Posts Tagged Toepasselijk recht

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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Rome II: A manifestly closer connection overrides common habitual residence. The High Court in Marshall v MIB.

Marshall v MIB [2015] EWHC 3421 (QB) involved a road traffic accident that occurred in France. On 19th August 2012 an uninsured Peugeot motor car registered in France driven by Ms Bivard, a French national, hit Mr Marshall and Mr Pickard, both British nationals, as they were standing behind a Ford Fiesta motor car and its trailer, while it was being attended to by a breakdown recovery truck on the side of a motorway in France. The Ford Fiesta motor car was registered in the UK and insured by Royal & Sun Alliance (“RSA”), and the recovery truck was registered in France and insured by Generali France Assurances (“Generali”). The Peugeot then collided with the trailer shunting it into the Ford Fiesta which in turn was shunted into the vehicle recovery truck. Mr Pickard suffered serious injuries. Mr Marshall died at the scene.

This case raises points about among others (1) the law applicable to an accident involving a number of persons and vehicles; and (2) the application of the French Loi Badinter to the facts of this case, if French law applies: The second main issue is if French law applies, whether the Ford Fiesta motor car and recovery truck are “involved” within the meaning of the Loi Badinter, which it is common ground is the applicable French statute. If those vehicles are “involved” it is common ground that RSA, as insurer of the Ford Fiesta, and Generali, as insurer of the recovery truck, are liable to Mrs Marshall, and that Generali, as insurer of the recovery truck, is liable to Mr Pickard.

Two actions were commenced. The first by Mrs Marshall (Mr Marshall’s widow) against the Motor Insurers’ Bureau (“the MIB”). Mrs Marshall relied on relevant English 2003 Regulations. The 2003 Regulations make the MIB liable in respect of liabilities of compensation bodies in other EEA states for losses caused by uninsured drivers. The relevant compensation body in France responsible for such losses is the Fonds de Garantie (“FdG”). The MIB denied liability, contending that the FdG would not be liable to Mrs Marshall because under the Loi Badinter Mr Pickard and RSA, as driver and insurer of the Ford Fiesta, and Generali, as insurers of the recovery truck, were liable. The second action was brought by Mr Pickard against the Motor Insurers’ Bureau relying on the 2003 Regulations. The MIB deny liability and contend that Generali, as insurers of the recovery truck, are liable to Mr Pickard.

The High Court was asked (1) what law applies per Article 4 Rome II, and (2) whether under the circumstances, Article 4(3) Rome II might have any relevance.

Save for Mrs Marshall’s claim for dependency which if English law applies is under the Fatal Accidents Act 1976 (“FAA 1976”), it is common ground that the direct damage occurred in France for all of the claims, including Mrs Marshall’s claim on behalf of Mr Marshall’s estate. In respect of the FAA 1976 claim, RSA (Mr Marshall’s insurers) submits that the direct damage occurred in the location where Mrs Marshall has suffered her loss of dependency, which is in England and Wales. Dingemans J resolves this issue of ricochet damage with reference to the AG’s Opinion in Lazar: the CJEU’s judgment in same was issued about a month after the High Court’s judgment in Marshall. The Advocate General, having regard to the relevant principles of consistency, foreseeability and certainty, in his opinion considered that “the damage occurs” for the purposes of a claim such as an FAA 1976 claim where the relevant death occurs. The AG noted that different EEA states took different approaches to the characterisation of a dependency claim. For example in both England and Italy it is considered that the damage for a loss of dependency occurs in the country where the dependant is situated, but that this is not a European wide approach. The opinion, Dingemans J notes, shows that the Advocate General was influenced by the need to avoid different Courts in different EEA states adopting different solutions to applicable law in fatal accident cases, which would lead to a diversity of approach in different jurisdictions.

The action between Mrs Marshall and Mr Pickard triggers Article 4(2) of the Rome II Regulation, identifying as applicable law the law of the country were both the ‘person’ claimed to be liable and the ‘person’ sustaining damage, are habitually resident at the time the damage occurs. Dingemans J rightly (at 17) dismisses the suggestion (made in scholarship) that the moment more than two ‘persons’ are involved, Article 4(2) becomes inoperable.

Turning then to Article 4(3), the escape clause of a ‘manifestly closer connection’. Dingemans J entertains the interesting proposition that Article 4(3) has to lead to a law different from the law which would be applicable per Article 4(1) or (2). This in particular would mean that once Article 4(2) is engaged, it cannot be undone by recourse to Article 4(3). Dingemans J insists that Article 4(3) must be employed generally, even if it leads to a resurrection of Article 4(1), and goes on to find French law to be applicable (at 19-20):

In my judgment this case provides an illustration of when French law is provided as the governing law under article 4(1), excluded (for part of the claims) under article 4(2), and then required again under article 4(3).

It is also common ground that article 4(3) imposes a “high hurdle” in the path of a party seeking to displace the law indicated by articles 4(1) or 4(2), and that it is necessary to show that the “centre of gravity” of the case is with the suggested applicable law. In this case there are a number of circumstances which, in my judgment, make it clear that the tort/delict is manifestly more closely connected with France than England and Wales. These are: first that both Mr Marshall and Mr Pickard were hit by the French car driven by Ms Bivard, a national of France, on a French motorway. Any claims made by Mr Marshall and Mr Pickard against Ms Bivard, her insurers (or the FdG as she had no insurers) are governed by the laws of France; secondly the collision by Ms Bivard with Mr Marshall and Mr Pickard was, as a matter of fact and regardless of issues of fault or applicable law, the cause of the accident, the injuries suffered by Mr Marshall and Mr Pickard and the subsequent collisions; and thirdly any claims that Mr Marshall and Mr Pickard have against Generali, as insurers of the vehicle recovery truck, are also governed by the laws of France.

This judgment to my knowledge, with Winrow v Hemphill  is one of few discussing Article 4(3)’s escape clause in such detail. (The add-on being that in Marshall Article 4(3) was found as being able to override Article 4(2). A judgment which, like Winrow, does justice to both the exceptional nature of the provision, and the need to consider all relevant factors.

Geert.

Ps very soon the Supreme Court will hear further argument on the application of the Rome II Regulation in Moreno v MIB.

European private international law, second ed. 2016, Chapter 4, Headings 4.5.1 and 4.5.2

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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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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)

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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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.

Geert.

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