Singapore High Court affirms principles on when arbitral tribunal is deemed to exceed jurisdiction

When will an arbitral tribunal be deemed to have exceeded its jurisdiction?

In the recent decision of Quanzhou Sanhong Trading Limited Liability Co Ltd v ADM Asia-Pacific Trading Pte Ltd [2017] SGHC 199 involving the enforcement of a foreign arbitral award, the Singapore High Court (“Court”) held that an arbitral tribunal has not exceeded its jurisdiction as regards its determination on the governing law of a contract.

The Court found that the issue on governing law was properly submitted to the arbitration and the tribunal had acted within its terms of reference in deciding the issue. As such, even if the tribunal had decided wrongly on the governing law of the contract, it would not have exceeded its jurisdiction.

Background

The Plaintiff entered into a contract to purchase corn from the Defendant (the “Contract”). A dispute arose as to the quality of the corn supplied. The dispute was referred to arbitration in Beijing, China under the auspices of the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules.

The arbitral tribunal (the “Tribunal”) gave an award ordering the Defendant to pay the Plaintiff the sums of US$777,957.41 and RMB 4,223,702.69 with interest (the “Award”).

The Plaintiff obtained an order for leave to enforce the Award against the defendant (“Enforcement Order”).

The Defendant filed a summons (“Summons”) in Court seeking, amongst other things, to set aside the Enforcement Order.

Concurrently, the Defendant also filed an application to set aside the Award at the Beijing Intermediate People’s Court, which was promptly dismissed.

The assistant registrar (“AR”) dismissed the Summons but ordered a stay of execution of the Enforcement Order pending appeal on condition that the Defendant provided security in the sum of the damages awarded under the Award. The Defendant furnished the said security and appealed against the AR’s decision.

Issue

The key issue is whether the Tribunal had exceeded its jurisdiction if it had made an error as to the governing law of the Contract.

Section 31(2)(d) of the International Arbitration Act (Cap. 143A, 2002 Rev Ed) (“IAA”) provides that the court may refuse enforcement of a foreign award if “the award deals with a difference not contemplated by, or not falling within the terms of the submission to arbitration or contains a decision on the matter beyond the scope of the submission to arbitration”.

Section 31(2)(d) of the IAA is worded similarly to Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). Art 34(2)(a)(iii) applies where an arbitral tribunal improperly decides matters that had not been submitted to it or fails to decide matters that had been submitted to it. By way of section 3 of the IAA, Art 34(2)(a)(iii) of the Model Law has the force of law in Singapore.

The Defendant’s submissions

The Defendant applied to set aside the Award on the basis that:

  • the Award contained a decision on a matter beyond the scope of the submission to arbitration under (s 31(2)(d) of the IAA);
  • enforcing the Award would be contrary to Singapore’s public policy (s 31(24)(b) of the IAA).

Before the Tribunal, the Parties had argued that different governing laws were applicable to the Contract. The Defendant argued that the Contract was governed by English law under the GAFTA 88, a standard form contract produced by the Grain and Feed Trade Association. The Plaintiff argued that PRC law was applicable as it was the law most closely connected to the Contract.

The Tribunal found that only one section of the Contract was governed by English law, whilst the rest of the Contract was governed by PRC law.

The Defendant did not dispute that, in general, errors of law or fact made by an arbitral tribunal is not a sufficient ground for setting aside an award. However, the Defendant sought to draw a distinction here as the issue related to the governing law of the Contract.

According to the Defendant, an error by the Tribunal in relation to the governing law of the Contract would cause the Tribunal to exceed its jurisdiction by disregarding the Parties’ express agreement as to the governing law. The Court is therefore at liberty to review the Tribunal’s decision and to set aside the Award if the Court found that the Tribunal’s decision was wrong.

The Court’s decision

The Court dismissed the Defendant’s appeal.

Justice Chua Lee Ming (“Chua J”) found that the Tribunal would not exceed its jurisdiction just because it came to a wrong decision on an issue within the scope of the Parties’ submission to arbitration. There is no reason why an issue as to governing law should be treated differently from other issues submitted to arbitration.

Chua J cited Quarella SpA v Scelta Marble Australia Pty Ltd [2012] 4 SLR 1057 (“Quarella”) in support of his decision. In Quarella, the plaintiff similarly argued that the tribunal’s decision on governing law was wrong and that by failing to apply the law chosen by the parties, the tribunal had gone beyond the scope of the arbitration. The court in Quarella rejected the plaintiff’s arguments, holding that the plaintiff had based its application entirely upon its disagreement with the tribunal’s interpretation of the choice of law clause. The court in Quarella held that the dispute did not engage Art 34(2)(a)(iii) of the Model Law.

Agreeing with the reasoning in Quarella, Chua J held that in substance, the Defendant was arguing an appeal against the Tribunal’s decision on the governing law of the Contract. This did not engage section 31(2)(d) of the IAA.

The Defendant’s alternative argument that enforcing the Award would be contrary to public policy under section 31(4)(b) of the IAA was dismissed as the Court found that the Tribunal did not exceed its jurisdiction.

Comment

This decision clarifies that issues relating to the governing law of the contract will not be treated differently from other issues that are submitted to arbitration by parties.

In determining whether an arbitral tribunal has acted in excess of jurisdiction, the key is whether the tribunal is acting within the scope of the parties’ submission to arbitration. As long as an issue falls within the scope of the arbitration, the tribunal’s decision, even if manifestly wrong, will not cause it to exceed its jurisdiction.

The similarities between s 31(2)(d) of the IAA and Art 34(2)(a)(iii) of the Model Law means that setting aside applications made under either of these provisions are likely to be decided on similar, if not identical principles.

