Court examines relationship between the “seat” of an arbitration and the place it is to be held

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

In Shagang South-Asia (Hong Kong) Trading Co LtdDaewoo Logistics v [2015] EWHC 194 (Comm) the Commercial Court examined the relationship between the "seat" of an arbitration and the place it is to be held, and the consequences this choice has for the law that will govern the arbitration.

The facts

The underlying dispute related to a charterparty under which Daewoo Logistics ("Daewoo") agreed to charter a vessel to Shagang South-Asia (Hong Kong) Trading Co ("Shagang").

The parties had agreed an arbitration clause contained in a Fixture Note which provided for:

"Arbitration to be held in Hong Kong. English law to be applied".

The remaining contractual terms were incorporated in a "Gencon 1994 Charterparty" form, which contained various alternative arbitration clauses, including a default clause which provided for English governing law and "arbitration in London in accordance with the Arbitration Act".

A dispute arose relating to the discharge of cargo and Daewoo commenced arbitration proceedings in London. Shagang disputed the appointment of the arbitral tribunal, contending that Hong Kong was the correct seat of arbitration and that the arbitration ought properly to be subject to Hong Kong procedural law. The sole arbitrator nonetheless found that the tribunal had been properly constituted and proceeded to make an award.

Shagang brought an application under section 67 of the Arbitration Act 1996 to set aside the award on the basis that the arbitral tribunal had not been properly constituted.

Daewoo opposed the application on the grounds that a proper construction of the contract established that the parties intended Hong Kong to be the geographical location for the arbitration but for the arbitration to be subject to English curial law. Daewoo's central submission was that clause 19(a) of the Gencon 1994 Charterparty form demonstrated clear contrary agreement to an implied choice of Hong Kong law as the curial law.

The decision

In his judgment, Mr Justice Hamblen usefully built on the judgment of Lord Mustill in Channel Group v Balfour Beatty Ltd. [1993] Adj.L.R. by drawing clear distinctions between:

• The venue/place of the arbitration (the geographical location where the arbitration hearings will be held);
• The "seat" of the arbitration (the country which provides thelex arbitri);
• The law governing the arbitration agreement (the curial law); and
• The law governing the substantive contract (the substantive law).

Mr Justice Hamblen held that:

1. An agreement that an arbitration is "to be held in Hong Kong" will ordinarily carry with it an implied choice of Hong Kong as the seat of arbitration and Hong Kong law as the curial law.

2. Clear words or "significant contrary indicia" would need to be present to show that the parties had other intentions. Daewoo's argument that there was "significant contrary indicia" to place the seat of arbitration in London was not compelling because the Gencon terms were clearly intended to supplement rather than supersede the Fixture Note.

3. The most natural construction of the reference to English law was as the substantive law to be applied to the contract, rather than as supplanting the curial law of the seat of the arbitration.

Consequently, the Commercial Court set aside the award under section 67 of the Arbitration Act 1996 and made a declaration that the tribunal was not properly constituted.

The arbitral seat and governing law

The seat of the arbitration is, put simply, the juridical base of the arbitration: by selecting a given country as the place of arbitration, the parties will place their arbitral process within the framework of that country's national laws. A choice of venue is therefore generally regarded as carrying with it a choice of the corresponding curial law, and an express choice of the curial law may in turn be regarded as indicating an implied choice of the corresponding seat of the arbitration.

Whereas bifurcation of the substantive law of the underlying contract and the curial law is not uncommon (on the basis that an arbitration agreement is separable from the underlying contract in which it is contained and arbitrations are frequently held in a neutral forum), bifurcation between the place of arbitration and the curial law is more unusual. In Shashoua and others v Sharma [2009] EWHC 957 (Comm), for example, Cooke J observed that "it is much more likely that the law of the arbitration agreement will coincide with the curial law [than the law of the underlying contract]".

The Shagang case confirms this, demonstrating that in the absence of express wording or contrary indication the named place of arbitration will typically be deemed to be the juridical seat of the arbitration and the laws of that seat will govern the procedure of the arbitration.

Sulamerica CIA Nacional de Seguros SA v Enesa Engenharia SA[2012]

It is by no means certain that the choice of arbitral seat will dictate the curial law. Despite the recent thinking exemplified in Shashoua and Shagang, there remains a school of thought which holds that there is a strong presumption in favour of the law of the underlying contract also governing the arbitration agreement.

The decision in Shagang should be read in the context of the Court of Appeal's decision in Sulamerica CIA Nacional de Seguros SA and others v Enesa Engenharia SA and others [2012] EWCA Civ 638, in which the Court recognised that:

1. Where the parties have not made an express choice of law governing the arbitration agreement it will not always be the law of the seat with which the arbitration agreement has its closest and most real connection.

2. Similarly, the proper law of an arbitration agreement may not be the same as that of the substantive contract in which it is contained.

3. The proper law of an arbitration agreement must be determined by reference to:

• express choice;
• implied choice; and
• closest and most real connection.

Comment

The Shagang decision suggests a continuation of the trend towards the law of the seat of arbitration being deemed to govern the arbitration agreement in the absence of express wording to the contrary.

Accordingly, where parties wish to simply designate a convenient geographical location for arbitration hearings to take place, but they do not wish the law of that location to govern the arbitration agreement, clear words must be used to evidence the parties' intentions.