Herbert Smith Freehills has appointed three partners to its Mainland China team, specialising in projects and projects-related disputes.

• Hew Kian Heong is one of the leading international construction and infrastructure disputes lawyers in China, regularly acting for Chinese and international clients in complex cross-border disputes.
• Ellen Zhang is one of the leading lawyers in the Chinese PPP and outbound investment market, advising Chinese companies on complex project development, investment and financing overseas, particularly in the power and infrastructure sectors.
• Michelle Li has a strong reputation in construction and infrastructure disputes, particularly advising Chinese state-owned enterprises on a broad range of project implementation issues and disputes arising from overseas projects.

“Our firm has already captured a healthy amount of Chinese project and investment work generated by China’s US$900 billion ‘Belt and Road’ initiative,” said CEO Mark Rigotti. “Adding the transactional and disputes experience on complex projects offered by Hew, Ellen and Michelle will complement our existing team perfectly. I’m delighted to welcome them to the partnership.”

The appointments will increase the size of Herbert Smith Freehills’ Greater China team to 27 partners and over 170 other legal professionals in Beijing, Hong Kong and Shanghai.

“The massive scale of the ‘Belt and Road’ initiative is generating huge numbers of infrastructure projects across Asia and beyond – and every new project also has the potential for complex disputes,” said Justin D’Agostino, Managing Partner, Asia. “Hew, Ellen and Michelle will join our existing team advising clients on these developments and add essential projects, financing and projects disputes expertise to our offering.”

Laurence Franc-Menget has published an article in the Revue de l’arbitrage, the journal of the Comité Français de l’arbitrage, discussing  the Paris Court of Appeal’s decision on an application by Ukraine to annul an $112 million UNCITRAL award against it in favour of OAO Tatneft.  The article, in French, considers the interpretation by the Court of the definition of emanation for the purpose of establishing jurisdiction of an investment arbitral tribunal. To read the full article, please click here.

This article was first published in the Revue de l’arbitrage, 2017, n°2, p. 500 et seq.

Laurence Franc-Menget

Of Counsel
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+33 15 357 7370

A consortium of construction companies (the Consortium) was unsuccessful in obtaining a stay of court proceedings pending before the English High Court (the Court), even though parallel related ICC arbitration proceedings are ongoing. The Court rejected the application for a stay under section 9 of the English Arbitration Act 1996 (s9) on the basis that the proceedings, which concerned advance payment guarantees governed by English law and containing exclusive English jurisdiction clauses, concerned a “matter” outside the scope of the arbitration agreements. The Court found further that there was no compelling case for a stay to be granted under its inherent jurisdiction.

This decision illustrates the practical difficulties, costs and delays, caused when parties agree that disputes related to the same construction project are to be determined in different fora.

Autoridad del Canal de Panama v Sacyr SA and others [2017] EWHC 2228 (Comm)

Background

• The contracts

The case arose out of the construction project to widen the Panama Canal.  As is common in large construction projects, performance of the obligations of the main contract (assigned to a locally incorporated entity owned by the Consortium, Grupo Unidos por el Canal S.A. (GUPC)) was secured through a series of financial guarantees. The consortium companies entered into advance payment guarantees with Autoridad del Canal de Panama (the Employer) as beneficiary, to secure advance payments made by the Employer to GUPC under the main contract. Whilst the main contract and certain of the advance payment guarantees (the Associate Guarantees) were governed by Panamanian law and specified that disputes would be resolved by arbitration seated in Miami, certain of the later advance payment guarantees (the APGs) were governed by English law, and provided for the exclusive jurisdiction of the English courts.

• The disputes

Several disputes arose between the Employer, on one hand, and GUPC and the Consortium on the other hand, over advance payments made by the Employer to GUPC, which the Employer sought to have repaid by the Consortium. Parallel proceedings were initiated as follows:

• The Court Proceedings: In 2016, the Employer brought proceedings before the English Courts under the APGs. The Employer sought to have the Consortium repay advance payments paid to GUPC by the Employer under the main contract (the GUPC Repayment Issue). The proceedings were brought under the APGs exclusively.
• The Arbitration: In early 2017, the Consortium commenced arbitration proceedings in Miami. These proceedings were brought under the main contract and several of the Associated Guarantees, but did not include claims under the APGs.

Application for summary judgment and application for a stay of the Court Proceedings

In the Court Proceedings, the Employer argued that the APGs should be treated as automatically enforceable “first demand guarantees” and that, for this reason, the Court could issue summary judgment without considering defences under the main contract or any other arguments related to the Arbitration. The Consortium, on the other hand, sought to have the Court Proceedings stayed pending the resolution of the Arbitration. It relied on: (i) s9, which provides for a mandatory stay in respect of “a matter” which, under an arbitration agreement, is to be referred to arbitration; and (ii) the court’s inherent, discretionary power to grant a stay of the proceedings on case management grounds. Whilst the Consortium accepted that the GUPC Repayment Issue fell within the scope of the exclusive jurisdiction clauses in the APGs insofar as it arises in relation to claims under the APGs, it contended that it also was the same “matter” within the arbitration agreements, and so fell within the provisions of s9. The Employer accepted that the GUPC Repayment Issue fell within both the scope of the exclusive jurisdiction clauses in the APGs and within the scope of the arbitration agreements, but contended that this issue was not the “matter” in the Court Proceedings.

With the parties’ consent, the Court decided to deal with the application for summary judgment and the stay application together.

Application for Summary Judgment

The Court found that the APGs were not first demand guarantees. A successful defence to a claim under the Main Contract could impact the extent to which the Consortium was liable to repayment under the APGs, and should therefore be considered by the Court before ordering any repayment. Consequently, the Court found that the claim was unsuitable for summary judgment.

The Application for a Stay under Section 9 of the Arbitration Act

The Court’s reasoning focused on s9 and the meaning of “in respect of a matter” that should have been referred to arbitration. The Consortium’s case was that the issues raised by the APGs overlapped substantially with issues to be determined in the Arbitration. These included questions of liability and of interpretation under the main contract, and whether and for how much GUPC (and thus the Consortium under the APGs) was in fact liable to repay the advance payments made by the Employer.

The test under s9 applied by the Court was as follows:

• What is the “matter” in respect of which the court proceedings are being brought?
• Does that matter fall within the scope of the arbitration agreements under which the arbitration proceedings are brought?
• Are the arbitration agreements manifestly inoperative?

The Court found that the “matter” in respect of which the Court Proceedings were brought was whether there was any liability for the Consortium to repay under the APGs. This “matter” was within the exclusive jurisdiction clauses, and was not one which the parties had agreed to refer to arbitration. The Arbitration, on the other hand, would seek to determine issues of liability under the main contract and the Associate Guarantees.  While there might be an overlap of issues to be discussed in the two fora (and thus a risk of conflicting decisions), the Court consequently refused to grant a stay under s9(1).

The Application for a Stay of Proceeding on Grounds of Case Management

The Consortium argued that the issue of GUPC’s liability to repay the advance payments was a matter that would be better decided by the arbitral tribunal, as the forum deciding, among other issues, liability for repayment under the main contract. The Employer, on the other hand, argued that the exclusive jurisdiction clause, “fortified” by the forum conveniens clauses in the APGs, precluded the exercise of the Court’s case management powers to grant a stay – the parties’ agreement was simply that the only appropriate forum for hearing issues pertaining to the APGs was the English courts, thus excluding all consideration of the Arbitration.

The Court formally rejected this argument on the basis that it would set the bar “too high”. Instead, it conceded that “[i]n circumstances in which an international commercial dispute involves arbitration as well as court proceedings, it makes good commercial sense for the court to have regard, where appropriate, to the orderly resolution of the dispute as a whole, if necessary by granting a temporary stay in favour of arbitration“. This would, as previous case law confirmed, minimise the risk of inconsistent decisions and avoid unnecessary costs resulting from two proceedings. The Court nevertheless considered that a discretionary stay could only be granted “in rare and compelling circumstances“. Among other factors, the Court considered that the Arbitration was still at a very early stage (the arbitral tribunal having not been constituted) and any relevant Panamanian legal issues could be dealt with by the Court with the use of expert evidence. In summary, the Court found that the Consortium had not made a “compelling case” for a case management stay, but hinted at the possibility of the Consortium bringing forward new arguments in a new stay application.

Conclusion

This decision illustrates the difficulty resulting from the inclusion of conflicting dispute resolution provisions in contracts related to the same transaction. While the specificities of each case might vary, parties are encouraged to exercise caution to ensure that the terms of all related contracts work together effectively, with particular attention to the contracts’ applicable law and dispute resolution clauses.  This will help to ensure that closely connected merits issues are not decided separately in multiple fora.

The Court has subsequently considered the issues of the Consortium’s application for permission to appeal the dismissal of the stay application brought under s9 and the Consortium’s application for a stay of the proceedings pending such appeal (or pending an application to the Court of APpeal for permission to appeal if necessary). This judgment will be discussed in a subsequent blog post.

For more information, please contact Craig Tevendale, Partner, Hannah Ambrose, Professional Support Consultant, Caroline Le Moullec, International Arbitration Intern, or your usual Herbert Smith Freehills contact.

Craig Tevendale

Partner
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Hannah Ambrose

Professional Support Consultant
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+44 207 466 7585

Caroline Le Moullec

International Arbitration Intern
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+44 207 4662 539

On 12 September 2017, the People’s Republic of China (PRC) signed the Hague Convention on Choice of Court Agreements (Convention).  The Convention, in force since 1 October 2015, seeks to provide certainty in cross-border litigation by allowing parties to choose the exclusive court in which any disputes arising under a commercial agreement will be resolved.  Courts of member states must accordingly respect exclusive jurisdiction clauses in commercial agreements by staying proceedings in favour of the courts of other member states. They must also recognise and enforce judgments of the courts of other member states, subject to certain limited exceptions.

