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International Arbitration News, Trends and Cases

OHADA Arbitration: Reforms adopted to keep the system modern

An updated framework for arbitration

The twin pillars of OHADA – the Uniform Act on the Law of Arbitration and the Rules of Arbitration of the CCJA – have now been updated.

On 15 March 2018, three new texts adopted by the OHADA Council of Ministers will enter into force. A revised Uniform Act on Arbitration Law, the revised Rules of Arbitration of the Common Court of Justice and Arbitration (“CCJA”) and a new Uniform Act on Mediation. The revised texts were adopted by the Council in November 2017 and subsequently published in the OHADA Official Journal in December.

The present reforms deliver on a process of modernisation that was first discussed in 2009, and then gained concrete shape in July 2015 when the OHADA Permanent Secretariat announced its intention to revise the arbitration texts. The original texts date back to 1999 and as relatively recent entrants into arbitration practice, already constituted modern, workable legal frameworks. Given this strong foundation it is clear that the current revisions seek to clarify and build upon the existing texts, rather than radically rewriting the system.

Why revise?

Since 1999, OHADA has demonstrated its ambition to become a reliable actor in the field of alternative dispute settlement in Africa, facilitating and promoting the use of arbitration in its 17 Member States. It sought to provide parties the choice between ad hoc arbitration under the Uniform Act, and institutional arbitration according to the Rules of the CCJA, and provided a framework of modern rules (largely based on UNCITRAL Model Law) governing pre-arbitral, arbitral and enforcement stages.

However, despite instituting a strong legal framework, as an arbitral institution OHADA and the CCJA did not necessarily emerge as pre-eminent, particularly in light of the recent proliferation of arbitral institutions being developed across Africa. In terms of the law itself,  the main concern in OHADA arbitration has not been the substance of its acts, but the application of the relevant texts by local courts. Criticisms are often aimed at the areas which the acts did not cover, and which therefore left variation of practice within the member states.

The present revisions take into account such reflections and provide detailed provisions aiming to enhance the operational efficiencies of the system and increase predictability for parties. In particular, detailed provisions illuminate the role of the national courts in facilitating arbitral proceedings, and clarify issues relating to the constitution of the tribunal and conduct of proceedings. There may be an element of compromise visible in these revisions, however, in terms of areas left unaddressed: for example, no procedure for expedited disputes has yet been introduced. Such procedures have grown in popularity in recent years as institutions attempt to address the criticisms of the cost and delays behind arbitration and may have been a welcome further step in increasing transparency and predictability for all involved.

Scope of the revisions

Key points relevant to practitioners in the area, and entities seeking to utilise the OHADA arbitration frameworks, are as follows:

  • The introduction of a definition of the arbitration agreement (Article 3-1, Uniform Act)
  • Clarification in the constitution of the arbitral tribunal, the nomination of arbitrators and the powers granted to the arbitral tribunal. In particular, the ability of the tribunal to issue interim or conservatory measures (not present in the 1999 Uniform Act) is now expressly provided for under Article 14. Meanwhile, the CCJA Rules also provide welcome clarification in addressing the question of the constitution of the tribunal in multiparty arbitration (Article 3.1).
  • Increased transparency and the provision of deadlines for national courts to adhere to in exercising functions in support of arbitral proceedings. For example, the 1999 Uniform Act had stipulated simply that annulment proceedings were to be dealt with by national courts, with those courts’ decisions appealable before the CCJA (Article 25). The updated text addresses the issue of a slow or underperforming domestic court: specifying that the national court’s decision on annulment must be rendered within three months, failing which the annulment application can be made directly to the CCJA (which also retains its appellate function) (Article 27).
  • Arbitrator’s fees: avoiding another Getma and emphasizing the CCJA’s authority.[1] In light of the intense debate that followed the CCJA’s setting aside of a €34 million award in 2016, on the basis that the international arbitrators had been paid higher fees than those set out in the CCJA Rules, a provision has been introduced into the CCJA Rules, explicitly recognizing that the fixing of fees without the court’s approval would be null and void – without this being a ground for annulment of the award (Article 24.4).

Conclusion

While the operation of these provisions in practice remains to be tested, the reforms are a timely and welcome development in the context of the development of arbitration in Africa, a field which continues to attract growing interest. In this light, the enhancement of operational efficiencies within OHADA arbitration as provided for in the revisions are likely to enhance further the credibility of the supranational framework and attract yet more attention from the legal and business community towards arbitration in Africa.

This modernization follows on from other recent initiatives by OHADA in the arbitration sphere, including its 2017 joint-publication with the CCJA of the first comprehensive guide to the CCJA’s arbitration system, and the anticipated April 2018 opening of OHADAC’s new Centre for Arbitration and Mediation. Collectively, these initiatives demonstrate OHADA’s work – both as it strives to stay at the forefront of arbitration developments in Francophone Africa, and as it provides a welcome precedent for the establishment of localized arbitral institutions further afield.

[1] Getma International v Republic of Guinea, ICSID Case No. ARB/11/29

A Cautionary Tale for Commencing Multi-Contract Arbitrations

It’s unusual for English courts to set aside an arbitral award, but the Commercial Court did just that in the recent case of A v B [2017] EWHC 3417 (Comm). It warned parties entering arbitration not to assume a single arbitration will cover disputes between the same parties under multiple contracts.

Two issues came up:

  1. whether a single request for LCIA arbitration would include disputes under separate contracts; and
  2. what timings the respondent would have to abide by to challenge an arbitration request.

 

The dispute

A buyer and seller agreed two identical contracts for deliveries of crude oil. English law governed the contracts, and each included an LCIA arbitration clause.

When the buyer didn’t pay the price under the contracts, the seller took the dispute to the LCIA. The seller filed one request for arbitration — claiming the price of both contracts — and paid one registration fee.

In response, the buyer denied liability and reserved the right to challenge the jurisdiction of the tribunal. Seven months later, shortly before submitting their statement of defence, the buyer challenged the validity of seller’s request for arbitration. They argued that the seller should have filed two requests: one for each contract.

The tribunal dismissed the jurisdictional challenge for being brought too late.

 

One request or two?

In a turn of events, the buyer then filed proceedings against the seller. Under Section 67 of the Arbitration Act 1996, the buyer maintained that the tribunal lacked jurisdiction. This claim centred on Article 1 of the LCIA Rules, which makes clear that a request for arbitration must identify both “the dispute” and the “arbitration agreement” it relates to.

In response, the seller argued that the single request for arbitration had validly started two separate arbitrations — one under each contract. The seller pointed to section 61 of the Law of Property Act 1925 which provides that in all contracts the singular includes the plural, and vice versa, unless the context otherwise requires.

Mr Justice Philips dismissed this argument. He pointed out that the arbitral tribunal, once formed, has the power to consolidate multiple arbitrations into a single arbitration, but only where the parties agree to it (Article 22.1 of the LCIA Rules).

The seller had referred to two disputes governed by separate arbitration clauses — but in one arbitration request. This made it impossible to work out which dispute and arbitration clause were the subject of the arbitration.

The judge found the seller hadn’t shown they intended to start more than one arbitration. Instead, they had tried to refer separate disputes to a single arbitration.

 

What about the timing of the jurisdictional challenge?

The tribunal ruled that, other than in exceptional circumstances, objections known at the time the arbitration is requested must be raised by the deadline for the defendant to serve their response.

