Arbitrator Disqualification in Overlapping Arbitrations
Round Up of Recent English Case Law
New ICDR and LCIA Rules
Group of Companies Doctrine in Germany
Issue 01 - 2015
Arbitration Report
Dear Readers,
In this issue of the Baker Botts Arbitration Report, we provide a snapshot of developments in international arbitration,
including institutional rule changes and significant recent case law. The Report touches on key issues facing parties
and practitioners, from ethics and transparency to procedural efficiency to the role of national courts in arbitration.
On the ethics and transparency front, we discuss whether an arbitrator should be disqualified for involvement in
overlapping arbitrations or repeat appointments by the same party or counsel (page 8). The Report also overviews
the new UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (page 23).
Treaty-based investor-state arbitrations continue to be a topic of much controversy. In addition to addressing
the new UNCITRAL Transparency Rules, we consider the award in Guaracachi America, Inc. & Rurelec Plc v.
Bolivia, which provides guidance on both the propriety of pursuing multiple investor claims under different BITs in
a single proceeding and when a “denial of benefits” clause must be invoked to have effect (page 6). The Report also
summarizes the compensation award in ExxonMobil’s nationalization case against Venezuela (page 26).
Improving procedural efficiency has been another key theme of arbitration users and practitioners. The ICDR
and the LCIA have joined the group of institutions tackling this challenge with new procedural rules. The Report
highlights the most important changes in the new ICDR and LCIA rules (page 19).
Finally, we examine how national courts around the world are intervening in arbitration proceedings and
reviewing awards. The Report includes updates on the U.S. Ninth Circuit decision in In re Wal-Mart Wage and Hour
Employment Practices Litigation (page 10), which rejected an arbitration agreement’s waiver of all judicial review
under the Federal Arbitration Act; notable English case law touching on the powers of the English courts under
the Arbitration Act 1996 (page 11); Banyan Tree Corporation PTE Ltd v. Meydan Group LLC, which dealt with the
DIFC Courts’ jurisdiction to hear an application for recognition and enforcement of a Dubai award without prior
ratification by the Dubai courts (page 17); a Singapore court’s conclusion that it had the power to grant injunctive
relief in aid of a Singapore arbitration (page 22); and a German court decision touching on the group of companies
doctrine as a basis for binding non-signatories to an arbitration agreement (page 29). The Report also outlines an
amendment to the DIFC Arbitration Law 2008 clarifying the DIFC Court’s power to stay its proceedings in favor
of a non-DIFC arbitration (page 16).
While the global developments in international arbitration could fill volumes, our selection of topics offers useful
insight into some of the most noteworthy issues. We hope to have piqued your interest and provided some useful
insights.
Jonathan Sutcliffe
Editor
NOTE FROM THE EDITOR
February 2015
Two Claimants, Two Treaties, One Proceeding and
Denial of Benefits — 6
Disqualification of an Arbitrator: Overlapping Arbitrations and Repeat
Appointments — 8
U.S. Ninth Circuit Rejects Waiver of All Judicial Review in
Arbitration Agreement — 10
Round Up of Recent English Case Law on Arbitration — 11
DIFC Arbitration Law 2008 Amended to Remove Uncertainty Surrounding the DIFC Court’s Power to Stay its
Proceedings in Favor of a Non-DIFC Seated Arbitration — 16
DIFC Courts Have Jurisdiction to Hear an Application for the Recognition and Enforcement of a Dubai Award
Without Prior Ratification of the Award by the Dubai Courts or the Presence of Assets in the DIFC — 17
The ICDR and LCIA Update Their Rules: An Increased Focus on Procedural Efficiency — 19
Singaporean Courts Have Broad Powers to Grant Permanent Injunctive Relief in Aid of Arbitrations Seated
in Singapore — 22
The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration — 23
ExxonMobil is Awarded Compensation for Venezuelan Nationalizations — 26
The Group of Companies Doctrine in Germany — 29
Contributors
The editor of the Arbitration Report is Jonathan Sutcliffe, Partner, Dubai.
The following contributed articles to this issue of the Arbitration Report:
Andrew M. Behrman, Partner, New York; Ryan Bull, Partner, Washington; Vernon Cassin, Associate, Washington;
Chris Caulfield, Partner, London; Derek Craig, Senior Associate, New York; Alex Escobar, Partner, London;
Ernesto Féliz De Jesús, Associate, London; Laurie Frey, Associate, London; Johannes Koepp, Partner, London;
Noah Mink, Associate, Washington; Faris Nasrallah, Associate, Dubai; Juliana Barbosa Pechincha, Associate, New
York; Philip Punwar, Partner, Dubai; Cameron Sim, Associate, London; Jennifer Smith, Partner, Houston; Kiran
Unni, Barrister, London; Natasha Zahid, Associate, Dubai.
EDWARD T. SCHORR
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Issue 01 - 2015 — 6
TWO
CLAIMANTS,
TWO
TREATIES,
ONE
PROCEEDING
AND DENIAL
OF BENEFITS
Guaracachi America, Inc., a Delaware company (“GAI”), and Rurelec Plc, a U.K.
company (“Rurelec”), together brought claims in a single arbitration proceeding against
the Plurinational State of Bolivia (“Bolivia”) as a result of Bolivia’s nationalization of
GAI’s and Rurelec’s joint 50.001% shareholding in Empresa Electrica Guaracachi S.A.,
a power generation company incorporated in Bolivia (“EGSA”). The arbitration was
conducted under the 2010 UNCITRAL Rules.
Two Claimants, Two Treaties, One Proceeding
GAI and Rurelec each relied on two different bilateral investment treaties (“BITs”). These were, respectively, the
Bolivia-United States BIT and the Bolivia-United Kingdom BIT. Bolivia objected to the Tribunal’s jurisdiction on
the ground that it had not consented to the joinder or consolidation of the claims. The Arbitral Tribunal, in an award
dated 31 January 2014, dismissed the objection and upheld its jurisdiction over the joint claims.
The Tribunal found that it was “undisputed” that Bolivia gave its consent to the arbitration of investment disputes
with investors from the U.K. and the U.S. in, respectively, Article 8 of the Bolivia-United Kingdom BIT and Article
IX of the Bolivia-United States BIT. It was also undisputed that each of the Claimants had accepted the offer of
arbitration made by Bolivia in the BITs. This gave rise to the “matching of consents” indispensable for the Tribunal’s
jurisdiction rationae voluntatis over the disputes. The Tribunal rejected Bolivia’s argument that express consent was
required.
Further, the Tribunal held that this was not a consolidation at all. The Claimants did not commence two separate
arbitrations in respect of two independent arbitral claims that had subsequently been consolidated. The Claimants
submitted, ab initio and in the same arbitration, two claims regarding the same dispute and involving the same set
of facts, yet allegedly in violation of two different BITs. The object of both claims was the same, since the allegedly
unlawful action by Bolivia was also a single one affecting two companies of different nationalities.
Issue 01 - 2015 — 7
Bolivia had argued that the BITs were silent as to the
possibility of multi-party arbitration. The Tribunal
held that the silence of a particular provision does not
limit the scope of consent already given. As expressed in
Ambiente Ufficio v. Argentina: “the institution of multiparty
proceedings therefore does not require any consent
on the part of the respondent Government beyond the
general requirements of consent to arbitration.” Finally,
the Tribunal noted that there was no fundamental
incompatibility between the consents to arbitration in
the two BITs that would have resulted in a violation of
their terms by the mere fact of the claims being heard
together.
Denial of Benefits
Bolivia raised an objection based on Article XII of the
Bolivia-United States BIT, which contains a so-called
“denial of benefits” clause. This provision allows a State
to exclude certain investors from the scope of the BIT
if, for example, they have no substantial presence in the
home jurisdiction. In this case, the clause required the
Tribunal to consider whether Bolivia’s denial of benefits
was valid as a matter of substance (rationae materiae)
and was invoked timely (rationae temporis). For the
objection to succeed, the Tribunal had to find: that GAI
was owned or controlled by a national of a third State
(i.e., other than the United States); that GAI had no
substantial business activities in the United States; and
that the denial of benefits was timely.
In terms of substance, the Tribunal found that GAI
was owned and controlled by nationals of a third
country, namely, by Birdsong Overseas of the British
Virgin Islands, and ultimately by Rurelec of the United
Kingdom. The Tribunal also found that the Claimants
had furnished insufficient evidence to prove that GAI
carried on substantial business activities in the U.S. at
any point in time. Finally, the Tribunal found that Bolivia
had not imposed on GAI any requirement that it be a
special purpose vehicle incorporated in the United States.
Rationae materiae, therefore, Bolivia’s denial of benefits
was valid.
In terms of timeliness, Bolivia denied the benefits of the
BIT in its Statement of Defense. The Claimants argued
that the denial of benefits could not apply retroactively
once the investment had been made, since the purpose
of such provision was to enable a State to alert investors
in advance that they are no longer afforded protection of
the BIT. The Tribunal disagreed. It held that investors,
upon choosing to rely on the relevant BIT, are aware of
the possibility of such a denial and of the conditionality
of the consent to arbitration. They “accept it at face
value”, thus the denial of benefits cannot frustrate any
legitimate expectations. The Tribunal held that the
objection to jurisdiction was made in a timely fashion.
As emphasized in Ulysseas, Inc. v. Ecuador: “[a]ccording
to the UNCITRAL rules, a jurisdictional objection
must be raised not later than the statement of defence
(Article 21(3))”.
