Posts tagged: award

Vis Pre-Moot in London

Pre-Moot in London:

On the weekend 27-28 February 2016 Fox Williams’ International Arbitration Group will be hosting a Willem Vis Pre-Moot in their new offices in the City of London.

The Pre-Moot will be on the official problem of the 23rd Vis Moot.

Teams and arbitration practitioners, lawyers and academics with interest in participating or judging are encouraged to register their interest in attending the Pre-Moot as early as possible.

Precise timings will be circulated nearer the time depending on the number of participants.

Location:

The Pre-Moot will be held at Fox Williams’ new offices at 10 Finsbury Square, London EC2A 1AF.

Registration:

For further information and registration please contact Ms Sabrina Janzik at sjanzik@foxwilliams.com   (http://www.foxwilliams.com/profiles/132/)

 

We look forward to welcoming you to the 23rd Willem Vis London Pre-Moot !

Delay in Award Does not Justify Setting Aside

In BV Scheepswerf Damen Gorinchen v The Marine Institute [2015] the Court decided that delay on the part of a tribunal in issuing its award cannot, of itself, justify setting aside the award under s.68 of the Arbitration Act 1996.

Delay might well amount to a breach of the tribunal’s section 33 duty and, therefore, qualify as a “serious irregularity” for the purposes of s.68(2)(a). The Court did not consider that delay was a failure to conduct the proceedings in accordance with the procedure agreed by the parties, for the purposes of s.68(2)(c) even though the relevant institutional rules (LMAA) included that the Award should: “normally be available within not more than six weeks from the close of the proceedings”. To hold otherwise would be a distortion of language.

The Court’s main reasoning was that delay would not generally affect the outcome of the dispute, such that there could be no substantial injustice that would justify setting aside. In order to satisfy that test of substantial injustice, it has to be shown that, but for the inordinate delay (which on this hypothesis amounts to the relevant “serious irregularity”), the tribunal might well have reached a different conclusion more favourable to the challenger. It is impossible to satisfy that test unless it can be shown that there has in fact been a failure to deal with all the issues within s.68(2)(d). If the Award is otherwise unimpeachable and has dealt with all the issues, it makes no difference whether it was produced a month or twelve months (as it was) after the hearing, since however long the Award has taken to produce, the applicant cannot show that it has caused or will cause substantial injustice. That is why delay on its own does not amount to serious irregularity.

The Court then followed Primera Maritime (Hellas) Ltd v Jiangsu Eastern Heavy Industry Co Ltd [2013] and Secretary of State for the Home Department v Raytheon Systems Ltd [2014] (the former holding that “…Once it is recognised that [the tribunal] has dealt with the issue, there is no scope for the application of section 68(2)(d). …, the sub-section does not involve some qualitative assessment of how the tribunal dealt with it. Provided the tribunal has dealt with it, it does not matter whether it has done so well, badly or indifferently.”)

The Court held that the “issues” complained of were at best sub-issues or sub-sub-issues in any event. It is but another example of the Court determining issues at a high level so as to maintain a “high threshold” that has been said to be required for establishing a serious irregularity.

One interesting reflection is whether the appropriate remedy in this instance would have been a challenge under s.24 rather than s.68. The former provides that a party may apply to the court to remove an arbitrator on the grounds that he has refused or failed to use all reasonable despatch in making an award, and that substantial injustice has been or will be caused to the applicant. Before applying to the Court an aggrieved party must exhaust his remedy for removal under institutional rules. A Court is unlikely to second guess the institutional assessment and, furthermore, there remains the issue of establishing substantial injustice which the Court is likely to be fairly difficult to persuade on the reasoning of this case. A s.24 challenge would, in all probability, have suffered the same fate.

 

 

Whether Request without Fee is Valid

The steps that must be taken to stop time for the purposes of a contractual time bar provision must be determined by construing the contract and, as the contract itself is unlikely to say much beyond incorporating institutional rules, that means construing the rules.  The Court so decided in Libero Commodities SA v Augustin [2015]

Bylaw 302 of the 2011 version of the International Cotton Association (ICA) provides:

“1. Any party wishing to commence arbitration under these Bylaws … shall send us a written request for arbitration …

2. When sending the request, the Claimant shall also send:

… such application fee as may be due …”

Disputes arose in relation to the price under a contract for the sale of cotton. By a further agreement the parties agreed to submit the pricing dispute to ICA arbitration. The latter agreement also provided that if the reference was not commenced by a specified day the price was to be fixed at a spcified price.

