This is a round-up of recent developments in international arbitration.
London – Appeal of LCIA Award
The commercial court in London has taken the unusual step of setting aside a London Court of International Arbitration (LCIA) arbitration award. In a case called A v B, the court found that the original (and single) Request for Arbitration filed by the claimant included claims under two contracts, and thereby denied the LCIA tribunal proper jurisdiction over both claims. The court held that two separate Requests should have been filed.
In addition, even though the LCIA Rules require that objections to jurisdiction be presented “as soon as possible but not later than the time for its Statement of Defence”, the court rejected the tribunal’s finding that the respondent in the arbitration had made its objection too late by waiting until it filed its Statement of Defence – seven months after the Claimant had filed the Request for Arbitration, and six months after the respondent had filed an initial Response to the Request for Arbitration.
The case concerned a dispute involving two crude oil contracts under which two identical sets of issues arose. Party ‘B’ commenced one arbitration but made two claims against party ‘A’. However, party ‘A’ was acting as a ‘middle-man’ in the transaction and had sold the oil to a party ‘C’. Therefore, party ‘A’ commenced a second arbitration on ‘back-to-back’ terms against party ‘C’ so as to protect its position as against party ‘B’ and could pass any liability along to party ‘C’.
Party ‘A’ objected to ‘B’’s claim arguing that two Requests for Arbitration should have been filed – one under each contract and therefore, the tribunal lacked jurisdiction. However, the tribunal rejected ‘A’’s objections against ‘B’’s claim. This left party ‘A’ in some difficulty as the tribunal in the underlying arbitration against party ‘C’ had taken the opposite view and accepted ‘C’’s objections, dismissing party ‘A’’s back-to-back claim against party ‘C’. Party ‘A’ therefore became isolated in this sales chain and was left with little option but to appeal to court in order to avoid being left with all of the liability.
The English commercial courts are known for being arbitration-friendly – it is very unusual for them to set aside any arbitral award let alone an award issued by a strong tribunal (comprising three senior English barristers (QCs)) operating under the rules of the LCIA, one of the major international arbitral institutions.
The court’s analysis was based around the wording of Article 1 of the 2014 LCIA Rules, and the absence of any reference to claims in the plural forming the basis of a single dispute. This is in contrast with the rules of other arbitral institutions such as the International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC) and even the Japan Commercial Arbitrators Association (JCAA), all of which expressly refer to the possibility of a single dispute arising under multiple contracts.
As regards the time taken for filing an objection to jurisdiction, the court did not apply a strict reading of the LCIA Rules and found that despite the words “as soon as possible” in Article 23.3, the party disputing jurisdiction had until the time for filing its Statement of Defence to challenge jurisdiction. This interpretation essentially dilutes the relevance of the words “as soon as possible” and means that provided the challenge is made at the time a defence is filed, even if it could have been made earlier, it is acceptable.
Fortunately (and possibly because the court recognised how commercially unfair it would be if party ‘A’ was left with liability in circumstances where it was merely acting as a middle-man), the commercial court in London allowed the appeal of the LCIA award finding that the LCIA rules do not allow multiple claims under separate contracts to be run as just one arbitration. And again, perhaps because the decision in the sub-arbitration involving party ‘C’ was also delayed, party ‘A’’s delay in challenging party ‘B’’s claim was justified.
Some commentators have said that the court adopted too technical or too literal an approach to interpreting the LCIA’s rules. Usually, the English commercial courts are much more likely to try to find a way of supporting arbitration and ensuring the enforceability of arbitration awards. However, in this instance, it seems that a more pragmatic and perhaps more commercial option was taken, reflecting the fact that party ‘B’ had done nothing wrong and was simply stuck in the middle of this chain of transactions. In addition, it is interesting that the LCIA itself did not demand a second arbitration be commenced – despite only receiving one fee to cover both claims.
In any event, it is now likely that even if the further appeals (if any) are successful, the LCIA will probably consider revising its rules to allow for multiple claims under multiple contracts between the same parties to be determined under one reference. As mentioned, this will bring the LCIA’s rules in line with those of for example, the SIAC and the JCAA.