The PRC needs to ratify the Convention before it becomes a member state and bound by the terms of the Convention.  Once the PRC formally joins the Convention, there will be increased opportunities for the recognition of Chinese court judgments internationally and vice versa.

The current status of the Convention

The Convention currently has three parties: Mexico, the European Union and Singapore.  The Convention binds all EU member states except Denmark by virtue of the EU’s approval.  The United States of America and Ukraine have also signed the Convention but have not ratified it.

The Chinese Ministry of Foreign Affairs announced, on the same day as the PRC signed the Convention, that the PRC would “study the approval of the Convention as a priority, so that the Convention can become effective for the PRC as soon as possible“.  It appears likely, therefore, that the PRC will ratify and become a party to the Convention in the near future.

Key features of the Convention

In terms of scope, the Convention only applies to exclusive choice of court agreements, as defined in Article 3.  However, a forum selection clause which meets the defined criteria, but is silent as to whether the jurisdiction of the chosen court is exclusive, will be deemed to be an exclusive choice of court agreement and fall within the scope of the Convention.  It is important to note that the Convention does not cover non-exclusive or “one-way-exclusive” choice of court clauses (where one party is limited to the exclusive court jurisdiction of an agreed country should it bring an action, but the other party enjoys a wider flexibility).  Such choice of court agreements are outside the scope of the Convention and will need to be addressed by national laws, regional regulations or other international treaties.

The application of the Convention is also subject to a number of exceptions. For example, employment contracts and rights in rem over immovable property are excluded. Further, it does not apply to arbitration or related proceedings, or to interim relief.

The key provisions of the Convention are:

• Article 5, which provides that a court chosen in an exclusive choice of court agreement must hear the case (save for in limited circumstances).
• Article 6, which provides that a court seised of a matter in relation to which an exclusive choice of court agreement applies, must stay or dismiss proceedings (subject to a limited number of exceptions).
• Article 8, which provides that the courts of member states are obliged to recognise and enforce a final judgment of the court of another member state named in an exclusive choice of court agreement without review of the merits (subject to a limited number of grounds for refusal of recognition and enforcement).

The Convention applies to “international cases”. The definition of international is based on the circumstances of the case – the default position is that the case is international unless the parties are resident in the same member state and the relationship of the parties and all other elements relevant to the dispute, regardless of the location of the chosen court, are connected only with that state.

Recognition and enforcement of judgements – comparative view with New York Convention

The courts of a member state are obliged to recognise and enforce a final judgment of the court of another member state designated in an exclusive choice of court agreement without review of the merits.  The limited grounds on which an enforcing court can refuse enforcement are exhaustively set out in Article 9 of the Convention.  The grounds are mostly procedural in nature.  Notably, contravention of public policy is one ground of refusal.  Critics worry that this ground is open to abuse in some states.

For commercial parties involved in international transactions, the benefits of the Convention will very much depend on it achieving broad acceptance at a similar level to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, which has been ratified or acceded to by 157 countries.  The UK government has indicated its intention to join the Convention as an individual state as soon as it is free to do so post-Brexit. A vast number of countries have no treaty obligation to dismiss or stay the proceeding when a dispute is submitted to its court, even if parties have exclusively opted for the court of a different country.  When it comes to the recognition and enforcement of judgments, sparsity of member states is also a challenge for the winning party.

Applicable to Hong Kong?

International treaties acceded to by the PRC are not automatically binding on Hong Kong.  The PRC Central Government must seek the view of the Hong Kong Government, before deciding whether the treaty is applicable to Hong Kong (pursuant to Article 153 of Hong Kong’s Basic Law).  At this stage, there is no indication of the Central Government having done so in relation to the Convention.

It is worth noting that the mutual recognition and enforcement of judgments between Hong Kong and Mainland China is not governed by international treaties, but by a special arrangement between the two regions. Since 2008, a judgment obtained in Hong Kong is enforceable in the PRC and vice versa under An Arrangement on Reciprocal Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region pursuant to Choice of Court Agreements between Parties Concerned (Arrangement).  As it currently stands, only final monetary judgments where the court assumes the jurisdiction by virtue of an exclusive choice of court agreement can be enforced under the Arrangement.

From an international perspective, Hong Kong has a statutory registration scheme for the recognition and enforcement of foreign judgments made in 15 designated countries, under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319). Foreign judgments other than those qualifying for enforcement under that Ordinance, including those from important trading partners such as the UK and the US, can however only be enforced in Hong Kong under common law, which entails issuing fresh proceedings in Hong Kong based on the foreign judgment.  The mechanisms currently in place in Hong Kong will continue to operate, pending any decision by Hong Kong and the PRC on the applicability of the Convention to Hong Kong in future.

Practical implications for international parties dealing with Chinese parties vice versa

The Convention, if and when ratified by the PRC, will provide an important new option of dispute resolution in litigation – alongside international arbitration – for international parties dealing with Chinese parties and vice versa.  For many types of commercial contracts (subject to exceptions mentioned above) where parties can agree on an exclusive choice of court, the Convention may prove to be a useful instrument to ensure certainty and speed in commencing and resolving disputes.

For further information, please contact Gareth Thomas, Dominic Geiser, Rachel Yu or any of your usual contacts at Herbert Smith Freehills.

Gareth Thomas

Partner, Head of commercial litigation
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Dominic Geiser

Partner
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Rachel Yu

Senior Associate
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In the first of our regular Africa themed webinars, on Thursday 5 October 2017, 1.00 – 2.00pm BST, we will consider the international implications of environmental and human rights issues in Africa, including:

• The extraterritorial impacts of a local crisis: international treaty claims and the growing trend of class actions
• To stay or to go: the risks of exit vs. remaining in-country following a crisis
• The importance of investment structuring to maximise protection
• Relying on treaty rights in Africa if things go wrong
• Preventing and managing crises in Africa

Speakers

John Ogilvie, Partner, Dispute Resolution, London

Andrew Cannon, Partner, International Arbitration, Paris

Laurence Franc-Menget, Of Counsel, International Arbitration, Paris

To register for the webinar, please contact Jane Webber.

What is a webinar?

• A webinar is an online seminar delivered to your desktop. On the day of the webinar you will be sent a link to login to the live event.
• The webinar is recorded so you can listen again. If you are unable to listen to the live event, register anyway and you will be sent a link to the recorded version as soon as it is available..
• Audio is available via your PC. Click here to see if your system supports live audio streaming.
• The webinar is interactive and we welcome questions from our audience. Email your comments to the speakers on the day using the appropriate tab on the player.
• Check the resources list for a PDF copy of the slides and other relevant material.

… and the benefits to you

• Keep up-to-date with topics of emerging importance.
• Hear our experienced speakers from across our global network without leaving your office
• Participation in webinars contributes to your Continuing Competence. Further guidance can be found on the resources list.
• Webinars, both live and recorded, can be accessed on any device.

The Paris Court of First Instance has rejected an application for the review and withdrawal of an enforcement order of an arbitral award, despite allegations of fraud and collusion between the arbitrator and the claimant. It also refused to the state’s request to stay enforcement proceedings until the issuance of a decision in proceedings appealing the arbitral award before the Common Court of Justice and Arbitration.

The case demonstrates the deference given to international arbitral awards by French courts in enforcement proceedings and the limited ability of the courts to review the underlying award. It also reiterates that, as a matter of principle, the only recourse available against an order granting enforcement of a foreign award is an appeal on the grounds permitted under Article 1525 of the French Code of Civil Procedure (CPC). Courts will be restrictive in their interpretation of the CPC and any application for the review or withdrawal of an enforcement order of an international arbitral award is likely to fail. A party will have no means of challenging the enforcement order, absent an appeal under Article 1525 of the CPC, even in cases where allegations of fraud and collusion have been made. (La République du Niger v Africard Co Ltd, Tribunal de grande instance de Paris, summary judgment (ordonnance de référé)).

Background

Under Article 1525 of the French Code of Civil Procedure (CPC), an order granting (or denying) recognition or enforcement of a foreign award (that is, an award made outside France) may be appealed. However, the Court of Appeal may only refuse recognition or enforcement on the limited grounds listed in Article 1520.

Articles 1502 and 1506 of the CPC provide that applications for the review of arbitral awards may be made, in certain circumstances and under certain conditions, to the arbitral tribunal.

Facts

In 2011, Africard Co Ltd (Africard), a British Virgin Islands company, entered into a contract with the Republic of Niger (Niger, or the State) related to the production of biometric digital passports for the State.

Further to the unilateral termination of the contract by Niger, a dispute arose between the parties and Africard initiated arbitration proceedings under the auspices of the Common Court of Justice and Arbitration (CCJA).

On 9 June 2014, the sole arbitrator appointed by the CCJA issued an arbitral award declaring the termination of the contract by the State to be wrongful and unreasonable. The sole arbitrator ruled that Africard had a right to damages and appointed an expert to assess the losses suffered by the company (June Award). In December 2014, after the submission of the expert report, the sole arbitrator issued a further arbitral award ordering Niger to pay Africard compensation for the unlawful termination of the contract (December Award, and together the Awards).

Africard sought to enforce the December Award in France. On 26 January 2015, the Paris Court of First Instance (Tribunal de grande instance) issued an enforcement order of the December Award (Enforcement Order). Africard then commenced enforcement measures against Niger in France (and abroad).

Niger also commenced a number of proceedings appealing the Awards and the Enforcement Order.

