Posts tagged: ICC

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.

English Court refuses to enforce ICC Award

One of the key attractions of international arbitration is the relative ease of enforcement by reason of the New York Convention (“NYC”). Furthermore, the ICC prides itself on the enforceability of its awards.  As Steyn J (as he then was) said in Bank Mellat v GAA Development Co [1988]: “it is regarded as the first imperative of the ICC system that the awards under it should be enforceable … The system of scrutiny of awards by the Court contributes to the enforceability of ICC awards.” That the English Court of Appeal declined to enforce an ICC award therefore raises, at the very least, an eyebrow.

The case was Dallah v Ministry of Religious Affairs, Government of Pakistan [2009].  The Court had to consider s.103 Arbitration Act 1996 that closely follows Article V of the NYC and which is in the following terms:

“(1) Recognition or enforcement of a [NYC] award shall not be refused except in the following  cases. (2) Recognition or enforcement of the award may be refused if the person against whom it is  invoked proves … (b) that the arbitration agreement was not valid …”

The court decided the following points:

Firstly, the interrelationship of the courts of the supervisory jurisdiction (here France) and those of the enforcing country – the court held that s.103 was only brought into play where the award was made in a seat of another jurisdiction.  In that context the right to try and ‘prove’ something involves a right to adduce evidence and the court was not constrained to merely to review the tribunal’s award.  The court had, in this context the same rights as the courts of the supervisory jurisdiction.

Secondly, whether the Government of Pakistan was a party to the relevant agreement and agreement to arbitrate was in issue.  The judge had found that the subjective intention of all parties was that the Government was not to be a party having applied French law.  The appeal court agreed.  The tribunal had applied transnational laws to reach a different conclusion

Thirdly, it was argued that the Government was estopped from denying that it was a party as the tribunal was a court of competent jurisdiction that had ruled on the matter and the Government had not challenged that in the courts of the seat.  The tribunal represented a court of competent jurisdiction if, and only if, the parties agreed to confer jurisdiction upon it.  As the Government had not agreed to be a party, no estoppel could arise.  The absence of challenge was not fatal as the very purpose of Article V of the NYC was to preserve the right to challenge enforcement on the grounds of fundamental validity and integrity.

Finally, the court held that as a matter of discretion (noting that enforcement may be refused) it would normally be the proper exercise of discretion not to enforce an award once it was found that the entity against whom enforcement was sought was not a party to the arbitration agreement.  There was a general requirement to enforce subject to specific defences.  The court said that it was difficult to contemplate a more complete defence than the absence of consent to arbitrate.  The court approved the statement in Kanoria v Guinness [2006]:

“ … the limited circumstances in which an English court can be persuaded to refuse  enforcement of a [NYC] award concern … the structural integrity of the arbitration proceedings.  If the structural integrity is fundamentally unsound, the court is unlikely to make a discretionary  decision in favour of enforcing the award.”

The Consequences of, and Tactics in respect of, a Failure to Pay an ICC Advance on Costs

The not uncommon problem of a party not paying an advance (a deposit) to the ICC[1] has been considered by the English High Court in BDMS Ltd v Rafael Advanced Defence Systems[2] – much the same analysis would probably apply to many other arbitral institutions.[3]

Decisions of ICC tribunals reflect differences in opinion as to whether the requirement to make an advance on costs under the ICC Rules gives rise to a contractual obligation owed to the other party, or merely a procedural obligation owed to the ICC court. The opposing views are summarised in the ASA Bulletin 2/2006 at pages 290 – 301:

“… [The] contractual approach … [is] based on two elements: (i) that … ICC Rules (or similar provision[s] in other arbitral rules) gives rise to reciprocal contractual obligation between the parties to pay the advance on costs because the contractual term was made part of the arbitration agreement by reference to the relevant rules; and (ii) that a dispute with respect to this obligation falls within the scope of the arbitration agreementThe contractual approach has been followed by what seems to be the majority of arbitral and court decisions on the subject and has been endorsed by most authors. The proponents of this approach consider the non-payment of the advance on costs a breach of a contractual obligation giving rise to a substantive claim … W.L. Craig, W.W. Park and J. Paulsson stated in this respect: ‘…Starting from the view that the matter in dispute is one of substance on which the arbitral tribunal is called upon to render a definitive decision in the form of a partial award.  There is, however, another way to look at this problem. According to the so called interim measure approach, the issue is one of procedure rather than substance.  The advocates of this approach emphasise that any decision by an arbitral tribunal ordering a party to pay an advance on costs is a procedural decision of administrative nature and is therefore not subject to review by state courts … the ICC Rules make the administration of all financial aspects, including in particular the advance on costs, the exclusive responsibility of the ICC Court … The arbitral tribunal is only competent to decide which of the parties shall bear the costs of the arbitration … and in what proportion … the agreement to submit a dispute to ICC arbitration also entrusted all questions of the advance on costs to the ICC Court.  Similarly, it is argued that Article 30(3) … only aims to define the relationships between the parties and the ICC Court, not the reciprocal relationships between the parties.

