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Practical Law Arbitration: Review of 2016
Practical Law UK Articles w-004-4757 (Approx. 36 pages)
Practical Law Arbitration: Review of 2016
| Published on 21 Dec 2016 • ExpandAustralia, Brazil, British Virgin Islands...Canada (Common Law), China, Ecuador, England, European Union, France, Germany, Hong Kong - PRC, India, International, Latvia, Mauritius, New Zealand, Russian Federation, Singapore, South Korea, Spain, Sweden, Switzerland, Tanzania, The Netherlands, United Arab Emirates, United Kingdom, Uruguay, USA (National/Federal), Venezuela, Wales, Zimbabwe |
2016 has seen a number of changes in the international arbitration landscape, including rule changes and important case law. Practical Law Arbitration has reviewed the year's developments and selected the highlights.
About this article
In this article, we highlight some of the key arbitration-related developments and cases in 2016.
Once again, it has been an eventful year. The institutions have continued the trend towards greater transparency, with several following the LCIA's example from last year and publishing data on average costs and duration of arbitration under their rules. There were more revised rules, with the Singapore International Arbitration Centre's (SIAC's) 2016 Rules coming into force on 1 August and the Stockholm Chamber of Commerce publishing its 2017 Rules, which will come into force on 1 January 2017. Both sets of rules include provisions aimed at more efficient case management, with the SIAC Rules introducing a procedure for early dismissal of claims and defences and the SCC providing for expedited arbitration. There was clearly a theme, as the International Chamber of Commerce (ICC) has also announced that it is amending its rules to provide for expedited arbitration.
There was plenty to discuss at Practical Law Arbitration's third party funding seminar (co-hosted with Mishcon de Reya) in March, and the discussion has continued through the year, with a controversial decision of the English Commercial Court on recovery of third party funding costs (Essar v Norscot) and new legislation regarding third party funding coming up in Singapore and Hong Kong. With the ICCA/QMUL third party funding task force due to report in 2017, we can be sure that there will be plenty more to talk about next year.
On the investment arbitration front, there were two big cases this year where national courts interpreted international treaties. The District Court of The Hague caused an upset when it overturned the US$50 billion Yukos awards, and the Singapore Court of Appeal determined that the PRC-Laos bilateral investment treaty (BIT) extended to Macau (a result rejected by the Chinese Foreign Ministry). A third national court, the German Federal Court of Justice, gave its view on the compatibility of intra-EU BITs with EU law and then referred the issue to the Court of Justice of the European Union. Sticking with investment arbitration, the investor-state dispute settlement (ISDS) provisions in free trade agreements being negotiated by the EU with other states continued to be the subject of debate.
Further details about the above, and other important developments and cases, are discussed below.
Arbitral institutions and centres
2016 has been another busy year for the arbitral institutions, with almost all of the key institutions reporting a rise in the number of cases submitted (see Checklist, Arbitration statistics). We have also seen the trend towards increased transparency continue, demonstrated by the publication by various institutions of data on costs and duration of proceedings. Some of the key institutions have also released gender diversity figures showing the number of female arbitrator appointments, consistent with the Equal Representation in Arbitration Pledge launched in May (see Gender diversity in arbitration below).
Asia and Australasia
The rise of institutional arbitration in Asia has continued throughout 2016, with the institutions in this region reporting the most impressive caseload statistics (see Checklist, Arbitration statistics). While the China International Economic and Trade Arbitration Commission (CIETAC) published the most impressive rise in the number of new cases, it had a relatively quiet year in terms of new activities and initiatives. Elsewhere, the Asian institutions were busy on new initiatives to increase transparency, as well as launching new rules, including from the Shenzhen Court of International Arbitration (SCIA) (see Legal update, SCIA updates its rules to hear investor-state arbitrations) and the Korean Commercial Arbitration Board (see Legal update, KCAB releases updated rules).
Australian Centre for International Commercial Arbitration (ACICA)
Kicking off the year on 1 January 2016, ACICA's new Arbitration Rules and Expedited Arbitration Rules entered into force. Like many revised rules in recent years, they included revised provisions in relation to multi-party disputes, the conduct of legal representatives, and the introduction of an expedited procedure (see Legal update, Revised ACICA Rules in force).
Hong Kong International Arbitration Centre (HKIAC)
Fresh from being found the most improved institution in the QMUL Survey 2015, the HKIAC continued to introduce initiatives aimed at increasing transparency, certainty and its ability to manage complex multi-party disputes. These included data on average costs and duration of an HKIAC arbitration (see below), a new practice note on consolidation of arbitrations and a revised practice note on costs (see Legal updates, HKIAC issues new practice note on consolidation of arbitrations and HKIAC revises practice notes on costs). In 2016, the HKIAC also launched a new Panel of Arbitrators for Intellectual Property (IP) Disputes, which comprises a panel of leading experts in handling IP cases.
This year also saw Sarah Grimmer take over as Secretary General of HKIAC and Mathew Gearing QC being elected the next HKIAC chair (see Legal updates, HKIAC announces appointment of new Secretary General and Arbitration news round-up to 19 October 2016).
Bringing the year to a close, the HKIAC continued the trend started by the London Court of International Arbitration (LCIA) in 2015 by releasing data on average costs and duration of arbitrations administered under its arbitration rules. The data shows that the mean duration of an HKIAC arbitration is 12.25 months and the median duration is 11.60 months. The mean total costs of arbitration are US$65,721.26 and the median total costs of arbitration are US$31,704.04 (see Legal update, HKIAC releases data on average cost and duration of HKIAC proceedings).
Singapore International Arbitration Centre (SIAC)
SIAC has had another particularly busy year, setting off with an announcement in January on the opening of a representative office in the China (Shanghai) Pilot Free Trade Zone (FTZ) (see Legal update, SIAC opens Shanghai office). However, the most notable achievement for SIAC this year was the launch of the new SIAC Rules 2016 (Legal update, SIAC Rules 2016 enter into force on 1 August 2016). The revised rules established new and improved provisions, including on multi-party and multi-contract arbitration, expedited procedure and emergency arbitrator procedures. Of particular interest was the introduction of a new procedure in the rules for the early dismissal of claims and defences. SIAC is the first major arbitral institution to bring in such a procedure and it remains to be seen how arbitrators will use the mechanism.
In February 2016, SIAC also commenced a public consultation on new draft Investment Arbitration Rules (see Legal update, SIAC launches public consultation on draft investment arbitration rules). The draft rules contained provisions addressing topical issues, such as early dismissal of unmeritorious claims and disclosure of third party funding arrangements. At the time of writing (21 December), the final version of the rules has not yet been released, although it is apparently expected in the coming weeks.
Like other institutions this year, SIAC also released data on the average costs and duration of proceedings, showing that the average duration of a SIAC arbitration was just under 14 months, costing on average, US$80,337 (see Legal update, SIAC releases data on average costs and duration of SIAC proceedings).
Europe
In terms of initiatives, some of the European institutions have had a quieter year in comparison to their Asian counterparts, for example the London Court of International Arbitration (LCIA), which nevertheless welcomed a new President and closed its Indian branch closed in 2016 (see Legal updates, LCIA welcomes new President and announces other appointments and LCIA India to close). However, other European institutions did have an eventful 2016. For instance the Italian Association for Arbitration's new rules entered into force in January, while the Russian Arbitration Association (RAA) established nine new working groups tasked with drafting arbitration rules, standard form contracts and commentaries relating to new arbitration laws in Russia (see Legal updates, Italian Association for Arbitration's new rules enter into force and Russian Arbitration Association establishes working groups to draft arbitration related rules and documents).
