Dispute resolution is a process of resolving the dispute between two or more parties and it is one of the functions of the law. Dispute resolution processes are classified into two categories; adjudicative process and consensual process. Adjudicative process means the third person adjudicates the matter like, a judge in litigation or an arbitrator in arbitration determines the outcome of the process. On other hand, the consensual process means the parties try to reach an amicable settlement or agreement like, collaborative law, negotiation, mediation, conciliation.
Among all these methods the negotiation, mediation, conciliation, and arbitration are the alternative dispute resolution methods. Arbitration is one of the most preferred ways of dispute resolution outside the court because of its unique features. It is a private forum to adjudicate the dispute, where parties have control over various aspects of the process like parties can decide the place of arbitration, laws applicable to the substance of the dispute and procedure, rules of procedure, the appointment of arbitrators, they are free to choose the appropriate type of arbitration, etc., also an award of the tribunal is final and binding on concerned parties. This is important particularly in International Commercial Arbitration (ICA) when disputing parties are from two different jurisdictions and do not want to surrender their dispute to either of the nation’s laws.
In the 1980s, the theory of delocalisation emerged on the argument that parties choose for the neutral place (seat) of arbitration where neither party have their presence, which is convenient for them therefore, international commercial arbitration must be a-national arbitration, stateless. It should not be confined by the local law of the place where the arbitration occurs. According to this theory, local peculiarities of the law and court system may obstruct the effectiveness of the arbitral proceeding. Sometimes, the local court might find a reason to vacate the arbitral award under local law if a party applies to set aside the award because it was experienced in the past that the judges were considering the arbitration process as a rival, then this process will be a time and resources wasting for disputing parties. Further, it was argued that the host state should not have any concern about a dispute between two non-citizens which is nowhere related to the state. If we allow the host state’s supervision, then one dispute will be subject to the supervision of two legal systems, the host state, and the place of enforcement, which seems unreasonable to advocates of the delocalisation theory.
Some of the jurisdictions have adopted the delocalisation approach like French courts. In General National Maritime Transport Company v. Société Gotaverken Arendal A.B. (France, 21 February 1980), the Court of Appeal of Paris (the Cour d’appel de Paris) adopted a liberal approach while interpreting Article 11 of the International Chamber of Commerce (ICC) Arbitration Rules, 1975. The Court of Appeal of Paris opined that Article 11 (now Article 19 of the ICC Arbitration Rules 2021) provides complete autonomy to parties to select procedural rules/laws and there is no need to apply the municipal procedural law. This provision suggests that the parties opt for the place of arbitration to ensure the neutrality of the arbitration proceedings, therefore it cannot be considered as an implied submission to the municipal laws, in this case, French procedural law. The court accepted the delocalisation theory by stating that arbitral proceedings are immune from French law though the seat of arbitration is Paris. On the same note, the Court of Appeal of Paris in Société Aksa v. Société Norsolor, (France, 9 December 1980, 1981 Rev. Arb. 306, 70 RCDIP 545 1981) refused to attribute French law to the arbitration that took place in Paris. The court held that if the agreement does not expressly provide for French laws, then such award could not be considered French and subject to the remedies available for foreign arbitral award.
However, not all jurisdiction is liberal to adopt the viewpoint of the French courts; some give significance to the national law i.e., the law of the seat. The delocalisation theory is countered with the territorial approach or the seat theory. The earlier theory countered on an argument that the parties are conducting arbitral proceedings in a particular territory therefore, they should follow the laws prevailing in that territory, at least mandatory provisions. Also, there are multiple occasions where the parties and arbitral tribunal needs assistance before, during, and after the arbitral proceedings from the judiciary, for example, to appoint arbitrators, for emergency relief, for preserving evidence, or for enforcing arbitral orders. Last but not the least, the host state wants to ensure that the private system of dispute resolution in their territory is not used to defraud and not tainted by corruption.
In 1985, to attract a greater number of arbitrations in Belgium adopted the delocalisation approach by introducing a law. Article 1717(4) of the Belgian Judicial Code provided that non-Belgian parties to an arbitration seated in Belgium not be allowed to approach the local judiciary to set aside an arbitral award if they had no business in Belgium. However, it didn’t go as expected for Belgium, businesses were avoiding Belgium as a seat of arbitration due to a lack of judicial review of an arbitral award. Learning from this in 1998, Belgium amended that law and gave the option to opt-out of court review by an express agreement those who didn’t have any Belgian link otherwise, the court would accept an application to set aside an award. This instance suggests that in international arbitration the parties favour judicial review at the seat of arbitration.
Both theories have their pros and cons. Due to delocalisation, an award can be enforced at the place of enforcement even if it is set aside at the seat of arbitration and the reason is Article V(1)(e) of the New York Convention 1958 (NY Convention). Article V(1)(e) provides that the enforcement may be refused if it has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. The use of the word “may” make this provision discretionary. The Supreme Court of France (the Court of Cassation/ Cour de cassation), relying on Article VII of the NY Convention, observed that the Austrian arbitral award could be enforced in France even though it is set aside in that state. [Ticaret Sirketi v. Norsolor, France, 09 October 1984] Further the court said that the interested party can exercise its rights concerning an award to the extent permitted under the law or treaties of the country where such enforcement sought and the NY Convention didn’t affect. This approach has also been adopted in the United States in several cases like Chromalloy Aeroservices v. Arab Republic of Egypt (United States, 31 July 1996); Karaha Bodas Co. (Cayman Islands) v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Indonesia) (United States, 23 March 2004). However, the territorial approach prevails over the delocalisation as it is easy to apply and it promotes certainty.
Prof. Vishal Babasaheb Ranaware
Assistant Professor
Alliance School of Law