Mr Justice Philips went against the tribunal. He decided an objection may be raised at any time until the statement of defence is submitted. Objecting before the time for service of the statement of defence meant the claimant didn’t lose the right to challenge the tribunal’s jurisdiction. This was to avoid the risk of a party losing the most fundamental of objections without having even appointed an arbitrator (Article 23.3 of the LCIA Rules).

 

Lessons learned

If a dispute involves multiple contracts, claimants will need to carefully consider whether the disputes may be referred to a single arbitration. This case shows that the wording of Article 1 of the LCIA Rules as it currently stands requires the claimant to submit separate requests for arbitration in respect of each contract, unless agreed otherwise.

To be on the safe side, claimants should consider starting multiple arbitrations and then apply to consolidate them, which the LCIA Rules allow where the contracts are between the same parties under comparable arbitration agreements.

Newly published Judicial Interpretations on arbitration in China

On 29 December 2017, the Supreme People’s Court of China (SPC) published two judicial interpretations (Interpretations) which came into force on 1 January 2018. Both Interpretations sought to clarify and provide consistency to the judicial review process between domestic, foreign-related and foreign arbitrations in China. These Interpretations have the effect of guiding and regulating the lower Chinese courts’ judicial review process and are considered to be part of the SPC’s efforts to be seen as pro-arbitration.

The most important aspect of these Interpretations is the removal of the distinction between the different types of arbitrations in the judicial review process. Previously, only foreign-related or foreign awards were subject to this review system ie where the Intermediate People’s Court refuses to enforce or annul an award then it must obtain approval from the High People’s Court (who have jurisdiction to hear cases submitted by the Intermediate People’s Court). If the High People’s Court concurs with the determination of the Intermediate People’s Court, the award must be further reported to the SPC. With the Interpretations coming into force, regardless of the arbitration type, be it domestic, foreign-related or foreign arbitration, no annulment or refusal to enforce an arbitral award can take effect in China without the decision having been judicially reviewed by a higher court.

Perhaps recognising the potential backlog of cases and the burden that  this newly established process will create, the Interpretations provide that in relation to domestic arbitrations, a review up to the level of the High People’s Courts (as opposed to the SPC) is sufficient except in two circumstances:

  1. if the parties in dispute are from different provinces of China;
  2. if grounds for the annulment or refusal of enforcement is due to the award being contrary to public policy.

Where arbitrations fall into one of the two exceptions above, then the SPC continues to be competent to finally determine the matter.

Despite the best intentions of the SPC to bring consistency to the judicial review of arbitral awards in China, the delay with the previous review system has already been subject to well-publicised criticism. It remains to be seen how much impact the Interpretations and the additional caseload will have on the efficiency of the judicial review process.

The other significant clarification provided by the Interpretations is the level of ‘party’ involvement in the judicial review process. Previously, the review process was criticised as lacking transparency and at risk that the lower courts will shift the burden of review responsibility to the higher courts. The Interpretations now expressly provide that if the higher courts, in the process of review, are unclear as to certain facts related to the case then they have the ability to clarify such matters with the parties or refer the case back to the lower courts to clarify the facts before it is once again reviewed by the higher courts.

The Interpretations also set out what supporting documentation should accompany an application for judicial review. What is interesting is that the Interpretations appear to indicate that the arbitral award to accompany any application for annulment, recognition and enforcement of the same need not be ‘legalised’ (i.e. need not comply with a specific document authentication process). What is required is merely the submission of the original award, or a certified copy, along with the application. The award is to be accompanied by a Chinese translation where it is written in a foreign language. The Interpretations, therefore, seem to replace the current practice where arbitral awards, in addition to requiring to be notarised and certified by the foreign ministry of the originating country, also needed to be ‘legalised’ by the relevant Chinese embassy as the receiving country before any official use in China [1].

Finally, the Interpretations give guidance as to the applicable law of the arbitral agreement. This was an area fraught with difficulties under the previous system, due to different courts adopting different positions when it came to interpreting the applicable law. The Interpretations now clarify that the law governing the underlying contract will not necessarily be the applicable law. Parties must expressly state the applicable law that governs a foreign-related arbitration agreement. Where the parties are silent on the applicable law, then the law of the seat of arbitration must be adopted. If there are different interpretations as to the law at the place where the arbitration institution is located and the law at the seat of arbitration then the courts shall apply the law that is most likely to result in a valid arbitration agreement.

Any decisions of the courts in the judicial review process shall take force immediately and those decisions are not subject to review, appeal or application for a retrial unless provided otherwise by the law and judicial interpretations.

It remains to be seen whether the Interpretations will achieve the goal of promoting the healthy growth of arbitration and of alternative dispute resolution in China. However, the Interpretations have been received with cautious optimism generally and are welcomed as a positive step forward.

 

 

[1] China is not a signatory to The Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents so any foreign documents meant for official use in China need to go through a legalisation (authentication) process.

The Morocco-Nigeria BIT: a new breed of investment treaty?

This blog post was first published on the Practical Law arbitration blog.

On 30 August 2017, the Moroccan Parliament ratified the Morocco-Nigeria bilateral investment treaty (“BIT“), which now awaits ratification by Nigeria. This treaty, part of a suite of agreements signed between Morocco and Nigeria at a ceremony in Casablanca in December 2016, is intended to herald a “strategic partnership” at a time when the two countries are embarking on an ambitious joint venture to construct a 4,000 km regional gas pipeline that will connect west African countries’ gas resources to Morocco and ultimately Europe.

The new BIT is particularly noteworthy as it is an example of the radical trend towards treaties that strike more of a “balance” between the interests of the contracting states and their investors in light of recent criticism of investment arbitration. Consistent with regional initiatives on investment treaty reform and in the aim of promoting sustainable development, the BIT includes several notable features safeguarding states’ discretion in enacting regulation and imposing obligations on investors. It also sets out an innovative pre-arbitration procedure for preventing and resolving disputes.

Commitment to sustainable development

In a nutshell, the overarching theme of the BIT is “sustainable development”, a phrase which features three times in the preamble and several more times throughout the operative provisions. For instance, Article 24 (Corporate Social Responsibility) stipulates that:

… investors and their investments should strive to make the maximum feasible contributions to the sustainable development of the Host State and local community”.

Moreover, the definition of investment includes a condition that the investment contributes to the host state’s sustainable development. This means that states could potentially raise objections regarding sustainability in any dispute, even at the jurisdictional stage.

Reaffirming states’ right to regulate

In line with the focus on sustainability, the BIT guarantees the host state:

… the right to take regulatory or other measures to ensure that development in its territory is consistent with the goals and principles of sustainable development and with other legitimate social and economic policy objectives”.

This reaffirmation of the “right to regulate” – also mentioned in the preamble to the treaty – addresses a growing concern that investment arbitration could have a chilling effect on states’ powers to regulate in the public interest. It is also in line with recommendations by the UN Conference on Trade and Development (UNCTAD), which has called for carve-outs in investment treaties for the protection of health or the environment in its Road Map for International Investment Agreement Reform.

Similarly, the BIT further provides that each state has the right to take:

… in a non-discriminatory manner, any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment… is undertaken in a manner sensitive to environmental and social concerns”.

This appears to confer a broad margin of discretion on each state to introduce new regulatory measures which it “considers appropriate”.