The Tribunal explained that “[t]he very purpose of the
denial of benefits is to give the Respondent the possibility
of withdrawing the benefits granted under the BIT to
investors who invoke those benefits. As such, it is proper
that the denial is ‘activated’ when the benefits are being
claimed ... It will be on that occasion that the respondent
State will analyse whether the objective conditions
for the denial are met and, if so, decide on whether to
exercise its right to deny the benefits contained in the
BIT, up to the submission of its statement of defence”.
Finally, the Tribunal concluded that “it would be
odd for a State to examine whether the requirements
of Article XII had been fulfilled in relation to an
investor with whom it had no dispute whatsoever.
In that case, the notification of the denial of
benefits would—per se—be seen as an unfriendly
and groundless act, contrary to the promotion of
foreign investments”.
This award thus addresses two jurisdictional questions
of interest. First, it considers the question of the
presentation of claims arising from two different BITs in
a single arbitration proceeding. Ultimately, the Tribunal
found nothing in the applicable BITs that prevented
this course of action, and much to support it in terms
of procedural efficiency and consistency. Second, the
award is the first to dismiss a claim on the basis of a
“denial of benefits” clause. The Tribunal stressed the
underlying rationale of the clause. Eventual denials do
not come as a total surprise for the investor. The BIT is
not secret and its terms are understood and accepted at
face value.
Issue 01 - 2015 — 8
DISQUALIFICATION OF AN
ARBITRATOR: OVERLAPPING
ARBITRATIONS AND REPEAT
APPOINTMENTS
Ascertaining whether a party-appointed arbitrator is sufficiently independent and
impartial from the parties and the lawyers involved can be difficult. What is the burden
of proof applied to disqualification proceedings? Must one come forward with clear
evidence of actual bias or is it sufficient to prove the existence of reasonable doubt as to
independence or impartiality?
In ICSID jurisprudence, it is becoming increasingly established that proof of actual dependence or bias is not
required to disqualify an arbitrator; rather, bringing forward evidence of the appearance of dependence or bias is
enough. Specifically, if a party can show that a third party would find that there is an evident or obvious appearance
of lack of impartiality or independence based on a reasonable evaluation of the facts, the other members of the
tribunal may disqualify the arbitrator.
One important consideration in assessing perceived impartiality is whether an arbitrator has previously served on a
different tribunal with overlapping parties and facts. The problem arises because the arbitrator may have obtained
documents and information in one arbitration that are relevant to the dispute to be determined in another. As noted
in EnCana Corporation v. Republic of Ecuador, the arbitrator “cannot reasonably be asked to maintain a ‘Chinese
wall’ in his own mind: his understanding of the situation may well be affected by information acquired in the other
arbitration.” (Partial Award on Jurisdiction, 27 Feb 2004, para 45.)
The unchallenged arbitrators should examine whether the facts alleged in the two cases are similar or identical. If so,
they should then examine whether, based on a reasonable evaluation of the facts in the later arbitration, a third party
would find that the challenged arbitrator’s knowledge of the facts in the first arbitration gives rise to an evident or
obvious appearance of lack of impartiality. (See e.g., Caratube International Oil Company LLP v. Republic of Kazakhstan,
Issue 01 - 2015 — 9
Decision on the Proposal for
Disqualification, 20 March 2014,
para 77.)
For example, in Caratube, an
arbitrator was disqualified based on
the appearance of lack of impartiality
where he had previously served
on a tribunal involving the same
respondent but different claimants.
(Id). Although the industries involved
were completely unrelated, the
claimants in the two arbitrations were
related individuals with overlapping
corporate interests. In both cases
the claimants relied on similar fact
patterns to attempt to show alleged
state-sponsored harassment and
intrusion into their private affairs to
prove expropriation of investments.
Moreover, some of the individuals
who submitted witness statements
in the first case (the contents and
probative value of which were
examined and assessed by the
first tribunal), were found likely to
submit witness statements in relation
to the same facts in the second
case. The unchallenged arbitrators
found that the overlapping facts
presented were potentially relevant
to the determination of some of
the legal issues in the proceeding
before them. Despite the challenged
arbitrator’s assurances that he would
not discuss or disclose anything that
transpired in the prior arbitration
and would not form any opinion
based upon his external knowledge,
the unchallenged arbitrators held
that there was an evident or obvious
appearance of lack of impartiality as
he might, even unwittingly, make a
determination based on information
to which he was privy from the prior
arbitration.
An additional and independent
reason for disqualification (or at least
an aggravating circumstance) may
arise where an arbitrator, having
been exposed to a body of knowledge
from one arbitration, creates an
imbalance within the tribunal
because the two other arbitrators may
not be privy to the same information.
The facts may even be incompatible
or contradictory with the facts
presented in the later arbitration and
therefore might disadvantage one of
the parties.
Finally, repeated appointment of
an arbitrator by the same law firm
can give rise to questions as to
an arbitrator’s ability to exercise
independent judgment. The oftcited
IBA Guidelines on Conflicts of
Interest in International Arbitration
(which concern the issue of
disclosure by arbitrators and, while
indicative, are typically not binding
under the ICSID Convention and
Rules) recommend that a nominated
arbitrator disclose two or more prior
appointments by a party or more
than three appointments by counsel
within a three-year period. In ICSID
jurisprudence, there appears to be a
split as to whether the mere fact of
prior appointments by the same
law firm, without more, indicates a
manifest lack of independence or
impartiality. For example, in OPIC
Karimum Corp. v. The Bolivarian
Republic of Venezuela it was held
that “multiple appointments of an
arbitrator are an objective indication
of the view of parties and their
counsel that the outcome of the
dispute is more likely to be successful
with the multiple appointee as a
member of the tribunal than would
otherwise by the case ... [and] may
lead to the conclusion that it is
manifest that the arbitrator cannot be
relied upon to exercise independent
judgment as required by the [ICSID]
Convention.” (Decision on the
Proposal to Disqualify, 5 May 2011,
paras 47 and 50.) Other tribunals
have required more. For example,
in both Tidewater v. The Bolivarian
Republic of Venezuela and Caratube
International Oil Company v. Republic
of Kazakhstan, the unchallenged
arbitrators found that a potential
conflict of interest may arise from
multiple appointments, but only if
either the prospect of continued and
regular appointment might influence
the arbitrator’s judgment or there is a
material risk that the arbitrator may
be influenced by factors outside the
record as a result of his knowledge
derived from other cases. (Tidewater
Inc. v. The Bolivarian Republic
of Venezuela, Decision on the
Claimants’ Proposal to Disqualify,
23 December 2010, para 62; Caratube
International Oil Company LLP v.
Republic of Kazakhstan, Decision on
the Proposal for Disqualification, 20
March 2014, para 107.)
In conclusion, if there is a possibility
that an arbitrator is exposed to facts
or legal arguments in one case that
might affect his objectivity and openmindedness
with regard to the facts
and issues to be decided in another,
he runs the risk of disqualification.
Multiple prior appointments of the
same arbitrator by a party or counsel
may also raise questions as to
possible influence by external factors
and lead to disqualification.
Issue 01 - 2015 — 10
Parties seeking to enforce arbitral awards, as well as
drafters of arbitration agreements, should note a U.S.
court decision holding that parties cannot agree to waive
all judicial review of an arbitral award. In In re Wal-Mart
Wage and Hour Employment Practices Litigation, 737 F.3d
1261 (9th Cir. 2013), the Ninth Circuit Court of Appeals
ruled that the terms of an arbitration agreement cannot
override the statutory grounds for vacating an award for
procedural unfairness.
The parties in Wal-Mart had served as plaintiffs’ counsel in an employment
dispute, which settled. The settlement agreement provided that any
fee disputes among counsel would be resolved through “binding, nonappealable
arbitration.” A dispute arose over the $28 million in fees, which
a sole arbitrator then allocated. A court confirmed the award, and some of
the parties appealed. The respondent argued that the court of appeals lacked
jurisdiction to review the decision confirming the award because of the
non-appealability clause.
The Ninth Circuit noted that U.S. courts have construed these clauses in two
different ways. Some have read “non-appealable” to stand for the proposition
that the parties waive review of the merits of the arbitration. Others have
read it to mean that the parties intended to foreclose review on any basis,
including the grounds for vacating an award under Section 10(a) of the
Federal Arbitration Act (FAA). These grounds include partiality, corruption,
fraud, and that the tribunal exceeded its powers.
The Ninth Circuit held that the procedural protections provided in Section
10(a) of the FAA are mandatory and cannot be waived. While the FAA
generally protects parties’ autonomy to govern arbitration by contract,
parties may not waive or eliminate the statutory grounds for vacating an
award. The U.S. Supreme Court had previously held that parties cannot
expand the scope of judicial review beyond that provided in the FAA.
U.S. NINTH
CIRCUIT REJECTS
WAIVER OF ALL
JUDICIAL REVIEW
IN ARBITRATION
AGREEMENT
Issue 01 - 2015 — 11
Hall Street Associates v. Mattel, Inc., 552 U.S. 576, 585
(2008). The Ninth Circuit in Wal-Mart reasoned the
FAA also precludes parties from limiting review. It
bolstered this conclusion by noting one purpose of the
FAA was to guarantee “a minimum level of due process”
and procedural fairness in arbitration. This goal would
be defeated if parties could simply contract around these
protections.
While this case considered a single ad hoc domestic
arbitration, the decision’s implications reach further.
