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International Arbitration News, Trends and Cases

What the International Arbitration Bill, 2016 will mean for arbitrations in South Africa

During the next few months, the International Arbitration Bill, 2016 will be presented to the South African National Assembly.

The Bill, once enacted, is set to place South Africa on the main international arbitration stage by aligning the administration of arbitrations in South Africa to the Model Law of the United Nations Commission on International Trade Law (UNCITRAL).

Previously, arbitrations were subject to the Arbitration Act (Act No. 42 of 1965), unless otherwise agreed.

In terms of the Bill, any international commercial dispute which the parties have agreed to submit to arbitration under an arbitration agreement, and which relates to a matter which the parties are entitled to dispose of by agreement to be determined by arbitration will be administered under the UNCITRAL model, subject to the exclusions listed under clause 7.

Clauses 16, 17 and 18 of the Bill incorporate the wording of the Recognition and Enforcement of Foreign Arbitral Awards Act, 1977, which was a stand-alone piece of legislation, directly into the Bill. The applicability of the Recognition and Enforcement of Foreign Arbitral Awards Act will be repealed in its entirety once the Bill comes into effect as legislation.

The applicability of the Arbitration Act 42, of 1965 which has been the governing statute in respect of arbitrations for 51 years, is excluded in section 4 of the Bill. The Bill provides that subject to subsection (2), the Arbitration Act (Act No. 42 of 1965), is not applicable to an arbitration agreement, arbitral award or reference to arbitration covered by this Act. Section 2 of the Arbitration Act, 1965 (Matters not subject to arbitration) applies for purposes of Chapter 3 of the Bill.

The Bill, subject to the provisions of section 12 of Promotion and Protection of Investment Act, 2015, binds public bodies and applies to any arbitration in terms of an arbitration agreement to which a public body is a party.

Any international commercial dispute which the parties have agreed to submit to arbitration under an arbitration agreement and which relates to a matter which the parties are entitled to dispose of by agreement may be determined by arbitration, and will be subject to the application of the Bill.

Such dispute will be excluded only where the dispute is not capable of determination by arbitration under any law of the Republic; or the arbitration agreement is contrary to the public policy of the Republic.

Arbitration may also not be excluded solely on the ground that an enactment confers jurisdiction on a court or other tribunal to determine a matter falling within the terms of an arbitration agreement.

According to clause 12, parties to an arbitration agreement may refer a dispute covered by the arbitration agreement to conciliation, before or after referring the dispute to arbitration, subject to the terms of the agreement. Conciliation is defined as including mediation.

The parties to an arbitration agreement who intend to settle their dispute by conciliation may, subject to the Bill, agree to use the UNCITRAL Conciliation Rules set out in Schedule 3.

The Bill also grants arbitrators immunity and their institutions and representatives for acts or omissions arising during the course of the discharge or purported discharge of that arbitrator’s functions as arbitrator, unless the act or omission is shown to have been done in bad faith.

These changes are deemed necessary as it brings South Africa’s arbitration laws in line with international norms and standards. The force of law will still be overseen by the executive powers within South Africa but the arbitral procedures between international parties will be governed by the laws outlined in UNCITRAL.

The Bill aims to promote the uniformity of national laws pertaining to international arbitration proceedings. The passing of this Bill would improve the access to justice for companies doing business outside the country and foreign companies in South Africa and an essential tool for doing business across borders; this is seen as one of the Department of Trade and Industry’s motives behind the Bill being promulgated into legislation. Besides the Bill aligning South African international arbitration law with international best practice it should inter alia establish South Africa as a venue of choice for international arbitrations in Africa and bring in an influx of foreign spending in the country.

The enactment of the Bill is a positive for step forward for arbitration in South African and it will facilitate the desirability of using South Africa as a seat for international arbitrations in the future.


Heads up for 23 October 2016 – the new 12 month time limit for Indian seated arbitration

In October 2015 India’s arbitration law underwent major changes with the enactment of the Arbitration and Conciliation (Amendment) Act 2015 (“Amendment Act“).  One of the most controversial provisions in the Amendment Act was the introduction of a 12 month time limit within which an arbitral award must be rendered (section 29A).

The Amendment Act

According to section 29A all arbitrations seated in India commenced after 23 October 2015 are required to have a final award issued within 12 months of the appointment of the tribunal. For parties who have commenced an Indian seated arbitration since the Amendment Act was passed, it may therefore become necessary to consider applying for an extension if it looks likely that a final award will not be issued within the 12 month time limit.

While parties may agree to extend this period by up to six months, there is no guidance in the Amendment Act as to when or how the parties may make such application. Furthermore, if a final award is not rendered within the 12 month period (or within a 12 month + six month extension period) the arbitration will be terminated unless the period is extended by the Indian courts. The Amendment Act states that for the court to extend the time period there must be “sufficient cause” and the extension will be on “such terms and conditions” as the court deems appropriate.  Again there is little guidance in the Amendment Act as to what may constitute sufficient cause or the possible terms and conditions.

In granting an extension, and if the court finds that the delay is attributable to the arbitral tribunal, the court may also:

  • Order a reduction of the fees of the arbitrator(s) by up to 5% for each month of the delay (section 29A(4)); and
  • Substitute any arbitrator the court considers responsible for the delay with a replacement arbitrator, and have the proceedings continue from the stage already reached in the arbitration and on the basis of the evidence and material already on record (section 29A(6)).

Furthermore, if the court finds that one or more of the parties is responsible for the delay, the court may also impose cost penalties on the dilatory party (section 29A(8)).


