Welcome to this issue of the Global DR Legal Update, our quarterly newsletter which aims to bring together the most important global developments in litigation and arbitration.
High Court holds non-residents can be group members in class actions
Australia's highest court has rejected an attempt to exclude group members who were not residents of Australia from a shareholder class action. The case arose from the failure of the Fundão Dam in Brazil in 2015, with shareholders alleging that they suffered loss due to the company's failure to comply with its ongoing disclosure requirements. The High Court found that Part IVA of the Federal Court of Australia Act 1976, which governs representative proceedings, does not contain any limitation on the geographic or territorial qualifications that must be satisfied to qualify as a group member. As such, there is no barrier to a class action being brought on behalf of group members who did not reside in Australia. Read more.
Ordinance passed facilitating reciprocal enforcement of civil and commercial judgments with Mainland China
Hong Kong's Legislative Council has passed an ordinance that will implement a more comprehensive mechanism for reciprocal recognition and enforcement of judgments between Hong Kong and Mainland China. The arrangement was agreed upon in 2019 but has only now received the necessary legislative implementation. It applies to most civil and commercial matters under Hong Kong and Mainland law, including both monetary and non-monetary relief. Judgment creditors will not need to commence fresh proceedings in the enforcing jurisdiction. Parties seeking to enforce judgments covered by the arrangement will not need to re-litigate their cases when seeking to recover assets in either jurisdiction, providing greater certainty and expediency. The new arrangement is expected to take effect in mid-2023. Read more.
Supreme Court clarifies correct procedure for counterclaims in arbitration
India's Supreme Court has ruled that an arbitral tribunal cannot reject a counterclaim simply because these claims were not notified at the pre-arbitral stage. Once the dispute was notified under the contract, by the respondent issuing a notice of termination, the entire subject matter of the dispute was subject to arbitration, including claims, setoffs and counterclaims, without the requirement to follow the notification procedure set out in the dispute resolution clause in the contract between the parties. The tribunal and lower courts had therefore erred in rejecting the appellant's counterclaim. The Supreme Court quashed both the award and the order disallowing the counterclaim, directing that both the award and counterclaim should be considered by the tribunal before making the final award. Read more.
Court of Appeal clarifies grounds for setting aside arbitral awards, rejects "no evidence" rule
The Singapore Court of Appeal has partially set aside an arbitral award for a breach of natural justice. The tribunal had awarded around 25% of the damages claimed, despite finding that respondent’s evidence quantifying its loss was deficient. The court found that the tribunal’s chain of reasoning in respect of damages was, "not one which the parties had reasonable notice that the tribunal could adopt, nor did it have a sufficient nexus to the parties’ arguments" and so breached the fair hearing rule. Therefore, it set aside the damages order, whilst leaving the rest of the award in place. The court also rejected the adoption of the "no evidence" rule - that an award containing findings of facts with no evidential basis should be set aside for breach of natural justice - finding that to do so would, "run contrary to the policy of minimal curial intervention in arbitral proceedings." Read more.
Multiple EU states to withdraw from ECT
Seven EU member states have announced their intention to withdraw from the Energy Charter Treaty. Since August, France, Germany, Netherlands, Poland, Slovenia and Spain have all stated their intention to withdraw from the ECT, citing concerns that the treaty is too protective of fossil fuel investments. The European Parliament has also passed a non-binding resolution calling for a coordinated withdrawal of EU member states. The ECT is a multilateral framework for energy cooperation, including a dispute settlement mechanism, currently signed by 53 jurisdictions. Withdrawal from the ECT becomes effective one year after formal notice is given, although a sunset clause will continue to protect pre-withdrawal investments for another 20 years. A vote on ECT modernization due to be held in November has now been delayed until April 2023. Read more.
Proposals for regulation of third-party funding
The European Parliament has voted in favor of a resolution proposing new regulation of third-party litigation funding within the EU. In September, it voted to adopt a report on "Responsible private funding of litigation," which included recommendations for an EU directive on third-party funding that would establish minimum standards for EU member states. The proposals include a 40% cap on funders' share of recovery, a requirement to disclose funding agreements, and an obligation for funders to pay adverse costs. It will be for the European Commission to decide whether to propose a directive based on these recommendations, which would then have to be jointly adopted by the European Parliament and the EU Council. Read more.