Rulings of the Ninth Circuit are binding precedent
governing federal courts in nine states in the western
U.S., including California. As other U.S. courts address
this issue, they may find this opinion persuasive in its
extension of Supreme Court doctrine.
Arbitral awards rendered in the U.S., even those
involving non-U.S. parties or non-U.S. law, have been
held subject to the FAA’s grounds for vacatur in addition
to those provided by the international conventions. See
Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc.,
126 F.3d 15, 23 (2d Cir. 1997). Moreover, as many of
the grounds for refusing enforcement under the New
York and Panama Conventions protect fundamental
procedural fairness, the Ninth Circuit’s reasoning could
have implications even for U.S. enforcement of awards
rendered elsewhere if a court were to hold that the
procedural protections provided by the Conventions are
also not waivable.
ROUND UP OF RECENT
ENGLISH CASE LAW ON
ARBITRATION
Four recent cases before the English Commercial Court resulted in notable decisions
touching on the powers of the English courts under the Arbitration Act 1996 (the “Act”).
The decisions in Diag Human SE v. Czech Republic and IPCO (Nigeria) Ltd v. Nigerian
National Petroleum Corporation dealt with the courts’ enforcement powers under s. 103 of
the Act where a challenge to an award is pending before another court or arbitral tribunal.
The court in BDMS Limited v. Rafael Advanced Defence Systems, in determining whether
to order a stay of court proceedings under s. 9 of the Act, considered whether a party’s
refusal to pay an advance on costs entitles the non-defaulting party to bring a claim in
court instead of arbitration. Finally, the court in Brockton Capital LLP v. Atlantic-Pacific
Capital, Inc. addressed circumstances in which a court should exercise its power under s.
68 of the Act to set aside an award for unfairness.
Issue 01 - 2015 — 12
Does issue estoppel arise where a foreign
court has found that an award is not yet
binding and enforceable?
In Diag Human SE v. Czech Republic [2014] EWHC
1639 (Comm) (Eder J), the Claimant (“Diag”) sought
to enforce in England an arbitral award that the Supreme
Court of Austria had previously held was not yet binding
on the parties and therefore should not be enforced. The
principal question before Mr. Justice Eder (“Eder J”)
was whether the Austrian court’s decision precluded
the English court from itself determining whether the
arbitral award was binding. Eder J held that where a
foreign court had determined that an arbitral award was
not binding, an English court would not reopen that
determination, even if the English court considered that
the foreign court’s decision was wrong on the facts or as
a matter of English law.
In 2008, an arbitral tribunal in the Czech Republic
made an award requiring the Czech Republic to pay
substantial damages plus interest to Diag (the “Czech
Award”). A provision in the arbitration agreement
between Diag and the Czech Republic allowed either
party to seek an additional review of the Czech Award
by other arbitrators if the party submitted an application
within 30 days of the date of the Czech Award. Following
the making of the Czech Award, the Czech Republic
sent a series of timely letters purporting to invoke the
arbitral review process, and a new arbitral tribunal was
constituted.
In the meantime, Diag instituted enforcement
proceedings in various jurisdictions, including Austria.
In the Austrian proceedings, the Czech Republic relied
on Article V(1)(e) of the New York Convention 1958 to
contend that the Czech Award should not be enforced
because it was not yet “binding” due to the pending
arbitral review. Diag countered that the Czech Republic
had not properly invoked the arbitral review process
within the time limit and that, therefore, the Czech
Award had already become binding at the expiration of
the 30 days. The Supreme Court of Austria agreed with
the Czech Republic that the Czech Award had not yet
become binding because of the pending arbitral review.
It concluded that whether the application for review had
been properly filed was a matter for the arbitral tribunal
to determine. It therefore declined to enforce the Czech
Award.
Diag subsequently brought enforcement proceedings
in England. The Czech Republic submitted that the
English court should refuse to enforce the Czech Award
under s. 103 of the Act, which is based on Article V of
the New York Convention, on the ground that the Czech
Award had not yet become binding. It contended that
the English court was bound by the Austrian court’s
determination. Under the doctrine of issue estoppel,
the decision of a foreign court on an issue will bind an
English court in later proceedings between identical
parties where (1) the foreign court was one of competent
jurisdiction, (2) its decision on the issue was final and
conclusive, and (3) its decision was made on the merits.
Eder J concluded that there was no reason why issue
estoppel should not apply where a foreign court
handling enforcement proceedings had decided that
an award was not binding. In reaching that conclusion,
Eder J recognized that “questions of arbitrability and
of public policy may be different in different states and
that a decision in a foreign court refusing to enforce an
award under the New York Convention on public policy
grounds of that state will not ordinarily give rise to an
issue estoppel in England.” Nonetheless, he saw no
reason why, if the conditions for the application of issue
estoppel are met, it should make a material difference
that the prior decision on the same issue was “made in
the context of enforcement proceedings as opposed to
any other type of proceedings.” Based on the prior case
law, Eder J could find no reason why issue estoppel could
not arise from a ruling made by a foreign court in the
context of an enforcement proceeding, so long as the
issue was the same and the decision was on the merits.
In the case at hand, the Austrian court had previously
considered and decided the identical issue presented to
the English court. Diag had previously raised, and the
Austrian court had rejected, the argument that there
was no validly and timely instituted review process and
that, therefore, the Czech Award had become binding.
The Austrian court’s prior decision gave rise to an issue
estoppel that precluded Diag from raising the matter
again before the English court. It was irrelevant whether
Eder J might have reached a different conclusion on
the facts or as a matter of English law if the issue had
first been raised before him. In the circumstances,
enforcement of the Czech Award was refused.
What amounts to a sufficient change of
circumstances for a renewed application to
enforce an award?
In IPCO (Nigeria) Ltd v. Nigerian National Petroleum
Corporation, [2014] EWHC 576 (Comm) (Field J),
the English Commercial Court dealt with a renewed
application to enforce an arbitral award under ss. 101
and 103 of the Act. Mr. Justice Field (“Field J”) denied
the application because the Claimant had not shown that
Issue 01 - 2015 — 13
a sufficient change in circumstances had occurred since
an English court previously adjourned enforcement of
the award under s. 103(5) of the Act, which gives the
court discretion to adjourn recognition or enforcement
of an award where a challenge to the award is pending
before a competent authority in the place of arbitration.
The Claimant (“IPCO”) had commenced English
court proceedings to enforce an award (the “Nigerian
Award”) made against the Respondent (“NNPC”)
in 2004 by a tribunal sitting in Nigeria. The English
court originally exercised its discretion to adjourn the
enforcement proceedings because a challenge to the
Nigerian Award was pending before a Nigerian court.
The Nigerian challenge proceedings brought by NNPC
were at first based on lack of jurisdiction and then later
on allegations that IPCO had engaged in fraud during
the arbitration.
In 2008, IPCO asked an English court to reconsider the
adjournment because the Nigerian proceedings were
taking longer than expected. However, in June 2009,
IPCO and NNPC entered into a consent order under
which they agreed to adjourn enforcement until the
question of whether the Nigerian Award should be set
aside for fraud was decided by the Nigerian court. In the
interim, Nigerian authorities initiated, withdrew, and
then reinstated criminal fraud charges against IPCO, in
the process raising questions about the strength of the
fraud evidence.
At issue in the instant decision, IPCO in 2013 asked the
English court, again, to reconsider enforcement. Field
J indicated that, for an English court to reconsider the
exercise of its discretion under s. 103(5), the Claimant
would need to show a change of circumstances that is
“significant and causatively linked to the variation of the
earlier order.” Field J stated that, “if there be a sufficient
change of circumstance for the original decision
on enforcement to be reconsidered, that ought not
ordinarily to require any revisiting of the court’s earlier
decision as to the strength of the challenge to the arbitral
award that was the foundation for the original decision to
adjourn enforcement.”
Field J denied IPCO’s application because IPCO
had failed to demonstrate a sufficient change in
circumstances. By entering into the consent order,
IPCO had agreed that NNPC’s fraud claim presented
an arguable challenge to the Nigerian Award. To
demonstrate a sufficient change of circumstances,
IPCO would have to show that NNPC’s fraud challenge
was hopeless or not bona fide, which it had failed to
do. Moreover, Field J found that, at the time IPCO
entered into the consent order, it should have been
aware of the risk of delay in the Nigerian proceedings.
Field J concluded that, even if he were to consider the
application for enforcement anew, he would exercise his
discretion to adjourn enforcement pending the outcome
of the challenge in Nigeria. Thus, the enforceability of
the Nigerian Award was left for the Nigerian court to
decide, with the English court’s hope that the Nigerian
court would expedite its proceedings.
The decision illustrates what a claimant must show in
order to have an adjourned application for enforcement
reopened by an English court. Field J’s judgment also
suggests that, in most cases, an English court will
not reassess the strength of a challenge to an award
underlying an adjournment of enforcement under
s. 103(5). However, it is yet to be seen whether the
judgment will stand, as the Court of Appeal will hear
IPCO’s appeal in early 2015.
Does a party’s failure to pay an ICC advance
on costs amount to a repudiatory breach of
the arbitration agreement?
In BDMS Limited v. Rafael Advanced Defence Systems
[2014] EWHC 451 (Comm) (Hamblen J), the English
Commercial Court addressed whether a Respondent’s
refusal to pay its share of the advance on costs in an ICC
arbitration rendered the parties’ arbitration agreement
inoperative. Mr. Justice Hamblen (“Hamblen J”)
concluded that the Respondent’s refusal to pay was a
breach of the arbitration agreement but that, under the
specific facts, the breach was not a repudiatory one such
as to entitle the Claimant to abandon arbitration and
pursue its claim in court.