For parties who have commenced an India seated arbitration since 23 October 2015, they should consider whether they will need to apply for a six month extension or run the risk of having the proceedings terminated. How freely the Indian courts will allow extensions to the Amendment Act’s 12 month time limit remains to be seen, however parties may wish to err on the side of caution and seek to agree to an extension before the expiry of the initial 12 month time limit, or run the risk of an award being set aside by the Indian courts or refused enforcement by an enforcement court.

Delay is a common complaint about arbitration, particularly in India, and this measure is intended to address it. To this extent section 29A is welcome. However it may open the door to questions about the status of awards issued out of time, both in India and in the New York Convention countries where enforcement is sought. It may also prove difficult in practice to achieve the deadline in complex cases, or where one party is engaged in delaying tactics. This may make extensions of time the norm rather than the exception.

Macanese Investor Succeeds in Reversing Singapore High Court’s Decision on Jurisdiction in its BIT Claim

A Macanese investor, Sanum Investments Ltd (“Sanum“), has successfully appealed a Singapore High Court decision on a tribunal’s jurisdiction to determine Sanum’s claims under the bilateral investment treaty (“BIT“) between the People’s Republic of China (“China“) and the Lao People’s Democratic Republic (“Laos“).

The Court of Appeal’s decision in Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] SGCA 57, which was handed down on 29 September 2016, is discussed below.


While Macau was under Portuguese rule, the China-Portugal Joint Declaration (“Declaration“) was signed in 1987, which provided that Macau would be handed over to China in 1999.

China and Laos signed the BIT in 1993 but the parties did not expressly deal with the BIT’s applicability to Macau after the handover.

In 2007, Sanum formed a joint venture with a Laotian entity for investment in the gaming and hospitality industry in Laos. Disputes between Sanum and the Laotian government subsequently arose.

Sanum commenced arbitration against Laos on 14 August 2012 under the BIT, alleging, amongst other things, that the Laotian government imposed “unfair and discriminatory taxes” on Sanum.

An eminent tribunal with extensive experience of investor state cases was constituted under the UNCITRAL Rules and Singapore was designated as the seat of arbitration. Laos disputed the Tribunal’s jurisdiction on two main grounds:

  1. The BIT did not extend to protect a Macanese investor; and
  2. In the alternative, Sanum’s claims are not arbitrable under the BIT as they are not a “dispute involving the amount of compensation for expropriation [which] cannot be settled through negotiation“.

The Tribunal dismissed Laos’ jurisdictional challenges on 13 December 2013. Laos appealed to the Singapore High Court under section 10(3) of the International Arbitration Act (Cap 143A) which allows for appeals on points of jurisdiction. On 20 January 2015, the High Court overruled the Tribunal.  Sanum then appealed to the Court of Appeal on 20 July 2015.

Court of Appeal’s decision

A five-member Court of Appeal overturned the decision of the High Court and upheld the Tribunal’s finding that it had jurisdiction to hear Sanum’s claims. In doing so it applied the customary international law rule known as the “moving treaty frontier” rule (“MTF Rule“) which “presumptively provides for the automatic extension of a treaty to a new territory as and when it becomes a part of that State“. The Court ruled, inter alia, that this presumption was not displaced because the handover of Macau was a foreseeable event at the creation of the BIT given that the Declaration predated the entry into the BIT.

Applying the public international law principle of the critical date doctrine, the Court of Appeal also did not accord any evidentiary weight to diplomatic notes exchanged between China and Laos in 2014, in which the Chinese embassy in Laos agreed that the BIT did not extend to Macau. The Court considered that no weight should be put on those notes as they came into existence after the critical date, being the date on which the arbitration proceedings were initiated, and they were adduced to contradict a position which was established by the pre-critical date evidence – namely that the BIT did apply to Macau.

The Court of Appeal also rejected the Laotian government’s narrow interpretation of the BIT by which Laos contended that the sole type of dispute which may be resolved by arbitration was the amount of compensation for expropriation. Taking a broader and more investor-friendly construction of the BIT, the Court ruled that any claim which includes a dispute over the amount of compensation for expropriation may be submitted to arbitration.

The Court also considered the issue of de novo review of the Tribunal’s award on jurisdiction. Notwithstanding the Tribunal’s expertise on this issue, the Court of Appeal considered that the High Court was not required to defer to the findings of the Tribunal. It concluded that it was “not bound to accept or take into account the arbitral tribunal’s findings on the matter”, irrespective of the arbitrators’ “eminence”, and that the “cogency and quality of their reasoning” should instead inform the lower court’s evaluation of the matter. The Court of Appeal further held that as Singapore was the seat of the arbitration, the Singapore courts were “not only competent to consider these issues, but… obliged to do so“.


The Court of Appeal’s decision may be seen as pro-investor.

Although Singapore is not a party to the relevant BIT, its courts were prepared to reject the views of one of the signatories (expressed in the diplomatic notes) as to its construction in favour of applying public international law norms by way of the MTF Rule and the critical date doctrine. The same observation holds to its broad and inclusive construction of the BIT.

Its ruling on the de novo standard of review is a welcome confirmation of the Singapore courts’ role as the competent court in not only commercial arbitrations, but also investor-state arbitration. It is a welcome sign that the Court adopted its own path to jurisdiction and did not defer to the eminent international arbitration names in the Tribunal (though it did ultimately reach the same conclusion on jurisdiction).

