lex arbitri. This convention also gives priority to comply with the law of the seat.
Besides, Seat theory defines that a whole arbitration procedure will execute in a single country but today arbitration takes place in more than one country, sometimes outside the chosen seat. Seat theory also discourages the party autonomy as the applicable law chosen by the parties is affected by the law of the seat. Nowadays, the Seat theory narrows the freedom of the party by allowing too much intervention of domestic courts, contrary to recent developments in arbitration law. Therefore, the traditional approach limits the party autonomy and empowers the local courts to an extent.
Enforcement of arbitral awards: A return to the Lex Loci Arbitri
NYC demonstrates grounds on which foreign awards can be recognized and enforced. Yet award can be refused to enforce if respondent satisfies any of the exclusive grounds referred in Article V of the New York Convention. The grounds for refusal of enforcement can be divided into two groups: Firstly, inconsistency with arbitration agreements, the relevant grounds of the NYC are a violation of due process and public policy of the enforcing state. Secondly, the ground relates to the validity of arbitration agreement which attracts the complexity of choice of law. In the era of a traditional approach, the national court will apply its own Private International Law rules to determine the applicable law and also ascertained the governing law of the arbitration agreement. Now the question can be raised whether such Private International Law influences the refusal of enforcement of an arbitral award. Because Private International Law rules fluctuate from country to country. Hence, enforcement of the arbitral award has relied on the Private International Law of the enforcing state.
Article V(1)(a) of the NYC provides that an award may be refused when the parties of the agreement are “under some incapacity” or there is an “invalid agreement”. In this issue, which law will be applicable to determine the capacity of the party and the validity of an agreement- is very disputed and unclear. Even in common law, system lacks a clear choice of law rule. There are many established views that the applicable law can be a law of the domicile or the law of the contracting state. It is also stated that the arbitration agreement is governed by the law of the place where the award was made in the absence of the party’s choice. Thus, the private International Law of origin country (where the award made) is applicable as governing law of the arbitration agreement. Therefore, if the private International Law of every state influences the applicable law to the arbitration agreement, it is obvious that enforcement of an award will depend on the private international law of enforcing state.
Article V(1)(c) of the said convention refers that an award can be refused to enforce where the Tribunal acts more than its jurisdiction. The enforcing state is under a duty to interpret the terms of the agreement whether the given award was by following the terms of an agreement or not. For this, the enforcing state needs to determine a governing law of the agreement. National courts, therefore, have to follow the Private International Law. Usually, most of the national law provides that the governing law will be the law explicitly chosen by the parties. Complex situation arises when the parties are not subjected to any applicable law to the arbitration agreement. Common law provides two steps to determine the governing law of the arbitral agreement; firstly, the closest connection with disputes, Secondly, the conflict of law rules. The conflict of law rules differs from jurisdiction to jurisdiction. So, the different national courts determine different governing laws of certain arbitration agreements. Similarly, the closest connection test may happen with different outcomes. Thus, to enforce an award that is beyond the matter of arbitration agreement widely depends on the particular jurisdiction.
Again, Article V(1)(d) of the Convention mentioned other grounds to refuse recognition and enforcement of an arbitral award. An enforcing court may refuse to enforce an award where the composition of the arbitral tribunal was not under the terms of the agreement or in the absence of such arbitration agreement not in accordance with Lex Loci Arbitri. However, this article of this convention encourages the party autonomy principle as it gives priority first to the arbitration agreement, later law of the Seat. This Article also attracts the Geneva Convention, which requires that the composition of the arbitral tribunal and arbitral procedure should be both by following per the parties agreement and the law of the arbitral seat. This Article is related to the choice of law problems and the enforcing states required to understand the intention of the parties. The said convention requires the choice of law for arbitration agreement and such choice of law necessarily attracts the Private International Law. As every Private International Law is different so the enforcement of an award under NYC has become less certain. Hence, coming back to the Lex Loci Arbitri is the best way in the problem of choice law for enforcing the award.
Mandatory Law and Public Policy
Although party autonomy is recognized worldwide, it is not absolute. Because parties can exercise autonomy power complying with the mandatory provision and public policy. The applicable law will also be influenced by such mandatory rules, like, an arbitration proceeding can be declared a violation of public policy. Since the mandatory rules and public policy fluctuate from country to country, the idea of party autonomy is restricted by mandatory provisions and public policy of Lex Arbitri. If the choice of law does not conflict with the said provisions, then parties are free to exercise their autonomy. Where parties decide to settle the dispute separately without abiding by the mandatory rules and public policy, the award will end with unenforceability.
Is the Delocalized theory completely out of reach of the Lex Loci Arbitri?
Delocalized arbitration does not follow the notion that International Commercial Arbitration has a forum and is governed by the law of the forum. In SA Coppee Lavalin NV v Ken-Ren Chemicals and Fertilizers Ltd. described delocalized arbitration as “a self-contained juridical system, by its very nature separate from national systems of law”. It is also well established that unlike the judges the arbitrators are not bound to follow the conflict of law rules rather take into account the common intention of the parties.
