It happens all too often. In Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] the contract provided, by clause 7, that the contract was “governed exclusively by the laws of Brazil” and that any disputes were “subject to the exclusive jurisdiction of the courts of Brazil”. Clause 11 provided for mediation and that if mediation was not successful or either party refused to participate then the dispute was to be referred to arbitration.
Clause 12 dealt with the arbitration and provided that in the event that the parties failed to agree through mediation the dispute be referred to arbitration with a London seat. The issue arose, unsurprisingly, whether a substantive dispute was to be litigated in the Courts of Brazil or arbitrated in London. The Court held that the arbitration clause was governed by English law on the basis on a London seat – an unsurprising result in light of CvD. Furthermore, insofar as the mediation provision was an integral part of the agreement to arbitrate it was governed by the same law. The arbitration clause was an agreement to arbitrate whenever there was a failure to settle by mediation. Entering into mediation proceedings was not a condition precedent to the existence of a binding arbitration agreement.
Clause 12 obliged all disputes to be referred to arbitration notwithstanding that this deprived clause 7 of much of its utility. Clause 7 remained of some use as it enabled the courts of Brazil to declare the arbitrable nature of a dispute, to compel arbitration, to declare the validity of the award, to enforce the award or to adjudicate on the merits if the parties agreed not to arbitrate. No other court could adjudicate on the merits. Viewed in this way, apparently, clause 7 and clause 12 could live alongside each other (whether they did so happily is another matter!).
Issues arise either before or during (or indeed after) an arbitral reference that require the intervention of the Courts of the seat exercising their supervisory jurisdiction. The Courts of most countries and certainly the UK are swift and supportive in their role: the Courts are willing to grant injunctions in appropriate cases and generally assist the reference.
Things can however stall when it comes to serving the Court documents. Unlike a Request for Arbitration sent by courier from the institution administering the reference, Court documents require formal service as it is an interference with sovereignty. Ordinarily, service is a exercise of the power of the Court. In a case involving service out of the jurisdiction (which will often arise in international arbitration), it is an exercise of sovereignty within a foreign state by requiring the defendant to the Court proceedings to contest matters in what is to him, a foreign state.
In recent months the English Courts have addressed this issue with surprising frequency. The issue the Courts have grappled with arises from the very considerable delays that arise with service in countries such as Russia (which can be a year or so). Firstly, in February 2011, the Court of Appeal alerted the profession and the judiciary to a potential weapon of deeming service to have occurred or providing alternative means of service (Cecil v Bayat). This was followed swiftly by a series of judgments using this new toy in the toolbox: (Bacon v Automattic – May 2011; JSC BTA Bank v Ablyazov and BNP Parisbas v Open Joint Stock – both November 2011). All of those judgments permitted alternative service. Following immediately on the Court of Appeal in Abela v Baadarani (December 2011) refused alternative service on the facts emphasising the exceptional nature of the remedy. In that case the claimant had to win on alternative service otherwise the claim was struck out – and it failed to persuade the Court.
This perhaps shows the Courts trying to craft a remedy to do justice in support of arbitration. We are sure not to have heard the last of this!
In HMV UK LTD v Propinvest Friar Ltd Partnership (2011) (CA) (Judgment 10.11.11) the Court considered the test for leave to appeal. For leave to appeal against an arbitrator’s award to be granted under the Arbitration Act 1996 s.69(3)(c)(i), the decision had to be so obviously wrong as to be classified as a major intellectual aberration; the error should be such that it could be grasped by perusal of the award itself, and if the arbitrator might be right, leave should be refused. The Court of Appeal indicated that applications for leave to appeal under s.69 should normally be dealt with on paper, and appeals to the Court of Appeal against refusal of leave should only be made in exceptional circumstances.
This is but a further instance of the Court being reluctant to uphold challenges to arbitral awards.
