Atlas Power. Some heavy High Court lifting on Arbitration, curial and applicable law.

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  [2018] 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:

  1. It is the seat of arbitration that determines the curial law of the arbitration, not the governing law of the contract.
  2. (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.
  3. 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.
  4. 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)

  1. Started by providing that the “arbitration shall be conducted in Lahore, Pakistan”.
  2. 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.
  3. 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.

Geert.

 

Privy Council in National Housing Trust: Curial law /law of the seat of arbitration determines power to award interest

The Privy Council does not all that often (well, that is actually relative: 47 times already in 2015; that’s not a bad working load for a supreme court) rear its judiciary head. In National Housing Trust it did viz the powers of an arbitrator in respect of an aborted joint-venture in Jamaica. (For particulars of the case, see here). The case concerns the jurisdiction to make, and legitimacy of a supplementary award by an arbitrator, of compound interest.

Arbitration leads to a myriad of applicable law to be decided: one has to ascertain

lex arbitri (the law of the arbitration agreement: ie the law applicable to parties’ agreement to make recourse to arbitration);

the curial law or the ‘law of the seat’ (the procedural law which will guide the arbitration proceedings; despite the latin curia not commonly referred to as lex curia);

and the ‘proper law’, the law that governs the actual contract (lex contractus), of which the arbitration agreement forms a part.

In National Housing Trust, the Privy Council held that first and foremost, the issue of compound interest (indeed the powers of the arbitrator as a whole) is subject to agreement between the parties. Failing such agreement, it is the law of the seat of arbitration which determines the arbitrator’s powers.

Many ADR clauses are boilerplate and last-minute. National Housing Trust once again shows that adding such midnight clauses without much consideration, may come back to haunt parties.

Geert.

 

Gazprom. Arbitral anti-suit injunctions and the Judgments Regulation. Grand Chamber holds they are outside the scope, but not therefore invincible.

The ECJ today has held in C-536/13 Gazprom in a matter of factly manner (I had suspected the Court would be brief), that the enforcement of arbitral awards falls outside the Brussels I-Regulation, where that enforcement by the court of that State, effectively prohibits the party concerned from taking the case to a court in that very Member State. Rich was the main formula referred to, among the various precedents: ‘reference must be made solely to the subject-matter of the dispute‘ to assess the scope of Brussels I’s arbitral exclusion.

Importantly, West Tankers was distinguished particularly on the basis that in the facts at issue, there was no competing court in another Member State, hence no scope for the principle of mutual trust to be violated. The AG’s review of the impact of the recitals newly added by the Brussels I recast, was not addressed at all by the Court.

The judgment does not solve all outstanding issues, however. Firstly, the Court’s reasoning seems to suggest that where competition with a court in another Member State is at issue, effet utile of the Brussels I Regulation might take the upper hand, as it did in West Tankers. Recognition of the award arguably in such case would amount to anti-suit. Further, the Court (this was a Grand Chamber judgment) points out that the award still has to go through the national court’s standard recognition and enforcement process, outside the framework of Title III of the Regulation, instead governed by national residual law as well as the New York Convention. Both of these (including through ordre public) might still offer quite a remit for the Lithuanian courts to refuse recognition.

Geert.

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.

Geert.

 

Does the EU need an arbitration Regulation?

the existence of parallel arbitration and judicial proceedings (lis pendens issues; see also 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).

A great kick-off to a continuing debate. Geert.

 

Habas and VSC: Lex arbitri, the bootstrap principle and the irrelevance of ultra vires /excess of authority..

Postscript 1 March 2016 for a similar exercise in Greece, see here.

In abas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd [2013] EWHC 4071 (Comm) the Commercial Court applied the Sulamerica route (subsequently applied in Arsanovia) to determine the lex arbitri: the law applicable to the arbitration agreement. Chosen seat of arbitration proved a strong argument to identify the closest and most real connection, in spite of the argument raised that agents for the Claimant had exceeded their authority in agreeing to the arbitration agreement.

The dispute between the Claimant (“Habas”) a company incorporated in Turkey, and the Defendant (“VSC”), a company incorporated in Hong Kong, arose out an alleged contract for the sale by Habas and purchase by VSC of Reinforcing Bars (Steel) for shipment from Turkey to Hong Kong.  Following a contested hearing, the Tribunal, issued an Award dated 10 July 2012. Habas challenges the Tribunal’s jurisdiction and its Award on the grounds that the Tribunal erred in finding that there was a binding arbitration agreement made between the parties because:

(1) Steel Park and/or Charter Alpha did not have actual or ostensible authority to conclude the London arbitration agreement on behalf of Habas; and

(2) there was no binding consensus on the terms of the London arbitration agreement.