As held in previous cases, errors of law or fact made by an arbitral tribunal will not be a sufficient ground to set aside an arbitral award. This decision is another example of the high threshold required to be met before the Singapore courts would set aside an arbitral award. This reflects the local courts’ strict adherence to the principle of minimal curial intervention and accords well with Singapore’s status as an arbitration-friendly jurisdiction.

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SGCA recognises asymmetric arbitration clause giving only one party right to elect to arbitrate

Introduction

Is a dispute resolution clause that gives only one party the right to elect to arbitrate a dispute a valid arbitration agreement?

The Singapore Court of Appeal (the “Court”) answered this question in the affirmative recently in Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] SGCA 32. We consider the Court’s decision in detail here.

Facts

The Appellant, Wilson Taylor (“Appellant”) engaged the Respondent, Dyna-Jet (“Respondent”) to install underwater anodes on the island of Diego Garcia. The parties’ contract (“Contract”) contained a dispute resolution clause (“DR Clause”) which gave only the Respondent a right to elect to arbitrate a dispute arising from the Contract.

A dispute arose under the Contract (the “Dispute”) but parties were unable to reach a settlement. The Respondent then commenced Suit No 1234 of 2015 (“Suit 1234”) against the Appellant in the High Court.

The Appellant then filed Summons No 6171 of 2015 (“SUM 6171”) to have Suit 1234 stayed pursuant to section 6 of the International Arbitration Act (Cap. 143A, 2002 Rev Ed) (“IAA”).

The Assistant Registrar (the “AR”) hearing SUM 6171 dismissed the Appellant’s stay application, holding that the DR Clause constituted a valid arbitration agreement within the meaning of s 6 of the IAA. The AR further held that given that the Respondent had elected to pursue litigation rather than arbitration, the arbitration agreement had become “inoperative or incapable of being performed” under s 6(2) of the IAA.

The Appellant appealed against the AR’s decision under Registrar’s Appeal No 43 of 2016 (“RA 43”) but the High Court judge (the “Judge”) similarly dismissed the appeal, albeit on different grounds. The Judge held that the DR Clause was a valid arbitration agreement despite its asymmetrical nature. The Judge concluded that a dispute resolution clause which confers an asymmetric right to elect whether to arbitrate a future dispute is properly regarded as an arbitration agreement under s 2A of the IAA. Ultimately, however, the DR Clause became “incapable of being performed” by virtue of the Respondent electing to litigate the Dispute.

The Court’s Decision

The Court previously held in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (“Tomolugen”) that three requirements must be fulfilled before the Court would grant a stay of court proceedings in breach of an arbitration agreement:

  1. First, there must be a valid arbitration agreement between the parties to the court proceedings (“First Requirement”);
  2. Second, the dispute in the court proceedings must fall within the scope of the arbitration agreement (“Second Requirement”); and
  3. Third, the arbitration agreement is not null and void, inoperative, or incapable of being performed (“Third Requirement”).

A prima facie standard of review is adopted in respect of the three requirements. This is in recognition of the doctrine of kompetenz-kompetenz, which gives an arbitral tribunal the jurisdiction to rule on its own jurisdiction, including the question of whether an arbitration agreement has been validly constituted.

The First Requirement

The Court found that the DR Clause constituted a valid arbitration agreement even though:

  1. it only entitled the Respondent to compel its counterparty to arbitrate a dispute (“lack of mutuality” characteristic); and
  2. made arbitration of a future dispute entirely optional rather than an obligation (“optionality” characteristic).

On the weight of modern Commonwealth authority, the Court held that neither the “lack of mutuality” characteristic nor the “optionality” characteristic of the DR Clause prevented the Court from finding that it was a valid arbitration agreement.

The Second Requirement

As to the requirement of whether the Dispute fell within the scope of the arbitration agreement, the Court held that such a review must be conducted as at the time when the stay application was filed.

In particular, the Court found that the Dispute did not fall within the meaning of the arbitration agreement on a prima facie standard of review. This is because under the DR Clause, only the Respondent was entitled to exercise the option to arbitrate the Dispute, but not the Appellant. The Appellant therefore could not invoke a right which was vested in the Respondent alone.

By the time of the Appellant’s stay application, the Respondent had already chosen to refer the Dispute to litigation by commencing Suit 1234. As such, the Court held that the Dispute did not fall within the scope of the DR Clause as it was not a “matter which is the subject of the [arbitration] agreement” under s 6(1) of the IAA.

The Third Requirement

As the Court had found that the Dispute did not fall within the scope of the arbitration agreement, the Court did not have to consider the Third Requirement of whether the DR Clause was “null and void, inoperative or incapable of being performed”.

Accordingly, the appeal was dismissed.

Comment

This decision settles the frequently asked question of whether an arbitration agreement can only arise if it provides both parties with the mutual right to arbitrate.

The Court’s broad construction of what constitutes a valid arbitration agreement means that even if the option was only given to one party to elect to arbitrate a future dispute, this would not prevent the Court from recognising such a clause as a valid arbitration clause.

The Court also observed that the onus is on an applicant applying for a stay of court proceedings in favour of arbitration to persuade the court(s) as to:

  1. whether a dispute falls within the scope of an arbitration clause; and
  2. to advance the interpretation of the dispute resolution clause that would support the applicant’s contention that a stay should be ordered.

In other words, the courts’ adoption of a prima facie standard of review does not relieve an applicant of the burden of proving that its construction of the clause is the correct one.

The Court’s robust approach means that there can be no assumption that a court would order a stay of proceedings on account of the existence of a valid arbitration agreement. The Court is equally prepared not to send a dispute to arbitration if doing so would not accord with the parties’ underlying intentions under an arbitration agreement.

Posted in Arbitration, Dispute Resolution, Singapore | Leave a comment

Updates on Third Party Funding in Singapore and developments in Mediation

Third Party Funding

We covered the key proposed changes under the Civil Law (Amendment) Bill 2016 (“Funding Bill“) in our earlier post, which provides a framework for third party funding in Singapore. It will currently apply to international arbitration proceedings and related court and mediation proceedings, and may be broadened (by subsidiary legislation) to include more categories of proceedings after a period of assessment.

