Source: 2021 International Arbitration Survey by Queen Mary University of London, White & Case
The venue of arbitration is primarily perceived as a geographical concept, as an arbitration must be held in the physical place within a certain jurisdiction. However, the concept of venue has a relatively confusing “twin brother”, that is, the seat of arbitration. For example, would you consider Shanghai as a venue or a seat in an arbitration clause that “such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai”?
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Technically, an international arbitration must always be conducted under the auspices of the legal system of a particular jurisdiction. That jurisdiction, which is the seat of arbitration, is sometimes referred to as the nationality of the arbitration and the award. The arbitration law of the seat shall apply, which comprises the rules governing the form and validity of arbitration agreement, arbitrability, the grounds to challenge the arbitral award, etc. In this sense, the choice of seat is of great significance to any arbitration because the methodologies and rules of conducting arbitrations vary from one jurisdiction to another.
The parties are encouraged to explicitly indicate their choice of the seat in their arbitration agreement or clause. If the parties fail to do so, the arbitration rules in many institutions set out the default rules. For example, article 14.1 of the Hong Kong International Arbitration Centre (HKIAC) rules provides that: “Where there is no agreement as to the seat, the seat of arbitration shall be Hong Kong, unless the arbitral tribunal determines … that another seat is more appropriate.”
The Singapore International Arbitration Centre (SIAC) rules similarly stipulate, in rule 21, that failing any agreement between the parties: “The seat of the arbitration shall be determined by the tribunal, having regard to all the circumstances of the case.”
In China, the seat theory has only developed recently through judicial practice. In the Arbitration Law, no reference is made to a seat, or any equivalent concept. The statutory arbitration regime only distinguishes between domestic arbitral awards and foreign arbitral awards, the latter being awards rendered by foreign arbitration institutions.
Controversies arise when parties agree to arbitration in China by a foreign arbitration institution. Is that arbitration foreign or domestic? This question also concerns whether foreign arbitration institutions are allowed to conduct arbitration activities in China. These are long outstanding issues for the business and legal communities in China, and it is not until recently that two Chinese court cases shed some light on these issues.
The first case was decided by a Shanghai court, early this year. The arbitration clause is the one quoted in the first paragraph of this article. The claimants commenced arbitration in 2016, before the SIAC. In January 2020, the claimants applied to the Shanghai court to affirm the validity of the arbitration clause. The court rejected the respondent’s argument that the Arbitration Law prohibits foreign arbitral institutions from conducting arbitrations in mainland China, and opined that an arbitration agreement referring to arbitration in mainland China administered by a foreign arbitral institution should be valid if it complied with article 16 of the Arbitration Law.
The court further noted that PRC law does not expressly prohibit foreign arbitral institutions from administering arbitrations in mainland China. Therefore, the court affirmed the validity of the arbitration clause, and, on a groundbreaking note, explicitly confirmed the seat of arbitration as Shanghai.
The second case was decided by a court in Guangzhou. In 2012, subsequent to a Guangzhou court’s affirmation that the arbitration clause providing that “any dispute … shall be submitted to the ICC [International Chamber of Commerce] for arbitration in the place where the project is located [which was in Guangzhou, China in this case]” was valid, the claimant instituted arbitration before the ICC and obtained a final award, which the claimant sought to enforce before the Guangzhou court.
The court regarded the ICC award rendered in the seat of Guangzhou as a Chinese foreign-related arbitral award, which constitutes one sub-category of Chinese domestic arbitral awards. Accordingly, the Guangzhou court instructed the claimant to apply for enforcement under article 273 of the Civil Procedure Law, which governs the enforcement of arbitral awards rendered by Chinese foreign-related arbitration institutions.
The above-mentioned two cases suggest that the Chinese courts have recognised the seat theory well ahead of the legislators. If the Shanghai court decision can be followed by other courts, one could reasonably imagine that the concept of seat will start to make its way into Chinese arbitration practice. However, ultimately this has to be confirmed by legislation, i.e., amendments to the Arbitration Law, or a formal judicial interpretation from the Supreme People’s Court.
On the other hand, administrative efforts toward the direction to involve foreign arbitral institutions in China have already emerged at the regional level. Since 2019, Shanghai, Beijing and Shenzhen have promulgated governmental circulations to encourage qualified foreign arbitral institutions to establish branches in certain parts of their territories, to carry out arbitration services. The practice of foreign arbitral institutions will face tremendous hurdles if the seat theory is not adopted in China.
As seat and venue bear similar appearances of a geographical term, it is important to keep in mind their distinctions. The venue means the place where the whole or part of the activities of arbitration are carried out. The tribunal tends to consult the parties to select a most convenient venue for all participants.
The seat is more of legal significance. To select Shanghai as the venue for an arbitration administered by the HKIAC by no means designates the nationality of the award rendered. Conversely, parties who select Shanghai as the seat for an arbitration administered by the HKIAC will be deemed to have identified mainland China as the nationality of the award, rendering applicable the Chinese laws governing arbitration.
From a business perspective, the parties should clarify whether the place/country in their arbitration clauses refers to seat or venue, with a view to avoiding controversies and ambiguities. As the law of the seat governs the procedural aspects of the arbitration, the parties need to take into consideration the legal culture, the maturity of the legal system, and the infrastructure of arbitration in that seat, including the supply of experienced arbitrators and counsel.
Denning Jin is a partner at Han Kun Law Offices. He can be contacted on +86 21 6080 0968 or by email at denning.jin@hankunlaw.com