It first sought to annul the December Award before the CCJA but was unsuccessful. Niger also filed an appeal against the Enforcement Order in France but the appeal was declared inadmissible on grounds that it was late.

In January 2017, Niger filed a petition before the CCJA for the review of the Awards and of the CCJA ruling dismissing its action for annulment of the December Award. The State notably alleged the existence of fraud and collusion between the sole arbitrator, Africard and the appointed expert. These proceedings are currently pending before the CCJA.

In parallel, on 7 February 2017, Niger started proceedings before the emergency judge (juge des référés) of the Paris Court of First Instance and requested, a stay of the enforcement proceedings pending the outcome of the parallel proceedings before the CCJA. It also sought the review and withdrawal of the Enforcement Order. To support its claims, the State relied on the allegations of fraud and collusion.

Decision

The Paris Court of First Instance rejected Niger’s claims.

The Court first rejected the State’s request to stay the proceedings until the issuance of a decision by CCJA on the petition filed by Niger in January 2017. The Court noted that given the number of enforcement proceedings underway, it was in the interests of the administration of justice that the application for the review and withdrawal of the enforcement proceedings was decided quickly.

The Court held that Niger’s request for review of the Enforcement Order was inadmissible. It noted that while enforcement orders of foreign arbitral awards could be appealed under Article 1525 of the CPC, the State’s appeal under that provision had already been declared inadmissible by the Paris Court of Appeal as it was late. The judge also pointed out that, although, the CPC entitles a party to file an application for review of an international award in the case of fraud, this legal remedy may only be brought in certain circumstances and before the arbitral tribunal (Articles 1502 and 1506, CPC). The Court finally ruled that it was for the CCJA to rule on the allegations of fraud or collusions in the context of the application filed by the State for judicial review of the Awards.

The Court further held that Niger’s request for the withdrawal of the Enforcement Order was inadmissible and noted that the provisions of the CPC do not provide for the withdrawal of an enforcement order of an arbitral award. Withdrawal is only permissible in the cases expressly provided for by the CPC and these do not include enforcement orders of arbitral awards.

Comment

This case demonstrates the deference given to international arbitral awards by French Courts in enforcement proceedings and the limited ability of the courts to review the underlying award. It also reiterates that, as a matter of principle, the only recourse available against an order granting enforcement of a foreign award is an appeal on the grounds permitted under Article 1525 of the CPC. Courts will be restrictive in their interpretation of the CPC and any application for the review or withdrawal of an enforcement order of an international arbitral award is bound to fail. A party will have no means of challenging the enforcement order, absent an appeal under Article 1525 of the CPC, even in cases where allegations of fraud and collusion have been made.

This article was first published on 2 October 2017 by Practical Law – click here for the article.

For more information, please contact Vincent Bouvard, Avocat, Rosalind Axbey, Associate, or your usual Herbert Smith Freehills contact.

Vincent Bouvard

Avocat
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+33 15 357 7859

Rosalind Axbey

Associate
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+33 15 357 6951

Supreme People’s Court Monitor has published a highly informative article on proposals by the SPC relating to China’s”Belt and Road” initiative. These include establishing a dedicated court, along the lines of the Singapore International Commercial Court, to hear Belt & Road disputes. Click here to read the piece.

Our thanks to Susan Finder of SPC Monitor for permission to re-publish.

London-based Construction & Infrastructure Disputes partners James Doe and David Nitek, along with Professional Support Lawyer Michael Mendelblat, have authored a chapter in the first edition of Global Arbitration Review’s Guide to Construction Arbitration.

The new guide takes the reader through the essential details of preparing, mitigating and managing construction disputes internationally. From preparing contracts and guarantees, to setting up dispute boards, organising proceedings in arbitrations, analysing documents and evidence and navigating within particular industries and regions.

The guide offers a detailed discussion and commentary on both the substantive aspects of international construction contracts and the dispute resolution methods typically available for such contracts. It contains useful information for practitioners who are inexperienced in international construction contracts and dispute resolution, lawyers in private practice who are familiar with arbitration, but lack experience in dispute resolution proceedings in construction arbitration as well as students who study construction arbitration.

The guide organises the many issues and facets of the construction industry under four headings:

1. International Construction Contracts
2. International Arbitration for Construction Disputes
3. Select Topics on Construction Arbitration
4. Regional Construction Arbitration

James, David and Michael’s chapter, ‘Construction Arbitration and Turnkey Projects’ is available to download as a PDF.  The full guide can be accessed online.

For more information, please contact James Doe, Partner, David Nitek, Partner, Michael Mendelblat, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

James Doe

Partner
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+44 207 4662 583

David Nitek

Partner
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+44 207 4662 453

Michael Mendelblat

Professional Support Lawyer
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+44 207 4662 535

In our previous blog post on Autoridad del Canal de Panama v Sacyr, S.A. & Ors, we considered a failed application to stay English court proceedings brought in a dispute in which related ICC arbitration proceedings are also on foot. In a subsequent judgment, the English Court considered further the practical implications of the parallel proceedings. The Court rejected the Consortium’s application for permission to appeal the decision refusing to grant a stay under s9 of the Arbitration Act 1996 and refused to stay the proceedings pending an application to the Court of Appeal for permission to appeal.  In so doing, the Court held that service of a defence in the proceedings by the Consortium would not constitute a “step […] to answer the substantive claim” within the meaning of s9(3) of the Act which would deprive the Court of Appeal of its jurisdiction to grant a stay on appeal. Consequently, it allowed the proceedings to proceed pending the review by the Court of Appeal of the Consortium’s application for permission to appeal.

Autoridad del Canal de Panama v Sacyr, S.A and Others [2017] EWHC 2337 (Comm)

The case arose out of the construction project to widen the Panama Canal and the background to the proceedings is described in our blog post here. Whilst in its earlier decision the Court denied the Consortium’s application for a stay based on both s9 of the Act and the Court’s inherent case management powers, the Consortium sought permission to appeal the decision under s9 only. In deciding on the Consortium’s application in this further decision, the Court addressed both the substantive question of the permission to appeal as well as the practical implications of this decision for the underlying proceedings which were ongoing.

Permission to Appeal the Dismissal of the s9 Stay Application

The Court found that previous case law did not address an application under s9 to stay an issue arising under a contract providing for the exclusive jurisdiction of the English courts. However, the Court denied the application applying the two-limb test for first appeals in Rule 52.6 of the Civil Procedure Rules, finding that the appeal would have a no real prospect of success and that there was no “other compelling reason for the appeal to be heard“.

Continuation of the proceedings pending the review of the application for permission to appeal by the Court of Appeal

The Court then considered whether (i) to stay the proceedings pending a decision by the Court of Appeal on whether to grant permission to appeal, and (ii) if permission was granted, the review of the Consortium’s s9 application. Blair J noted that his “strong commercial instinct” weighed against a stay, and that the claims under the advance payment guarantees (the APGs) which fell under the exclusive jurisdiction of the Court should “so far as practical, be progressed” and “settled expeditiously“.

The Consortium’s case was that in the event that the proceedings were allowed to progress pending the decision of the Court of Appeal (i) the Consortium as defendants would be required to serve a defence; (ii) such service would risk being interpreted as a “step [towards answering] the substantive claim” within the meaning of s9(3) of the Act; and (iii) this would operate to deprive the Court of its jurisdiction under s9 and effectively preclude the Consortium from obtaining a stay under s9. The Court rejected this argument. Previous case law confirmed that s9(3) operates only on any such steps that demonstrate the “willingness of a party to go forward with the court proceedings instead of arbitration”. The Court accepted the Claimant’s case that the service of a defence pursuant to a court order, while an appeal was pending, would not evidence any intention of the Consortium to accept the proceedings. The Court also advised that, for the avoidance of doubt, an express reservation in the defence (or, if required, in the order of the Court requiring the filing of a defence), would further dissipate any remaining doubt as to the exclusion of the operation of s9(3).

However, the Court still had to deal with the practical consequences whilst the application for permission remains outstanding, or of an actual appeal if permission to appeal is in due course given by the Court of Appeal. The Court considered it relevant that the practical issues had already been considered in the context of the Consortium’s application for a stay on case management grounds, on which both sides had made detailed submissions regarding the sensible management of the proceedings. The Court noted that the Consortium’s defences had already been put and considered in one of the arbitrations, and that filing them would not, therefore, impose a considerable burden on the Consortium. The defences would be limited to the question of whether liability under the APGs depends on the resolution of the dispute under the Main Contract, or is independent of it and, further, the drafting of a defence would not be wasted in this case because the same issues would arise in the arbitration if a stay was ultimately granted on appeal.

The Court nevertheless acknowledged that it should be wary of determining the dispute before the resolution of the appeal, should permission to appeal be granted. This could be avoided through a case management stay at a later stage of the proceedings. Equally, “a stay in favour of arbitration at that stage would be very much on the cards” should the Consortium’s defence raise issues as to the performance of the Main Contract.

Consequently, the Court refused to stay the proceedings and set a date for the Consortium to serve their defences.

Conclusion

This further judgment highlights the practical issues arising as a consequence of parallel English Court and arbitration proceedings. In this judgment, the Court has taken a pragmatic approach, leaving the door open to a future case management stay as the proceedings develop to deal with issues which may arise as a result of continuance of the court proceedings while both the appeal and the arbitration proceedings are ongoing. This approach notwithstanding, it is clear that the case management issues are causing already considerable increased costs and complexity before the parties can resolve their substantive disputes.

For more information, please contact Craig Tevendale, Partner, Hannah Ambrose, Professional Support Consultant, Caroline Le Moullec, International Arbitration Intern, or your usual Herbert Smith Freehills contact.