The Funding Bill was introduced in Parliament on 7 November 2016, went through a second reading and passed on the same day on 10 January 2017.

Related amendments were also made to:

The Legal Profession Act: lawyers are to be allowed to play a role in funder referral and act for clients in relation to third party funding agreement; and

The Legal Profession (Professional Conduct) Rules: lawyers will have a duty to disclose the existence of any third party funding that their client is receiving.

The passing of the Funding Bill is expected to further cement Singapore’s ambition as a premier international dispute resolution hub where similar third party funding arrangements were commonplace in major arbitration institutions in London, Paris and Geneva. The next big question would be on the possible enlargement of categories of proceedings beyond international arbitration. The Singapore courts’ willingness (in Re Vanguard Energy Pte Ltd [2015] 4 SLR 597) to recognise third party funding in litigation within the context of corporate insolvency may be a promising signal of how this area will further develop in time to come.

Mediation

The Mediation Bill, which was introduced into parliament on the same day as the Funding Bill on 7 November 2016 and similarly passed on 10 January 2017, is part of a series of deliberate steps taken by the government to strengthen and expand the international dispute resolution pie in Singapore. It is expected to cement the role of mediation in complementing the existing dispute resolution mechanisms to deepen Singapore’s position as an international dispute resolution hub.

The Mediation Bill aims at implementing recommendations made by the International Commercial Mediation Working Group (“the Working Group”). The Working Group was set up in 2013 to develop strategies to grow Singapore’s international mediation landscape. Its recommendations have resulted in the establishment of the Singapore International Mediation Centre and the Singapore International Mediation Institute (SIMI), amongst others. The Mediation Bill has 4 key features:

  1. Enforceability of mediated settlement agreements strengthened: It provides for the expeditious enforcement of mediated agreements; parties can record the settlement agreement as a court order. Non-breaching parties will no longer be required to commence fresh court proceedings to sue for breach of the settlement agreement in the event of non-compliance.
  1. Restrictions on disclosure and admissibility clarified: It explicitly clarifies that communications made in a mediation cannot be disclosed to third parties and cannot be admitted in court or arbitral proceedings as evidence. Parties no longer required to expend resources to dispute on admissibility issues.
  1. Basis for stay of court proceedings clarified: A specific basis is now provided for parties to a mediation agreement to apply to the courts to stay concurrent court proceedings relating to the same dispute. This would lead to greater certainty and saves resources required to litigate on this.
  1. Mediation no longer part of restrictions on the practice of Singapore law: The Legal Profession Act will be amended to provide more freedom for parties to choose their own mediators and counsels as long as the mediation is conducted by (1) a certified mediator; or (2) administered by a designated mediation service provider. This aims to attract international mediators and counsels to Singapore for mediation, and grow the international mediation pie in a manner similar to arbitration.

In practice, a stay of court proceedings can be granted as of right when mediation is attempted, and can lead to overall time and cost savings. A settlement negotiated through mediation provides parties with an amicable, speedy and cost-efficient resolution. Mediation’s emphasis on amicable resolution is particularly suited to business contexts where parties are desirous of preserving long term business relationships. In the event parties are unable to achieve settlement at mediation, the suit may continue to be heard before the court. In addition to point 1 above (on the enforceability of mediated settlements), the UNCITRAL Working Group II is expected to discuss a new instrument to facilitate the enforcement of international commercial settlements resulting from mediation in early February in order to similarly strengthen the enforceability of settlement agreements in the context of international mediation.

The knock-on effect of these proposed changes is expected to further increase the popularity of the SIMC, where mechanisms such as the Arb-Med-Arb protocol (see our earlier post) is already in place, as well as the Singapore Mediation Centre (SMC). The SMC, the first of its kind, which began offering mediation as a mainstream dispute resolution mechanism since its inception in 1997, has handled an unprecedented number of cases (499) and total quantum of disputes (S$775 million) in 2016.[1] This represents a 72% caseload increase (which were commercial in nature) compared to 2015. The most common types of disputes mediated were company/shareholder and construction in nature.

It should be noted that the Funding Bill mentioned above will only extend to mediation proceedings that arise from or are connected with international arbitration proceedings. The Funding Bill will not apply to stand-alone mediation proceedings (for now).

In any event, 2017 is expected to be a year of dynamic growth for international dispute resolution in Singapore as these measures kick in.

With thanks to Jonathan Beh and Lakshanthi Fernando.

[1] http://www.mediation.com.sg/assets/downloads/News-Release-Bumper-number-of-mediation-cases-for-Singapore-Mediation-Centre-in-2016.pdf

Posted in Arbitration, Contingency Fee, mediation, Singapore, Third Party Funding | Leave a comment

Singapore High Court refuses to admit Indian Senior Advocate to argue Setting Aside Applications

The Singapore High Court recently dismissed the applications made on behalf of Mr Harish Salve (the “Applicant“), a Senior Advocate of the India Bar, to be admitted to represent 20 plaintiffs (the “Sellers“) in their application(s) before the Singapore High Court to set aside an International Arbitration Award.

The law governing the ad hoc admission of foreign counsel to appear before the local courts is set out in section 15 of the Legal Profession Act (Cap. 161, 2009 Rev Ed) (the “Act“).