Singapore is undoubtedly keen to welcome more investor-state cases. The Singapore International Arbitration Centre is poised to release its first set of investment arbitration rules in due course. The Court’s appointment of J Christopher Thomas QC of the National University of Singapore and Locknie Hsu of Singapore Management University to make amicus curiae submissions reflects a desire to maintain the highest standards of jurisprudence.

It is reflective of the potential difficulties with investor-state arbitration that this matter – filed in 2012 in one of the world’s most arbitration friendly seats – has only reached the jurisdiction stage.   Those seeking recourse in investor state arbitration need to be prepared for what may be a long game.

English High Court Indicates New LCIA Rules Limit Court’s Power To Grant Interim Relief

Gerald Metals SA V The Trustees of the Timis Trust & others [2016] EWHC 2327


In an important recent decision on the intersection between emergency arbitrator provisions and applications to court for interim relief, the English High Court held that it was only entitled to provide interim relief to a party to an arbitration agreement where either an emergency arbitrator or an expeditiously formed tribunal were unable to provide the requested relief.  The court also held that there was no substantive distinction between the various tests for interim relief in the LCIA Rules and section 44 of the Arbitration Act 1996, suggesting that if the LCIA Court denies an application for interim relief, the court will too.

The facts

The claimant, Gerald Metals, applied to the LCIA Court for both an emergency arbitrator (under LCIA Rule 9B) and expedited formation of the arbitral tribunal (under LCIA Rule 9A), on the basis that it needed an urgent interim freezing order.  The LCIA Court declined both applications and so the claimant applied to the High Court for the same relief under section 44 of the Arbitration Act 1996.

The judgment

Leggatt J declined to grant the application on the basis that the court could only provide such relief where the powers of the emergency arbitrator or tribunal were “inadequate, or where the practical ability is lacking to exercise those powers“.

He also held that the tests under the LCIA Rules for (a) the appointment of an emergency arbitrator (“in case of emergency“) and (b) the expedited formation of an arbitral tribunal (“exceptional urgency“) were effectively the same as the test of “urgency” under section 44 of the Arbitration Act 1996, stating that any other interpretation would be “uncommercial and unreasonable“.  The fact that the LCIA Court had declined the claimant’s applications, therefore, made it unlikely that the court would grant them.


On the one hand this decision can be viewed as an attempt by the court to be arbitration-friendly and not allow parties a ‘second bite at the cherry’ once the LCIA Court has denied an application for interim relief.

On the other hand, the judge’s comments appear to restrict the court’s ability to assist parties to an arbitration by forcing parties to turn first to the LCIA ’emergency provisions’.  This is arguably not what the parties will have had in mind when choosing the LCIA Rules which expressly state in LCIA Rule 9.12 that “[the emergency arbitrator provisions] shall not prejudice any party’s right to apply to a state court or other legal authority for any interim or conservatory measures before the formation of the Arbitration Tribunal; and it shall not be treated as an alternative to or substitute for the exercise of such right” (emphasis added).  The judge dismissed the relevance of this provision, stating that it was only relevant to the right to apply and not to the substance of the powers.  This could be considered an overly restrictive view of this provision and one which may dampen parties’ enthusiasm for the emergency arbitrator provisions (as discussed below).

However, it was common ground between the parties that the application of the LCIA ’emergency’ provisions would not prevent a party applying for interim relief from the court where a matter is “so urgent” that a party cannot wait for an emergency arbitrator, or where an application needed to be made without notice.  While this suggests a continued role for the courts in such a situation, it is not yet clear what situations will be classified as “so urgent” to allow a party to apply straight to court.

Should parties now opt-out of emergency arbitrator provisions under LCIA Rule 9.14?

The short answer is that it will depend on the parties’ decisions regarding the seat of the arbitration and the governing law of the contract, as well as the parties’ home jurisdictions and the subject matter of the dispute – the right to seek interim relief from the court is often viewed as important for IP related disputes, for example.  In circumstances where recourse to the courts is crucial, opting out of the emergency arbitrator provisions may prevent the situation that arose in the present case.

If, however, there is a possibility of a party requiring interim relief in a jurisdiction where the local courts do not have such a concept, such as Indonesia, or from courts where any interim relief will not be granted efficiently, then there may be value in maintaining the option of recourse to an emergency arbitrator.

Next steps

We understand that the judgment is being appealed, although it is not yet known on what grounds.  While the decision in the case was surely correct on the facts (i.e. Gerald Metals should not be granted a freezing injunction), the Court of Appeal will likely wish to examine the reasoning of the judge in relation to LCIA Rule 9.12.

Romania to terminate its intra-EU Bilateral Investment Treaties

On 8 September 2016, the President of Romania agreed to submit to the Romanian Parliament draft legislation approving termination of 22 bilateral investment treaties that Romania concluded with other EU Member States (“intra-EU BITs”).  The draft legislation had been initiated on 10 August 2016 by the Romanian Government in an expedited legislative procedure.

The explanatory note to the draft legislation quotes the European Commission’s view that intra-EU BITs are incompatible with EU law and refers to the infringement proceedings initiated on 18 June 2015 against five EU Member States, including Romania, requesting them to terminate their intra-EU BITs.  The note further explains that since 2011 Romania has approached a number of EU Member States with a view to terminate intra-EU BITs by consent.  However, the responses were not favorable.  Therefore, the Romanian Government considered it appropriate to proceed with terminating all of its intra-EU BITs.