Arbitration Institute at the Stockholm Chamber of Commerce (SCC)
The SCC published a revised version of the arbitration and expedited rules, which are due to come into force on 1 January 2017 (see Legal update, Stockholm Chamber of Commerce Board approves revised SCC Rules). The new rules include revised provisions on joinder, consolidation, arbitrator challenges, administrative secretaries, security for costs and summary procedure, together with a pledge in the Schedule of Costs.
Following suit with other institutions this year, the SCC also published a report on costs, as well as gender statistics, which revealed that a female arbitrator was appointed in 27% of cases in 2015 (see Legal updates, SCC publishes report on costs in arbitration and apportionment of costs under SCC Rules and Arbitration news round-up to 6 July 2016).
Chartered Institute of Arbitrators (CIArb)
On the back of a busy 2015 publishing new international arbitration rules, the CIArb has continued on its path to updating its international arbitration offering with the publication of four new guidelines (see Legal update, CIArb publishes four new guidelines on party nonparticipation and awards).
Court of Arbitration for Sport (CAS)
The CAS ad hoc committee at the Rio Olympic Games in 2016 considered a record number of 28 cases. For the first time in the history of the Olympic Games, the CAS had power to impose provisional suspensions in matters relating to doping (see Legal update, Arbitration news round-up to 31 August 2016).
International Court of Arbitration at the International Chamber of Commerce (ICC)
Of all the European institutions, the ICC had an exceptionally eventful year, with numerous initiatives aimed at bolstering transparency and increasing efficiency. These measures included publishing details of arbitrators sitting in ICC cases from 1 January 2016, providing information on costs consequences against arbitrators for unjustified delays in submitting draft awards, and new guidance to arbitrators on disclosure of conflicts (see Legal updates, ICC implements further policies to bolster transparency and increase efficiency, ICC Court issues new guidance on disclosure of conflicts to arbitrators and ICC begins publishing arbitrator details). The ICC also made several amendments to its Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration, to include information on the calculation of fees, the scrutiny process and day-to-day case administration (see Legal updates, ICC revises note to parties and tribunals to include practices on calculating fees, ICC revises note to parties and tribunal regarding scrutiny process and ICC amends its practice note on conduct of arbitration).
The ICC also announced that it is amending its rules to provide for expedited arbitration, which will enter into force on 1 March 2017 (see Legal updates, ICC to amend rules to include expedited procedure and ICC revises scale of costs and publishes new 2017 rules).
Middle East
Dubai International Financial Centre (DIFC)
The DIFC–LCIA Arbitration Centre in Dubai updated its arbitration rules for the first time. The new rules, which came into effect from 1 October 2016, include new provisions on emergency arbitrators, multi-party disputes and sanctions for poor conduct against counsel (see Legal update, New DIFC-LCIA Arbitration Rules).
National legislation
In addition to the new legislation discussed below, amendments to the New Zealand Arbitration Act (see Legal update, New Zealand Arbitration Amendment Act 2016 receives Royal Assent) and the Hong Kong Arbitration Ordinance (Cap. 609) are also on the cards. In December, Hong Kong introduced the Arbitration (Amendment) Bill 2016, which amends the Arbitration Ordinance to clarify that disputes over intellectual property rights may be resolved by arbitration, and that it is not contrary to the public policy of Hong Kong to enforce the ensuing award. The Bill had its first reading in the Legislative Council on 14 December (see Legal update, Hong Kong confirms IP rights are arbitrable).
Russian Federation
Amendments to Russian arbitration law entered into force on 1 September 2016. Among the key changes are amendments to the procedure for the establishment of arbitral institutions, the arbitrability of corporate disputes, the status of arbitrators, and cooperation between state courts and arbitration (see Legal update, Russian President approves amendments to arbitration law).
England and Wales
The English Law Commission has sought input as to whether any aspects of the English Arbitration Act 1996 (AA 1996) could benefit from reform. The Commission specifically asked whether there were changes that could be made to make arbitration less costly and lengthy (for example, an express provision for the equivalent of summary judgment), or whether the AA 1996 should be amended to allow for recourse in arbitration for trust disputes (see Legal update, Law Commission consults on whether to include English Arbitration Act 1996 in its 13th programme of law reform).
Although not highlighted by the Law Commission, another area that may be considered is the criteria for appeals on a point of law under section 69 of the AA 1996, following comments by Lord Thomas, the Lord Chief Justice in March 2016 (see Legal update, Lord Chief Justice BAILII lecture: Arbitration and the courts can work well together and Blog post, Feeding the minotaur: the debate continues).
On 31 October 2016, the General Council of the Bar issued a response favouring further consideration of mandatory provisions on strike out and summary judgment, as well as an express provision permitting the use of the arbitration equivalent of a Part 36 offer (sealed order) (see General Council of the Bar response to the Law Commission's 13th programme of law reform consultation paper).
Latvia
On 3 November 2016, amendments to Latvian arbitration law came into force, which were aimed at addressing issues around the establishment and control of permanent arbitration courts in the country. The amendments provide for the Register of Enterprises to act as the body overseeing the permanent arbitration courts. (For further information, see Practical Law Arbitration: What to expect in the second half of 2016: Latvia amendments to the new Arbitration Law.)
United Arab Emirates (UAE)
An amendment to the UAE Penal Code (Federal Law No. 3 of 1987) has made it a crime for arbitrators (and other experts) to act other than with impartiality and integrity in proceedings, including commercial arbitration. The new provision applies to individuals sitting as arbitrators in both onshore and offshore arbitrations, which includes the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). If convicted, arbitrators could face imprisonment for three to 15 years. It is not clear what "impartiality" and "integrity" mean and guidance from the courts is awaited as to what conduct would constitute a crime.
For further information, see Legal update, Article 257 of the Penal Code: implications for commercial arbitration in the UAE.
Brexit
This year's UK referendum in which British citizens voted to leave the European Union has generated a host of legal questions, not least surrounding the impact of Brexit on international commercial and investment treaty arbitration.
Practical Law Arbitration has published several blog posts in which contributors comment on issues such as investment arbitration post-Brexit (see Blog post, The European Union, investment treaties and investment arbitration post-Brexit), the conclusion of trade deals (see Blog post, Post-Brexit bilateral trade deals in the making) and London as a major arbitration centre (see Blog post, Bremaining optimistic: impact on London arbitration following Brexit).
Our Article, The potential consequences of Brexit on arbitration considers the views of Practical Law Arbitration consultation board members on a range of arbitration-related issues, including the possibility of obtaining anti-suit injunctions and the choice of English law to govern agreements.
The reality is that any analysis at this stage is based on pure conjecture and only time will tell the extent, if any, of the impact of Brexit on issues such as London as a seat of arbitration, and the course the UK chooses to take in relation to its foreign investment and trade policy, as well as the world's reaction to that course.
For a collection of content on the legal implications of the UK's decision to leave the EU generally, visit our Brexit landing page.
Third party funding
Third party funding of arbitration claims continues to generate widespread interest.
There have been significant developments in the Asian market in this regard. Historically, third party funding breached the rules on maintenance and champerty in Singapore and Hong Kong. However, that is set to change. On 7 November 2016, the Civil Law (Amendment) Bill was introduced into the Singapore Parliament, which seeks to enact a framework for third party funding of certain court and arbitral proceedings in Singapore. For further details, see Legal update, Reforms to third-party funding in Singapore before Parliament in Singapore.
In Hong Kong, the Law Reform Committee released a report endorsing the use of third party funding in arbitration, concluding that reform of Hong Kong law is necessary to make it clear that third party funding of arbitration is permitted, provided that there are appropriate financial and ethical safeguards in place. For further details, see Legal update, Hong Kong endorses third party funding in arbitration and see also Blog post, Third party funding: opening up the Asian markets.
