Party Autonomy and The Law of the Seat of the Arbitration

Parties can, it seems, add layer upon layer of complexity to their arbitration agreement, if they so choose. This freedom of choice means that parties may inadvertently make disadvantageous selections in the drafting of an arbitration clause, or simply get stuck with unfortunate default rules in the absence of choice. 

Example: what procedure should parties select to govern the arbitration?

Parties may elect the arbitral seat of their choice. The arbitral seat has been described as the “centre of gravity” of the arbitration: it provides not only the geographical location, the legal system within which the arbitration lies. Unsurprisingly, the arbitration must adhere to any of the mandatory rules governing arbitration that might apply, just as any (even fleeting) visitor must obey the traffic rules and the criminal laws and so on when passing through a given jurisdiction.

However, the arbitration also has the ability to opt out of any of the non-mandatory rules, and make choices about the following:  

• Which substantive law should govern the dispute
• Where the geographical location of any of the meetings and hearings related to the arbitration.
• Whether to perform investigations at locations outside the geographical limits of the lex arbitri.
• Whether to adopt institutional rules such as UNCITRAL
• Whether to select the procedural rules of a State other than the the lex arbitri, in so far as they do not conflict with the mandatory rules of the lex arbitri. 

The above (non-exhaustive) list seems largely sensible, except for the last item. I can’t imagine advising a client that they would be better off with procedural rules that might conflict with the legal system of which their arbitration would form part. As a matter of party autonomy, it seems logical to allow total freedom of choice, but perhaps this is a case of autonomy gone too far?

On the other hand, party autonomy can be curtailed by the mandatory rules of a State. For example, two parties might agree on an arbitration clause to govern any future disputes between them. Depending on which lex arbitri they choose, the tribunal might be granted the power to consolidate arbitrations which deal with overlapping subject matter. This means that unwelcome third parties could be drawn into the arbitration.  

It seems that selecting an unsuitable lex arbitri could be just as inconvenient as selecting an unsuitable substantive law. And this certainly makes sense of last week’s reading about having an understanding about the variations in procedure between different countries.