Singapore – new ICC Case Management Office
The Singapore Ministry of Law (MinLaw) and the ICC’s International Court of Arbitration announced late last year that the ICC Court will set up a case management office in Singapore. According to the ICC, this is aimed at boosting arbitration and serving the dispute resolution needs of businesses around the world. It is supposed to begin operations in early 2018 with a view to moving to new, dedicated Maxwell Chamber facilities currently under construction, adjacent to the existing Maxwell Chambers facility in Singapore. It will be the ICC’s second case management office in the region adding to the one opened in Hong Kong in 2008, the same year a liaison office was opened in Singapore. It is a significant development in that it is yet another indication of the success and growth of Singapore as an international dispute resolution centre – a development reflected by the fact that for the first time, the number of new claims filed with the Singapore International Arbitration Centre (“SIAC”) in 2016 exceeded (significantly) those taken on by the Hong Kong International Arbitration Centre (“HKIAC”) in the same year. The total value of claims filed with the SIAC has for a number of years now greatly exceeded the value of claims filed in HK, the figure for 2016 being US$11.85 billion, making SIAC the leading arbitral institution for high value and high-profile claims in Asia Pacific.
Japan – new arbitration and mediation centres
Centre for International Dispute Resolution, Tokyo
The Japanese government recently announced that it is proposing to establish a new dedicated dispute resolution centre in Tokyo. The move follows the success of the Singapore International Arbitration Centre (SIAC) in Singapore as well as recent initiatives in countries such as South Korea and Malaysia to establish and promote international arbitration centres. It also reflects the increasing number of Japanese corporates that seek to resolve their cross-border disputes through arbitration in overseas jurisdictions.
The government’s press release states that Japan’s Foreign Ministry, Justice Ministry and Ministry of Economy, Trade and Industry will have joint jurisdiction over the new centre and will provide institutional support as well as staff training. It is expected that these government agencies will work together to ensure that with the forthcoming 2020 Olympics, the centre is also equipped to handle sports tribunal-related matters such as doping cases.
It is also expected that the focus will be on bringing together Japan’s various dispute resolution bodies such as the Japan Commercial Arbitration Centre (JCAA) in a far more internationally focused environment than currently exists in Japan. It is hoped that the new centre will operate with a multi-lingual staff and an international board of directors, catering for the resolution of international disputes and accommodating a variety of arbitral bodies and rules, including alternative forms of dispute resolution such as adjudication and mediation.
As a sign of support from the international business community, the American Chamber of Commerce in Japan and the European Business Council in Japan issued a joint statement in January 2018 expressing their “strong support” for the development of Tokyo as an international arbitration centre. In doing so, they underlined the importance of ensuring that the openness and internationalization of Japanese arbitrations and mediations should be clarified so that foreign counsel registered in Japan and otherwise are accepted to act as advocates and neutrals in all such proceedings seated in Japan.
This development comes at an interesting time in that with the March 2018 release of SIAC’s 2017 case statistics, it is evident that there has been an increase in both the number of new claims involving Japanese parties and the value of those claims. In the past few years, Singapore has increasingly become the preferred seat of arbitration for Japanese corporates, not least borne out by the fact that claims involving Japanese parties accounted for USD1 billion out of a total value in dispute for all new case filings of circa USD4 billion handled by the SIAC. Moreover, half of the new claims involving Japanese parties involved the Japanese party as claimant and not as respondent. This represents a significant change in approach to resolving disputes by Japanese parties who are notoriously litigation-averse.
In short, it is hoped that the new centre will lead to a more open and international dispute resolution regime in Japan such that both Japanese corporates and their foreign counterparts may be persuaded to choose Japan as their preferred seat of arbitration in appropriate cases.
Kyoto International Mediation Centre (KIMC)
More recently, it was also announced that Doshisha University and the Japan Association for Arbitrators intend on opening an international mediation centre in Kyoto in collaboration with the Singapore International Mediation Centre (SIMC). The new mediation centre will be headquartered at Doshisha University.
Recognising the success of mediation as a method for resolving cross-border disputes in the US and Europe, it is hoped that the new mediation centre will help to raise awareness of this form of alternative dispute resolution process amongst Japanese corporates. While court-directed conciliation for domestic matters is widely used in Japan, mediation remains little used – despite its undoubted advantages in a culture that emphasizes the importance of relationships and is therefore litigation-averse.
It is envisaged that a similar system to the arb-med-arb protocol in place between the Singapore International Arbitration Centre (SIAC) and the SIMC in Singapore may be established. This would mean that disputes which are initially referred to arbitration could instead be mediated and if successfully settled, the agreement resulting from the mediation could form the basis of an award in the original arbitration reference. By doing so, the settlement agreement could then be enforced as an arbitration award under the New York Convention thereby addressing one of the perceived shortcomings of mediation i.e. issues surrounding the enforcement of mediated settlement agreements.