Craig Tevendale

Partner
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+44 207 466 2445

Hannah Ambrose

Professional Support Consultant
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+44 207 466 7585

Caroline Le Moullec

International Arbitration Intern
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+44 207 4662 539

On 23 September 2017, a Special Chamber of the International Tribunal for the Law of the Sea (ITLOS) delivered its judgment on the longstanding maritime boundary dispute between Ghana and Côte d’Ivoire.

The Special Chamber reconfirmed the relevance of the equidistance methodology in determining the maritime boundary between the two States. The judgment also touches on important issues affecting States and international companies operating in disputed waters such as the applicable obligations pending resolution of such disputes.

Background

The dispute between Ghana and Côte d’Ivoire arose following the discovery of hydrocarbon resources off their coasts, and which both claimed were within their jurisdiction.

On 19 September 2014, Ghana instituted arbitration proceedings under Annex VII of the UN Convention on the Law of the Sea (UNCLOS), requesting ITLOS to delimit the maritime boundary between Ghana and Côte d’Ivoire in the Atlantic Ocean. Following negotiations in December of the same year, the two States agreed for the dispute to be submitted to a special chamber of ITLOS (the “Special Chamber“). The Special Chamber was comprised of three permanent judges of ITLOS: Vice-President Bouguetaia, Judges Wolfrum and Paik, and two ad hoc judges, Judges Mensah and Abraham.

On 25 April 2015, following a request by Côte d’Ivoire for the prescription of provisional measures, the Special Chamber ordered, pending its final decision, that Ghana take all necessary steps to ensure that no new drilling take place in the disputed area (the “25 April 2015 Order“).

The hearing took place between 6 and 16 February 2017, and on 23 September, the Special Chamber handed down its unanimous judgment, delimiting the maritime boundary between Ghana and Côte d’Ivoire, and rejecting all other claims made by Côte d’Ivoire against Ghana.

Relief sought by both States

Ghana sought from the Special Chamber a finding and declaration that:

• Ghana and Côte d’Ivoire have mutually recognised, agreed and applied an equidistance-based maritime boundary in the territorial sea, exclusive economic zone (EEZ) and continental shelf within 200NM; and
• Côte d’Ivoire be estopped from objecting to this boundary, by reason of representations it had made to this effect and on which Ghana had relied.

Côte d’Ivoire, in turn, requested that the Special Chamber reject all of Ghana’s claims and find instead that:

• the maritime boundary between Ghana and Côte d’Ivoire follows a determined azimuth line from geographic coordinates provided by Côte d’Ivoire to the outer limit of the Ivorian continental shelf (arguing in favour of the application of the angle bisector methodology in determining the boundary);
• activities already undertaken by Ghana in the Ivorian maritime area constitute a violation of Côte d’Ivoire’s exclusive sovereign rights over its continental shelf, and a violation of the 25 April 2015 Order; and
• Côte d’Ivoire is entitled to compensation for damages resulting from Ghana’s violation of Côte d’Ivoire’s exclusive sovereign rights over its continental shelf.

The Parties’ submissions and the Special Chamber’s ruling

1. Tacit agreement and estoppel

The Special Chamber rejected Ghana’s claims that there was a long-standing tacit agreement between both Parties that the “principle of equidistance” applied to the delimitation of their maritime boundary, and that this boundary had been recognized and respected over a period of over 5 decades.

Ghana, in advancing this claim, had sought to rely on concession agreements, presidential decrees, legislation, correspondence, oil concession and other maps, public statements, and representations made by both States to international organisations and oil companies. Côte d’Ivoire, in turn, denied the existence of any such agreement, whether formal or tacit.

The Special Chamber found that the oil concession maps, legislation and decrees put forward by Ghana did not authoritatively define a maritime boundary in the relevant area. In addition, it found that the bilateral exchanges and negotiations which had taken place between the parties from 1988 to 2014 indicated that no tacit agreement had been reached between the parties on the delimitation of their maritime boundaries. The Special Chamber noted that Ghana’s arguments of estoppel were essentially based on the same facts as those put forward by it to establish a case of tacit agreement. It found that Ghana had failed to demonstrate that an agreement to the maritime boundary based on equidistance existed, or that the requirements for estoppel had been met.

2. Delimiting the maritime territorial boundary

Ghana requested that the delimitation of the territorial sea be based on the application of the equidistance methodology, relying on article 15 of UNCLOS, which states that the equidistance principle will apply except “where it is necessary by reason of historic title or other special circumstances to delimit the territorial seas of the two States in a way which is at variance therewith“.

Côte d’Ivoire, invoking special circumstances (in particular the concavity of the Ivorian coast and the instability of the coastline), argued in favour of the application of the angle bisector methodology for the delimitation of the territorial sea, EEZ and the continental shelves.

The Special Chamber noted that the delimitation of the territorial sea is governed by article 15 of UNCLOS, which favours the application of the equidistance principle to delimit maritime boundaries where the coasts of two States are opposite or adjacent to each other, save where historic title or other special circumstances justify using an alternative methodology. The Special Chamber found that Côte d’Ivoire had failed to provide sufficient evidence that special circumstances justified using an alternative methodology to determine the maritime boundary in this instance. It ruled that the equidistance methodology should be applied in this case and proceeded to delimit the maritime boundary of the territorial sea, the EEZ and the continental shelf applying this methodology.

The parties were agreed that the equidistance methodology involved three stages, which the Special Chamber applied in turn when delimiting the boundary.  First, a provisional equidistance boundary line was constructed.  Second, the Special Chamber considered whether that line should be adjusted to take into account any relevant circumstances (the Special Chamber rejected all such relevant circumstances proposed by the parties, and did not adjust the provisional line), and finally, the line was reviewed to confirm it did not result in a gross disproportionality between the parties’ relevant coasts and maritime areas (the Special Chamber concluded it did not).

3. Ghana’s international responsibility

The Special Chamber then went on to consider the issues of the international responsibility of Ghana, in particular whether Ghana had violated:

• Côte d’Ivoire’s sovereign rights by conducting or licensing hydrocarbon activities in an area claimed by Côte d’Ivoire;
• articles 83(1) and (3) of UNCLOS (requiring parties to a maritime boundary dispute to negotiate in good faith to reach an agreement and to avoid taking any measures which may jeopardize or hamper the reaching of such an agreement); and
• the 25 April 2015 Order.

In support of its claim, Côte d’Ivoire referred to “three unchallenged foundations” of its argument on sovereign rights, namely that (i) “the rights pertaining to the exploration and exploitation of the continental shelf are exclusive rights“, (ii) “those rights exist ipso facto and ab initio“, and (iii) the delimitation by the Special Chamber does not create such rights, but merely clarifies their scope (in effect, arguing that the judgment would be of a declaratory nature). It further argued that the inherent character of sovereign rights meant that the exclusive rights to the continental shelf could be violated by Ghana through its earlier activities even when the delimitation line was still to be defined. Ghana did not seek to deny that a delimitation was declaratory, but rather claimed that its activities had not violated Côte d’Ivoire’s sovereign rights. It claimed that its activities in the disputed area had never been unilateral. They were conducted openly, with Côte d’Ivoire’s cooperation and implicit consent. Ghana further maintained that the courts and tribunals in this context “have consistently declined to punish a State for good-faith use of territory which is ultimately awarded to its neighbour“.

The Special Chamber agreed with the statements of the two Parties that the sovereign rights which coastal States enjoy in respect of the continental shelves off their coasts are exclusive in nature. Significantly, however, the Special Chamber disagreed with both Parties as to the meaning of a judgment on the delimitation of a continental shelf, and in particular with their arguments that such judgments are only of a declaratory nature. The Special Chamber found otherwise, noting that “[o]nly a decision on delimitation establishes which part of the continental shelf under dispute appertains to which of the claiming States. […]Such a decision accordingly has a constitutive nature and cannot be qualified as merely declaratory“. In the view of the Special Chamber, the consequence of the above is that maritime activities undertaken by a State in an area of the continental shelf which has been attributed to another State by an international judgment cannot be considered to be in violation of the sovereign rights of the latter if (i) those activities were carried out before the judgment was delivered, and (ii) the area concerned was the subject of claims made in good faith by both States. Accordingly, even assuming that certain hydrocarbon activities carried out by Ghana had taken place in areas attributable to Côte d’Ivoire following the delimitation, the Special Chamber found that those activities would not have constituted a violation of the sovereign rights of Côte d’Ivoire. Ultimately, however, the Special Chamber was clear that Ghana had in fact only undertaken hydrocarbon activities in an area attributable to it.

The Special Chamber similarly concluded that Ghana’s conduct was not in violation of Articles 83 (1) and (3) of UNCLOS as negotiations regarding the maritime boundary had been conducted in good faith between both States. It also found that Ghana had complied with the 25 April 2015 Order by ensuring that no new drilling took place in the disputed area (although it noted that it would have been preferable had Ghana done so earlier).

