Arbitration in Hong Kong: Looking Back at the Year of the Sheep

Matthew Townsend

2015 was an eventful year in Hong Kong arbitration. The Hong-Kong based institutions shepherded through several reforms, the local courts issued several pro-arbitration decisions, and a long-awaited Law Reform Commission paper opened the door to third-party funding for arbitration.

Third party funding for arbitration in Hong Kong

Readers will be aware of the increasing popularity of third-party funding in international arbitration proceedings in many jurisdictions, including the UK, US and Australia.

However, Hong Kong has been relatively slow in coming into the fold. Recent court decisions have confirmed that litigation (as distinct from arbitration) funding is prohibited by the doctrines of champerty and maintenance. It is true that the judiciary suggested, as early as 1997, that funding of arbitration proceedings may be permissible. However, the law on this issue remains woolly.

Consistent with Hong Kong’s position as a leading international arbitration centre, the judicial authorities are reviewing the issue. On 19 October 2015, a sub-committee of the Hong Kong Law Reform Commission issued a consultation paper on third party funding for arbitrations in Hong Kong. The sub-committee made four recommendations:

  1. The Arbitration Ordinance be amended to provide that Third Party Funding for arbitration taking place in Hong Kong is permitted under Hong Kong law.
  2. “Clear ethical and financial standards for Third Party Funders providing Third Party Funding to parties to arbitrations taking place in Hong Kong” should be developed.
  3. The Commission invited submissions as to the nature, provenance, content of such ethical and financial standards and how they should be enforced.
  4. The Commission invited further submissions as to whether, and on what basis, a Third Party Funder should be directly liable for adverse costs orders, or orders to provide security for costs.
  5. The sub-committee’s support of third party funding is understandable. However, it is rightly concerned that Hong Kong should not “ram” home changes in this new area of law without introducing corresponding safeguards. The consultation period having ended in January 2016, the more detailed recommendations are eagerly awaited.

One area of interest is whether the sub-commission will recommend the mandatory disclosure of funding arrangements. This is a controversial area. There are arguments in favour of requiring a funded party to notify the nature of its funding to the tribunal and to the other party to proceedings (as is already recommended in the IBA Rules on Conflict of Interest in International Arbitration). Such disclosure requirements would avoid arbitrator conflicts and allow for proper determination of whether security for costs should be awarded. However, they also raise concerns for the funded party, which may find funding harder to obtain or else see itself as more liable to an adverse security for costs order.

It is not yet clear if the sub-committee will propose that the new safeguards will be introduced by statute or else by way of a voluntary code of conduct agreed by funders themselves. However, the sub-committee has expressed reservations regarding the self-regulatory approach, citing the lack of “critical mass” of third party funders based in Hong Kong.

HKIAC

The HKIAC introduced a number of initiatives in 2015 with a view to maintaining both Hong Kong’s prominence as an arbitration centre, and the institution’s own status as a pioneer in international arbitration.

On 20 November 2015, the HKIAC became the first international arbitration institution to open a representative office in China. In a press release the HKIAC confirmed that the office, located within the Shanghai Pilot Free Trade Zone, shall focus on liaising with local institutions, and providing logistical support for arbitration hearings taking place in the mainland. However, for the time being, the new office will not provide case administration services. Indeed it is currently unclear under PRC law whether non-Chinese entities are permitted to accept and administer PRC-seated arbitrations. Provisions of the Arbitration Law suggest that only Chinese arbitral institutions can administer arbitrations in mainland China. On the other hand, in a recent decision, the Chinese Supreme People’s Court upheld the validity of a clause providing for China-seated ICC arbitration.

There is some evidence that other arbitral institutions may flock to the mainland, the SIAC having recently established its own arm, and the ICC also having expressed interest in doing so.

The HKIAC has also introduced several other innovations, including: a new evaluation system allowing participants to rate the conduct of their arbitral proceedings and the performance of their arbitrators; and the introduction of a practice note on the consolidation of arbitration proceedings.

CIETAC Hong Kong

While CIETAC, China’s leading arbitration institution, established it’s Hong Kong Arbitration Center (HKAC) in September 2012, the HKAC’s authority to accept and administer cases was only formalised in the 2015 edition of CIETAC’s rules.

Accordingly, it was only from 1 January 2015, when those rules came into effect, the HKAC began accepting cases in its own right, so supplementing its existing role of offering logistical support to cases administered by other CIETAC entities. HKAC accepted 5 cases in 2015. Its first award was rendered by Hong Kong-based arbitrator James Rogers.

Case law

Hong Kong Court summarizes ten principles of enforcement of arbitral awards

In KB v S. and Others [2015] HKCFI 1787, Chan J laid down ten guiding principles summarizing the Hong Kong judiciary’s attitude towards the enforcement of arbitration agreements and awards. These principles, which have been described as “10 commandments” of enforcement, are as follows:

  • First, “the primary aim of the court is to facilitate the arbitral process and to assist with enforcement of arbitral awards”.
  • Second, “[u]nder the Arbitration Ordinance (Ordinance), the court should interfere in the arbitration of the dispute only as expressly provided for in the Ordinance”.
  • Third, “the parties to a dispute should be free to agree on how their dispute should be resolved” although this freedom should be subject to “safeguards that are necessary in the public interest”.
  • Fourth, citing the Hong Kong Court of Appeal’s approach in the 2011 PetroChina decision ([2011] 4 HKLRD 604), the “[e]nforcement of arbitral awards should be ‘almost a matter of administrative procedure’ and the courts should be ‘as mechanistic as possible’”.
  • Fifth, following the 2012 Grand Pacific Court of Appeal decision ([2012] 4 HKLRD 1 (CA)), “[t]he party opposing enforcement has to show a real risk of prejudice and that its rights are shown to have been violated in a material way”. In Grand Pacific, the Court of Appeal reinstated an arbitral award that had previously been set aside on the basis of perceived procedural impropriety, on the grounds that the alleged violations were not sufficiently important to justify such steps.
  • Sixth, “the court is concerned with the structural integrity of the arbitration proceedings” and so, once again adopting the Court of Appeal’s approach in Grand Pacific, “the conduct complained of ‘must be serious, even egregious’, before the court would find that there was an error sufficiently serious so as to have undermined due process”.
  • Seventh, “[i]n considering whether or not to refuse the enforcement of the award, the court does not look into the merits or at the underlying transaction”.
  • Eighth, “[f]ailure to make prompt objection to the Tribunal or the supervisory court may constitute estoppel or want of bona fide”. Here, Chan J cited the 1999 Hebei Import case ((1999) 2 HKCFAR 111) in which the Court of Final Appeal upheld enforcement of an award, finding that a party who wishes to rely on non-compliance with procedural rules should do so promptly and not proceed with the arbitration regardless, “keeping the point up his sleeve for later use”.
  • Ninth, again citing the Hebei Import decision, “[e]ven if sufficient grounds are made out either to refuse enforcement or to set aside an arbitral award, the court has a residual discretion and may nevertheless enforce the award despite the proven existence of a valid ground”.
  • Tenth, and finally, the parties to the arbitration have a duty of good faith, as once again found the Hebei Import case.

Although the case in question concerned an application to enforce an arbitral award, it has since been held that the same principles would also apply in applications to set aside arbitral awards, their being “the other side of the coin” (China Solar Power (Holdings) Ltd v ULVAC Inc [2015] HKEC 2559).

Hong Kong Court Issues First Anti-suit Injunction in Restraint of Foreign Court Proceedings

In Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi [2015] 3 HKC 246, the Court of First Instance restrained a party from pursuing Turkish court proceedings in breach of an arbitration clause. This case reportedly marked the first time a Hong Kong court granted such an anti-suit injunction to restrain foreign proceedings.

By a charterparty dated 6 October 2014, the plaintiff, who are the owners of a vessel named the ‘Ever Judger’ and the defendant, a Turkish company, agreed upon the carriage of a cargo of steel wire rods from China to Turkey. The charterparty stipulated that any dispute arising out of or in relation to it shall be referred to “arbitration in Hong Kong in accordance with the Hong Kong Arbitration Ordinance”.

Subsequently, a dispute arose relating to the condition of the cargo upon discharge at the Turkish port. The Turkish company first initiated court proceedings in its home country and the shipowner then sought an anti-suit injunction from the Court of First Instance in Hong Kong in an attempt to stay the Turkish proceeding.

The judge found that it had the authority to grant an injunction to restrain the pursuit of foreign court proceedings brought in breach of an agreement to arbitrate in Hong Kong, provided the applicant has not delayed and there is no good reason for not doing so. This decision has provided welcome clarity on the Hong Kong position for awarding anti-suit injunctions in favour of arbitration, and has further demonstrated the Hong Kong courts’ supportive approach towards arbitration.

Hong Kong Court upholds injunction in support of prospective Singaporean “hybrid” arbitration

In Macao Commercial Offshore Ltd v TL Resources Pte Ltd [2015] HKEC 2439, the Court of First Instance upheld an injunction in support of prospective arbitral proceedings in Singapore under a “hybrid” arbitration clause providing for proceedings administered by the SIAC under the ICC rules.