Investor obligations

Consistent with its stated aim to seek “an overall balance of the rights and obligations among the State Parties, the investors, and the investments”, the BIT departs from more traditional investment treaties in imposing a broad range of obligations on investors as well as on states.

Among these obligations, the treaty requires investors to:

  • Conduct social impact assessments for potential investments (Article 14(2)).
  • Apply the precautionary principle in assessing the environmental impact of their investments (Article 14(3)).
  • Take measures to combat corruption (Article 17).
  • Uphold human rights, act in accordance with core labour standards and comply with environmental management standards (Article 18).
  • Meet or exceed nationally and internationally accepted standards of corporate governance (Article 19).
  • Comply with all applicable laws and operate through “high levels of socially responsible practices” (Article 24).

While the BIT confirms that breach of anti-corruption laws may expose foreign investors to prosecution in the host state, investors may also be subject to civil actions in their home state where acts or decisions made in relation to the investment lead to significant damage, personal injuries or loss of life in the host state.

Creation of a Joint Committee and “disputes prevention” provisions

The treaty is also innovative in its dispute resolution provisions. Specifically, it establishes a “disputes prevention” mechanism, overseen by a Joint Committee composed of representatives from the two states, whose primary role is to supervise the implementation and enforcement of the treaty. While the notion of a Joint Committee is not unique – the Comprehensive Economic and Trade Agreement (“CETA“) signed between EU and Canada last year establishes a similar committee – its role in “disputes prevention” is novel.

Under Article 26(1):

… before initiating an eventual arbitration procedure, any dispute between the Parties shall be assessed through consultations and negotiations by the Joint Committee”.

Despite the reference to “any dispute between the Parties” (that is, between Morocco and Nigeria), these provisions appear to be aimed at investor-state disputes. A state may trigger the procedure by submitting a “specific question of interest” from an investor, after which the Joint Committee will meet (with the participation “whenever possible” of investor representatives) and attempt to resolve the dispute. If no settlement can be reached within six months:

… the investor may, after the exhaustion of local remedies or the domestic courts of the host State, resort to international arbitration mechanisms”.

Analysis

The Morocco-Nigeria BIT bears the hallmarks of two trends in investment treaties:

  • The perceived and much-commented “backlash” against investment arbitration as it has developed.
  • A growth in the number of intra-African agreements, aimed at boosting trade and investment within the continent.

Morocco is a prime example, in recent years concluding new BITs with Mali, Guinea-Bissau, Rwanda and Ethiopia. Certain features of the BIT merit closer examination.

Notably, several of the obligations imposed on investors can also be found in the 2008 Supplementary Act of the Economic Community of West African States (“ECOWAS“), which aims to harmonise investment protections within the 15-member regional bloc. Nigeria is a founding member of ECOWAS, whereas Morocco applied to join earlier this year. The inclusion of these obligations in the Nigeria-Morocco BIT suggests regional efforts at reform are now being followed by national governments. However, while the BIT specifies that breach of investor obligations may lead to liability before domestic courts, it does not expressly address whether such claims may also be raised by a respondent state in arbitration. International tribunals do appear increasingly to admit counterclaims by states, so this may nevertheless remain a possibility.

Furthermore, the Joint Committee and associated “dispute prevention” mechanism are relatively novel elements of the BIT and it will be interesting to see in practice how these are applied. Negotiations through the Joint Committee can only be triggered by one of the state parties. It seems that the onus in discussions is on the state, which “may” make submissions on behalf of an investor. In all cases, if negotiations fail to resolve the dispute within six months, there will be some time before any final arbitration, since the treaty first requires the exhaustion of local remedies.

Overall, the treaty’s emphasis on sustainable development, the sovereignty of the host state to regulate and reciprocal obligations for investors suggest that campaigns by UNCTAD, ECOWAS and other bodies to shape the next generation of BITs are bearing fruit. Such developments are likely to be well received by states, particularly in the developing world. Conversely, the proposed disputes prevention procedure remains novel, and in practice means that, although investors are granted the possibility to commence arbitration, there are various steps to complete beforehand. The BIT’s amendment provisions and the requirement for a periodic review every five years to assess its “operation and effectiveness” provide important opportunities to clarify these issues.

It remains to be seen whether the Morocco-Nigeria BIT will become a new model for investment treaties, particularly in the context of intra-African investment. For the moment, it appears to be an example of an ambitious effort to modernise the balance between investors and states in contemporary BITs.

Applying for summary procedures in international arbitration: striking the balance

This blog post was first published on the Practical Law arbitration blog.

The scope of arbitrators’ powers to order summary procedures is open to debate. Any application for summary measures requires careful consideration of the possible benefits to be gained from a successful application on the one hand, and the uncertainty associated with doing so on the other.

Do arbitrators have the power to grant summary procedures?

Whether or not arbitrators have the power to grant summary procedures in a particular case will depend, at least in the first instance, on what the parties have agreed. In some (unusual) cases, parties may have included specific provisions in the arbitration agreement itself. Notably, the arbitration clause in Travis Coal Restructured Holdings LLC v Essar Global Fund Limited (which was found to authorise summary procedures) provided:

The arbitrators shall have the discretion to hear and determine at any stage of the arbitration any issue asserted by any party to be dispositive of any claim or counterclaim, in whole or part…

This sort of express language is, however, the exception rather than the rule. Absent this degree of specificity in the arbitration clause, the question shifts to the arbitral rules the parties have selected. A few sets of rules deal with this issue explicitly, notably the Stockholm Chamber of Commerce (“SCC“) Rules (Article 39(1)), the International Centre for Settlement of Investment Disputes (“ICSID“) Arbitration Rules (Rule 41(5)), and the Singapore International Arbitration Centre (“SIAC“) Rules (Rule 29.1). There are some differences in wording and approach: the SCC Rules give tribunals the specific power to decide issues summarily and without taking every procedural step that would otherwise have been undertaken; whereas the ICSID and SIAC Rules allow a party to apply for the early dismissal of a claim (or, under the SIAC Rules, a defence) on the basis that it is manifestly without legal merit, or alternatively (under the SIAC Rules) that it is manifestly outside the jurisdiction of the tribunal.

Other rules, while not addressing summary procedures explicitly, extend broad case management powers to arbitrators, which may be sufficient authority for a tribunal to order summary procedures. These include the International Chamber of Commerce (“ICC“) Rules (Article 22.2), the London Court of International Arbitration (“LCIA“) Rules (Article 14), the UNCITRAL Arbitration Rules (Article 17), and the International Centre for Dispute Resolution (“ICDR“) Rules (Article 20.3). However, in the absence of express provisions there is room for significant debate as to what procedures a tribunal can, and should, order. Arbitrators may associate summary procedures with litigation and instinctively feel uncomfortable with ordering any procedure in the arbitral context if it may create scope for the losing party to argue that it did not have a reasonable opportunity to put its case, or otherwise to challenge the award.

Will awards granted following a summary procedure be upheld by the courts?

There is little English case law on this point, and Travis Coal is the high water mark to date. The case concerned an ICC arbitration in New York. Summary judgment was granted and the unsuccessful party applied to a New York court to vacate the award, alleging failure of due process. At the same time, the successful party sought to enforce the award in England. Blair J in the English Commercial Court observed that summary judgment does not “necessarily amount to a denial of due process” (paragraph 44), that the arbitration was conducted “in an expeditious and cost-effective manner,” that “each party [had] a fair opportunity to present its case,” and that “the procedure fell within [the arbitration clause]” (paragraph 50). He therefore concluded that, on the facts of this case, the tribunal had not exceeded its powers. However, he did not enter into the broader debate on the availability of summary procedures in international arbitration.

