2 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
Welcome to the first edition of Crossing Borders,
a periodic review of developments in international
arbitration across the world produced by the global
law firm King & Wood Mallesons.
Welcome to the first edition of Crossing Borders. In keeping with the name, our focus this edition is on International
Trade, in particular the dispute resolution issues that arise when derivative contracts, ships and goods cross borders.
Arbitration and dispute resolution in general is not an esoteric question in these circumstances. Getting it right
means getting a fair decision, a just process, the right forum and an enforceable award.
We also have summaries of recent key cases, reports from conferences and notes on key practice points.
Finally, our panel of international arbitration experts look at some of the common questions we get asked by our
clients. Please let us know if there are any issues you would like us to address in future editions.
Dorothy Murray
Edition Editor3 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
The ISDA-fication of arbitration
King & Wood Mallesons (London) lunches with Dr Peter Werner, Director of ISDA
The International Swaps and Derivatives Association (ISDA) is the world’s leading trade
association for participants in the market for over the counter derivatives. One of its crowning
achievements has been the widespread adoption of its “master agreements”, which now form
the standard template for derivative transactions worldwide. In 2013, ISDA adopted a model
arbitration clause for use in its master agreements. King & Wood Mallesons meets with Dr
Peter Werner, Senior Director of ISDA.
Welcome Peter. To start, perhaps you can tell us a bit about yourself?
I am a lawyer qualified in Germany and with an academic background in international law.
At ISDA I am responsible for international and regional legal policy. I represent ISDA in
international organisations such as UNIDROIT, UNCITRAL and the Hague Conference on
Private International Law. I have particular responsibility for ISDA documentation in the fields of
energy and commodities; and in developing products (such as Islamic finance).
Our first question for you about the introduction of model arbitration clauses to the
Master Agreement (“MA”) is: why now?
We were receiving an increasing number of questions from our members about how to “ISDAify”
suitable arbitration clauses, so it was clear to us that there was an appetite for ISDA to
look into whether we should provide general guidance to our members. We began a wider
consultation and were a little surprised at how many members gave feedback – it seems that
a large proportion of members, including members who had never been that vocal before -
were very vocal about arbitration.
That doesn’t surprise us, the arbitration world seems to be full of people who like to
express their opinions about the subject... So the guidance was all driven by member
demand?
Yes, but then this is how ISDA works.
ISDA itself has no “view” on the merits or
otherwise of arbitration.
We went back to discussions around the
drafting of the 1992 and 2002 MAs to see
why arbitration was not included as an
option then. It appears not to have been
raised as an issue back then. Things have
changed enormously in the last decade.
The explanation is probably to be found in
where ISDA came from. It was originally
an association of banks which traded
derivatives with each other. They were
typically based in London or New York,
so that made the dispute resolution
clauses easy – the courts of one or either
jurisdiction were suitable for the resolution
of the vast majority of disputes.
What has changed since then? First, ISDA
has far more corporate members – over
845 members from 65 countries of which
approximately 30 per cent are corporates.
It is not just banks who are the counter
parties, it could be sovereign or semisovereign
entities, or MNCs. Also, there
is far more diversity in relation to where
our members are based and the markets
in which they were active. For instance,
the MAs are increasingly used by parties
in emerging markets. Finally, many other
business sectors regularly use arbitration,
so it is familiar to many non-bank
counterparties, for example in shipping,
energy, commodities or Islamic finance.
All of these factors created a trend towards
parties wanting to use arbitration in their
derivative contracts.
As arbitration practitioners, it has
always seemed odd to us that this was
a recent development. As you say, many
industries with similar characteristics
(cross border transactions, importance
of effective enforcement) are much more
regular users.
P Wood in his book International Loans,
Bonds and Securities Regulation famously
observed that banks do not like arbitration,
but ISDA’s consultation has shown that
there has been a much wider acceptance
of arbitration as a suitable option for
derivative disputes, certainly among market
participants in worldwide cross-border
derivative transactions generally, and
probably more generally after the global
financial crisis. For example Klaus Peter
Berger, who participated as an academic
expert on the ISDA Working Group, has
been a voice in support of arbitration
for financial disputes, particularly on a
business-to-business basis.
One thing that the ISDA consultation
resulted in, that we are really proud of, is
getting different departments within banks
and trading companies across all regions
to consult internally about these issues. For
instance, derivative traders and derivative
lawyers may be isolated from other
parts of their organisation. As part of our
consultation we arranged meetings where
these internal teams spoke together. It was
interesting to hear views expressed about
arbitration from different perspectives in the
same bank.
We’ve been including bespoke
arbitration options in MAs for
our clients for some time now,
predominantly where parties are
based in the Middle East or in Russia
or the CIS. The key impetus we have
seen has been for better enforcement
options and to keep disputes out of
courts that may perhaps lack the
necessary expertise.
From the responses to ISDA’s
consultation, would you agree these
were the key reasons for selecting
arbitration or was there anything more
left field?4 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
For instance, we understand that in some
transactions with South Korea and Japan
parties often choose New York law;
whereas transactions entered into with
counterparties in other Asian jurisdictions
lean towards English law. It seems that
Singapore is really becoming a preferred
choice in terms of arbitral centre for
derivatives disputes.
The ISDA Arbitration Guide is well
drafted and contains some useful
model clauses. Do you find that these
are adopted religiously, or do parties
often chose a seat or set of rules
outside the ISDA list.
It is good to know that people like the
Guide! Yes, our members can and do
adapt or entirely depart from the models
provided – they are only guidance. In
Australia it is common to adopt Australian
law and I was recently in Stockholm where
I spoke to lawyers who were creating an
ISDA-fied SCC option. And we have seen
DIFC-LCIA arbitration clauses where there
are GCC parties.
Are we seeing a move away from the
supremacy of English and New York
law?
That may overstate the position - at least
for international cross border contracts.
For inter-American contracts, such as
US-Brazil, we still usually see New York
law, but for the vast majority of other
international MAs, I would say more than
80 percent, they use English law.
It really is this country’s best export.
Peter, it’s been a pleasure. Thanks for
taking the time to give us some more
insight into the new model clauses.
the case that disputes under such MAs
end up being mediated.
Equally, we included Switzerland due to the
increasing number of MAs being entered
into by private high net worth individuals
and private banks. The use of the MAs in
this way gives rise to a whole host of other
issues of course, just as when they are
used by funds, but it does demonstrate the
flexibility of the MA.
As an international law firm
headquartered in Asia, we have to ask
you about what feedback you received
from China and whether there was any
consideration of a Chinese institution
being included?
The truth is that ISDA had very few
responses to its consultation from the
PRC, and most of those where from Hong
Kong. China has its own local derivative
contract standard form that provides for
CIETAC arbitration [And CIETAC has
its own special rules for financial
disputes].
The real issue is increased legal certainty
regarding the legal framework for
derivatives in PRC (and not only in some
newly established free zones), for instance
regarding the enforceability of close-out
netting and financial collateral arrangements.
Another issue will be if and when the
RMB becomes fully tradable and we get
international RMB derivative contracts.
Looking more generally though, Asia as
a whole is a rapidly growing derivative
market. I was there in the spring and
summer of this year and there was a real
interest in and knowledge of the ISDA
arbitration guide. As to preferred dispute
resolution clauses for Asian parties, the
responses from Asia suggested that
different countries have different dispute
preferences.
member of P.R.I.M.E.’s panel of experts in
capital markets, I agree. I think the panel of
experts, whether to sit as arbitrators, or as
mediators or to be appointed as experts, is
of real interest to market participants.
We included P.R.I.M.E. as an option in our
model clauses due to demand from our
members, although it will obviously take
time before we see arbitrations arising
from agreements that include a P.R.I.M.E.
Finance arbitration clause.
This seems a good moment to move
on to the model clauses themselves.
Most of our readers will know that
there is a “pick and choose” menu
of suggested clauses, with different
institutional rules and governing laws,
ranging from SIAC to ICC to P.R.I.M.E.
Finance.
Our German colleagues have asked
us to ask why no German arbitral
institutions made the cut.
There are obviously an enormous number
of options out there for arbitration
institutions. We had to be selective.
After consultation of approximately 65
member firms across the globe, we chose
the options (i.e. seats, governing laws and
applicable rules) on the basis of what our
members wanted and needed based on
practical experience from derivative cases
that involved arbitration or are likely to
become subject to arbitration proceedings
in the near future. There was a lot of
lobbying by lawyers and arbitral institutions
from a wide range of countries too, but we
had to concentrate on practical needs.
We have drafted a lot of arbitration
clauses adopting the rules of regional
arbitration centres, such as the Dubai
International Arbitration Centre, for
MAs (DIAC seems to be used a lot in
the Middle East), although it is usually
We all know that outside the European
Union and away from the reach of the
Judgments Regulation and Lugano
Convention, cross border enforcement
is a real issue. The New York Convention
on the Recognition and Enforcement of
Arbitral Awards has been an extremely
effective solution to this as regards
international arbitration, but there is no
equivalent for court judgments (at least not
unless or until the Hague Choice of Courts
Convention enters into force –which might
happen later this year when the EU
ratifies it).
Parties can be motivated by a number
of other issues. They may prefer that the
dispute is resolved outside the local court
system, particularly where a sovereign
or quasi-sovereign entity is involved.
Regardless of the outcome, the negative
publicity accompanying a court decision
and the whole process can also be
perceived in a negative way to the parties
involved.
Parties may also prefer to appoint their
own arbitrators in order to ensure that the
decision maker have an understanding
of the products in dispute. This is
important, although it is encouraging to
see courts actively seeking to better their
understanding of the products and the
markets. I have personally been involved
in delivering some training to the Russian
judiciary of the Supreme Court (Arbitrazh)
Court, at their invitation.
The lack of understanding about these
products is not just an issue for courts;
we noticed that one of the matters in
the ISDA policy papers was the need to
educate arbitrators. We wondered if this
was why P.R.I.M.E. Finance was listed
as an option, with its panel of market
experts.
Subject to the disclaimer that I am a 5 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
3) measures relating to documentary
disclosure
4) measures aimed at preserving the status
quo
5) measures aimed at relief in respect of
parallel proceedings
Though there used to be significant
limitations on the power of arbitral tribunals
to order interim relief, interim measures can
nowadays be ordered by national courts
as well as by arbitral tribunals in developed
legal systems.
The FTZ Arbitration Rules contain a
complete chapter on interim measures,
consisting of seven articles, while the
SHIAC Arbitration Rules only have one
article on preservation measures.2
The
FTZ Arbitration Rules follow international
practice and the trend in international
commercial arbitration by expanding the
types of interim measures and decision
making authorities.
Article 18 of the FTZ Arbitration Rules
explicitly lists three types of interim
measures, namely:
1) preservation of assets
2) preservation of evidence
3) requesting and/or prohibiting a party to
perform
Article 18 distinguishes from the provisions
of PRC Arbitration Law and rules of other
domestic arbitration institutions, by adding
‘requesting and/or prohibiting a party to
perform’ as type of interim measure.
The newly added measure can be a
powerful weapon as it helps to preserve
the status quo and thus to mitigate
or even avoid irreparable injuries to a
party. Previously, both the PRC Civil
ii) It sets specific time limits on the
issuance of the ruling on the validity of an
arbitration agreement and the application
for revocation of an arbitral award;
iii) It sets detailed judicial review standards
on the application of newly adopted
rules in the FTZ Arbitration Rules. This
includes rules on: the open panel of
arbitrators, consolidation of arbitration,
joinder of third parties, award ex aequo
et bono, expedited procedure, and rules
of evidence;
iv) It facilitates enforcement of arbitral
awards and adopts stringent measures
against individuals and companies
refusing to enforce the award.
This article examines in detail the provisions
on interim measures and the rules of
evidence under the FTZ Arbitration Rules
as well as the Guidelines, and the flexibility
and convenience they may bring to
arbitrating parties, especially multinational
companies.