Romania’s initiative comes against the background of an ongoing discussion on the future of BITs in the EU.  To date only three EU Member States (the Czech Republic, Ireland, and Italy) decided to terminate all or selected intra-EU BITs.  However, in 2016 a number of developments took place:

  • In February, Poland announced that it considers terminating its BITs (see our blog entry here).  An inter-departmental team created in May 2016 is charged with reviewing and analyzing Polish BITs (including 23 Polish intra-EU BITs).  It is expected to issue a recommendation to the Council of Ministers.
  • In April, Austria, Finland, France, Germany, and the Netherlands issued a non-paper proposing the conclusion of an EU-wide agreement that would replace pre-existing intra-EU BITs.
  • In May, Denmark was reported to propose to its counterparts terminating existing Danish intra-EU BITs.
  • Also in May, it was announced that the Court of Justice of the European Union was seized with a request for a preliminary ruling from the German Federal Court of Justice to decide whether arbitration under an intra-EU BIT runs counter to EU law.

If and when the law on termination of Romanian intra-EU BITs is adopted and enters into force, it is unlikely that any subsequent termination of BITs will have immediate effect.  Unless Romania’s counterparts consent to terminate the BITs in question, Romania will have to comply with the termination provisions provided therein.  Romania’s BITs such as, for example, those with Germany, the UK, and France would continue to remain in force until the expiration of 12 months from the date of the notice of termination.  Further, most BITs contain so-called “sunset clauses” which guarantee investment protection for several years after the treaty’s termination – 20 years in the case of Romania’s BIT with Germany, the UK, and France.  Although Romania may seek to shorten the length of post-termination investment protection, it cannot do so unilaterally, but would need to obtain the consent of the other contracting party to the BIT.

Investors in Romania should follow the events closely and ensure that their investments continue to be covered by investment protection guarantees, including, where possible, by investment treaties that will not be subject to termination.

One Step Forward, Two Steps Back – PRC Court refuses to enforce an ICC award on the ground of public policy

In Wicor Holding A.G. v. Taizhou Haopu Investments Limited (Civil Action (2015) Tai Zhong Shang Zhong Shen Zi No. 00004), the Taizhou Intermediate People’s Court refused to enforce an ICC award on the ground of public policy.


Taizhou Haopu Investment Limited (“Haopu“) entered into a joint venture agreement (“JVA“) with Wicor Holding A.G. (“Wicor“) in 1997, establishing a joint venture company (“JV“).  The parties agreed in the JVA to have their disputes arbitrated “in accordance with ICC mediation and arbitration rules“.  The JVA also provided that “if one party initiates the arbitration, the other party shall choose the seat of arbitration“.  In July 2011, Haopu commenced legal proceedings before the Taizhou Intermediate People’s Court (“IPC“) against Wicor, alleging that Wicor had breached the JVA by starting a similar business in competition with the JV.  The Taizhou IPC rendered a judgment in 2012 (“2012 Judgment“) declaring the arbitration agreement in the JVA invalid as it failed to specify an arbitral commission in breach of article 16 of the PRC Arbitration Law.  This conclusion was endorsed by the Supreme People’s Court (“SPC“).

Interestingly, the SPC, in confirming the Taizhou IPC’s decision, found that the law governing the JVA did not apply to the validity of the arbitration agreement. Relying on Article 16 of the Interpretation of the Supreme People’s Court concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China, the SPC held that since the parties had neither agreed on the applicable laws governing the arbitration agreement, nor did they decide on a seat (since neither party had even applied for arbitration), the laws at the locality of the court (PRC laws) applied to determine the validity of the arbitration clause.  (The governing law of the JVA was PRC law, so the same result would have been reached if the SPC had decided that the governing law extended to the interpretation of the arbitration agreement.)

With respect to the failure to specify an arbitration agreement, the SPC found the reference to “ICC arbitration rules” to be insufficient to ascertain the relevant arbitral commission.

Wicor had started ICC arbitration against Haopu in November 2011 based on a different dispute arising from the JVA. As Haopu had failed to designate the seat, the ICC arbitral tribunal decided, in January 2012, on Hong Kong as the seat of arbitration.  The award was rendered in 2014 and Wicor sought to enforce it before the Taizhou IPC.  However, the Taizhou IPC refused to enforce the award on the ground of public policy.


Wicor argued that as the dispute arbitrated by the ICC arbitral tribunal was different from the dispute handled in the 2012 Judgment, and because the arbitration involved two private parties with no public interests, the Taizhou IPC should enforce the awards under the Arrangements of the Supreme People’s Court on the Mutual Enforcement of Arbitral Awards between the Mainland and the Special Administrative Region of Hong Kong. The Taizhou IPC rejected those arguments and found that the 2012 Judgment, which had ruled the arbitration clause to be invalid, had already taken legal effect.  Since the ICC award was rendered on the basis that the arbitration agreement was valid, enforcing the award would contradict the social and public interests of China. Haopu had also argued that the behavior of the ICC arbitral tribunal in regarding the arbitration agreement as valid had harmed the judicial sovereignty of China; the Taizhou IPC did not comment on this argument in its decision.


This case demonstrates the need for parties to unambiguously designate a “commission” to administer arbitration (see, e.g., the ICC model clause for China) in contracts having any nexus to China, even where the seat is not located in the PRC. In the present case, the failure to clearly designate a commission pursuant to the requirements of the PRC arbitration law had consequences not only for the case in which the 2012 Judgment was rendered, but also for the subsequent, unrelated arbitral proceedings in question.  The reasoning of the SPC in declaring the arbitration clause invalid appeared to be based on the circumstance that the arbitration commission could not be “ascertained” from the ICC arbitration rules.  The SPC’s decision was made on the basis of the 1998 ICC Rules (although there are also some obscure references to the 1988 rules in the referral from the Taizhou IPC).  It is doubtful whether the SPC could justify the same conclusion under the 2012 ICC Rules, since they provide, in Art 1(2), that the “[ICC] Court is the only body authorized to administer arbitrations under the Rules”.

