Posts Tagged Arbitrage
I reported earlier on Sulamerica and the need properly and preferably, expressly to provide for choice of law vis-a-vis arbitration agreements, in particular vis-a-vis three elements: lex arbitri, lex curia, lex contractus. In Shagang the High Court added its view on the possible relevance of a fourth factor: the geographical venue of the arbitration, and its impact in particular on the curial law: the law which determines the procedure which is to be followed.
Atlas Power Ltd -v- National Transmission and Despatch Co Ltd  EWHC 1052 is another good illustration of the relevance (but in practice: rarity) of the proper identification of all four factors.
Bracewell excellently identify the four take away points from Atlas Power:
- It is the seat of arbitration that determines the curial law of the arbitration, not the governing law of the contract.
- (To English Courts) the choice of the seat of arbitration is akin to an exclusive jurisdiction clause in favour of the courts of the place designated as the seat of the arbitration having the supervisory role over the arbitration.
- The English courts can and will use their powers to grant anti-suit injunctions to prevent a party from commencing foreign proceedings in breach of an arbitration agreement.
- Complex drafting increases the risk of satellite litigation and the accompanying delay and expense.
The core point which Atlas Power illustrates is that specific identification of arbitration venue, curial law, lex contractus and lex arbitri is best done in simple terms. Overcomplication, particularly variance of any of these four points, is a truly bad idea. Specifically: the arbitration clause in the contracts between the parties (text from Bracewell’s overview)
- Started by providing that the “arbitration shall be conducted in Lahore, Pakistan”.
- Then stated that if the value of the dispute was above a certain threshold or fell within a certain category, either party could require that the arbitration be conducted in London.
- Finally, the clause provided that, notwithstanding the previous sentences, either party may require that the arbitration of any dispute be conducted in London, provided that if the dispute did not satisfy the threshold or category requirements set out earlier in the clause the referring party would pay the costs of the arbitration incurred by the other party in excess of the costs that would have been incurred had the arbitration taken place in Pakistan.
Various procedural events led to Phillips J essentially having to decide: whether the parties had validly and lawfully chosen London as the seat of the arbitration (answer: yes); and whether, in light of Pakistani law (which was the law governing the contracts), the choice of London as the seat of arbitration did not result in the English courts having exclusive supervisory jurisdiction with the effect that the courts of Pakistan had at least concurrent jurisdiction (answer: no, for this would result in an unsatisfactory situation where more than one jurisdiction could entertain challenges to an award)
Variation of any litigation relevant articles really does open all sorts of cans of worms.
Location, location, location. Arbitration, curial and applicable law: Shagang v Daewoo confirms the importance of venue.
I reported earlier on Sulamerica and the need properly and preferably, expressly to provide for choice of law vis-a-vis arbitration agreements, in particular vis-a-vis three elements: lex arbitri, lex curia, lex contractus. The High Court has now added its view on the possible relevance of a fourth factor: the geographical venue of the arbitration, and its impact in particular on the curial law: the law which determines the procedure (e.g. such as here, the appointment of a sole arbitrator) which is to be followed.
Christopher Lockwood has a good summary of case and judgment here – I am happy to refer. Of most relevance is Hamblen J’s finding that while a choice of governing law (the substantive law of the contract) is often made express, it is far less common separately to identify curial law: most often, that is simply inferred from the place of arbitration. Moreover, while it is not commercially uncommon to separate procedure and governing law, it is quite uncommon to have ‘a bifurcation between the place of arbitration and the law governing the conduct of the arbitration there’ (at 25). In other words, seat, ‘curia’ of arbitration, which determines arbitral procedure, and geographical place or venue of arbitration, are not commonly separated. Any intention of the parties to do so, must be clearly expressed and cannot be implicitly inferred.
‘that the agreement that the arbitration is “to be held in Hong Kong” carries with it an implied choice of Hong Kong as the seat of the arbitration and of the application of Hong Kong law as the curial law.’ (at 56): location, dear readers: location, location, location.
Postscript 26 April 2016: the PCIA Yukos Arbitral award which I refer to below, was later squashed for lack of jurisdiction – that judgment is currently under appeal.
When should a court being asked to apply the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) – the ‘New York Convention‘, look mercifully on forum shopping with a view to the smooth enforcement of such award? That, in essence, was the issue in Yukos v Tomskneft at the Irish High Court. Both Yukos Capital and Tomskneft were originally part of the Yukos group – of PCIA Yukos arbitral award fame. Tomskneft was later transferred to Rosneft. Arbitral proceedings had taken place in Switzerland, Yukos’ attempts at enforcement in Russia failed, as they did in France. Singapore attempts are underway.
