The Importance of Choosing an Arbitral Seat for the Parties

By Natalie Mackay, Associate, Fenwick Elliott

The seat of arbitration is crucial to defining the legal framework for arbitral proceedings. By selecting the seat, the parties are able to choose the legal environment in which they wish to operate. 

Therefore, parties should not neglect the seat when negotiating arbitration agreements. Rather, thoughtful consideration should be given to it as a failure to do so could have an unintended and/or a detrimental effect on the parties’ respective positions. This includes the risk of arbitral awards being susceptible to challenges by the local courts which in turn may entail reopening the merits of the dispute. Moreover, as in this case, the failure to choose a seat may prevent a party from seeking an interim measure including urgent temporary relief.  

The Significance of the Arbitration Seat

The arbitration seat is a key factor in any arbitration and is of major practical importance. The seat is the legal home of the arbitration and provides its supporting legal framework. Given its specific legal effect, parties should specify the arbitral seat in their agreement to arbitrate. 

The seat influences a number of key issues. It determines which procedural laws will apply to various practical aspects of the arbitration including any rights of appeal, the availability of interim remedies and the extent to which local courts will support, supervise and/or hinder the arbitration process. More importantly, the seat of the arbitration will be the place where the award is deemed to have been made. Therefore, the law of the seat will determine the grounds on which an award can be challenged before the local courts.

In circumstances where the parties have failed to designate a seat or failed to do so clearly, parties more often than not lose their right to choose the seat. In the case of institutional arbitration, the arbitration rules may provide a default seat (e.g. Article 20.1 of the Dubai International Arbitration Centre Arbitration Rules 2022 (“DIAC Rules”)). If there is no default seat under the arbitration rules, then the arbitration institution may determine the seat. However, this could take up to three months or more depending on whether the seat will be determined after the formation of the Tribunal. This in turn could make it more difficult for the parties to take strategic and procedural decisions (e.g. when seeking interim relief). Alternatively, a court may also be called upon to decide the seat (e.g. ad hoc arbitrations). 

A Practical Example of the Parties’ Failure to Select the Seat

A recent case where the parties’ failed to specify the arbitral seat ultimately resulted in the dismissal of a party’s ex parte application for emergency interim relief (the “Application”).  

Here, the Application was made under the Exceptional Procedures provisions of the DIAC Rules in order to resist a demand on a performance bond (the “Proceedings”). The governing law of the contract was Dubai law and the arbitration agreement provided for the DIAC Rules as the arbitration rules. However, the arbitration agreement failed to specify the arbitration seat. 

When considering the Application, the Emergency Arbitrator (“EA”) referred to Article 2.6 of Appendix II of the DIAC Rules to determine the seat of the Proceedings, which provides as follows:

“The seat of the proceedings for emergency interim relief shall be determined by the Emergency Arbitrator in accordance with Article 20.1, without prejudice to the Tribunal’s powers finally to determine the seat of the arbitration.” 

In turn, Article 20.1 of the DIAC Rules sets out in relevant parts:

“Where the parties have not agreed a seat, but they have agreed a location/venue for the arbitration, unless the parties agree otherwise, such location/venue shall be deemed to be the seat of the arbitration. In the absence of an agreement on the seat and location/venue, the initial seat of the arbitration shall be DIFC. In such case, the Tribunal shall, upon its constitution, have the power finally to determine the seat of the arbitration, having due regard to any observations from the parties and any other relevant circumstances.“

Article 20.1 of the DIAC Rules provide for the Dubai International Financial Centre (“DIFC”) as the default seat. As such, the EA found DIFC as the seat of the Proceedings and DIFC Law No. 1 of 2008 (“DIFC Arbitration Law”) as the applicable governing procedural law. 

With regards to the EA’s power to issue an interim measure ex parte, the EA relied on Article 1.10 of Appendix II of the DIAC Rules:

“Nothing in the Rules shall have the effect of creating (where it does not exist), or limiting (where it does exist), any right of a party to apply to the Tribunal, and any powers of the Tribunal, to order an interim measure and issue a preliminary order in support of such interim measure without prior notice to a party. For this purpose, the Tribunal shall consider its power to issue such an order, having due regard to the seat of the arbitration and also any agreement reached by the parties in the agreement to arbitrate.”

Although the Contract did not include any limitative wording akin to Article 1.10 of Appendix II of the DIAC Rules, the DIFC Arbitration Law does prohibit ex parte applications for interim relief in DIFC-seated arbitrations. Section 24(1)(a) of the DIFC Arbitration Law only allows for interim relief if it is made with copy or notice to all other parties to the arbitration. As such, the EA dismissed the ex parteapplication on the basis that:

1. the prohibition on ex parte applications contained in the DIFC Arbitration Law prevailed over the provisions under Appendix II of the DIAC Rules; and 
2. Article 1.10 of Appendix II of the DIAC Rules does not create a right in favour of ex parte applications to DIAC Emergency Arbitrators for interim relief in DIFC-seated arbitrations where no such rights exists under the DIFC Arbitration Law.

This case acts as a strong reminder to parties that, as a golden rule, arbitration agreements should always include the seat of the arbitration and careful consideration should be given as to the choice of such seat.

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