While the result is not unexpected in light of previous, similar decisions such as the 2004 case of Züblin International vs. Wuxi Woke and the 2008 case of Hemofarm DD v. Jinan Yongning Pharmaceutical Co. Ltd (in which the public policy ground for refusal to enforce an arbitral award was used for the first time by the Chinese courts), it serves to add to the uncertainty surrounding the validity of arbitration clauses in arbitrations with a China nexus.  Consequently, despite positive developments in cases such as the 2013 case of Longlide Packaging v. BP Agnati, in which the SPC upheld the validity of an arbitration agreement providing for ICC-administered arbitration in China, the present case highlights the potential risks that still remain in arbitrations involving China and Chinese parties.

Hong Kong courts are to have due regard to decisions affecting an arbitral award rendered by a court at the seat of arbitration

In Dana Shipping and Trading SA v Sino Channel Asia Ltd (HCCT47/2015), the Honourable Madam Justice Mimmie Chan of the Hong Kong Court of First Instance (“CFI“), in the latest decision in this case, declined enforcement of an arbitral award that had been set aside at its seat in London.


The enforcement proceedings concerned an arbitral award rendered in London-seated arbitral proceedings in favour of the Applicant (“the Award“). On 16 November 2015, the CFI granted an order to enforce the award (“the Enforcement Order“). On 27 November 2015, the Respondent made an application to set aside the Enforcement Order (“the Earlier Application“) on the ground that the Respondent was not given proper notice of the arbitral proceedings. The Applicant applied for security, which was granted by the CFI (“the Security Order“).  After the Respondent failed to provide the requisite security for its application within 21 days, it applied for an extension of time to furnish it.  The CFI stayed enforcement of the Enforcement Order until 26 May 2016, during which time the Respondent was to provide security (“the Stay Order“).

Between the Earlier Application and the hearing for the Applicant’s security application, the Respondent had appealed to the English courts to set aside the Award. Judgment was handed down on 13 May 2016, ruling that the Award was set aside pursuant to s 72(1) of the [English] Arbitration Act 1996 (“the Act“) because it was made without jurisdiction and was of no effect (“the English Judgment“). The Respondent applied to the CFI on 24 May 2016, relying on the English Judgment, to set aside the Enforcement and Stay Orders (“the Respondent’s Application“). The Applicant argued that the Respondent’s application to set aside the Enforcement Order had already been dismissed by the Security Order and that the Respondent’s Application was an abuse of process; it also argued that the Hong Kong court retained a discretion to enforce the award.


(1) No automatic right to refusal of enforcement

The CFI agreed the Respondent had no automatic right by virtue of the English Judgment to resist enforcement of the Award, but acknowledged under s 89 of the Arbitration Ordinance (Cap. 609) that the enforcement court in Hong Kong has residual discretion to permit enforcement of an arbitral award set aside by a competent court at the arbitral seat, subject to recognized legal principles, as confirmed in Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111.

The CFI dismissed the existence of ex nihilo nit fit under English law and followed the approach recently established by the English courts of applying the ordinary principles for recognizing foreign judgments to a foreign judicial decision setting aside an arbitral award. Based on the principles, the CFI decided it should give effect to the English Judgment.

 (2) Can the court entertain a 2nd application to set aside the Enforcement Order?

In determining whether res judicata or issue estoppel applied, the CFI adopted the view per Kwan J in Re Chime Corp Ltd (No 2) [2003] HKLRD 945 of having reference to the ‘nature and substance’ of the ruling and decided that these doctrines would not apply in the current case. In considering that its ruling and imposition of the Security Order was only a preliminary determination of the Earlier Application to set aside the Enforcement Order, the CFI concluded it was “just and reasonable” (Wong Pak Sum v Hong Kong Furniture & Decoration Trade Association Limited [2014] 1 HKLRD 507) to reconsider the enforcement decision, since the English Judgment constituted a ‘material change in circumstances’ to justify a reconsideration.

(3) Should the court enforce the Award?

The CFI ruled that the Respondent had reasonable grounds, based on the English Judgment, for making its application. Notwithstanding its failure to set out the grounds in its present summons, the Respondent’s Application did not constitute an abuse of process (cf KB v S HCCT13/2015). Considering the facts, the CFI found the Respondent’s conduct did not demonstrate bad faith and thus could not justify the court’s exercise of its discretion to enforce the Award. The CFI, however, took into account the Respondent’s failure, in its Earlier Application, to explain the basis of its application to the English court and the grounds relied on by it.  Thus, the CFI declined to award costs in the Respondent’s favor.


The CFI acceded to the Respondent’s Application and declined to enforce the Award. The court also ordered each party to bear its own costs of the entire proceedings.


This case reaffirms the general principle that Hong Kong courts generally afford deference to decisions of the supervisory court at the seat. There must be special circumstances in order for a Hong Kong court to ignore a decision rendered by a supervisory court at an arbitral seat and render a judgment in conflict with such supervisory court’s decision.  This principle has been confirmed in a number of recent Hong Kong cases, including T v C 2016 HKCFI 559; HCCT 23/2015 (14 March 2016), in which the court denied an application to set aside its order granting leave to enforce an arbitral award rendered in Kuala Lumpur.  Please refer to our blog on this decision here.  As stated in that blog posting, there is a difference in approach followed between, on the one hand, French and, to a lesser extent, Dutch courts and, on the other hand, the courts in England and Hong Kong.  Hong Kong enforcement courts, in common with the currently prevailing approach in England, generally give “due weight” to decisions of the supervisory court at the seat of the arbitration, whereas French and Dutch enforcement courts have shown little deference for decisions rendered at the seat.