In Barclays Bank v Nylon Capital [2011]. B had invested £250 million in two hedge funds in the Cayman Islands. The funds were managed by N, which was a limited liability partnership. B was a member of the partnership. A partnership agreement set out how the profits were to be allocated. B withdrew its investment, and a dispute arose as to the allocation of profits. However, no formal allocation of profits had been made. B issued a claim for a ceratin declarations. The partnership agreement contained an expert determination clause. It stated that in the event of a dispute regarding profits, an affected party could refer the matter to an accountant for determination, including the determination of any dispute concerning the interpretation of the agreement. The reference could be made 30 days after allocation of profits. N argued that B’s claim should be stayed pending determination of the dispute by an expert under the agreement. B argued that the court should first determine the jurisdiction of the expert, and the expert had no jurisdiction because N had not yet formally allocated the profits.
Against that backgound the court determined the jurisdiction of the expert. The term “jurisdiction of the expert” was a convenient way of encapsulating the issue as to whether under the contract the expert had a mandate to enter into a determination of any part of the dispute between the parties. The extent, and limits, of his mandate was a different question. Although, generally speaking, parties should adhere to the agreement which they had made, the approach to an expert determination clause should not be the same as the approach to an arbitration clause. Arbitration was usually an alternative to a court for the resolution of all the disputes between the parties. However, in contradistinction, expert determination clauses presupposed that the parties intended certain types of dispute to be resolved by expert determination and other types by the court. The rational of Fiona Trust v Privalov [2007] did not therefore apply. It was neither just nor convenient to defer a decision until after the expert had determined whether he had jurisdiction, Under the agreement 30 days had to elapse after allocation of profits before the dispute could be referred to the expert. That made it clear that the making of an allocation was a condition precedent to the appointment of an expert. The expert had no jurisdiction to determine any issues until there had been an allocation.
This seems a sensible approach. the parties had agreed that the expert was to consider the allocation of profits but only after the profits had been allocated. Without an allocation the expert had no jurisdiction.
The EU Mediation Directive, which seeks to promote the use of mediation in cross-border disputes, has been partially implemented in England and Wales in advance of the deadline for total implementation by 21 May 2011 and is a welcome development to encourage and bring uniformity to mediation across Europe.
The Directive covers five areas:
- ensuring the quality of mediation, by encouragement of the development of a voluntary code of conduct and training of mediators (Article 4);
- recourse to mediation, by the Courts’ invitation (Article 5);
- enforceability of agreements resulting from mediation, with the express consent of the parties to the agreement and provided that the agreement is not contrary to the applicable law of the enforcing state (Article 6);
- confidentiality, so that neither the mediator nor the parties can be compelled to give evidence regarding information arising out of or in connection with the mediation (Article 7); and
- limitation, so that a party pursuing mediation shall not be adversely effected by the passing of any period of limitation during the mediation process.
The Ministry of Justice considered that the arrangements in England and Wales in respect of mediation already satisfied the requirements of Articles 4 and 5, but that Articles 6, 7 and 8 required further implementation. Accordingly, the Civil Procedure Rules have been amended. Part 78 has been amedned to allow enforcement of the content of a written mediation agreement whilst maintaining the confidentiality of the agreement. Consequential amendments were also made to Parts 5, 7, 8, 31 and 32 and Practice Direction 5A. These amendments implemented Article 6 but only partially implemented Article 7. A new Statutory Instrument, the Cross-Border Mediation (EU) Directive Regulations 2011, implementing rules as to the confidentiality of mediation and the suspension of limitation during mediation came into force on 20 May 2011.
The Regulations will only apply to cross-border disputes that start on or after 20 May 2011 and should bring a welcome boost to the use of mediation in cross border disputes.
At an interesting debate on Tuesday (14 June 2011) hosted by Linklaters there was a clear feeling that whilst UK practitioners would be confident that there was no perception difficulty with counsel and arbitrator from the same chambers, the same could not be said from an international perspective. The topic is very topical especially in light of the ICSID Solvenia decision where a party was prevented from using counsel of its choice. That decision has been widely criticised and, essentially, not followed in a later ICSID decision, Romania where the tribunal regarded the Slovenia decision as a sanction for the failure to make proper disclosure (of the identity of counsel) in a timely fashion.