Interim Measures
Interim measures are designed to
safeguard parties from serious injuries
arising from delays in the litigation or
arbitration process as these delays can
prejudice one party, sometimes irreparably.
Classic examples include: dissipation
of assets, destruction of evidence and
disclosure of proprietary information or
misuse of intellectual property. Interim
measures may take many different forms,
and new forms may be crafted by the
courts or set out in legislation.
A typical classification is as follows:
1) measures relating to the attendance of
witnesses
2) measures relating to preservation of
evidence
arbitration. The FTZ Arbitration Rules do
not only apply to cases related to the China
(Shanghai) Free Trade Zone (“FTZ”), they
may also apply to cases where parties
have agreed to apply the FTZ Arbitration
Rules, regardless of the nature of the
dispute.
Three days after the effectiveness date of
the FTZ Arbitration Rules, the Shanghai
No. 2 Intermediate People’s Court released
guidelines1
(the “Guidelines”) setting
out the rules on judicial intervention and
assistance in arbitration cases applying
the FTZ Arbitration Rules. The Guidelines
show the Court’s liberal attitude towards
the FTZ Arbitration Rules through various
provisions:
i) It accelerates court proceedings in
rendering decisions on interim measures
and enforcing interim measures;
What Will the New
Developments in
the FTZ Arbitration
Rules on Interim
Measures and
Evidence Rules Mean
for Multinational
Companies?
Denning Jin
With the China (Shanghai) Pilot Free Trade
Zone Arbitration Rules that came into effect
on May 1, 2014 (“FTZ Arbitration Rules”),
the Shanghai International Arbitration
Center (“SHIAC”) adopts practices of the
most renowned international arbitration
institutions, and follows trends and
developments in international commercial 6 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
Multinational companies agree to arbitrate,
among other things, with a view to obtain
fair and neutral procedures which are
flexible, efficient and capable of being
tailored to the needs of their particular
disputes, without reference to formalities
and technicalities of evidence rules
applicable in national courts. Unfortunately,
in arbitration procedures administered
by major arbitration institutions in China,
arbitral tribunals cannot avoid the
influences from the rigid evidence rules
adopted by PRC courts. These influences
mainly include the rules on burden of proof
and formalities of evidence.
the agreement between the parties shall
prevail except where such agreement is
inoperative. Article 53(4) empowers the
tribunal to issue procedural directions
and lists of questions, to hold pre-hearing
meetings and preliminary hearings, to
produce terms of reference, and to
make arrangements on exchange and/or
examination of evidence. Articles 45 and
46 further allow the tribunal to undertake
investigations and collect evidence as well
as consult with experts. The Guidelines
acknowledge the tribunal’s discretion
subject to the requirements under the FTZ
Arbitration Rules and PRC law.
rendered two pre-litigation injunction orders
in trade secret misappropriation cases
in accordance with the newly amended
PRC Civil Procedure Law.5
In both
cases, multinational companies acted as
applicant to apply for an order against their
employees’ disclosure, use and permission
for others’ use of the applicant’s trade
secrets.
With regard to arbitration, multinational
companies with an intention to apply
for pre-arbitration orders on specific
performance or injunction should examine
in advance whether such measures are
allowed by the laws of the country where
the measures should be enforced.
With the above said, we think the FTZ
Arbitration Rules create an opportunity
for domestic arbitration institutions to
accumulate experiences with regard
to granting interim measures in the
international arbitration practice. Also, the
FTZ Arbitration Rules are expected to pave
the way for evolution and reconciliation of
the PRC Civil Procedure Law and the PRC
Arbitration Law.
Regarding interim measures under the FTZ
Arbitration Rules, the Guidelines speed
up the procedure on the issuance and
enforcement of interim relief and set out
detailed requirements on cash bonds and
credit guarantees.
Rules of Evidence
Regarding the rules of evidence, the FTZ
Arbitration Rules are distinguished from
commonly used evidence rules in the
litigation and arbitration procedures in
China in that they allow parties to enjoy
substantial autonomy and grant broad
discretion to arbitral tribunals. With regard
to the parties’ substantial autonomy,
Article 44(4) provides that where parties
have agreed on rules relating to evidence,
Procedure Law and the PRC Arbitration
Law provided for asset preservation and
evidence preservation as the only two
types of interim measures in the litigation
and arbitration process. With the newly
amended PRC Civil Procedure Law that
came into effect on January 1, 2013,
courts may order specific performance
or injunction upon a party’s application
before initiation of a lawsuit while the
PRC Arbitration Law remains unchanged,
leaving discrepancies on available interim
measures between the litigation and
arbitration process.
In terms of decision making authorities,
arbitral tribunals are allowed to make
orders on interim measures,3
while
previously, only the competent court was
allowed to make the orders. In addition,
upon parties’ application, an emergency
arbitral tribunal may be constituted to order
urgent interim relief.
The above provisions, however, should
be applied to the extent as permitted by
the relevant laws and regulations of the
state where the interim measures will
be enforced.4
This brings an interesting
question, i.e., if the interim relief is to be
enforced in China before the amendment
of the PRC Arbitration Law, is the
competent court empowered to request
and/or prohibit a party to perform a specific
act? As the PRC Civil Procedure Law
mandates the courts to carry out such an
injunctive interim measure or a specific
performance interim measure, we expect
an arbitral tribunal or emergency tribunal
to make such an order, and the competent
PRC court to enforce the tribunal’s order.
Multinational companies have explored
the injunction measures provided by the
PRC Civil Procedure Law in PRC court
cases to protect their rights in IP-related
cases. It is reported that the Shanghai
No. 1 Intermediate People’s Court has 7 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
“fishing expedition” while permitting parties
to request documents relevant and material
to the case, the article also sets out
requirements on the contents of a request
to produce evidence. The requirements are
designed to have the request specifically
describe the documents being sought.
With regard to formalities of evidence,
the IBA Rules do not require notarization
and authentication of evidence and allow
copies of documents as evidence. If a
party believes that the copy does not
fully conform to the original document, it
may ask the arbitral tribunal to require the
production of that original from the other
party. With regard to electronic documents,
the default form for their production is the
form most convenient or economical to the
producing party that is reasonably usable
by the recipient.
Conclusion
The FTZ Arbitration Rules and the
Guidelines create more room for
multinational companies to apply for
interim measures and to adopt evidence
rules their counsels may be more familiar
with. The new developments with regard
to interim measures and evidence rules
may encourage multinational companies
to more frequently use the FTZ Arbitration
Rules, which may in turn stimulate the
innovation of rules of other Chinese
arbitration institutions and the PRC
Arbitration Law.
1
For an English translation, please see http://
www.shiac.org/English/ResourcesDetail.
aspx?tid=39&aid=657&zt=3
2
SHIAC Arbitration Rules, Article 18.
3
FTZ Arbitration Rules, Article 20.
4
FTZ Arbitration Rules, Articles 18, 19 and 20.
5
http://www.chinacourt.org/article/detail/2013/10/
id/1110775.shtml; http://rmfyb.chinacourt.org/paper/
html/2014-01/28/content_76167.htm
courts are likely to reject the admission of
it into evidence. If the electronic evidence
is of high volume, the notarization is
considered time and cost consuming to
the parties.
In exercise of the autonomy and discretion
granted by the FTZ Arbitration Rules,
multinational companies could tailor a
set of evidence rules according to their
objectives and needs or may consider or
adopt into their arbitration internationallyaccepted
procedural guidelines or rules for
international commercial arbitration. The
IBA Rules on the Taking of Evidence[6]
(the “IBA Rules”) are a leading example
of those rules. The IBA Rules are drafted
by an IBA task force consisting of leading
international arbitration practitioners, and
contain significant provisions concerning
evidence-taking with a view to bridge the
differences between traditional common
and civil law procedures and to provide an
efficient and economical set of rules to be
used in international commercial arbitration.
With regard to the burden of proof and
adverse inference, Article 3 of the 2010
version of the IBA Rules sets out the
principle that each party shall introduce
documents available to it and on which
it wants to rely as evidence. If the
documents are in the possession of one
party but regarded as evidence by the
other party, the arbitral tribunal has the
competence to determine whether the
party in possession of the documents
should produce them upon the other
party’s request. In absence of either party’s
request, the arbitral tribunal may order
a party to produce the documents if the
tribunal deems appropriate. If a party fails
to comply with a procedural order of an
arbitral tribunal concerning the production
of documents, the arbitral tribunal may
infer from this failure that the content of
the document would be adverse to the
interests of that party. To prevent a broad
i) For documentary evidence, an original
document is almost always required. If
no original could be provided, the piece
of evidence alone cannot be used as a
proof of facts. Thus, if a dispute involves
a complex business transaction, it is
required that the parties have to collect
and bring to the hearing all the originals
of each single contract, order, bank
slip and invoice to prove the whole
transaction.
ii) If a piece of evidence is formed outside
the Chinese territory, it is required to
notarize the evidence by a notary public
and authenticate the evidence by the
Chinese embassy or consulate located
in the country where it is formed. It
often takes months to complete the
whole notarization and authentication
procedure in a foreign country. As
a notary public only witnesses the
existence of a document and assumes
no responsibility for its contents, it is
purely a formality requirement and in
practice adds weight to the parties.
iii) For evidence in electronic form, e.g.
emails, webpages, it is a common
practice for parties to notarize every
piece of them. Without this formality,
Burden of proof and adverse inference
As a default rule under PRC law, each party
bears the burden of providing evidence
to support its arguments. In lack of a
discovery procedure, it is very difficult if not
impossible to acquire evidence unfavorable
to the counterparty from the counterparty.
In this context, PRC law allows judges to
draw adverse inference and to adopt a
party’s claim that evidence exists where the
party demonstrates that its counterparty
is in possession of evidence, but refuses
to provide it without good cause, and
where the party claims that such evidence
is unfavorable to the counterparty who is
in possession of the evidence. In judicial
practice, however, courts often stick to the
default rule and are reluctant to adopt the
rule of adverse inference.
Requirements on formalities of
evidence
PRC laws impose stringent requirements
on the formalities of evidence for civil cases
before the court. These requirements
sometimes create a great burden on the
parties and even hinder the parties from
providing certain key evidence. Some of
these requirements are as follows:8 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
efficient utilization of their resources, the
conservation of their living resources, and
the study, protection and preservation of
the marine environment”
Fourth recital to the Convention
The Convention (with a current
membership of 166 State parties and the
EU) establishes a comprehensive legal
framework to regulate all ocean space,
its use and resources. It is, in essence, a
constitutional framework which regulates
human activity over, on, in and under the
oceans. Many of its provisions reflect
customary international law.
The Convention contains, among other
things, provisions relating to the territorial
sea, the contiguous zone, the continental
shelf, the exclusive economic zone and
the high seas. It also provides for the
protection and preservation of the marine
environment, for marine scientific research
and for the development and transfer of
marine technology.
A most important part of the Convention
concerns the exploration for and
exploitation of the resources of the
seabed, ocean floor and subsoil, beyond
the limits of national jurisdiction. The
Convention declares this as “the Area” and
its resources as “the common heritage of
mankind”.
Diplomatic Protection
“It is an elementary principle of international
law that a State is entitled to protect its
subjects, when injured by acts contrary
to international law committed by another
State, from whom they have been unable
to obtain satisfaction through the ordinary
channels. By taking up the case of one of
its subjects and by resorting to diplomatic
action or international judicial proceedings
on his behalf, a State is in reality asserting
its own rights - its right to ensure, in the
representing the losses relating to the value
of the confiscated gas oil and the damage
to the ship over the 14-month detention.
It has been 20 years since the Tribunal was
established, and twenty-two cases have
been submitted to date. The main matters
dealt with by the Tribunal are the prompt
release of vessels and crews; coastal
State jurisdiction in its maritime zones;
freedom of navigation; hot pursuit; marine
environment; flags of convenience; and
conservation of fish stocks.