In the case of Global International Reinsurance Co. Ltd v TIG Insurance Company 640 F.Supp.2d 519 (2009), a New York court was asked to vacate an arbitration award following a grant of partial summary judgment. The parties’ arbitration agreement provided that “[t]he arbitrator shall be relieved of all judicial formality and shall not be bound by the strict rules of law.” Following a dispositive motion, the arbitrator received written submissions and heard two days of oral argument from the parties. The arbitrator granted summary judgment without discovery or an evidentiary hearing, and the losing party objected. The New York court refused to vacate the award, ruling that the arbitration agreement had been explicit in relieving the arbitrator from the strict rules of law, and that the arbitrator had acted within his powers: “the losing party got all that it bargained for when it elected arbitration” (paragraph 1).

Striking the balance

Even if an application for summary procedures has a real prospect of success, due to the inherent uncertainty in this area, the time, cost and risk that it can add to proceedings may outweigh its intended benefits. A party considering making such an application should therefore consider the following points:

  • Arbitration agreement: Is there any relevant language in the parties’ arbitration agreement? Which rules apply and what do they provide? The more explicitly that summary procedures are authorised, the safer the application.
  • Nature of the application: What is the tribunal being asked to determine on a summary basis? Is it a limited issue or substantially the whole dispute? How straightforward is the underlying subject of the application? Some matters might be easier for a tribunal to determine summarily than others.
  • Procedure: What is the proposed procedure for dealing with the issue and is it appropriate in the circumstances of the case? There is a spectrum of potential procedures that can be ordered. In Travis Coal, the procedure that was adopted was described by Blair J as a “hybrid procedure” – it included an oral hearing and limited cross-examination of witnesses.

Arbitrator bias: should we judge a book by its cover?

This blog post was first published on the Practical Law arbitration blog.

Tribunals have a fundamental duty to act fairly and impartially under section 33(1)(a) of the English Arbitration Act (“AA 1996“). Where a party feels an arbitrator is failing in their duty, pursuant to section 24(1)(a) of the AA 1996:

A party to arbitral proceedings may… apply to the court to remove an arbitrator on any of the following grounds – that circumstances exist that give rise to justifiable doubts as to his impartiality…

English law stipulates a clear, consistent and rigorous approach to determining whether there are justifiable doubts as to an arbitrator’s impartiality, namely the common law test of apparent bias (Locabail v Bayfield). This test examines whether the fair-minded and informed observer, looking at all the facts, would consider there to be bias (Porter v Magill).

Despite this, parties may still come away from arbitral proceedings with concerns that an arbitrator is not impartial, even if such concerns are not sufficient for the court to remove the arbitrator. This problem has led to a renewed debate regarding whether we should consider alterations to the system of unilateral appointments as a solution.

Jan Paulsson and Sundaresh Menon SC, among others, have questioned the status quo. They do not suggest the abolition of party nomination but that improvements are needed, such as creating a disciplinary body for arbitrators or improving the rules on pre-appointment interviews.

Two recent English court cases have illustrated that actions creating an impression of bias may not be sufficient to meet the English law test for apparent bias.

What the English courts say

In H v L and others, H and R had been co-defendants in American proceedings. H settled the claim and sought to claim on its insurance policy with L. L argued the settlement was unreasonable and it (reasonably) had not consented to it. As the co-arbitrators could not agree on a third arbitrator, the selection was referred to the High Court under the arbitration agreement. Following a contested hearing, Flaux J selected M.

M disclosed his role in previous arbitrations involving L. H raised no objection to M’s impartiality at that stage. However, following M’s appointment, H learnt of several facts which led to it making an application to court to have M removed as an arbitrator. H argued M’s conduct gave rise to the appearance of bias due to:

  • M’s acceptance of appointments in arbitrations relating to claims brought against R arising from the same underlying American proceedings.
  • M’s failure to disclose those appointments to H.
  • M’s response to the challenge to his impartiality.

M acknowledged that “it would have been prudent for [him] to have informed [H]…”as it was important both parties “should share confidence that the dispute would be fairly determined on the evidence and the law without bias”.

Popplewell J dismissed H’s claims, finding that the fair-minded and informed observer would not have found any grounds to remove M. However, M’s acknowledgment suggests his actions gave H reasonable concerns as to his impartiality even if they were not sufficient to meet the English law test for apparent bias.

In Symbion Power LLC v Venco Imtiaz Construction Co, the court considered a challenge under section 68 of the AA 1996. However, serious concerns were also raised by the judge (apparently on her own initiative) regarding the conduct of Symbion’s party-nominated arbitrator.

Symbion’s arbitrator had sent an email to Symbion’s counsel headed “HIGHLY CONFIDENTIAL: NOT TO BE USED IN THE ARBITRATION”. It was not copied to the other party or arbitrators. The email expressed negative views about the tribunal chairman.

Jefford J stated that such unilateral contact had been wholly inappropriate because:

the ability of each party to appoint an arbitrator is intended to… give the parties confidence in the balance and fairness of the tribunal. The party-appointed arbitrators patently do not represent the party that appointed them and they are under a duty, as individual arbitrators and as a tribunal, to act fairly and impartially.

Although such a unilateral communication “may give rise to concerns that the arbitrator is not acting fairly or impartially”, it did not lead (perhaps surprisingly) to there being justifiable doubts as to the arbitrator’s impartiality, as, consistent with the English law test, this would turn on the facts of the case as a whole.

Fear of the unknown

Although the English law test was correctly applied, one can see how the parties in the above cases could nonetheless have come away with reasonable concerns as to the arbitrators’ impartiality. Such concerns may create doubt for parties as to the fairness of arbitration proceedings. It does not necessarily matter whether a party has evidence to support its doubt; the impression that some of the tribunal may be influenced against them is enough to give rise to such doubts.

These doubts often arise in part from the misconception that a party-nominated arbitrator is there to represent the relevant party. While this is clearly incorrect, it highlights the question of whether arbitration needs to take steps to address the risk that issues of apparent bias may give rise to doubts about the integrity of the arbitral process.

What can be done?

Some of Paulsson and Menon’s proposals merit serious consideration. Universal adoption of the London Court of International Arbitration (“LCIA“) default appointment rule, limiting the length of pre-nomination interviews and ensuring transcripts of such interviews are made available to the other side may increase parties’ confidence in the impartiality and fairness of arbitrators.

A disciplinary body for arbitrators would inspire greater confidence in arbitration. The proposed disciplinary system would start with an institutional investigation followed by a Charter Institute of Arbitrators (“CIArb“) investigation. CIArb could then punish any guilty arbitrator, publishing, and notifying other institutions of its findings.

However, rigorous scrutiny is required. Any proposals must strengthen arbitration and so care must be taken that they are properly implemented and cannot be used by parties as a tactical tool to delay proceedings or influence arbitrators’ decision-making.

Legal advice privilege in England and the “closest connection” test

This blog post was first published on the Practical Law arbitration blog.

English-seated arbitral tribunals have a great degree of flexibility in determining the applicable rules of privilege. Pursuant to sections 34(1) and 34(2)(d) of the Arbitration Act 1996 (“AA 1996“):

It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter”, including “whether any and if so which documents or classes of documents should be disclosed between and produced by the parties and at what stage.”