The Essar v Norscot case, in which the English court held that third party funding costs were recoverable, in principle, under section 59 of the Arbitration Act 1996 (AA 1996), has also generated much debate. For further details, see Recoverability of funding costs, below.
The Permanent Court of Arbitration also issued an interesting procedural order in South American Silver Ltd v The Plurinational State of Bolivia, rejecting a request for security for costs and refusing to order disclosure of the terms of a funding agreement, although it did order disclosure of the third party funder's identity (see Legal update, No security for costs but identity of third party funder must be disclosed).
Investment treaty arbitration
The European Commission (EC) and the Micula investors
The tug of war raged on this year between the EC and the Swedish Micula investors over the enforceability of a 2013 ICSID arbitral award rendered in the Miculas' favour against Romania, but said by the EC to violate EU state aid rules.
In February 2016, the EC filed an amicus curiae brief in support of Romania's appeal of the New York court's decision to enforce the award. That appeal is pending before the US Court of Appeals for the Second Circuit (see Legal update, EC files amicus curiae brief in Micula enforcement proceedings in Second Circuit). Meanwhile, in the same month, an ICSID ad hoc committee issued its decision refusing to annul the arbitral award (see Legal update, ICSID ad hoc committee refuses to annul Micula award). The Micula brothers are also challenging the EC's ruling that the award violates EU state aid rules.
India Model BIT and Brazil-India BIT
On the eve of 2016, the Indian Ministry of Finance announced that the text of India's revised model bilateral investment treaty (BIT) had been approved. The government of India had previously released a draft of the model BIT for public comment in April 2015 (see Legal update, India releases draft model BIT for comment). The final version of the model BIT retains many of the earlier draft investor-state dispute settlement (ISDS) provisions.
In addition, in December 2016, it was reported that negotiations between India and Brazil culminated in a near-final BIT between the two nations. Brazil is a country historically known for not having any BITs in force, despite signing several in the 1990s.
Notably, the India-Brazil BIT is reported not to contain any provision for investor-state arbitration, but provides for a tiered dispute resolution method, including in particular, the use of an ombudsman, state-to-state arbitration and procedures for dispute prevention. Similar to the provisions of the Indian Model BIT, significant omissions from the India-Brazil BIT include the familiar fair and equitable treatment (FET) standard and the most favoured nation (MFN) treatment standard. More clarity will be available when the full text of the India-Brazil BIT is released (see Legal update India and Brazil conclude negotiations of bilateral investment treaty).
ISDS provisions in EU free trade agreements
The free trade agreements being negotiated between the EU and other countries remained a hot topic in 2016, with the arbitration world particularly interested in the investor-state dispute settlement (ISDS) provisions and the proposal for an investment court to replace investor-state arbitration.
In February, the European Commission (EC) released the agreed text of the EU-Vietnam free trade agreement, which contained many elements of the EU's ISDS "wish list", including a two-tier investment tribunal (see Legal update, European Commission releases proposed text of EU-Vietnam FTA). This was followed in March by the re-working of the ISDS chapter of the EU-Canada Comprehensive Economic Trade Agreement (CETA) to include provisions that largely reflected the EC's new approach to ISDS (see Legal update, CETA now includes EU proposals for ISDS reform).
In the second half of the year, the focus shifted to the more fundamental question of how the UK's vote to leave the EU (Brexit) will affect the pending trade agreements. The CETA was signed at the end of October and as the EC has proposed it as a "mixed" agreement, it will require ratification by the EU and all member states through the relevant national ratification procedures. While the UK remains part of the EU, it will presumably proceed with ratification. However, some commentators believe that once the UK has left, the remaining member states will have to ratify the agreement again (see Legal updates, EC proposes signature and provisional application of CETA and Comprehensive Economic and Trade Agreement (CETA) signed by EU and Canada).
In the case of the Transatlantic Trade and Investment Partnership (TTIP) being negotiated with the US, there is uncertainty as to whether it will proceed any further, once President-elect Donald Trump is in position.
Nevertheless, the year ended with the EC and the Canadian government co-hosting discussions on a multilateral investment court. This was intended to be the first in a series of meetings to take place in the next year (see Legal update, Arbitration news round-up to 14 December 2016).
For further comment, see also Blog posts, The EU flexes its muscles: update on EU foreign investment disputes, Has the time come for the establishment of a permanent investment court? The 'ayes' have it, The European Union, investment treaties and investment arbitration post-Brexit and President-elect Trump and the future of TPP, TTIP and NAFTA.
Gender diversity in arbitration
One of the most interesting developments this year came in the form of the Equal Representation in Arbitration Pledge, which was launched in May, with the aim of improving the representation of women in arbitration and furthering the appointment of women as arbitrators (see Legal update, Equal Representation in Arbitration Pledge launched and Blog post, Launch of the Equal Representation in Arbitration Pledge). The Pledge has been met with wide acclaim and, as of 14 December 2016, has 1593 signatories - including law firms, barristers' chambers, multinational corporations, arbitral institutions, academics and arbitrators, as well as many individuals. In September 2016, the Steering Committee of the Pledge also launched a new search facility to assist users in identifying a suitably qualified female arbitrator (see Blog post, New female arbitrator search tool launched to promote greater equality in arbitration). Since the launch there have been many initiatives to raise awareness of gender diversity issues, including some institutions publishing gender statistics on the number of female appointments, as well as projects by other organisations (for example, by ArbitralWomen and Arbitrator Intelligence). It is also notable that this year the Administrative Appeals Court in the Eastern Province of Saudi Arabia appointed the first female commercial arbitrator in a commercial case (see Legal update, Arbitration news round-up to 7 September 2016). Most recently, in December 2016, the LCIA provided an update on the implementation of the pledge, including tangible actions to take (see Legal update, LCIA gives update on Equal Representation in Arbitration Pledge).
ICCA Mauritius 2016
ICCA Mauritius 2016, the first ICCA Congress to be held in Africa, took place between 8 and 11 May. The Congress was attended by around 800 delegates, of whom about a third came from Africa. The theme of the Congress was international arbitration's contribution to, and conformity with, the rule of law. Various speakers called for the "relocalisation" of arbitrations involving African parties onto African soil, though acknowledging that in the context of the rule of law, there is a need for modern arbitration laws and supportive courts.
For further information on ICCA Mauritius 2016, see Legal update, ICCA Mauritius 2016: a first for Africa.
Case law
British Virgin Isles (BVI)
Privy Council upholds optional arbitration clause and stays court proceedings
In Anzen v Hermes One Limited (British Virgin Islands) [2016] UKPC 1, the Judicial Committee of the Privy Council rendered a decision which may have significant repercussions on drafting arbitration clauses. On appeal from decisions of the British Virgin Islands (BVI) courts, the Privy Council considered an arbitration agreement that provided that any party "may" submit a dispute to arbitration. It found that the word "may" was "permissive", in that the wording did not prevent a party from starting litigation, but gave the other parties an option to require arbitration. It went on to allow a stay of court proceedings in favour of arbitration, finding that it was not necessary for a party to commence an arbitration before requiring the party that had commenced litigation to submit the dispute to arbitration. While the Privy Council applied "commercial sense” to reach its conclusion that the clause was an optional arbitration clause, it may be sensible to avoid such permissive language when drafting clauses, to avoid these uncertainties.