The Plaintiff and Defendant executed a Sales Agreement under which the Defendant agreed to sell to the Plaintiff a cargo of iron ore. The arbitration clause in the Sales Agreement provided that “If the dispute or matter cannot be settled by mutual accord between the Parties, such dispute or claim shall be referred to Singapore International Arbitration Centre (SIAC) for arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce”.

A dispute arose between the parties. The Plaintiff first applied to the Court in Hong Kong for an ex-parte Mareva injunction, whereby the defendant was to be restrained from removing or disposing of its assets in Hong Kong. The injunction was continued on the return day on which the defendant failed to appear. Subsequently, the Plaintiff submitted its request to the ICC for arbitration in Singapore. Thereafter, the defendant applied to set aside the Injunction in the Hong Kong court.

In the decision, Judge Mimmie Chan found that notwithstanding the agreement’s hybrid nature or that the Claimant had itself apparently “departed” from it by commencing proceedings before the ICC rather than the SIAC, the Court left it to the ICC tribunal to determine its jurisdiction. Judge Chan further expressed the view that it would be possible for the subsequent award to be recognised in Hong Kong.

An application to grant injunctive relief in favour of foreign-seated arbitral proceedings was to be held to a two-stage test. First the applicant must have a “good arguable case, that there is a real risk of dissipation of assets, and that the balance of convenience is in favor of the grant.” Second the court must not consider it unjust and inconvenient to grant the injunctive relief. The present application satisfied both limbs.

The decision not to pre-empt tribunal decisions on jurisdiction is again typical of the stance of the Hong Kong courts. Nonetheless it underlines the fact that adopting hybrid arbitration clauses can be risky – potentially giving rise to questions over enforceability and opening the door to procedural uncertainty.

Conclusion

As Hong Kong departs the year of the sheep, it remains a leading regional arbitration venue boasting world class arbitration facilities, innovative arbitration institutions and a supportive judiciary. The steps taken by these institutions and authorities in 2015 will go some way to retaining the confidence of arbitration users. These efforts show a welcome dedication to ensure that Hong Kong stays above the herd.

The Russification of Collective Arbitration: Mandatory Joinder Provisions for Arbitration Rules for Corporate Law Disputes

Rustem Karimullin

One of the peculiarities of the revised Russian Arbitration Laws of 29 December 2015 (“Laws“), entering into force on 1 September of this year, is an attempt to localize the on-shore settlement of corporate arbitral disputes involving domestic companies. Only an arbitration institution which has adopted, publicized online, and filed special rules for arbitration of corporate disputes with a regulatory authority is permitted to arbitrate such disputes. Generally, the rules should be valid as of their filing.

This requirement should also apply to foreign arbitral institutes, which “have a renowned international reputation”, upon their receipt of a license for providing permanent arbitral institution’s services.

Where the arbitration institution has administered a corporate dispute without the specialized rules duly enacted, the award might be challenged at an enforcement stage, or set aside by a Russian court. The use of rules which are inconsistent with the mandatory provisions might produce the same adverse effect.

What are those mandatory provisions which an arbitral institution should consider when enacting special rules to resolve corporate law disputes in Russia?

This post reveals their exhaustive list, accompanied by comments to their scope of application, and a comparison in content to the Supplementary Rules for Corporate Law Disputes 09 (“DIS Rules“) adopted by the German Institution of Arbitration (DIS).

Mandatory provisions for corporate law specialized rules

The Arbitration Law s.45(8) sets out the following mandatory provisions, which must be included into special rules for resolving corporate law disputes:

1) a duty of an arbitration institution to send a written notification of a filed statement of claim,     accompanied by its copy, to a legal entity, which is subject to a corporate dispute;

2) a duty of the arbitration institution to publicize information on the statement of claim;

3) a duty of the legal entity to further send a written notification of the filed statement of claim, accompanied by its copy, to:

(i) any legal entity’s shareholder,

(ii) the legal entity’s securities registry (if any), and/or

(iii) depositories;

all these duties under 1) to 3) should be completed within three days from obtaining the statement of claim by the obligor;

4) a right of any shareholder to join arbitral proceeding at any point of time by filing a written application with the arbitration institution, providing that the shareholder:

(i) becomes a party to the arbitral proceeding starting from the filing (joinder) date, and

(ii) accepts the arbitral proceeding as it is, without being authorized to raise any objections or challenge the procedural actions effectuated before the joinder date and, particularly, to challenge arbitrators for grounds already discussed;

5) a duty of the arbitration institution to inform on the progress of the arbitral proceeding by delivering any legal entity’s shareholder, which has joined the proceeding and not explicitly waived to receive them, copies of all:

(i) written pleadings,

(ii) arbitral notifications,

(iii) procedural orders,

(iv) awards, and

(v) (where the tribunal has so decided) all other communications relating to the arbitration file;

6) the admissibility of a voluntary dismissal, confession of a claim, and settlement without consent of other legal entity’s shareholders joined to the proceeding, except for a case:

(i) where a shareholder has raised written objections within thirty days of the tribunal’s notification of those intended actions, and

(ii) the tribunal acknowledged its legitimate interest in the further proceeding.

Scope of Application

The provisions proposed for implementation into the corporate law arbitration rules prescribe a joinder of the shareholders, which have initially not been involved into proceedings as a party. The subject-matter scope of the joinder use is limited through the arbitrability of corporate disputes, which excludes disputes on securities registration or ownership to shareholdings, which can be arbitrated without any specialized rules [Discussed in more details in the post published at this blog, and available here].

The revised Laws do not supply any joinder or consolidation rules for other traditional multi-party activities, such as agency, maritime, (re-)insurance, construction, or contractual joint ventures. However, it is not excluded that more general joinder and/or consolidation rules might appear through the enactment of the new Russian institutional rules, which might follow the solutions of the leading arbitration institutions (the ICC Rules 2012 Art.7, 10, the SCC Rules Art.11, the HKIAC Rules 2013 Art.27, 28). It would still be advisable to provide the tribunals with discretion on deciding whether to allow or not a joinder and/or consolidation.

Also, the institutional corporate rules might be seen as a form of non-class collective arbitration. “Non-class” should be stressed since the revised Laws explicitly exclude class action arbitration in Russia. The courts should still be exclusively competent to hear disputes on the protection of rights and legal interests of a group of persons, including the corporate disputes.

Comments to the Rules

The Russian joinder rules are to some extent similar to the DIS Rules. Although some of the Russian provisions are their verbatim adoption, the former ones sometimes use different legal language reflecting domestic procedural rules and jurisprudential traditions. For instance, three disclosure duties addressed in Arbitration Law s.45(8) resemble the wording of the RF Commercial Procedure Code s.225-4 for the litigation of corporate disputes.

Taking into account that res judicata effect is to be extended to all company shareholders, both set of rules presuppose their unanimous consent to the arbitration agreement. Accordingly, every shareholder should be informed in advance of the proceedings and, if he/she so desires, be able to join the proceeding since an award is final, regardless of whether or not he/she has actually participated in the arbitration.

The DIS Rules impose a duty on claimant and respondent to identify all the concerned shareholders. This is different than the approach taken by the Russian rules, under which neither party would be obliged to disclose them. In fact, a party might even not be aware of its co-shareholders, especially in a joint-stock company. The obtained statement of claim should first be delivered by an arbitration institution to the company that circulates the copies of it among the shareholders. The burden of responsibility for informing all the interested parties is shifted from the parties to their company.

The arbitral institution must also publicize online information on the filed statement of claim. Insofar, the Russian collective arbitration rules deviate from confidentiality principle embodied in the Arbitration Law s.21 to ensure that the potential parties are notified of the proceedings and able to decide whether to join it. At the end, lack of proper notice on the proceedings could result in a refusal of the enforcement of an award. Finally, short three-day deadlines are set out for the duties to resend the statement of claim and to disclose its filing online.

In contrast to the DIS Rules, the opt-in regime proposed by the Russian rules does not timely limit a joinder and, consequently, does not distinguish between a prompt and a later joined party’s rights and responsibilities. Any company shareholder is entitled to join the proceeding involving the company at any time before the award is finalized. However, just as a later joined party under the DIS Rules, any newcomer under the Russian rules should accept the arbitral proceeding as it stands as of the date of filing its request for the joinder. In particular, he/she would not be entitled to raise any objections to actions done before the joinder.

Under the Russian law, a shareholder’s failure to opt into the proceeding results in a waiver of a right to join the arbitration as a party and, especially, to object against the intended settlement. Also, the passive shareholder will not be informed on the progress of the arbitral proceeding, and it shall not receive the subsequent parties’ pleas and arbitral correspondence. The DIS Rules provide, on the other side, for a disclosure even to non-joined shareholders.

Compared to the DIS Rules, the Russian statutory rules are silent on the issues of the appointment of arbitrators, parallel proceedings, and the allocation of costs between the parties in case of joinder. All those issues must be of particular concern for specific institutional rules to ensure that all proper procedures for collective arbitration are in place.

Conclusion

The statutory expansion of arbitration to corporate disputes has been inevitable for a long time. By declaring them arbitrable, the revised Laws have introduced provisions on joinder which are mandatory for implementation into specialized institutional arbitration rules. In this way, they have fixed a minimum standard, which needs to be fulfilled to ascertain legal certainty comparable to the rules on civil procedure. By involving all the company shareholders into the proceeding, the joinder should promote procedural fairness and strengthen the enforceability of collective arbitral awards.

