By Solomon Unimke
This paper attempts to discuss the arbitral institutions and the considerations parties and counsel must contemplate in selecting an arbitral institution, which is a crucial process and can indicate from the on-set, the seat of arbitration which is primary in initiating, deliberating and enforcing an arbitral award.
This discourse provides a comparative analysis of some top global arbitration institutions and the advantages or challenges arbitration institution users must reflect on in choosing an institution, as well as providing a further insight into the growing trend in switching between Arbitration and Mediation and its efficacy in resolving international disputes with a particular focus on the emerging areas in Africa, particularly Nigeria.
ARBITRATION AGREEMENT VIS-À-VIS ARBITRATION CLAUSES
Most arbitration agreements are entered into as exit strategies, they are inserted into agreements without much thought as to the dynamics of the arbitration proceedings in the event the contractual relationship actually goes wrong.
No partner wants to be the one proffering detailed solutions as to how their marriage should be dissolved if it gets to that, but as much as we all want a happy ending, some marriages must dissolve. Thus, when things go wrong, parties have to ensure that their arbitration agreements fulfil their expectations of an easy way out; the best ‘exit strategy’.
Practice has shown that parties enter into arbitration agreements either in compliance with global standards and trend or with limited background information. This presentation focuses on guiding individual and businesses in choosing the ‘right’ arbitration institution when drafting arbitration agreements.
The foremost choice to make in drafting arbitration agreements is to decide on what form the terms should take, as an ad-hoc arbitration or institutional arbitration.
An ad hoc arbitration clause, requires a less formal structure. Hence, it may be preferable for parties to create a detailed structure for the arbitration in the agreement, or else agree to the application of non-administered arbitration rules like that of the United Nations Commission on International Trade Law (UNCITRAL).
In institutional arbitration, the task of agreeing to relevant procedures can be fairly easy, as all institutions have their set of rules governing the conduct of the arbitration process if there is no contrary agreement between the parties.
A survey of international arbitration users in 2015 found that 79% of the arbitrations they were involved in over the previous five years (2010-2015) were institutional arbitrations (2015 International Arbitration Survey: Improvements and Innovations in International Arbitration by the School of International Arbitration at Queen Mary University of London. The survey is available on the QMUL’s website).
There are several reasons for this preference for institutional arbitration. An institution can lend political or moral weight to awards. More practically, because institutional rules are designed to regulate the proceedings comprehensively from beginning to end, the institutions are better suited to cater for contingencies that might arise, even if (as sometimes happens) a party fails or refuses to cooperate. By incorporating an institution’s rules into the contract, contracting parties also avoid the time and expense of drafting a suitable ad hoc clause.
As noted above, the institution will also assume administrative responsibility for the arbitration, and take care of fundamental aspects of the arbitration procedure. The fees and expenses of the arbitration are, with varying degrees of certainty, regulated, and some arbitral institutions independently vet awards to ensure enforceability.
WHY CHOOSE AN ARBITRATION INSTITUTION?
Arbitration institutions have their distinct features in terms of their modus and form. Some of these features are determined by the institutions based on their peculiar services, like the expensive commencement fee of the International Centre for Settlement of Investment Dispute, while others are not so much in control of the institutions, like territorial locations.
The London Court of International Arbitration (LCIA) for example, is expectedly situate in London. Therefore, just like determining what size of shoes to buy according to the size of one’s foot, so is choosing an arbitration institution according to the peculiarity of the nature of business or relationship entered into.
It is imperative that parties decide what arbitration institution with a profound knowledge of the various systems and mechanisms of the institution and how they best fit in with their business.
There are many institutions to choose from. As a general rule, newly formed institutions or institutions without a proven track record should be avoided.
That aside, there is no magic formula for choosing between them. Increasingly, institutions and institutional rules are offering similar processes with little to distinguish them. An example is the widespread introduction of mechanisms such as emergency arbitration, once a key distinguishing feature of only certain leading institutions. Such similarity leads parties to look to more subjective factors in deciding which institution to use: familiarity with the institution, their opinion of the international acceptability or reputation of a given institution, the proactiveness and responsiveness of the institution’s staff, and the institution’s neutrality or “internationalism”.
It is important to recognise that institutional arbitration rules provide only a framework for the procedure of the arbitration. The way in which the arbitration is conducted will be determined by the specific approach of the arbitrators. Factors such as their degree of experience in international arbitration, legal background and training, and views on the legal issues for determination in the arbitration will influence their approach. It is therefore essential to consider carefully the approach you want the tribunal to take when selecting your arbitrator.
In choosing an arbitration Institution, certain criteria have to be taken into consideration. Some of the major ones include:
The seat of the arbitration;
The level of involvement of the arbitration Institution;
Fast track arbitration and early determination;
The relative abilities and expertise of the institutions with respect to types of subject-matters;
The relative experience and ability of the institutions’ administrators or secretariats respecting case administration;
Relative reputation insofar as reputation may enhance or undermine the prospects for enforcement of an arbitral award;
Cost, both administrative and arbitrator fees; and
Whether certain institutions are better suited for arbitration in certain locations.