Comment

The Special Chamber’s judgment will no doubt be of interest to international law specialists, States, and international oil companies conducting activities close to disputed maritime borders. Of particular interest are the following findings:

• The Special Chamber’s finding that its judgment on delimitation was constitutive (or forward-looking), not merely declaratory (or backwards-looking). This did not have an immediate impact in this case because the activities conducted by Ghana took place in what, following the delimitation, was part of Ghana’s maritime area. However, the decision raises the possibility that States conducting drilling and exploration activities in disputed areas later delimited as falling within another State’s maritime area have not breached the other State’s rights, or international law.  While this might appear to encourage States to seek to exploit resources prior to any determination being made, it remains notable that the Special Chamber qualified its judgment to the effect that a State engaging in such activities would not be considered in violation of the sovereign rights of the other State, provided the area concerned was the subject of claims “made in good faith by both States“.
• The Special Chamber’s analysis of the two obligations under Article 83 (3) of UNCLOS, namely to “make every effort to enter into provisional arrangements of a practical nature” and “during this transitional period, not to jeopardize or hamper the reaching of the final agreement“, is also of significance in this context.
  1. The Special Chamber noted that the obligation to engage in negotiations in good faith to enter into provisional arrangements pending the resolution of the dispute was an obligation of conduct, not of result. In this case, the Special Chamber placed the onus on Côte d’Ivoire to request that Ghana put in place provisional arrangements. Côte d’Ivoire’s failure to request that Ghana enter into negotiations on provisional arrangements was found to constitute a bar to it claiming that Ghana had violated its obligations to negotiate on such arrangements. As such, the primary responsibility of commencing the relevant negotiations would seem to be on the State contesting the use of the disputed waters.
  2. The Special Chamber did not provide guidance on what type of arrangements would need to be taken to comply with the latter obligation not to jeopardize or hamper the reaching of a final agreement. It limited itself instead to a finding that the obligation had been complied with in this instance as (i) Ghana had complied with the 25 April 2015 Order, and (ii) Ghana had only undertaken hydrocarbon activities in an area ultimately attributable to it. Judge Paik in his separate opinion, however, noted his “serious reservation about the lawfulness of Ghana’s activities in the disputed area” under Article 83(3) and found the reasons given by the Special Chamber in support of its conclusion “insufficient and unconvincing“. Judge Paik clarified that, in his view, the obligation was result-orientated, and a key consideration was whether the activities in question would have the effect of endangering the process of reaching a final agreement or impeding the progress of negotiations. In this respect, the “type, nature, location and time of acts as well as the manner in which they are carried out may be relevant“.

For more information, please contact Andrew Cannon, Partner, Iain Maxwell, Of Counsel, Maguelonne de Brugiere, Senior Associate, or your usual Herbert Smith Freehills contact.

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On 15 September 2017,Fiji passed the International Arbitration Act 2017 (the Act). The Act, which is based on the United Nations Commission on International Trade Law on International Commercial Arbitration 1985 (incorporating the 2006 amendments) (Model Law), implements Fiji’s commitments under the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), which Fiji ratified on 27 September 2010. It also adopts some elements of “best practice” from the laws of other leading pro-arbitration jurisdictions, including Australia, Singapore and Hong Kong. The Act not only represents an important piece of law reform for Fiji but it is also hoped that it will provide the impetus and framework for similar law reform among other Pacific Island States.

Application to international arbitrations only

The Act applies to international arbitrations only and the Fiji Arbitration Act 1965 will continue to operate in relation to domestic arbitrations. According to Section 4(3) of the Act, an arbitration is an “international arbitration” if:

• at the time the arbitration agreement was entered into one of the parties was based abroad;
• the place of the arbitration is not Fiji;
• the place where a substantial part of the obligations of the commercial relationship are required to be performed is not Fiji; or
• there is a place which is more closely connected to the subject matter of the dispute that is not Fiji.

‘Best practice’ provisions

The Fijian government was assisted in drafting of the legislation with input from individuals from UNCITRAL and the Asian Development Bank (among other advisers). Notably, the drafters have adopted some “best practice” elements of arbitration laws from recognised pro-arbitration jurisdictions, including provisions:

• that expressly provide for the confidentiality of the proceedings, subject only to some limited exceptions;[1]
• relate to legal representation in international arbitration proceedings and ensure parties autonomy in the selection of their legal representation;[2]
• concern the liability and immunity of arbitrators, arbitral institutions and appointing authorities;[3] and
• which recognise the enforceability of emergency arbitrator decisions, by including a definition of “arbitral tribunal” that refers to emergency arbitrators.[4]

Impact in the region

The Act’s purpose is to facilitate increased investment in the region. This may also lead to increased international arbitration activity in the region. As a neighbouring country with strong pro-arbitration laws, Australia may well find itself as a popular choice for the seat of international arbitrations involving Fijian parties and other Pacific Island states if, as is hoped, the Act promotes further international arbitration law reform in the region.

[1] Section 45, International Arbitration Act 2017

[2] Section 35, International Arbitration Act 2017

[3] Section 21, International Arbitration Act 2017

[4] Section 2, International Arbitration Act 2017

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Emeritus Professor Dr. Surin Pitsuwan: ASEAN’s role and opportunities in public and private dispute resolution

The Herbert Smith Freehills – SMU Asian Arbitration Lecture Series was established in 2010 and was made possible by a term fund contribution by Herbert Smith Freehills. The objective of the Lecture Series is to promote collaborative forms of dispute resolution and access to justice and in so doing promote Singapore as the centre for dispute resolution in Asia, particularly in arbitration and mediation. Each year, a distinguished international arbitrator will be invited to present this lecture, which in turn will be published in a leading regional arbitration journal.

This year’s Herbert Smith Freehills-SMU Asian Arbitration Lecture will ​be delivered by Emeritus Professor Surin Pitsuwan, Professor Locknie Hsu and Ambassador Ong Keng Yong with commentary by Alastair Henderson, Herbert Smith Freehills’ Head of International Arbitration Southeast Asia.

Date:    Wednesday, 22 November 2017

Time:     4:30pm: Registration

5:00pm to 7:00pm: Lecture

Venue:  Singapore Management University Administration Building

               Level 5, Mochtar Riady Auditorium

              81 Victoria Street, Singapore, 188065

Click here to register.

The lecture will be a SILE accredited CPD activity (1.5 points).

In Ve Global UK Limited v Charles Allard Jr and Intelita Limited, HCMP1678/2017, 10 October 2017, the Hong Kong Court of First Instance continued injunctions and dismissed the Defendants’ allegation of abuse of process in respect of the Plaintiff’s delay in commencing arbitration proceedings in relation to the underlying dispute after having obtained urgent injunction orders against the Defendants.

Background

The Plaintiff claimed to be the assignee of, and successor to, the business and assets of Ve Interactive Limited (Ve Interactive), the ultimate holding company of a global group of companies which owned an online sales and marketing business (the Ve Business).  The 1^st Defendant, Mr Charles Allard (CA), managed the Ve Business in Asia.  CA is also a majority shareholder of the 2^nd Defendant (Intelita), which holds a minority shareholding in Ve Interactive’s Asian subsidiaries.  Ve Interactive and Intelita entered into a Shareholders’ Agreement and a Licence Agreement (which contained an arbitration clause) for the licensing of various rights to Intelita for the operation of the Ve Business in Asia.

In July 2017, the Plaintiff suspected that CA had set up a rival business in Hong Kong and was using Intelita to obtain and use confidential information belonging to the Plaintiff for the purpose of the rival business.  A notice of termination of the License Agreement was served on Intelita on 25 July 2017.

On 28 July 2017, the Plaintiff successfully obtained an ex parte injunction from the Court, restraining CA and Intelita, among other things, from operating the Asian subsidiaries (Injunction).  The Injunction was continued and the terms were extended at an inter partes hearing on 4 August 2017 (Revised Injunction).  The Injunction and Revised Injunction were granted under s45 of the Arbitration Ordinance, which permits the Court to grant interim relief in aid of arbitration. In this case, the Court granted relief in support of an arbitration to be commenced pursuant to the arbitration clause in the License Agreement.

On 21 September 2017, the Plaintiff commenced arbitration proceedings in respect of the underlying dispute between the parties (Arbitration).

Issues

The Defendants challenged, among other things, whether:

• the Plaintiff’s delay in commencing the Arbitration amounted to an abuse of process; and
• fortification should be provided by the Plaintiff in respect of its undertaking as to damages in the event that the Injunction and Revised Injunction were continued.

Decision

 Delay

In deciding whether to discharge or refuse the grant of an injunction on the ground of delay or abuse of process, the Court has to consider all the circumstances of the case including, but not limited to:

• the length of the delay;
• any explanation put forward for the delay;
• the degree of prejudice liable to be caused to the defendant as a result of the delay;
• the degree of prejudice liable to be caused to the plaintiff if the injunction is to be discharged; and
• whether the defendant has in any way caused or contributed to the delay.

The Court agreed with the Defendants that there had been delay in commencing the Arbitration.  The Court stated that it is imperative for an applicant seeking an urgent ex parte injunction to act diligently and speedily in initiating proceedings in relation to the underlying dispute.  The undertakings on which the order is granted should expressly state that the plaintiff will issue the primary proceedings as soon as practicable.

The explanation put forward by the Plaintiff was that the delay was due to the fact that the Defendants intimated they would cooperate to comply with the post-termination obligations and arrangements as set out in the Licence Agreement, such that it may not have been necessary to commence the Arbitration. This explanation was not challenged or opposed by the Defendants.

The Court was satisfied, based on the evidence available, that there is a serious question to be tried in relation to the claims against the Defendants.  The Court was not satisfied that the Defendants had suffered any prejudice as a result of the delay.  Having considered all the circumstances, the Court dismissed the Defendants’ application for the Injunction and Revised Injunction to be discharged on this ground.

The Defendants failed to show that they had established any independent business, apart from the Ve Business, which would entitle them to use the IT accounts of the Plaintiff and the information in those accounts to which they had access. Consequently, the Defendants failed to show that they would suffer significant loss as a result of the Injunction and Revised Injunction, each of which restrained access to those accounts and information. If there was any intention to use the accounts for any business other than that of the Ve Business, it was demonstrated only in August 2017, when the Defendants sought and obtained expressions of interest from certain clients of Intelita. However, on the Plaintiff’s evidence, most of these were existing clients of VE Asia, to which Intelita and CA are restrained from providing goods or services for two years after termination of the Licence.

