Posts Tagged Lex curia

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.

 

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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.

 

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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.

 

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Martrade Shipping: choice of law means that law can decide the limits to which it wishes to be applied. Including to promote forum shopping.

In Martrade Shipping v United Enterprises Corporation, the High Court considered the appeal against an arbitration award in relation to the applicability of the Late Payment of Commercial Debts (Interest) Act 1998 to charterparties providing for English law and London arbitration.

The vessel was owned by the Defendant, a Marshall Islands company. The vessel was registered in Panama and managed by a Liberian company registered in Greece. The vessel was chartered by the Owners to the Claimant charterers for a time charter trip via the Mediterranean/Black Sea under a charterparty on an amended NYPE form dated 2 July 2005. The Charterers are a German company. The vessel was to be placed at the disposal of the Charterers on passing Aden, and was to be redelivered at one safe port or passing Muscat outbound/Singapore range in Charterers’ option. In the event the vessel loaded cargoes of steel products at Tuapse (Russia), Odessa (Ukraine) and Constanza (Romania) and discharged them at Jebel Ali (UAE), Karachi (Pakistan) and Mumbai (India). Hire was payable in US$ to a bank account in Greece. The broker named in the charterparty as entitled to commission was Optima Shipbrokers Ltd who arre Greek. The charterparty recorded that it was made and concluded in Antwerp.

Consequently, contact with England other than the governing law and arbitration clause was non-existent.

A number of disputes between the parties were referred to arbitration, including a claim by the Owners for unpaid hire, in respect of which the Charterers claimed to be entitled to deduct sums for alleged off-hire, bunkers used during off-hire, and a bunker price differential claim. By the Award the tribunal held that Owners were entitled to an award in respect of hire in the sum of US$ 178,342.73. The tribunal further held that the Owners were entitled to interest on that sum calculated at the rate of 12.75% per annum from 23 September 2005 until the date of payment under the 1998 Act.

The appeal is against the award of interest under the 1998 Act. The Charterers contended before the tribunal, and contend on the appeal, that the 1998 Act has no application by reason of s. 12(1) which provides:

“This Act does not have effect in relation to a contract governed by a law of a part of the United Kingdom by choice of the parties if –(a) there is no significant connection between the contract and that part of the United Kingdom; and (b) but for that choice, the applicable law would be a foreign law.’

Section 12 of the Act therefore provides that where parties to a contract with an international dimension have chosen English law to govern the contract, the choice of English law is not of itself sufficient to attract the application of the Act. Section 12 mandates the application of the penal interest provisions only if one or both of two further requirements are fulfilled. There must be a significant connection between the contract and England (s. 12(1)(a)); or the contract must be one which would be governed by English law apart from the choice of law (s. 12(1)(b)). Either is sufficient. Popplewell J suggests this provision has two objectives:

– the Act reflects domestic policy considerations which are not necessarily apposite to contracts with an international dimension. What is required by the significant connecting factor(s) is something which justifies the extension of a deterrent penal provision rooted in domestic policy to an international transaction. And

– subjecting parties to a penal rate of interest on debts might be a discouragement to those who would otherwise choose English law to govern contracts arising in the course of international trade, and accordingly does not make such consequences automatic.

 

The s.12(1)(a) criterion of “significant connection” must connect the substantive transaction itself to England. Whether they provide a significant connection, singly or cumulatively, will be a question of fact and degree in each case, but they must be of a kind and a significance which makes them capable of justifying the application of a domestic policy of imposing penal rates of interest on a party to an international commercial contract. They must provide a real connection between the contract and the effect of prompt payment of debts on the economic life of the United Kingdom. (at 17).

‘Such factors may include the following:

(1) Where the place of performance of obligations under the contract is in England. This will especially be so where the relevant debt falls to be paid in England. But it may also be so where other obligations fall to be performed in England or other rights exercised in England. If some obligations might give rise to debts payable in England, the policy considerations underlying the Act are applicable to those debts; and if some debts under the contract are to carry interest at a penal rate, it might be regarded as fair and equitable that all debts arising in favour of either party under the contract should do so.

(2) Where the nationality of the parties or one of them is English. If it is contemplated that debts may be payable by an English national under the contract, the policy reasons for imposing penal rates of interest may be engaged; and if only one party is English, fairness may again decree that the other party should be on an equal footing in relation to interest whether he is the payer or the payee.

(3) Where the parties are carrying on some relevant part of their business in England. It may be thought that persons or companies who carry on business in England should be encouraged to pay their debts on time and not use delayed payment as a business tool even in relation to transactions which fall to be performed elsewhere. Moreover a supplier carrying on business in England may fall within the category identified in s.6(2)(a) of those whose financial position makes them particularly vulnerable to late payment of their debts, although these are not the only commercial suppliers for whose benefit the Act is intended to apply. The policy of the Act may be engaged in the protection of suppliers carrying on business in England, whether financially vulnerable or not, even where the particular debts in question fall to be paid by a foreign national abroad.

(4) Where the economic consequences of a delay in payment of debts may be felt in the United Kingdom. This may engage consideration of related contracts, related parties, insurance arrangements or the tax consequences of transactions.’ (at 20).

 

By contrast, a mere London arbitration or English jurisdiction clause cannot be a relevant connecting factor for the purposes of s.12(1)(a).

Popplewell J therefore expressly links the non-applicability of relevant domestic English law (where such as here that law itself suggests the need for there to be a connection between the case, and England) to the need to maintain the attraction of England as a seat of international commercial arbitration  or indeed litigation. Exactly the kind of attitude in which competing courts fall short.

Geert.

 

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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 Habas and VSC Steel, 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.

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

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

Update 27 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. 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 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.

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