The Seat of Arbitration
The ‘seat’ of arbitration, although abstract in form, is a subject of a legal conflict. Simply, the ‘seat’ of arbitration is the legal domicile or home of international arbitration. It provides for the nation’s Arbitration Law that would govern the arbitration.
On the other hand, the ‘venue’ or ‘place’ of arbitration refers to the specific geographical location for the purpose of the arbitration proceedings. The principles that guide courts to resolve the disputes of seats are the provisions of the arbitration clause.
Generally, seats imply the laws of the arbitration that would guide the arbitration procedure while the venue determines the physical location of the arbitration. The Arbitration law of Nigeria (The Arbitration and Conciliation Act of 2004) does not expressly provide for the seat or venue of arbitration, however the court in NNPC v Lutin Inv Ltd (2006) 2 NWLR (pt. 965) 506 interpreted the usage of ‘place’ to also mean ‘venue’.
In a proceeding to enforce the award of USD6.6 billion arbitration award against Nigeria, Nigeria argued that the arbitration was supposed to be seated in Nigeria and not England and therefore the award should not stand. The court held that reference to ‘venue’ in an arbitration agreement referred to the legal seat. The agreement in this matter was actually couched to allow the Arbitration and Conciliation Act of 2004 (ACA) to be applicable, but it went ahead and provided that the venue of the Arbitration should be London, England or as parties agree. Although Nigeria successfully overturned the award, it was not based on the ‘seat’ argument, but on public policy grounds. The court found that since the proceeding took place in London, Nigerian courts cannot set aside the award. The court’s decision was based on the following reasons:
The clause referred to venue “of the arbitration”, implying that it would apply to the whole proceedings. This was compared with the language used in the Nigerian ACA to refer to the physical location, for example where a tribunal may “meet” or “hear witnesses, experts or the parties”.
The clause stated that the venue of the arbitration “shall be” London. If the reference to “venue” was to where the hearings would take place, it would be inconvenient for this to be in London given the location of the parties. The court reasoned that this was not something that the parties were likely to have intended. In addition, the arbitration agreement allowed the “venue” to be changed only by the parties, not the tribunal. The selection of the hearing venue is typically decided by the arbitrators, further indicating that the parties intended to refer to the legal seat.
Reference to the rules of the Nigerian ACA was not inconsistent with the choice of England as the seat. Any non-mandatory provisions of the Arbitration Act 1996 were displaced and only the mandatory provisions would continue to apply.
The seat is a key factor in any arbitration. It provides a “home” for the arbitration, determines the law governing the relationship between the tribunal and the courts, and also determines which court has supervisory jurisdiction over the arbitration (giving them the power to, among other things, set aside an award). The seat will also determine where the award has been made, which is significant when trying to enforce the award.
The physical location of an arbitration does not have the same legal significance. Generally speaking, the location is decided based on convenience of all involved. It does not need to be (and frequently isn’t) the same as the legal seat of the arbitration.
It is important for parties to designate the legal seat of an arbitration in their arbitration agreement. This case underlines the benefits of using clear terms when referring to the intended seat in an arbitration agreement to ensure that the legal seat is where the parties intended and to avoid unnecessary procedural disputes.
Level of Institutional Involvement
Arbitral institutions have varying levels of involvement in managing and administering arbitrations. Institutions such as the Hong Kong International Arbitration Centre (HKIAC), for example, promote their “light touch” approach with rules emphasising party autonomy and entrusting the arbitrators with the primary decision-making power. Other institutions, such as the International Court of Arbitration of the International Chamber of Commerce (ICC), are known for more intensive involvement in arbitrations. One practical example of these contrasting approaches is in respect of scrutiny of arbitral awards. Institutions like the ICC and the Singapore International Arbitration Centre (SIAC) engage in a mandatory scrutiny and approval of draft awards of the tribunal. The ICC Court performs the scrutiny process and may lay down modifications as to the form of the award and, without affecting the tribunal’s liberty of decision, may also draw the tribunal’s attention to points of substance. The idea is to prevent the award suffering from defects in form or substance that could give rise to difficulties at the enforcement stage. Many other institutions, such as the HKIAC, London Court of International Arbitration (LCIA), and the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), do not scrutinise or approve awards, leaving it to the tribunal to render a valid award. This difference reflects the varying views about the value of the scrutiny process, some parties consider the additional quality assurance to be a benefit, while others see it as imposing unnecessary delay and expense.
Cost of the Arbitration
There is no straight jacket as to which institution is best, but each institution has its attendant advantage to parties according to the peculiarity of the circumstance of each case. Let us look at the cost variation of five popular Arbitration institutions to help drive this point. The institutions are:
The International Court of Arbitration of the International Chamber of Commerce(ICC)
Solomon Unimke is a Public Policy Analyst.