Re-emergence of Delocalization Theory in International Commercial Arbitration



By Fahad Bin Siddique

Keywords: Arbitration, Delocalization, Territoriality, Localization, Lex Arbitri

International commercial arbitration has established itself as an inexpensive, unceremonious, private and conclusive method of settling disputes.[i] Over the previous few decades, the method of international commercial arbitration moves in the direction of improvement. However, the debate between the theory of delocalization and territoriality is still open where the territoriality or localization theory constrains international commercial arbitration, which could create an embargo on its implementation. At the same time, delocalization liberates international commercial arbitration from reasonable constraints.

The method of delocalization is alluded to as stateless and floating arbitration. It is established on a theory that international commercial arbitration should not be enchained by the local law of the place whither the arbitration happens. Parties often select a seat of arbitration in a state where neither party’s business interests are placed. Moreover, the seat can be chosen merely because it is expedient to both parties. The solicitude is that the unusual local features of law and a court system, which could hamper the success of the arbitration procedures. This theory believes that domestic law should not be imposed on an international commercial arbitration merely because the procedures happen to be situated in the jurisdiction.

Those who are proponents or supporters of delocalization theory opined that a state authority or law should not have any concern regarding a disagreement between two parties who are not its citizens and also have no cohesion to the State. Under the view of this theory, international commercial arbitration must be disconnected from the law of the seat state. There must not be two legal systems inspecting the arbitration proceedings – first of all, at the seat of arbitration where it happens and then at the place of enforcement (i.e., the place where the losing party’s assets or resources are placed). According to the proponent of delocalization, the only suitable law should be the law which applied by the court at the place of enforcement of the arbitration award. In the case of Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd (1998), the court viewed that the fundamental feature of delocalized arbitration is that it is based on parties’ agreement, the award could not be eligible for enforcement.[ii]

The territoriality theory was much admired and famous in the phase of 1940 to 1950; nevertheless, once the ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958’ was created, the theory of delocalization emerged.[iii] In the 1980s, there were several ardent contentions made in favour of delocalization by its proponents.[iv] The Argument regarding territoriality or localization theory is that each arbitration procedure takes place in a particular territory, and should comply with the laws of that land. Besides, the occasion may arise when the facilitation of the court is desired in the arbitration procedure, for example, to assign arbitrators, enforce arbitral awards, or for urgent relief. Most countries want to implement a supervisory role to ensure that the arbitration procedure in their territory is not being conducted to outwit. In 1985, Belgium passed a law in support of the delocalization movement.[v] It was believed that this inclusion of the delocalization method in the law would escalate the quantity of arbitrations in Belgium. However, the law had the reverse effect and failed to attract arbitration because businesses were not pulled to a structure with no feasible court review system. As a consequence, in 1998, Belgium amended that particular law.

Even English, Swiss and Chinese court took a negative approach regarding delocalization theory. In the case of Naviera Amazonica Peruana S.A. v Compania International de Seguros del Peru (1988), the English court highlighted that “English law does not recognize the concept of a delocalized arbitration. Accordingly, every arbitration procedures must have a seat or locus arbitri of forum which subjects its procedural rules to the municipal law which is there in force.”[vi] However, a country like France leans more upon the idea that an arbitral award is an international award rather than associated with a particular state.[vii]

After the Belgium experience, the contemporary world prevails territorial approach over delocalization because it is easy to comprehend and promotes certainty. As we know, the prime focus of the arbitration procedure is to resolve the dispute without delay. Therefore, delocalization theory is still making some sense and many contemporary and recent approaches are following the characteristics and attributes of the delocalization theory. As other contemporary types of arbitration take place, for example, sports arbitration, online arbitration or ODR, the role of the law at the seat of arbitration is likely to become less momentous. Hence, in both sports arbitration and some online arbitration, the seat of the arbitration is utterly a fiction, leastwise as a place where the hearing takes place. The actual place of the arbitration hearing (can be no actual venue in ODR) does not enforce its laws and rules. In these vindications, the arbitration follows the doctrine of delocalization, but merely up to a point, since the country of the named seat nevertheless provides a way out if there is a predicament with the arbitration procedure. There are some setbacks in the theory of delocalization. Still, in the modern world, this doctrine was established in a customized way and re-emerged the delocalized arbitration after the 1980s.

Fahad Bin Siddique is an associate of Siddique Law Assign, Dhaka, Bangladesh. He is also student of the UMSAILS LLM Program at Department of Law and Human Rights, University of Asia Pacific.



[i] Alan S. Reid, ‘The UNCITRAL Model Law on International Commercial Arbitration and the English Arbitration Act: Are the Two Systems Poles Apart?’ [2004] 21 J. Int’l Arb. 227

[ii] Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1998] 2 All ER 778

[iii] Dejan Janićijević, ‘Delocalization In International Commercial Arbitration’ [2005] 3 Facta universitatis-series: Law and Politics 63

[iv] Walter Mattli and Thomas Dietz, International Arbitration and Global Governance: Contending Theories and Evidence (Oxford University Press 2014)

[v] Belgian Judicial Code, Article 1717(4)

[vi] Naviera Amazonica Peruana S.A. v Compania International de Seguros del Peru [1988] 1 Lloyd’s Rep 116

[vii] Sadaff Habib, ‘Delocalized Arbitration myth or reality? Analyzing the interplay of the delocalization theory in different legal systems’ (Master’s thesis, The British University in Dubai 2013)