Practice will show whether the end users prefer arbitration or litigation for resolving their collective corporate disputes. Also, it will be interesting to see how many local arbitral institutions will be able to solve this challenge by addressing all the aspects of collective arbitration in their specific rules and whether they, backed on the compulsory use of corporate law rules, will actually become a competitor to the leading international arbitration institutions in the area of the resolution of corporate disputes involving Russian businesses.

A Step Back for OHADA Arbitrations?

Maguelonne de Brugiere

In a highly unusual arbitral decision, the Cour Commune de Justice et d’Arbitrage (CCJA), the court created by the Organisation pour l’Harmonisation en Afrique du Droit des Affaires (the Organisation for the Harmonisation of Commercial Law in Africa) (OHADA) Treaty, signed by 17 African States, has ruled that an award should be set aside on the grounds that the arbitrators had exceeded their mandate by entering into a separate fee agreement with the parties to the arbitration.

In response to the CCJA’s decision, the three arbitrators in question have taken the equally unusual step of writing an open letter to the arbitration community and the CCJA, publicly criticising the decision and calling for their colleagues’ support. The CCJA’s decision has the potential to have important and far-reaching consequences for arbitration in the OHADA region and the willingness of international arbitrators to sit as arbitrators in arbitrations governed by the CCJA Rules in future.

The CCJA

The CCJA, based in Abidjan (Côte d’Ivoire), is the leading arbitral institution in francophone Western and Central Africa. It is a supranational court, consisting of seven judges of OHADA nationality. It administers appeals of a commercial nature from national courts of OHADA Member States, and dispute resolution proceedings under OHADA’s own arbitration rules. The CCJA does not arbitrate disputes, however it can confirm and appoint arbitrators and supervise the arbitral proceedings. The CCJA reviews awards before they are handed down, and similarly to the ICC, can amend the form of the award, but not its substance. Unlike any other arbitral institution, the CCJA also acts as a Supreme Court which rules on appeals against arbitral decisions, requests for enforcement of or opposition to foreign decisions and third party proceedings.

Arbitration under the CCJA is available for contractual disputes where any contractual party is domiciled or habitually resides in an OHADA Member State, or where the contract is to be executed in the OHADA territory.

The CCJA, since its formation, has been one of the African arbitral institutions which has shown the most promise. Its structure and operations made it an attractive option for parties seeking to regulate their disputes on the continent, particularly as initial judgments issued by the CCJA were suggested that the CCJA was supportive of arbitration. The CCJA has recently published a number of its decisions.

Indeed, given its dual role – both supervising arbitrations but also sitting in judgment on the awards generated by those proceedings – the CCJA could be subject to the theoretical criticism that it has a vested interest in upholding awards. However, the recent annulment decision in the case of Getma International v. Guinea however, and the strong condemnation of the judgment by the tribunal in the case, may dampen enthusiasm for the CCJA.

Background to the Getma Annulment

In 2011, French company Getma International commenced arbitration proceedings against the Guinean State for wrongful termination of a port and railway concession contract. The proceedings were held under the arbitral rules of the CCJA with a Tribunal comprised of three arbitrators: Professor Ibrahim Fadlallah, Eric Teynier Esq and Juan Antonio Cremades Esq.

In April 2014, the Tribunal ruled in favour of Getma, ordering Guinea to pay over €38 million in damages plus interest. Getma commenced proceedings to enforce the award in the US courts.

During this time, Guinea applied to set-aside the award before the CCJA on the grounds, amongst others, that the tribunal had not fulfilled its mandate and had breached CCJA provisions by entering into the private fee agreement with the parties. In a judgment on 19 November 2015, the CCJA ruled that the award should be set aside on the grounds that the arbitrators had indeed breached their mandate by negotiating directly with the parties over their fees, in breach of a 2011 court order issued by the CCJA which limited their fees to 40 million CFA francs (approximately €60,000).

The CCJA found that, in entering into this separate fee agreement, the Tribunal had exceeded its mandate and deliberately excluded the mandatory provisions of OHADA arbitration rules providing that the parties are bound by the fees set by the CCJA. Article 23.2 of the OHADA rules on the resolution of CCJA arbitrations grants the CCJA the authority to fix the tribunal fees, in accordance with a schedule established by the CCJA Assembly and approved by the OHADA Council of Ministers. The schedule is intended to provide parties with a degree of foreseeability as to arbitrator costs, and to ensure that the costs are proportional to the sums in dispute. However, it is worth noting that Article 24.3 of the OHADA Rules also grants the CCJA the authority to set arbitrator fees at a higher or lower rate than those set out in the schedule in ‘exceptional’ and ‘necessary’ circumstances.

The reaction of the arbitrators

The CCJA decision has yet to be published, but the arbitral members of the tribunal in the Getma arbitration, on 16 December 2015, published an open letter to the arbitral community publicly criticising the CCJA decision which it called a “judicial heresy”, and calling for their colleagues’ support.

The criticisms made included:

  • • The CCJA’s decision does not reflect the agreement reached between the parties, and ignored the court’s own assurances made with regards to fees.
    After the 2011 CCJA ruling limiting the fees of the arbitrators, the Tribunal subsequently requested that the CCJA increase the amount of the arbitrator fees. These requests were denied on two occasions by the CCJA, in August and October 2013. According to the arbitrators, before accepting the role of presiding arbitrator, Professor Fadlallah wrote to Mr Acka, the CCJA case manager, stating that the fees set by the CCJA were inadequate, and that they would need to be increased in order for the Tribunal to properly complete its mandate. The tribunal claim that Mr Acka gave Professor Fadlallah assurances that the fees would be readjusted at a later stage. The CCJA Secretariat also allegedly later encouraged the Tribunal, in April 2013, to raise the question of fees with the parties. The arbitrators maintain that, as a consequence of this discussion the arbitrators sought the parties’ agreement to enter into a separate, private fee agreement to set the arbitrators’ total fees at €450,000. The CCJA, however, did not properly take into account its own assurances made during the underlying proceedings, in deciding to annul the Getma award on this basis.
    • The CCJA did not prevent Guinea from bringing the annulment proceedings, despite Guinea’s agreement to the increase in fees. The open letter states that, because the parties agreed to increase the Tribunal fees, the CCJA should have estopped Guinea from bringing the set aside proceedings on this basis. The letter also highlights the difference between the question of arbitral mandate, which concerns the case which the tribunal is requested to adjudicate on, and the question of arbitrator remuneration, which is not in the remit of the award, and falls outside of the competence of the CCJA.

The open letter also heavily criticises the implications of the CCJA decision of the CCJA for arbitration in OHADA territories. The criticism focusses on two key points: the treatment of the arbitrators; and the treatment of the award.

The arbitrators describe the decision as demonstrating an “incomprehensible hostility towards arbitrators”, noting that “[p]rofessional and organised arbitrators are the backbone of international arbitration across the world. When accepting a case, they decline others. By depriving arbitrators of a proper remuneration for the hundreds of hours they spend on a case, the Court undermines their financial situation, a fact which it cannot ignore.”

In relation to this first point, the CCJA is not the only regional institution for which the question of arbitrator fees is significant. Newly established arbitral institutions in a number of regions have noted the need to get the balance right with regard to fee structures: if they are set too high and the institution will deter the local parties which it seeks to attract but pitched too low, the institution will not be able to attract the calibre of experienced arbitrators who take cases from well-established institutions. For example, the LCIA-MIAC has its hourly rate for arbitrators capped at a lesser sum than its London-based counterpart and the Kuala Lumpur Regional Centre for Arbitration (KLRCA) has factored local cost of living into its rates but also opted for arbitrator fees to be calculated on an ad valorem basis depending on the amount of dispute. By way of comparison, the arbitrator fees which would have been set for a KLRCA administered arbitration worth $54 million would have been in the region of $136,800 (a sum higher than the CCJA, but lower than the ICC).

Further, the arbitrators express concern that “the annulment will encourage the practices condemned by the award”, with “dramatic” consequences for Africa. The CCJA is described as a “club of states, where companies are poorly represented”, and the arbitrators claim that the CCJA acted in this case as both “judge and party”, considering its own intervention during the proceedings regarding tribunal fees. They add that “one can legitimately question the ethical steps taken, or not taken, by the CCJA to prevent the interested State from partaking in decisions concerning them”. This is a damning portrayal of the arbitral institution.

What does this decision mean for OHADA arbitrations?

The CCJA annulment decision is, undoubtedly a controversial one, with potentially serious implications for the future of OHADA arbitrations.

Whilst arbitrator fees themselves have been the subject of intense scrutiny and debate in the past, the parties generally remain free to agree those fees once a dispute has arisen. It is arguable that this is a necessary constituent of party autonomy. In the present case, the CCJA ruled that the Tribunal had exceeded its mandate by negotiating increased fees – this despite the fact that both parties had agreed to the increased fees. Whether or not such party agreement is possible under the CCJA rules, the consequence of the CCJA’s decision is harsh, with the award in favour of Getma being annulled, and both parties having already incurred €3 million in fighting the case. Even accepting that the fee agreement was impermissible, such breach of the rules would not be understood to affect the award under well accepted grounds on which arbitral awards can be impugned (for example, in the New York Convention 1958).