The Court’s decision is crucial in further illustrating the matrix which English courts will follow in determining lex arbitri. In dismissing relevance of the alleged lack of authority, it also highlights the impact of the ‘bootstrap’ principle: Hamblen J at 109: validity is determined by the putative proper law of the contract. Determining closest connection involves a consideration of the terms of the contract as made, rather than the authority with which it was made. EU conflict of laws, too, follows this principle (in the Rome I Regulation and the recast Brussels I Regulation; with one or two corrections).

Key therefore: the bootstrap principle; as well as the usual suspect: better expressis verbis agree lex arbitri.

Geert.

Applicable law and arbitration clauses – lex arbitri, lex curia, lex contractus – The English view in Sulamerica

Update 22 June 2020 see Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82 for a view from Australia, particularly Andre Bell J’s dissenting opinion.

Update 16 January 2020 the grounds in [2019] SGCA 84 BNA v BNB are finally out– thank you again Filbert Lam for letting me know. I shall post separately on the issues.

(Note see various 2017, 2016, 2015 and 2014 postscripts at the end of this posting)

Update 24 October 2019 Thank you Filbert Lam for alerting me to the Singapore Court of Appeal reversing the High Court Update- I have no access to the CA judgment yet – reasons and analysis to follow.

Update 7 July 2019 for review of a recent Austrian SC decision adopting a favor validitas approach see here. For a view from Singapore see BNA v BNB [2019] SGHC 142 reviewed here: the High Court interpreted an express provision for “arbitration in Shanghai” to be an agreement to Singapore-seated arbitration with hearings in Shanghai, thereby upholding the validity of the arbitration clause and the jurisdiction of the tribunal.

Update 15 May 2019 Whether Fiona Trust is good authority in Australia might have been, but ultimately was not considered in [2019] HCA 13 Rinehart v Hancock Prospecting Pty Ltd. For review see here update 12 November 2019 and Michael Douglas case-note here. The High Court found it unnecessary to consider whether Fiona Trust is good law in Australia. According to the plurality (Kiefel CJ, Gageler, Nettle and Gordon JJ), the appeals could be resolved by application of orthodox principles of contract interpretation, without reference to Fiona Trust: para 18.

 

Preferring to settle issues by arbitration (often preceded by mediation) continues to be a preferred method of dispute settlement in commercial transactions. It is most probable that the best results in arbitration are reached for contracts of a sizeable value, between companies with pedigree, with a certain amount of contractual history between them. However even then, lack of attention to detail may land parties in a pickle. In [2012] EWHC 42 (Comm) Sulamerica, the claimant insurers seek the continuation of an interim anti-suit injunction against the defendant insureds. Parties are at loggerheads over the validity of an arbitration agreement between them, which may be found in the policy. Express choice of law for the policy has been made for Brazil. Express and exclusive choice of court has also been made for Brasil. Parties are all Brazilian (incidentally, the re-insurers were not). The subject matter of the insurance is located in Brazil (Jirau, one of the world’s largest hydro-electric facilities). However the arbitration agreement in the contract concludes with appointing London as the seat of the arbitration. Arbitration was agreed to be held under ARIAS rules.

(Not just) under English law [see the House of Lords in Fiona Trust], an arbitration agreement is treated distinct from the substantive agreement in which it is included, for the purpose of assessment of its validity, existence, and effectiveness. This leads one to have to ascertain

lex arbitri (the law of the arbitration agreement, per the preceding sentence);

the curial law or the ‘law of the seat’ (the procedural law which will guide the arbitration proceedings; despite the latin curia not commonly referred to as lex curia);

the ‘proper law’, the law that governs the actual contract (lex contractus); and

the locus arbitri and the lex loci arbitri: the venue of the arbitration and its laws, which may or may not interact with the proceedings. Update 8 January 2018 see for an example of such impact the new Chinese approach to optional arbitration proceedings, applicable as of 1 January 2018).

In the EU, the issue is not covered by the Rome I Regulation, for arbitration is excluded from that Regulation. Whence the courts apply their national conflict of laws rules. In England, this implies identifying the law with which the arbitration agreement has its ‘closest and most real connection’. In Sulamerica, Cooke J held that this was, in this case, England, given London having been assigned as the seat of arbitration.  Indeed in Abuja International Hotels, Hamblen J came to the same conclusion with respect to an underlying agreement that was governed by Nigerian law.