However, this flexibility is tempered by the tribunal’s obligation under section 33(1)(a) AA 1996 to act fairly and impartially as between the parties. Further, where the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration apply, Article 9.3(e) requires the tribunal to take into account:

… the need to maintain fairness and equality as between the Parties, particularly if they are subject to different legal or ethical rules”, and Article 9.3(c) requires the Tribunal to have regard to “the expectations of the Parties and their advisors at the time the legal impediment or privilege is said to have arisen”.

The need to treat both parties fairly and equally therefore has to be balanced against the fact that, where (as is often the case) the parties come from different jurisdictions, they may have taken advice from their respective legal advisers (whether internal or external) on the basis that it would be protected by the rules of privilege that apply in their jurisdiction(s).

The “closest connection” test in international arbitration

One approach is simply to impose the privilege rules of either the law of the seat or the governing law of the contract and therefore require both parties to take the same approach to privilege issues that may arise during the document production process. However, tribunals are often reluctant to do so in case the outcome does not accord with the legitimate expectations of the parties at the time when the legal advice in question was given (for example, whether or not advice given by an in-house lawyer would be privileged). This may be a particular concern where the parties have chosen a seat of arbitration or a substantive governing law on the basis of its neutrality, and it has no connection to the nationality of either party or their legal advisers at the time when the advice was given.

Some tribunals therefore adopt a “closest connection test” as an alternative. This seeks to balance a number of different factors in order to determine the law applicable to privilege issues. These may include the:

  • Governing law of the contract.
  • Law of the seat of arbitration.
  • Place where the advice was given.
  • Place where it was received.
  • Jurisdiction where the lawyer giving the advice was admitted.
  • Country where the documents are held.

The approach of the English courts: the RBS Rights Issue Litigation

However, this approach now stands in sharp contrast to the decision of the English High Court in December 2016 on the availability of legal advice privilege. In the RBS Rights Issue Litigation, the High Court confirmed that the English courts will apply English law, as the lex fori, when determining questions of privilege.

The judgment in the RBS Rights Issue Litigation was concerned with the availability of legal advice privilege over records of interviews conducted by US lawyers in a fact-gathering investigation (in circumstances where litigation privilege was therefore unavailable). One of the issues that arose for determination was whether the availability of legal advice privilege fell to be determined under English law, or whether (as RBS contended) the English court should have applied US privilege rules, which would have afforded the interview records a much broader degree of protection against disclosure.

While acknowledging the long-established position (dating back to Lawrence v Campbell) that the English courts will apply English rules of privilege, as the lex fori, RBS proposed an entirely new choice of law rule:

Save where to do so would be contrary to English public policy, the English court should apply the law of the jurisdiction with which the engagement or instructions, pursuant to which the documents came into existence or the communications arose, are most closely connected.

This proposed rule was rejected by the High Court on the basis that it was established practice to apply English law as the lex fori, and there was no reason (including the regularity with which multi-jurisdictional litigation is now heard by the English courts) to depart from it. In doing so, the court recognised that this was in part driven by practical considerations: if a different test were to be applied, the English courts could be required to apply different rules of privilege depending on the particular case. There were also relevant considerations of public policy: the English system of litigation prefers “the fullest available record” of documentary evidence to be available to assist the decision-maker.

RBS’s proposed “closest connection test” focussed on the circumstances in which the advice was given, rather than taking into account the laws applicable to the dispute. It is worth noting that, on the basis of the “closest connection test” as it is understood in international commercial arbitration, an English-seated tribunal may well have concluded that notes of interviews carried out by US lawyers, (at least in part) in the USA, and which were understood to be privileged at the time when they were created, were protected by legal advice privilege.

Conclusion

It is understood that RBS will not appeal the first instance decision. This aspect of the judgment therefore potentially puts the approach of the English courts to the law governing applicable rules of privilege at odds with the approach often taken in English-seated international arbitrations. Of course, there is nothing inherently wrong in that from a legal perspective; there is no reason why parties who have agreed to arbitrate in England should be subject to the rules applicable to English court practice. Furthermore, given the relatively broad scope of privilege under English law, the instances when one party looks to assert a broader scope of privilege than that provided for under English law may be relatively rare in practice. Nonetheless, in an era where (as acknowledged in the RBS Rights Issue Litigation judgment) English law increasingly views legal advice privilege as a substantive right, and large multi-jurisdictional disputes are regularly brought to England for resolution in both litigation and arbitration (often simply because it is a neutral forum), any significant disparity in the level of protection that parties might be able to assert over their documents may be regarded by some as a surprising outcome.

 

Arbitration: a new forum for business and human rights disputes?

This blog post was first published on the Practical Law Arbitration Blog.

On 27-29 November 2017, the United Nations Forum on Business and Human Rights will convene in Geneva. Its central theme: Access to Effective Remedy. In line with this shifting focus by the international community on the third pillar of the UN Guiding Principles on Business and Human Rights (UNGPs), a working group of international law specialists published a proposal to use arbitration to resolve disputes that arise out of human rights abuses involving businesses (BHR disputes).

The proposal for the “International Arbitration of Business and Human Rights Disputes” was published on 13 February 2017 and formally presented on 23 March 2017 at an event hosted by the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (attended and commented on by Hogan Lovells partner Julianne Hughes-Jennett). On 17 August 2017, the Working Group followed up with the publication of a “Questions & Answers” paper addressing key issues raised by consulted stakeholders.

According to the proposal, arbitration could be adapted for use in BHR disputes either:

  • By victims of human rights violations who wish to bring claims against businesses.
  • To resolve disputes involving human rights-related claims between commercial parties (for example, where a supplier fails to comply with certain contractually-imposed human rights obligations).

The proposal is not intended to replace any existing means of redress. Rather, the intention is to offer a potentially more effective alternative.

According to the working group, international arbitration “holds great promise” as a method of resolving BHR disputes, which often occur in regions where national courts are “dysfunctional, corrupt, politically influenced or simply unqualified”. Indeed, arbitration offers many advantages:

  • A neutral forum, whereas domestic or international courts may face political pressure.
  • Impartial judges with expertise in human rights, and who are selected by the parties.
  • Procedural flexibility.
  • Greater efficiency (compared with many domestic court systems).
  • Universal recognition (the New York Convention provides for the recognition and enforcement of arbitral awards; it is subject only to limited grounds for refusal and applies in 157 countries).