Japanese government approval is expected in May and the mediation centre is due to be launched in September 2018. A select group of senior international dispute resolution practitioners in Japan have been invited by the SIMC to participate in the first training scheme in May 2018 with a view to establishing a panel in time for the opening of the new mediation centre in the autumn.
Third-party funding – recap and developments in SE Asia
Third-party funding is an arrangement between a specialist funding company and a client (typically a claimant in arbitration or litigation), whereby the funder will agree to finance some or all of the client’s legal fees in exchange for an agreed proportion of any damages recovered. These types of arrangements are being used by parties in difficult financial positions (but with strong claims) as well as by sophisticated, multinational companies as a means of taking the costs of large-scale litigation or arbitration off their balance sheets. Third-party funding allows capital that would otherwise be spent on legal fees to be spent or invested elsewhere by a business.
The general rule in English litigation is that the losing party pays the winning party’s costs. Traditionally, this has been limited to the winning party’s legal costs. However, in a landmark case from 2016 (Essar v Norscot), the English commercial court held that in awarding a party its costs in pursuing or defending an arbitration, tribunals also have jurisdiction to include the recovery of third-party litigation funding costs. This was (and remains) significant because the same does not apply in the context of English court proceedings where such costs are not normally recoverable.
The decision turned upon the wording of the ICC’s rules but it was also fact-specific, reflecting the tribunal’s view of the conduct of the parties involved – the same will not therefore apply in every case. In addition, the award of costs is very much a matter of discretion for the tribunal – so again, the recovery of such costs is not guaranteed even in a similar fact case. Nevertheless, the court’s recognition that funding costs may in principle be recoverable in arbitration is important and highlights yet another reason why increasingly, arbitration is becoming the preferred mechanism for international dispute resolution.
This is also relevant given that although not yet available in Japan, third-party funding is available elsewhere in Asia Pacific, including in Singapore – the preferred arbitration seat for most Japanese corporates engaged in cross-border business.
In Singapore, a bill was passed in January 2017 proposing the introduction of third-party funding in arbitral proceedings. Currently, it applies to international arbitration proceedings seated in Singapore and related court and mediation proceedings. Worth noting is the requirement that lawyers disclose the existence of any third-party funding that their client receives and the identity of the funder – this is primarily so as to avoid potential conflict situations involving the tribunal and counsel (where they may be involved in other matters with the same funders). However, the disclosure of funding is also often used by an opposing party to argue that security for costs is necessary because third-party funding could indicate that a party lacks sufficient funds to pay for its own arbitration. In this regard, the general consensus is that the use of third-party funding alone should not be sufficient grounds for ordering security for costs (albeit that it may raise issues as to whether the funder should be obliged to pay a proportion of costs if the case is lost). Instead, an opposing party would also have to establish bad faith or abuse. A recent investment arbitration decision supporting this approach noted that as third-party funding has become more common practice, it does not, on its own, necessarily constitute exceptional circumstances justifying that the respondent be granted an order of security for costs.
Nevertheless, the apportionment of costs is a different matter, and in a recent English court of appeal decision, a “following the fortunes of the funded” approach was confirmed such that the funder was ordered to pay the respondent’s costs because it had “funded proceedings substantially for (its] own financial benefit and has thereby become “a real party” to the litigation (to the extent that] it is ordinarily just that (it] should be liable for costs if the claim fails.” The same does not (yet) apply to arbitration given that tribunals do not normally have the jurisdiction to award costs against a non-party third-party funder. However, as funded parties in litigation are generally obliged to purchase ‘after the event’ (ATE) insurance to cover any adverse costs orders, there is little practical significance with this distinction between adverse costs orders in litigation and arbitration.
It is worth bearing in mind that the disclosure of funding arrangements can also be a useful strategic step in that it may serve to encourage settlement once an opponent discovers that a third-party funder considers the case worth supporting.
As for the recovery of costs, while it remains to be seen whether the Singapore Courts will adopt a similar approach to that discussed above in the Essar case in London, the SIAC Investment Arbitration Rules already provide that an arbitral tribunal in an international investment arbitration may take into account any third party funding arrangements in (a) apportioning the costs of the arbitration, and (b) ordering in its Award that all or part of the legal or other costs of a party be paid by the other party. This would therefore suggest that there is a good likelihood that the Singapore courts will allow the recovery of funding costs in commercial arbitration in Singapore.