Chan J noted that CA and Intelita could open new IT accounts for use in any business which does not compete with the Licence Agreement. In contrast, Global would suffer “irreparable damage” if it were precluded from accessing the information and data stored in the accounts now registered in the name of Intelita, or if Intelita were allowed access to the confidential information of the VE Business and clients. “Balancing the risks of injustice that may be caused by granting or refusing the interim relief”, the judge upheld the Injunctions. She noted that the “maintenance of the status quo in the interim would facilitate the arbitration”, but reminded the parties that it is open to them to seek further or more appropriate orders or directions from the arbitral tribunal, once empaneled.

Although the Defendant proposed amendments to the Revised Injunction, the judge felt it was “neither necessary nor appropriate” to allow them. She did allow certain amendments to the Injunction.

Fortification

A defendant seeking fortification of a plaintiff’s undertaking as to damages has the burden of showing the need and the appropriate quantum for the fortification. The defendant must show a “likelihood of significant loss arising as a result of the injunction”. Because the Defendants failed to establish any independent business other than the VE Business which Intelita operated under the Licence, the judge held that there was no evidence they would suffer irreparable damage if the Licence was terminated and Defendant lost right to the bank or IT accounts as a result of the Injunction and Revised Injunction. There was therefore no need for Global’s undertaking to be fortified.

Comment

 Hong Kong courts will take into account all the circumstances of the case when exercising their discretion to discharge or refuse the grant of an injunction. This case also serves as a helpful reminder that an applicant who seeks urgent relief from the court must act with diligence and speed in initiating the primary proceedings in support of which the interim relief is granted.

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In Diag Human S.E. v Czech Republic Ministry of Health, the United States District Court for the District of Columbia (the Court) has dismissed an application brought by Diag Human (Diag) to enforce a 2008 arbitration award it obtained against the Czech Republic. The decision rests on the implications of triggering a review process that the parties had agreed in their arbitration agreement and is illustrative of the importance in making sure that any bespoke review or appeal proceedings which are agreed by the parties are clear as to their effect on any award.

Background

The background is more fully described in our blog posts here and here. In summary, Diag and the Czech Ministry of Health agreed to arbitrate claims by Diag that the actions of a senior Czech official had crippled its business activities in the Czech Republic. Further to an ad hoc arbitration under the Czech Arbitration Act 1994, and subsequent to the tribunal having issued an interim award and a partial award (the Partial Award), a final award (the Award) was issued in 2008 ordering the Czech Republic to pay Diag over US$325m in damages as well as both pre and post-award interest. However, the arbitration agreement provided for a review process, under which “an arbitral award could be subject to review by a second tribunal of arbitrators…selected in the same manner as the first and subject to the same rules of procedure” if a party submitted an application for review within 30 days of receipt of the award to be reviewed. If no application for review was submitted within 30 days, then the award would take effect and be enforceable. Both parties triggered the review process in relation to the Award within the 30 day period (although Diag later withdrew its application) and a second tribunal (the Review Tribunal) was constituted to review the Award. The Review Tribunal issued its final resolution (the Resolution) in 2014. The Review Tribunal upheld the Czech Republic’s position that, under Czech law, the Partial Award constituted the entire award issued to Diag. On this basis, it decided in its Resolution that: (i) the review proceedings are discontinued and (ii) neither party shall be entitled to compensation of the costs of the review proceedings. As discussed further below, in these enforcement proceedings before the Court each party took a different position on how the Resolution affected the Award.

Enforcement Proceedings During the Review

Diag brought a series of legal proceedings in a number of jurisdictions concurrent with the review process in an attempt to enforce the Award. The Austrian courts in 2013 determined that the Award could not be binding as the review process was still pending at the time, and a similar decision was taken in the French courts the following year. An application in the English courts was again met with a dismissal due in part to the fact that the review process had been triggered, and also due to the determination that the decision in the Austrian courts created an issue estoppel (see our blog post here).

Enforcement Proceedings Following the Review

In the US, Diag filed an application to enforce the Award in 2013. The Czech Republic moved to dismiss the complaint on numerous grounds and the dismissal was granted after the judge found that the parties did not have a commercial relationship and as such the Czech Republic benefitted from sovereign immunity. This decision was overturned in 2016 by the US Court of Appeals for the DC Circuit, which remanded the case to the lower court. See our blog post here.

The case therefore once again came before the Court. In these proceedings the Czech Republic argued, amongst other things, that the Resolution nullified the Award and therefore there was nothing to enforce. Diag contested that the Resolution had no effect on the Award because it was procedural in nature only, and that only the “decretal” paragraphs of the Resolution (discontinuing the review proceedings and deciding that each side should bear its own costs thereof) had any legal effect.  On this basis, Diag argued that the discontinuation of the review proceedings left the Award intact and enforceable.

The judgment

The Court determined the Award was not a final award that could be enforced under the New York Convention 1958. The Convention provides a number of grounds on which courts may to refuse or defer recognition of a foreign arbitral award, one of which is if the party challenging the enforcement is able to show that the “award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made“.

The arbitration agreement stated that any award “will enter into effect” and the parties will implement the award “if the review application of the other party has not been submitted in the deadline“. However, a review application had been submitted by the Czech Republic within the 30 day deadline so the Award was held not to have entered into effect. The discontinuation of the review proceedings by the Review Tribunal in 2014 effectively ended the arbitration. Therefore by operation of the parties’ own arbitration agreement, the Award never took effect and so never became binding.

Comment

Whilst a refusal to enforce a foreign award under the New York Convention often causes concern, this decision highlights the importance the Court placed on the terms of the parties’ arbitration agreement.  The Court has blocked Diag from being able to enforce the Award, however the decision is consistent with a respect for party autonomy and freedom of contract, as well as showing deference to the jurisdiction of the arbitral tribunal. As the Judge stated in her decision, the courts are “neither authorised to second guess the…[Review] Tribunal’s [R]esolution nor ignore the terms of the arbitration agreement“. The outcome of the US proceedings is consistent with the outcome in other pro-arbitration jurisdictions in which Diag has sought to enforce the Award.

It is important for parties to consider carefully how any review process in an arbitration agreement will operate, the implications for enforcement of an award once that review process has been triggered and whether the outcome of a review will deliver sufficient clarity in relation to the effect on any previous award.

For more information, please contact Christian Leathley, Partner, Amal Bouchenaki, Of Counsel, Hannah Ambrose, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

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The Australian judiciary has again proven that Australia is a pro-arbitration destination, by recognising and enforcing an award and decision rendered under the rules of the International Centre for Settlement of Investment Disputes (ICSID). In Lahoud v The Democratic Republic of Congo [2017] FCA 982 (Lahoud), the Federal Court of Australia highlights that applicants can be confident that a foreign arbitral award will be recognised and enforced in Australia – even if it is against a foreign state.

Application for recognition

On 25 July 2017, Justice Gleeson of the Federal Court of Australia granted leave to the applicants in Lahoud to have the decisions of two ICSID tribunals recognised and enforced in Australia. The power to do so is enshrined in section 35(4) of the International Arbitration Act 1974 (Cth) (the Act). The two decisions in question were the original award and a decision on the request for annulment of the award (see ICSID Case No. ARB/10/4).

Background

The arbitration concerned an organisation operated by the applicants in the Democratic Republic of Congo (DRC), known as “IMPOREX”. The applicants leased their premises from a DRC government body, and sought damages for the alleged expropriation of their business premises and destruction of their property.

Having previously confirmed their jurisdiction to hear the dispute (on 16 February 2012), the arbitral tribunal consisting of three arbitrators delivered their award on 7 February 2014. The tribunal found that the respondent, the DRC, had violated various obligations under the New Investment Code of the DRC. In particular, the tribunal found that the DRC had breached the fair and equitable treatment and expropriation provisions of the New Investment Code. The respondent was ordered to pay the claimants USD$1.7 million in damages plus interest. The tribunal also determined that costs would largely be covered by the respondent.

Subsequently, the DRC unsuccessfully sought an annulment of the award, arguing that that the tribunal failed to provide reasons in parts of the award, and exceeded its power. On 29 March 2016, the annulment tribunal rejected the respondent’s entire application for annulment. Costs were again largely awarded against the respondent.

The Federal Court’s decision

In the decision of the Federal Court of Australia, Justice Gleeson provided a methodical illustration of the international arbitration framework in force in Australia, and the application of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the 1965 Convention on the Settlement of Investment Disputes, now ratified by 153 contracting states) (the Convention). Justice Gleeson explained that the Act aims to encourage the use of arbitration to resolve disputes involving international trade and commerce, to recognise and enforce foreign arbitral awards, and to give effect to the Convention, signed by Australia on 24 March 1975.

Justice Gleeson briefly explored the inclusive nature of the definition of an “award”, contained in section 31(1) of the Act. Her Honour highlighted that an award covers the interpretation, revision and annulment of an award. Owing to its inclusive nature, the ordinary and natural meaning of “award” therefore captured a decision refusing to annul an award. The decision rejecting the request for annulment in this matter was therefore included within the definition of “award”, and could be recognised and enforced.

Justice Gleeson found that all requirements under the Act and the Convention to recognise and enforce an award had been met. Having regard to the objectives of the Act, the benefits and finality of arbitration, Justice Gleeson recognised the two awards and made the orders sought by the applicants. The applicants were granted leave to have the ICSID award and decision recognised and enforced as if they were judgments of the Federal Court of Australia.

Comment

The recognition of this ICSID decision and award is a promising decision of the Federal Court of Australia. The decision affirms that Australia is an international arbitration friendly jurisdiction, and that organisations can be certain that arbitral awards properly made, will be effectively recognised and enforced in Australia.