In short, the Honourable Justice Steven Chong (“Chong J“) found that it was not appropriate to admit the Applicant as:

  • The Applicant had failed to show that, apart from his general expertise in Indian law, he had the requisite “special qualifications or experience” for the purposes of the specific issues in this case as required under section 15(1)(c) of the Act.
  • Even if the Court had found that the Applicant possessed the “special qualifications or experience“, it would have (in considering the other grounds provided for under the Legal Profession (Ad Hoc Admissions) Notification 2012 (the “Notification Matters“)) dismissed the Applicant’s applications as:

The evidence on Indian law in the present case was not unusually complex or so difficult as to require the submissions of Indian counsel nor was it beyond the competence of local counsel;

In any event, it is not the complexity of specific issues that is of key relevance but the relevance of counsel’s qualifications and experience with those issues;

There is an adequate pool of local counsel capable of making submissions with the assistance of foreign legal experts (such experts can provide their opinion by way of expert reports and do not need to be admitted to make submissions); and

The Court did not find that its decision on admission would impact the setting aside applications and was not persuaded by the argument that the promotion of Singapore as a venue for international arbitration should be the dominant or “governing” reason for admission of foreign counsel.

Background

The underlying dispute concerns the Buyer’s purchase of shares held by the Sellers in a company incorporated in India (the “Company“).

The Buyer commenced SIAC arbitration proceedings in 2012 against the Sellers. On 29 April 2016, by a majority of 2-1, the Tribunal rendered the award in the Buyer’s favour.

The Tribunal found that the Sellers were liable for fraudulently misrepresenting and/or concealing from the Buyer the source and severity of the Company’s regulatory issues, and awarded the Buyer an amount in excess of USD 500 million.

The Sellers applied to the Singapore High Court – as the Court at the seat of the arbitration – to set aside the Final Arbitral Award (the “Setting Aside Applications“).

The Sellers’ Setting Aside Applications raised a number of grounds for setting aside and resisting enforcement of the Award. However, for the purposes of the Applicant’s application for admission, he sought only to address two grounds of Indian law, namely that:

  • The Award contained decisions beyond the scope of submission to arbitration (the “Excess of Jurisdiction Challenge“) and
  • The Award is contrary to the public policy of Singapore (the “Public Policy Challenge“).

The Excess of Jurisdiction Challenge essentially asserted that the Tribunal had awarded consequential damages which were expressly prohibited by the Arbitration Agreement and had erred in awarding a measure of damages:

  • in contravention of the Indian Contract Act; and
  • by erroneously relying on the Indian High Court decision of R C Thakkar v Gujarat Housing Board AIR 1973 Guj 34 (“R C Thakkar“).

In the Public Policy Challenge, the Sellers argued that:

  • The Award is contrary to the public policy of Singapore because it is at root contrary to the most basic notions of morality and justice of Indian law;
  • The Tribunal had purportedly erred in relying on the High Court decision in R C Thakkar when it had been overruled on appeal by the Indian Supreme Court (“R C Thakkar Supreme Court decision“).

Disputed Issues of Indian Law

Notably, the Buyer asserted that Indian law is irrelevant to the Setting Aside Applications as:

  • The Arbitration Agreement, which the Sellers argued (in the Excess Jurisdiction Challenge) had been breached, was governed by Singapore law;
  • The merits of the substantive issues in the arbitration, which were decided under Indian law, cannot be re-litigated; and
  • Indian public policy is irrelevant to the Setting Aside Applications which were to be determined under Singapore law.

Chong J noted that issues of Indian law will have to be proved as an anterior question in the course of establishing the Sellers’ grounds of challenge in the Setting Aside Applications and found that the Sellers’ grounds of challenge did raise anterior questions of Indian law.

  • In particular, Chong J noted that the Sellers and the Buyer had separately engaged distinguished Indian law experts who had already tendered their reports on the disputed foreign law issues in the Setting Aside Applications.

Significance

The case is unique in that:

  • It is the first time a Senior Advocate from the India Bar has applied to the Singapore Supreme Court to be admitted as foreign counsel;
  • The Court however noted that this does not in itself mean that the application would be treated any differently from applications involving Queen’s Counsel from the English Bar as the same regime under the Act governed all admissions;
  •  The Applicant sought admission to argue some, but not all the issues arising in the underlying case and to address the court specifically on disputed issues of Indian law.

Notably, the Attorney-General supported the Applicant’s application for admission, urging the Court to (amongst other things) consider the public interest in enhancing Singapore’s attractiveness as a venue for international arbitration and find that the application for admission was reasonable.

On the other hand, the Singapore Law Society opposed the applications, asserting (amongst other things) that the requirements of the regime governing admissions had not been met as the Applicant had not established a sufficient nexus between his expertise and the issues in the Setting Aside Applications.

  • The Law Society further submitted that the appropriate method to resolve disputes of foreign law was by cross-examination of the Indian law experts, rather than by way of submissions on Indian law by foreign counsel.

The Decision

In dismissing the applications, Chong J found that the Applicant had failed to satisfy the mandatory requirements of section 15 of the Act.

Much had been said of the Applicant’s past experience as counsel before the Supreme Court of India in the R C Thakkar Supreme Court decision and his role as lead counsel for certain Sellers in parallel enforcement proceedings commenced by the Buyer in India. However, in brief, Chong J concluded that:

  • There was an insufficient nexus between the Applicant’s asserted expertise and the issues identified in the Setting Aside Applications;
  • The Applicant’s ”general expertise in Indian law” did not equate to him having the requisite ”special qualifications or experience” necessary for the ad hoc admission of foreign counsel in this case;
  • More significantly, Chong J’s decision appears to be influenced by the fact that the Sellers did not see fit to engage Indian lead counsel for the arbitration proceedings itself, which would have been the appropriate forum for the full merits of any Indian law issues to be fully ventilated;
  • It follows that, if Singapore Senior Counsel could be instructed as lead counsel in the arbitration, there was even less of a reason for foreign counsel to be admitted in the instant case, when the disputed Indian law issues are merely of peripheral importance;
  • Applications to set aside arbitral awards under the International Arbitration Act (Cap. 143A, 2002 Rev Ed) are governed under Singapore law, not foreign law; and
  • On the face of the R C Thakkar Supreme Court Decision, there was no discussion on the appropriate measure of damages for fraudulent misrepresentation nor had it demonstrated that the Applicant had previously argued this specific issue before the Indian Supreme Court.