The Virginia G was only the third case
brought by an injured flag State on behalf
of its nationals (in accordance with the
notion of diplomatic protection) seeking
reparation for damages caused by a
coastal State in the exercise of its rights
under the Convention.
The eminent, albeit seldom utilised, Tribunal
has sent an unequivocal message: that
whilst a coastal State may well be entitled
to regulate certain activity within its waters,
care must be taken so as not to exceed
that which is necessary and proportionate
under the Convention.
The Tribunal’s findings in the Virginia G
open a clear path for reparation claims
against coastal States that cause
disproportionate damage or losses when
exercising their rights under the Convention
against foreign vessels operating within
their maritime boundaries.
The 1982 United Nations Convention on
the Law of the Sea
“Recognizing the desirability of establishing
through this Convention, with due regard
for the sovereignty of all States, a legal
order for the seas and oceans which will
facilitate international communication,
and will promote the peaceful uses of
the seas and oceans, the equitable and
Law of the Sea
An overview on seeking reparation before the International Tribunal for the Law of the Sea
Ramón García-Gallardo & Alex Mizzi
King & Wood Mallesons SJ Berwin has successfully brought a claim for damages on behalf
of Panama1
before the International Tribunal for the Law of the Sea (the Tribunal) in a dispute
with Guinea-Bissau over the arrest and seizure of the Panamanian oil tanker, the Virginia G.
The Virginia G was arrested in August 2009 by the coastal authorities of Guinea-Bissau for
supplying foreign fishing vessels with fuel (“bunkering”) in Guinea-Bissau’s exclusive economic
zone without authorisation. The vessel was arrested and held for 14 months, and the valuable
cargo of gas oil was confiscated.
The Tribunal found that Guinea-Bissau exceeded its exclusive economic zone enforcement
entitlements under the 1982 United Nations Convention on the Law of the Sea (the
Convention) by exceeding what was necessary and proportionate in the circumstances, and
that Guinea-Bissau further violated the Convention by preventing Panama, as the flag state,
from intervening at the outset.
Guinea-Bissau’s preliminary objections to the admissibility of the claims, and its counter-claim,
were entirely rejected, the Tribunal having found that there existed a genuine link between
the Panama Registry and the Virginia G; that Panama could bring a claim (in the context of
diplomatic protection) for the benefit of all interests in the vessel, irrespective of the nationality;
and that the rule of exhaustion of local remedies (by the vessel owners) did not apply as the
injury was being claimed by the flag State.
ITLOS awarded Panama reparation for damages in the form of compensation with interest, 9 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
within the scope of the Convention?
• Consult counsel who are experienced in
public international law of the sea.
1
Ramón García-Gallardo (Head of Brussels office) and
Alexander Mizzi were appointed by Panama as Agents
and Counsel.
2 The Mavrommatis Palestine Concessions Case,
P.C.I.J., Series A, No.17.
3
Draft Articles on Diplomatic Protection 2006.
4
For more general information, visit http://www.itlos.
org/index.php?id=8&L=0
A preliminary check-list when considering
whether a case can be brought under the
Convention:
• Which are the State parties involved
(e.g. the coastal State and the State of
registry of the vessel), and are they
State parties to the Convention?
• Have any of the States made a
declaration/reservation in relation to the
dispute settlement procedure?
• In which maritime zone(s) did the events
occur and unfold?
• Do the circumstances of the case fall
is mandatory in cases of prompt release
of vessels and crews (article 292 of the
Convention) and of provisional measures
pending the constitution of an arbitral
tribunal (article 290(5) of the Convention).
Expenses of the Tribunal are borne by the
State parties to the Convention through the
budget of the Tribunal. State parties are
not required to pay any additional amount if
they are party to cases before the Tribunal.
Non-State parties would be required to
pay a fee fixed by the Tribunal. Additional
expenses (such as interpreters for
languages other than English and French –
the Tribunal’s official languages) are borne
by the State parties.
person of its subjects, respect for the rules
of international law.” 2
This discretionary espousal consists
of the invocation by a State, through
diplomatic action or other means of
peaceful settlement, of the responsibility
of another State for an injury caused by an
internationally wrongful act of that State to
a natural or legal person who is a national
of the former State with a view to the
implementation of such responsibility. 3
The International Tribunal for the Law of
the Sea – dispute resolution under the
Convention 4
The Convention provides four alternative
means for the settlement of disputes: the
International Tribunal for the Law of the
Sea, the International Court of Justice, an
arbitral tribunal (constituted under Annex
VII of the Convention), and a special arbitral
tribunal (constituted under Annex VIII of
the Convention). A State party is free to
choose one or more of these means by a
written declaration to be deposited with the
Secretary-General of the United Nations.
The Tribunal is an independent, specialised
judicial body (based in Hamburg, Germany)
which has jurisdiction to deal with disputes
(“contentious jurisdiction”) and legal
questions (“advisory jurisdiction”) involving
the interpretation and application of the
Convention. Its jurisdiction includes all
matters specifically provided for in any
other agreement which confers jurisdiction.
The Tribunal applies the Convention and
other rules of international law.
Twenty-one judges are elected to the
Tribunal from among persons enjoying the
highest reputation for fairness and integrity
and of recognised competence in the field
of the law of the sea.
As a rule, the jurisdiction of the Tribunal 10 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
likely to decline to assist an investor who
has paid bribes to obtain the investment.
Both public policy and the doctrine of
unclean hands often forecloses any remedy
to the errant investor.
A government regime which tacitly
expects bribes in exchange for investment
opportunities may be considered less likely
to raise bribery as a reason for cancelling
the agreement or rights granted. However,
investors who have indulged in local
practices of bribery may be exposed to
heightened risk if the political or social
climate turns against such practices.
The following are examples of lost
investments resulting from corruption or
due to social unrest:
• In 2013, a Chinese hydropower
company operating in Myanmar was
asked to close operations owing to
fighting between the national army and
Kachin rebels. The company was asked
to leave despite having initially invested
with the approval of the Government.
• In 2014, the Guinean government
cancelled a licence granted to BSG
Resources over the Simandou region
in Guinea after allegations that BSG
Resources paid more than US$200
million in bribes to secure the mining
concession.
• In August 2013, the new Kenyan
government launched a taskforce to
review all mining licences issued between
2003 and 2012 by the prior government.
Forty-seven licences were revoked as a
result of the review, including a niobium
licence held by Cortec Mining Kenya.
Cortec (which is owned by TSX-listed
Pacific Wildcat Resources) alleged that
senior government officials asked for
bribes of Ksh 80 million (approximately
US$1 million) to prevent cancellation of
high risk jurisdictions; and
• The need for “clean hands” when
seeking to enforce your rights.
Bribery: the ins and outs
While there may be a perception in some
jurisdictions that a bribe or “facilitation
payment” is a customary and necessary
part of doing business, such payments can
place the investor at the whim of the host
government.
In addition to the legal sanctions imposed
by anti-bribery legislation in a range of
jurisdictions (including Australia, the
United Kingdom and the United States),
an investment agreement or a transaction
procured or implemented through
corruption may be rendered null and void.
Upon establishing that the agreement or
right was obtained by ‘illegal’ or improper
means, the agreement or right can be
cancelled under local law without payment
of compensation. International law is also
compensation for expropriation that might
otherwise have been obtainable under
either domestic or public international law.
Unfortunately, in some cases, foreign
officials may take retaliatory action against
an investor for failing to pay a bribe.
Organisations doing business abroad
must remain vigilant about anti-bribery and
corruption compliance.They must also
consider what protections may be available
under investment treaties for unfair or
arbitrary state conduct that equates to
an expropriation or another breach of
applicable international standards.
This article considers the following:
• The risks that allegations of bribery
present to foreign investors;
• How to protect against the adverse
consequences of bribery and corruption;
• The importance of seeking investment
treaty protection when doing business in
Bribery and
Corruption in Foreign
Investments: Investor
Beware
Meg Utterback, Monique Caroll & Emily Rich
Bribery and corruption is increasingly
an issue of concern for multinational
companies, especially when seeking to
invest in “high risk” jurisdictions.
Historically, the primary concern in this area
has been exposure to civil and criminal
penalties for contravention of anti-bribery
and corruption legislation. However, recent
years have seen a growing trend towards
governmental expropriation of investments
alleged to have been obtained by bribery
and corruption. This poses a significant
additional risk to foreign investors.
Investors who are found to have engaged
in corrupt practices will have difficulty
defending against expropriation or seeking 11 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
The importance of ‘clean hands’
Investment treaties can offer effective
protection to an investor with “clean
hands”. As already mentioned, an
agreement or right obtained by bribery
or corruption may be legally voidable. If
the bribe is paid in connection with an
investment, and the investor subsequently
complains that the host state has
expropriated its investment without
compensation for reasons unrelated to the
bribery, this claim could be rejected for two
reasons.
First, if an investment treaty requires that
an investment be made “in accordance
with law”, the investment may have been
illegal if tainted by bribery. Second, the
prohibition against bribery and corruption
is now firmly entrenched as a principle
of international public policy. There is an
established body of case law in which
tribunals have declined an investor’s claim
under international law as contrary to
public policy. Such cases even arise where
the host state has systemic corruption and
bribery issues. The general principle is that
by partaking in bribery or corruption, the
investor has ‘forfeited any right to ask for
assistance of the machinery of justice.’1
For example, in the case of World Duty
Free Company v The Republic of Kenya
the investor paid a bribe of US$2 million
(claimed to be a legitimate payment as
part of the “Harambee culture”) to the
then prime minister of Kenya to obtain
the right to build and operate duty free
stores at Kenyan airports. A contract was
entered into and the investor expended
approximately US$27 million building
the duty free stores. The investor was
subsequently alleged to have been involved
in an election funding scandal, which
prompted a newly instituted government
to take over control of the investor’s shares
and assets. The tribunal held that even
so as to prejudice the value of the
investment). For instance, FET provisions
could be relied upon by a foreign investor
if a host state revoked the investor’s
business license or undermined the
investor’s expectation that its investment
would be supported by the state.
4 Protection from unreasonable
or discriminatory measures can
ensure the unfettered management,
maintenance, use, enjoyment and
disposal of investments. For instance,
this protection might be engaged
if a host Government introduced
regulations which severely restricted
the management and operation of the
foreign investment.
5 Compensation for Expropriation
or Nationalisation of investments
may apply where there has been a
partial or total loss of the investment
without adequate compensation. Such
provisions may also protect against acts
or state measures which, over time, have
the effect of nationalising or destroying
the value of your investment.
6 Compensation for Damage and
Loss may give investors a right to
compensation equal to that provided
to local investors or investors based in
another state, when their investment
suffers damage or loss as a result of
war, a state of national emergency,
insurrection, riot or other similar events.
7 Repatriation of Investments and
Returns guarantees the ability of
foreign investors to transfer out returns
from their investment including profits,
dividends, interest and other legitimate
income, proceeds obtained from the
total or partial sale or liquidation of the
investment, and royalties in relation to
intellectual property rights.
the protections provided and the means
by which investors may seek redress for
breach of these protections. Investors
need to ensure that their investments
are structured so as to meets the legal
definition of “investment” and that they
have standing as an “investor”. These
definitions can exclude certain investment
structures from treaty protection and often
require that the investment initially be made
“in accordance with local laws”.
There are more than 3,000 bilateral
investment treaties worldwide as well
as some significant regional and sectorspecific
multilateral treaties. Common
protections provided by investment treaties
include:
1 Obligation by state to encourage
foreign investment. Investment treaties
can require host states to encourage
investors to make investments in its
territory in accordance with its laws.
2 Full Protection and Security (“FPS”).
This requires the host state to exercise
due diligence in ensuring a basic level
of protection to foreign investments. It
might be breached if, for example, the
host state did not take adequate steps
to protect protestors or the state’s armed
forces from causing physical damage to
investments.