€60,000 for Tribunal fees would generally be considered extremely low across most of the main arbitral institutions. If the arbitrators jointly spent 1,000 hours on the case, this would have amounted to a remuneration of €60 per hour. By way of contrast, the ICC cost calculator provides that the average fees for 3 arbitrators in a dispute worth $54 million (approximately the value of the above case) would be $528,850, while the administrative expenses of the Secretariat would be $95,915 (not dissimilar to those of the CCJA in the above case).

In light of the present case, future parties to CCJA arbitrations will likely avoid increasing arbitrator fees without the CCJA consent. If this is the case, then the tribunal fees will remain as fixed by the CCJA. This poses a very real question as to whether the CCJA will be able to attract high quality international arbitrators to hear its cases going forward.

It will not come as a surprise that legal fees imposed in Western countries, by Western counsel, and arbitrators, are generally significantly higher than the legal fees charged by local African counsel. However, in this author’s experience, even an hourly charge-out rate of €60 per hour for junior legal counsel in most African states is a rare occurrence. If the ambition of the CCJA, by fixing such low fees, was to promote the nomination of indigenous arbitrators, it remains to be seen whether such a strategy will pay off. Indeed this does appear to be one of the CCJA’s objectives. The CCJA recently published its list of proposed arbitrators (see here). Out of 173 arbitrators on the list, 124 of these are of African nationality (predominantly from OHADA states).

The CCJA decision will also cause concern to investors in the OHADA member states, whose disputes are subject to the CCJA Rules. The potential impact this decision will have on the pool of arbitrators available, and on the parties’ ability to nominate the arbitrators which they wish, will likely make the CCJA a less attractive arbitral institution and may raise questions about prospects for enforcement of arbitral awards in the OHADA region and beyond. The allegations of state bias made by the Tribunal in this case have not been substantiated, but the mere hint of it may provide commercial parties with sufficient incentive to provide for their disputes to be resolved under alternative arbitral institution rules than the CCJA in their contracts and even to avoid the OHADA region when choosing a seat of arbitration.

The African publication, Jeune Afrique, which first published the tribunal’s open letter, sent the letter to the CCJA for its consideration. Current CCJA President, Marcel Serekoïsse-Samba, has stated that the letter will be studied at a CCJA plenary session. It remains to be seen whether the CCJA will respond to this letter, but any response would certainly now attract a great deal of attention.

It is unclear how this decision will affect the enforcement proceedings in the US courts, which were stayed pending the CCJA annulment proceedings. It will be interesting to see whether Getma will continue to pursue enforcement proceedings in light of these recent developments and, if so, how the US courts will approach the CCJA’s decision. The annulment of the Tribunal’s award will give the US courts a discretion under Article V(1)(e) of the New York Convention to refuse the recognition and enforcement of the award (on the grounds that the award has been set aside by a competent authority of the country under the law of which the award was made). However, this will not necessarily prevent the US courts from recognising the award if they consider it appropriate.

Online Arbitration Community

Amit Alagh

For those not familiar with online communities, these are niche online networking groups where participants connect with domain experts, answer questions and share relevant articles, precedents and experiences.

The community Kluwer Arbitration is piloting will allow our members to undertake the following:
• Post and respond to member questions related to Arbitration issues
• Discuss current issues related to the world of Arbitration
• Build their personal brand and expertise with their peers in a safe, confidential, peer to peer environment

If you would like to register for the pilot, please contact Amit Alagh (Amit.Alagh@WoltersKluwer.com).

Arbitration in the Abu Dhabi Global Market: Ready, Steady, Go …!

Gordon Blanke

In a recent long-anticipated move, the Emirate of Abu Dhabi has finally expanded its own arbitration offering by adding a further arbitration facility in the Abu Dhabi Global Market (ADGM). More specifically, on 17 December 2015, the Board of Directors of the ADGM enacted the so-called ADGM Arbitration Regulations 2015, following an initial consultation process, which completed in December 2015 (see ADGM Consultation Paper No. 12 of 2015 dated 14 October 2015, available online at http://www.adgm.com/doing-business/adgm-legal-framework/public-consultations/2015/consultation-paper-no-12/). The Regulations are modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (the “UNCITRAL Model Law”) and as such seek to implement best international arbitration practice and procedure. As a result, contracting parties may now choose to seat their arbitration in the ADGM and as such submit it to the ADGM Arbitration Regulations 2015 as the governing curial law. The ADGM is a free zone established by decree of the Ruler of Abu Dhabi in 2013 (see Abu Dhabi Law No. (4) of 2013 Concerning Abu Dhabi Global Market) and operates its own self-contained legal system. The ADGM legal system comprises two courts, the ADGM Court of First Instance and the ADGM Court of Appeal. Both are composed of an arbitration-friendly judiciary of common law provenance (including Lord Hope of Craighead KT as the Chief Justice; and Lord Saville of Newdigate PC, The Hon. Kenneth Hayne AC, Sir Peter Blanchard KZNM and William Stone SBS QC as judges). The ADGM Arbitration Regulations 2015 create an alternative to arbitrations seated in onshore or mainland Abu Dhabi, which are governed by Chapter 3 of Federal Law No. 11 of 1992 on Civil Procedures (the “UAE Arbitration Chapter”). Arbitration in mainland Abu Dhabi is frequently supervised by the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), which introduced a new set of institutional rules modeled on the ICC and LCIA Rules of Arbitration in 2013 (see my previous reporting here).

By offering a choice of offshore arbitration under the ADGM Arbitration Regulations 2015, the ADGM enters into direct competition with the Dubai International Financial Centre (DIFC), the Dubai-based financial free zone, which has been promoting itself as a seat of arbitration for arbitral proceedings under the DIFC Arbitration Law (see DIFC Law No. 1 of 2008 as amended), equally based on the UNCITRAL Model Law, since 2008 and which hosts its own arbitration centre, the DIFC-LCIA, a sister organisation of the London-based London Court of International Arbitration. As most readers will be aware, the DIFC, like the more recent ADGM, boasts its own common law legal system and courts, both modeled on England and Wales, and allows parties to arbitrate in a common law environment, with the arbitration-friendly DIFC Courts assisting the arbitral process in their capacity as curial and supervisory courts. Despite the conceptual similarities between the DIFC and the ADGM, the ADGM presently lacks an arbitration institution in its own right and whereas the DIFC has created its own separate body of substantive laws (English being only a default option in the event of conflict or deficiencies), the ADGM has adopted English common law and an entire list of English statutes by reference (essentially turning the ADGM into a little England and Wales nestled in the midst of the Middle East!) (see the Application of English Law Regulations 2015). For institutional arbitration in the ADGM, parties will have to contract into the application of an eligible set of institutional rules, whether of local (e.g., the ADCCAC Rules) or international (e.g. the ICC Rules) origin. Otherwise, the arbitral proceedings will be ad hoc but as such may, of course, benefit from the adoption of the UNCITRAL Rules of Arbitration on a case-by-case basis.

This being said, the ADGM Arbitration Regulations 2015 on their own may well operate to the satisfaction of the arbitrating parties given that they contain sufficient procedural detail to avoid any major difficulties in commencing the arbitration process and any irretrievable breakdown once that process is afoot. Further reassurance is provided by English being the official drafting and prevailing interpretive language of the Regulations. Any future users may wish to note the following main features of the ADGM Arbitration Regulations (the bracketed references being to articles of the ADGM Arbitration Regulations 2015):

• The Regulations recognise the consensual foundation of arbitration and hence give full force to the concept of party autonomy by leaving it to the contracting parties to determine the course of the arbitral process; the parties are hence free to agree upon e.g. (i) the constitution of the tribunal (see Arts 17 et seq.); (ii) the procedure for challenging an arbitrator (see Art. 20); (iii) the seat and language of the arbitration (see Arts 33 and 37); the determination of the rules of procedure (see Art. 32); and (iv) the choice of the governing law on the merits (see Art. 44).

• Curial court intervention is kept to a minimum, supporting the unobstructed course of the arbitral process and facilitating the enforcement of a resultant award (see Arts 11-12), including in particular (i) the default-appointment of the tribunal and/or a substitute arbitrator (see Arts 18 et seq.); (ii) the determination of a preliminary point of jurisdiction (see Art. 26); (iii) a power to order interim measures in support of the arbitration (see Art. 29); and (iv) assistance in taking evidence (see Art. 43). Given the pro-arbitration origin of the ADGM judiciary, it is to be expected that the ADGM courts’ supportive and supervisory powers will be exercised in favorem arbitrandi.

• The Regulations accept the admissibility of both contractual and tortious claims to arbitration (see Art. 13(1)); to some extent, this answers in the affirmative the controversial questions around the arbitrability of tortious claims under the UAE Arbitration Chapter.

• The in-writing requirement of an arbitration agreement within the meaning of the Regulations is satisfied by (i) an electronic exchange of correspondence (see Art. 13(2)-(3)); (ii) an exchange of a statement of claim and a statement of defense in the absence of any jurisdictional objections from either claimant or defendant as to the existence of an arbitration agreement (see Art. 13(4)); or through (iii) incorporation by reference (see Art. 13(5)).