On the final date specified, the seller sent a fax to the ICA requesting arbitration, but did not pay the required fee. The arbitration did not proceed further until the fee had been paid.

The first tier tribunal decided that failure to pay the required fee at the time of  the request meant that the seller had not validly commenced arbitration by the required date. The seller appealed to an appeal committee of the ICA, which decided that arbitration had been validly commenced in time, and, further, reached a decision on the substantive pricing issue.

The buyer challenged theappeal committee’s award.

The Court dismissed the appeal against the award on the issue of the commencement of arbitration. However, it allowed the buyer’s appeal against the substantive decision.

In relation to the commencement issue,the Court held that, as a matter of construction, it was not a prerequisite to the effective commencement of arbitration that the request for arbitration should be accompanied by the relevant fee. This conclusion was borne out by four principal factors:

  • Bylaw 302 drew a distinction between the “request for arbitration” and other matters (including the payment of the fee) that should be sent “when sending the request”.
  • The Bylaws did not expressly provide that the matters specified in Bylaw 302(2) were preconditions to the effective commencement of arbitration.
  • A written request for arbitration could be a meaningful and effective document without the matters specified (including the fee).
  • There was no commercial absurdity in this interpretation, and, indeed, it was consistent with the TAC’s own views.

It should not be assumed that the position will be the same under all institutional rules. For example, Article 1.4 of the LCIA  Rules (2014) provides that “The date of receipt by the Registrar of the Request shall be treated as the date upon which the arbitration has commenced for all purposes (the “Commencement Date”), subject to the LCIA’s actual receipt of the registration fee.” Similarly, the issue in this case was decided under the provisions of the 2011 ICA bylaws: those bylaws have since been amended to make clear that an arbitration is not commenced until the requisite fee has been paid.  However, Article 4.4 of the ICC Rules (2012) provides: “Together with the Request, the claimant shall: …b) make payment of the filing fee …
In the event that the claimant fails to comply with … these requirements, the Secretariat may fix a time limit within which the claimant must comply, failing which the file shall be closed without prejudice to the claimant’s right to submit the same claims at a later date in another Request.”

The Court further held, obiter, that some of the matters, such as the other party’s identity, were prerequisites of a valid notice.  Accordingly, it remains the case that it is important to check any applicable rules carefully and ensure that all requirements are addressed when commencing arbitration.

Costs – Assessing the Amounts

The Courts have been grappling for some time with only allowing a proportionate and reasonable amount to be recovered by the successful party.  A useful rule of thumb (which could apply equally to arbitration) was expressed by Leggatt J in Kazakhstan Kagazy plc v Zhunus [2015]:

The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party’s own account and not recoverable from the other party.”

This should be readily translatable into an answer expressed in currency.

Interest Update

Two recent cases have discussed issues relating to interest.  Firstly, Sonatrach v Statoil looked at post-award interest and, secondly, Martrade Shipping & Transport GmbH v United Enterprises Corporation looked at the application of the Late Payment of Commercial Debts (Interest) Act 1988 to international arbitration.  It is convenient to use those cases as an opportunity to review some basic principles.

Most references are concerned with recovering damages. With damages there is normally an award of interest.  The general principle as stated in Panchand Freres SA v. R. Pagnan & Fratelli[1] is that “In a commercial transaction, if the plaintiff has been out of his money for a period, the usual order is that the Defendant should pay interest for the time for which the sum has been outstanding.”

A failure to award interest can cause substantial prejudice to a party and in CNH Global NV v PGN Logistics Ltd[2] an award that was corrected by the Tribunal so as to include interest (inadvertently omitted from the original award) and which was done when the tribunal was functus, was allowed to stand as whilst it was an irregularity in the reference it did not cause substantial injustice within the terms of s.68 Arbitration Act 1996.