Similarly, in Hong Kong, new measures were introduced later in 2017 expressly permitting third party funding in arbitration. These amendments are expected to come into effect in early 2018, alongside ancillary measures and safeguards. Hong Kong will adopt a light-touch approach to regulation by monitoring compliance by funders by reference to a Code of Practice. The Code will cover confidentiality, conflicts of interest, privilege, the degree of control by funders over proceedings, and capital adequacy requirements for funders.
As with Singapore, disclosure of the existence of a funding arrangement is required at the commencement of the arbitration if the funding agreement was entered into beforehand. If the funding agreement is entered into after the commencement of the arbitration, in Singapore disclosure is required as soon as practicable, and in Hong Kong within 15 days.
The one important area where Singapore and Hong Kong diverge is in relation to costs. The HKIAC Rules only allow a party to claim “the reasonable costs for legal representation and assistance if such costs were claimed during the arbitration” (emphasis added). This wording is therefore unlikely to permit recovery of the costs of obtaining funding and so even though recovery of such costs has not yet been the focus of any case in Singapore, it cannot happen in Hong Kong without further changes to Hong Kong’s rules.
As a general comment, these developments appear to reflect a growing international consensus. As both jurisdictions have historically restricted such funding to very limited circumstances, the new funding regimes in Singapore and Hong Kong represent an important shift in attitude. Nevertheless, clients should still be prepared that if they obtain third-party funding, they may be required to disclose its existence (but not its terms) and the name of the funder, given that in most jurisdictions, arbitrators generally have discretion to require such disclosures. In addition, although the existence of third-party funding should not cause a tribunal to require security for costs, it is likely to trigger requests by opposing parties for security.
Brexit – a strengthening of London’s position as an arbitral seat in Europe?
London has long been a dominant seat for arbitration, enjoying an established and pro-arbitration framework for the practical administration of international disputes. London benefits from the continuing popularity of English law as the governing law of the majority of international commercial contracts as well as an arbitration-friendly and non-interventionist court system. Therefore, even though it is likely that because of Brexit, London will see significant amendments to the legislative framework in which it operates as an arbitral seat, it is not expected that arbitration will be affected significantly.
This is for a number of reasons, in particular the fact that the advantages and benefits of London-seated arbitration do not intrinsically derive from EU law and are not dependant on the UK’s membership of the EU. Instead, arbitration is specifically excluded from the EU legislative regime – it is governed instead by the Arbitration Act, 1996 and has benefited greatly from the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. When parties choose to arbitrate in London, they do so because of their familiarity with and confidence in what is a predictable and reliable legal system. The availability of experts and practitioners will not change, and English arbitration awards will continue to be enforceable under the New York Convention.
Instead, it may be that Brexit could result in London becoming even more popular as a seat for arbitration. This is because depending on the form of the eventual framework negotiated, the English courts will no longer be bound by EU law and jurisdiction. They will, therefore, be able to grant anti-suit injunctions restraining court proceedings commenced in EU Member States in breach of an arbitration agreement. As such, rather than the parties having to go through the time and expense of bringing challenges in jurisdictions that were never agreed, it may be possible to obtain the necessary orders in London and pursue London arbitration as intended. This may result in London becoming more popular as a seat and venue for international arbitration in contrast to the remaining EU Member States.
Singapore International Commercial Court – extension of jurisdiction
In January this year, the Singapore Parliament passed amending legislation relating to the Singapore International Commercial Court (SICC) empowering it to hear any case relating to international commercial arbitration. This will include applications for interim measures, challenges to arbitrators, appeals on jurisdiction, stays and setting-aside requests.
The SICC was established in 2015 to hear international commercial disputes as a division of the Singapore High Court but with a mix of international judges from both civil law and common law backgrounds. This includes cases governed by foreign law and having only very limited connections to Singapore. However, with the latest amendments, this jurisdiction is extended or clarified such that parties may now apply for arbitration cases to be heard by the SICC and/or transferred from the Singapore High Court to be considered by an internationally renowned bench of judges. Nevertheless, even though they may have presented argument in the original arbitration proceedings (which in addition may have been governed by foreign law), foreign counsel will not be allowed to appear in arbitration related matters before the SICC – argument is only to be presented by Singapore qualified counsel. This applies also to foreign lawyers who may otherwise be registered to represent parties in an “offshore case” (i.e. cases having little substantial connection to Singapore) – they are also not permitted to take part in SICC arbitration cases.
What is not clear is whether the reference to “commercial” arbitration related cases means that international “investment” treaty arbitration cases cannot be heard.
Despite the restrictions on foreign counsel, this latest development serves to broaden even more the range of dispute resolution options available to international clients in Singapore and promote Singapore as a seat of choice.