The Irish courts involvement at first view looks odd. There are no Tomskneft assets in Ireland, neither corporate domicile of any Tomskneft affiliates. As Kelly J noted, the Irish proceedings effectively would serve as a jack for proceedings in other jurisdictions where Tomskneft does hold assets. Waving a successful enforcement order (even if it were in practice nugatory, given the lack of assets) obtained in a ‘respectable’ jurisdiction, would assist with enforcement proceedings elsewhere.
The New York Convention has a pro-enforcement bias however the Irish (and other, especially common law countries’) arbitration act in enforcement of the Convention, runs alongside the application of Irish civil procedure rules ‘out of the jurisdiction’, being against a foreign defendant: Kelly J (at 59): ‘In implementing the Convention as it did, the legislature did not attempt to dispense with the necessity to obtain leave to serve out of the jurisdiction in a case where the respondent is not normally resident within it.‘
US law, too, requires that preliminary to recognising and enforcing a foreign award, in personam jurisdiction must be established. Decision on such remains subject to lex fori. A jurisdiction which all too happily entertains such cases is then said to employ ‘parochial’ or ‘exorbitant’ jurisdictional rules.
In the case at issue, after referencing prior case-law both in Ireland and elsewhere, Kelly J rejected applicant’s request (at 141): ‘It is a case with no connection with Ireland. There are no assets within this jurisdiction. There is no real likelihood of assets coming into this jurisdiction. This is the fourth attempt on the part of the applicant to enforce this award. There is little to demonstrate any “solid practical benefit” to be gained by the applicant. The desire or entitlement to obtain an award from a “respectable” court has already been exercised in the courts of France and is underway in the courts of Singapore.‘
Note therefore that the court is not unsympathetic to the attempt at employing successful (even if hollow) enforcement in one jurisdiction as a lever in the real target jurisdiction (the one with the assets). Except, in the case at issue, similar attempts had already been or still were underway elsewhere.
The case is a very good illustration of the attraction (and uncertainty) of forum shopping, in particular at the enforcement stage. As well as a powerful reminder of the in personam jurisdictional rules of the common law.
here); and the circulation of arbitral awards and arbitration-related judgments, including the issue of the conclusive and preclusive effects of prior arbitral awards in relation to conflicting judgments (res judicata issues: including whether the priority which the Brussels I-Regulation concedes to the New York Convention, means that a court in a Member State can or indeed must give priority to a conflicting arbitral award over a judgment of the court of another EU Member State).the existence of parallel arbitration and judicial proceedings (lis pendens issues; see also
A great kick-off to a continuing debate. Geert.
Sulamerica applied in Arsanovia – Expressly excluding parts of a national law may lead to that law being lex arbitri.
In Arsanovia, the High Court applied the Sulamerica test for identifying the lex arbitri (see here for the judgment in Sulamerica and for the notion ‘lex arbitri’). Hodges, Kaplan and Godwin excellently review the various other elements of the case here. For current blog the finding on lex arbitri is the most relevant. In particular, Smith J found of high relevance the fact that parties had excluded part of the Indian arbitration Act: at 20:
There is another consideration that to my mind is relevant in this case: that the arbitration agreement included a specific agreement not to seek interim relief under the Indian Arbitration and Conciliation Act, 1996 (“IACA”), including section 9 of that Act, and that the provisions of Part 1 of IACA were expressly excluded.(…) as I see it (…), where parties have expressly excluded specific statutory provisions of a law, the natural inference is that they understood and intended that otherwise that law would apply. Therefore to my mind the reference to IACA in the arbitration agreement supports the claimants’ contention that the parties evinced an intention that the arbitration agreement should be governed by Indian law (except in so far as they agreed otherwise).
It is not uncommon in identifying applicable law (in this case, for the arbitration agreement) to employ selective cancellation of a national aw as evidence of intention for that law to be applicable for the remainder. Whether that intention is properly present in the agreement, in the absence of a specific choice of law clause, inevitably is subject to the discretion of the bench. In the case at issue, the High Court was not swayed by the consideration that the partial exclusion of IACA was intended simply to obstruct Indian case-law on the wide jurisdictional reach of IACA in temporary relief, even for arbitration proceedings taking place outside of India.
The lesson is always the same: choose carefully, and explicitly.