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Attracting International Arbitration: Predictable and Transparent National Law

Attracting International Arbitration With a Predictable and Transparent National Law

Introduction

The selection of the seat of an international arbitration is a critical decision for parties to an international commercial contract, as this decision has a significant impact on the resolution of the parties' potential future disputes. The seat of arbitration determines, among other things, the national arbitration law that applies to the conduct of the arbitration or to any action for setting aside an arbitral award. It often also determines the law that applies to the validity of the arbitration agreement, and it may influence the process and rights relating to enforcement proceedings. Further, hearings are often held at the seat of arbitration, even though this is not mandatory unless provided for in the arbitration agreement.

For some time now, there has been competition among more and more jurisdictions seeking to attract international arbitration through the choice of seat of the arbitration. There are several reasons behind this phenomenon, sometimes described as the "Battle of the Seats". Jurisdictions worldwide recognize that international arbitration is not only a means to attract business but also a means to build prestige. Hosting international arbitrations is a way to build a jurisdiction's reputation as a modern, neutral and reliable place to do business, promoting commerce and respecting the rule of law. In addition, attracting international arbitration benefits the local legal community, namely, the lawyers, arbitrators and arbitral institutions, by increasing demand for their services. The increase in arbitrations seated in a certain jurisdiction also naturally increases the amount of arbitration-related case law and legal writing in that jurisdiction, thus contributing to the development of its law and doctrine. And hearings conducted at the seat of arbitration generate business opportunities for the hospitality industry. Thus, arbitration is seen as an export product by many jurisdictions.

The increased popularity of arbitration can also bring significant savings for the local court system, as directing commercial disputes to arbitration may save court time and resources. This is particularly relevant as in many countries international commercial disputes are not ideally suited for ordinary courts: their scale and complexity may overburden the already stretched courts and the courts' possible unfamiliarity with the issues that oftentimes arise – starting with questions of conflicts of laws that may lead to the application of a foreign law – may lead to lengthy and inefficient proceedings.

Several attempts have been made over the years to measure the economic benefits of attracting arbitration. For instance, in a study published in January 2018, the Stockholm Chamber of Commerce estimated that arbitration adds almost SEK 9 billion per year (i.e., approximately EUR 865 million) to the Stockholm economy. Even if critics have questioned the estimated figures that different studies have attributed to the economic gain arbitration is said to generate, there is little doubt that attracting international arbitrations has multiple benefits.

This article analyzes the role that a country's national arbitration law plays in the selection of a seat and what factors weigh in favor of one national arbitration law over another. The article will focus in particular on the advantages that an aspiring arbitral seat can gain from adopting the United Nations Commission on International Trade Law's (UNCITRAL) Model Law on International Commercial Arbitration (the "UNCITRAL Model Law"), adopted by UNCITRAL and approved and recommended by the General Assembly of the United Nations in 1985 and amended to take its current form in 2006.

Finland will be used as a practical example of the impact that a modern arbitration law – or the lack of one – can have on an aspiring seat. Indeed, despite Finland's strong reputation as a neutral state with a functioning legal system and despite its advantageous geographical location between east and west, close to the Baltic countries, Finland does not attract many international arbitration proceedings. This article will discuss the possible reasons behind that phenomenon and address ways to remedy to it.

 

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The views expressed in this article are strictly those of the authors and should not be attributed in any way to White & Case LLP. This article is based on another article by Tuuli Timonen and Nika Larkimo, originally published in Scandinavian Studies in Law, Volume 63 (June 2017).

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