3 Fair and Equitable Treatment (“FET”).
This concept is very broad and generally
provides protection from court, tribunal
or administrative decisions which do
not afford the investor due process or
are tainted with bias, fraud, dishonesty,
or lack of impartiality. It also protects
investors against arbitrary or capricious
treatment and failure to maintain a
transparent and stable investment
environment (such as, for instance,
by changing the legal and business
environment in which they have invested
its licence. It has since filed proceedings
in the High Court of Kenya to quash the
purported licence revocation.
• In 2014, the New South Wales
government cancelled licences for
tenements at Doyles Creek and Glendon
Brook without compensation after an
inquiry found the licences were tainted
by corruption. One investor valued its
licences at more than AU$500 million.
What should you do?
Avoidance is by far the best method
of protection against the adverse
consequences of bribery and corruption.
Of course, bribes or facilitation payments
should not be used as a means to
acquire investments. Similarly, targeted
due diligence should be undertaken to
assess specific investment environments.
Anti-bribery and corruption compliance
measures should be implemented to
minimize any attendant risk.
Investment treaty protection should also
be obtained to ensure some limits are
imposed on the permissible actions of
the host state. Without investment treaty
protection, you take the risk of investing
in a foreign country with no protections
beyond those offered by that country’s
domestic legal system. This can be a
real concern in countries without a stable
political environment and sophisticated
legal system.
Investment treaty protection
Investment treaties can provide protection
against “political risk events” by giving
qualifying foreign investors the right to
seek compensation from a foreign state for
harm unfairly caused to foreign investments
or suffered by foreign investors. Each
investment treaty defines the investors
and investments which will be protected, 12 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
conduct complained of could constitute a
breach of the fair and equitable treatment
standard. However, in the end, it found that
the investor had failed to submit sufficient
clear and convincing evidence in support
of its claims. The Tribunal unanimously
dismissed all of the investor’s claims.
To date, investment treaty claims have
arisen in response to affirmative measures
taken by governments that result in
devaluation of the investment. In some
countries with systemic corruption,
political agendas targeting corruption can
also result in the bureaucracy reaching
a standstill. Delayed project approvals,
delayed licences, refusals to approve or
register investment agreements, reluctance
to review and sign off on collateral
investment requirements are increasingly
resulting in a loss of investment value for
foreign investors in these countries. These
circumstances may also give rise to claims
under investment treaties.
Conclusion
The prevalence of bribery and corruption is
a significant risk for foreign investors. Not
only can it can give rise to criminal and civil
penalties, it can lead to confiscation of the
investment and a rejection of all claims that
a host state has taken illegal and damaging
actions in respect of the investment.
Conducting thorough due diligence,
obtaining investment treaty protection and
maintaining “clean hands” when making
foreign investments are essential steps in
protecting investors and investments alike
against these risks.
1
ICC Case No.1110.
investor to establish that the state was
complicit in the bribery, and that it was not
merely the covert acts of individual officials.
This is despite the established general
principle that states are held accountable
for unlawful acts of their public officials.
Tribunals have distinguished between
bribes as covert acts, which by definition
cannot be recognised as legitimate, and
sanctioned acts of public officials carried
out in the course of their public duties, for
which the state party is responsible.
Investment treaties are more likely to
provide a means of redress where the
investor is not implicated in the bribery.
For example, where a government official
seeks to extract bribes or “facilitation
payments” from an investor in exchange for
permission to make the initial investment
or to continue to operate in the host
country, and the investor refuses to pay
the bribe. This scenario may give rise to
an investment treaty claim because the
investor’s investment cannot be made
or the government refuses to allow the
investor to continue to operate by denying
other business concessions or by taking
other retaliatory means. The investor could
claim compensation from the host state
under an investment treaty that requires
the host state to encourage investment in
accordance with their national laws and
to provide fair and equitable treatment to
investments.
The case of EDF (Services) v Romania
provides an example of the application of
this protection. In that case, an investor
alleged corruption on the part of the host
state, claiming that the then prime minister
of Romania solicited a $2.5 million bribe
at the time of the investment. Further,
it alleged that Romania took retaliatory
action against it in the form of an adverse
finding in respect of the renewal of its
business license because it refused to pay
the bribe. The tribunal recognised that the
government took action which led
to bankruptcy proceedings being
commenced against the joint venture,
Metal-Tech commenced arbitration under
the Israel-Uzbekistan investment treaty. The
Tribunal found that Metal-Tech’s investment
structure involved the payment of bribes.
This was contrary to the law of Uzbekistan
and Metal-Tech did not have protection
under the treaty. The treaty provided that
protected investments must be made ‘in
accordance with law’.
To obtain the assistance of international
law under an investment agreement or
treaty, the current trend is to require an
though the bribe was paid to the head
of state, it was paid covertly and not in
the performance of his official duties. The
Kenyan state had not therefore condoned
the bribery. The investment agreement
secured through bribery was rendered
illegal and the investor was left with no
recourse under international law (and
therefore no recourse under the applicable
bilateral investment treaty).
A similar finding was made in Metal-Tech
Pty Ltd v Uzbekistan in 2013. MetalTech,
an Israeli company, formed a joint
venture with state-owned companies
in Uzbekistan. When the Uzbekistan 13 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
Approach 1 to enforcement: The Dubai
International Financial Centre – Awards,
not Judgments
Since 31 October 20115
, parties to civil and
commercial agreements have been able to
choose the courts of the DIFC to resolve
disputes relating to their agreements. The
implementation of this “opt-in” jurisdiction
represented a significant extension of
the DIFC Courts’ jurisdiction, which was
previously restricted to disputes having
a direct nexus to the DIFC. Parties may
invoke the jurisdiction of the DIFC Court by
making a submission pursuant to Article
5(A)(2) of Law No. 12 (as amended).
There are currently proposals 6
whereby,
as an adjunct to an Article 5 submission,
a separate arbitration agreement may be
concluded between the disputing parties to
refer a dispute concerning the enforcement
of a DIFC Court judgment to the DIFCLCIA
Arbitration Centre. It is suggested
that, like a submission to the DIFC Courts
jurisdiction itself, a submission to arbitration
may be concluded before or after a dispute
arises. Such agreement may in effect
convert a DIFC Court judgment into an
arbitral award, so that the party seeking
to enforce could then take advantage of
the NYC to enforce the award quickly and
easily in other jurisdictions.
While, on the face of it, this may allow the
hybrid judgment/award to benefit from the
greater international enforceability of arbitral
awards, some doubt has been expressed
as to whether such an award would be
susceptible to enforcement under the NYC.
The NYC is limited in its application to
commercial disputes,7
and it has been
argued that a referral on a claim for
collection or enforcement of a money
judgment would not amount to a qualifying
commercial dispute for the purposes of the
NYC. While English courts would no longer
We look in particular at the efforts to:
(i) ensure the international enforceability
of judgments and
(ii) offer a broad panel of qualified, expert
decision makers.
Proposals to Improve Reciprocal
Enforceability
The paramount test of the effectiveness of
any international dispute resolution process
is that the winning party must be confident
about the prospects of enforcing the final
judgment or award.
International arbitration benefits from a well
developed and tested global recognition
and enforcement regime for arbitral awards
embodied by the 1958 Convention on the
Recognition and Enforcement of Foreign
Arbitral Awards (the “NYC”), to which there
are over one hundred and forty signatories,
including all of the major trading nations of
the world.
No such comprehensive enforcement
regime exists with respect to national
court judgments. Various measures have
been proposed to address this, including
the implementation of world-wide foreign
judgments conventions, but so far nothing
has been implemented.
4 The enforceability
of national judgments is still governed
by diverse domestic national laws and
a patchwork of bilateral, multilateral and
regional treaty arrangements. Even where
treaty arrangements exist between states
with concordant legal frameworks and
levels of judicial sophistication, judgment
creditors often overlook how problematic
enforcement can be in practice.
The DIFC Courts and the SICC have
proposed contrasting approaches
to augment the enforceability of the
judgments issued by their respective
dispute resolution centres.
arbitration and litigation before national
courts. Each means of dispute resolution
has its own well known set of advantages
and disadvantages.2
This article considers two recent
announcements:
1 that of a new “umbrella” dispute
resolution authority in the DIFC and
2 the further discussion of the proposed
SICC at the inaugural congress of the
Singapore International Arbitration Centre
(“SIAC”).
3
Best of Both Worlds?
New Proposals in the DIFC And SICC that
Seek to Balance the Best of Litigation and
Arbitration
Paul Stothard & Alexis Namdar
There is intense and constant competition
to be a venue of choice for international
disputes. To gain an edge, the Dubai
International Financial Centre 1
(“DIFC”) and
the proposed Singaporean International
Commercial Court (“SICC”) are exploring
whether it is possible to combine the
most attractive features of international 14 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
(i) an increase in the use of bilateral
protocols between national courts of
friendly states (with express reference to
pursuing an agreement with the English
Commercial Court) for reciprocal referral
of certain matters
(ii) exploring further multi-lateral
agreements for the recognition and
enforcement of judgments, both
regionally and internationally. As to the
latter option, Singapore is considering
becoming a member of the new “Choice
of Courts Convention”, which has yet to
enter into force.
If it does so, it would require contracting
states (including the USA and all EU
a Senior Counsel of the Supreme Court of
Singapore and Chief Justice of the DIFC
Courts, confirmed that Singapore was
looking to package its dispute resolution
offering as a tri-partite offering including
SIAC, the SICC and the Singapore
International Mediation Centre. In their
respective addresses, Minister Shamungan
and Mr Hwang both confirmed that the
Singaporean government was taking
steps to ensure the wide and effective
enforceability of SICC judgments.
The SICC report in particular set out
various methods to bolster reciprocal
enforceability outside of the existing
enforcement provisions in place with
Singapore 11 including:
published an extensive report detailing
proposals for the structure and powers of
the proposed court on 3 December 2013.
In relation to enforceability of judgments,
it has been reported that the SICC
initially considered proposals akin to the
“conversion” of judgments into awards
currently proposed in the DIFC, but
abandoned this at an early stage. Instead,
the committee report confirms that the
process now under consideration is for
the SICC to render a conventional court
judgment.
Speakers at the inaugural congress of the
SIAC, including Singapore’s Minister for
Law, K Shamungan and Michael Hwang,
have difficulty in identifying a commercial
dispute in these circumstances 8
, such an
argument may still be sustained under the
national laws of other member states.
Should this argument prove correct, then
falling foul of the NYC’s limitations would
of course undermine the very purpose of
a referral to arbitration at the DIFC-LCIA
Arbitration Centre, given it could potentially
create uncertainty as to international
enforceability.
9
The implementation of this
proposal is still at the consultation stage
and so it remains to be seen whether any
steps can be taken to avoid this possible
pitfall.
Further, any proposals will need to avoid
jurisdictional conflicts arising under local
law. Setting a number of referral criteria
for the DIFC judgment could avoid such
issues. These may include requirements
that:
(i) the DIFC judgment has taken effect 10
(ii) such a judgment is for a payment of
money
(iii) there is an enforcement dispute in
relation to the judgment
(iv) the judgment is not subject to appeal
and the time permitted for a party to
apply to appeal has expired
(v) the parties have agreed in writing
to refer the enforcement dispute in
accordance with the relevant amended
practice direction.
Approach 2 to enforcement: The
Singaporean International Commercial
Court – Judgments, not Awards
In January 2013, the Singaporean Chief
Justice announced the formation of a
committee to study the possibility of
establishing the SICC. The committee 15 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
an agreement in writing under which the parties
undertake to submit to arbitration all or any differences
which have arisen or which may arise between them
in respect of a defined legal relationship, whether
contractual or not, concerning a subject matter capable
of settlement by arbitration.”
8
Originally reflected in the Arbitration Act 1975 s.1(i).
9
This latter distinction is an issue which has been
considered by previous dispute resolution centres,
including the nascent Bahraini BCDR, which
adopted an ICC approach of the Terms of Reference
requirement to circumvent this problem.
10 For the purposes of Rule 36.30 of the Rules of the
DIFC Court.