• The Regulations recognise the separability of the arbitration agreement (see Art. 14) and the kompetenz-kompetenz of the arbitration tribunal, i.e. the tribunal’s power to determine its proper constitution and its own jurisdiction (see Arts 24 et seq.).

• The Regulations provide for detailed procedural rules that will ensure the timely constitution of the arbitration tribunal in the event that the parties fail to agree (see Arts 17 et seq.).

• The Regulations exempt the main stakeholders, including the arbitrator, from liability for any act or omission except where shown to have committed the act or omission “by conscious or deliberate wrongdoing” (see Art. 23).

• The Regulations confer a power upon the tribunal to award interim measures (essentially on a balance of convenience test) (see Art. 27).

• The Regulations stipulate the strict privacy and confidentiality of the arbitral proceedings from start to finish, including the resultant award (bar the usual exception on grounds of mandatory legal requirements etc.) (see Arts 30 and 40).

• The Regulations contain specific provisions on the potential consolidation of parallel arbitral proceedings and the joinder of additional parties (see Arts 35-36).

• Default of a party, e.g. failure to attend a hearing or make a (timely or any) submission, will not stall the arbitration proceedings and/or prevent the issuance of an award (see Art. 41).

• The Regulations empower the tribunal (i) to determine the substantive law applicable to the dispute where the parties do not agree, always “tak[ing] account of trade usages” (see Art. 44), and (ii) to award any remedies available under the governing law on the merits (unless otherwise agreed by the parties), including the power to order specific performance (see Art. 46). The tribunal also has the power (iii) to award interest (both simple and compound) (see Art. 47), thus removing any concerns over the availability of compound interest under e.g. UAE law, and (iv) to award party costs in the arbitration, thus addressing concerns that under a number of local arbitration rules (e.g. the DIAC Rules), party costs may not be awarded without a specific power expressly conferred by the parties to that effect (see Art. 50(5); and my previous reporting on the irrecoverability of party costs under the DIAC Rules here).

• The Regulations finally contain detailed provisions on recourse against and the recognition and enforcement of a resultant award (see Arts 53 et seq.). The grounds for nullification and refusal to enforce essentially echo those of the New York Convention (on the recognition and enforcement of foreign arbitral awards 1958) and are thus restrictive in content and scope. Importantly, nullification or refusal to enforce on the basis of public policy is to be understood as public policy in the terms prevailing in the UAE (see Arts 53(2)(b)(ii) and 57(1)(b)(ii)). Under the Regulations, the parties may waive the right to bring a nullification action (see Art. 54).

It is to be hoped that the ADGM Arbitration Regulations 2015 will be warmly received by investors in the market. An initial review confirms that the Regulations promulgate best international standards and as such have a potential to become a leading arbitration law for application in the UAE and beyond. The Regulations are a strong and serious contender for the DIFC Arbitration Law and it remains to be seen which one of the two will ultimately emerge as the more successful. Suffice it to say that the DIFC legal system is presently better equipped than the ADGM to deal with e.g. the enforcement of international arbitral awards, benefitting in particular from the co-operation between the DIFC and Dubai courts, which is facilitated by the regime of mutual recognition in place between the two (see the Judicial Authority Law as amended). This being said, there can be little doubt that the ADGM (Courts) will seek to replicate whatever advantageous measures have been put in place by the DIFC (Courts) to succeed in the endeavour to serve as an offshore jurisdiction within a civil law ocean (see in this context e.g. DIFC Court Practice Direction 2 of 2015 and my previous reporting here). This being said, initial impressions seem to indicate that the ADGM, its courts and the recent ADGM Arbitration Regulations 2015 have all been off to a good start!

Myanmar Joins the UNCITRAL Model Law Asian Vanguard*

Minn Naing Oo and Ankit Goyal and Vivekananda N.

Since 2011, Myanmar has seen a renewed effort at reforming its political, social and economic landscape. As part of the reforms, on 15 July 2013, Myanmar formally acceded to the New York Convention 1958. Myanmar had however not enacted local legislation or revised its archaic Arbitration Act of 1944 to give effect to its international law obligations under the New York Convention. This gap has now been plugged. Recognising the importance of providing a strong and certain dispute resolution framework to foreign investors in the country, on 5 January 2016, the Myanmar Union Parliament adopted the Arbitration Law (Union Law No. 5/2016) (the “Arbitration Law”). Much of Myanmar’s Arbitration Law is based on the UNCITRAL Model Law on international commercial arbitration (the “MAL”).

However, not all MAL jurisdictions are equal and while Myanmar seeks to incorporate most of the MAL into its provisions, there are a few modifications. There may however be some lack of precision in the wording of the provisions, primarily due to translation from English to Burmese and vice versa.

We set out below a brief summary of the main features of the Arbitration Law. 1

Structure of the Arbitration Law

– The Arbitration Law is a composite piece of legislation applicable to domestic arbitrations, international commercial arbitrations and enforcement of foreign awards. Chapters 1 to 8 of the Arbitration Law incorporate the provisions of the MAL and govern the conduct of arbitrations seated in Myanmar. Chapter 9 governs the powers of courts in relation to domestic awards.

Enforcement of foreign awards

– The Arbitration Law incorporates Articles IV and V of the New York Convention on the requirements to be met by a party applying for recognition and enforcement; and the grounds for refusal of recognition and enforcement of a foreign award by a local court. The Arbitration Law therefore paves the way for the potential enforcement of foreign awards from 155 other New York Convention signatories in Myanmar.

Scope of application of the Arbitration Law

– Section 2(a) of the Arbitration Law incorporates Article 1(2) of the MAL to clarify that the intended law will apply where the place of arbitration is Myanmar. Even though Section 23 of the Arbitration Law is an ostensible adoption of Article 20 of the MAL, the reference to “venue of arbitral proceedings” in Section 23 as opposed to the “place of arbitration” may be misinterpreted. However, the recognition of the primacy of the seat of the arbitration in the Arbitration Law is fairly apparent.

– In addition, Section 2(b) provides that certain provisions relating to grant of interim measures of protection, court assistance in securing evidence in support of arbitration and, for enforcement of a tribunal’s orders and directions continue to apply even where the place of arbitration is not in Myanmar.

– The Arbitration Law further defines an ‘international arbitration’ in substantially similar terms as Article 1(3) of the 2006 MAL version.

Party autonomy and independence of the arbitral process

– Section 8 of the Arbitration Law incorporates Article 6 of the MAL which, read with Section 22 (incorporating Article 19 of the MAL), now recognises the principle of party autonomy in providing free choice to parties to select the rules and procedure to be applied to the arbitration. This is also recognition of the right to select an institutional set of arbitration rules.

– The Arbitration Law also recognises and codifies the principles of kompetenz-kompetenz i.e. the power of the tribunal to rule on its own jurisdiction; and of separability i.e. the arbitration agreement is a distinct agreement from the substantive contract. These are important and internationally accepted principles of international arbitration law, and Myanmar’s adoption of these principles is a welcome step.

– Interestingly, the Arbitration Law adopts the Singapore IAA position, in granting a right of appeal against both positive and negative determinations of jurisdiction by an arbitral tribunal within 30 days of such a ruling

– The Arbitration Law also recognises that in an ‘international arbitration’ i.e. where a foreign element is involved, parties are free to choose a substantive law of the contract of their choice. However, a similar provision provides that in a domestic arbitration i.e. where both parties are from Myanmar, the tribunal shall decide the dispute in accordance with the prevailing substantive law of Myanmar. There is no equivalent provision in the MAL and as such, this provision must be carefully applied particularly if courts are dealing with subsidiaries of foreign companies in Myanmar who are contracting parties. A similar provision in the [Indian] Arbitration Act has been misread as implying that two Indian parties (irrespective of whether they were in fact representative or subsidiaries of a foreign entity) could not contract to select a seat of arbitration outside India. Myanmar courts would do well to avoid any similar confusion while interpreting the Arbitration Law.

Court support for domestic and foreign arbitrations

– Section 7 recognises the important principle enshrined in Article 5 of the MAL that a court shall not intervene in any matters governed by the Arbitration Law except as provided therein.

– The Arbitration Law adopts Article 8 of the MAL and requires a court before which an action is brought, that is otherwise the subject matter of an arbitration agreement, to refer parties to arbitration, unless it finds that the agreement is null and void, inoperative or incapable of being performed. Such a decision of the court is not appealable. Importantly, the provision applies irrespective of whether the seat of arbitration is in Myanmar or not.

– Section 11 of the Arbitration Law expands on Article 9 of the MAL and sets out in some detail the nature of interim measures of protection that may be ordered by a court in aid of arbitration. The provision clarifies that an order of the court granting interim measures of protection shall cease to have effect if a tribunal makes an order on the same issues.

– Section 30 contains detailed provisions on the ability to seek the assistance of courts in obtaining evidence. The powers granted are wider than those contemplated under Article 27 of the MAL. The Arbitration Law specifically confers powers upon the courts to obtain testimony, issue subpoenas for examination of witnesses and production of documents, and to send any such evidence gathered directly to the arbitral tribunal.

