Session Digest: Harmonization and Delocalization of International Arbitration (March 8, 2019)

The session was moderated by Parimal Kashyap and Ayushi Tiwari. 

Digest of the Session

The session kicked off with an intense discussion on the role of the seat in international commercial arbitrations.  Members raised several points in favour of having a designated seat in international arbitrations. Most of the arguments stemmed from the supervisory role that courts of the ‘seat’ play in the process (for example: appointment of arbitrators in arbitrations; granting interim relief etc.)

As we understood the varying role of the seat in institutional and ad-hoc arbitrations, we discussed a few cases where arbitrators determined the seat before the commencement of the arbitration proceedings. (Eg: Imax Corporation vs M/S E-City Entertainment (I))

Before discussing the theory of delocalization, annulment of awards at the seat of arbitration was discussed. This discussion was followed by a brief overview of development that states have made in bringing uniformity during enforcement of the foreign arbitral award. In this course, the journey from Geneva Protocol of 1923 and the Geneva Convention to more popular instruments such as the New York Convention and finally, the UNCITRAL Model Law was discussed. Some light was also thrown on the ICSID Convention as well as a few regional conventions that were aimed to harmonize enforcement of foreign awards (Eg: Panama Convention, European Convention)

It was realised that the international arbitration regime has witnessed a positive shift in terms of uniformity in the past sixty years (especially post-1985 after the Model Law came into the picture). However, there still remained a lot of peculiar localised norms that hindered enforcement of awards at the transnational level.

The Moderators introduced the concept of delocalisation and why the theory could be relevant for modern-day international arbitration. We then debated the viability of the application of the theory in the current regime.

Since, the theory advocates for zero intervention of courts in the arbitral process until the enforcement of the award, it seemed difficult for us to imagine arbitrations getting efficiently concluded in a ‘delocalised regime’. We were reminded of the short discussion that we had on the importance of having ‘lex arbitri’ during arbitrations. It was concluded that for institutional arbitration, the theory might still work in certain situation but it will leave ad-hoc arbitration extremely vulnerable.

Leaving the question open, we examined certain cases from different jurisdictions where delocalisation was encountered. In the case of France, a very favourable result was observed. French Courts in a variety of cases have shown no recourse to the decision taken by the courts of the ‘seat’ during enforcement of the awards. In the case of the US, among many decisions, the ruling in Chromalloy was discussed. After analysing recent cases on the matter, it was concluded that the Chromalloy was merely an exception in the US rather than the rule. Lastly, we moved to the UK where it was found that the country shows no regards to the theory of delocalisation and identify awards from the ‘seat’ of the tribunal.

We then discovered the distinction that civil law countries make from common law countries in treating a foreign award. Civil law countries, owing to their monist nature, see arbitral awards as a product of ‘international justice’. On the other hand, the common law countries (due to their dualist nature) seem to place a very strong emphasis on the role of the place of arbitration and its connection to the arbitral award.

We also discussed the case study of 18th century Belgium that put delocalisation in practice but failed miserably because it made parties insecure. So, the question that arrived was whether parties prefer to have a ‘judiciary-free arbitration’? There cannot be a straight answer to this question.

Nevertheless, all of this seemed to go against the theory of localisation that did sound quite positive on paper. However, as Indians, we do understand how jeopardising can court intervention be in the process of arbitration and we have seen tonnes of such example in the past two decades.

Many of us argued how problems associated with court intervention outweigh the benefits that courts provide. This could vary between jurisdictions. We have seen how US and UK Courts have been extremely cautious while intervening in the arbitral process. Hence, in an arbitration-friendly jurisdiction, the delocalisation theory might not be as relevant. Still, there is more to it.

Delocalisation theory strikes the undesirable effects that picking a seat for arbitration can have in the enforcement of the award. We discussed the example of Middle Eastern countries where awards have been annulled and have not been enforced due to a unique procedural requirement of making the award in the name of the King. There are many such examples throughout the world that create hurdles in the enforcement.

Thus, we asked ourselves whether procedural requirements of the ‘seat’ of the arbitration should have any impact on the enforcement of the award. Some of argued that an award annulled in say Austria should not have any impact the decision on enforcement of such award in say France. This is keeping in mind that the general framework on the annulment of the award is almost identical to that of enforcement. However, others pointed out the Belgium example and showed how showing no regards to the procedural framework of the seat may make the arbitral process unpredictable and unattractive.

In conclusion, delocalisation could be understood as the peak form of ‘minimal court intervention’. In the past few decades, the extent of court intervention in arbitration has certainly been regulated and made uniform. Still, the difference in the legal traditions and approach of local courts towards the system creates challenges. It is here that the delocalisation theory gains relevance.

Whether international commercial arbitration would work more effectively if it were detached from the procedural laws of the place of arbitration remains debatable topic albeit in a restricted manner.

Suggested Readings:

  1. Renata Brazil-David, ‘Harmonization and Delocalization of International Commercial Arbitration’, Journal of International Arbitration, (© Kluwer Law International; Kluwer Law International 2011, Volume 28 Issue 5) pp. 445 – 466.
  2. Jan Paulsson, The Extent of Independence of International Arbitration from the Law of the Situs, in Contemporary Problems in International Arbitration 141
  3. Jan Paulsson, Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment (LSA), 9 Bull. 1, 18 (No. 1, 1998)
  4. Alexander J. Belohlavek, ‘Importance of the Seat of Arbitration in International Arbitration: Delocalization and Denationalization of Arbitration as an Outdated Myth’, ASA Bulletin, (Kluwer Law International 2013, Volume 31 Issue 2) pp. 262 – 292.
  5. Gerold Herrmann, The Role of the Courts Under the UNCITRAL Model Law Script, in Contemporary Problems in International Arbitration 164–75 (Julian D. M. Lew ed., 1987).
  6. William Park, The Lex Loci Arbitri and International Commercial Arbitration, 32 Int’l & Comp. L.Q. 21 (1983).
  7. Jan Paulsson, Delocalisation of International Commercial Arbitration: When and why it Matters, (32) 1 International and Comparative Law Quarterly (January 198) pp. 53-61.
  8. Dejan Janićijević, Delocalization in International Commercial Arbitration, FACTA UNIVERSITATIS Series: Law and Politics Vol. 3, No 1, 2005, pp. 63 – 71
  9. Thomas E. Carbonneau, Debating the Proper Role of National Law under the New York Convention, 6 Tul. J. Int’l & Comp. L. 277 (1998).

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