Comment

  • As Chong J noted, foreign law must be proved either by directly adducing “raw sources of foreign law” as evidence or by providing the opinion of foreign law experts.
  • In contrast with the Singapore International Commercial Court (SICC), where foreign law may be determined on the basis of submissions instead of proof, the general regime is that this should be addressed by way of local counsel’s submissions with the support of expert law reports.
  • Notably, the Court had previously invited the Sellers to consider applying for the cross-examination of the parties’ foreign law experts to assist the Court in reaching a finding on the disputed Indian law issues. However, the Sellers had declined and opted to pursue their applications for the Applicant’s admission.
  • Chong J’s decision demonstrates the need for local courts to strike the right (and sometimes delicate) balance between taking a pro-arbitration stance and maintaining the integrity of the courts and their confidence in the competence of local counsel.
  • The Court’s usual emphasis is on ”need” and it will not easily admit foreign counsel unless a litigant is able to prove that he is likely to be ”substantially prejudiced in the conduct of his case if he were precluded from retaining foreign counsel”.
  • Whilst the Singapore courts have traditionally taken a pro-arbitration stance and Singapore’s promotion as an international arbitration hub is of importance, the Singapore courts are unlikely to value this as the dominant or “governing” reason for the admission of foreign counsel before the local courts, particularly if the effect of such a concession would be to allow the admission of foreign counsel for any and all arbitration-related proceedings.

*With thanks to Lakshanthi Fernando.

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English High Court confirms rights to a claim in arbitration can be transferred to another while an arbitration is on-going

by Tom Pritchard

In November 2016, the English High Court was asked to rule on an arbitral tribunal’s jurisdiction after it made an award in favour of a claimant that had undergone a corporate restructuring halfway through the arbitration (A v B [2016] EWHC 3003 (Comm)).  The restructuring occurred under Indian law, but the decision may affect any litigant that goes through a restructuring process outside of England and Wales during an arbitration.

Facts

The claimant, E, had a long-term contract for the supply of iron ore with P, an Indian company.  When a dispute regarding the performance of the contract arose, the dispute was referred to arbitration in England.  After the commencement of the arbitration, P merged with F, another Indian company, under Indian company law using an Indian court-sanctioned Scheme of Amalgamation.  The Scheme of Amalgamation provided that all the rights and liabilities of P passed to F while simultaneously causing the dissolution of P.  At the conclusion of the arbitration, F (now substituted for P) was awarded over US$ 39 million plus interest.

E then applied to the English court to have the arbitral award set aside under section 67 of the Arbitration Act 1996, arguing that the tribunal lacked jurisdiction as the arbitration should have lapsed upon the dissolution of P by the Indian courts.

Claimant’s arguments

In order to advance its claim that the arbitration should have lapsed, E relied on the fact that the Scheme of Amalgamation (the mechanism by which P’s rights and liabilities passed to F) was a “universal succession” under Indian law.  E argued that English law does not recognise that concept of universal succession and that the transfer should therefore be viewed as an equitable assignment.

For F to rely on the equitable assignment in order to bring a claim against E, E maintained that notice needed to be given to E by P after the assignment completed.  As a matter of fact, P could not provide notice to E prior to its dissolution as P ceased to exist as soon as the “assignment” occurred.  Therefore, E argued that no effective assignment had occurred under English law and that the arbitration must have lapsed when P was dissolved (as the arbitration could not proceed with only one party).

In support of its position, E relied on the case of Baytur SA v Finagro Holdings SA [1992] 1 Lloyd’s Rep 134, in which the transfer of rights to a pending dispute was characterised as an equitable assignment.

Defendant’s arguments

In response, F argued that the Scheme of Amalgamation dictated that P had ceased to exist at the moment it transferred its rights and liabilities to F.  This was a legal and natural result of the Indian company law system.  Therefore, P could not give notice to E.

Furthermore, all the requirements under Indian company law had been met in order to transfer P’s claim to F.  Consequently, F advanced the argument that it was not right to consider the transfer as an equitable assignment.  Instead, comity compelled the English courts to recognise the effect of Indian company law.

Lastly, F asserted that Baytur could be distinguished on the basis that it involved only the transfer of benefits, whereas the merger of P and F involved both rights and liabilities being transferred from one entity to another.  Additionally, in Baytur the dispute had not commenced, whereas in the present case the arbitration was already underway.

Decision

Sir Jeremy Cooke found in favour of F.  He upheld the tribunal’s jurisdiction and refused to set aside the award.

The judge appeared to be largely persuaded by the equity of the situation, stating that a ruling in favour of E would have resulted in a “black hole” in which original claimants, who had followed their governing law, could never transfer claims before ceasing to exist.  Further, he found it to be “self-evident that a notice of assignment cannot be served before the assignment has occurred“.

Consequently, the case is authority for the concept that rights to a claim in arbitration can be transferred to another while an arbitration is on-going.  It is another example of an English court taking a pragmatic “pro-arbitration” stance.  However, the result may be more accurately said to have been determined by the nature of the Indian company law regime, which prevented the ability to serve proper notice.  Perhaps the case should then be understood as a caveat to the rule that notice must always be served when transferring rights from one party to another, where equity demands.

However, this caveat appears to be particularly narrow.  It would certainly appear more advisable to avoid corporate restructuring in the middle of an arbitration (or at least fully to consider the effect of the restructuring on the arbitration process while the restructuring is happening, rather than after the event).

*This article was authored by Tom Pritchard, a trainee solicitor at Olswang LLP, and originally published on Olswang LLP’s Legal and Regulatory News.