The lesson here is clear. With three sets of applicable law having to be identified, one had better consider them specifically, in writing, in the agreement.

Geert.

Postscript: Cooke J held in January 2012. In May 2012, the Court of Appeal confirmed the decision.

Postscript 2, 3 July 2014: In First Link Investments, the Singapore High Court took a radically different approach in May 2014, noting that “it cannot always be assumed that commercial parties want the same system of law to govern their relationship of performing the substantive obligations under the contract, and the quite separate (and often unhappy) relationship of resolving disputes” and that “the natural inference would instead be to the contrary”. (Case come to my attention thanks to Alistair Henderson and Daniel Waldek). Postscript 4, 2 December 2016. In BCY v BCZ the High Court would seem to have entirely altered that position, reverting back to Sulamerica.

Postscript 3, 2 June 2015:In Trust Risk Group SpA v AmTrust Europe Limited, the Court of Appeal further considered the House of Lords’ presumption of the one shop principle and decided it did not apply to the case at issue. The CA, upon detailed analysis of the agreements at stake, decided in effect that the later agreement was lex specialis vis-a-vis the overall business agreement between parties and hence that choice of law and choice of court of the later agreement prevailed. (Davina Given and Ed Holmes posted on the RPC blog with full review of the case). The Court’s analysis highlights among others the often less than clear language used in commercial agreements, whether or not caused by the fog of closing. In particular, the agreements under consideration used often confusing and not clearly defined concepts to denote the various agreements at stake.

Postscript 5, 25 October 2017: in Roger Shashoua v Mukesh Sharma CIVIL APPEAL NOS. 2841-2843 of 2017 the Indian Supreme Court once again had to emphasise the difference between venue (lex loci arbitri if you like; potentially only the place where hearings are held) and the seat of arbitration (which determines procedural issues; the lex curia). See review by Herbert Smith here.

The arbitration exception and the review of the Brussels I Regulation – The Council in denial

The Council in June issued its ‘General Approach‘ on the review of the Brussels I Regulation /the Jurisdiction Regulation – just in time as it happened for June exams . The General Approach is the backbone of what will be the Council Common Position, once the European Parliament has held its ‘first reading’ (which is now scheduled for November 2012, after having been postponed twice: from January 2012 it had already been moved to June). I will be posting one or two comments on the General Approach on this blog, starting with the arbitration exception. For background reading please search the blog for ‘West Tankers’.

Pro memoria: The European Parliaments rapporteur and the EP in full afterwards suggested no movement on the issue at all, other than a clearer proviso on the arbitration exclusion, specifying that

not only arbitration proceedings, but also judicial procedures ruling on the validity or extent of arbitral competence as a principal issue or as an incidental or preliminary question, are excluded from the scope of the Regulation.

Consequently the rapporteur called for a more robust protection of arbitration, by ring-fencing arbitration in a more aggressive way.

In its eventual proposal on the review of the JR, COM(2010) 748, the European Commission proposed the specific inclusion of a jurisdictional ground for arbitration:

———————————————————————

This Regulation shall not apply to (…)

Arbitration, save as provided for in Articles 29, paragraph 4, and 33, paragraph 3.

 Article 29, paragraph 4, new:

4. Where the agreed or designated seat of an arbitration is in a Member State, the courts of another Member State whose jurisdiction is contested on the basis of an arbitration agreements shall stay proceedings once the courts of the Member State where the seat of the arbitration is located or the arbitral tribunal have been seised of proceedings to determine, as their main object or as an incidental question, the existence, validity or effects of that arbitration agreement.

This paragraph does not prevent the court whose jurisdiction is contested from declining jurisdiction in the situation referred to above if its national law so prescribes.

Where the existence, validity or effects of the arbitration agreements are established, the court seised shall decline jurisdiction.

This paragraph does not apply in disputes concerning matters referred to in Sections 3, 4, and 5 of Chapter II.

 

Article 33:

For the purpose of this Section, a court shall be deemed to be seised (…)

3. For the purpose of this Section, an arbitral tribunal is deemed to be seised when a party has nominated an arbitrator of when a party has requested the support of an institution, authority or a court for the tribunal’s constitution.

 

[author’s note: Sections 3, 4 and 5 referred to in the newly proposed Article 29(4), are the sections dealing with the protected parties: insurance contracts; consumers; employment contracts].