Commentators from the human rights and arbitration communities have reacted to this innovative proposal with a number of questions, including:

  • How would businesses and victims of human rights violations submit to arbitration in practice for disputes not arising out of an existing contract containing an agreement to arbitrate? There would need to be a voluntary submission to the arbitral process after the harm or event in question has occurred. This may be difficult to achieve in practice. One option suggested by the working group is that commercial contracts could specifically identify as “third party beneficiaries” classes of victims that could initiate or participate in future arbitrations.
  • What norms or laws would be applied by the arbitral tribunal? According to the working group, the applicable norms or laws could be incorporated by reference in the contract or agreement to arbitrate. However, what would those applicable norms or laws be? Do they recognise corporate liability for human rights violations? Indeed, the question of whether corporations can be liable for violations of human rights under international or domestic law remains an open one in many jurisdictions (see, for example, Kiobel v Shell and Jesner v Arab Bank in the US). As for the possibility of incorporating the UNGPs or other voluntary principles, what are the implications of making obligations contractual and enforcing obligations that were only ever intended to be soft law?
  • Is a private forum like arbitration appropriate for resolving human rights disputes? The importance of ensuring transparency in human rights cases is potentially inconsistent with the confidentiality that is usually associated with arbitration. Some also argue that, as a matter of public policy, human rights should remain the prerogative of national courts. Those in favour of the proposal highlight the greater neutrality and impartiality offered by arbitration, which may be welcome in politically or emotionally charged disputes. It may also be possible to modify the arbitration process to make it more transparent and public for BHR disputes (in the same way that such transparency is increasingly a feature of investment treaty arbitration). Of course, the affected parties would need to consent to arbitrate the dispute in the first place.
  • How would victims of human rights violations afford the cost of arbitration? The working group’s response to this “inequality of arms” concern is that funding and support could be found for arbitration proceedings in the same way as it is currently found for domestic litigation. Alternatively, dedicated funds for the arbitration of BHR disputes could be established; similar perhaps to the Permanent Court of Arbitration’s Financial Assistance Fund, which helps developing countries meet their costs in investor-state arbitrations.
  • What recourse would a defendant business have to dismiss unfounded claims? It is true that, compared with the mechanisms available in domestic courts, arbitration offers limited options for summary dismissal of spurious claims. However, addressing this perceived shortcoming could be considered in the context of adapting the arbitration process for BHR disputes.

The working group acknowledges that existing procedural arbitration rules are inadequate for dealing with BHR disputes, and that tailored arbitration rules should be developed. These should take into account the need for greater transparency, how to accommodate multiple victims and protect vulnerable victims, and whether awards should be subject to appeal. The working group is in the process of convening a drafting committee for this purpose.

Although this initiative still has some way to go before it could work in practice, the implementation of the UNGPs by corporations is leading to an increased incidence of “BHR clauses” in commercial contracts (imposing human rights compliance obligations on business counterparties, for example, suppliers). As a result, arbitral tribunals may, in any event, find themselves determining business-to-business BHR disputes before too long.

Hong Kong Court Refuses to Grant Crown Immunity to PRC State-Owned Enterprise

In TNB Fuel Services SDN BHD v. China National Coal Group Corporation HKCFI 1016 (“TNB Case“), the Court of First Instance (“CFI“) ruled that a PRC state-owned enterprise (“SOE“) was not entitled to Crown immunity. It upheld an arbitration award to be enforced against the SOE’s assets in Hong Kong.

The TNB Case clarifies the position that any assertion of Crown immunity must come from the Crown; in this case by the Central People’s Government (“CPG“). SOEs will unlikely be granted Crown immunity, entitlement to which will be assessed by the degree of control asserted on an SOE by the CPG.

The TNB Case suggests that an SOE with mainly commercial activities will unlikely be able to invoke Crown immunity.

Crown immunity

Crown immunity refers to a doctrine that the Crown enjoys immunity from being sued in its own courts. Such immunity was previously enjoyed by the British Crown and was transferred to the CPG when Hong Kong returned to China in 1997.

In the TNB Case, China National Coal Group Corporation (“Respondent“) was an SOE. It tried to invoke Crown immunity to resist the enforcement of an arbitration award against its assets in Hong Kong. It claimed to be an entity under full control of the State-Owned Assets Supervision and Administration Commission (“SASAC”), which acted on behalf of the CPG.

The CFI rejected the Respondent’s argument based on two grounds:

  1. The Respondent failed to show that it had authority to assert Crown immunity on behalf of the CPG, and that no such claim had been validly made on behalf of the CPG; and
  2. The CFI found as a matter of fact that under PRC law, the Respondent was neither a part of the CPG, nor SASAC.  In this regard, the Respondent failed to satisfy the “control test”.

Assertion of Crown immunity

Any assertion of Crown immunity must come from the Crown, in this case, the CPG as the highest executive body as defined in Articles 85 and 86 of the Chinese Constitution.

In The Hua Tian Long (No.2) [2010] 3 HKLRD 611 (“HTL Case”), Justice Stone (as he then was) advocated the adoption of a certification procedure; it was unsatisfactory for the court to referee a dispute on Crown immunity based on adversarial expert evidence.

In this case, there was no assertion made by the Respondent that it was authorised by SASAC or the CPG, or any other authority than the Respondent itself, to make the claim of Crown immunity.

The CFI highlighted that even in the HTL Case, the evidence from the manager of the defendants was that he was authorized and instructed by the Ministry of Communications, Guangzhou Salvage Bureau of the CPG, and not just by the defendants, to support the defendants’ entitlement to Crown immunity.

In rejecting the Respondent’s assertion of Crown immunity, the CFI placed great weight on a letter issued by the Hong Kong and Macao Affairs Office of the State Council (“HK Office“), which is an administrative office under the State Council, which, under the PRC Constitution, is the highest organ of state power and administration.

The letter stated that the Respondent is an independent legal entity carrying out activities of production and operation on its own, with no special status or interests superior to any other enterprises.  As a SOE, the Respondent was not considered as a part of the CPG, nor was it deemed as performing functions on behalf of the CPG, when the Respondent carried out commercial activities.

Control test

In the TNB Case, the CFI applied the “control test” to determine the degree of control asserted by the CPG on the Respondent. The CFI listed relevant factors which have been considered by the courts in applying the control test:

  1. independent discretion enjoyed by the entity;
  2. control exercised by the Crown as investor;
  3. the separate legal personality of the entity;
  4. the power of the Crown to appoint and remove senior officers of the entity; and
  5. the financial autonomy of the entity.

The CFI ruled that the Respondent had full autonomy and extensive independence in making decisions regarding its business, financial and management matters. For example, the board had powers and authority under the Articles (approved by SASAC) to determine its own investment plans, approve its annual financial budget, exercise management rights and appoint or dismiss its management team. It functioned just like other business enterprises and did not require approval from the SASAC or CPG in carrying out its daily activities or operations. The CFI stated it was significant that the Respondent had the right under the Assets Law to possess, use, profit from and dispose of its property.  Although the Respondent was wholly owned by SASAC, SASAC only acted like a normal controlling shareholder of any company. Therefore, the Respondent was an independent legal entity separated from the CPG.

Distinguished from The Hua Tian Long (No.2)

The HTL Casewas the first case that addressed the issue on “Crown immunity”. In that case, the CFI granted Crown immunity to a public institution after applying the “control test”.

Nevertheless, the TBN Case can be distinguished from the HTL Case. In the latter case, the public institution had no shareholder and no paid up capital. It had no right to use or dispose its assets. Therefore, the CFI decided that the public institution formed part of the Ministry of Communications. This decision is consistent with the TBN Case.

Key points

  1. Crown immunity remains available to PRC public institutions  in respect of suits, enforcement, and the execution of assets before the Hong Kong courts.
  2. The entity relying on the Crown immunity claim has to satisfy the “control test”, which will be determined by the Hong Kong courts on a case-by-case basis.
  3. An SOE will unlikely enjoy Crown immunity as it is not a part of the CPG in the execution of any government function.
  4. SOEs with mainly commercial business will unlikely be able to invoke Crown immunity if they enjoy a high degree of independence and autonomy in the overall decision making process.
  5. If a Chinese entity intends to assert Crown immunity, it should seek endorsement from the CPG beforehand.
  6. For companies that want to do business with a PRC entity, they should consider the following measures:

a. Identify whether the entity is an SOE or a public institution. If it is the former, it is unlikely that an SOE will enjoy Crown immunity.  If it is the latter, Crown immunity will more likely be available;

b. Identify the main activities conducted by the entity. Is it mainly commercial or governmental?

c. Regardless what the answer is, waivers of the right to claim Crown immunity should be sought from the entity. However, it has not  been tested whether such pre-contractual waivers are enforceable against entities  that enjoy Crown immunity in Hong Kong.