China
China court refuses recognition and enforcement of ICC award on basis of public policy
In June 2016, the Taizhou Intermediate People's Court of Jiangsu Province (Taizhou Court) denied the recognition and enforcement of an ICC award on public policy grounds, the second time a Chinese court has refused enforcement on that basis. On this occasion, the Taizhou Court found that the award violated public policy because it conflicted with an earlier effective and binding Chinese court ruling, which held that the underlying arbitration clause was invalid. The decision indicates that the Chinese courts may refuse to enforce foreign arbitral awards that conflict with an earlier Chinese court ruling on public policy grounds.
For detailed discussion of this case, see Legal update, Taizhou Intermediate People's Court refuses recognition and enforcement of ICC award on basis of public policy.
England and Wales
There have been several interesting and, in some cases, controversial decisions from the English courts. We mention three below, but for full details of our pick of English cases, see Article, Practical Law Arbitration: Top 10 English cases in 2016.
Application to set aside award for apparent bias highlights weaknesses in IBA Guidelines on Conflicts of Interest
In W Ltd v M SDN BHD [2016] EWHC 422 (Comm), the Commercial Court dismissed an application under section 68 of the Arbitration Act 1996 (AA 1996) to set aside an award on the ground of apparent bias on the part of the arbitrator. The applicant relied on the fact that the arbitrator was a partner in a law firm that had provided legal advice to (and received substantial remuneration from) an affiliate of the claimant. According to the applicant, this breached a provision of the Non-Waivable Red List of the IBA Guidelines on Conflicts of Interest 2014.
The judge held that the evidence did not establish apparent bias. In considering the IBA Guidelines, he noted that there were some weaknesses in the drafting of the Non-Waivable Red List. In particular, the IBA Guidelines appeared to contemplate an assumption of bias in circumstances where a close examination of the evidence would be more appropriate. Furthermore, it was difficult to see why the circumstances of the present case should not be waivable by the parties, if disclosed.
While the IBA Guidelines are widely applied in international arbitration, this decision is a reminder that they remain precisely that: guidelines. Analysis of the facts of any particular case may lead to different conclusions when the law of the seat of arbitration is applied.
For further details, see Legal update, "Weaknesses" in IBA Guidelines on Conflicts of Interest (English Commercial Court).
Recoverability of funding costs
As briefly mentioned in Third party funding above, in Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm), an arbitrator in an ICC arbitration made a partial award, ordering Essar to pay costs on an indemnity basis, including £1.94 million which Norscot had paid to a third party funder.
HHJ Waksman QC (sitting as a judge of the High Court) rejected Essar's challenge to the award for serious irregularity under section 68 (2)(b) of the AA 1996, holding that the third party funding costs were recoverable, in principle, under section 59(1)(c) of AA 1996 and the applicable ICC Arbitration Rules. The court held that the third party funding costs fell within the ambit of "other costs", as referred to in section 59(1)(c), and that a tribunal's statutory power to award costs is expressed in the broadest terms and is not constrained by the Civil Procedure Rules.
While the facts of this case were extreme, the confirmation (albeit strictly obiter) that funding costs are, in principle, recoverable as "other costs" is likely to make funding even more attractive to claimants in arbitration. This is at a time when success fees are no longer recoverable in English court proceedings.
For further details see Legal update, Third party funder fees recoverable as costs of arbitration (English Commercial Court) and Blog posts, A dormant advantage of arbitration emerges: arbitrators have the power to order a losing party to pay claimant's third party litigation funding costs, Making waves: the decision in Essar v Norscot: a view from the Bar, and Out of step with the market? The English court's decision that third party funding can be awarded as “costs” to a successful claimant.
Court's jurisdiction to grant emergency interim relief limited by emergency arbitrator provisions
In Gerald Metals SA v Trustees of the Timis Trust and others [2016] EWHC 2327, the English Commercial Court ruled that the emergency arbitrator provisions contained in the LCIA Arbitration Rules effectively removed the court's power to grant urgent relief in support of arbitration under section 44 of the AA 1996.
The claimant had applied to the LCIA for the appointment of an emergency arbitrator, but the application was rejected. Therefore, the claimant applied to the court for urgent relief under section 44. Rejecting the application, the court held that the test of "urgency" under the LCIA provisions was effectively the same as that under section 44. Therefore, the powers of the court and the LCIA overlapped, and the court was not entitled to intervene because of section 44(5), which precludes the court from acting unless the relevant arbitral body has no power or is unable for the time being to act effectively.
The effect of this judgment appears to be that the LCIA emergency arbitrator provisions have limited the court's section 44 power to cases that are too urgent to await the appointment of an emergency arbitrator.
For further details about this decision and its implications, see Legal update, LCIA emergency arbitrator provisions limit court’s power to grant freezing injunction in support of arbitration (English Commercial Court) and Blog post, Emergency arbitrators at the expense of urgent relief from the English courts: a trade-off worth making?
France
French Conseil d'Etat partially annuls award relating to administrative contract on public policy grounds
In Conseil d'État, Seventh Chamber of the Litigation Section, 9 November 2016, No.388806, the Conseil d'État, France's highest administrative jurisdiction, partially annulled an arbitral award arising out of a public law contract, and ruled on the scope of its power to review such awards. That review is limited to the illegality of the contract, any irregularities in the circumstances in which the award was made, and violation of public policy as a result of either enforcement of a contract with an unlawful object or a serious defect in the parties' consent, or violation of rules from which public entities cannot derogate.
While the scope of review of international arbitration awards had seemed to be settled under French law, this decision muddies the waters, in particular in relation to the concept of public policy.
For detailed discussion about this case and its implications, see Legal update, French Conseil d'État partially annuls award relating to administrative contract on public policy grounds.
French Supreme Court declares inadmissible appeal of Court of Appeal's decision to seek opinion from CJEU
In Cass. Civ. 1re, 18 novembre 2015, no.14-26.482, the French Supreme Court held that an appeal from the Paris Court of Appeal's decision to seek a ruling from the Court of Justice of the European Union (CJEU) was inadmissible.
The applicant sought to set aside an award on the ground that it breached European competition law and, therefore, international public policy. The Supreme Court found that the Court of Appeal had not undertaken a review of the award under Article 1520 5° of the French Code of Civil Procedure, but had simply exercised its right, under Article 267 of the Treaty on the Functioning of the European Union (TFEU), to refer a question on the "interpretation of the Treaties" to the CJEU. Moreover, the Court of Appeal had not reached a decision on the merits of the applicant's application. Accordingly, an appeal to the Supreme Court was not permitted under French procedural rules.
This decision confirms that the French courts retain the right to refer questions on the interpretation of treaties to the CJEU, even when exercising their supervisory jurisdiction over international arbitrations seated in France.
For detailed discussion of this case, see Legal update, French Supreme Court declares inadmissible appeal of Court of Appeal's decision to seek opinion from CJEU.
Paris Court of Appeal upholds challenge to ICC treaty award
In Cour D'Appel de Paris, Pole 1 - Chambre 1, 15 March 2016, no.14/19164, the Paris Court of Appeal upheld a challenge to an ICC award, finding that the sole arbitrator had awarded damages on a basis that had not been pleaded by the claimants and on which Madagascar had not had an opportunity to comment. This breached the adversarial principle applicable under the French Code of Civil Procedure.
This decision was a rare example of a successful challenge to an award in France, and provides a helpful reminder of the Court of Appeal's supervisory role over French-seated arbitrations and its ability to annul awards where a tribunal exceeds its powers and duties.
For detailed discussion of this case, see Legal update, Paris Court of Appeal upholds challenge to ICC treaty award and rejects third party intervention in resisting application to set aside.