The different national legal system has different rules of arbitration which causes complexity; to avoid such unwanted interference of the legal system, parties choose to delocalize the arbitration. Nevertheless, this idea is discouraged in common law, and it is also argued that arbitral proceedings must be connected with any municipal system of law.Without the touch of any legal system a proper arbitrationis impossible. Several issues relating to the arbitration agreement, like, the validity of the arbitration agreement or enforcing the arbitral award need to go through legal proceedings. The delocalize theory has come from the party autonomy. Party autonomy is also followed some legal systems. “National court may exist without arbitration, but arbitration certainly cannot exist without national court”.So, only the national court can give legal effect to any action whereas the arbitrator is unable to bind any party. The arbitration will not be completed without the intervention of the national court even though the party’s intent to delocalize the arbitration for avoiding legal procedures. Delocalize arbitration is not completely out of the reach of Lex Loci Arbitri. Despite, delocalize arbitration proceedings is still ambiguous and not universally accepted the award.
In conclusion, the procedural law in the arbitration can be determined by four steps test. The mandatory provisions of the Lex Loci Arbitri will be the first choice of law. So, the law of the seat shall prevail. Beneath the level agreements of the parties which shall not in conflict with the mandatory provisions of the Lex Loci Arbitri. This can be either Arbitration rules that the parties agreed upon or specific agreements made by the parties which could again be derogations from the arbitration rules that the parties have agreed upon. It is an interesting question whether there are mandatory provisions within the Arbitration rules of certain arbitral situations. In this regard, I am of opinion that this is not the case in practice. However, this can mean that the parties could in theory derogate from those provisions but the arbitral institutions will probably reject to administer those arbitrary proceedings conducted under such rules. Underneath this level, the provisions of the Lex Loci Arbitri will govern questions that are not governed by agreements of the parties. So, questions not governed by the arbitration rules or very specific agreement of parties, will go back to the Lex Loci Arbitri.
Apart from the traditional approach, arguments favor the delocalization theory particularly where the seat of arbitration merely is the venue of the arbitration. Usually, the seat of arbitration is unrelated to the parties as well as to the subject of the contract. Therefore, it might seem odd that the public policy or the mandatory provisions of arbitration law of that country should influence the arbitral award or the arbitral proceedings. Yet at the current stage, it is just a matter of fact that most national laws or Lex Loci Arbitri will have an influence on the arbitration proceedings as well as the arbitral award. Therefore, the Arbitral Tribunal should take into account the law of the seat of arbitration, mandatory provisions as well as its public policy consideration.
As International Conventions had imposed limitations on national arbitration law so the Private International Laws are becoming more arbitral friendly. By this International parties are attracted by such national laws and select the most appropriate law as governing law of arbitration and the law that belongs to the country will be the seat of arbitration. Altogether, the arbitral seat plays a very significant role in Arbitration. So, to avoid unwanted complexities choice of the seat should perhaps be select carefully by professionals. Getting a neutral and fair award mostly depends on the choice of the seat of arbitration. Arbitral institutions like ICC and LCIA provides arbitration clause which can be an option to adopt such rules for parties to get a fair, easy, and neutral settlement.
To sum up, national jurisdictions function in an international character in International Commercial Arbitration. Besides, International Conventions and principles give a legacy to the arbitration agreement and impose restrictions on a state to make more arbitration-friendly litigation. On the other hand, before choosing a seat of arbitration parties must know the state’s Lex Loci Arbitri. By this, there will be fewer chances of conflict of rules. Moreover, Lex Loci arbitri does not prevent the scope of party autonomy rather it gives ample application to other law. But there is no solid direction to determine and select applicable law. Perhaps, it is out of the parties’ capacity to decide which law will be appropriate for the subject matter. It is better to find a balance between parties and arbitrators. Still, there remains ambiguity how the applicable law will be determined in the absence of a choice of law. In this regard, I want to mention Article 28(2) of UNCITRAL Model Law which provided that the arbitrator will decide by following per under Private International Law. Therefore, the parties are not deprived of getting their expected fair and neutral award. Belohlavek AJ, “Seat of Arbitration and Supporting and Supervising Function of Courts”  Czech (& Central European) Yearbook of Arbitration 26.
Good R, ‘The Role of the Lex Loci Arbitri in International Commercial arbitration” (2001)17 Arbitration International 23.
Chen W-J, “Determining “Appropriate” Procedural Rules of International Commercial Arbitration and Its relationship with the law governing arbitral procedure: In the Perspective of Enforcement Under the New York Convention (2009) Contemp. Asia Arbitration 158.
 New York Convention (1958), Art. 5
Secretariat’s Guide, p. 199
Albert Jan van den Berg, The New York Convention of 1958 (Kluwer)
See Art. V(1)(b) & V(2)(b) of The New York Convention
Peter Stone, EU Private International Law (Edward Elgar, 2nd Ed. 2010) at p 3; Garry Born, International Civil Litigation in the United States Courts (Kluwer, 3rd Ed,1996) at p 492.
Halsbury’s Laws of Singapore vol. 6(2) (Lexisnexis,2009) at para 75.370
Sotomayer v De Barros (1877) LR 3 PD at 5, Baindail v Baindail (1946) p 122 at 128
Gary Born, International Commercial Arbitration: Commentary and Materials (Kluwer, 2001) at pp 2153-2163
Van den Berg, supra, note 23 at 323
Julian Lew, “Achieving the Dream: Autonomous Arbitration?” in Arbitration Insight: Twenty Years of the Annual Lecture of the Schoolof International Arbitration (Kluwer, 2007) at p 455
  1 AC 38
SA Coppee Lavalin NV v Ken-Ren Chemicals and Fertilizers Ltd  1 AC 38
(1964) 13 ICLQ 1011
Bank Mellat v Helliniki Techniki SA
A. Redfern & Martin Hunter, with Nigel Blackbay & Constantine Partasides, Law and Practice of InternationalCommercial Arbitration (6 th Ed. OUP 2015)