The Claimant (“BDMS”) initiated arbitration
proceedings over disputed sums purportedly owed
by the Respondent (“Rafael”) under an agreement
providing for arbitration in London under the 1998 ICC
Arbitration Rules (“ICC Rules”). The ICC wrote to the
parties fixing the advance on costs and requesting that
each party pay its share. Rafael expressed concerns about
BDMS’s ability to meet any adverse costs order and
stated that it would not pay its share of the advance on
costs unless adequate security had been put in place. The
arbitral tribunal set a hearing date to address the issue.
In the meantime, the ICC sent several requests for
payment of Rafael’s share of the advance on costs
and warned that, without payment, it would consider
BDMS’s claim withdrawn. The ICC ultimately directed
the tribunal to stop work and notified the parties that
Issue 01 - 2015 — 14
the claim was deemed withdrawn under Article 30(4) of
the ICC Rules. BDMS notified Rafael that it considered
Rafael’s refusal to pay to be a repudiation of their
agreement to arbitrate, and it refiled its claim in the
English court. Rafael sought a stay of the English court
proceedings pursuant to s. 9 of the Act, under which a
court must grant a stay unless the agreement to arbitrate
is found to be “null and void, inoperative, or incapable of
being performed.”
Hamblen J found that the mandatory requirement to
pay an advance on costs under the ICC Rules gave rise
to a contractual obligation between the parties because
the parties had adopted the ICC Rules in their contract.
Rafael’s refusal to pay its share breached that obligation.
Nonetheless, Hamblen J concluded that the breach was
not repudiatory.
In reaching the conclusion that the breach was not
repudiatory, Hamblen J took into consideration that
Rafael’s refusal to pay was not absolute, but conditional on
its request for security, and that Rafael was not otherwise
refusing to participate in the arbitration. Hamblen J also
concluded that BDMS had not been denied its right to
arbitrate because other avenues were open to BDMS
under the ICC Rules, including paying Rafael’s share
of the advance on costs itself, posting a bank guarantee
for Rafael’s share, seeking an interim or final award
compelling Rafael to pay its share, or objecting to the
deemed withdrawal of the claim by the ICC.
Moreover, Hamblen J held that the arbitration
agreement, not merely the arbitration reference, must
be shown to have been repudiated before it will be
found inoperative. The deemed withdrawal of BDMS’s
claim did not prevent BDMS from bringing the same
claim in another, future arbitration proceeding. Given
that the arbitration agreement had not been repudiated
or rendered inoperative, Hamblen J granted Rafael’s
application for a stay of court proceedings.
The court’s fact-specific analysis suggests that whether
an arbitration agreement is inoperative will be decided
on a case-by-case basis. However, Hamblen J’s judgment
sets out guidance on the options available to a Claimant
when a Respondent refuses to pay an advance on costs,
and it suggests that even where the available recourse
will likely result in costs and delay, a Claimant may need
to exhaust these other avenues before turning to the
English courts.
When will an award be set aside for failure
to give a party notice and an opportunity to
address its opponent’s arguments?
In Brockton Capital LLP v. Atlantic-Pacific Capital, Inc.
[2014] EWHC 1459 (Comm) (Field J), an English court
dealt with a party’s application to set aside an arbitral
award pursuant to s. 68 of the Act. The applicant
(“Brockton”) contended that in breach of s. 33 of the
Act, the arbitral tribunal had acted unfairly in deciding
that a contractual provision was unenforceable as a
penalty when Brockton had had no opportunity to make
Issue 01 - 2015 — 15
submissions on the issue. Mr. Justice Field (“Field J”)
agreed.
Brockton, a private equity fund manager, and Atlantic-
Pacific Capital, Inc. (“APC”), an independent
placement agent, entered into an agreement appointing
APC as the exclusive global placement agent to raise
capital for a Brockton property fund (“the Fund”)
in exchange for placement fees. Brockton, APC
and a third-party investor entered into a separate
agreement, amending the first agreement and ensuring
that Brockton and APC did not engage in certain
objectionable practices. Both agreements were subject
to New York law and provided for arbitration in London
under the ICC Arbitration Rules. Paragraph 2(g) of
the second agreement provided, in the event of APC’s
breach, that (i) Brockton would be released from any
obligation to make further payments to APC and (ii)
Brockton would be entitled to terminate the agreements
“for Cause”.
Brockton purported to terminate the agreements on
the ground of APC’s alleged breach. APC brought
arbitration proceedings for wrongful termination
and disputed Brockton’s right to withhold payment
of placement fees. Following the arbitration hearing,
APC made post-hearing submissions. It contended,
for the first time, that paragraph 2(g)(i) of the second
agreement, which provided that APC’s breach would
release Brockton from further payment obligations,
constituted an unenforceable penalty. APC’s submission
made no reference to paragraph 2(g)(ii), which entitled
Brockton to terminate the agreements “for Cause” in the
event of APC’s breach. Brockton submitted a letter of
response in which it reserved its right to object to new
arguments raised by APC’s post-hearing submission,
but did not directly object to them or address APC’s
argument that paragraph 2(g)(i) was an unenforceable
penalty clause. The tribunal made an award in favor of
APC (the “APC Award”), finding that paragraph 2(g) of
the second agreement generally—not merely paragraph
2(g)(i)—constituted an unenforceable penalty because
paragraph 2(g) made no distinction among the various
possible breaches that would give Brockton the right
to be released from paying fees and to terminate the
agreement.
Brockton challenged the APC Award before the court
under s. 68 of the Act, which empowers a court to
set aside an arbitral award on the ground of “serious
irregularity” affecting the tribunal, the proceedings or
the award, including a failure by the tribunal to observe
its duty of fairness and impartiality under s. 33(1)
(a) of the Act. Brockton submitted that the tribunal
had acted unfairly by denying it the opportunity to
prepare, investigate and present a case in relation to the
argument that both paragraphs 2(g)(i) and 2(g)(ii) were
unenforceable penalty clauses.
Field J was careful to distinguish between, on the one
hand, a party having no opportunity to address a point
or his opponent’s case, and, on the other hand, a party
failing to recognize or take the opportunity which exists.
The latter will not involve a breach of s. 33 or a serious
irregularity. Field J held that the tribunal was entitled to
conclude that Brockton had passed up the opportunity
of dealing with APC’s penalty clause case on paragraph
2(g)(i). In deciding, however, that paragraph 2(g)(ii) was
an unenforceable penalty clause without giving Brockton
notice or opportunity to address that issue, the tribunal
had acted in breach of s. 33. This irregularity caused
substantial injustice to Brockton. Had Brockton had the
opportunity to present its arguments on the issue, the
outcome of the APC Award might have differed.
Field J dismissed an additional submission by Brockton
that the tribunal was in breach of s. 33 by ignoring and
making no reference to certain evidence on a separate
issue of contractual construction. Field J held that the
duty to act fairly was distinct from the autonomous
power of the arbitrators to make findings of fact. It will
only be in the most exceptional case, “if ever”, that a
failure to refer to a particular part of the evidence will
constitute a serious irregularity under s. 68.
Field J ordered remission to the existing tribunal to
decide, at its discretion, and on the basis that 2(g)(i) was
a penalty provision, the question of whether 2g(ii) was
an unenforceable penalty.
Issue 01 - 2015 — 16
DIFC ARBITRATION LAW
2008 AMENDED TO
REMOVE UNCERTAINTY
SURROUNDING THE DIFC
COURT’S POWER TO STAY
ITS PROCEEDINGS IN FAVOR
OF A NON-DIFC SEATED
ARBITRATION
The Dubai International Financial Centre (“DIFC”) Authority has amended the DIFC
Arbitration Law 2008 after conflicting decisions of the DIFC Court of First Instance were
issued concerning the power of that court to stay its proceedings in favor of arbitration
proceedings with a seat outside the DIFC.
The conflict arose because although Article 13(1) of the DIFC Arbitration Law 2008 required the Court to stay its
proceedings in favor of arbitration when requested to do so by a party relying on an agreement to arbitrate, Article 13(1)
was not identified at Clause 7 of the DIFC Arbitration Law 2008 as one of those provisions that applied where the seat of
the arbitration was outside the DIFC.
In Injazat Capital Limited and Injazat Technology Fund B.S.C. v. Denton Wilde Sapte & Co (CFI 019/2010) (“Injazat
Capital”), Justice Sir David Steel held that the terms of the DIFC Arbitration Law 2008 precluded him from staying
DIFC Court proceedings in favor of arbitration in London under the LCIA Rules.
Less than six months later, in IES v. Al Fattan Engineering (CFI 004/2012), Justice David Williams QC held that the DIFC
Court was not precluded by the terms of the DIFC Arbitration Law 2008 from invoking its inherent discretion to stay its
proceedings. Consequently, the court had power to stay its proceedings in favor of a non-DIFC seated arbitration.
Following its amendment in December 2013, Article 7 of the DIFC Arbitration Law 2008 now makes clear that Article
13(1) applies regardless of where the seat of an arbitration may be. Consequently, Article 13(1) now directly mirrors the
terms of Article II(3) of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
to which the UAE acceded in 2006.