11 Including the Reciprocal Enforcement of
Commonwealth Judgments Act and the Reciprocal
Enforcement of Foreign Judgments Act.
12 An “onshore” arbitration centre.
13 Banyan Tree Corporate PTE Ltd v Meydan Group
LLC [ARB-003-2013] on 27 May 2014.
institute was announced just a matter of
days after the DIFC Court of First Instance
confirmed its jurisdiction to enforce a Dubai
International Arbitration Centre12 award
which has no connection to the DIFC and
has not been ratified in the Dubai courts.
13
This judgment may have ramifications for
the enforcement of awards in “onshore”
Dubai, in that an applicant who succeeds
in arguing the merits of an arbitration
award’s enforcement before the DIFC
Court may take a DIFC Court Order for
enforcement onshore in Dubai, rather than
the underlying award. This is significant, as
under the relevant legislation, the onshore
Dubai courts do not have the jurisdiction to
review the merits of a DIFC Court judgment
and this could potentially circumvent an
often time consuming process of award
“ratification” onshore. It will be fascinating
to see how the Dubai courts respond, as
the status quo would suggest a means of
importing both local and foreign arbitral
awards through the DIFC Court as a portal
to enforcement in the UAE and throughout
the GCC.
1
The Dubai Dispute Resolution Authority pursuant to
the issuance of Dubai Law No. 7 of 2014 on 21 May
2014.
2
Including but not limited to ease of enforcement of
a resulting decision, privacy and confidentiality of the
proceedings and parties, the choice of the tribunal,
precedent and transparency, flexibility of the process,
neutrality of the forum and powers in relation to third
parties to the dispute.
3 The SIAC inaugural congress took place on 6 June
2014.
4
Such as the Convention on Choice of Courts
Agreements proposed by the member states of the
Hague Conference on Private International Law (the
“Choice of Courts Convention”).
5
Pursuant to Dubai Law No. 16 of 2011 (“Law No.16”)
signed on 31 October 2011, amending Dubai Law No.
12 of 2004.
6 The DIFC Courts announced a one month
consultation period for a Draft Practice Direction
on Referral of DIFC Court judgments to DIFC-LCIA
Arbitration Centre for enforcement, closing on 6 August
2014.
7
Article II NYC “Each Contracting State shall recognize
background of the judges to the matter
in dispute. The process, of course, is
more limited than that of any arbitral panel
nomination in that it is the chief justice
who will serve as the appointing authority
and there is no scope for further party
autonomy (beyond selection of the court).
In this respect, there are similarities with the
DIFC in that the DIFC judiciary is headed
by a Singaporean Chief Justice and is
comprised of two Emirati resident judges
together with a number of experienced
retired judges from other common law
jurisdictions.
Conclusion
The proposed reforms in Singapore and
Dubai demonstrate an international trend
towards the packaging of litigation and
arbitration together, or borrowing from the
most appealing features of each, aimed at
promoting regional dispute resolution hubs
capable of attracting international parties.
Singapore and Dubai are emerging dispute
resolution hubs, both of which score
highly on any list of key considerations
which bear upon the choice of arbitral
seat (including: geographic convenience;
development of infrastructure; typical
governing law of disputed contracts; levels
of direct foreign investment and presence
of international legal advisors). Close
consideration of the proposals emanating
from their international courts is therefore a
valuable exercise, and both the SICC and
DIFC proposals, if adopted, may prove to
be pioneering.
Finally, in Dubai, the announcement of
the tri-partite Dubai Dispute Resolution
Authority and the consideration of
increasing the enforceability of DIFC Court
judgments come at an interesting time
for the development of the jurisdiction of
the DIFC Court in general. The umbrella
states other than Denmark), inter alia, to
recognise and enforce foreign judgments
obtained in proceedings based on a valid
exclusive forum agreement.
It should be noted that, until any alternative
proposals are implemented in the DIFC,
the DIFC Court has also taken steps to
enhance the enforceability of its judgments
in much the same way as outlined in
the recent SICC committee report,
including entering into a memorandum of
understanding with the Commercial Court
in England and with the Supreme Court of
New South Wales in Australia, both aimed
at facilitating enforcement of judgments on
a bilateral basis.
Proposals for Court Procedures
One aspect of arbitration that can be
attractive for business is the wide pool of
nationalities, backgrounds, legal traditions
and expertise from which arbitrators
may be drawn, allowing the selection of
decision makers with specialist knowledge
relevant to the industry or dispute in hand.
The DIFC and the SICC have been looking
across both court proceedings and
arbitration to create a “best of both worlds”
approach with regard to the selection of
judges.
In the SICC, the adjudicating panel is
intended to include judges drawn from
the Supreme Court bench, as the court
will be part of the Supreme Court of
Singapore, but, crucially, will also include
appointed associate judges from more
diverse backgrounds from both domestic
and foreign pools. The associate judges
will be assigned cases on an ad hoc
basis depending on their specialism. This
process is comparable to the selection
of an arbitration tribunal by an appointing
authority in that there is scope to tailor both
subject matter specialisation and the legal 16 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
Article 15 of the new LCIA Rules (not yet
in force) requires the Tribunal to render its
award “as soon as reasonably possible
following the last submission from the
parties” and to notify the parties and the
Registrar of a timetable for such purpose.
The HKIAC sets a time limit for the handing
down of awards in relation to its Expedited
Procedure set out in Article 41 of its
2013 Rules of 6 months from the date
that the arbitral tribunal received the file
and extensions to time limits will only be
allowed in exceptional circumstances.
process is that it ensures a high degree of
accuracy in the award and avoids further
corrections in the awards after they are
handed down.
The Rules of the many of the key
arbitral institutions have specified some
sort of time limit for the handing down
of awards and make provision for
extensions in appropriate circumstances.
Those Rules that contain emergency
arbitrator provisions, or special expedited
procedures, will usually have separate time
limits for orders and awards within that
procedure. The table below considers the
position in a “standard” non-expedited
arbitration:
always be a provision within the rules which
allows a third party (either the tribunal or
the adminsitering institution) to vary them,
so one party is not held hostage by the
other if circumstances are such that the
award can’t be delivered in time.
There are other provisions of the ICC Rules
and of English arbitration law that could
allay some of the concerns that may have
led to this request:
• The 2012 ICC Rules (Article 29) provide
for an emergency arbitrator procedure
(EAP) to get quick holding measures
even before the Tribunal is appointed.
The EAP applies to agreements entered
into on or after 1 January 2012 or where
there is a specific opt in.
• A tribunal constituted under the 2012
ICC Rules has a number of powers to
take interim and conservatory measures
(Article 28).
• The seat of the arbitration under
this clause is in London, so the UK
Arbitration Act 1996 applies. An
English Court could therefore grant a
freezing order in relation to the arbitral
proceedings. The ICC emergency
arbitrator procedure is not intended
to prevent a party applying to court in
appropriate cases for interim relief.
• Parties can also be proactive in
managing the process to get a quick
result – choosing available arbitrators,
proposing timetables, designating the
ICC Court as an appointing authority, so
that it can use the list procedure to allow
the quick appointment of the tribunal, etc.
Take note though that the ICC Secretariat
will scrutinise all awards (including
emergency orders) which may delay
handing down the award/order. However,
the benefit of this additional scrutiny
Client Question:
“Is it a good idea to
add a time limit
for the arbitration
award?”
We are a fund manager. The draft
limited partnership agreement
contains an arbitration clause which
provides for arbitration under the ICC
Rules, to be administered by the ICC
Secretariat, with three arbitrator and
the place of arbitration to be London.
One of the investors has asked that
a time limit is set for the arbitrators
to give their award. Would you
recommend adding this?
Dorothy Murray responds: There already
exists a time limit within Article 30 of the
2012 ICC Rules which, in broad terms,
stipulates that the award must be made
within six months of the last signature to
the Terms of Reference. This time limit
can be varied by the ICC Court as part of
the original procedural timetable set for
the case or subsequently extended on
application from the tribunal or on its own
initiative (for example if matters were drawn
to its attention by one of the parties).
We would not usually recommend adding
a further time limit into the arbitration
agreement. This is because a time limit
(if not met) can mean that the tribunal’s
power to determine the matter falls away
(they have no jurisdiction after that point
in time) and because claims can be very
unpredictable, this can end up happening
more often than you might think. In such
circumstances the only solution is to agree
between the parties to extend the period,
or to start the whole arbitral process again.
The advantage of choosing institutional
rules with a time limit is that there will
Arbitral
Institute
Time Limit for
handing down
of Award?
Source
of limit
Length of
Time Limit
Trigger Provision for extension
ICC (2012
Rules)
Yes Rule 30 6 months Beginning on
the date of the
last signature
by the arbitral
tribunal or by
the parties to
the Terms of
Reference
i) different time limits can be fixed by
the Court when setting the procedural
timetable; or
ii) the Court may extend the time limit
upon a reasoned request from the arbitral
tribunal or upon its own initiative
LCIA (1998 Rules,
but see above)
No N/A N/A N/A N/A
SIAC (2013
Rules)
Yes Rule 28 45 days
to submit
the draft
award to the
Registrar
After the
proceedings
being declared
closed
i) can be extended by the Registrar; or
ii) upon agreement by the parties
HKIAC (2013
Rules, but see
above)
No N/A N/A N/A N/A
DIAC (2007
Rules)
Yes Article
36
6 months From the sole
arbitrator or
chairman of
the tribunal
receiving the
file.
i) tribunal may extend the time limit by a
further six months
ii) the External Committee may extend
this time limit upon a reasoned request
from the Tribunal; or of its own accord if it
considers it necessary to do so
SCC (2010
Rules)
Yes Article
37
6 months From the date
upon which the
arbitration was
referred to the
Arbitral Tribunal
i) can be extended by the Board upon
a reasoned request from the Arbitral
Tribunal; or if deemed necessary
CIETAC (2012
Rules)
Yes Article
46
6 months From the date
upon which the
Arbitral Tribunal
is formed
The Secretary General of CIETAC may
extend this limit upon a reasoned request
of the arbitral tribunal if:
i) considered truly necessary; and
ii) truly justified17 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
basis of being an administrative region of
China, whilst non-Chinese parties often
feel that Hong Kong is a safe seat with a
strong pro-arbitration reputation.
• Do you want Secretariat review of
awards? Unlike the HKIAC, the SIAC
Secretariat scrutinises all draft arbitral
awards to address minor errors, and to
ensure they meet the basic standards for
enforceability. Some find this additional
quality assurance a benefit, whilst others
see it as an unnecessary additional
expense.
• Time and cost: The HKIAC Rules reflect
a “light touch” institutional approach
(with a view, amongst other things, to
keeping fees low), whereas the more
intensive institutional involvement
favoured by SIAC has contributed to the
(occasionally deserved) reputation of
Singapore arbitrations being drawn out
affairs that reflect court litigation in length
and expense.
Finally, one future difference may be
the role of the Singapore International
Commercial Court (SICC) once in place.
The SICC will appoint judges from an
international panel and will allow foreign
counsel to appear in proceedings where
the case has no substantial connection to
Singapore. It is designed to fill the gaps
where arbitration is ineffective, such as
instances where it necessary to ensure the
coercive jurisdiction of a court in multiple
party disputes; where the subject matter
of the dispute may not be amenable to
arbitration (such as special torts arising
from contract, international IP or trust
disputes); or where it is necessary to
enforce relief in circumstances where the
New York Convention is not fully effective.
It remains to be seen whether this is
substantially different in practice to the
powers available to the Commercial Court
in Hong Kong.
against state parties in civil proceedings;
whilst in Singapore, limited state
immunity applies, which does not allow
a state to claim immunity in commercial
matters. This will be an issue, however,
whether or not your arbitration is seated
in Hong Kong if you need to enforce
against assets in Hong Kong.
• How complex is your claim?
The HKIAC Arbitration Rules allow
a streamlined approach in complex
proceedings (e.g. joinder and
consolidation), a variety of fee schedules
that the parties can opt-in to use, and
place a duty on the parties to ensure
the fair and efficient conduct of the
arbitration. In this respect, SIAC is
considering similar rules, but they are not
in place yet.