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The Indian Supreme Court’s judgment in Roger Shashoua v Mukesh Sharma sheds further light on the court’s approach to interpreting arbitration agreements, particularly regarding the parties’ implied choice of seat. The court found that the designation of London as the “venue” of the arbitration in the absence of any express designation of a seat would suggest that the parties agreed that London would be the seat of the arbitration (in the absence of anything to the contrary). It is also notable that the court expressly followed the English courts’ approach to the same question. Shashoua is particularly relevant to contracts with Indian parties providing for arbitration that were concluded prior to 6 September 2012, the date of the court’s judgment in Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc. (“BALCO“) (discussed here). As we consider in further detail below, this can have significant implications on the degree of Indian courts’ powers to interfere in arbitration proceedings, grant interim relief, appoint arbitrators or set aside an award, in connection with pre-BALCO agreements.

Background and facts

The parties in Shashoua provided that “the venue of the arbitration shall be London, United Kingdom”. They also provided for arbitration in accordance with the arbitration rules of the International Chamber of Commerce, and that the substantive law of the contract would be Indian law. There was no express choice of seat. After an arbitral tribunal had rendered its award, the award debtor applied to have the award set aside under Section 34 of India’s Arbitration and Conciliation Act, 1996 (the “Arbitration Act“). The award debtor (the respondent) argued that the parties had not expressly designated a seat and the courts should find that India was the proper seat of the arbitration, and consequently, the Indian courts had jurisdiction to set aside the award.

English High Court proceedings

This was not the first attempt by the respondent in Shashoua to argue that India and not London was the seat of arbitration. In an application for interim measures under Section 44 of the (English) Arbitration Act, the respondent argued that India was the correct seat of the arbitration as the parties applied Indian law to the substantive aspects of the agreement and only designated London as the location for the arbitration hearings. In his judgment (Shashoua v Sharma 2009 EWHC 957 (Comm)), Cooke J held that London was the seat of the arbitration since there was an express designation of London as the venue, no alternative designation of a seat and the parties had adopted a supranational body of rules (ie, the ICC Rules). He observed that “London arbitration” was a well-known phenomenon that was often chosen by foreign parties together with a different governing law, and did not place much emphasis on the choice of Indian law as the substantive law.

After the tribunal issued its award following the High Court’s judgment, the respondent applied to set aside the award under Indian law, arguing again that India was the seat of the arbitration.

The Supreme Court’s decision

Prior to hearing this matter, the Indian Supreme Court had already cited Cooke J’s reasoning in Shashoua v Sharma in several other cases, including in BALCO. The respondent argued that the Supreme Court’s references to Cooke J’s decision did not form part of the ratio of those cases, and that in any event, given that the decision was an interim decision of the English High Court, it should not be given substantial weight.

The Supreme Court dismissed these arguments holding that its previous decisions had not only cited Shashoua v Sharma with approval but had relied on its reasoning. It found that Cooke J’s decision was part of the “propositional pyramid” upon which the previous Indian judgments were based.

Implications for pre-BALCO contracts

As we note in our blogpost here, BALCO is an important decision for contracts with Indian parties providing for arbitration. Prior to BALCO, Indian courts held that Part I of the Arbitration Act applied to all arbitrations, seated in India or abroad, unless it was impliedly or expressly excluded by the parties. This meant that it was open to an Indian party to request that the Indian courts exercise their supervisory jurisdiction over offshore arbitrations that had sufficient connections to India.  Crucially, an Indian court could set aside such an award if it found that Part I of the Arbitration Act was not excluded by the parties. BALCO changed this and held that the court’s supervisory power under Part I of the Arbitration Act did not apply to offshore arbitrations meaning that the old rule applied (and continues to apply to) contracts entered into prior to 6 September 2012, such as the one in Shashoua.

As Shashoua and other cases show, pre-2012 contracts can still be the subject of considerable litigation where it is not clear whether the parties intended to exclude Part I of the Arbitration Act. Shashoua is a welcome decision as it shows that the Supreme Court is adopting a pragmatic approach even when it comes to pre-2012 contracts. While the facts of Shashoua are likely to be unique (ie, a prior English judgment on the same issue between the same parties) it is another example of the willingness of the Indian courts to take into account international practices and norms when deciding issues relating to international commercial arbitration.

For more information, please contact Nicholas Peacock, Partner, Donny Surtani, Partner, Nihal Joseph, Associate, or your usual Herbert Smith Freehills contact.

Nicholas Peacock

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Donny Surtani

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Nihal Joseph

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Herbert Smith Freehills and BIICL Investment Treaty Forum warmly invite you to attend ‘The Future of Investment Arbitration: Have We Reached a High Water Mark?’.

Investment arbitration has grown exponentially over the last twenty years. However, the last few years have seen a backlash, and a number of developments that may result in a reversal of that trend including:

• the EU’s Investment Court proposals, which have been incorporated in the agreed texts for the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU/Vietnam FTA;
• the European Court of Justice’s Opinion of May 2017 on the EU/Singapore FTA, which may require all EU Member States to ratify any agreement by the EU providing for investment arbitration (or indeed an Investment Court), possibly impacting on the EU’s plans, and on the fate of investment arbitration in future EU agreements;
• the Commission’s recommendation for a Council decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes, and on the fate of investment arbitration in future EU agreements;
• the United States’ proposals to renegotiate NAFTA; and
• termination of existing BITs by a number of States, including India and Indonesia.

The speakers at this seminar, run on 1 November 2017 jointly by the Investment Treaty Forum and Herbert Smith Freehills, will consider these and other developments and their implications for the future of investment arbitration.

Chair:

• Iain Maxwell, Herbert Smith Freehills, London

Speakers:

• Professor Yarik Kryvoi, British Institute of International and Comparative Law, London (introduction)
• Colin Brown, Deputy Head of Unit, Directorate General for Trade, European Commission, Brussels
• Professor Loukas Mistelis, Queen Mary University of London
• Christian Leathley, Herbert Smith Freehills, New York

Join the conversation: #itflaw #ISDS. Further details can be found on the event page.

In a dispute between an English company and a Russian company, the English High Court (the Court) refused to set aside an order enforcing a Russian arbitration award on the grounds that the English company had not been given notice of the arbitration or the appointment of arbitrators. The English company claimed that a series of letters in Russian, informing it of the arbitration proceedings, did not constitute proper notice as they were not provided with an English translation. However, as the headings of the letters were in English and contained the English word “arbitration”, and related to a contract in which the company had agreed to Russian language arbitration, the Court held that the English company ought to have known that the documents related to arbitration, and that the letters therefore constituted a valid notice.  The Court’s comments suggest that there are a number of practical steps that a party can take when beginning an arbitration against a counter-party which does business in a language different from that of the notice.  These are discussed further below.

Oao v Magneco Metrel UK Ltd [2017] EWHC 2208 (Comm)

Background and Facts

Zavod Ekran OAO (Ekran), a Russian glass manufacturing company, and Magneco Metrel UK Ltd. (Magneco), an English company that manufactures refractory materials, entered into a contract containing an arbitration clause providing for arbitration under the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry under Russian law (the ICAC). The language of the arbitration was to be Russian.

When Ekran referred a dispute to arbitration, the ICAC sent Magneco a letter which enclosed the arbitration claim form and documents annexed to it, and contained the names of an arbitrator and reserve arbitrator that Ekran had nominated as per the ICAC rules.  This letter was almost entirely in Russian, and the package did not contain a translation. The parties were not in direct communication, and Ekran did not attempt to notify Magneco directly about the commencement of arbitration proceedings. Magneco admitted that the documents were received and signed for, but it did not translate the documents, and did not take part in the arbitration proceedings.  The tribunal having ruled in Ekran’s favour, Ekran made a successful application in the English courts to enforce the award. Magneco sought to set aside the order of the court enforcing the award on the grounds that it did not receive “proper notice” of the arbitration.

Decision

Magneco’s application relied on Section 103(2)(c) of the English Arbitration Act 1996 (the Act), which provides that the recognition or enforcement of a New York Convention award may be refused if: “[T]he person against whom it is invoked proves… that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case“.

When considering whether the ICAC letter constituted “proper notice”, the Court noted that although the letter was in Russian, the heading was in English and stated that it came from “THE INTERNATIONAL COMMERCIAL ARBITRATION COURT…” (sic).  Furthermore, the courier receipt showed that the documents had been couriered from the “Commercial Arbitration Court” in Moscow.  The Court also noted that the documents, although voluminous, included a one-page cover letter that would have been relatively easy to translate, and which contained two email addresses, in both Russian and English, which mentioned the English word “arbitration”.  Finally, the Court noted that the parties had agreed that the language of the arbitration was to be Russian.

The Court stated that these circumstances “obviously [raise] the question [as to] what [Magneco] thought the package was“, ruling that it should have been obvious that the letter related to an arbitration.  The letter therefore was held to be “proper notice“.

Comment

In arriving at its conclusions, the Court commented in general on the language of arbitration notices, stating that “the fact that a notice of arbitration is received in England in a language other than English should not in itself affect the validity of the notice, though…[i]t is easy to envisage some circumstances in which it would not amount to proper notice.”

Applying this principle, and despite holding in Ekran’s favour, the Court criticised its conduct, stating: “[I]t may fairly be said that [Ekran] could have done more to alert [Magneco] to the commencement of the arbitration“.  The Court also commented that a lack of a proper notice would generally suggest some unfairness.