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Recent Arbitration Developments in Mainland China: Towards a More Inclusive Approach to Foreign-Seated Arbitrations

The SPC Opinion

On 30 December 2016, the Chinese Supreme People’s Court (“SPC“) issued its Opinions on the Provision of Judicial Safeguards for the Construction of Pilot Free Trade Zones (“SPC Opinion“).

Article 9 of the SPC Opinion provides, among other things, that:

  • if two (2) wholly foreign owned enterprises (“WFOEs“) that are registered within a pilot free trade zone enter into an agreement to submit disputes to arbitration seated outside mainland China, the courts will not hold such an arbitration agreement as invalid merely on the ground that the dispute concerned is not foreign-related.
  • the courts will not uphold an objection to the recognition and/or enforcement of a foreign-seated arbitration award merely on the ground that there is no foreign-related element if the following three (3) conditions are met:
    1. at least one of the parties to the dispute is a foreign-invested company registered within a pilot free trade zone;
    2. the parties had entered into an arbitration agreement submitting their disputes to arbitrations seated outside mainland China;
    3. (a) the opposing party is the claimant who initiated the foreign-seated arbitration in the first place; or (b) the opposing party is the respondent who participated in the arbitration without challenging the validity of the arbitration clause in the course of the arbitration.

Other developments

Siemens International Trade Co., Ltd. v Shanghai Golden Landmark Co., Ltd.

The SPC Opinion follows hot on the heels of the 2015 landmark case of Siemens International Trade Co., Ltd. v Shanghai Golden Landmark Co., Ltd. (“Golden Landmark“), in which the Shanghai No. 1 Intermediate People’s Court (the “Court“) upheld and enforced an SIAC award between two PRC-incorporated entities which were also WFOEs.

In Golden Landmark, the Court found the legal relationship between Siemens and Golden Landmark to be foreign-related because:

  • The source of capital, ultimate ownership interest and business decisions of both companies were funded by and/or closely connected with foreign investors; and
  • The performance of the contract bore foreign-related features and was akin to an international sale of goods.

While welcoming the approach taken by the Court in Golden Landmark, commentators have been quick to caution against overstating the importance of the case as the SPC is not bound to follow the decision.

Ennead Architects International LLP v Fuli Nanjing Dichan Kaifa Youxian Gongsi

In a separate development, the Nanjing Intermediate People’s Court of Jiangsu Province recently issued a decision to enforce, for the first time, a CIETAC Hong Kong arbitration award between an American architectural firm and a Chinese property developer in Ennead Architects International LLP v Fuli Nanjing Dichan Kaifa Youxian Gongsi. This again demonstrates in general a greater willingness on the part of the Chinese courts to recognise and enforce foreign awards, albeit closer to home to mainland China in this particular instance.

Comment

  • Short of being a direct endorsement, the SPC Opinion does appear to be the SPC’s general nod of approval on the more open and inclusive approach taken by the Court in the Golden Landmark case towards foreign-seated arbitrations.
  • Like the Golden Landmark case, the SPC Opinion will be warmly welcomed by foreign investors who will see these developments as a sign of the PRC’s increasing openness towards enforcing foreign-seated arbitration awards between entities that may be incorporated in the PRC but otherwise driven by foreign investors.
  • This will serve to assuage the concerns foreign investors may previously have had about having limited legal recourse outside mainland China in the event of a dispute.
  • The safeguards mooted by Article 9 of the SPC Opinion is a clear indicator that the SPC is moving towards an increasingly more inclusive / less interventionist approach, which has previously deterred many foreign enterprises from readily doing business in the PRC.
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Joint Seminar on The Arb-Med-Arb Protocol: The Future of Alternative Dispute Resolution? (10 January 2017, Jakarta, Indonesia)

 

We are delighted to host a panel discussion on The Arb-Med-Arb Protocol: The Future of Alternative Dispute Resolution? alongside the Singapore International Mediation Centre (SIMC) and Pusat Mediasi Nasional (the Indonesian Mediation Center) (PMN) on 10 January 2017, 5 pm – 6.30 pm at the Shangri-La Hotel, Jakarta.

This interactive discussion will explore the benefits, challenges and tactical strategies relating to mediation in the context of dispute resolution. More details can be found here: http://www.olswang.com/invites/170110_Arb-Med-Arb.html.

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AMENDMENTS TO THE ICC RULES OF ARBITRATION: AUTOMATIC EXPEDITED ARBITRATION PROCESS FOR CLAIMS WORTH LESS THAN US $2 MILLION

by Mark Davison and Katherine McKenna

On 20 October 2016, the ICC Executive Board approved changes to their Rules which will be effective as of 1 March 2017.[1]

Within the amended rules, the ICC has followed other arbitration centres such as SIAC in implementing an expedited process for lower value disputes.  However, the ICC has gone a step further and has provided that all disputes which are less than US $2 million will automatically need to be administered under the new expedited process unless the parties have expressly agreed to opt-out of this process in their arbitration agreements.  Parties with claims greater than US $2 million will have the option to opt-in to the new expedited process.

Under the expedited procedure:

  • the ICC has the discretion to appoint a sole arbitrator even if the parties have agreed otherwise in their arbitration agreement;
  • there is no requirement to prepare terms of reference;
  • the tribunal shall have discretion after consulting with the parties as to procedural measures it adopts – i.e. the tribunal may decide to dispense or limit document production, limit the length and scope of written submissions and witness evidence and even determine whether or not it should dispense with a formal hearing where witnesses are cross examined;
  • tribunals are required to issue awards within six months of the date of the case management conference being held; only in limited and justified circumstances will the ICC grant tribunals extensions.  The ICC Court and its Secretariat will maintain their roles in the quality control of awards made.

In return for using the expedited procedures, the ICC arbitration fees will be significantly reduced for the expedited procedure although it will still be calculated on a scale of the amounts in dispute.