Germany
German Federal Court of Justice requests guidance from ECJ on compatibility of intra-EU BITs with EU law
In Docket No. I ZB 2/15, the German Federal Court of Justice stayed proceedings initiated by Slovakia to set aside an award granted to Dutch investor, Achmea (formerly Eureko BV) in a claim for damages under the Slovakia-Netherlands bilateral investment treaty (BIT). Invoking Article 267 of the Treaty on the Functioning of the European Union (TFEU), the court sought guidance from the Court of Justice of the European Union (CJEU) on whether an arbitration clause contained within an intra-EU BIT is compatible with EU law.
The court's view was that intra-EU BITs are compatible with EU law, with Articles 344, 267 and 18 of the TFEU not posing an obstacle to the applicability of arbitration clauses contained within them. However, that view is at odds with the European Commission's position that arbitration clauses contained in intra-EU BITs are inconsistent with EU law, and that tribunals do not have jurisdiction to decide disputes between member states and investors from another member state.
As a result of the Federal Court of Justice's reference, the CJEU will now have to take a position on intra-EU BITs.
For detailed discussion of this case, see Legal update, German Federal Court of Justice requests guidance from ECJ on compatibility of intra-EU BITs with EU law.
Pechstein case: German Federal Court of Justice finds that CAS arbitration agreements are valid
In Docket No KZR 6/15, the Federal Court of Justice held that the arbitration agreements in athletes' agreements with the German Skating Union and the International Skating Union (ISU), providing for arbitration before the Court of Arbitration for Sport (CAS), were valid. The court held that, despite the ISU's market-dominating position, this position was not abused by the ISU requiring athletes to submit to CAS arbitration. Therefore, the skater, Claudia Pechstein, was barred from making a claim in the German courts for damages arising out of her doping ban.
While it expressed doubts about the CAS' arbitrator selection process, the court placed particular emphasis on the aligned interests of athletes and sports unions in fighting doping on an internationally consistent basis, concluding that this was only possible by submitting disputes to a uniform disputes body.
The decision is consistent with the long-standing case law of the Swiss Supreme Court, to the effect that arbitration clauses in athletes' agreements are valid even though athletes are forced to accept the arbitration clauses in order to be able to actively participate in their sport.
For detailed discussion of this case, see Legal update, German Federal Court of Justice finds that CAS arbitration agreements are valid.
Court must deal with challenge to preliminary jurisdiction ruling even if final award on merits rendered
In Docket No I ZB 1/15, the first chamber of the Federal Court of Justice held that it had to decide a challenge to the tribunal's jurisdictional ruling, even though the tribunal had already made a final award. The claimant had challenged the tribunal's ruling before the Higher Regional Court of Frankfurt. Having lost, it appealed to the Federal Court of Justice. While the appeal was pending, the tribunal issued an award on the merits.
The decision is in contrast to the Federal Court of Justice's decision in Achmea v Slovakia (see Legal update, German Federal Court of Justice indicates that it will not decide on validity of interim award on jurisdiction between investor and EU Member State. According to the Federal Court of Justice in this latest case, a party is entitled to insist on a final decision on the preliminary ruling on jurisdiction. After that decision, the parties have three months to challenge the award on the merits.
For detailed discussion of this case, see Legal update, Legal relief from tribunal's preliminary ruling on jurisdiction required even where final award rendered (German Federal Court of Justice).
Hong Kong
Astro appeal
In December 2016, in Astro Nusantara International BV and others v Pt Ayunda Prima Mitra and others, CACV 272/2015, the Hong Kong Court of Appeal (CA) dismissed an appeal by First Media against an order granting leave to enforce in Hong Kong various arbitral awards made in Singapore in favour of Astro. First Media did succeed in overturning one limb of the first instance decision, in which Chow J held it had breached the principle of good faith by participating in the arbitration (albeit under protest) and then raising objections to jurisdiction at the enforcement stage. However, First Media failed to persuade the CA that its application to set aside the enforcement order should succeed despite having been made fourteen months out of time.
The decision brings Hong Kong law into line with Singapore on parties' right to elect "active" or "passive" remedies in arbitral proceedings. However, the principle that arbitrations should be resolved with "speedy finality" prevailed, and the CA declined to interfere with the judge's refusal to extend time for the application to set aside the enforcement order in Hong Kong.
For further details, see Legal update, Astro v Lippo: First Media's Hong Kong appeal dismissed.
Court stays proceedings in favour of arbitration involving escalation clause
In William Lim and another v Hung Ka Hai Clement and others (HCA 1282/2016), the Hong Kong Court of First Instance (CFI) stayed court proceedings in favour of arbitration where the dispute was subject to an agreement containing an escalation clause. The clause provided for certain steps to be taken, failing which the dispute was then to be referred to arbitration. The decision confirms the low threshold that an applicant must meet to secure a stay of court proceedings in favour of arbitration, namely that there is a prima facie case that the parties are bound by an arbitration clause.
For detailed discussion of this case, see Legal update, Hong Kong Court stays court proceedings in favour of arbitration under escalation clause.
Court refused to grant injunction to restrain party from court proceedings in favour of arbitration
The Hong Kong CA decision in Sea Powerful II Special Maritime Enterprises (ENE) v Bank of China Limited [2016] HKEC 1150, highlighted the need for parties to act promptly when applying for an injunction to restrain foreign court proceedings in favour of arbitration. The CA refused to grant an anti-suit injunction in this case because the applicant had delayed its application until the arbitral limitation period had expired, in what appeared to be an attempt to deprive the other party of its contractual right to arbitrate.
For further discussion of this case, see Legal update, Hong Kong Court of Appeal denies anti-suit injunction on grounds of delay and comity.
Courts demonstrate willingness to set aside awards when necessary
This year, both the Hong Kong CA and the CFI have demonstrated that even pro-arbitration jurisdictions like Hong Kong will be willing to set aside awards when necessary.
In Sun Tian Gang v Hong Kong & China Gas (Jilin) Ltd [2016] HKEC 2128, the CFI took the rare step of setting aside an award when it found that the plaintiff was not given proper notice of the arbitral proceedings and was not able to present its case due to his incarceration. While the facts of this case are exceptional, the case highlights that fairness and due process underpin the arbitral process and are pre-requisites for the recognition and enforcement of awards in Hong Kong.
In China Property Development (Holdings) Ltd v Mandecly Ltd and others CACV 92 & 93/2015, the CA provided another useful illustration when it affirmed a CFI decision partially setting aside an award where the applicant had been denied an opportunity to present its case on certain issues. Interestingly, the CA went further than the CFI, finding that the award was also liable to be set aside on the ground that it dealt with a dispute not contemplated or falling within the terms of the submission to arbitration.
Investment treaty arbitration
This year saw a number of notable investment treaty decisions, these include an ICSID tribunal's decision to order restitution and moral damages to Swiss and German investors in Zimbabwe on the basis of, among others things, racial discrimination, which although made in July 2015 was only published in 2016 (see Legal update, ICSID tribunal considers restitution and compensation measures to Zimbabwean investors: full update). In addition, the ICSID tribunal in Getma International and others v Republic of Guinea (ICSID Case No ARB/11/29) issued a final ruling rejecting Getma's expropriation claim brought under the 1987 Guinean Foreign Investment Law (see Legal update, ICSID tribunal rejects expropriation claim: Getma v Guinea). The decision is notable for the controversy surrounding the annulment of an earlier OHADA award, which was upheld by the US District Court of Columbia. The annulment was publicly criticised by the OHADA tribunal, which wrote an open letter to the arbitration community.
