Reflection Essay on Arbitration

Introduction
The concept of party autonomy provides the fundamental basis for modern international commercial arbitration law. As a result, it is widely considered to be “the most important characteristic of legislation within the field of arbitration.”[1] Party autonomy enshrines “the fundamental freedom of parties” to determine the law which will guide arbitral proceedings they are to undergo.[2] It has gained what Redfern & Hunter identify as “extensive acceptance in national courts” worldwide[3]. This acceptance transcends the legal basis of national systems and has found expression in international conventions; for example, the Rome Convention which recognises the principle of party autonomy as a basic right of the parties[4]. Excessive judicial intervention is anathema to the autonomy of the parties and viewed by some commentators as being harmful to the arbitral process in undermining the principles so sacrosanct and unique to arbitration[5]. Alongside such intervention there are other limits to this freedom which the underlying theoretical framework influences to various degrees: “the choice of law must exist within the lex arbitri of the ‘seat’ of the tribunal and must not be contrary to public policy or natural justice considerations.”[6] This is because parties are unable to agree to a procedure “fundamentally offensive to the notions of justice of the seat of the arbitration.”[7] This thereby makes the choice of the seat a very profound step in an arbitration process. This ‘seat’ theory is very well established within international commercial arbitration and provides an established legal framework which some advocates have argued puts the very existence of international arbitration in doubt[8]. Yet should arbitration be so “anchored”[9] within the national legal system where the award was madeIn direct contrast to the seat theory is the ‘delocalisation’ theory which provides that international commercial arbitration “should remain free from the constraints of national laws and therefore the lex arbitri”[10]. Jan Paulsson is perhaps the strongest advocate of the delocalisation theory and he argues that delocalisation has at its heart the principle of party autonomy free from the rigid constraints of the lex arbitri[11]. Both the “seat” and “delocalisation” theories have profound impacts upon the fundamental and enduring principle of party autonomy with the basic understanding being that while the seat theory constitutes a threat to the very essence of international commercial arbitration in facilitating excessive court intervention[12] the delocalisation theory conforms to and indeed strengthens the principle of party autonomy[13]. This essay will argue that both theories have, to a large extent, had a profound impact upon party autonomy in the manner referred to above. In part 1 the seat theory will be critically evaluated while in part 2 the delocalisation theory will be discussed before looking at both theories’ undoubted and growing impact upon party autonomy within international commercial arbitration.
Part 1: The Seat Theory

An arbitral process must have a ‘seat’ to which the arbitral process is ultimately tied and which therefore determines the procedural law of the arbitration: the juridicial seat[14]. This forms the basis for the Rome Convention on the Law Applicable to Contractual Obligations.[15] This is to avoid causing uncertainty which may arise from a situation where a choice has not been made. The term ‘seat’ is not synonymous with the term ‘choice of law’; rather the seat is only relevant as a determinant of the governing law of an arbitration process in place of an express mention of the choice of law governing an arbitration process[16]. The seat theory certainly represents the orthodoxy in International Commercial Arbitration[17] and the international community’s acceptance of it is unsurprising for Ahmed who observes that the theory, in essence, maintains state sovereignty[18]. It must be noted, however, that the law of the seat has varying levels of involvement with arbitration within different jurisdictions and the quest for harmonisation of the lex arbitri is for Redfern and Hunter, as illusory as the search for “universal peace”[19]. In England, for example, the procedure to be adopted by the “arbitral tribunal is governed by the law of the country in which arbitration is seated”[20] thereby making the choice of country important as the law of the seat sometimes contains provisions which might have profound consequences for the proceedings. Apart from this, the choice of seat has great consequence in the context of the acknowledgement and re-enforcement of any award by virtue of the fact that the seat of arbitration constitutes a ground for the challenge of an award[21]. The example of France provides a strong contrast to the UK with our European cousins taking what has been described as a “more delocalised approach to international commercial arbitration”[22]. The theoretical foundations clearly have a profound influence on the attitude of national courts to arbitration in interventionist terms. Hong-Lin-Yu states that[23], “the involvement of national courts in arbitration in the world over can be characterised as either intrusive or just supportive.” Among the arguments justifying the basis for the level of involvement discussed by Hong-Lin-Yu and which is relevant to this coursework in explaining the fundamentals of the involvement of the law of the seat in arbitration is jurisdictional theory.