The guidance that emerges from this case to minimise the risk of the counterparty alleging a failure to give proper notice for the purposes of the Act is that a party should take reasonable steps to alert the other party to any arbitration proceedings.  This may include:

1. providing a translation of the notice in the defendant’s language, or at least making sure that the documents contain a statement in the defendant’s language that the documents relate to arbitration.
2. a clear reference to arbitration in the heading of the letter or email giving notice, in the defendant’s language.
3. a chain of correspondence between the two parties containing threats of arbitration, culminating in an express notice that arbitration is about to be commenced. The Court commented that this is what “one would normally expect“.

These steps may seem burdensome, particularly if they are not contractually required, but they are undoubtedly less onerous than arguing subsequently about whether proper notice was given.

More generally, the advice for enterprises which enter into arbitration agreements is that everyone in the organisation needs to be able to recognise the potential significance of a document which refers to arbitration, even if the rest of the document is in an unfamiliar language.

For more information, please contact Nicholas Peacock, Partner, Hannah Ambrose, Professional Support Consultant, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

Nicholas Peacock

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Hannah Ambrose

Professional Support Consultant
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Vanessa Naish

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In Heartronics Corporation v EPI Life Pte Ltd and Others [2017] SGHCR 17, the Singapore High Court considered applications to stay proceedings pursuant to arb-med-arb clauses in the relevant agreements. The defendant had argued that even if attempts at mediation had failed, the arbitration agreement nevertheless remained separate and enforceable.  This decision – which rejected the stay application after finding a repudiatory breach of an integrated med-arb procedure – highlights the unitary nature of certain multi-tiered dispute resolution clauses, and provides helpful guidance on the circumstances in which an arbitration agreement may be rendered inoperative or incapable of being performed.

Background

Heartronics Corporation (“Heartronics“) sued EPI Life Ptd Ltd, its sole shareholder and the latter’s two directors (“EPI“) in respect of a licensing agreement and a distribution agreement for medical devices (“Agreements“).

Heartronics claimed that it had been induced into entering the Agreements as a result of EPI’s false representations, in reliance upon which Heartronics also entered into downstream distribution agreements with third parties to distribute the devices in France and India. It transpired that the devices could not be marketed in either jurisdiction, and Heartronics sought damages and rescission of the Agreements.

The Agreements contained virtually identical dispute resolution clauses (“ADR Clauses“) requiring the parties to submit to the Singapore Mediation Centre (“SMC“) and Singapore International Arbitration Centre (“SIAC“) for resolution by mediation-arbitration (“med-arb“). Heartronics attempted to initiate med-arb proceedings in the SMC, but EPI persistently refused to agree on a date for mediation or to pay the requisite fees. Heartronics eventually commenced proceedings in the Singapore Courts on the basis that the ADR Clauses had been discharged due to repudiatory breaches by EPI.

In response, EPI sought a stay of the proceedings pending the outcome of any med-arb proceedings between Heartronics and EPI, pursuant to section 6 of the International Arbitration Act (“IAA“). In support of its applications, EPI submitted that the ADR Clauses contained not one, but two separate dispute resolution agreements, comprising a mediation agreement and a separate agreement to arbitrate (if mediation failed).  Accordingly, even if EPI had committed repudiatory breaches of the ADR Clauses, such breaches only entitled Heartronics to treat the mediation agreement as having been discharged.  The arbitration agreement remained operative, and as such, court proceedings should be stayed in favour of arbitration.

Decision

In determining whether EPI should be granted a stay, the Court considered the following key issues:

1. Whether the ADR Clauses contained one dispute resolution agreement or two separate dispute resolution agreements.
2. Whether the arbitration agreement in the ADR Clauses had been rendered “inoperative” within the meaning of the IAA due to EPI’s conduct.

The Court also considered – briefly – a subsidiary argument that the defendant’s cessation of business and admitted impecuniosity separately rendered the arbitration agreement incapable of being performed.

ADR Clause was a unitary agreement

The Court considered the provisions of the SMC-SIAC med-arb procedure, which provided for closely intertwined mediation and arbitration proceedings, and found that to view mediation and arbitration separately would be inconsistent with the commercial intentions of the parties, who had expressly agreed to the hybrid mechanism.  Further, if a stay were granted, Heartronics would be compelled to adopt a dispute resolution procedure materially different from that which had been agreed (i.e. the dispute would be referred to arbitration as if the ADR Clauses had not provided for mediation).

Accordingly, the Court found that the obligations to mediate and arbitrate contained within the ADR Clauses constituted a unitary dispute resolution mechanism, the entirety of which needed to be considered as the “arbitration agreement” for the purposes of the IAA.

Arbitration agreement was inoperative

In deciding whether the “arbitration agreement” was inoperative, the Court noted that – in principle – an arbitration agreement would be considered inoperative where a party has committed a repudiatory breach of the arbitration agreement and that repudiation has been accepted by the innocent party.

In RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] SGCA 39 the Court of Appeal described the situations in which an innocent party to a contract may elect to treat a contract as having been discharged by the other party’s breach.  Two such grounds were relied on in this case, namely (1) that the defendant, by its words and conduct, had renounced the contract (specifically, the arbitration agreement) by clearly conveying to the claimant that it would not perform its obligations at all; and (2) that the defendant’s breach deprived the claimant of substantially the whole benefit which it was intended to obtain from the contract (specifically, the arbitration agreement).

The Court held that EPI had committed (and Heartronics had accepted) a repudiatory breach of the arbitration agreement on both bases.  EPI’s actions deprived Heartronics of substantially the whole benefit that it should have derived from the agreement. In failing to pay the necessary SMC fees and continually seeking to postpone the commencement of arbitration, EPI’s actions fell short of what was required for it to participate in good faith in the med-arb process. EPI had prevented Heartronics from proceeding to resolve the dispute in the manner provided for under the ADR Clauses, and these actions had rendered the arbitration agreement inoperative. Similarly, EPI’s actions demonstrated a clear intention not to perform its relevant obligations under the agreed (unitary) disputes procedure, which again justified a finding of repudiatory breach.

On the above basis, the Court dismissed EPI’s applications for a stay of proceedings.

As a subsidiary argument, Heartronics had asserted that EPI’s admitted suspension of business and dormancy since 2015, and its admitted impecuniosity, rendered the arbitration agreement incapable of being performed as there was no prospect of EPI being able to pay the fees for the agreed procedure.  Rejecting this argument, the Court noted that ‘incapability of performance’ required a permanent impossibility in setting the arbitration in motion, not merely transient obstacles; but ultimately it dismissed the argument for lack of cogent substantiating evidence.

Comment

This decision confirms the Singapore Courts’ support for the principle that arbitration is grounded in party autonomy (specifically, that the parties are free to agree how they shall have access to arbitration in the event of a dispute). Parties to (or contemplating) a multi-tiered dispute resolution procedure may  take comfort in the fact that the Singapore Courts are unlikely to allow one party to “cherry pick” aspects of an agreed procedure; particularly where to do so would be tantamount to compelling the other party to adopt a procedure that is materially different from that which was agreed.

Further, a hybrid dispute resolution mechanism, or at least a hybrid whose parts are as closely intertwined as the SMC/SIAC med-arb procedure, should be regarded as a unitary mechanism in which all parts function as integrated components of the parties’ intended dispute resolution procedure.

It seems clear in this case that egregious delays (and other misconduct) on EPI’s part likely played a part in persuading the Court that EPI had committed a repudiatory breach, and should not be entitled to reverse its conduct and insist on arbitration. However, in arriving at its decision, the Court also provided examples of conduct that a court would (or would not) deem to be a repudiatory breach, which should serve as helpful guidance as to the categories of conduct that could render an arbitration agreement inoperative.

The subsidiary issue – whether a party’s impecuniosity could render an arbitration agreement incapable of being performed – has been raised occasionally in cases in Europe and the United States.  Whilst the Singapore Court did not reach a definitive ruling on the issue as a matter of law, the Court’s observations strongly suggest that such factors would not typically be accepted in Singapore as a basis for refusing a stay of proceedings.  No matter how dire a party’s financial circumstances, they would not ultimately prevent an arbitration from proceeding, if the other party chooses to shoulder the whole cost in order to progress the case.

Alastair Henderson

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Noe Minamikata

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Hao Tan

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The last two years have seen considerable development of Russian arbitration law and practice, with changes to Russian arbitration law intended to enhance Russia’s market reputation as an arbitration-friendly jurisdiction.  In a further development, it was recently announced that the Singapore International Arbitration Centre (SIAC) and the Institute of Modern Arbitration (IMA) of the Russian Federation have entered into a Memorandum of Understanding intended to support and promote the development of international arbitration in Singapore and Russia.

Alexei Panich, partner in Herbert Smith Freehills’ Moscow Office, comments: “It is always welcome that people in arbitration community cooperate with each other throughout the world.  As for Russia, it is crucial to use foreign experience, including that of the arbitration centre in Singapore, especially in the context of the recent Russian arbitration reform whereby the regulatory environment has been significantly remodelled.  It would be indeed useful if the SIAC and other recognised international arbitration centres would enter into similar agreements and share their experience with the well-established Russian arbitral institutions such as the ICAC – the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. As far as we know, the ICAC, whilst being the most popular arbitration institution throughout the CIS, has no such memoranda concluded between itself and any other arbitration institution.”

Alastair Henderson, partner in Herbert Smith Freehills’ Singapore Office, adds: “The SIAC is well-placed to deal with Russia-related arbitration work, with a multilingual secretariat and a staff with both civil law and common law backgrounds. This has the prospect to be a fruitful partnership for both organisations.”

For more information, please contact Alastair Henderson, Partner, Alexei Panich, Partner, Alexander Khretinin, Senior Associate or your usual Herbert Smith Freehills contact.

Alastair Henderson

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Alexei Panich

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Alexander Khretinin

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