Tribunal's power to re-open previous decisions
The question of whether ICSID tribunals have power under the ICSID Convention to re-open decisions has been highlighted, with tribunals in two cases reaching different conclusions. In Standard Chartered Bank (Hong Kong) Ltd v Tanzania Electric Supply C Ltd (TANESCO) (ICSID Case No. ARB/10/20), an ICSID tribunal, for the first time, decided that it had the power under the ICSID Convention to re-open and reverse an earlier decision on jurisdiction and liability (see Legal update, Tribunal has power to re-open previous decisions (ICSID)). The tribunal in Niko Resources (Bangladesh) Ltd v Bangladesh Petroleum Exploration & Production Co Ltd and Bangladesh Oil Gas and Mineral Corp (ICSID Case Nos ARB/10/11 and ARB/10/18) reached the opposite decision (see Legal update, ICSID tribunal denies request to reconsider payment decision issued before final award).
It has to be said that the facts of Standard Chartered Bank were relatively extreme, involving deliberate and misleading withholding of material information from the tribunal at the time the first decision was made. The award does not address the precise scope of the power, nor the other circumstances in which it might properly be exercised. Likewise, in Niko Resources, the tribunal left undecided the question whether ICSID tribunals have power to re-open decisions. These are matters that must await further clarification.
ECT renewable energy claims against Spain
Having created a favourable regime for investment in renewable energy in the early 2000s, following the global financial crisis and flooding of the market, Spain amended its legislation, causing significant reduction in revenue for many renewable energy investors in Spain. Since the reform, 25 cases have been brought against Spain under the Energy Charter Treaty (ECT). Certain other European countries (for example, Italy and the Czech Republic) have also seen similar cases brought against them. The cases are notable not least because of the European Commission's participation as amicus curiae in support of respondent countries, arguing that European investors are precluded from bringing claims against European states under the ECT.
The first award was rendered in Charanne BV and Construction Investments SARL v The Kingdom of Spain (Arbitration No: 062/2012) (SCC Award), where an SCC tribunal unanimously held that it had jurisdiction to hear claims brought under the ECT by Dutch and Luxembourg investors. However, the majority of the tribunal rejected the claims for illegal indirect expropriation and breach of the fair and equitable treatment standard (see Legal update, Majority SCC tribunal rejects ECT renewable energy claims against Spain). It is thought that future cases may stand a greater chance of success on the merits since in Charanne, the tribunal did not consider measures taken by Spain in 2013 and 2014 because the claims were filed before those measures were implemented.
The second decision was in RREEF Infrastructure (G.P.) Limited and another v Kingdom of Spain (ICSID Case No. ARB/13/30), where an ICSID tribunal unanimously rejected almost all of Spain's jurisdictional objections. Citing Charanne, it held that there was no contradiction between the dispute resolution provisions of the Treaty on the Functioning of the EU (TFEU) and the ECT. Even if there was, an ECT tribunal would have to apply the ECT in preference over the TFEU (see Legal update, ICSID tribunal dismisses almost all jurisdictional objections to ECT claims against Spain.) One of the jurisdictional objections which related to the exclusion of tax measures from the ambit of the ECT has been held over to the merits phase of the proceedings.
Challenges to Yves Fortier QC
Venezuela has made its presence felt on the investment treaty arbitration scene with its repeated challenges to Yves Fortier QC, who is hearing two ICSID cases against the state. Venezuela brought six challenges against Mr Fortier in ConocoPhillips Petrozuata BV and others v Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30) (discussed in Legal updates, Venezuela's sixth challenge to Mr Fortier dismissed and ICSID tribunal rejects fourth arbitrator challenge by Venezuela), and three challenges against him in Fabrica de Vidrios Los Andes CA and another v Bolivarian Republic of Venezuela (ICSID Case No. ARB/12/21) (discussed in Legal updates, Venezuela's third challenge to Dutch investors' arbitrator denied and Unmeritorious challenge to ICSID arbitrator punished in costs by unchallenged tribunal members). All challenges were based on Mr Fortier's continued ties to Norton Rose Fullbright LLP, which acts for clients in proceedings against Venezuela. All challenges have been dismissed but it will be interesting to see whether with these challenges, Venezuela is paving the way to challenge any award rendered against it.
Philip Morris
2016 saw the long-awaited decisions in two cases brought by Philip Morris (PM) against Australia and Uruguay respectively, concerning tobacco packaging laws. The Permanent Court of Arbitration published in redacted form the jurisdiction and admissibility award in Philip Morris Asia Limited v The Commonwealth of Australia (PCA Case No. 2012-12) (rendered on 17 December 2015). The UNCITRAL tribunal found the claims inadmissible on the basis that PM's restructuring to enable it to bring claims under the Hong Kong-Australia BIT, was an abuse of rights, which precluded the tribunal from taking jurisdiction over the case (see Legal update, PCA publishes jurisdiction and admissibility award against Philip Morris).
In July 2016, an ICSID majority tribunal, having accepted jurisdiction over PM's claims against Uruguay, proceeded to reject the claims on the merits (see Legal update, ICSID majority tribunal rejects Philip Morris claims against Uruguay). The majority found that the legislative measures taken by Uruguay were in the legitimate exercise of police powers for the purpose of protecting public health. PM's nominated arbitrator, Gary Born, issued a partial dissenting opinion on the issues of denial of justice and arbitrariness which he concluded Uruguay displayed. PM filed a request to rectify the award under Article 49(2) of the ICSID Convention on the basis of various errors, including an alleged misrepresentation of PM's legal position. The tribunal granted certain requests, but concluded that that any misinterpretation of PM's position by potential readers did not constitute a valid reason to rectify the award (see Legal update, ICSID tribunal partially grants Philip Morris request for rectification).
For an opinion piece on the outcome of these proceedings against the backdrop of anti-investor-state dispute settlement (ISDS) groups, see Blog post, After Philip Morris II: states maintain their regulatory powers to control the plain packaging of cigarettes.
Qatar
Enforcement of ICC awards in Qatar
In Appeal No. 173/2016, the Qatari Court of Cassation clarifed the requirements for enforcement of ICC awards in Qatar. The court confirmed that none of the domestic requirements relating to certification and authentication of foreign official documents apply to international awards, thanks to the New York Convention. This judgment is a significant step in the right direction for arbitration in Qatar, especially where it concerns the hotly debated topic of enforcement of foreign awards.
For further discussion, see Legal update, Qatar Court of Cassation confirms conditions for the enforcement of ICC awards in Qatar.
Russian Federation
Stans Energy dispute with Kyrgyzstan
In January 2016, the Russian Supreme Court refused another attempt by Stans Energy Corporation (a Canadian company) to reinstate an arbitral award issued in its favour against Kyrgyzstan by a tribunal acting under the auspices of the Moscow Chamber of Commerce and Industry (MCCI). Both the Moscow Commercial Court and Cassation Court had set aside the award, finding that the tribunal lacked jurisdiction over the dispute as there was no valid arbitration agreement. The Supreme Court decision likely marks the end of the appeal process in respect of the decisions of the setting aside the MCCI award (see Legal update, Russian Supreme Court upholds lower courts' decisions vacating arbitral award due to lack of arbitration agreement with Kyrgyz Republic). However, it is understood that arbitral proceedings against Kyrgystan under the UNCITRAL Rules continue.
Moscow Court enforces LCIA consent award on reciprocity principles and not New York Convention
In North Financial Overseas Corp v Trellas Enterprises Ltd, Case No. A40-20248/16, the Commercial Court of Moscow enforced a London Court of International Arbitration (LCIA) consent award on the basis of principles of reciprocity, instead of applying the New York Convention (see Legal update, Commercial Court of Moscow recognises and enforces arbitral award without applying the New York Convention). This failure to duly apply arbitration law, albeit with positive results for the award creditor, is worrisome not least because it emanates from the Moscow Commercial Court, which is generally considered to be au fait with treaties such as the New York Convention.