Approaches

In Europe and the U.S., an award of interest is common place.  Asian countries such as China, Taiwan, India, and Korea generally allow interest where there is default in the payment of money.  Interest is no more than the price of money (if borrowed) or the opportunity cost of money (if not borrowed)[3]. Rates at which interest should be awarded on damages may be heavily influenced by contractual terms on interest. The parties will often have stipulated a rate of interest for the late payment of invoices under the contract: should the same rate be used for interest on awards of damages?  Although awards of interest are matters of discretion for the Arbitral Tribunal, it seems right in principle that if the parties have agreed the price of money, that rate should be applied or at least considered in any award of damages. Of course, there may be good reason why the rate of interest on late paid invoices is higher than might be the case for damages. The parties might know that the product being sold was financed under especially expensive borrowing facilities and that interest on damages might not need to be compensated at the same rate.  Alternatively, there could be a coercive effect in setting a high rate to encourage payment of invoices.  It is suggested, however, that in normal circumstances a contractual rate should be applied to any award of interest on damages.

Interest on What and from When

Interest is normally awarded on the entire amount awarded but care should be taken not to overcompensate a claimant by awarding interest on the entire amount from the date of breach[4]. For example, interest on lost profits might run from each of the relevant years of loss rather from the date of breach. Equally, interest should, in principle, not be awarded on tax on grossed up damages (the grossing up being necessary if the damges are taxable in the hands of the claimant).  The tax is not a loss to the claimant and the claimant will simply be obliged to account to the tax authorities upon receipt. Unless there is a liability to the tax authorities for interest, it should generally not be awarded on the tax element of the loss.

Simple or Compound?

The further issue is whether interest should be awarded on a simple or compound basis[5].  Again, if the point is dealt with elsewhere in the contract, the same principle might be applied to the award of damages.  If the issue is not covered elsewhere then, as ever, it is a matter of discretion for the Tribunal. The point was considered by the House of Lords in Sempra Metals Ltd v. Inland Revenue Commissioners[6].  The House held that the time had come to recognise that money had a value: the court had a common law jurisdiction to award interest, simple and compound, as damages on claims for the non-payment of debts as well as on other claims for breach of contract and in tort.  Furthermore, a Tribunal is entitled to take into account the prevailing commercial practice of borrowing and investing on a compound basis.

Margins

If no rate is mentioned in the contract, a margin over bank base rates is probably the right starting point. The base rates should be taken as those prevailing in the country where the aggrieved party has its main banking arrangements. The margin may depend on whether the aggrieved party is a net borrower or depositor. A net borrower might be better compensated by say a margin over base rates equivalent to the rate a comparable company would be expected to pay and likewise a net depositor the rate a similar company might command on its deposits. A rate of 1 or, perhaps, 2% over bank base rate might be appropriate.  Generally, the larger and wealthier an organisation the cheaper will be its borrowing costs and hence the lower the rate of interest it will be able to recover.  Equally, the larger and wealthier an organisation the more money it will have to invest / deposit and the more sophisticated its treasury function and hence the higher the rates of interest it will receive on deposits.

In England there is a useful statute for the victims of late payment: the Late Payment of Commercial Debts (Interest) Act 1988.  The Act prescribes interest that is not intended to be compensatory rather it is penal and aimed to act as a deterrent to late payment.  The Act applies to domestic transactions but also has limited international reach.  This is because s.12 provides that where parties to a contract with an international dimension have chosen English law to govern the contract, the choice of English law is not, of itself, sufficient to attract the application of the Act.  To do so there must be a “significant connection” between the contract and England or the contract must be one that would be governed by English law apart from the choice of law.  The application of the Act to international arbitration albeit seated in England was reviewed by Popplewell J in Martrade Shipping & Transport GmbH v United Enterprises Corportation[7]Popplewll J identified the sorts of factors that would amount to a significant connection are (a) where the place of performance of obligations under the contract is England; (b) one of the parties is English; (c) the parties carry on some relevant part of their business in England; and (d) the economic effect of non-payment may be felt in England.  A London arbitration clause alone is insufficient connection[8].

The Court held that although choice of London arbitratuon will generally be treated as a choice of English law under Article 3 of trhe Rome Convention, that choice was to be ignored for the purposes of s.12 due to words providing ‘but for that choice’.