The Influence of Jurisdictional Theory
Ahmed observes that the seat theory “emanates from” the jurisdictional theory which “places importance upon the territory or state within which arbitration is to take place in regulating the arbitral process”[24]. The theory proposes that the arbitration process “should be regulated by the national laws of the seat, or lex arbitri, and that of the country where recognition and enforcement will be sought”[25]. Therefore, the entire procedure must be regulated via the law selected by the parties, as well as the law of the seat of the arbitration; this is because “the power possessed by the arbitrator is acquired via concession given by the state from its monopoly over the administration of justice within its jurisdiction.”[26] It is widely acknowledged that these awards possess the equal status as a national Court Judge’s judgement. According to Klein[27], “the state alone has the right to administer justice, so in giving as a concession to arbitration in the administration of justice it is exercising a public function”; thus, an award made is correspondent to the judge’s decision. As a result, arbitrators, such as national Judges, must apply the rules of law of a particular state in order to reconcile any disputes that have been submitted. Ahmed eloquently sums up the influence of jurisdictional theory upon seat theory by observing that those who support the theory believe that the national laws of a seat have both an “automatic and legitimate” right to supervise the arbitral proceedings, or in other words, he adds, “the lex arbitri will govern arbitral proceedings”[28] which are the foundations of seat theory. As noted above Mann is one of the strongest advocates of seat theory and he has argued that it is municipal laws which are the source of the parties’ rights[29]. As noted above Mann has also insisted that, in the legal sense at least, international commercial arbitration doesn’t even exist owing to the fact that each arbitral decision is anchored within the national laws of that country[30].
Part 2: The Delocalisation Theory
The principle of delocalisation refers to the partial severance of international commercial arbitration from the national laws of the seat of the tribunal[31]. Logically this also means that the arbitration should remain largely free from the lex arbitri and is truly international in character. This theory has been expressed most forcefully by Jan Paulsson whose views were described as “dangerous heresy” by Professor Park back in 1983[32]. The author is at pains though to explain that his arguments do not necessarily mean that national laws will be disregarded: it is only in certain situations, he argues, that the award should be allowed to “float” or “drift” away from the previously accepted orthodoxy of the seat theory[33]. Proponents of delocalisation also argue “that instead of the dual system of control between the lex arbitri and then the courts at the place where the award was rendered, should be replaced by just one powerful controlling element: the place of enforcement”[34]. As Redfern & Hunter note this effectively opens up the entire world for international commercial arbitrations, rendering the process: “supra national”, “a-national”, “transnational”, “delocalised”, or even “expatriate”. More poetically, this kind of arbitration is considered a “floating arbitration”, producing a “floating award”[35].
A classic case study used by many proponents of the theory is the French system which nurtures the tie amongst arbitration and the law of the country of enforcement reaches the minimum throughout the exercising of the “international public policy” and terms as provided under the New York Convention of 1958.[36] This place arbitration as “subject to the laws of the seat not being contained in French law.”[37] Under the French system, issues of arbitrability are completely left to the tribunals[38] where issues of the conflict of laws arise for determination unlike in other countries where the court can ascertain any question of validity in which there are no explicit evidence to the contrary[39]. The French position is that of total autonomy as provided under art. 1496 of Code of Civil Procedure of 1981 which gives the arbitrator the freedom to apply the law he deems appropriate in the absence of any law chosen by the parties taking into account trade usage in the application. The psychology of this section is in line with the concept of delocalisation of arbitration which allows the arbitral tribunal to operate free from national laws and most especially the lex arbitri with the only restriction being international public policy. Under the French system, the international arbitration courts are provided with restricted power to intervene as per review unless “the arbitration has some connection with France”[40] and in issues involving the setting aside of awards there are very few grounds for the challenge of an arbitration award under the French Law and this trend of minimum interference is followed in the French’s limitation of the grounds “for refusing recognition or enforcement of arbitral awards”[41].
As given by the principle of delocalised arbitration, any enforcing body is able to chose to ignore the decision made by the Court of the seat because “international arbitration cannot be deemed a manifestation of the state;”[42] therefore, international arbitration is stateless and free from the lex arbitri and indeed “floating” as noted above.[43]
Hilmarton Ltd. V. Omnium de Traitement et de Valorisation (1999) 14 Mealey’s International Arbitration Report (No. 6) A-1-A-5 (High Court of England and Wales) put this position into action where the French Cour de Cassation held “that the award rendered in Switzerland is an international award which is not integrated in the legal system of that state, so that it remains in existence even if set aside and its recognition in France is not contrary to international public policy”[44].
Part 3: The Impact of seat and delocalisation theories
From the above analysis of the seat and delocalisation theories, there is a clear and profound clash with the principle of party autonomy and the influence of the seat in arbitral proceedings. The basic position is that the seat theory is an obstacle to the principle of party autonomy in international commercial arbitration[45]. This is one of the chief criticisms of the orthodox seat theory and, as Ahmed rightly warns, the principle of party autonomy is in danger of becoming an anachronism if judicial intervention in international commercial arbitration goes past mere support[46]. On the other hand the delocalisation theory is perceived to have party autonomy at its heart as it arguably empowers true freedom of the parties to resolve disputes without any interference from national courts[47]. Others would go further with Pierre Lalive arguing powerfully that the parties’ private dispute should in no way be resolved with reference to national laws. As noted above the seat theory still has many powerful supporters and it is undoubtedly the favoured approach of many countries as it is in essence a protection of state sovereignty and allows countries to retain a degree of control of such processes[48].