There was consensus at the debate that early disclosure was desirable, indeed essential, in order that any issue could be dealt with at an early stage and before time and cost were wasted. The tip that appeared to have near universal endorsement was that there should be a running (i.e. regularly updated) “cast-list” identifying counsel engaged by any party. John Beechey of the ICC Court said that the ICC was encouraging tribunals to adopt this practice. Equally, John made it clear that:
(a) the ICC Court would back tribunals robustly if there was any attempt to derail an arbitration by a late and tactical engagement of counsel from the same chambers as a member of the tribunal;
(b) that it was the UK that needed to get its house in order rather than the rest of the world being made to understand a peculiarly UK phenomenon ; and
(c) that the ICC, at least, had no appetite to make all appointments to a tribunal as a route to avoid any potential conflict.
Whilst the English tabloid press works itself into a frenzy over ‘super-injunctions’ to protect the privacy of the rich and famous from exposure and ridicule over their adultery and other indiscretions, the Commercial Court and the Court of Appeal are steadily refining the ‘super-injunction’ of the arbitration field: the anti-suit injunction. The latest word has come from the Court of Appeal in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC.
In dismissing the appeal the Court of Appeal held that where s.44 of the 1996 Act applied, it would be wrong as a matter of principle to utilise s.37 of the 1981 Act to get round the limitations of s.44. However, where no arbitration had been commenced and none was intended (and hence s.44 was not engaged), and a party asked the court to protect its interest to have its disputes settled in accordance with its arbitration agreement, it was open to the court to consider whether, and how best, if at all, to protect such a right to arbitrate by the use of s.37 of the 1981 Act. Whether the Court would assist a claimant, and if so, how, was a matter for the Court’s discretion. In exercising that discretion it would take care not to usurp any arbitral process, but it was clear that it had the jurisdiction to intervene in an appropriate case. That was not inconsistent with s.1(c) of the 1996 Act. The words “should not intervene” in section 1(c) were directed towards intervention in the conduct of an arbitration, and not towards intervention in the conduct of litigation which threatened the safety of an arbitration agreement or any possible arbitration pursuant to it. In any event, section 1(c) was only one of three principles stated in section 1: the other section 1 principles (in particular, the need to avoid unnecessary delay and expense) might well point in favour of court intervention.
Hydropower is helpful in clarifying the relationship between section 37 of the 1981 Act and section 44 of the 1996 Act. Most recent decisions indicate that where an interim injunction is sought, as a matter of discretion, the 1981 Act power should be exercised to grant interim relief only where it would also be appropriate for the court to act under section 44. However, that restriction does not apply where an application is made for a final injunction (see Welex AG v Roas Maritime [2003] and Steamship Mutual Underwriting v Sulpicio Lines [2008]).
The approach of the Court of Appeal is founded not only on both the purpose and the policy of the 1996 Act but also in considerations of efficiency and convenience. On the owner’s interpretation of the Act (founded on the Vale do Rio [2000] case), the operator would have been obliged to commence arbitral proceedings for the sole purpose of seeking a ruling on a jurisdictional issue. Since jurisdictional issues will usually reach the court at some stage anyway, to require an arbitration to be commenced in such circumstances would be artificial and inefficient.
The amount of data created and stored electronically leads inevitably, for good housekeeping purposes, to a document destruction policy. Whilst it is theoretically possible to keep everything forever, it is impractical to do so. In most common law jurisdictions there is a clear obligation of “litigation freeze” that should suspend any routine document destruction policy so as to preserve evidence for any trial. Through inadvertence or otherwise, the suspension of a policy can be overlooked, or worse documents can be deliberately destroyed. The US phrase for this is “spoilation”. The UK has (yet) to adopt this phrase but in the absence of anything so pithy, I adopt it (and quite like it).
The duty to preserve (and suspend) destruction policies may vary between jurisdictions. All jurisdictions appear to accept that the preservation obligation exists once proceedings have been commenced. The issue is in that pre-proceedings time. For example, in Australia and the UK it appears to be the case that there can be no sanction unless there is an attempt to pervert the course of justice or where it might amount to a contempt: British American Tobacco Australia Services v Cowell [2002] as approved in the UK by Douglas v Hello! [2003]. Even if no formal sanction can be levied adverse inferences can be drawn in appropriate cases.