Supreme Court applies doctrine of separability
In Ruling N 306-ES16-4741, the Russian Supreme Court applied the doctrine of separability to uphold the validity of an arbitration clause contained in an agreement held to be invalid. The Supreme Court therefore overturned the decisions of the commercial and cassation courts which had held that the invalidity of the underlying agreement led to the invalidity of the arbitration clause. The decision is encouraging because it shows that, like the Supreme Commercial Court before it, the Supreme Court has recognised and correctly applied the doctrine of separability. Interestingly, the Russian Arbitration Association submitted amicus curiae briefs containing a comparative analysis of the doctrine in various jurisdictions, which the Supreme Court appears to have accorded due consideration (see Legal update, Russian Supreme Court rules on separability of arbitration clause).
Singapore
Court of appeal finds that PRC-Laos BIT applies to Macau
In the highly anticipated judgment in Sanum Investments Ltd v Government of the Lao People's Democratic Republic [2016] SGCA 57, a five judge bench of the Singapore Court of Appeal (CA) reversed a High Court decision and reinstated an UNCITRAL tribunal's ruling that it had jurisdiction under the People's Republic of China (PRC) and Laos bilateral investment treaty (BIT), over expropriation claims brought against Laos by a Macau investor. China and Laos signed the BIT in 1993, six years before the PRC resumed sovereignty over Macau and established it as a Special Administrative Region. The BIT did not expressly state whether or not it would, in due course, apply to Macau. The CA conducted a de novo review of the tribunal's decision, to find that the BIT was presumed to apply to Macau, by virtue of Article 29 of the Vienna Convention on the Law of Treaties 1969 and Article 15 of the Vienna Convention on the Succession of States in respect of Treaties 1978.
This was the first time the Singapore courts have had to rule on the interpretation of a BIT and continues the trend of national courts holding that the jurisdiction of an investment tribunal is justiciable before national courts, and subject to de novo or "correctness" review.
The Chinese Foreign Ministry Spokesperson has subsequently rejected the CA's position taken in this case, declaring that the PRC-Laos BIT does not apply to Macau and that it is for the Chinese central government to decide whether or not international treaties to which China is a party apply to special administrative regions (see Legal update, Arbitration news round-up to 26 October 2016).
For further discussion of the case, see Legal update, Singapore Court of Appeal reinstates tribunal's finding that PRC-Laos BIT applies to Macau: full update.
Asymmetric arbitration agreements are valid and binding
In Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2016] SGHC 238, the Singapore High Court confirmed the validity of asymmetrical arbitration agreements under Singapore law for the first time. Asymmetric clauses (also known as "one-sided" or "unilateral option" clauses) have been in the spotlight in recent years with the validity and enforceability of such clauses being in question in some jurisdictions (see Checklist, Unilateral option clauses in arbitration: an international overview). The dispute resolution clause in the current dispute gave one party the right to elect to arbitrate the dispute and the court found that this contingency had not been satisfied. The court confirmed that where one party has a right to elect to submit a dispute to arbitration, but instead elects to commence court proceedings, the arbitration agreement is thereby rendered incapable of being performed with respect to that dispute. The decision has been appealed.
For further discussion of the case, see Legal update, Singapore High Court holds that asymmetric arbitration agreements are valid and binding.
Arbitrability of minority shareholder rights
In Maniach Pte Ltd v L Capital Jones Ltd and another [2016] SGHC 6, the Singapore High Court ruled that an action seeking damages for minority shareholder oppression was not arbitrable, and that such actions must be pursued through the courts. The court's decision was not only in contrast to its earlier ruling in Silica Investors Ltd v Tomolugen Holdings Ltd and others [2014] 3 SLR 815 (that whether a minority oppression dispute is arbitrable depends on the facts of each case) but also conflicts with the Court of Appeal's later ruling in Tomolugen Holdings Ltd and another v Silicia Investors Ltd [2015] SGCA 57, which found that minority shareholder oppression claims are arbitrable (see Legal update, Setting the stage: selecting suitable stadia for shareholder battles (Singapore Court of Appeal)).
The defendants in this case have appealed. Given that the Court of Appeal's decision in Tomolugen Holdings was handed down after this decision, it will be interesting to see if the Court of Appeal confirms its position that minority shareholder oppression claims are arbitrable under the Singapore International Arbitration Act.
For further discussion of the case, see Legal update, Arbitrability of minority shareholder rights in Singapore.
Switzerland
Failure to comply with mandatory pre-arbitral tier can result in stay of arbitration
In decision 4A_628/2015, the Swiss Supreme Court overturned an arbitral tribunal's jurisdictional award, finding that the claimant had not complied with the mandatory pre-arbitral step in the parties' multi-tiered dispute resolution clause. As such, it had prematurely commenced arbitration.
Importantly, the court went on to hold that, where a party commences arbitration without first complying with a mandatory pre-arbitration stage, the arbitral tribunal should stay the arbitral proceedings pending compliance with the pre-arbitral mechanism.
For further discussion, see Legal update, Failure to comply with mandatory pre-arbitral tier can result in stay of arbitration.
Parties bound by arbitration agreement in unsigned contract
In Decision 4A_84/2015, the Swiss Supreme Court held that, on the facts of this case, the parties were bound by an arbitration agreement, even though the underlying contract was never signed. Further, the Supreme Court held that the arbitration agreement satisfied the formal validity requirements of Articles 178(1) of the Private International Law Act (PILA), namely that it was in writing (a signature is not required).
Although usually lack of consent to an underlying contract will extend to the arbitration agreement contained within it, there are exceptions to that rule, for example, where the draft contract points to an agreement on arbitration even though no final agreement has been reached on other elements of the contract. Here, the parties had exchanged draft contracts, each time with various amendments, although none to the dispute resolution clause, which provided for arbitration of disputes.
For detailed discussion about this case and its implications, see Legal update, Can parties be bound to arbitration before signing a contract?
The Netherlands
The Yukos awards
The District Court of The Hague surprised the arbitration community when it decided to set aside the Energy Charter Treaty (ECT) awards (both interim and final awards) in favour of the former majority shareholders in Yukos against the Russian Federation worth over US$50 billion (see Legal update, The setting aside of the Yukos awards: full update and Blog post, Surprise, surprise: the setting aside of the Yukos awards).
Contrary to the approach that the arbitral tribunal took in its 2009 interim awards, the District Court came to the conclusion that Article 45(1) of the ECT (which provides for provisional application of the ECT to a signatory state) only applies in relation to the provisions that do not violate the laws of that signatory state. It then held that provisional application of the dispute resolution provision of the ECT would violate the Russian constitution.
The District Court's decision has of course been appealed and it remains to be seen whether this is a pyrrhic victory for Russia. The former Yukos shareholders were due to file their submissions in the appeal on 20 December 2016. Further, in September 2016, it was reported that the District Court of The Hague rejected the former shareholders' request to limit the appeal of the set aside decision to the application of the ECT, the ground relied on in the set aside decision. Instead, the court will also hear arguments in relation to Russia's other grounds of appeal, which were not considered in the set-aside proceedings.