Clearly the aim of the business communities’ desire in arbitration is to provide a malleable and informal process of settling disputes using the courts that tends to present the contractual outlook using their interpretation of the relationship between the parties as a contract[49]. However there is the existence of a situation where it has been claimed that arbitration concerns the differences amongst parties and existing contracts between them and the arbitrators is unsustainable. This is as a result of all of the problems surrounding the validity of the arbitral agreement and arbitrability that are chosen via the lex fori[50]. A state alone possesses the influence to pass decisions on arbitrability and that does not favour public interest or depends on every state’s economic and social policies[51].
However, while it should be conceded that that view for reducing the influence of the national law and the strength of contracts is a commendable one, this approach is not practical.
The reasons for this are, firstly, as a result of the condition of the judicial review in which the court of the place of arbitration and the place of enforcement may act out supervisory powers in order to ascertain how valid the arbitrary awards. The national courts exercise this jurisdiction[52]. Secondly it is also important to note that the situation in reality, as Redfern & Hunter have noted, is that despite the fact the delocalisation theory has powerful allies, “the reality is that the delocalisation of arbitrations…is only possible if the local law (lex arbitri) permits it”[53]. The distinguished authors cite the example of Belgium which tried to opt for delocalisation but has since changed its law owing to the simple fact that Belgium immediately became an unattractive place to settle arbitral disputes[54].
Conclusion
In conclusion both the seat and delocalisation theories have exercised a strong influence over the principle of party autonomy but to different degrees. The seat theory, which undoubtedly represents the orthodox position and the preferred mode for countries seeking to preserve their sovereignty, presents a strong challenge to the principle of party autonomy. Given the prevalence of seat theory in the world this attack must be taken seriously and Ahmed is correct when he warns that the principle is in danger of becoming a “myth” should such judicial interference go beyond support to interference[55]. The example of the English courts is enough to demonstrate the dangers of excessive interference which goes beyond the “safety net” it is intended to be. On the other hand the delocalisation theory has, in the submission of this essay, had a lesser although not negligible effect upon the principle of party autonomy. Despite its noted advocates, such as Jan Paulsson, it is still very much an evolving theory[56]. Further, as Redfern & Hunter have noted accurately, it is only when the lex arbitri allows it that delocalised arbitration can occur and the example of Belgium is indeed a warning that any states which embrace it do so at their own peril of parties seeking to enforce their disputes elsewhere. Of course the French courts have taken the delocalised approach to be their own while recent English decisions travel in the opposite direction[57]. The seat theory remains the orthodoxy and for now the process of harmonisation of international commercial arbitration has ground to a halt.
Bibliography
1.0 Books
Goode, Roy (2010) Goode on Commercial Law (4th ed) Penguin Books: London at p.1308
Andrew Tweedale and Keren Tweedale (2010): “Arbitration of Commercial Disputes: International and English Law and Practice” (Oxford University Press)
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Journals
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Lalive, “Les regles de conflit de lois appliquees au fond du litige par l’arbitre international siegeant en Suisse” (1976) 145 Recueil Des Cours 2.
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Hong-Lin-Yu (2004): “Explore the Void-An Evaluation of Arbitration Theories”: Part 1. Int. A.L.R. 2004, 7(6), 180-190
Julian Lew(1978): Applicable Law
Mann (1983): “Lex Facit Arbitrum”. Arbitration International 245, 2(3)
“Trends in the Field of International Arbitration”(1975)II Recueil Des Cours 233-234
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Kerr (1985): “Arbitration and the Courts: The UNCITRAL Model Law”, 84 ICLQ 1, 15
Lando(1985): “The Lex Mercatoria in International Commercial Arbitration”. 34 ICLQ 747

Cases
Bay Hotel & Resort Ltd. V. Cavalier Construction Ltd. [2001] UKPC 34, PC (TCI)
Jakob Boss Sohne KG V. Federal Republic of Germany Application No. 18479/91…2.05, 8.11
Hebei Import & Export Corp. V Polytek Engineering Company Ltd.(1999) 14 Mealey’s International Arbitration Report (No. 2) G-1-G-15; XXIVa YBK Comm Arbn 657-77
Mitsubishi Motors Corporation V. Soler Chrysler Plymouth Inc. 473 US 614, 105 S.Ct.
ABS American Bureau of Shipping V. Shipping Co-Ownership Jules Verne(2003) Rev Arb Somm Juris 234
Green Tree Financial Corp. V. Lynn Bazzle (2000) 531 US 79, 90, 121 S Ct 513, 522
Chromalloy Aerosemica V. Arab Republic of Egypt(1993)xxii ybk Comm Arb 691
Cereals SA V. Tradex Export SA[1986]2 Lloyds Rep 301;
K/S Norjal A/S V. Hyundai Heary Industries Co. Ltd [1991] 1 Lloyds Rep. 524 (CA)