• Do you need an emergency
arbitrator? The HKIAC EAP only apply
to arbitration agreements entered into
after 2013, whilst the SIAC’s EAP can
be used in all arbitrations commenced
after the new rules entered into force,
regardless of when the arbitration
agreement was signed.
• Do you need a foreign emergency
arbitrator? In Hong Kong, it is possible
to enforce foreign emergency arbitrators’
relief as an order or judgment of the
court; whilst it is not yet clear if this is
possible in Singapore. Both jurisdictions
will enforce domestic emergency
arbitrator award/orders.
• Are you a PRC party or do you have
a PRC counterpart? Unlike Singapore,
the Secretariat of the ICC International
Court of Arbitration and CIETAC have
branches in Hong Kong to administer
cases in the region. The presence of
CIETAC is indicative of mainland China
parties generally having a preference for
Hong Kong seated arbitrations on the
from if the parties do not agree on the
tribunal.
• The SIAC and HKIAC arbitration
both include emergency arbitrator
procedures (EAP) and provisions for
expedited proceedings, and the local
Courts will often enforce emergency
arbitrator relief.
• Both have pro-arbitration judiciary
with specific arbitration court lists to
cater for arbitration related proceedings
and a reputation for assisting the arbitral
tribunal through ancillary orders where
required (Mareva injunctions, anti-suit
injunctions, subpoenas etc.).
Often the decision as to whether to opt
for Hong Kong or Singapore comes
down to practical issues, such as
geographical location of the parties, party
preference/familiarity and governing law
of the contracts containing the arbitration
clause. That said, there are some notable
differences that may make a real difference
in the relevant case:
• Are you claiming against a state?
Absolute state immunity generally applies
as a defence in Hong Kong to claims
Client Question:
“What is the
difference (if any)
in arbitrations in
Hong Kong and
Singapore?”
Laura Feldman, Caroline Swartz-Zern &
Daisy Mallett respond: Both Hong Kong
and Singapore are established Asia-Pacific
centres for international arbitration and the
main arbitral institutions in both (SIAC and
HKIAC) introduced new rules last year in
line with global market practice.
Key similarities are:
• Arbitration law based on the UNCITRAL
Model law.
• Both party to the New York
Convention, which allows for the
summary enforcement of foreign
arbitration.
• The SIAC and the HKIAC both have an
extensive and varied panel of local
and foreign arbitrators to be selected 18 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
policy exception to enforcement very
narrowly. While it is difficult to determine
the exact boundaries of German public
policy, it is generally agreed that a
mere misapplication or infringement of
mandatory German laws will not suffice
to constitute a violation of public policy.
Germany is in good company here – a
similar approach is taken by a number of
Western European jurisdictions and others.
Germany remains an attractive target
destination for the enforcement of both
domestic and foreign arbitral awards.
1
Federal Court of Justice, decision of 28 January 2014
– file no. III ZB 40/13, SchiedsVZ 2014, p. 98.
2
In Article V(2)(b).
3
German law refers to the French term “ordre public”.
4
BayObLG, decision of 20 November 2003 – file no. 4
Z Sch 17/03, NJOZ 2004, p. 997.
5
OLG Munich, decision of 30 July 2012 – file no. 34
Sch 18/10, SchiedsVZ 2012, p. 339.
6
BGH, decision of 4 June 1992 – file no. IX ZR 149/9,
NJW 1992, p. 3096.
7
Council Regulation (EC) No 44/2001 of 22 December
2000 on jurisdiction and the recognition and
enforcement of judgments in civil and commercial
matters.
to be applied to determine whether the
recognition and enforcement of an arbitral
award would be contrary to public policy.
The decision is in line with past case law:
the recognition and enforcement of an
arbitral award in Germany can only be
refused on the basis of a violation of public
policy where it leads to a result which is
“manifestly” incompatible with the essential
principles of German law.
The appellant/claimant argued that a
German court must refuse to recognise
and/or enforce an arbitral award in case
of any violation of public policy, i.e. the
essential principles of German law, no
matter how significant the particular
violation. The claimant based its argument
on the fact that the ZPO does not require a
“manifest” incompatibility with public policy
but simply states that the recognition and
enforcement of an arbitration award is to
be refused where “it will lead to a result
contrary to public policy”.
The Federal Court of Justice rejected
this argument, inter alia, holding that a
comparison with respective provisions of
current EU Regulations, such as for example
Article 34 no. 1 of the Brussels I Regulation,7
would indicate that the criterion of “manifest”
incompatibility with public policy is prevalently
used on an EU level.
According to the decision, public policy
includes fundamental principles of the
legal order or concerns flagrant violations
of substantive justice, such that not every
contradiction of mandatory provisions of
German law will suffice. The court further
said that only in “extremely exceptional
cases” would the objection of a violation of
public policy be held valid.
Conclusion
The present decision shows that German
courts continue to interpret the public
1958 on the Recognition and Enforcement
of Foreign Arbitral Awards (“New York
Convention”).
Besides rather formal reasons of refusal of
recognition of an arbitral award, such as
for example the invalidity of the arbitration
agreement, both the New York Convention2
and the ZPO stipulate that the recognition
and enforcement of an award may be
refused if it would lead to a result which is
in conflict with public policy.
Neither the New York Convention nor
the ZPO define the term public policy3
.
It is, however, acknowledged that in
order to avoid a review of arbitral awards
on the merits (“révision au fond”) under
the umbrella of an alleged violation of
public policy, the refusal of recognition
of an award on this ground is limited to
exceptional cases.
A violation of public policy may concern the
content of the award, i.e. the substantive
law, as well as the procedure leading up
to the award. Public policy is violated if
for example the award was obtained by
means of bribery, fraud or false statements.
In the past, German courts have refused
recognition of arbitral awards where a
party attempted to enforce an award
despite the existence of an out-of-court
settlement concerning the same dispute,4
where a party was required by the award
to perform an act prohibited by law5
or to
pay damages for not performing such an
act, or where the award granted punitive
damages.6
The Decision
In its decision of 28 January 2014 the
underlying facts of which have not been
published, the Federal Court of Justice
upheld a judgment of the Higher Regional
Court of Celle regarding the standard
Case Law Update:
German Federal
Court of Justice
confirms its
enforcement, and
arbitration-friendly
approach, with regard
to the recognition of
arbitral awards
Francis Bellen & Matei Ujica
Introduction
The German Federal Court of Justice
(Bundesgerichtshof) recently confirmed that
recognition and enforcement of an arbitral
award can only be refused on the basis of
a violation of public policy where it leads to
a result which is “manifestly” incompatible
with the essential principles of German
law1
. Thus, German courts continue to be
enforcement- and arbitration-friendly as
the refusal of recognition of an award on
this ground is limited to clearly exceptional
cases.
Background
German arbitration law as contained
in Sections 1025 to 1066 of the
German Code of Civil Procedure
(Zivilprozessordnung, “ZPO”) is based
mainly on the UNCITRAL Model Law on
International Commercial Arbitration and
provides for two different sets of rules with
regard to the recognition and enforcement
of domestic and foreign arbitral awards,
respectively. While domestic arbitral awards
are enforced in accordance with the ZPO,
the recognition and enforcement of foreign
arbitral awards is explicitly and solely
based on the New York Convention of 19 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
The Judgment of Kelly J recalls
jurisprudence which indicates the Court
should only exercise exorbitant jurisdiction
with caution, referring to the dicta from
Farwell L.J in The Hagen [1908] P. 189, as
follows:
“it becomes a very serious question
whether or not ... it is necessary for the
jurisdiction of the court to be invoked and
whether this court ought to put a foreigner,
who owes no allegiance here, to the
inconvenience and annoyance of being
brought to contest his rights in this country
... any doubt ... ought to be resolved in
favour of the foreigner”.
Further reference was made to Insurance
Corporation of Ireland v Strombus
International Insurance Co [1985] 2 Lloyd’s
Rep 138 and where:
“Mustill LJ said that the court should
be careful not to bring a foreigner here
as a defendant, where no positive relief
is claimed against him unless it can be
shown that a “solid practical benefit” would
ensue”’.
Applying these principles, Kelly J found
that, prior to considering the claim for
recognition and enforcement under the
New York Convention, it was first required
to consider whether it was “fit, proper and
suitable” to bring the claim before that
Court. This was a question of jurisdiction
to hear the claim, and not a refusal to
enforce it, and accordingly there was no
encroachment on the narrow New York
Convention grounds contained in Article V
for refusing recognition and/ enforcement.
Whilst accepting that a lack of assets in
the jurisdiction was not a sole determining
factor, it was found that, without there
being any other “material benefit” (Kelly
J, para. 131) to the claim being brought
before the Irish Courts, and taking account
115 (‘Yukos’) concerned a claim for
recognition and enforcement of a New York
Convention Award before the High Court
of Ireland.
There was no obvious connection with
Ireland: both parties were overseas entities;
the seat of the arbitration was New York;
the governing law of the contract was New
York law; and there was no suggestion
that assets had been located within the
jurisdiction of Ireland, nor evidence to
suggest there was a realistic prospect of
that happening (para. 109).
The Court considered to what extent the
applicant should be required to establish
a connection with the jurisdiction, and
within that, the relevance of there being no
assets in the jurisdiction. The Court held
that, whilst the absence of assets in the
jurisdiction was not the sole determining
factor in considering whether the claim
(seeking recognition and enforcement of
the award) should be served on a foreign
defendant, it was - along with a lack of
any other connection with the jurisdiction –
undeniably relevant.
Kelly J rejected the applicant’s contention
that refusing to hear a claim on the
ground that there is no connection with
the jurisdiction amounted to a refusal to
enforce a New York Convention Award
on a ground outside of that permitted by
Article V.
He held that, in implementing the New York
Convention, the legislature did not attempt
to dispense with the necessity of obtaining
leave of the Court to serve a defendant
not normally resident in the jurisdiction
and that, before the Court could proceed
to consider the merits of the application
to recognise and/or enforce such an
award, it must first be satisfied that the
relevant requirements for service out of the
jurisdiction had been met.
state that is asked to enforce the award?
Must the applicant show the order is
required to enforce against assets in the
state where the order is sought?
There follows below a reminder of the rule
in Fonu v Demirel & Anor [2007] EWCA Civ
799 (‘Fonu v Demirel’), and comment on
two recent judgments which address the
requirement, or otherwise, for a connection
to be established with the jurisdiction
where the claim for recognition and
enforcement is made.
The Fonu v Demirel rule
In Fonu v Demirel, the English Court found
that, in order to obtain leave for service
of a claim form out of the jurisdiction,
it was unnecessary for the applicant to
establish the presence of assets within the
jurisdiction against which he would seek to
enforce.
Sir Anthony Clarke M.R. referring to
the rules relating to service out of the
jurisdiction, found:
“The rule is discretionary so that the court
will only grant permission if it is just to do
so in all the circumstances of the case” and
“…there was no reason to give the rule
an unnatural construction or to imply
restrictions into it”.
It was also noted that there may be a
“belief, hope or expectation that assets
belonging to the defendant existed
or would or might arrive within the
jurisdiction”, even if, at the time of the
application, it is not possible to locate any
assets in the jurisdiction.
Establishing that it is “fit, proper and
suitable” to bring the claim: Yukos
The recent case of Yukos Capital S.A.R.L
v. OAO Tomskneft VNK [2014] IEHC
Case Law Update:
Enforcing Foreign
Arbitral Awards
The relevance of assets in the state for
recognition and enforcement
Jo Strain & Parnika Chaturvedi
Introduction
The ability to enforce arbitral awards is
fundamental to the practice of arbitration.
Arbitration can be a lengthy and costly
process and parties need assurances that
the resulting award can be enforced. This
is often complicated by a requirement
for an award to be recognised and / or
enforced in a foreign State. Parties need to
know that they can export an arbitral award
for recognition and enforcement with ease.