Hong Kong Court requires substantial security to stay enforcement of an arbitral award

In L v B (HCCT41/2015), the Honourable Madam Justice Mimmie Chan of the Hong Kong Court of First Instance (“CFI“) adjourned enforcement of an arbitral award for four months on the condition that a substantial security of HK$41.6 million including unpaid award and costs to be furnished by the losing party in the arbitral proceedings.


The Applicant commenced arbitral proceedings against the Respondent for breach of a Non-Recourse Loan Agreement (“the Agreement”).  Under the Agreement, the Respondent agreed to advance a loan to the Applicant against the transfer of Applicant’s shares in a Hong Kong-listed company as collateral and security for the loan to be advanced.  The Applicant transferred 800 million shares to the Respondent; however, the Respondent advanced loans in respect of only 200 million shares transferred.

The arbitral tribunal found the Respondent liable for breach of contract and breach of fiduciary duties and awarded approximately US$41.8 million to the Applicant.  On 22 June 2015, the Respondent commenced proceedings in a Bahamian court to challenge the arbitral award.  The application to set aside the award was made under section 90 of the Bahamian Arbitration Act 2009 (“the Act”) on the ground of serious irregularity, and under section 91 of the Act to appeal on a question of law.  Three months later, the Applicant obtained leave from the CFI to enforce the award.  The Respondent applied subsequently for a stay of the proceedings before the CFI pending the determination of the challenge against the award.  The Applicant argued for either immediate dismissal of the application or provision of substantial security by the Respondent.


The CFI reiterated its wide, residual discretionary powers under Rule 10A of Order 73 of the Rules of the High Court (Cap. 4A) in granting orders to enforce an award.  This provides that where a debtor has applied to set aside an order made for leave to enforce, the Court may, either of its own motion or on an application made by the creditor, impose such terms, as to giving security or otherwise, as a condition of the further conduct of the application, as it thinks fit.  The primary aim of the court is to assist with enforcement of arbitral awards, to enforce arbitration agreements made by the parties, and to treat arbitral awards as final.

In determining applications for security under section 89(5) of the Arbitration Ordinance (Cap 609) (“the Ordinance“), the CFI applied the two-factor test set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208, which considered the strength of the argument that the award was invalid, and the ease or difficulty of enforcement of the award.

(1) Strength of argument that the award was invalid

The CFI did not consider the award to be “manifestly invalid”.  On the Respondent’s argument of egregious arbitral irregularities, the CFI found that the arbitral tribunal acted within its authority and power to make “case management decisions” and that the Respondent had been given full opportunity to make submissions.  Moreover, the commencement of challenge proceedings in the supervisory court did not automatically mean that the award had not become binding.  An arbitral award was final and binding except where it was open to appeal on the merits.  In the present case, as the appeal in the Bahamian court concerned only setting aside an arbitral award but not the merits, the award was valid and binding on the parties pursuant to the arbitration agreement, which set out the parties’ intention to treat awards as final and binding.

Moreover, pursuant to section 90 of the Act, an appeal against an award is subject to the contrary agreement of the parties.  The parties, in their arbitration agreement, had agreed that the arbitral award would be final, conclusive and binding.  The Respondent had thus not established to the CFI’s satisfaction that it had the right to appeal.

(2) Ease or difficulty of enforcement of the award

The CFI did not find any difficulties in enforcing the award and confirmed its “unfettered discretion”, derived from Article VI of the New York Convention, in deciding whether to adjourn award enforcement and to order the provision of security.  Factors for consideration in an exercise of that discretion included the merits of the proposed challenge to be made, the delay likely to be occasioned, the conduct and bona fide of the parties, risk of inconsistent judgments and whether such inconsistencies could be remedied, and balancing the respective prejudice to each party.

The CFI rejected the Respondent’s argument of potentially inconsistent judgments between Hong Kong and Bahamian courts.  If the award was ultimately set aside by the Bahamian court, the Bahamian court could order the Applicant to repay any amount recovered under the award, which would be enforced and recognised by the CFI under principles of international comity or as a foreign judgment.


The CFI adjourned enforcement proceedings for four months on the condition that the Respondent provided security of HK$41 million for the outstanding award and HK$600,000 for legal costs within 21 days.  Indemnity costs (costs on a higher basis) were awarded against the Respondent consistent with the practice in Hong Kong for parties unsuccessfully resisting enforcement.


This judgment reinforces the arbitration-friendly and non-interventionist approach of Hong Kong courts, which respects the finality of arbitral awards and will generally require the posting of substantial security for applications to adjourn enforcement proceedings.

It is interesting that the Court ruled that the arbitration agreement which stated that the award would be “final, conclusive and binding”, had not established to the Court’s satisfaction that the Respondent had the right to appeal.  There have been previous English court cases in which the wording that an award was “final, conclusive and binding on the parties” was not construed as an agreement excluding the parties’ rights of appeal under section 69 of the 1996 English Arbitration Act.

In previous cases, the English courts have held that in order to amount to an agreement to exclude appeals as envisaged by section 69(1) of the 1996 Act, sufficiently clear words are necessary, although no express reference to section 69 is required.  In the context of a fairly standard arbitration clause, the use of the words “final, conclusive and binding” in isolation would not convey to a reasonable person that the parties had agreed to exclude all rights of appeal on points of law under section 69.