Post – Award

Finally, it is appropriate to consider whether any and if so what interest should be awarded post-award. In principle, it would seem logical that nearly every award should carry interest post-award down to payment.  In some instances it may be difficult to conceive of circumstances that would make it appropriate to not award such interest. It is incumbent on the party claiming interest to seek such an award and for the arbitral tribunal to consider making an award in those terms. Failure to do so can create difficulties as any judgment entered so as to enforce the award can usually only be in the terms of the award.  For example, §66(2) of the 1996 Arbitration Act states “ . . . judgment may be entered in terms of the award.” If the award does not deal with post-award interest, there is nothing an enforcing court can do: Walker v Rome[9].  As Aikens J (as he then was) said in that case “Section 66 of the 1996 Act enables the court to embody an award made by the tribunal in a judgment of the court.  But it does not empower the court to add an extra judgment for post-award interest when the arbitrators have not made such an award … Any attempt by the court to add a judgment for interest would be an intervention by the court … and so would infringe the principle set out in s.1(c) of the 1996 Act.”

If an award does not provide for post-award interest and payment is not made promptly, it may be appropriate to enter judgment in the terms of the award; for judgments may, depending on the jurisdiction, carry interest—e.g., in England under the Judgments Act 1838 judgments carry interest at the rate of 8%[10] on a simple (non-compounded) basis.

The authorities on this area were reviewed by Flaux J in Sonatrach v Statoil[11]Flaux J observed that Aikens J had not overlooked the statutory interest in Walker v Rome for Aiken J had said a little earlier in the judgment: “If interest was payable at all after the date of the judgment, then it would be payable under the Judgments Act 1838 …”

Aikens J was to make the same point in Pirtek (UK) Ltd v Deanswood Ltd[12] in a case where the court held that an arbitrator had no jurisdiction to make an award on interest in respect of a previous award where no interest had been awarded.  He said: “ … the difficulty could have been avoided by a much earlier application to make the Award a judgment.  Judgment Act interest would then have run on the sum awarded.”

As the above cases demonstrate once judgment has been entered under s.66 (or s.101(2) in the case of a foreign New York Convention award) of the Arbitration Act 1996 that judgment has the same characteristics as any other judgment and carries interest accordingly: the obligation to honour the award merges into a judgment which carries interest: see Dalmia v National Bank[13] and Gater Assets Ltd v Nak Naftogaz (No. 2)[14].  In the latter case Beatson J (as he then was) said: “The essential difference is that the obligation to honour an award arises by virtue of the agreement of the parties, whereas in the case of a judgment it follows from the powers of the court.”

 


[1] [1974] 1 Lloyd’s Rep 394

[2] [2009] EWHC 977 (Comm).  As the judge described it “This was simply a howler which was sought to be corrected.”  The writer represented the award creditor.

[3] Care should, however, be taken not to over compensate by looking too closely at the opportunity cost.  For remoteness reasons a claimant should not usually be compensated for the actual use they might have put the money to i.e. it would have purchased stock that has significantly increased in value.  The normal measure will be lost interest that the funds would have attracted.

[4] In general terms interest should run from when payment was due in the case of debts and from when the loss was suffered in the case of damages.  In civil law systems (such as France, Germany and Switzerland) as it is not sufficient merely for the payer to be in breach and the innocent party must give notice of default for interest to accrue, it will generally run from the date of the notice.  Practice Guideline 13 of the Guidelines for Arbitrators on how to approach the making of awards on interest, suggests that a mid-point is taken when losses are suffered over a period.

[5] English law gives the tribunal discretion: Arbitration Act 1996 s49.  In contrast Swiss law provides that compound interest cannot be awarded (Swiss Code of Obligations Articles 105 and 314).

[6] [2007] 3 WLR 354.

[7] [2014] EWHC 1884 (Comm)

[8] The Court allowed an appeal against an award that granted interest under the Act.  The Court was plainly very conscious not to extend domestic policy to international parties and not to dissuade international parties from choosing English law and seat.

[9] [1999] 2 All ER (Comm) 961, [2000] 1 Lloyd’s Rep 116.

[10] A generous rate at the time of writing such that it may be beneficial NOT to seek post-award interest and rely upon this or similar provisions.