Issue 01 - 2015 — 17
DIFC COURTS HAVE
JURISDICTION TO HEAR
AN APPLICATION FOR
THE RECOGNITION AND
ENFORCEMENT OF A
DUBAI AWARD WITHOUT
PRIOR RATIFICATION OF
THE AWARD BY THE DUBAI
COURTS OR THE PRESENCE
OF ASSETS IN THE DIFC
In Banyan Tree Corporate PTE Ltd v. Meydan Group LLC, the parties entered into a hotel
management agreement under which Banyan Tree was appointed as the manager of a
hotel owned by Meydan Group. Meydan terminated the agreement, creating a dispute
between the parties. The agreement provided for arbitration in Dubai under the auspices
of the Dubai International Arbitration Centre. The arbitral tribunal issued an award in
favor of Banyan Tree, which Meydan failed to pay.
Banyan Tree applied for recognition and enforcement by the DIFC Court
of First Instance without first ratifying the award in the Dubai courts and
notwithstanding that Meydan was not shown to have a presence or assets in the
DIFC.
Meydan challenged the jurisdiction of the DIFC Court of First Instance arguing
that the Dubai courts were the appropriate forum within Dubai for any claim for
recognition or ratification of an award made in Dubai. Meydan further argued
that the application was an abuse of process because in its submission the order
was sought solely to enable enforcement through the Dubai courts without the
need to obtain ratification of the award by the Dubai courts. (Article 7(2) of the
Judicial Authority Law provides that arbitral awards ratified by the DIFC Court
“... shall be enforced by an executive judge at Dubai Courts ...”.)
Issue 01 - 2015 — 18
In its decision on jurisdiction, the
DIFC Court of First Instance held
that in accordance with earlier DIFC
Court decisions, the principles of
forum non conveniens did not apply
as between the DIFC Courts and
other courts within the UAE. The
Court of First Instance further held
that whilst the application itself may
or may not eventually succeed on its
merits, it was clear that the Court
of First Instance had jurisdiction to
entertain the application.
The Court observed that Article
5(A)(1)(e) of the Judicial Authority
Law (Dubai Law No. 12/2004, as
amended) provides that the DIFC
Court has exclusive jurisdiction
over any claim or action where “...
the Courts have jurisdiction in
accordance with DIFC Laws and
DIFC Regulations”.
In this case, jurisdiction was said to
arise from the terms of the DIFC
Arbitration Law 2008. Article 42(1)
of the 2008 Law provides that “An
arbitral award, irrespective of the State
or jurisdiction in which it was made,
shall be recognised as binding within
the DIFC and, upon application in
writing to the DIFC Court, shall
be enforced...”.
Applying the language of Article
42(1) to the instant case, the Court of
First Instance held that Banyan Tree
was entitled to make the application
and the Court of First Instance had
jurisdiction to hear it even though
neither the parties nor the dispute
had any obvious connection with the
DIFC beyond the application itself.
Meydan was granted permission to
appeal the decision on jurisdiction
to the DIFC Court of Appeal.
The Court of Appeal upheld the
ruling of the Court of First Instance
and found that the DIFC Court
had jurisdiction to recognize a
domestic arbitration award made
within the Emirate of Dubai but
outside the DIFC.
The Court of Appeal rejected
Meydan’s arguments that (i) the
presence of Meydan or its assets
within the DIFC was a pre-requisite
to recognition, (ii) forum non
conveniens applied, and (iii) that
the application for recognition of the
award constituted an abuse of process.
Justice Sir David Steel held that “it is
right to say that there is no evidence
that Meydan has assets within the
DIFC ... but there is no basis for
asserting that the application for
enforcement within the DIFC has
no independent purpose. I do not
understand it to be accepted that
no such assets exist or alternatively
that no such assets (whether they
currently exist or not) may come
within the jurisdiction following an
order for enforcement ...”. The Court
of Appeal held that engagement of the
enforcement procedures of the DIFC
Court did not constitute an abuse of
process.
The key point to note about the Court
of Appeal’s decision is that even
though Meydan was not known to
have assets within the DIFC at the
time of the application, the Court
of Appeal contemplated a scenario
in which a party might legitimately
obtain an order in anticipation of
assets coming into the DIFC. In so
acting, the Court would be granting
a precautionary enforcement order
to allow a party to obtain details of
any assets that are or may become
available. Even though the Court of
Appeal recognized that the absence
of assets in the DIFC may be a
relevant consideration to the exercise
of its discretion to grant execution,
it held that “even a judgment
creditor is entitled to levy execution
against assets which come into the
jurisdiction after the judgment is
entered or which did not even exist
at that time.”
Issue 01 - 2015 — 19
THE ICDR AND LCIA UPDATE
THEIR RULES: AN INCREASED
FOCUS ON PROCEDURAL
EFFICIENCY
In 2014, the International Centre for Dispute Resolution (ICDR), the international arm
of the American Arbitration Association (AAA), and the LCIA (formerly known as the
London Court of International Arbitration), became the latest arbitral institutions to
publish new rules to govern arbitrations administered by those bodies. The main theme
in both institutions’ new rules appears to be an increased focus on procedural efficiency.
This update highlights the most important changes in the new ICDR and LCIA rules.
ICDR 2014 International Dispute Resolution Procedures
1. International Expedited Procedures (Articles 1(4) and E-1 to E-10)
The ICDR has become the first arbitral institution to incorporate into its rules an expedited arbitration procedure
for lower value claims. The new rules contain International Expedited Procedures, which will apply in cases where
no claim or counterclaim exceeds US $250,000 exclusive of interest and the arbitration costs (unless the parties
agree or the ICDR determines otherwise). In such cases, the dispute shall be decided by a sole arbitrator and the
default timeline will be as follows: procedural order issued within 14 days of arbitrator appointment; final written
submissions due or a one-day oral hearing to take place within 60 days of the procedural order; an award issued
within 30 days from final written submissions or the close of the hearing. The rules also presume that any case
involving disputes valued at US $100,000 or less will be decided on written submissions.
2. Mediation (Article 5)
Another notable feature of the updated rules is the encouragement of mediation as a tool for resolving disputes that
have been submitted to arbitration. Following the submission of the Answer, the arbitrator may invite the parties
to mediate, or the parties may agree to mediate under the ICDR’s International Mediation Rules. The mediation
is to run concurrently with the arbitration, and the mediator may not serve as the arbitrator in the case (unless the
parties otherwise agree). In addition, Articles 2(3) (g) and 3(4) contain new language emphasizing that parties may
designate “any interest in mediating the dispute” in the Notice of Arbitration or Answer.
3. Joinder and Consolidation (Articles 7 and 8)
The previous rules had no provision regarding joinder and consolidation. The new rules allow a party to request the
joinder of an additional party by submitting a Notice of Arbitration against the additional party. Any joinder request
should be made before the ICDR appoints the first arbitrator. After such appointment, no joinder is permitted
absent express agreement of all parties concerned. The revised rules provide a unique method for a party to request
the consolidation of two or more pending arbitrations administered by the AAA or ICDR. Any party may request
that a consolidation arbitrator be appointed. The consolidation arbitrator will ultimately decide whether or not
to consolidate the cases. If the consolidation arbitrator orders that the proceedings be consolidated, each party is
considered to have waived its right to appoint an arbitrator for the resolution of the dispute. Instead, the consolidation
arbitrator or the Administrator appoints the arbitrator(s).
Issue 01 - 2015 — 20
4. Privilege (Article 22)
The inclusion of a provision addressing the applicable
rules of legal impediment or privilege is a distinguishing
aspect of the new rules. It provides that when the parties,
their counsel or their documents would be subject under
applicable law to different rules, the tribunal should, to
the extent possible, apply the same rule to all parties,
giving preference to the rule that provides the highest
level of protection. No other arbitral institution’s rules
contain such a provision.
5. Other efficiency focused provisions
The new rules introduced a number of other provisions
intended to increase the efficiency of proceedings:
• the prospective arbitrators are required to sign a Notice
of Appointment affirming their availability to serve
(Art. 13 (2));
• the tribunal and the parties are encouraged to consider
how technology, including electronic communications,
can be used to increase efficiency (Art. 20(2));
• the parties shall make every effort to avoid
unnecessary delay and expense, and the tribunal
may allocate costs, draw adverse inferences
and take additional steps necessary to protect
the efficiency and integrity of the arbitration
(Art. 20(7));
• the tribunal shall manage the exchange of information
among the parties with a view to maintaining
efficiency and economy (Art. 21(1));
• requests for electronic documents should be narrowly
focused and structured to make the document
collection exercise as economical as possible, and the
tribunal may direct testing or other means of limiting
any search (Art. 21(6));
• U.S. litigation procedures such as depositions,
interrogatories and requests to admit are generally
inappropriate (Art. 21(10));
• a final award must be issued no later than 60 days
from the date of the closing of the hearing, unless the
parties agree to extend the deadline or the ICDR does
so (Art. 30(1)).
2014 LCIA Arbitration Rules
1. Emergency arbitrator (Article 9B)
LCIA users no longer need to resort to local courts for
emergency relief before the formation of the arbitral
tribunal. In the case of emergency, a party may apply for
the appointment of a temporary, sole arbitrator before
the formation of the tribunal. The emergency arbitrator
is to be appointed by the LCIA Court within three days
of a request. The emergency arbitrator is not required to
hold a hearing and must decide the claim for emergency
relief no later than 14 days after his or her appointment.