Conclusion

  1. The TNB Case suggests that Crown immunity will unlikely be  available to PRC state-owned entities. Hence, they can be sued in the Hong Kong courts, and enforcement and execution can be made against their assets. This decision should provide comfort to international investors doing business with Chinese SOEs.
  2. The position may, however, be different with regards to SOEs in foreign states, central banks, and sovereign wealth funds, which may be able to claim state immunity in the Hong Kong courts if they are deemed to be part of the ‘state’ or a state organ.  How a Hong Kong court would decide whether a foreign SOE, central bank and sovereign wealth fund is a state entity is, however, untested.
  3. This is another arbitration friendly decision by the Hong Kong courts confirming the enforcement of an arbitral award by way of charging order.  Awards have consistently been enforced against Chinese SOEs by the Hong Kong courts.  For example, Hogan Lovells acted for Shandong Hongri Acron Chemical, a subsidiary of a Russian entity, in the enforcement of a CIETAC award against Petrochina International (HK) Corporation, a subsidiary of a large Chinese SOE: Shandong Hongri Acron Chemical. Joint Stock Co v. PetroChina International (HK) Corp [2011] HKCA 168.
  4. The consistent enforcement of arbitral awards against Chinese SOEs by the Hong Kong courts aligns with a recent survey on Judicial Independence released by the World Economic Forum for 2016-2017.  Hong Kong is ranked 8th overall but 1st in Asia, ahead of other arbitration friendly jurisdictions such as London (the U.K. is ranked 9th) and Singapore (ranked 23rd).

PRC Court refuses to enforce SIAC arbitral award made by one arbitrator under expedited arbitration procedures when arbitration agreement provided for three arbitrators

In Noble Resources International Pte. Ltd v. Shanghai Good Credit International Trade Co., Ltd. (2016) Hu 01 Xie Wai Ren No. 1, the Shanghai No.1 Intermediate People’s Court in a judgment dated 11 August 2017 refused recognition and enforcement of a Singapore International Arbitration Centre (“SIAC“) arbitral award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention“) on the basis that the composition of the arbitral tribunal and/or the arbitral procedure was not in accordance with the agreement of the parties.

The case arose out of the recently replaced SIAC 2013 arbitration rules (“SIAC Rules“).  Article 5 of the SIAC Rules provided for the expedited procedure:

5.1           Prior to the full constitution of the Tribunal, a party may apply to the Registrar in writing for the arbitral proceedings to be conducted in accordance with the Expedited Procedure under this Rule where any of the following criteria is satisfied:

a. the amount in dispute does not exceed the equivalent amount of S$5,000,000, representing the aggregate of the claim, counterclaim and any set-off defence;

b. the parties so agree; or

c. in cases of exceptional urgency

5.2           When a party has applied to the Registrar under Rule 5.1, and when the President determines, after considering the views of the parties, that the arbitral proceedings shall be conducted in accordance with the Expedited Procedure, the following procedure shall apply:

a. The Registrar may shorten any time limits under these Rules;

b. The case shall be referred to a sole arbitrator, unless the President determines otherwise;

c. Unless the parties agree that the dispute shall be decided on the basis of documentary evidence only, the Tribunal shall hold a hearing for the examination of all witnesses and expert witnesses as well as for any argument;

d. The award shall be made within six months from the date when the Tribunal is constituted unless, in exceptional circumstances, the Registrar extends the time; and

e. The Tribunal shall state the reasons upon which the award is based in summary form, unless the parties have agreed that no reasons are to be given.

Under Article 5.1 of the SIAC Rules, a party may apply to the Registrar of SIAC for the arbitral proceedings to be conducted in accordance with the expedited procedure. If the expedited procedure applies, the arbitration is to be referred to a sole arbitrator, unless the President of SIAC determines otherwise.  The Iron Ore Sale & Purchase Agreement dated 29 October 2014 (“Contract“) between Noble Resources International Pte Ltd of Singapore (“Claimant“) and Shanghai Good Credit International Trade Co., Ltd. of China (“Respondent“) incorporated a Standard Iron Ore Trading Agreement (“Standard Agreement“).  Article 16 of the Standard Agreement contained the arbitration agreement and Article 16.1.1 provides for three arbitrators.

The dispute was in respect of the sale and purchase of iron ore.  The Respondent failed to issue a letter of credit to the Claimant to pay for the goods as required under the Contract, and it was ultimately terminated.  On 14 January 2015, the Claimant served a Notice of Arbitration and applied to SIAC for the proceedings to be conducted under the expedited procedure on the basis of the amount in dispute being under S$5 million.  SIAC accepted the application for the arbitration to be conducted pursuant to the expedited procedure on 17 February 2015.  On 20 April 2015, SIAC appointed a sole arbitrator for the case.  On 16 July 2015, a hearing was conducted before the sole arbitrator.  The Respondent objected to the expedited procedure and the appointment of a sole arbitrator but did not otherwise participate in the arbitration and the Final Award was made in their absence.  The Final Award was issued on 26 August 2015. The sole arbitrator awarded the sum of US$1,603,100 to the Claimant representing damages for breach of contract.

When it came to recognition and enforcement of the arbitral award in Mainland China, the Respondent challenged enforcement under the New York Convention and Article 283 of the Civil Procedure Law of the PRC, based on a number of grounds.

One ground was the composition of the tribunal was not in accordance with the agreement of the parties as stipulated in the arbitration clause, as under the Contract it was expressly stated that the tribunal would comprise of three arbitrators, but in this case only a sole arbitrator was appointed.  The Respondent had not accepted the composition of the tribunal and it had strongly opposed the appointment of a sole arbitrator, objecting on multiple occasions.  Accordingly, the composition of the arbitral tribunal and/or the arbitral procedure was not in accordance with the agreement of the parties.

The Court’s reason for refusal of recognition and enforcement was Article V(1)(d) of the New York Convention – the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.

First, the arbitration agreement in the Contract provided for three arbitrators.  Accordingly, the arbitral proceedings and composition of the tribunal should have complied with the arbitration agreement.

Second, the adoption of the expedited procedure in this case was in line with Article 5.1 of the SIAC Rules as the disputed amount did not exceed S$5 million.  Accordingly, the Court was of the view that the adoption of the expedited procedure by SIAC was not contrary to the agreement of the parties.

Third, regarding the composition of the tribunal, the Court commented that the 2013 SIAC Rules neither excluded the adoption of an alternative composition of the tribunal in proceedings conducted under the expedited procedure, nor does it specify that the President of SIAC can have the right to invoke Article 5.2(b) regarding the appointment of a sole arbitrator when the parties have agreed on the composition of the tribunal.  Article 5.2(b) of the SIAC Rules stating “the case shall be referred to a sole arbitrator, unless the President determines otherwise” should not be interpreted that the President of SIAC having absolute discretion on the composition of the tribunal; on the contrary, when exercising its discretion, the President must give full consideration to the parties’ agreement with respect to the composition of the tribunal in order to preserve party autonomy.