[11] [2014] EWHC 875 (Comm)

[12] [2005] EWHC 2301 (Comm); [2005] 2 Lloyd’s Rep 728

[13] [1978] 2 Lloyd’s Rep 223, 275

[14] [2008] EWHC 1108 (Comm); [2009] 1 ALL ER (Comm) 667

Due Process Challenge Fails

In Primera Maritime (Hellas) Limited v Jiangsu Eastern Heavy Industry Co Ltd [2013], the Court rejected a challenge under section 68(2)(d) of the Arbitration Act 1996.  The claimants alleged that the tribunal had failed to deal with all the issues put to it and that this failure amounted to serious irregularity.

The claimants had alleged that the defendants were in anticipatory breach of certain shipbuilding contracts because they had refused to perform the contracts and had renounced them. The tribunal found that the claimants had subsequently affirmed the contracts and that as a result the defendants were not liable for breach.

The claimants applied under section 68(2)(d) of the Act alleging that the tribunal had failed to consider the issues put before them by the claimants, namely: (i) that the renunciation by the defendants was continuous; and (ii) in relation to the quantum of the claimants’ claim, that the claimants could have “flipped” the contracts (sold them on at a profit to third parties).

In rejecting the challenge to the award, the Court provided guidance as to the serious irregularity challenge under section 68 of the Act.

A successful challenge under section 68 requires an applicant to demonstrate that there has been a serious irregularity affecting the tribunal, the proceedings or the award. A serious irregularity means an irregularity which falls within one of the closed list of categories in section 68(2) which has caused or will cause the applicant substantial injustice.

Section 68 was “only to cover extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.” The point of section 68 is not to examine whether the tribunal has “got it right” but whether there has been due process.

A challenge on the basis that the tribunal failed to “deal with all the issues that were put to it” may be pursued pursuant to sub-section 68(2)(d). The judge held that there were four questions for the court to consider in relation to section 68(2)(d):

  1. whether the relevant point or argument was an “issue” within the meaning of the sub-section;
  2. if so, whether the issue was “put” to the tribunal;
  3. if so, whether the tribunal failed to deal with it; and
  4. if so, whether that failure has caused or will cause substantial injustice.

Firstly, the judge doubted whether “continuing renunciation” and “repeated renunciation” had been submitted to the tribunal as separate issues. Even if “continuing renunciation” were a separate and narrower “issue”, this had clearly been dealt with by the tribunal. The conclusions reached by the tribunal were conclusions of fact that could not be reviewed by the court under section 68 or otherwise and the Court held that it was wrong in principle to look at the quality of the reasoning if the issue had been dealt with.

In relation to whether the claimants could have “flipped” the contracts, the Court found that this issue had been dealt with appropriately. The point was moot, given that the tribunal had found that the claimants had repudiated the contract in the first place. The judge found that even if there had been any point in dealing with the issue, the claimant would not have been able to demonstrate that the failure to deal with the issue had caused substantial injustice.

The increasing number of failed challenges to awards under section 68 of the Act has prompted changes to the Commercial Court Guide earlier this year. The sanction of indemnity cost consequences against a party bringing an unmeritorious challenge is now expressly mentioned.

Service of Arbitration Claim Form on Solicitors

In Cruz City 1 Mauritius Holdings v Unitech Ltd and Others [2013], the Court considered an application for an order requiring disclosure of assets worldwide and in the context confirmed the validity of the commercial court’s practice of permitting service of arbitration claims on solicitors within the jurisdiction where:

  • The underlying arbitration is seated within the jurisdiction (thereby engaging the court’s supervisory jurisdiction).
  • There is “good reason” for service to take place quicker than under the applicable service convention – the court will be satisfied in “the vast majority of cases” that good reason exists confirming the pro-arbitration policy of the English courts.

Therefore, it followed that the fact that arbitration enforcement proceedings and the application for disclosure had been served on the defendants’ solicitors in London, did not provide grounds for setting aside service.  The Court went on to hold that the court had jurisdiction to require disclosure of assets, even though the defendant was outside the jurisdiction and ordered such disclosure to be made.