Although, on their face, the words “final, conclusive and binding” are words of considerable width, the reality is that the expression “final and binding” in the context of arbitration and arbitration agreements has long been used to state the well-recognised rule that an award is final and binding in the traditional sense and creates res judicata and issue estoppel between the parties.

For Hong Kong seated arbitrations, there are no rights of appeal on questions of law, unless the parties specifically opt in to Schedule 2 of the Arbitration Ordinance (the old domestic regime containing appeals on questions of law with leave of the Court).  The Schedule 2 provisions will also automatically apply (unless the parties expressly opt out) to an arbitration agreement entered into before or within 6 years from commencement of the Arbitration Ordinance (1 June 2011), if the arbitration agreement provides that it is a domestic arbitration.

The principle of non-intervention in arbitral proceedings does not displace a court’s inherent jurisdiction to grant injunctions

In Sonera Holding B.V. v. Cukurova Holding A.S. BVIHCMAP2015/0005, the Eastern Caribbean Court of Appeal (“CA“) granted an injunction restraining Cukurova Holding A.S. (“CH“), the respondent, from pursuing arbitral proceedings which could have undermined the enforcement of an earlier arbitral award.  The judgment provides a detailed analysis of the courts’ power to grant anti-arbitration injunctions following the enactment of the BVI Arbitration Act in 2013 (“Arbitration Act“).


In 2005, Sonera Holding B.V. (“Sonera“) entered into a letter agreement (“Letter Agreement“) with CH to buy shares owned by CH.  The Letter Agreement provided that a Share Purchase Agreement (“SPA“) would be entered into later.  Both the Letter Agreement and the SPA provided for ICC arbitration with seat in Geneva.  As the SPA was not signed within the period agreed under the Letter Agreement, Sonera started arbitration proceedings against CH, alleging that CH had breached the Letter Agreement to execute the SPA on time.  In September 2011, the arbitral tribunal (“First Tribunal“) held that CH had agreed on and breached the terms of the SPA and was liable to pay Sonera damages (“First Award“). Sonera sought enforcement of the First Award in various jurisdictions, including BVI.

In October 2011, the Eastern Caribbean Supreme Court (“Supreme Court“) made an ex parte order allowing Sonera to enforce the First Award (“Enforcement Judgment“). CH subsequently applied to set aside the Enforcement Judgment and challenged the First Tribunal’s jurisdiction on the ground that the arbitral proceedings had been brought under the Letter Agreement but that the relief granted was for breach of the SPA.  However, this jurisdictional challenge failed before the First Tribunal, the High Court of the Virgin Islands, the Court of Appeal and the Privy Council.

In April 2012, CH had started arbitration proceedings based on the arbitration clause in the SPA (“SPA Arbitration“) before a second tribunal (“Second Tribunal”) seeking 1) a declaration that CH had never entered into the SPA; and 2) compensation from Sonera in the same amount as the First Award.  Despite Sonera’s objections, the Second Tribunal rendered a partial award allowing the SPA Arbitration to continue.  While the Second Tribunal held that it was estopped from ruling on whether the parties had agreed on the terms of SPA and CH had breached its duties under the Letter Agreement, it could decide on whether CH had duty to transfer the shares or to pay damages for failure to do so.

Following the partial award, CH filed its statement of claim which made clear that CH was seeking not merely compensation equal to the amount awarded in the First Award, but also an order to restrain Sonera from enforcing the Enforcement Judgment, and to “unwind” the costs order granted under the Enforcement Judgment.

In 2014, Sonera applied to the Supreme Court for an anti-arbitration injunction to prevent CH from continuing the SPA Arbitration. Sonera’s application was dismissed as the Supreme Court held that section 3(2)(b) of the Arbitration Act, which states that the courts should not interfere in arbitral disputes, prevailed over section 24(1) of the West Indies Associated States Supreme Court (Virgin Islands) Act (“Supreme Court Act“), which empowers courts to grant injunctive relief.

Thereafter, Sonera appealed to the CA and the issues were 1) whether the Arbitration Act had taken away the court’s general power to grant injunctions; and 2) even if it had, whether the court still had discretionary power to grant the anti-arbitration injunction.


The CA allowed the appeal and granted the anti-arbitration injunction in Sonera’s favour. While section 3(2)(b) of the Arbitration Act stated that “the Court shall not interfere in the arbitration of a dispute…“, the CA found that this provision did not abdicate the court’s jurisdiction to grant anti-arbitration injunctions.

The CA stated that the equitable jurisdiction of the court to grant injunctions was well established. Section 3(2)(b) of the Arbitration Act did not remove the court’s jurisdiction to grant injunctive relief pursuant to section 24 of the Supreme Court Act, which empowers the court to grant interim injunctive relief when it is “just or convenient“.  According to the CA, “[h]ad it been intended that section 3(2)(b) would oust the court’s jurisdiction to grant injunctions in relation to arbitral proceedings provided under section 24 of the Supreme Court Act, this would have been clearly stated in section 3(2)(b) itself“.  As section 3(2)(b) of the Arbitration Act did not contain such wording, the Arbitration Act did not abrogate the court’s general power to grant anti-arbitration injunctions.