2. Declaration by prospective arbitrator (Article
5.4)
The ability of arbitrators to devote sufficient time to
the arbitration to which they have been appointed has
received considerable attention in the international
arbitration community lately. The previous rules
required arbitrators to make declarations attesting to
their impartiality and independence. Under the new
rules, arbitrators must also declare their willingness
to devote sufficient time to ensure the arbitration is
conducted expeditiously.
3. Law applicable to the arbitration agreement
(Article 16.4)
English courts have recently been faced with the
question of what law should apply to parties’ arbitration
agreements in the absence of an express choice-of-law
clause. Article 16 of the new rules addresses this issue.
The term “Arbitration Agreement” is now defined and
incorporates both the arbitration agreement itself and
the LCIA Rules. If parties have failed to identify a seat
of arbitration in their agreement or do not set one prior
to the formation of the tribunal, the seat will default
to London. The new rules make clear that the law
applicable to the arbitration agreement shall be that of
the seat of the arbitration, unless otherwise elected by
the parties.
4. Conduct of legal representatives (Article 18 and
Annex)
The most innovative part of the new provisions are
those relating to parties’ legal representation, and
they currently have no equivalent in other commonly
used arbitral rules. Parties must ensure that their legal
representatives appearing before the tribunal comply
with the new “General guidelines for the parties’
legal representatives” (Annex to the new rules). The
guidelines provide that the legal representative should
not make false statements to the arbitral tribunal or
LCIA Court, should not knowingly procure false
evidence, should not conceal documents ordered by the
tribunal and should not initiate unilateral contact with
the tribunal without disclosure. The tribunal has the
express power to rule on whether or not the guidelines
have been violated, provided that the legal representative
has had an opportunity to answer any complaints. The
tribunal may order any or all of the following sanctions:
(i) a written reprimand; (ii) a written caution as to future
conduct in the arbitration; and (iii) any other measure
Issue 01 - 2015 — 21
In recent years, arbitration proceedings have come
under criticism for becoming more expensive and
taking longer to resolve. In response to such concerns,
a number of international arbitration institutions have
revised their rules. The ICDR and the LCIA have now
joined the group of institutions attempting to address
these issues. The new rules of both institutions are
intended to improve the efficiency and economy of the
arbitration proceedings.
to fulfill the required duties. In addition, any change or
addition to the parties’ legal representatives has to be
notified to the other parties, the arbitral tribunal and
the Registrar. The arbitral tribunal’s approval may be
withheld if the change or addition compromises the
composition of the arbitral tribunal or the finality of the
award.
5. Joinder and consolidation (Article 22.1)
The new rules maintain the right of the tribunal to join
third parties to the arbitration provided that the applicant
and the third party both consent. Consolidation may
occur without the parties’ agreement with the approval
of the LCIA Court where there are multiple arbitrations
involving the same parties and only one tribunal has
been appointed.
6. Costs (Article 28.4)
This new provision gives more guidance to parties
regarding the factors to be taken into account by the
tribunal when assessing costs. The tribunal may take into
account the parties’ conduct in the arbitration, including
any co-operation in facilitating the proceedings as to
time and cost and any non-cooperation resulting in
undue delay and unnecessary expense.
7. Other efficiency focused provisions
As with the new ICDR Rules, the new LCIA Rules
introduce a number of additional provisions focused on
increasing the efficiency of proceedings:
• the Request for Arbitration and the Response can now
be submitted electronically (Articles 1.3 and 2.3);
• the period of time parties have to respond to a Request
has decreased from 30 days to 28 days (Article 2.1);
• the formation of the arbitral tribunal should not be
delayed due to deficiencies in either the Request or the
Response (Article 5.1);
• the LCIA Court’s default appointment of a sole
arbitrator or three-member tribunal will now be made
35 days from the start of the arbitration, instead of 30
days from service of the Request on the respondent
(Articles 5.6 and 5.8);
• the parties and the arbitral tribunal should make
contact no later than 21 days after the formation of the
tribunal (Article 14.1);
• the arbitral tribunal should issue the award “as soon as
possible” and set aside adequate time to do so (Article
15.10);
• hearings may now take place in various formats
(by video, telephone conference or in person) or a
combination of all three (Article 19.2).
Issue 01 - 2015 — 22
SINGAPOREAN COURTS
HAVE BROAD POWERS
TO GRANT PERMANENT
INJUNCTIVE RELIEF IN AID OF
ARBITRATIONS SEATED
IN SINGAPORE
The High Court of Singapore recently concluded, albeit in obiter dicta, that it could issue
a permanent anti-suit injunction to restrain a party from pursuing foreign proceedings
where a valid arbitration agreement provides for international arbitration in Singapore.
(R1 International Pte Ltd v. Lonstroff AG [2014] SGHC 69.)
The Dispute
R1 International (“R1”), a Singaporean company, sold five separate orders of natural rubber to Lonstroff AG (“Lonstroff”),
a Swiss company. In connection with each order, R1 sent Lonstroff a sales contract providing for arbitration, but Lonstroff
did not sign any of the contracts.
Lonstroff complained about the second order, alleging the rubber was unsuitable. The parties failed to resolve the
dispute, and Lonstroff filed suit in Switzerland. A few months later, R1 attempted to commence arbitration in Singapore,
contending the parties were bound by a clause in the sales contract providing for arbitration in Singapore. R1 obtained an
interim anti-suit injunction from the Singaporean courts prohibiting Lonstroff from pursuing the Swiss action. Lonstroff
then applied to the High Court to discharge the interim injunction, and R1 applied to make the injunction permanent.
The Decision
The High Court heard the parties’ applications together. Justice Prakash addressed the threshold issue of whether
the parties had even agreed to arbitrate, given that Lonstroff never signed the written sales contract containing an
arbitration clause and R1 sent the written contract to Lonstroff four days after the second order had already been
delivered to and accepted by Lonstroff. R1 had argued that the parties incorporated an arbitration clause into their
agreement by trade custom or, alternatively, by course of dealing. Justice Prakash rejected both arguments and held
that the contract for the second order did not contain an arbitration clause. She therefore discharged the interim
anti-suit injunction.
In light of her decision, Justice Prakash recognized it was not strictly necessary to consider the court’s power to grant
a permanent anti-suit injunction in aid of international arbitration. Nevertheless, because both sides had argued this
issue and because it could have important significance in future cases, she provided her views.
While Sections 12 and 12A of the Singapore International Arbitration Act (“IAA”) grant courts the power to issue
temporary anti-suit injunctions, without regard to whether an arbitration is seated inside or outside Singapore,
Justice Prakash observed that those sections do not give courts the power to issue permanent anti-suit injunctions.
Nevertheless, Section 4(10) of the Singapore Civil Law Act (“CLA”) grants courts broad injunctive powers that can
be exercised to restrain permanently parties from pursuing foreign proceedings in deference to local proceedings.
Issue 01 - 2015 — 23
THE UNCITRAL RULES ON
TRANSPARENCY IN TREATYBASED
INVESTOR-STATE
ARBITRATION
On 1 April 2014, the United Nations Commission on International Trade Law
(UNCITRAL) Rules on Transparency in Treaty-based Investor-State Arbitration (“the
Transparency Rules”) came into effect. The Transparency Rules have been drafted
as a stand-alone instrument available for use in all investor-State arbitrations and, in
some cases, their application is mandatory. As such, parties involved in investor-State
arbitrations are likely to come into increasing contact with them. To place them in context,
the Transparency Rules form part of the attempt to fend off the increasing criticism,
particularly from NGOs, leveled against the perceived clandestine nature of treaty-based
investor-State arbitration.
Presently, the Transparency Rules apply mandatorily only in a limited class of investor-State arbitrations. These are
UNCITRAL arbitrations initiated pursuant to treaties concluded on or after 1 April 2014, unless the parties to the
treaty have agreed otherwise. For UNCITRAL arbitrations commenced under treaties concluded before that time,
the Transparency Rules only apply if the parties to the arbitration so agree, or if the State parties to the relevant
treaty have agreed to their application.
However, the class of investor-State arbitrations in which the Transparency Rules will apply is likely to increase. On
10 July 2014, UNCITRAL approved a draft convention, the purpose of which will be to provide a mechanism for
the mandatory application of the Transparency Rules to investor-State arbitrations arising under treaties concluded
before 1 April 2014. The Transparency Rules would thereby apply to investor-State arbitrations arising under
existing investment treaties concluded between State parties which are signatories to the convention, including to
Justice Prakash reasoned that such local proceedings
include arbitrations as well as court proceedings.
Furthermore, the broad powers granted by Section 4(10)
of the CLA are not displaced or limited by Sections 12
and 12A of the IAA.
Implications
Justice Prakash constrained her opinion to conclude only
that Singaporean courts may grant permanent anti-suit
injunctions in aid of international arbitrations seated in
Singapore. She declined to provide a conclusive view as
to whether Singaporean courts could grant permanent
injunctive relief in aid of foreign-seated arbitrations, but
she expressed a tentative view that they could.
The decision in this case provides practitioners with
a clear and well-reasoned perspective on how the
Singaporean courts may decide these issues, when
they are squarely presented. Justice Prakash’s views
are arbitration-friendly and, if followed, could help to
reduce inefficiency (and gamesmanship) incident to
parallel proceedings.
Issue 01 - 2015 — 24
then decide whether to place in the
public domain exhibits and any other
documents which themselves are not
subject to the automatic or mandatory
disclosure provisions. The tribunal
may either make any such documents
available at a specified site, or provide
them to the repository. These
disclosure requirements are subject
to various exceptions, which seek to
prevent disclosure to the public of
confidential or protected information,
and to protect the security interests of
States, as well as the integrity of the
arbitral process.