In this respect, the New York Convention
on Recognition and Enforcement of
Foreign Arbitral Awards (the ‘New York
Convention’) offers some comfort, with
some 150 signatory states agreeing,
pursuant to Article III, to recognise as
binding, and to enforce, foreign arbitral
awards in the same manner as domestic
awards. The grounds for refusing
recognition are narrow, and exclusively set
out in Article V of the Convention.
However, one of the challenges that
can arise in any international dispute is
the matter of establishing jurisdiction
over foreign defendants, including those
targeted for enforcement under the New
York Convention.
Questions which arise in this context
include: to what extent must an applicant
seeking an order for recognition and
enforcement of a foreign award against a
foreign defendant establish a connection
between the foreign defendant and the 20 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
On the other hand, applying English
common law principles, the Judgment of
Sir John Chadwick in X v Y indicates that
lack of assets in the jurisdiction should
not be considered a ground to refuse
jurisdiction to hear the claim but might arise
as a ground to refuse enforcement once
the claim is heard.
In conclusion, whilst the absence of
assets in the jurisdiction is not a bar to
applying for an order for recognition and/or
enforcement, it should not be disregarded
altogether. In the absence of assets in the
jurisdiction against which enforcement
may be sought, the Court may expect the
applicant to be able to point to some other
material benefit in bringing the claim, as
well as an explanation as to why it is a fit,
proper and suitable claim to bring.
Demeril remains good authority in England,
and is likely to be persuasive in other
common law jurisdictions.
However, Yukos shows that the matter
of assets in the jurisdiction, or otherwise,
is a relevant consideration for the court.
Combined with a lack of any other
connection with the jurisdiction, the
absence of assets to enforce against within
the jurisdiction may be persuasive when
a court decides whether to exercise its
discretion to allow for service of the claim
form on the foreign defendant. If not so
satisfied, the application for recognition and
/ or enforcement will fail at the jurisdiction
stage, before the merits of the application
are heard.
the defendants were located) meant the
claim was
“…a device to circumvent the proper legal
order of the Dubai Court system for the
enforcement of a foreign arbitral award
against a Defendant in Dubai who is
entitled, as a matter of public policy, for the
substantive claim to enforce the award to
be brought against it in the Dubai Courts
...”.
Deputy Chief Justice, Sir John Chadwick,
rejected the submission that, as a matter of
jurisdiction, the Court should not entertain
a claim for recognition and enforcement in
cases other than those where the Claimant
seeks to rely on the award to enforce
against assets in the jurisdiction and held:
“[There] may be circumstances in which
the Court may think it appropriate to refuse
recognition (and, in particular, the absence
of assets within the jurisdiction against
which to enforce the award may be fatal
to an application for an order for execution
...); but they are not reasons for refusing to
entertain the claim on grounds of lack of
jurisdiction”.
Accordingly, it was held that lack of assets
in the jurisdiction may be a ground to
refuse enforcement of an award but was
not a ground to refuse jurisdiction to hear
the claim.
Conclusion
The question remains - to what extent
must an applicant seeking an order
for recognition and /or enforcement
of a foreign arbitral award, establish a
connection with the jurisdiction?
The short answer is that, in common law
jurisdictions, lack of assets is unlikely to
operate as a bar to establishing jurisdiction
for the application. The decision in Fonu v
of the “comparative cost and convenience”
(Kelly J, para. 92) to the Court, this was a
relevant factor in the Court exercising its
discretion to decline to hear the claim for
recognition and enforcement.
Should a connection with the jurisdiction
be established as a matter of public
policy? X v Y
In a recent case before the Courts of the
Dubai International Financial Centre (the
‘DIFC’), the question of whether there
was a requirement of assets within the
jurisdiction to found jurisdiction for a claim
for recognition of a foreign award fell for
consideration in the context of public
policy.
In (1) X1, (2) X2 v (1) Y1, (2) Y2 (Case No.
ARB 002/2013) (“X v Y”), the claimants
sought an order for recognition and
enforcement of an award in the DIFC
Court, despite there being no connection
between the parties and/or the dispute
with the DIFC, and no assets in the
jurisdiction.
The jurisdiction of the DIFC exists as a
limited carve out to the Federal legislation.
DIFC Law No. 12 of 2004, the Judicial
Authority Law, sets out the jurisdiction
of the DIFC Courts and Article 5(A)(1)(e),
states that the DIFC Courts shall have
exclusive jurisdiction over “Any claim or
action over which the [DIFC] Courts have
jurisdiction in accordance with DIFC Laws
and DIFC Regulations”, and accordingly
acts as a gateway to claims before the
DIFC Courts.
The defendants argued that public
policy arguments should be used as
an aid to construction of the exclusive
jurisdiction gateways. In furtherance of this
argument, it was asserted that the lack
of any connection to the DIFC (and the
corresponding connection to Dubai, where 21 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
Analysis
The meaning of “not yet binding”
In considering the questions before him,
Eder J developed the analysis of the words
“not yet binding” found in Section V(1)(e) of
the New York Convention, and replicated
in section 103(2)(f) of the Arbitration Act
1996.
Eder J referred to the Judgment of Burton
J, Dowan Holding SA v Tanzania Electric
Supply Co Ltd [2011] 2 Lloyd’s Rep 275,
and the distinction between “ordinary
under the New York Convention, issue
estoppel cannot arise from decisions in
other states on enforcement itself, as the
tests for the purposes of enforcement, may
differ between States.
Decision
The Court found against DIAG and
declined to order the enforcement of the
award on the ground that the April 2013
decision of the Austrian Supreme Court
(that the review process was properly
constituted, and the award was not
binding) created an issue estoppel.
undertake the modernisation of the Czech
blood transfusion system. However, by
the early 1990s the business relationship
between DIAG and the Czech Government
had broken down. Arbitration proceedings
were commenced pursuant to an ad hoc
arbitration agreement, dated 18 September
1996, under the Czech Arbitration Act. A
final award was issued on 4 August 2008
for approximately £135 million in damages,
plus £140 million in interest, with further
interest accruing daily.
Following the award, both the Czech
Republic and DIAG sought a review of the
award by invoking the review process set
out in the arbitration agreement, which
provided for a review by a new arbitral
tribunal. DIAG later withdrew its application
for a review.
On 20 July 2011, DIAG issued proceedings
in the English court seeking enforcement of
the final award.
Notably, DIAG had made attempts to
enforce the award in various jurisdictions,
including Austria. On 16 April 2013 the
Supreme Court of Austria had held that the
review process had been properly invoked,
and therefore the award was not yet
binding and was accordingly unenforceable
pursuant to Article V(1)(e) of the New York
Convention.
The Czech Republic submitted to the
English court, amongst other things, that
the decision of the Austrian court created
an issue estoppel and that, therefore,
the Court must refuse the application for
enforcement of the Award on the basis of
New York Convention ground V(1)(e) – “the
award has not yet become binding”.
On DIAG’s case, there was no review
process properly pending and, in fact, the
award was binding. Initially, at least, it was
submitted that in proceedings to enforce
Case Law Update:
English court refuses
enforcement of New
York Convention
award on the ground
of issue estoppel
Diag Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Jo Strain & Sean Curran
On 22 May 2014, the English Commercial
Court handed down its decision in Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm) in which it declined
to enforce a £275 million New York
Convention Award against the Czech
Republic in favour of the Lichtenstein
company Diag Human Se (“DIAG”).
In considering the questions before
him, Eder J considered the New York
Convention defence, arising under Article
V(1)(e), that an award should not be
enforced because it “has not yet become
binding”. In so doing, he referred to the
analysis that an award is “not yet binding”
if it is open to “ordinary recourse”, but
refused to confine this to a definition of “a
genuine appeal on the merits”.
In the final Judgment, Eder J held against
DIAG, and declined to enforce the Award,
on the basis that an earlier decision of
the Supreme Court of Austria created an
issue estoppel. This is believed to be the
first time that enforcement of a New York
Convention award has been refused on
grounds of issue estoppel.
The facts
DIAG is one of the world’s largest blood
plasma suppliers. In 1989, it was asked to 22 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
arbitration followed by litigation – both of
which would in practice be binding and
therefore not logically possible.
Despite the English Courts’ proarbitration
policy, Cooke J stated that
the clause “involves something different
from an agreement to a refer a dispute
to arbitration” (para. 11). The Judge
dismissed the application on the basis that
the clause is “not a binding agreement
to arbitrate” in the sense required by the
Act, but “merely an agreement to attempt
to resolve the matter by a process of
arbitration which has not been set out in
the clause” (para. 14, 15).
This judgment illustrates the problematic
nature of multi-tiered clauses. The
importance of clarity and completeness
when drafting arbitration agreements has
yet again been stressed by the English
Courts.
Case Law Update:
Kruppa v Benedetti
[2014] EWHC 1887
(Comm)
Stuart Bruce
In this case, the claimant and defendant
entered into three separate agreements,
each of which contained a governing law
and jurisdiction clause in the following
identical terms:
“Governing law and jurisdiction. Laws of
England and Wales. In the event of any
dispute between the parties pursuant to
this Agreement, the parties will endeavour
to first resolve the matter through Swiss
arbitration. Should a resolution not be
forthcoming the courts of England shall
have non-exclusive jurisdiction.”
The defendant brought an application
under section 9 of the Arbitration Act
1996 (the “Act”) to stay proceedings that
were commenced by the claimant. The
question to be determined by the Court
was whether the clause constituted an
arbitration agreement within the meaning of
the section 6(1) of the Act.
In a short judgment, Cooke J held that
the parties have not agreed to any final
and binding arbitration, primarily for two
reasons:
1 The parties have only agreed to
“endeavour” to resolve the matter
through “Swiss arbitration”, a process
which itself was not made certain by
the clause, for want of specifying the
cantonal seat (and therefore which court
would have supervisory powers) and the
number or identity of arbitrators; and
2 The clause envisages a sequential
multi-tier dispute resolution process –
Convention enforcement proceedings. In
so doing, he drew distinctions between
decisions on arbitrability and /or public
policy and on “not yet binding”.
First, he readily accepted that questions
of arbitrability and of public policy may
be different in different states and that
a decision in a foreign court refusing to
enforce an award under the New York
Convention on public policy grounds of
that state will not ordinarily give rise to
issue estoppel in England (para. 58).
However, it was held that, in circumstances
where a foreign court decides that an
award is “not yet binding”, provided the
issue is the same, and the decision can
properly be said to be “on the merits”,
there is no reason in principle why that
decision should not give rise to issue
estoppel. The fact that the decision arose
in the context of enforcement proceedings,
as opposed to any other type of
proceedings, can be immaterial (para. 59).
A party seeking to enforce an award is
often minded to commence enforcement
proceedings in multiple jurisdictions, with
a view not only to the location of assets
to enforce against, but also taking into
account the attitude of the courts and
adherence of the target county to the New
York Convention.
However, as a consequence of this
Judgment, there is extra reason to
be cautious in commencing multiple
proceedings. An unfavourable decision
may be used to prevent enforcement
elsewhere.
recourse” and “extraordinary recourse”.
It was found that, if an award is proved
to be open to “ordinary recourse”, it will
not be binding for the purpose of Section
V(1)(e) (paragraph 18), but the same does
not arise from the award being open
“extraordinary recourse”.
Eder J recognised the problems in defining
“ordinary” and “extraordinary” in this
context, and noted the contention that
“ordinary recourse” refers to a “genuine
appeal on the merits” (referencing Wolff,
Article V, para 361; and Redfern & Hunter
at 11:85), in contrast with extraordinary
recourse referring to an application to
set aside usually on some procedural
irregularity (para. 20).
Eder J said he was extremely reluctant to
provide any definition in either category,
and unwilling to confine “ordinary recourse”
to a definition of a “genuine appeal on the
merits” (para. 22).
As a consequence, there remains some
doubt about the meaning of the words
“not yet binding” under English law.