The court has jurisdiction under section 37(1) of the Senior Courts Act 1981 (SCA) to order freezing injunctions, including ancillary orders requiring a defendant to disclose its assets worldwide. In Maclaine Watson & Co Ltd v International Tin Council (No 2) [1989] and The Naftilos [1995], it was held that such ancillary disclosure orders could be made even if no freezing injunction was ordered. Freezing injunctions may be granted in support of arbitral proceedings, including proceedings to enforce arbitral awards, pursuant to section 37(1) of the SCA or section 44 of the Arbitration Act 1996 (1996 Act).

In Masri v Consolidated Contractors International (UK) Ltd and others (No 4) [2008] , the House of Lords held that CPR 71 does not enable an order for examination to be made against an officer of a corporate judgment debtor who is outside the jurisdiction.

Service out of the jurisdiction by an alternative method may be ordered pursuant to CPR 6.15. However, this power will only be exceptionally exercised (Cecil v Bayat [2011] and Abela v Baardarani [2011]).  Nevertheless, in the arbitration context, the Commercial Court has generally allowed arbitration claim forms to be served within the jurisdiction on the solicitors representing the relevant party in the underlying arbitration.  This “invariable practice” was referred to in Kyrgyz Republic Ministry of Transport Department of Civil Aviation v Finrep GmbH [2006] and Joint Stock Asset Management Co Ingosstrakh-Investments v BNP Paribas [2012].

Criz City v Unitech concerned an LCIA arbitration seated in London, awards having been made against three defendants. Permission to enforce the awards was granted pursuant to section 66 of the 1996 Act . The arbitration claim form was stamped “not for service out of the jurisdiction” and was served, with the court’s permission, on the defendants’ solicitors in London. The claimant applied for a further order compelling the defendants to disclose their assets worldwide, pursuant to section 37 of the SCA. This further application was also served, with the court’s permission, on the defendants’ solicitors.

The defendants argued that:

  • There were no sufficiently exceptional circumstances justifying service on the defendants’ London solicitors and service should be set aside.
  • Masri precluded the court from ordering a foreign defendant to disclose its assets.

 The Court rejected the defendants’ arguments and granted the disclosure order noting that neither Cecil v Bayat or Abela was concerned with arbitration claims.  In Kyrgyz, Tomlinson J had commented that the Commercial Court’s “invariable practice” was to permit service of an arbitration claim form within the jurisdiction on the solicitors representing the defendant in the underlying arbitration.  The Court of Appeal had subsequently referred to this practice, without disapproval, in BNP Paribas.It followed that it was open to the Commercial Court to continue to implement its usual practice in respect of arbitration claims concerning arbitrations seated within the jurisdiction, as long as there is good reason for service to be achieved faster than it would be under the relevant service convention.

Furthermore, the fact that the current application was made pursuant to section 37 of the SCA did not prevent it from being an “arbitration claim” for these purposes. The claim was one “affecting arbitration proceedings” within the definition of an arbitration claim in CPR 62.2(1)(d). This conclusion was consistent with the overriding policy in favour of enforcement of arbitration awards.

Finally, the Court rejected an argument that the claimants ought to have applied for permission to serve the claim form out of the jurisdiction (rather than permission to serve on the defendants’ London solicitors). Where a claimant seeks an order for alternative service within the jurisdiction, it is unnecessary to apply for permission to serve out provided the court is informed that the proposed defendants are outside the jurisdiction.

In Masri, the issue was whether the court had jurisdiction to make an order under CPR 71.2 directing an individual non-party to attend court.  Here, by contrast, the order requested was not an order addressed to a non-party outside the jurisdiction but, rather, an order against defendants who are subject to the court’s jurisdiction.  There was nothing in the ratio of Masri that would prevent the court from making such orders pursuant to the SCA.

It followed that the court had jurisdiction to make the order for disclosure and, in light of the policy in favour of enforcement of arbitral awards, it would be just and convenient to do so.

Security Pending Challenge

In X v Y [2013] the Commercial Court has refused to order a payment into court pending a challenge to an arbitral award under sections 67 and 68 of the Arbitration Act 1996.

The award required X to pay substantial sums to Y.  Y applied for security for its costs of resisting the challenges and a payment into court of the sums awarded (under sections 70(6) and 70(7) respectively).