Since the parties had already expressly agreed in the arbitration agreement that the tribunal shall comprise of three arbitrators and did not exclude this composition of the tribunal in the expedited procedure, the adoption of the expedited procedure should have been referred to a three member tribunal.  The Court considered that use of the expedited procedure should not prevent the parties from exercising their fundamental rights to an arbitration comprised of three arbitrators as stipulated in the arbitration agreement.  In this case, the Court considered appointment of a sole arbitrator in accordance with Article 5.2 of the SIAC Rules was a breach of the arbitration agreement when the arbitration agreement had provided for three arbitrators and the Respondent had expressed its strong opposition against the appointment of a sole arbitrator.  Accordingly, this fell within Article V(1)(d) of the New York Convention and the award should not be recognized and enforced.

Comments

Users of arbitration want efficiency and economy in the arbitral process.  The availability of expedited procedures providing for arbitrations conducted under shortened time limits and an award to be rendered within six months from the date when the institution transmits the file to the tribunal is commonplace under the leading institutional arbitral rules and reflects international best practice.  The SIAC and HKIAC have had 207 and 20 arbitrations conducted under their expedited procedures respectively, and client feedback has been very positive.

In the 2015 International Arbitration Survey “Improvements and Innovations in International Arbitration” conducted by Queen Mary University of London, 92% of respondents favoured the inclusion of simplified procedures in institutional rules for claims under a certain value.  33% of respondents would have this as a mandatory feature and 59% as an optional feature.

However, the effectiveness of expedited procedures depends ultimately on the enforcement of an award rendered from such procedures.

The PRC courts have a good track record of enforcement and their concern in this case is not with the expedited procedures themselves.  Although the PRC courts are becoming more arbitration friendly and have upheld arbitration agreements providing for ICC arbitration in Shanghai and Beijing, and the validity of a “hybrid” arbitration clause providing for arbitration at CIETAC under the UNCITRAL Arbitration Rules proceedings, the Shanghai Intermediate People’s Court in this case upheld the parties’ agreement in their arbitration clause to have a three member tribunal.  Where the decision is significant is that it treated the stipulation of three arbitrators as paramount, and did not read the expedited procedural provisions of the former version of the SIAC Rules as allowing SIAC to appoint a sole arbitrator when the arbitration agreement required three.

PRC courts have also upheld the parties’ agreement on the arbitration procedure in other enforcement cases.  For example, in Alstom Technology Ltd. v. Insigma Technology Co. Ltd., the Hangzhou Intermediate People’s Court refused to enforce a SIAC award on the ground that the constitution of the tribunal, with reference to the SIAC rules, was not in accordance with the parties’ agreement that SIAC administer the ICC Rules in the arbitration clause.  The refusal of enforcement was upheld by the Supreme People’s Court.

It is significant that this case is based on the 2013 version of the SIAC Rules.  In 2016, SIAC published an updated version of its rules to put this issue beyond doubt.  In respect of the expedited procedure, Article 5.3 now states that “[b]y agreeing to arbitration under these Rules, the parties agree that, where arbitral proceedings are conducted in accordance with the Expedited Procedure under this Rule 5, the rules and procedures set forth in Rule 5.2 shall apply even in cases where the arbitration agreement contains contrary terms.” The PRC Court would have come to a different conclusion under the revised 2016 SIAC Rules.

The inclusion of the above provision in the 2016 SIAC Rules was partly due to the decision of AQZ v. ARA [2015] SGHC 49 in which the Singapore High Court considered a setting aside application to an award made under the expedited procedure of the SIAC Rules.  In that case, the parties had entered into an agreement in 2009 regarding the sale and purchase of Indonesian non-coking coal.  Arbitration was commenced by the buyer in 2013, and SIAC proceeded with the appointment of a sole arbitrator under the expedited procedure, with the seller reserving its rights of challenge.  In the Singapore setting aside proceedings, the seller argued that the rules in force at the time of the parties’ contract were the 2007 SIAC Rules (which had no expedited procedure), and therefore the conduct of the arbitration under the expedited procedure of the 2010 SIAC Rules was not in accordance with the parties’ agreement. The seller also argued that the parties had expressly agreed to arbitration before three arbitrators, and that therefore the conduct of the expedited arbitration before a sole arbitrator was not in accordance with the parties’ agreement.  However, the Singapore High Court rejected the challenges to both the applicability of the expedited procedure and the appointment of a sole arbitrator, and placed emphasis on SIAC’s role in arbitrator appointments under the SIAC Rules.

Institutions have taken different approaches to the composition of the tribunal when applying their expedited procedures.  For example, the ICC amended its rules in March 2017 to provide for an expedited procedure.  Adopting a similar approach to SIAC, Article 30(1) states that “[b]y agreeing to arbitration under the Rules, the parties agree that this Article 30 and the Expedited Procedure Rules set forth in Appendix VI (collectively the “Expedited Procedure Provisions”) shall take precedence over any contrary terms of the arbitration agreement.

In drafting the arbitration clause, for parties who want three arbitrators to decide their disputes under the expedited procedures of the ICC and SIAC arbitration rules, they are advised to stipulate this in their arbitration clause.

The Hong Kong International Arbitration Centre (“HKIAC“) has taken a different approach.  Article 41.2 of the HKIAC’s Administered Arbitration Rules (“HKIAC Rules“) provides that “[w]hen HKIAC, after considering the views of the parties, grants an application made pursuant to Article 41.1 [the Expedited Procedure], the arbitral proceedings shall be conducted in accordance with an Expedited Procedure based upon the foregoing provisions of these Rules, subject to the following changes:

a. the case shall be referred to a sole arbitrator, unless the arbitration agreement provides for three arbitrators;

b. if the arbitration agreement provides for three arbitrators, HKIAC shall invite the parties to agree to refer the case to a sole arbitrator. If the parties do not agree, the case shall be referred to three arbitrators;

In this regard, the HKIAC rules preserve party autonomy, and the quantum of a dispute does not necessarily correlate with its complexity.

This case is potentially significant for claimants with arbitration agreements stipulating three arbitrators who are considering using the expedited procedures under two older versions (2010 and 2013) of the SIAC rules. If they intend to enforce the award in the PRC, they can still enjoy the benefits of expedited arbitration but should ask for three arbitrators to be appointed.  The 2016 SIAC rules address this situation.  It is interesting in this case that the Claimant had indicated that it was prepared to agree to a tribunal consisting of three arbitrators subject to the Respondent indicating that it would pay the costs of a three member tribunal.  Since this did not happen, and there was no agreement on a three member tribunal, SIAC appointed a sole arbitrator.

In the PRC, if the Intermediate People’s Court refuses recognition and enforcement of a foreign arbitral award (including a Hong Kong award), it must submit the case to the Provincial Higher People’s Court for review before issuing its ruling.  If the Higher People’s Court agrees with the ruling, it must report to the Supreme People’s Court.  A ruling refusing recognition and enforcement of a foreign arbitral award can only be issued after the Supreme People’s Court makes a formal reply.

We understand that the Shanghai Intermediate People’s Court referred the matter to the Supreme People’s Court before issuing the judgment. Therefore, the judgment already reflects the Supreme People’s Court’s position.