– Pursuant to Section 2(b), a Myanmar court has the jurisdiction to exercise powers under Section 11 (concerning interim measures) and Section 30 (obtaining evidence) even in the case of an arbitration seated outside Myanmar. The inclusion of these provisions is a progressive step given that the availability of such powers to courts has been an issue that has seen some limelight in other MAL jurisdictions such as Singapore and India.

– It is also notable that pursuant to Section 2 (b) read with Section 31, the Arbitration Law adopts the spirit of Article 17 H of the 2006 MAL version empowering the Myanmar Courts to enforce (interim) awards, orders and directives of an arbitral tribunal seated within and outside Myanmar. Very few jurisdictions globally have similar provisions in their arbitration legislations.

Recourse against award

– The Arbitration Law adopts Article 34 of the MAL in entirety in setting out the grounds for setting aside an award by a court in an arbitration seated in Myanmar. Given the jurisprudence on Article 34 in several MAL jurisdictions, this provision will hopefully provide certainty to the manner in which the courts of Myanmar apply the standards to consider challenges to awards.

– In addition, the Arbitration Law also permits a party to appeal to a court on an issue of law against a domestic award on certain limited grounds. An important aspect to consider when drafting an arbitration clause with a seat in Myanmar is that the Arbitration Law allows parties to contractually exclude the remedy of an appeal against a domestic award.

Adoption of MAL on other aspects

– The Arbitration Law also adopts the MAL in respect of other areas concerning the conduct of the arbitration including the appointment of arbitrators, challenges to arbitrators, removal of arbitrators, filings, hearings, form and content of the award, termination of proceedings, among other matters.

Coming on the heels of the new draft foreign investment law released in 2015, there is much hope that the Arbitration Law is a step in the right direction in creating a positive impact on foreign investment by building investor confidence in the government’s efforts to harmonise Myanmar’s laws and update them to international best practices. Equally, there is hope that Myanmar will now be “in the vanguard” of the development of international arbitration law and practice and contribute equally to the emergence of a “global free-standing body of substantive arbitration law”, to use the words of Chief Justice Sundaresh Menon of Singapore (then the attorney general) in his keynote address to the ICCA Congress in Singapore in June 2012.

*The phrase is thanks to Dr Julian Lew QC who spoke in October 2012 at the Hong Kong Arbitration Week, of the shift of economic power from the West to the East and predicted that countries that have adopted the UNCITRAL MAL will be at the vanguard of developing international arbitration law and practice for times to come.

Minn Naing Oo is the Managing Director, Allen & Gledhill (Myanmar) Co., Ltd., and Partner, Allen & Gledhill LLP (Singapore); Minn can be reached at minn.naingoo@allenandgledhill.com. Ankit Goyal is a Partner (Foreign Law), Allen & Gledhill LLP (Singapore); Ankit can be reached at ankit.goyal@allenandgledhill.com. Vivekananda N. is an International Counsel, Allen & Gledhill LLP (Singapore); Vivek can be reached at vivek.n@allenandgledhill.com.

  1. The summary presented in this article is based on an unofficial English translation of the Arbitration Law (from the Burmese original) available on file with the authors.

Avoiding Re-litigation of Identical Issues at the Enforcement Stage: A Deferential Approach

Katherine Jonckheere

By: Katherine Jonckheere and Mehreen Imtiaz

Five years after the UK Supreme Court handed down its infamous decision in Dallah v. Pakistan, UK Supreme Court Justice Lorde Mance has shed new light on the ‘pathological’ case. To recall, the arbitral tribunal in the Dallah case faced a jurisdictional challenge which questioned whether the Government of Pakistan was a party to an arbitration agreement, even though it was not a signatory to that agreement. In Paris-seated ICC proceedings, the tribunal upheld its jurisdiction by determining that the Government of Pakistan was in fact a ‘true party’ to the arbitration agreement, and subsequently awarded damages to Saudi-Arabian company Dallah. At the enforcement stage, the UK Supreme Court and the Paris Court of Appeal applied the same principles of French law to reach opposite conclusions on this same jurisdictional issue: while the decision was refused enforcement in the UK for lack of a valid arbitration agreement, it was shortly thereafter confirmed in France as the Paris Court of Appeal rejected this argument in annulment proceedings.

Speaking at the latest Freshfield’s lecture, Lord Mance reflected that the conflicting views of the English and French courts in Dallah were the result of the late timing of the French proceedings, explaining that the English court ‘would have been very interested’ in the French court’s analysis of its own law if the decision had been issued sooner. He further noted that ‘whether [the French decision] would necessarily have bound [the English court] is a different question’. Lord Mance went on to echo arguments in favor of recognition of foreign judgments. In his view, the world needs ‘greater coordination and coherence between different legal systems – that is to say, more, rather than less, mutual recognition and enforcement of each other’s decisions’.

While Lorde Mance’s recent remarks were made in the context of challenging the ‘transnational’ theory (whereby enforcement courts need not pay attention to annulment decisions rendered at the seat), his comments are also compelling for national courts which, like the eminent courts in Dallah, are faced with identical issues post-issuance of an award. Preventing parties from re-litigating identical issues in different fora would not only increase efficiency and lower the costs of court proceedings at the enforcement stage; it would also strengthen the finality of awards and ensure their uniform treatment.

Difficulties with issue preclusion

In the common law world, some national courts have already deferred to prior decisions on enforcement of foreign courts by way of the legal doctrine of issue estoppel. For example, in 2014, an English court in Diag Human SE v Czech Republic [2014] EWHC 1639 (Comm) refused enforcement of a Czech award on the basis that the Austrian courts had previously decided that the award was not binding under the parties’ arbitration agreement (as this provided for a review process of the award, which was still pending) and was therefore unenforceable. Similarly, in 2015, a Hong Kong court in Astro Nusantara International B.V. v PT First Media TBK HCCT 45/2010 concluded that Astro was bound to the Singapore enforcement courts’ prior finding that three Astro companies had been improperly joined to the underlying SIAC arbitrations, causing the resulting awards to be unenforceable with respect to the companies at issue (although eventually allowing enforcement to take place because the period for resisting enforcement had expired).

Singapore Chief Justice Sundaresh Menon, for one, has supported the use of issue estoppel in such contexts, calling it ‘eminently sensible, both from the perspective of harmonizing the treatment of awards and perhaps even more importantly, the overarching public policy of finality’. However, he has correctly noted that the domestic application of the legal concept of issue preclusion is not consistent across jurisdictions. This concept is therefore unsuitable to address the problem of costly and unnecessary re-litigation at the enforcement stage. Moreover, the argument remains that issue estoppel has no place in the enforcement sphere since it is not part of the exhaustive list of exceptions that allow a local court to refuse enforcement under Article V of the New York Convention.

Acknowledging the various difficulties with the doctrine of issue estoppel, in 2013, the Australian courts in Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109 declined to determine whether issue estoppel operated in the context of an English annulment court’s prior rejection of an applicant’s due process objection being raised again in enforcement proceedings. Even without applying issue estoppel, however, the Australian courts deferred to the English court’s earlier decision, reasoning that it would ‘generally be inappropriate’ to reach a different conclusion on the same question as that reached by the court of the seat of arbitration.

Merits of a deferential approach

Regardless of the means, the aforementioned decisions exhibit sound policy. Prior decisions on annulment or enforcement can, and should, be treated with deference, at least to the extent that they involve identical issues or arguments. This perspective is in line with the New York Convention and users’ expectations when choosing arbitration as an efficient means to resolve their disputes in a final and binding manner.

Annulment and enforcement proceedings typically involve one or more of the same arguments because there are limited grounds for non-enforcement under the New York Convention (which mirror the grounds on which an award may be set aside listed in the UNCITRAL Model Law). Given the complexities of present-day international arbitrations, which often involve multiple contracts and parties, it is not efficient for parties to re-litigate the same issues from scratch in any number of national court systems. Such inefficiencies could be avoided if national courts were cognizant of each other’s decisions on identical issues.

Moreover, challenges to arbitral awards in national courts tend to fail. When this happens, there is no reason for an aggrieved party to be entitled to as many rematches as there are places where it has assets. A deferential approach has the potential to respect the finality of awards as well as facilitate their recognition and enforcement. Finally, deferring to prior decisions on identical issues would prevent inconsistencies such as those seen in the Dallah case, which are contrary to the New York Convention’s further aim of ensuring the uniform treatment of arbitral agreements and awards.

When to give deference

One might offer as a counterargument that, under the New York Convention, each State has its own independent obligation to recognize and enforce international arbitral decisions. Similarly, Article VII of the New York Convention provides that a party may not be deprived of a more favorable treatment of an award under local laws. Repeat litigation before different fora is therefore a natural consequence of the Convention’s predisposition towards enforcement, so as to enable national courts to recognize an award even if a foreign court has refused to do so. Deferring to a foreign court’s decision may further raise considerations of sovereignty, especially in view of the fact that the system of enforcement through the New York Convention is premised on national courts retaining carefully delineated supervisory powers.

However, such considerations should not preclude a national court from taking a deferential approach, at least as a starting point. Similar to Lorde Mance’s suggestion in his recent lecture (relying on the permissive language of Article V of the New York Convention) that an award which has been set aside at the seat should still be enforced in exceptional circumstances, there may also be exceptions to the proposed deferential approach. For example, if the prior decision has been tainted by a lack of independence or impartiality (after all, not all judicial systems are equally administered), or even if the first decision is clearly wrong. Such exceptions are inherent to the discretion of enforcement courts under Article V of the New York Convention and, with respect to annulment of awards, of the courts of the seat under their domestic law. They may also address potential undesirable effects of forum shopping. However, the basic presumption of annulment and enforcement courts deciding on identical issues can, and should be, deference.