The Court made an order for security for costs, finding that there was a real risk that X’s assets were not readily available to satisfy any order for costs that may be made against it. However, it refused to order the payment in of the sums awarded, having regard to the following guidance:

A) When exercising the discretion under section 70(7) to order payment in respect of a challenge under section 67 (but not section 68), there is a threshold requirement that the challenge to the jurisdiction is flimsy or otherwise lacking in substance (A v B [2011]).

B) The jurisdiction conferred by section 70 should not be used to assist a party to enforce an award (Peterson Farms v C&M Farming [2003]).

C) The challenge to the award must prejudice the ability to enforce the award.

The threshold requirement derives from the fact that in the case of challenges under section 68 (serious irregularity) or section 69 (appeal on a point of law), the award has a presumptive validity unless and until set aside. By contrast, an award challenged under section 67 for lack of jurisdiction is not presumed to be valid, and the jurisdictional challenge is determined by way of a complete rehearing and is not limited to a review of the tribunal’s decision.

Y satisfied the threshold requirement. However, the challenges to the award did not materially prejudice Y’s ability to enforce it. Any delay in enforcement would end if and when Y defeated the challenges. An order for payment in was not required to curtail that delay, especially since Y had the protection of a freezing order against X in Australia, where X had substantial assets.

The decision neatly illustrates the court’s exercise of its discretion under section 70(7). It also highlights the different factors to be considered by the court when exercising its discretion under section 70(6), on the one hand, and section 70(7), on the other.

 

Incorporation of arbitration clauses 2

In Lisnave Estaleiros Navais SA v Chemikalien Seetransport GmbH [2013] the court set aside an arbitration award for lack of substantive jurisdiction: section 67(1)(a).

The claimant entered into an agreement with the defendant, under which the parties agreed commercial terms for repairs to the defendant’s fleet.  The agreement did not contain an arbitration agreement.  A dispute arose and the defendant referred a claim to arbitration.  The defendant’s case was that the arbitration agreement in the claimant’s general conditions was incorporated by reason of the parties’ prior dealing. Alternatively, it was the parties’ clear intention that the agreement was to be subject to an arbitration agreement.

The claimant’s general conditions contained a clause providing for arbitration, but also other dispute resolution provisions. Those general conditions were incorporated in individual ship repair contracts, the contracting parties being the claimant and the individual ship-owning companies (not the defendant).

By a majority award, the tribunal found that it had jurisdiction and that the agreement incorporated the general conditions.

The court set aside the award.  This was not a case of an informal contract followed by a more formal one, in which a set of terms had been incorporated.  Here, there was a formal detailed contract in which there was no reference to the general conditions.  Further, the defendants were not seeking to incorporate the general conditions as a whole, only the arbitration clause. The court should give priority to what the parties have expressly agreed and should not readily supplement such terms.   This is consistent with earlier authority (see Incorporation of arbitration clauses below on 15/7/2010)

New Brussels Regulation

On 6 December 2012, the Economic and Monetary Affairs Council adopted the recast of the Brussels Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (44/2001).  This follows the endorsement of the recast Regulation by the European Parliament on 20 November 2012.

The key points of the new Regulation, as far as the treatment of the arbitration exception is concerned, are:

  • The retention of the arbitration exception in article 1(2)(d) .
  • The addition of a recital (recital 12) that clarifies the extent of the arbitration exception, including by:
    • expressly preserving the right of member states’ courts to rule on issues such as the validity of arbitration agreements;
    • stating that a ruling of a member state court on the validity of an arbitration agreement should not be subject to the rules on recognition and enforcement of the Regulation;
    • confirming that the New York Convention takes precedence over the Regulation and that, therefore, member states’ courts may recognise and enforce arbitral awards even if they are inconsistent with a judgment of another member state court (for example, where a member state court has decided that the arbitration agreement is not valid and has gone on to give judgment on the merits); and
    • clarifying that the Regulation does not apply to any action or ancillary proceedings relating to, in particular, the establishment of the tribunal, the arbitrators’ powers, the conduct of the arbitration, nor any action or judgment concerning the review, appeal, recognition or enforcement of the award.
  • A new article 84(1)(a), expressly stating that the Regulation shall not affect the application of the New York Convention.

The recast Regulation will be published in the Official Journal in the coming weeks and enter into force 20 days later.  It will start applying two years after its entry into force.

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