In considering whether to exercise its discretion to grant an anti-arbitration injunction, the CA noted that while CH seeking an award “in an amount equal to the Final Award” was not necessarily “subversive of the court’s Enforcement Judgment”, it was a different matter if CH sought relief “directly aimed at unwinding the Court’s Enforcement Judgment and its orders made by way of enforcement thereof”. The CA found that the relief sought by CH did not follow the request for SPA Arbitration commenced in 2012 and these remedies were not only intended to “wash through” the First Award, but also to nullify the Enforcement Judgment and invalidate the costs order under the Enforcement Judgment, “which is in every respect final”. Such relief, if granted under the SPA Arbitration, would be “plainly subversive” of the court’s final judgment, which constituted an interference with the court’s process, and an attack on the court’s enforcement jurisdiction under the New York Convention.  Further, the CA considered that the existence of two diametrically opposed arbitral awards concerning the same parties on the same issues ran counter to the promotion of finality of international commercial disputes.  Therefore, the SPA Arbitration should not be permitted.


The CA has reiterated that an enforcing court should ensure that the regime under the New York Convention for enforcing arbitral awards is protected. Consequently, arbitral proceedings in which the relief sought involves seeking to restrain a party from enforcing a valid arbitral award should not be permitted.  In addition, the CA found that the “non-intervention” principle in the Arbitration Act does not affect the Court’s long established jurisdiction to grant injunctive relief.

Singapore High Court sets aside arbitral award for breach of natural justice

In a recent decision in JVL Agro Industries v Agritrade International Pte Ltd [2016] SGHC 126, the Singapore High Court has set aside an arbitral award for the Tribunal’s failure to grant the plaintiff a fair hearing. The defendant is now appealing against the High Court’s decision.


The parties entered into 29 contracts for sale of palm oil in 2008. When the market price collapsed they negotiated a price-averaging arrangement to permit deferment of delivery and average down the overall unit price. In 2010 the market price rose again but the parties could not agree on prices so as to allow the averaging arrangement to continue for the 5 remaining contracts. The plaintiff then commenced arbitration for breach of delivery obligations under those 5 contracts.

Tribunal’s award

The majority of the Tribunal rejected the claims. In short, they found that the price averaging arrangement – which had not been followed for the 5 contracts in dispute – was a collateral contract. The parol evidence rule did not prevent them from reaching this conclusion because of the recognised exception to the rule for collateral contracts.

The collateral contract argument had been initiated by the Tribunal and only raised briefly, 10 minutes before the end of oral closing. The Tribunal had not directed submissions on it. Nor had it been pleaded or otherwise adopted by the defendant.

The plaintiff applied to the Singapore High Court under section 24 of the International Arbitration Act (Cap 143A) to set aside the award on the grounds that it was unable to present its case on the collateral contract point in breach of natural justice which prejudiced the plaintiff’s rights.

(Two other grounds for challenging the award – that it contained decisions on matters beyond the scope of the submission to arbitration and apparent bias – were ultimately rejected).

Court’s decision

Initially the Court suspended the setting-aside proceedings for 6 months under article 34(4) of the Model Law to allow the Tribunal an opportunity to consider whether it should receive further evidence or submissions on the collateral contract point.

However, in an addendum the Tribunal concluded that it “does not consider it necessary or desirable to receive further evidence or submissions on the three issues.”

The setting-aside proceedings resumed thereafter and the Court set aside the award on the grounds of breach of natural justice:

  1. The majority of the Tribunal exercised “unreasonable initiative” to unilaterally decide that the price-averaging arrangement was a collateral contract;
  2. The decision on that point was determinative; and
  3. The dissenting conclusion that the price-averaging arrangement was not a collateral contract “suggests very strongly” that the plaintiff suffered prejudice.

While the point had been raised by the Tribunal it was clear from the transcript that this was done in a way which was “couched in the language of hypothesis for comment rather than that of thesis for proof or disproof“. The Tribunal never directed the parties to address it, even though it had directed the parties to address it on other points. Arbitrators have inquisitorial powers but the arbitration process is fundamentally adversarial and it was significant that the point was never adopted as part of the defendant’s case formally or informally; indeed the defendant implicitly rejected it. Accordingly the plaintiff could not be faulted for not dealing with it in submissions.

Our comments

International arbitration, by its nature, involves civil and common law customs and traditions, combining civil law’s inquisitorial and common law’s adversarial models.

This case is a good reminder to arbitrators that tribunals should exercise its inquisitorial powers carefully, ensuring both parties can fairly present their cases and respond to the cases against them. Arbitrators should perhaps be less reticent about sharing their thinking on arguments they consider may be important where it is not absolutely clear that the parties have addressed them.  In practice the Tribunal’s thinking sometimes evolves relatively late in the hearing or during deliberations afterwards and the risk is that by that point arbitrators might be reluctant to go back to the parties to direct more submissions on reasoning it considers important. This is particularly so in cases like this one with a long procedural history (the arbitration was started in 2011).

Similarly, arbitration counsel must remain alert at hearings to any indications from the Tribunal as to its line of thinking and ensure that there is clarity about whether particular arguments are being pursued.

This decision is unlikely to open the floodgates. The Court noted the ‘fine lines’ involved and that warned that courts must “guard against unmeritorious attempts by disappointed parties to set aside unimpeachable awards“. Arbitrators are afforded some degree of robustness and can safely rely on a chain of reasoning even if it is not formally pleaded and is raised only by implication or flowing from the arguments advanced. In its 94 page decision the Court was also at pains to examine the procedural history in forensic detail, noting the defendant had five separate opportunities to adopt the collateral contract point but these were implicitly rejected. It also emphasised that the point at issue proved central to the reasoning.

These strong facts – coupled with the unusual procedural history in that the matter had already been remitted to the Tribunal – suggest that successful challenges on natural justice grounds will remain rare.