Deference should moreover only be given to determinations on ‘international exceptions’ of enforcement, such as invalidity of the arbitration agreement, due process violations, wrongful constitution of the arbitral tribunal, or breaches of transnational public policy. Forum specific exceptions of domestic public policy and inarbitrability would naturally be excluded due to their variations among different countries.

Although we note that there is no consensus on the legal significance of the seat of arbitration in spite of Lorde Mance’s plea for a territorial approach, it would be sensible for a national court to be particularly deferential with respect to decisions made by the courts of the seat, as these courts are often best-placed to determine issues concerning the validity of awards. Similarly, enforcement courts may also be best-placed to the extent that the issues are to be determined under their own laws. For example, if an English enforcement court rejects an argument that the arbitral tribunal lacked jurisdiction because, under the applicable English law, there was no valid agreement to arbitrate, it would be particularly appropriate for any subsequent enforcement court to defer to the English court’s decision.

Conclusion

As was recently confirmed by the latest Queen Mary International Arbitration Survey, the expense and longevity of arbitration proceedings are among the least attractive characteristics of international arbitration. Compounding the problem, winning the arbitration is often only half the battle, as it is now common to see identical arguments re-litigated before multiple courts after an award has been issued. A deferential approach to prior annulment and enforcement decisions on identical issues would help reduce time and expenditure at the enforcement stage, and is in line with the New York Convention’s principal objective of facilitating the enforcement of awards by improving finality, efficiency, and uniform treatment across jurisdictions. Yet, attempts to reduce the multiplicity of litigation should not deprive parties of their right to be heard by a court of competent jurisdiction. A starting position of deference achieves both judicial efficiency and integrity by weeding out the opportunists while preserving the rights of parties who—for the reasons warranting exceptions to deference highlighted above—have not yet gotten a fair opportunity to be heard.

S. 29A of the New Indian Arbitration Act: An attempt at slaying Hydra

Sanjeevi Seshadri

The Arbitration and Conciliation (Amendment) Act, 2015 was passed by the Lok Sabha and Rajya Sabha on 17 December 2015 and on 23 December 2015 respectively and received the President’s assent on 31 December 2015. It was notified on 1 January 2016 and is deemed to have come into force on the 23 October 2015. The Act repeals the ordinance on the same topic, with the only notable difference being the inclusion of Clause 26, which provides that the amendments would not apply to arbitrations commenced before 23 October 2015 thus laying to rest the debates surrounding the retrospective nature of the amendments.

One noteworthy provision is Section 29A of the Act, which requires that all arbitrations must be completed within 1 year of the arbitral tribunal being constituted. This period is extendable by the parties’ agreement by up to 6 months i.e. a total of 18 months. In the event that such an award has not been rendered within 18 months, the parties may approach the appropriate Court which may grant an extension if it is satisfied that the delay is on account of a sufficient cause, failing which the mandate of the arbitrators is terminated. While the Bill was largely based upon the recommendations of the Law Commission in its 246th Report, Section 29A was not an amendment suggested in the Report and seems to be without parallel in any other domestic jurisdiction. A novel provision, and certainly directed at an existing weakness in the present context of extremely slow arbitrations, S. 29A insofar as it arbitrarily restricts party autonomy is fundamentally opposed to a basic premise of arbitration and is likely to cause a variety of problems in implementation.

First, as noted above, Section 29A(1) provides that in all cases, an arbitral award must be rendered within 12 months from the date of entering upon the reference i.e. the effective day on which the tribunal is constituted. Section 29A(3) permits the parties, by agreement, to extend such a period, but only to the extent of 6 months. Article 19 of the UNCITRAL Model Law (on which the Arbitration and Conciliation Act, 1996 (‘Act’) is based) provides that, subject to the provisions of this law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. The purpose of this party autonomy is to allow the parties to structure the proceedings, composition of the tribunal and procedure keeping in mind the nature and complexity of the dispute. By forcing parties to come to court in the event that a dispute cannot be resolved by arbitration within 18 months, the law has unreasonably restricted parties from deciding between themselves the nature of the arbitration, per their needs and more importantly per the dispute.

Second, the scheme of the Act is to minimize judicial intervention as evinced by the inclusion of Section 5. However, by forcing parties to approach the Court in order to extend the period beyond 18 months, even if they mutually agree to such an extension, is to foist judicial intervention upon them in contradiction to the scheme and purpose of arbitration. In fact this judicial intervention is likely to cause even further delays in the resolution of the matter. While the Act provides that an application for extension shall be disposed of within a period of sixty days from the date of service of notice on the opposite party, any observer of the Indian judicial system would testify to this being an idle promise, especially considering the experience in S. 11 applications for the appointment of an arbitrator which have been known to take a long time to be decided.

Third, in many cases the fact that an arbitration is ongoing may be protected by a confidentiality agreement between the parties. In a case where the parties are forced to appear before a Court and place on record the state of the arbitration in court documents, they might have to violate their own confidentiality agreements.

Fourth, Section 29A(4) provides that, if the Court finds that the reason of the delay is attributable to the arbitral tribunal, it may order a reduction in their fees. This a curious provision. The principles of natural justice would require that the relevant party be heard, which in this case would be the arbitral tribunal. Yet an adversarial proceeding involving the tribunal itself would scarcely be practical. Moreover, the dynamics of the arbitration could be shot to pieces after such an application is decided. In the event that Party A urged for costs to be imposed on the Arbitral tribunal, and the same was dismissed and extension granted, Party A might even seek the arbitral tribunal’s recusal based on the perception of bias on the tribunal’s part.

Fifth, Section 29A(5) provides that the Court may only grant an extension of the time under Section 29(4) when it is satisfied that there exists ‘sufficient cause.’ The phrase sufficient cause has also been used in Section 5 of the Limitation Act, 1963 which is entitled EXTENSION OF PRESCRIBED PERIOD IN CERTAIN CASES. Given the similarity with the proceedings under this sub-section, it is likely that Courts will turn to judicial decisions on S. 5 for guidance. These decisions generally provide that the power must be applied in a reasonable, pragmatic, practical and liberal manner, depending upon the facts and circumstances of the case, and the type of case. Thus there has been a very wide discretion created by the use of the words ‘may’ & ‘sufficient cause’ granted to the Court in deciding whether or not an arbitration should be extended. This might lead to a scenario wherein lengthy proceedings ensue as parties lead large amounts of evidence and arguments in order to convince the Court of the need for extension or otherwise. Further the decisions of the Courts under this sub section will be judicial decisions and thus open to appeal to the Supreme Court of India under Article 136, a situation which will only further allow parties to delay the proceedings if they so desire.

Thus, Section 29A in its overzealousness to fix the issue of lengthy arbitral proceedings will create more problems than it seeks to solve. One solution to resolve at least some of these problems is to ensure that party autonomy is maintained and that parties can inter se decide to extend the arbitration till whenever is required (i.e. not just for the six months allowed by the Section). Only in the event that parties cannot agree between themselves on whether the time frame should be extended, will they be required to approach the Court. The Courts would have to approach the issue of imposition of costs on the Arbitral Tribunal with a certain amount of finesse, and would have to use their powers under Section 29A(5) and (6), to replace the Tribunal or the offending arbitrator, with great care so as not to disrupt the arbitration unnecessarily. The Section ideally should have had considerable reworking and more thought before being enacted in order for it to be able to actually effect the change it seeks to create in terms of faster arbitrations. In its present form, the Section is only likely to further lengthen proceedings and allow parties to ditch arbitration proceedings which are ongoing when they believe that the arbitral tribunal is unlikely to rule in their favor.

Challenges and Opportunities in International Energy Arbitration: a Report from the 3rd Annual ITA-IEL-ICC Joint Conference

Mark Stadnyk

The 3rd Annual Joint Conference on International Energy Arbitration, co-hosted by the Institute for Transnational Arbitration (ITA), the Institute for Energy Law (IEL), and the International Court of Arbitration of the International Chamber of Commerce (ICC), took place on January 14-15, 2016, in Houston, Texas. Under the guidance of conference co-chairs C. Mark Baker (Norton Rose Fulbright, Houston), Karl Hennessee (Halliburton, Houston), and Toni D. Hennike (Hess Corporation, Houston), the conference endeavored to examine in detail the essential influences on, and challenges to, arbitration in the energy sector. The speakers canvassed the myriad commercial and political risks challenging participants and users in today’s international energy sector, including dispute resolution in failed or failing states, the potential for effective emergency relief prior to the constitution of an arbitral tribunal, and cybersecurity threats specific to international dispute resolution.

Managing Commercial and Political Risk

Charles D. (“Chuck”) Davidson (Former Chairman and CEO, Noble Energy, Inc., Houston) set the theme of the conference in his keynote speech, entitled “The Future of International Energy – Weaving Through the Maze of Commercial and Political Risk.” Davidson analyzed the nature of risk in international energy exploration, and the processes, including arbitration, by which it could be effectively mitigated and managed. He distinguished between “below-ground” risk, which geologists are able to quantify to within relatively narrow margins of error, and “above-ground” risk, like political and legal instability, which is less susceptible to precise forecasting or risk analysis.