It is likely that the amendments will be welcomed in the market.  With other arbitration centres and even courts invoking expedited procedures[2], it is clear that market users want to create environments where they can resolve their disputes quickly and cheaply.  Forcing users with small disputes to use the expedited process may convince those users that expedited processes may be suitable in certain circumstances to larger disputes.

[1] http://www.iccwbo.org/News/Articles/2016/ICC-Court-amends-its-Rules-to-enhance-transparency-and-efficiency/

[2] For example, the English Commercial Court has recently handed down its first decision under the High Court’s Shorter Trials Scheme, where a judgment was made totalling US $68 million. This had been determined within seven months of the claim being issued and with total costs on both sides of £350,000 (National Bank of Abu Dhabi PJSC v BP Oil International Limited [2016] EWHC 2892 (Comm): the judgment is here).

*This article was authored by Mark Davison (Senior Associate) and Katherine McKenna (Trainee Solicitor) of Olswang LLP, and was  originally published on Olswang LLP’s Legal and Regulatory News. 

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THE FUTURE OF INTERNATIONAL ARBITRATION IN THE TMT SECTOR: VIEWS ON QMUL’S 2016 INTERNATIONAL DISPUTE RESOLUTION SURVEY

The Queen Mary University of London (“QMUL“) recently released its International Dispute Resolution Survey relating to Technology, Media and Telecoms (“TMT“) disputes.

The comprehensive survey was conducted over 2 phases and involved a variety of respondents, including private practitioners, in-house lawyers to respondent companies from more than 13 TMT-related sectors.

We have summarised the survey’s key findings, distilled the TMT sector’s general perceptions of international arbitration, and drawn some broad conclusions on the way forward below.

What are the most common types of TMT disputes and where / in which sectors do they take place?

The respondents cited intellectual property (“IP“) disputes as the most common (50%), with joint venture / partnership collaboration disputes (39%) and licensing disputes following closely behind (37%).

  • The rise in IP-related disputes could be attributed to IT implementation programmes, data related issues, reputation management issues and outsourcing programmes.
  • The rise in joint venture / collaboration disputes reflects the general increase in start-ups, digital disruption and the general need within the TMT industry to work with other businesses.

The Telecoms sector was the most contentious, with 71% of respondents experiencing more than 20 disputes and 83% indicating that their largest disputes were at the highest end of the scale (i.e. more than US$100m).

Asia reported the highest incidence of disputes, with 37% experiencing more than 20 disputes and 25% experiencing a dispute at the highest end of the scale.

Predicted future areas for disputes are: IP, collaborations and data / security issues.

What are the in-house Dispute Resolution (“DR“) policies and preferences?

75% of the organisations surveyed had a DR policy and within such policies, mediation is the most preferred mechanism (50%), followed by arbitration (47%).

However, within specific sectors, the responses were varied:

  • The Telecoms sector showed a preference for expert determination / adjudication, whilst no respondent actually encouraged litigation.
  • The IT sector saw litigation as the most encouraged mechanism (50%) with arbitration falling some distance behind (27%).
  • The Energy, Construction and Manufacturing industries all rated arbitration as the most encouraged DR mechanism.

When all respondents (including private practitioners and other dispute resolution practitioners) were assessed on their personally preferred DR mechanism, most stated a strong preference for arbitration (43%) over litigation (15%).

What are the top considerations affecting an organisation’s DR policy to international arbitration?

While various factors were cited as important to an organisation’s DR policy on international arbitration, the top two factors are (1) choice of institution and (2) seat of the arbitration.

Unsurprisingly, these are important elements for a well-drafted arbitration clause, and are usually provided for in the model clauses of most major arbitral institutions, such as the Singapore International Arbitration Centre (“SIAC“), London Court of International Arbitration (“LCIA“) and the International Court of Arbitration (“ICC“).

Whilst 40% of respondents expressed a preference towards mediation, there is “no common view” as to what form mediation should take. Overall, there is a lack of familiarity with mediation, particularly in civil law jurisdictions. Whilst respondents from the civil law jurisdictions tend to view mediation as an evaluative process, those from the common law jurisdictions essentially saw mediation as “facilitated negotiation“.

DR mechanisms in practice: preference vs reality

Not all disputes progress to a binding decision with 41% being settled.

Whilst most respondents indicated a strong personal preference for arbitration, the most commonly used DR mechanism over the past 5 years was in fact litigation (litigation : arbitration / 44% : 35%). This could be attributed to the following:

  • Many disputes emerge more than 5 years after the contract is drafted. These disputes may involve contracts written before the surge in popularity in arbitration over the last decade.
  • Customers and suppliers tend to have differing views about arbitration, and this could explain a lack of agreement to arbitration in the DR provisions at the contract drafting stage.
  • Litigation may be the default position, particularly for disputes that do not involve contracting parties, i.e. IP, competition, data protection / security disputes.
  • At the procurement stage, parties may have given little attention to the DR provisions, either to time constraints or because neither anticipates a major dispute arising.

The key to greater inclusion of international arbitration into DR clauses appears to lie in educating the Board of Directors, Senior Executive or CEO of the organisation (57%), as they tend to be the main decision-makers on whether to introduce formal legal proceedings.

While General Counsel or Head of Legal are the second most common decision-makers (36%), the survey appears to indicate that most are well-acquainted with and/or generally aware of the advantages of arbitration.

The future of international arbitration and TMT disputes – advantages, weaknesses and ways to improve

A “striking majority” of respondents (92%) indicated that international arbitration is well-suited for TMT disputes, and 82% anticipate that there will be a general increase in its use to resolve TMT disputes.

The oft-cited advantages of arbitration include:

  • The procedural flexibility available to arbitration as compared to court procedures;
  • Confidentiality;
  • Enforceability in multiple jurisdictions.
  • The uncertain political climate (i.e. Brexit) is another reason why respondents chose international arbitration over court proceedings.

