Failure to specify seat may cause problems

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In a recent PRC case, the Taizhou Intermediate People’s Court refused enforcement of an ICC award on grounds of public policy because the court had previously held that the arbitration clause was invalid. This outcome could have been avoided if the parties had specified a suitable arbitral seat in the arbitration clause.

Anthony Poon
Anthony Poon

The seat is an important legal concept, as its law provides the supporting legal framework for the arbitration and its courts supervise the arbitration. The seat also usually determines the nationality of the award that is relevant to enforcement. The seat can therefore have a material impact on the course and outcome of the arbitration, and is not to be confused with the factual venue where arbitration meetings and
hearings are conducted.

Absent of any agreement to the contrary, the law of the seat, which is often not the same as the substantive law of the contract, usually also governs the arbitration clause. It is important to understand that the substantive law of the contract may not extend to the arbitration clause because the arbitration clause exists independently and is separable from the other contract terms.

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ANTHONY POON and SIMON HUI are partners at Baker & McKenzie in Hong Kong and Shanghai, respectively.

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