Building on his extensive experience with exploration and investment in Latin America and the Middle East, Davidson proposed three core tools to manage “above-ground” risk in international energy investment. First, the country entry process must be disciplined, defined, and documented. Geologic risk is one very important consideration in that process, as are the country’s history, the legal terms applying to foreign direct investment, the country’s compliance with contracts with investors, and even the security and stability of the country’s claimed international boundaries. Second, the company must engage in an early comprehensive risk assessment, and diligently update its risk analysis throughout the life of the planned investments. Putting in place adequate legal safeguards, including substantive protections like contractual terms and the right to invoke them in arbitration, can be key. Third, companies operating in challenging geopolitical environments need to implement a global compliance management system in order to avoid costly financial penalties and potential reputational damage. Davidson closed by inviting the panelists to bring their experience to bear on specific issues and challenges related to international energy developments.

Energy Dispute Resolution in Failed or Failing States

Responding to Davidson’s invitation, an illuminating panel, moderated by James E. Castello (King & Spalding, Paris) and comprised of Suzana M. Blades (ConocoPhillips, Houston), James L. Loftis (Vinson & Elkins, London), and Marc D. Veit (LALIVE, Zurich), focused on investor-state and commercial dispute settlement issues arising out of failed or failing states. The panelists first turned their attention to the question of whether international arbitration is a valid forum for resolving energy disputes with failed or failing states. One panelist responded affirmatively, emphasizing that countries like Syria and Libya have entered into bilateral investment treaties (BITs) and private contracts with arbitration clauses that remain in force. While challenges exist in invoking such legal rights (for example, in determining the political entities entitled to participate in the arbitration or even where to serve legal papers), recent practice in investor-state matters against Libya, amongst others, provided concrete guidance on addressing or mitigating these difficulties. The panelist then projected that, while fair and equitable treatment has received by far the most scrutiny in recent investor-state arbitral jurisprudence, three different BIT provisions would soon receive extensive attention and development in arbitrations against failed or failing states:

(1) the requirement of full protection and security;

(2) the requirement of most-favored-nation treatment with respect to compensation for losses owing to war or to other armed conflict, state of national emergency, revolution, insurrection, civil disturbance or any other similar event; and

(3) the requirement of compensation for indirect expropriation.

The panel then turned to the impact of sanctions on international energy arbitration. After an overview of the nature of current sanctions regimes against Russia, which have impacted the energy sector heavily, one panelist stressed the complexity of the current sanctions regime. He identified the potential and diverse impact of sanctions on arbitrability, on a tribunal’s decision on the merits of such a dispute, on judicial set-aside actions, and on efforts to enforce any resulting awards under the New York Convention. He observed that, in light of the current sanctions regime, many Russian entities now prefer to arbitrate claims in jurisdictions like Hong Kong and Singapore.

Emergency Interim Relief

The ability to obtain urgent interim relief prior to the constitution of an arbitral tribunal can be significant in mitigating risks associated with international energy investments. While the past five years have seen many major arbitral institutions begin to offer parties the ability to seek this type of interim relief before an emergency arbitrator, a critical mass of emergency arbitrator decisions is only now beginning to materialize. An assessment of the emergency arbitrator’s scope of authority and efficacy was, therefore, ripe for discussion by a panel moderated by Kevin O’Gorman (Norton Rose Fulbright, Houston) and comprised of Rocío Digón (ICC International Court of Arbitration, SICANA, Inc., New York), Mark W. Friedman (Debevoise & Plimpton, New York), and Aníbal Sabater (Chaffetz Lindsey, New York).

The panel addressed the standards and procedures that govern in practice the granting of interim relief by emergency arbitrators, focusing in particular on the panelists’ collective experience under the ICC Rules of Arbitration. One panelist opined that, despite its growing popularity, the emergency arbitrator suffered from enforceability concerns given the inherently temporary nature of its decisions or orders. Apart from jurisdictions expressly accepting the enforceability of emergency arbitrator orders or decisions (e.g., Singapore and Hong Kong), the vast majority of jurisdictions have not directly addressed the issue yet. However, in practice, the potential for sanctions or costs awards at later stages in the arbitral process appear to provide a strong incentive for parties to comply with emergency arbitrator decisions or orders.

Data Privacy and Cybersecurity

Data security is a particularly important topic in international arbitration, particularly in the wake of the recent hacking of the website of the Permanent Court of Arbitration during the hearing of a maritime boundary dispute between China and the Philippines. One panel, moderated by Robert Carlton (Haynes and Boone, Houston) and comprised of Melinda L. McLellan (BakerHostetler, New York), Jennifer Permesly (Chaffetz Lindsey, New York), and Jonathan Fairtlough (Kroll, Los Angeles), suggested that the risk of data breaches for international arbitration users, arbitrators, and advocates cannot be understated. Many common filing or correspondence practices, such as circulating sensitive documents by email, exacerbate those risks. Energy disputes, which frequently involve significant monetary claims, sensitive geologic and financial information, and a myriad of politically-significant issues, heighten these risks further. While arbitral institutions have implemented strong data security protections, it was recommended that parties and counsel consider encrypting documents, as well as implementing two-factor authentication for email accounts.

Lessons Learned

While the panels focused on challenges, risks, and other current issues confronting dispute resolution in the energy sector, one theme that emerged in the course of the conference was the unique opportunity presented by international energy arbitration. Since the well-known mid-century North African and Middle Eastern concession disputes, arbitrations in the energy sector have developed cutting-edge procedural and substantive doctrines that spread to, and now benefit, all industry sectors. Core tenets of modern international dispute resolution, like the standing of shareholders to sue in arbitration, stabilization clauses, internationalization of contracts, the protection of an investor’s “legitimate expectations,” and methods of quantifying damages in long-term projects, owe their genesis and development to energy arbitrations.

For this reason, international energy arbitration users and practitioners enjoy the unique opportunity and responsibility to address the challenges confronting international dispute resolution generally. The scope and effect of international legal protections in failed or failing states, the nature and efficacy of emergency interim relief before an arbitrator, and data security practices in international dispute resolution, amongst others, are issues confronting the energy sector today. The devices, doctrines, and techniques that will be developed in the energy sector to address these and other challenges—many of which were proposed and debated at the Joint Conference—can be expected to be at the cutting edge of the development of international dispute settlement.

The EU and Investment Arbitration under the Energy Charter Treaty

Gloria Alvarez (Associate Editor)

EC Secretariat logo imgres

We are pleased to announce the event “The EU and investment arbitration under the Energy Charter Treaty” a conference organised by the Centre of European and International Legal Affairs (CEILA) and supported by the Energy Charter Secretariat. The event will take place in London on the 11th & 12th of February, hosted in the Queen Mary University of London premises.

This conference moves away from the BITs discussion and aims to bring legal experts, practitioners and policy makers to discuss the interaction of EU law with investment arbitration under the Energy Charter Treaty.  The objective is to set out and assess the legal and practical arrangements, which govern the involvement of the European Union (EU) and its Member States in investment arbitration under the Energy Charter Treaty (ECT). It aims to provide a comprehensive and up-to-date coverage of the topic and explore the broader implications of the application of the investment provisions of the ECT on i) the integrity of EU law and ii) international investment law and, in light of the above, iii) assess the added value of the ECT for energy investments.

Gloria Alvarez, Queen Mary Research Fellow and Kluwer Blog Associate Editor, will be participating as special rapporteur for this event. Her reports will be shared here for all our Kluwer Arbitration Blog readers.

The conference will be featuring:

Dr Urban Rusnak Secretary General of the Energy Charter Secretariat
Dr Angelos Dimopoulos, Queen Mary University of London
Professor Loukas Mistelis, Queen Mary University of London
Dr Matteo Barra, Energy Charter Secretariat
Professor Christian Tietje, University of Halle
Christer Söderlund, Vinge
Markus Burgstaller, Hogan Lovells
Dr Pedro Claros, Cuatrecasas, Gonçalves Pereira
Dr Alejandro Carballo Leyda, Energy Charter Secretariat
Dr Petra Nemeckova, European Commission
Dr Constanze Von Papp, Keele University
Dr Andres Delgado, Durham University
Dr Violeta Moreno-Lax, Queen Mary University of London
Dr Robert Basedow, OECD
Dr Catharine Titi, French National Centre for Scientific Research (CNRS) and CREDIMI, University of Burgundy
Professor Malgosia Fitzmaurice, Queen Mary University of London
Colin Brown, European Commission
Dr Martins Paparinskis, University College London
Professor Panos Koutrakos, City University London
Professor Rafael Leal Arcas, Queen Mary University of London
Dr Anna DeLuca, Bocconi University
Professor Leigh Hancher, Allen & Overy, Tilburg University
Professor Peter Cameron, University of Dundee
Dr Mavluda Sattorova, University of Liverpool
Professor Catherine Kessedjian, University of Panthéon-Assas, Paris II
Ms Maiko Meguro, Minisitry of Economy Trade and Industry, Japan

Click here for the full programme and registration.

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