In any event, the former Yukos shareholders have continued with certain enforcement proceedings and suspended others. In July 2016, the President of the Court of First Instance in Antwerp prohibited the former shareholders from levying attachment of tall ships to secure performance of the ECT awards (see Legal update, Yukos shareholders prevented from attaching tall ships in Antwerp). In October 2016, US District Court for the District of Columbia granted the former shareholders' request to stay the recognition and enforcement proceedings pending the outcome of the appeal of the set-aside proceedings in The Hague (see Legal update, Yukos Shareholders Entitled to a Stay of US Proceedings Pending Appeals in the Netherlands (DC District Court). Enforcement proceedings also continue in France (see Legal update, Paris courts' decisions on attachment of assets by Yukos shareholders) and Belgium where the Brussels Francophone Court of First Instance rejected Russia's attempt to overturn a USD1.8 billion enforcement order against it (on which we will report further in the new year).
Meanwhile, in separate proceedings related to the Yukos affair, the Swedish Supreme Court ruled in December 2016 that Spanish minority shareholders in Yukos could not appeal a Svea Court of Appeal decision setting aside a USD2 million SCC award in their favour.
United Arab Emirates (UAE)
Dubai Court of Cassation restates UAE's obligations under New York Convention
In Case No. 384/2016, Dubai's Court of Cassation overturned a decision by the Dubai Court of Appeal to refuse to recognise and enforce a London International Chamber of Commerce (ICC) award because there was no evidence before it that the UK was a signatory to the New York Convention. Although the outcome of the award creditor's appeal was anticipated, the Court of Cassation's judgment was nevertheless a welcome relief for investors and arbitration practitioners in the United Arab Emirates (UAE).
The court reiterated that, by virtue of Article 238 of the UAE Civil Procedures Code, the UAE courts are bound by the international treaties to which the UAE is a party, including the New York Convention, which was adopted by the UAE by Federal Decree No. 43 of 2006. It also expressly and correctly acknowledged that the UK has been a signatory to the New York Convention since 24 September 1974.
For further discussion of the case, see Legal update, Dubai's highest court reaffirms UAE's obligations under New York Convention.
DIFC Court refuses to grant anti-suit injunction
Brookfield Multiplex Constructions LLC v DIFC Investments LLC and another (DIFC CFI 020/2016) highlights the tension that can arise in Dubai between the existence of a binding arbitration agreement and the ability of parties (notwithstanding a binding arbitration clause) to obtain an order from an Onshore Court appointing an expert to opine on matters which appear to fall within the exclusive ambit of the arbitration agreement. It was in these circumstances that the DIFC Court refused to grant an anti-suit injunction. It found that, although the Onshore Court order appeared to permit the expert to determine issues of liability, causation and damage (that is, matters falling squarely within the ambit of the arbitration clause in the contract), as Dubai law stated that none of the expert's findings would be binding on any arbitral tribunal for the purpose of determining the substantive dispute between the parties, there was no need to grant the injunction sought. The decision also emphasises the DIFC Court's reluctance, in light of the unusual relationship between the two courts (being sister courts with separate court systems, within a single Emirate), to grant anti-suit injunctions where the rival court action in question is proceeding before the Onshore Court.
DIFC is the seat of arbitration by implication
In Gavin v Gaynor (DIFC CFI 017/2015), the DIFC Court of First Instance found that it had jurisdiction to hear an application for the appointment of an arbitrator to hear claims under an agreement governed by UAE law, subject to the jurisdiction of the "courts in Dubai, the UAE". That agreement contained an arbitration agreement which required "arbitration per the law of the United Arab Emirates" (with no reference to the DIFC). The DIFC Court nevertheless determined that the parties had impliedly chosen the DIFC as the seat of arbitration as the jurisdiction with "most connection" to the claim.
For further discussion, see Legal update, DIFC Court finds that the DIFC is the seat of arbitration by implication.
US
Public policy challenge fails where award did not violate basic notions of morality and justice
In PDV Sweeny, Inc. v ConocoPhillips Co., (2d Cir. Nov. 7, 2016), the US Court of Appeals for the Second Circuit in New York affirmed a lower district court's decision to deny the petition of Venezuela's state-owned oil company, PDVSA, to vacate an award arising from an International Chamber of Commerce (ICC) arbitration. PDVSA sought to vacate the award on public policy grounds. The Court of Appeals held that PDVSA was required to show that enforcement of the award would violate "basic notions of morality and justice" and PDVSA failed to meet that test. The decision demonstrates that while challenges on public policy grounds are available, they are rarely successful.
Principles of decency and fairness require domestic enforcement of nullified arbitration award
In Mexicana De Mantenimiento Integral v Pemex‐Exploración Y Producción (832 F.3d 92 (2d Cir. 2016), the US Court of Appeals for the Second Circuit affirmed the district court's judgment confirming an arbitration award in the US, even though a Mexican court judgment annulled the award. The court noted that the Panama Convention affords discretion in enforcing a foreign arbitral award that has been annulled in the awarding jurisdiction. The exercise of that discretion is appropriate under a limited public policy exception to vindicate fundamental notions of what is decent and just in the jurisdiction where enforcement is sought.
For a detailed discussion of this case, see Legal update, Principles of Decency and Fairness Require Domestic Enforcement of Nullified Arbitration Award: Second Circuit.
Mandatory arbitration agreements with class action waivers violate NLRA
In Morris v Ernst & Young (834 F.3d 975 (9th Cir. Aug. 2016), the Ninth Circuit held that mandatory arbitration agreements with "concerted action waivers" violate sections 7 and 8 of the National Labor Relations Act (NLRA). The Ninth Circuit concluded that the Federal Arbitration Act (FAA) does not require a different result. This decision advances a circuit split and could accelerate Supreme Court review. The Seventh and Ninth Circuits have adopted the National Labor Relations Board position that mandatory arbitration agreements are unenforceable if they contain class action waivers. The Fifth and Eighth Circuits have enforced mandatory arbitration agreements with class action waivers citing the FAA. (DR Horton, Inc. v NLRB, 737 F.3d 344 (5th Cir. 2013); Murphy Oil, Inc. v NLRB, 808 F.3d 1013 (5th Cir. 2015); Cellular Sales of Missouri, LLC v NLRB, 824 F.3d 772 (8th Cir. 2016); Lewis v Epic Sys. Corp., 823 F.3d. 1147 (7th Cir. 2016).)
For detailed discussion of this case, see Legal update, Ninth Circuit Holds that Mandatory Arbitration Agreements with Class Action Waivers Violate NLRA, Advances Circuit Split.
Czech arbitration award had sufficient connection to commerce to be enforceable under New York Convention
In Diag Human SE v Czech Republic-Ministry of Health, the US Court of Appeals for the District of Columbia reversed a lower court's refusal to enforce a New York Convention award on the ground that the parties did not have a pre-existing commercial relationship. The Court of Appeals held that under the Foreign Sovereign Immunities Act and the New York Convention, all that was required was "a defined legal relationship, whether contractual or not". The agreement at issue qualified as a defined legal relationship. The New York Convention also requires that the relationship be "commercial" but that term is understood to apply broadly.
Recognition and enforcement of China-seated arbitral award refused on the grounds of lack of notice
In CEEG (Shanghai) Solar Sci. & Tech. Co., Ltd v LUMOS LLC, 829 F.3d 1201 (10th Cir. 2016), the US Court of Appeals for the Tenth Circuit in Denver, Colorado affirmed a lower court's denial of a petition for recognition and enforcement, under the New York Convention, of a foreign arbitral award administered by the Shanghai International Arbitration Centre (SHIAC). The court refused recognition and enforcement because the notice of commencement of arbitration sent to the US respondent was in Chinese instead of in English. The court stated that the notice was not reasonably calculated to make the respondent aware of the arbitration proceedings.
For a detailed discussion of this case, see Legal update, US Tenth Circuit Court of Appeals Refuses Recognition and Enforcement of China-Seated Arbitral Award.