Some perceived weaknesses / disadvantages of arbitration are:

  • The difficulty in obtaining injunctive relief;
  • Prohibitive costs of arbitration; and
  • The lack of arbitrators with TMT expertise.

Whilst lower costs are the most obvious way to improving arbitration (58%), a need for specialist knowledge of the TMT sector was also highlighted:

  • A main reason cited for the reluctance to use arbitration is the lack of specialist arbitrators with TMT expertise.
  • Technical knowledge and sector expertise are ranked highly when it comes to choosing external counsel and arbitrators.
  • Key ways of improving arbitration for TMT disputes include: (1) the creation of a neutral system for the accreditation of specialist arbitrators; (2) having a specialised roster of arbitrators for TMT disputes; and (3) the appointment of more industry experts.

TMT disputes and arbitral institutions

The ICC, World Intellectual Property Organisation (“WIPO“), LCIA, International Centre for Dispute Resolution (“ICDR“) and SIAC were ranked amongst the top five most preferred arbitral institutions for TMT disputes.

  • In the United States, the ICDR was the most preferred choice at 55%.
  • In the EU, the ICC came in highest at 74%.
  • In Asia, the SIAC was most popular at 67%, followed closely by the ICC at 61%.
  • WIPO is more favoured for IP disputes.

Conclusion

TMT disputes tend to be high risk and high-value, with many involving sums in excess of US$100m.

Asia was the most contentious region surveyed, although Europe and North America had the most claims at the highest end of the scale.

The future of international arbitration in the TMT sector is bright, with most within the industry predicting its use to increase.

Key ways of exploiting this advantage include:

  • gaining greater buy-in from the Boards of TMT organisations;
  • advising on its inclusion in DR clauses for TMT contracts;
  • gaining industry confidence by building up more specialist TMT arbitrators and counsel.

With thanks to Lakshanthi Fernando.

 

 

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THIRD PARTY FUNDING – A STEP IN THE RIGHT DIRECTION FOR SINGAPORE?

Over the past few years, companies have begin to view Singapore as an attractive regional business hub as evident by the increase in the number of global companies who have decided to set up and/or relocate their Asia headquarters to Singapore in a bid to expand their regional presence and capabilities. Indeed, this position is consistent with the findings of Consultancy firm, PwC in a recent survey (“Cities of Opportunities 7, 2016“) which saw Singapore being placed 2nd (out of 30 global cities and after London) as the world’s best business hub.

This, coupled with the increase of economic activity within Asia (particularly Singapore) and the need to ensure that Singapore maintains its competitive edge as (rightly described by the Singapore Ministry of Law) the “key seat of arbitration in Asia“, has propelled the Singapore Ministry of Law to propose changes under the Civil Law (Amendment) Bill 2016 (“Funding Bill“).

The Funding Bill which was submitted for First Reading before the Singapore Parliament on 7 November 2016 essentially seeks to enact a framework and legalise third party funding for international arbitration and related litigation proceedings in Singapore.  The Funding Bill is expected to proceed for a second reading and if approved, to be enacted in early 2017.

Given the recent developments, here is an overview of what you need to know of the impending change:

Question Answer Did you know?

 

What is third party funding?

 

Third party funding is an alternative mode of financing a party’s legal proceedings.

It is where a third party entity, that is entirely not involved in and/or connected to a dispute, provides funds to one party (usually the Claimant) for a return of financial gains (e.g. a share of damages awarded) in the event a claim is successful.

Also commonly referred to as “litigation funding“, “specialist funding” and “legal financing“.
What is the current position in Singapore?

 

Third party funding is not allowed in Singapore under the common law tort of champerty and maintenance.

Similarly, third party funding agreements are not enforceable in Singapore.

 

Both Singapore and Hong Kong have yet to legalise third party funding in arbitration. However,

  • The Law Reform Commission (Hong Kong) has recently proposed for the legalisation of third party funding under the Arbitration Ordinance; and
  • Unlike Hong Kong, there are currently no professional third party funders based in Singapore.
What are the proposed changes?

 

Four (4) key changes:

(i)        Abolish the common law tort of chamberty and maintenance in Singapore;

(ii)       Third Party Funding contracts can be valid and enforceable in “certain prescribed categories of proceedings” such as international arbitration and related legal proceedings in Singapore;

(iii)     Third Party funders will be subject to certain prescribed qualification or requirements; and

(iv)     Through a related amendment under the Legal Professions Act (Cap. 161), lawyers can introduce / refer funders to clients as long as there is no direct financial benefit derived. They can also advise clients on third party funding contracts and any disputes arising out thereof.

The proposed amendments were open for public consultation between 30 June 2016 to 29 July 2016 and received feedback from the Law Society, lawyers, in-house counsel, professional funders and other agencies.

If approved, these changes will take the form of amendments to the Civil Law Act (Cap 43 of the 1999 Revised Edition).

 

 

 

 

What preparatory steps can your company take?

 

In anticipation of the prospects of legalised third party funding in Singapore:

(i)         Know your third party funders – are they reputable and experienced?

(ii)        Know the qualifying criteria you need to meet to be eligible for third party funding.

In the UK, there is a self regulatory body called the Association of Litigation Funders which also sets standards (in the form of a Code of Conduct) for which its funder members must abide by.

 What does this mean for Singapore?

Adopting a more “light touch” approach means it remains uncertain if Singapore will extend the legalisation of third party funding to cover domestic arbitration and court litigation in Singapore.

For the moment, the current changes (if allowed) will still be a significant development in Singapore’s positioning as the dispute resolution hub of choice for cross-border disputes in Asia. It brings Singapore more in line with other major arbitration centres, such as London, and provides commercial parties with yet another reason to choose arbitration to resolve their disputes.

 

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