The arbitral tribunal is empowered
in specific circumstances to accept
written submissions from a third
person who is not a signatory party
to the treaty pursuant to which the
arbitration was initiated (e.g., an
amicus curiae). In deciding whether to
grant permission, the arbitral tribunal
must take into account various factors,
including any significant interest
the third person has in the arbitral
proceedings and the assistance the
submission would afford in bringing
a perspective, particular knowledge
or insight that is different from
the disputing parties. The arbitral
tribunal must ensure that the third
party’s submission is not disruptive or
unduly burdensome to the conduct of
the arbitration, nor unfairly prejudicial
to any disputing party. The arbitral
tribunal must also provide the
disputing parties with a reasonable
opportunity to respond to the third
party’s submission.
In addition, the arbitral tribunal must
accept written or oral submissions
from non-disputing parties to
the treaty pursuant to which the
arbitration was initiated in relation to
issues of treaty interpretation, but only
after consultation with the disputing
parties, and only to the extent that any
such submissions are not disruptive
to or unduly burdensome on the
proceedings, nor unfairly prejudicial
arbitrations not governed by the
UNCITRAL Arbitration Rules. It
will therefore be of great significance
if this convention is adopted by the
United Nations General Assembly
and individual States in due course.
The Transparency Rules impose
various duties on the parties and the
arbitral tribunal. They also establish
a new repository of published
information, which will receive
documents during the course of the
arbitration. The repository is the
Transparency Registry at the United
Nations in Vienna. The repository
must make basic facts about the
arbitration available promptly.
At the outset of the arbitration,
the parties are to provide a copy of
the notice of the arbitration to the
repository. However, at this stage of
the proceedings, neither the parties
nor the repository is required to make
the actual notice of arbitration publicly
available.
In respect of the arbitral tribunal, the
Transparency Rules impose disclosure
duties concerning documents,
submissions by third persons and
non-disputing parties to the treaty,
and the conduct of the hearing.
In terms of documents, the arbitral
tribunal must provide key documents
created in the course of the arbitration
to the repository, including the notice
of arbitration, the response to the
notice of arbitration, the statement of
claim, the statement of defense, written
submissions, transcripts of hearings,
and any orders, decisions and awards
the tribunal makes. In addition, the
arbitral tribunal must disclose expert
reports and witness statements (but
not any exhibits to these documents)
if a person requests them from the
arbitral tribunal. Finally, upon the
request of a person, or even upon its
own volition, the arbitral tribunal may
consult with the disputing parties, and
Issue 01 - 2015 — 25
to any disputing party. Further, the
arbitral tribunal may accept written
or oral submissions by non-disputing
parties on other matters falling
within the scope of the arbitration.
In deciding whether to accept such
submissions, the arbitral tribunal must
take the same factors into account in
respect of prospective submissions
by third parties. In addition, the
tribunal must pay due regard to the
need to avoid accepting submissions
offered in support of the investor’s
claim, where doing so would be
tantamount to affording diplomatic
protection to the investor. If any
submissions by a non-disputing party
are accepted, then the arbitral tribunal
must ensure that the disputing
parties to the arbitration are given a
reasonable opportunity to respond to
those submissions.
The arbitral tribunal must also ensure
the conduct of the hearing conforms
to the requirements imposed by the
Transparency Rules. The default
position is that the arbitral tribunal
will hold hearings in public. However,
all or part of a hearing may be
held in private if there is a need to
protect confidential information or
the integrity of the arbitral process,
or where it is necessary to do so for
logistical reasons.
Finally, the Transparency Rules preempt
three situations where a conflict
might arise between the Transparency
Rules and other provisions relevant to
the arbitration. These other provisions
include the applicable arbitration
rules, the treaty pursuant to which
the arbitration was initiated, and
non-derogable laws applicable to the
arbitration. Broadly, in the event of
a conflict or inconsistency arising
in respect of these three categories,
the Transparency Rules prevail over
the applicable arbitration rules, but
are trumped by the relevant treaty
provisions and non-derogable laws
applicable to the arbitration.
Whilst not yet tested fully in
practice, the existing framework of
arbitration rules generally applying
to investor-State arbitrations
should be capable of being readily
used in conjunction with the
Transparency Rules.
Issue 01 - 2015 — 26
EXXONMOBIL
IS AWARDED
COMPENSATION
FOR VENEZUELAN
NATIONALIZATIONS
Five affiliates of ExxonMobil—Venezuela Holdings B.V. (a Netherlands company), Mobil
Cerro Negro Holdings Ltd and Mobil Venezolana de Petróleos Holdings Inc. (Delaware
companies), Mobil Cerro Negro Ltd and Mobil Venezolana de Petróleos Inc (Bahamas
companies) (together, “the Claimants”) brought arbitration proceedings in 2007 under
the Convention on the Settlement of Investment Disputes Between States and Nationals
of Other States 1965 (“ICSID Convention”) against the Bolivarian Republic of Venezuela
(“Venezuela”) claiming a violation of the Netherlands-Venezuela bilateral investment
treaty (the “BIT”).
Issue 01 - 2015 — 27
The dispute arose out of the imposition by Venezuela of a new
oil and gas regime during the presidency of Hugo Chavez.
The Claimants argued that the new regime amounted to an
expropriation of their investments in two major oil projects
in Venezuela—Cerro Negro and La Ceiba. In particular,
Venezuela had decreed the nationalization of these projects
in February 2007. The Claimants also invoked a breach
of the fair and equitable standard in the BIT due to
production and export curtailments imposed on the Cerro
Negro project prior to its expropriation.
The Award of Damages
The Tribunal rendered an award on 9 October 2014,
granting US $ 1.4 billion in compensation to the Claimants
for (i) the production and export curtailments imposed on
the Cerro Negro project, (ii) expropriation of the Cerro
Negro project and (iii) expropriation of the La Ceiba
project.
With regard to the first head of claim, the Tribunal held
that certain production and export curtailments imposed
by Venezuela on the Cerro Negro Project had breached the
fair and equitable standard in the BIT. The Tribunal found
that the curtailments imposed from November 2006 were
contrary to the project’s Framework of Conditions, which
had been approved by the Venezuelan Congress. Those
measures were therefore incompatible with the Claimants’
reasonable and legitimate expectations of protection of their
investments. The Tribunal distinguished these wrongful
curtailments from certain other early measures that were
not in breach of the BIT.
The Tribunal’s assessment of damages under this head
aimed to determine the benefit the Claimants would have
obtained from production, export and sale of synthetic
crude oil but for the unlawful curtailment measures. The
Tribunal first determined the impact of these measures
in terms of the number of barrels the Claimants would
have been able to sell. It then applied the relevant oil
prices, as submitted by the Claimants’ expert, between
October 2006 to March 2007. The Tribunal added to this
the impact on co-production sales. The Tribunal then
reduced the resulting balance by deducting production
costs, taxes (science and technology tax, drug and alcohol
tax, export registration contribution), co-production
royalties, capital expenses extraction tax and income tax
for 2006 and 2007. The Tribunal determined the damages
resulting from production and export curtailments at
US $ 9,042,482.
With regard to the claims for expropriation of Cerro
Negro and La Ceiba, the Claimants alleged that
Venezuela’s nationalization of the projects was unlawful
due to Venezuela’s failure to pay compensation to the
Claimants. The Tribunal, however, took a different view.
It held that “the mere fact that an investor has not received
compensation does not in itself render an expropriation
unlawful. An offer of compensation may have been made
to the investor and, in such a case, the legality of the
expropriation will depend on the terms of that offer ... A
tribunal must consider the facts of the case”. Likewise the
lack of agreement on the amount of compensation in such a
case also did not render the expropriation unlawful.
In this case, Venezuela had made a proposal of
compensation, but neither party disclosed the amount.
The Tribunal noted that “[i]t was the Claimants’ burden
to prove their allegations concerning the position taken
by Venezuela during the discussions regarding the
compensation to be paid”. It found that the evidence did not
demonstrate that Venezuela’s proposals were incompatible
with the requirement of “just” compensation in Article
6(c) of the BIT. The parties’ disagreement on the amount
of compensation did mean, however, that the Tribunal had
to determine the amount itself based on expert evidence. It
held the BIT’s provision for “just” compensation to require
the determination and payment of fair market value for the
expropriated investments.
The Tribunal first considered the expropriation of
the Cerro Negro project. The parties agreed to use a
Discounted Cash Flow (“DCF”) method (i.e., discounting
future free cash projections) to assess the net present value
of the Claimants’ investment, but did not agree on the
cash flow inputs and the rate of discount. The Tribunal
determined that the valuation date was crucial for the
calculation, as oil market prices increased in the years
following the nationalization. The Tribunal established 27
June 2007, which was the date on which the expropriation
took effect, four months following the relevant decree,
to be the valuation date. It relied on market prices for oil
when calculating the fair market value compensation.
Given that the expropriation had not been unlawful, the
valuation did not fully reflect the significantly higher
post-2007 market oil prices. Additionally, the Tribunal
considered evidence on projected production volumes
and oil price forecasts as of June 2007. With respect
to whether confiscation risks should be considered in
calculating discount rates, the Tribunal accepted that
the general risk of confiscation was relevant to the
discount rate. The Tribunal established the value of the
Cerro Negro Project at US $ 1,411.7 million.