Making note of the abolition of the “double
exequatur” requirement under the New
York Convention, Eder J was clear that
there was no requirement for an order for
enforcement to be issued by the courts
at the seat, before an award is capable
of enforcement elsewhere. However, the
unwillingness of the Court to adopt the
definition of “genuine appeal on the merits”
for ordinary recourse, may mean that a
party is more able to argue an award is
“not yet binding” because it is open to
some other challenge, not yet exhausted.
Issue estoppel
Eder J firmly rejected the proposition put
forward that a decision of a foreign court
as to “not yet binding” is incapable of
giving rise to issue estoppel in New York 23 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
in favour of the Respondent, who was
seeking cancellation of the contract and a
refund for payments made due to the fact
that the contract had not been registered
on the interim property register.
The Dubai Court of Cassation held that
Article 203(4) of the Civil Procedure Code
(the ‘CPC’), which, in part, states that
“Arbitration shall not be permissible in
matters, which are not capable of being
reconciled…”, has the result that the sale
and purchase of off-plan units, without
complying with the provisions of Article 3
Although the time limit for registration is
60 days, going beyond that limit will not
render the disposition void. This will only
occur if the disposition is not registered
at all. This is when it becomes a matter of
public policy, as a failure to register is likely
to eliminate the parties’ rights, and scupper
arbitration.
Dubai Court of Cassation Judgment
180 of 2011
This decision concerned ratification
proceedings for an arbitral award rendered
Property disputes are have been a
prominent feature of the Dubai market in
recent times. In the wake of the enactment
of a number of laws relevant to the
property market, which market is significant
to the economy of Dubai, and the UAE
generally, several recent cases in the
Dubai courts have cast light over how the
consideration of Dubai’s public policy might
affect property disputes, in particular those
governed by arbitration agreements.
The somewhat surprising conclusions
reached by the Dubai Courts as noted
below, especially with regard to how
the public policy of the UAE and Dubai
are being deployed to set aside arbitral
awards relating to property disputes, can
so easily set to shape and mould the
ever developing and burgeoning Dubai
construction and real estate landscape.
However, the much heralded (but rather
delayed) new UAE Arbitration Law, which
may alter the position, is expected to
be enacted within the coming months.
Until then, although there is no system of
legally binding precedent in the UAE, these
judgments are likely to be followed by the
UAE’s inferior courts.
Case law / Factual Background
Dubai Court of Cassation judgment 43
of 2009
This case turned on the interpretation
of Article 3 of Dubai Law 13 of 2008,
concerning the obligatory requirement
to register dispositions over real estate
units sold ‘off plan’, which informs the
subsequent cases. The Court held that
the person who was responsible for
submitting the necessary documents
for the application was the developer.
However, the actual task of completing the
registration lay with the Dubai Land and
Property Department.
Public policy,
arbitrations in the
UAE, and challenges
to the norm
Mark Hoyle
Public policy, as any student of English
law knows, is “an unruly horse” which,
depending on the rider, can either turn
out to be one of the four Horsemen of
the Apocalypse or a shining knight. After
the issue of an award, just as a tribunal or
the successful party feels that it is safe to
relax and exit the psychological bunker that
often shadows arbitrations in the UAE, the
ace in the pack, high of course, is played
and the immortal words “public policy”
send a shiver through the process.
Once upon a time the arbitrators could
sign at the end of the Award and breathe
a sigh of relief that their job was done. But
gradually, and with creeping vigour, the
drums beat and the Tribunal is told that
additional requirements must be fulfilled,
such as initialling each page of the award
in order for it to be valid. Nobody is able
to point to a real legal basis of course, but
never mind. Then, as if there is enough
unpaid work for a tribunal, the watch
phrase is “sign on each page” of the
Award. At last, some might say – surely
that is the end of it! But no, the latest
wheeze is that each page of the award and
the appendices must also be signed.
No Court decision of course, no legal
ruling, no change of the law.
So in the light of that, singular, illustration
of what is whispered to be “public policy”
(there are many other illustrations), it
was not too much of a surprise that the
question surfaced of a public policy point
about arbitrations concerning real estate.24 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
SPA and deliver the property on the date
agreed, this did not constitute a matter of
public policy. Public policy is only invoked
when a party requests that the contract
be invalidated, due to non-registration at
the Land Registry. This case results in a
lessening of the rigour of the earlier cases,
thereby limiting the scope of Article 203 of
the UAE Civil Procedures law and Dubai
Law No. 13 of 2008.
Abu Dhabi Court of First Instance
judgment numbered 2847 of 2013
In the most recent case, an arbitral tribunal
ordered that a property SPA be rescinded
and a refund and damages paid to the
claimant. The Abu Dhabi Court held that,
as the matter only concerned the interests
of private parties, they are entitled to act
and pursue conciliation and the matter did
not constitute one of public policy.
The trend can be seen. There is a clear
distinction between private rights and
public policy. The idea that a dispute
about real estate cannot be arbitrable
per se is wrong. Each case involving
real estate needs to be considered and
analysed carefully. There will be obvious
and egregious instances where a lack of
consonance with the law will result in a
public declaration that an arbitration cannot
be the pathway to solving the parties’
dispute. For the present, though, it seems
that a more mature analysis is taking hold,
whereby the real issues in a dispute are
subject to proper assessment.
Abu Dhabi Court of Cassation
Judgment 663 of 2012
In this case, although referring to the laws
of the Emirate of Abu Dhabi, in particular,
Law 3 of 2005, as amended by Law 2 of
2007, is similar to the provisions contained
in the corresponding Dubai laws, the
Respondent had purchased several units
in the Appellant’s building and, upon the
failure to complete construction of the
building, the Respondent commenced
arbitral proceedings for the purpose
of cancelling the sale and purchase
agreement (‘SPA’), requesting a refund
of the payments already made. As a
consequence, an arbitral award was
rendered, ordering the cancellation of the
SPA.
However, the Court of Cassation held
issues of public policy are exclusively the
jurisdiction of the courts and, even if there
are no explicit, applicable grounds for
setting aside an award under Article 216 of
the CPC, a court can still nullify an award
if an arbitrator acts ultra vires, exceeding
his authority / jurisdiction by proceeding to
decide issues of public policy.
Dubai Court of Cassation Judgment
282 of 2012
Similarly to the other cases, this dispute
involves a party’s request to render an
SPA invalid and obtain a refund of monies
paid. The Respondent then attempted
to resist ratification in the Dubai Courts
based on the grounds that the arbitrator
had determined matters allocated to public
policy and that the award consequently
should be set aside.
In its decision the Dubai Court of Cassation
distinguished the facts in this case, holding
that, since the purchaser was attempting
to cancel the contract based on the seller’s
failure to comply with the provisions in the
contract was void (not voidable), since
it had not been registered on the interim
property register pursuant to Dubai Law
No. 13 of 2008 (as amended by Law No.
9 of 2009). Registration was a matter of
public policy. In fact the Court of Cassation
held that the arbitrator had mistakenly
applied this law when it was not within the
arbitrator’s jurisdiction to decide on such a
matter and therefore nullified the award.
The Court of Cassation’s decision was
based on the following tenets. The parties
cannot agree to arbitrate, nor can the
arbitrator decide, on matters, which cannot
be amicably settled between the parties.
On matters concerning public policy,
such as the circulation of wealth or lack
of registration for a plot of land, there can
be no arbitration. Real estate property,
and therefore, to a certain extent, national
wealth, cannot be within the remit of an
arbitrator. So, an award that determines the
validity of a real estate transaction cannot
be valid and must therefore be set aside.
of Dubai Law 13 of 2008 (‘Regulating the
Interim Real Estate Register in the Emirate
of Dubai’), that is to say, the mandatory
requirement for registration, cannot be the
subject of an arbitration as the dispute is
not subject to conciliation and is therefore
contrary to the principles of public policy.
Dubai Court of Cassation Judgment 14
of 2012
Perhaps the leading judgment on this
subject, this decision concerned a claim
to enforce three DIAC arbitral awards
in respect of a disagreement relating to
private property. Again, it turned on the
interpretation and application of Dubai Law
13 of 2008. The Dubai Court of Cassation
decided that the awards should be set
aside on the grounds that the application of
this law was a matter of public policy and,
consequently, could not be determined by
arbitration.
This contradicted the earlier Court of
Appeal decision which held that the sale 25 Crossing Borders International Arbitration Insights / kwm.com
SUBSCRIBE
In this issue:
Editorial
The ISDA-fication of arbitration
Interview with Peter Werner,
Director of ISDA
New developments in FTZ arbitration
rules
Law of the Sea
Bribery and Corruption in Foreign
Investments: Investor Beware
Best of Both Worlds? Dispute
resolution developments in DIFC
and SICC
Client Question: “Is it a good idea
to add a time limit for the arbitration
award?”
Client Question: “What is the
difference (if any) in arbitrations in
Hong Kong and Singapore?”
Case Law Update - Germany:
German Federal Court of Justice
confirms its enforcement and
arbitration-friendly approach
Case Law Update - Dubai:
Enforcing Foreign Arbitral Awards
Case Law Update - UK:
English court refuses enforcement
of New York Convention award, Diag
Human Se v Czech Republic [2014]
EWHC 1639 (Comm)
Case Law Update - UK:
Kruppa v Benedetti [2014] EWHC
1887 (Comm)
Public policy, arbitrations in the UAE,
and challenges to the norm
Conference Report:
Third Party Funding: Coming to
Singapore Soon?
The audience, which was roughly half in
favour and half against the motion at the
outset of the debate, moved to being
substantially in favour of third party funding
by its conclusion.
We predict there will be legislation
introduced in Singapore in the not too
distant future permitting third party funding
in arbitrations, subject to certain regulation.
However, those resistant to third party
funding raised concerns about the
need for appropriate regulation, in
particular regarding the disclosure of the
arrangement by the funded party to the
other parties to the arbitration and to the
tribunal, and the potential conflicts issues
it raises –suggesting that the tribunal
be required to ensure that they have no
conflicts in their duties of independence
as a result of any of their own or their
associates’ relationships with the third
party funders involved in the dispute.
The impact of the funding arrangements
on the award of costs was noted as
another potentially vexed issue – if legal
fees have not been incurred by the party
to the dispute should they nonetheless be
recoverable?
The debaters for the motion that third
party funding would be a desirable
development were Mr Christopher
Bogart, of third party funding group
Burford Capital (USA) and Mr John Pyall,
of Great Lakes Reinsurance Co (United
Kingdom), while local Singaporean Mr
Lok, SC, President of Singapore’s Law
Society of Singapore and Mr William
Stone QC, Commercial Arbitrator and
former judge (Hong Kong) resisted the
motion.
Heated opinions were voiced on either
side of the divide. The pro-third party
funding camp made the case that third
party funding enables businesses to better
access the funds required to run expensive
arbitration claims, and to hedge their risk in
so doing.
Conference Report:
Third Party Funding:
Coming to Singapore
Soon?
Daisy Mallett
Third party funding was under the spotlight
at the annual Singapore International
Arbitration Centre Congress held in
Singapore on 6 June 2014.
KWM partner Denis Brock moderated a
debate on the issue, asking the question
of whether the legalisation of third party
funding in Singapore would be desirable for
the growth of arbitration in Singapore. This publication is intended to highlight potential issues and provide general information and not to provide legal advice. You should not take, or refrain from taking, action based on its content. If you have any questions, please speak to your
King & Wood Mallesons contact.
King & Wood Mallesons LLP is an English limited liability partnership registered in England under no OC313176. Authorised and regulated by the Solicitors Regulation Authority. A list of the members of King & Wood Mallesons LLP is open
to inspection at 10 Queen Street Place, London EC4R 1BE, its principal place of business and registered office.
Member firm of the King & Wood Mallesons network. See www.kwm.com for more information. © King & Wood Mallesons LLP 2014. 23102
FOR FURTHER
RELATED READING:
CLICK TO
SUBSCRIBE
TO FUTURE
EDITIONS