————————————————————————

The June 2012 ‘General Approach’ document by the Council in my view adopts the worst possible scenario. With respect to arbitration, the Council suggests

–       Not to adopt the aforementioned Articles 29, paragraph 4, and 33, paragraph 3 (these suggested amendments would therefore be deleted in their entirety).

–       To include the following in Article 84:

2. This Regulation shall not affect the application of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1985.

–       Finally, to include a recital as follows:

  • “This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have made an arbitration agreement, from referring the parties to arbitration of from staying or dismissing the proceedings and from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law.
  • A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative of incapable of being performed should not be subject to the rules of recognition and enforcement of this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question. On the other hand, where a court, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not prevent that the court’s judgment on the substance of the matter be recognised and, as the case may be, enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958, which takes precedence over this Regulation.
  • This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of the arbitral tribunal, the powers of the arbitrators, the conduct of the arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition and enforcement of an arbitral award.”

The Council would therefore maintain the principal exclusion for arbitration, and emphasise the priority of the New York Convention. However it also maintains the confusion over the exact scope of the arbitration exclusion. Its curious use of an extended recital basically re-iterates all the points of discussion resulting from the current text and the case-law applying it. Any party wanting to stall, torpedo, or otherwise sabotage proceedings with even a hint of arbitration elements in them, will find itself well served with the proposed recital which ― rather adroitly, it has to be said ― manages to integrate all unsettled points of discussion in a matter-of-factly way which amounts to sheer denial of the problems that arise in practice.

Council reports that it has been in consultation with the Parliament, in the run-up to the General Approach. However one hopes that this recital is not one that the EP would be happy to sign off on.

Geert.

West Tankers ripples again and again – Tribunal corrected for rejection of its jurisdiction on damages for breach of obligation to arbitrate

The West Tankers v Allianz litigation continues to ripple. The continuing process must also I fear excuse the rather long title of this post. I reported earlier on the confirmation by the Court of Appeal of the High Court’s recognition of the West Tankers award. This opened up the prospect of this judgment travelling through the EU as a ‘judgment’ under the Brussels I Regulation (which might thwart the ongoing Italian proceedings).

At the request of West Tankers, the High Court has now ruled that the panel was wrong in assuming that the Court of Justice’s finding in West Tankers, circumscribed its jurisdiction to award damages for breach of an obligation to arbitrate, by virtue of the right of the Respondents to bring proceedings under Article 5(3) before the Italian courts. The tribunal essentially held (as summarised in the current judgment) that like the English court, it was bound by the principle of effective judicial protection not to interfere with or deprive the Respondents of that right in European law. Flaux J, seeking support in Kokott AG’s very opinion in West Tankers (and the  Court of Justice’s absence of disagreement on that point), held that the jurisdiction Regulation, as is evident from the Judgment in West Tankers, curtails the English courts in their power to issue anti-suit injunctions. However it does not curtail the jurisdiction of the arbitral panel.

Leave to appeal was granted. The judgment therefore is unlikely to be the last instalment.

Geert.

 

Boomerang torpedo or futile resistance? English courts continue digging West Tankers

Aficionados of arbitration law will be aware of the long-running West Tankers saga. It pitches the English courts’ urge to uphold commercial arbitration, against the European Court of Justice’s zeal in upholding a pure (and in the case of the arbitration exception, far-fetched) lis alibi pendens rule. The battlefield at issue is the Brussels I Regulation on jurisdiction in civil and commercial matters. The Court of Justice ruled in February 2009 [Case C-185/07] that the English courts were out of their league in issuing an anti-suit injunction, prohibiting Allianz and Generali from pursuing the case in the Italian courts (on the basis of Article 5(3)’s special jurisdictional rule for tort) and obliging them to take the case to arbitration in London. Thus two cases continued: one, an arbitration proceeding, in London, with West Tankers and Erg (the initial counterparty) participating, but not Allianz and Generali (the insurers, subrograted into Erg’s rights). The other, for the Italian courts in ordinary, the current fate of which is less clear.

It would seem that West Tankers is now attempting to turn the Italian torpedo (launching proceedings in an Italian court to delay them) into a boomerang, by having the English courts enforce the arbitral award rendered in the meantime.

While this intention is not as such formulated, one assumes that this manoeuvre in part at least is meant to ensure that any judgment eventually rendered in Italy, will not be enforceable in England (or indeed elsewhere in the EU) as the High Court’s enforcement might qualify as a ‘prior’ judgment between the same parties, per Article 34 of the Regulation. One gets the feeling that West Tankers will once again end up in Luxembourg… I have an article on all the above forthcoming and will put it on SSRN once finalised.

Geert.