Issue 01 - 2015 — 28
The Tribunal next valued the La Ceiba project. As this
project was in an early phase of development, the Tribunal
did not view the DCF method as appropriate, and instead
sought to determine fair market value by other means. The
other investor in La Ceiba, Petro Canada, had accepted
compensation of US $ 75 million, but the Tribunal did not
accept this as the right amount of compensation either. It
found that Petro Canada was not “a willing seller, under
no pressure to sell” as required by the fair market value
standard, but instead had accepted to sell on the last day
before the deadline. The Tribunal instead established
market value “at the total ... investment in that Project, i.e.
US $ 179.3 million”.
Prevention of Double Recovery
In December 2011, one of the Claimants, Mobil Cerro
Negro Ltd., obtained a favorable ICC award against
Petróleos de Venezuela S.A. and one of its subsidiaries
(together, “PDVSA”) on the basis that the 2007
production and export curtailments and the subsequent
nationalization of the Cerro Negro Project breached
the parties’ Association Agreement. The ICC Tribunal
awarded US$ 747 million plus post-award interest. It was
not disputed that PDVSA had paid the awarded amount
to Mobil Cerro Negro Ltd. In the ICSID proceeding,
Venezuela argued that the Claimants would obtain
double recovery if awarded compensation.
In its Award, the ICSID Tribunal took note of Mobil
Cerro Negro Ltd.’s commitment in the Association
Agreement to reimburse PDVSA for any sums recovered
in the ICSID proceeding as compensation for the 2007
curtailments and the nationalization of the Cerro Negro
Project. The Tribunal also noted that the Claimants had
expressly stated their readiness to make the required
reimbursement to PDVSA. The Tribunal stated that,
although the Claimants’ commitment was based on
a “contractual obligation that is foreign to the present
case, the Tribunal has not reason to doubt the Claimants’
representation”. Given the existence of overlapping
claims in the ICC and ICSID proceedings, it was
appropriate to avoid any double recovery. The Tribunal
did not, however, reduce the amount of compensation
it awarded, but instead left the reimbursement to be
performed by the relevant parties.
By way of general conclusion, the ICSID Tribunal’s
Award illustrates tribunals’ comfort using the DCF
method to value investments that qualify as going
concerns. It also illustrates the continued view of
investor-State tribunals that the DCF method should not
be applied to projects that do not yet have a proven record
of profit, even if certain assumptions on profit might
have been reasonable. Finally, parties contemplating
investor-State arbitration claims should take note of the
Award’s discussion and conclusion on the applicable
discount rate purporting to reflect the risk to investment.
Issue 01 - 2015 — 29
THE GROUP OF COMPANIES
DOCTRINE IN GERMANY
Pursuant to the group of companies doctrine, a third party non-signatory to a contract
containing an arbitration clause can be held to be bound by it, particularly in circumstances
where the non-signatory party has participated in the conclusion and performance of the
contract. Primarily, the doctrine has been used to extend a tribunal’s jurisdiction to nonsignatory
companies of the corporate group to which the signatory company belongs.
The doctrine has been welcomed by French courts, but vehemently rejected in England.
In May 2014, the German Federal Court of Justice (Bundesgerichtshof ) issued a decision
considering, among other things, the role of the doctrine in German law, which is likely to
reignite debate (German Federal Court of Justice, 8 May 2014, Case ref no. III ZR 371/12).
The case concerned a Danish
registered claimant and an Indian
registered respondent. Each party
produced casings for electrical
equipment. The director general
and sole shareholder of the
claimant owned a patent to a threedimensional
frame design. In 1999,
another company, which belonged to
the group of companies controlled
by the claimant’s sole shareholder
and was represented by him, entered
into a license agreement with the
respondent in relation to the new
design. The license agreement
expired in 2008 and contained an
arbitration clause in favor of ICC
arbitration in New Delhi.
A dispute between the parties arose
as to whether the respondent violated
the patents by presenting certain
casings covered by the patent during
a fair in Hanover in 2010 (i.e., after
expiry of the license agreement). The
claimant initiated court proceedings
against the respondent, basing its
right to sue on an assignment and
litigation authorization declaration
given by the patent owner. The
respondent raised a jurisdictional
objection, claiming that the claimant
was bound by the arbitration clause
contained in the license agreement.
Decision of the Court
Setting aside the decision of the
Court of Appeals, the German
Federal Court made three key
findings. First, under German
law, the question of whether third
parties are bound by an arbitration
agreement is governed by the
law applicable to the arbitration
agreement, at least when the third
party itself concluded the arbitration
agreement acting as the legal
representative of the formal party to
the arbitration agreement. Second, in
such circumstances, the application
of the group of companies doctrine
pursuant to a foreign law would
not be a violation of the German
ordre public. Third, the question of
whether an assignee is bound by
an arbitration agreement entered
into by the assignor is governed by
the law applicable to the arbitration
agreement, and the written form
requirement pursuant to Article II
of the New York Convention cannot
be invoked by the third party to
avoid an arbitration agreement it
would otherwise be bound by under
the applicable law.
Application of the group of
companies doctrine
In order to decide whether the
claimant was bound by the
arbitration clause contained in the
license agreement, the court first
had to decide whether the patent
owner, at the same time director
general and sole shareholder of
the claimant and representative of
the company that entered into the
license agreement, was bound by the
arbitration agreement. According
to the German Federal Court, this
question must be decided according
Issue 01 - 2015 — 30
to the law governing the arbitration
agreement, which here was Indian
law. The Court rejected the view
that one should apply the law that
would presumptively bind the third
party with one of the original parties
to the arbitration agreement. It
reasoned that, whilst this approach
would protect the third party, it
is not justified in circumstances
where the third party participated
in the conclusion of the arbitration
agreement, even if formally this was
only as representative of one of the
parties. In this case, the German
Federal Court held that that it is
proper to apply the law governing
the arbitration agreement, and
referred the case back to the Court
of Appeals, reasoning that this court
must first determine the content of
the group of companies doctrine
under Indian law.
Ordre public exception
As to a potential ordre public
violation, the German Federal Court
reiterated that this would require the
application of the foreign law to lead
to a result that is incompatible with
the basic principles underlying the
German rules and the fundamental
German ideals of justice contained
therein, to an extent considered to
be unacceptable from a German
law perspective. The fact that the
outcome of the case might differ
from the result that would have
been reached applying mandatory
German law would not suffice to
justify the ordre public exception.
Here, the Court noted that to consider
a representative of a company to be
bound by an arbitration agreement
that the representative concluded
on behalf of the company would not
be an unacceptable result from a
German law perspective.
Assignment of arbitration
agreement
The German Federal Court
further held that the question of
whether an assignee is bound by
an arbitration agreement entered
into by the assignor is governed by
the law applicable to the arbitration
agreement. Provided that under
that national law the third party is
bound by the arbitration agreement,
the Court held that Article II(1) of
the New York Convention’s written
form requirement would not lead to a
different result. The purpose of the
New York Convention is to facilitate
the application and enforceability of
arbitration agreements, rather than
rendering the formal requirements
more stringent than under applicable
national law. This, the Federal Court
held, is expressly reflected in Article
VII(1) of the New York Convention.
Comment
The group of companies doctrine
is an often controversial, and by
no means universally accepted,
basis for binding non-signatories
to an arbitration agreement. The
doctrine was first established in
the Dow Chemical award where the
arbitrators held that a non-signatory
to an arbitration agreement might
be bound by the agreement where
this was the common intention of
the signing parties all along. What
matters according to that doctrine
is whether the non-signatory party
has “effectively and individually
participated in [the contracts’]
conclusion, their performance and
their termination.” (ICC Award
No. 4131, YCA 1984, at 131 et seq.).
Outside of France, the doctrine has
been recognized only in a limited
number of jurisdictions and has
been criticized by leading arbitrators
(for instance, Bernard Hanotiau,
Non-signatories in International
Arbitration: Lessons from Thirty
years of Case law in Albert Jan
van den Berg (ed), International
Arbitration 2006: Back to Basics?,
ICCA Congress series, 2006
Montreal, vol 13 (Kluwer Law
International 2007), pp. 341-358).
The English courts have rejected
the doctrine in no uncertain terms
(see Peterson Farms Inc v. C & M
Farming Ltd [2004] (holding that
the doctrine forms “no part of
English law”)).
Without expressing a view as to
whether German contract law
would recognize the doctrine were it
to govern the arbitration agreement,
which seems very questionable, the
German Federal Court’s decision
indicates that at least when limited
to including non-signatories
that as legal representatives were
involved in the conclusion of the
arbitration agreement, the German
ordre public would not stand in the
way of recognizing the group of
companies doctrine. At the same
time, the decision indicates that the
situation might be different where
it is based on nothing else but the
non-signatory’s membership in a
group of companies. The Award
in ICC Case No. 2375 (103 J.D.I.
(Clunet) 973 (1976)) is an example
of such a far-reaching expression
of the doctrine, focusing entirely
on the mere existence of a group
of companies. Whether a German
court would recognize an award
made on this basis seems open to
doubt following the recent decision
of the Federal Court.
Finally, as to the choice-of-law
question, as noted above the Federal
Court held that the national law
governing the arbitration agreement
should apply to determine whether
the doctrine allows the inclusion of a
non-signatory. Thus, it seems clear
that the approach taken by French
courts and certain arbitral tribunals
seated in France (to wit: to rely on
lex mercatoria or the practice in ICC
arbitrations) has no basis under
German law.
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