The Court of Appeals for the Federal Circuit has just held that in Micron v Rambus [2011] and Hynix v Rambus [2011] preservation obligation arises when litigation is “pending or reasonably forseeable”. That is an objective test not susceptible to any gloss. Reasonably forseeable does not require that litigation be imminent or probable.
The ultimate sanction for spoilation is the dismissal of the action. The Rambus cases demonstrate that this ultimate sanction will only apply where there is (1) bad faith; (2) prejudice to the other party; (3) an evaluation of the degree of (1) and (2); and (4) no lesser sanction is sufficient.
Of course, appeals on questions of fact are not permitted as the limited right of appeal under s.69 Arbitration Act 1996 is restricted to questions of law. In this context it is worth noting that questions of foreign law are regarded as questions of fact and hence no appeal lies on disputed findings of foreign law.
In Guangzhou Dockyards v ENE Aegialii [2010] the Court had to consider an arbitration clause that permitted an appeal “on any issue“. Dockyards, having lost before the tribunal, argued that party autonomy (s.1(b)) and the opening words of s.69 (“Unless otherwise agreed …”) permitted an appeal on questions of fact.
The Court rejected these arguments holding that (a) party autonomy extended to the conduct of the reference and did not operate so as to bestow wide powers on the parties and, if the Court were to interfere, it would amount to an unauthorised intervention (s.1(c)) and (b) the opening words of s.69 qualified appeals on the law only.
Further, the Court commented that if any appeal on the facts was to be permitted it could only be under the inherent jurisdiction of the Court. The Court ruled that strictly the point did not arise as the parties had not agreed to permit appeals on the facts (express words would be required) but if the parties had made such an agreement it was still “very doubtful” that any jurisdiction existed (per Finelvet v Vinava Shipping [1983]).
This is another example of the Court being pro-arbitration and underlining the finality of an award. If it is intended to permit appeals on issues of fact express words will be required and, even then, the Court may not permit it.
In Tidewater Inc and others v Venezuela (ICSID Case No ARB/10/5) (23 December 2011) the claimants filed a proposal to disqualify Professor Stern, contending that multiple appointments by the same party (Venezuela) and by the same counsel (as had occurred) gave rise to objective and justifiable doubts regarding her independence and impartiality.
In accordance with ICSID rules the challenge was adjudicated upon by the other 2 arbitrators.
The decision of the arbitrators confirms that, in case of multiple appointments by the same party, the three-year period prescribed in the IBA Guidelines on Conflicts should be interpreted flexibly. That must surely be correct – conflicts cannot be judged on whether the appointment was on a Tuesday or a Wednesday.
They applied the ‘obvious and highly probable’ test of not being capable of being relied upon to exercise independent and impartial judgement and found it not met. Such a test is, I suggest, too high. It sets the bar much closer to the U.S. test of ‘would have to conclude’ than the English test of ‘real possibility’ and the ‘reasonable suspicion’ or ‘reasonable apprehension’ tests that prevail in European Court of Justice, Australia and South Africa and . The evidential burden seems near impossible to surmount: for an applicant to show that the that appointments might have created a relationship of influence on an arbitrator’s judgment or that the arbitrator would have been influenced by factors outside the case record by virtue of knowledge derived from other cases, seems near impossible. It appears to create the burden of showing subjectively the arbitrator’s state of mind rather than a legitimate objective doubt.
Equally the fairly relaxed attitude of the arbitrators to the disclosure, both forgiving an initial non-disclosure and relying on the publicly available information for ICSID matters is, I suggest, inadequate. The IBA Guidelines and the cases make it clear that the duty is on the arbitrator to disclose and any attempt to throw the burden back on the parties to undertake due diligence on the arbitrators is to be resisted.
Further comment is available in a more comprehensive article on Crippslink through the link to the right under Blogroll.
Arbitration, Mediation | pra | 
January 26, 2012 10:39 am | 
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