Supreme court finds law of seat determines procedural issues
France's highest civil court has ruled that it is the law of the seat of arbitration, not the law governing the underlying contract, that governs issues of validity and interpretation in an arbitration agreement. The Cour de Cassation upheld an ICC award, confirming that French law applied to the arbitration agreement, despite the selection of English law in the underlying contract, on the basis that an arbitration clause is separate from the contract in which it appears. The decision diverges from the approach of the UK Supreme Court, which ruled in 2020 that, under English law, a choice of law clause governing the whole of the contract will apply to questions as to the validity of the arbitration agreement, unless the parties have expressly agreed otherwise. Read more. Suriname
Suriname joins New York Convention
Suriname has acceded to the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958, known as the New York Convention, becoming the 171st party to do so. The Convention requires contracting states to recognize and enforce arbitral awards made in other contracting states in the same way they would for a domestic award, subject to certain limited exceptions. The Convention will take effect for Suriname on 8 February 2023. Read more.
United Arab Emirates/England & Wales
UAE to enforce England & Wales court judgments
The UAE Ministry of Justice has issued a formal communication to the UAE onshore courts, asking them to enforce England & Wales court judgments based on reciprocity. The two jurisdictions do not have a treaty for the mutual recognition and enforcement of civil judgments, and until now, UAE onshore courts have refused to enforce England & Wales under the principle of reciprocity, citing a lack of evidence of English courts enforcing onshore UAE judgments. Instead, parties have had to seek a review of the substantive merits of the claim by the UAE courts, resulting in additional cost, delay and uncertainty. However, the enforcement of a Dubai court judgment by the English High Court in 2020 seems to have overcome these concerns, establishing that reciprocity of enforcement exists between the two jurisdictions. Although not binding, the letter is seen as a positive step toward a more favorable judicial assessment of claims for enforcement of England & Wales court judgments before the UAE onshore courts. Read more.
New CAM-CCBC Rules
The Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada, Brazil's largest arbitral institution, has issued new arbitration rules. The new CAM-CCBC 2022 rules represent the first revision of its rules in a decade. Key changes include enhanced transparency requirements, updated provisions on consolidation and joinder, new emergency arbitrator provisions, new rules providing for remote hearings and electronic signing of awards and new expedited procedure rules for disputes that do not exceed BRL 3 million (approximately USD 580,000) in value. Read more.
Supreme Court rules on enforceability of arbitration agreements in insolvencies
The Supreme Court of Canada has ruled that debtors cannot always enforce arbitration agreements against a bankruptcy trustee. British Columbia’s Arbitration Act provides that if a party to an arbitration agreement commences court proceedings, the court must, if requested, stop the lawsuit, unless the arbitration agreement is void, inoperative or incapable of being performed. However, the Supreme Court found that this does not mean a court must always stop a lawsuit by a court-appointed receiver when there has been an agreement to arbitrate and may allow the lawsuit to proceed if it is proved that enforcing the arbitration agreement "…would compromise the orderly and efficient resolution of the receivership”. The analysis in each case will be fact specific. Read more.
PCA signs host country agreement with Ecuador
The Permanent Court of Arbitration has signed a host country agreement with the Republic of Ecuador. The deal establishes a legal framework within which PCA-administered proceedings (including arbitration, conciliation, mediation, and fact-finding commissions of inquiry) to be conducted in Ecuador on an ad hoc basis under equivalent conditions to those conducted at the PCA’s headquarters in The Hague. It also allows the PCA to request the use of facilities, as needed for PCA-administered proceedings and PCA meetings taking place in Ecuador. The PCA has previously signed host country agreements with 15 other jurisdictions, including five others in Latin America - Argentina, Brazil, Chile, Costa Rica and Uruguay. Read more.
New AAA Rules come into effect
The updated Commercial Arbitration Rules and Mediation Procedures of the American Arbitration Association have come into force. Following a two-year review, the amended rules standardize important longstanding AAA practices, such as confidentiality, consideration of consolidation/joinder motions, and civility, as well as changes to promote efficiency and reflect advances in technology, such as cybersecurity considerations. Other notable changes include an increase in the upper value of arbitrations eligible for expedited procedures, from USD 75,000 to USD 100,000, and an increase in the minimum value of cases eligible to be heard by a three-person tribunal, from USD 1 million to USD 3 million. The rules came into effect on 1 September 2022. Read more.
Federal Court rules Section 1782 not available for ICSID case
The New York Eastern District Court has ruled that section 1782 discovery is not available in aid of an ICSID arbitration. Section 1782 authorizes a US federal district court to order the production of documents, and depositions of witnesses, in aid of foreign proceedings. Earlier this year, the US Supreme Court ruled that section 1782 discovery was not available in support of international arbitration, as “only a governmental or intergovernmental adjudicative body constitutes a "foreign or international tribunal"” as required under section 1782. This left open the possibility that section 1782 discovery may be permitted in a State-State arbitration under a BIT. However, the District Court found that there was "insufficient support” for the argument that the nations in this case, Malta and China, intended to imbue the ICSID tribunal with “governmental authority” in their BIT. Read more.