The generally accepted way of dealing with a party’s failure to pay a deposit is for the claimant (for it is invariably the respondent who fails to pay) to pay the respondent’s share and to invite the tribunal to make an interim or partial award that the respondent reimburse the claimant and then to enforce the award accordingly.[4]

The non-standard route that arose in BDMS is to seek to treat the respondent’s failure to pay as a repudiatory breach of the arbitration agreement, accept that repudiatory breach, consider the arbitration agreement as at an end and sue in a court.

That position (or its reverse) had been considered in at least three earlier court decisions.  The first was the English case of Paczy v Haendler[5] where the claimant argued on the basis of impecuniosity that the respondent should pay the entire advance and in default he could proceed in court.  The Court of Appeal had little difficulty in rejecting jurisdiction and described the claimant’s argument as a “fantastic assertion”.

The second was from the French Cour de Cassation, Societé TRH Graphic v Offset Aubin[6] where the court accepted jurisdiction where the claimant had declined to pay the respondent’s share of the advance on costs. The respondent, it held, had “paralysed the arbitration” by its dilatory attitude.  It is perhaps significant that the respondent had not supplied any explanation for its default

The third decision was a Canadian decision, Resin Systems Inc. v Industrial Service & Machine Inc[7] the court refused to grant a stay of court proceedings, finding that a refusal to pay an advance on costs under the ICC Rules rendered the arbitration unworkable and thereby inoperative: the respondent “is not entitled to rely on its own breach of the Arbitration Rules … [the claimant] is not obliged to pay the costs of [the respondent] and is entitled, under the Rules, to allow the claims made in the arbitration to be deemed withdrawn … the refusal to pay the costs makes the arbitration unworkable, and thereby inoperative, as there is no obligation on the other party to fund the defaulting party’s share.”  The Resin decision has been the subject of academic comment.[8]

The references to inoperative (or incapable of being performed) are a reference to Article 8 of the Model Law, enacted in England by s.9 Arbitration Act 1996:

“(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter…

 (4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”

In BDMS a dispute arose in relation to sums allegedly due to BDMS by Rafael under a consultancy agreement. The agreement contained an arbitration clause providing for arbitration in London under the 1998 ICC Rules.  BDMS commenced arbitration and, after the appointment of the sole arbitrator, the ICC fixed an advance on costs.

Rafael expressed concerns about BDMS’s ability to meet an adverse costs award and notified BDMS that it intended to make an application for security for its costs. It stated that it would not pay the advance until adequate security had been put in place – but made it clear that the advance would be paid once adequate security was provided.  A date was set for the application for security for costs and in the meantime, the ICC wrote to the parties granting the claimant a fixed period, to substitute the balance of Rafael’s share and granted the parties a final 15 days to make payment, failing which the claims would be considered withdrawn.

Before the expiry of the time to provide the advance BDMS wrote to Rafael purporting to accept Rafael’s failure to pay its share of the advance on costs as a repudiatory[9] breach of the arbitration agreement and stated that BDMS would now pursue its claim in court.  Furthermore, BDMS wrote to Rafael stating that the claim was now withdrawn by operation of Article 30(4) and that the tribunal no longer had jurisdiction to make any determination of Rafael’s security for costs application.

BDMS argued payment of the advance on costs was a condition precedent, under Article 30 of the 1998 Rules, for the arbitration taking place: if payment was not made, the proceedings would be withdrawn. BDMS argued that, therefore, Rafael’s refusal to pay its share of the advance on costs amounted to a repudiatory breach of the arbitration agreement, which “paralysed” the arbitration proceedings and caused the withdrawal of the claims and hence was sufficiently fundamental to constitute a repudiatory breach of the arbitration agreement. It further contended that the repudiatory breach rendered the arbitration agreement “inoperative” for the purposes of s.9(4) of the 1996 Act, thereby enabling BDMS to bring its claim through the courts.

Rafael applied to the court seeking an order that the court had no jurisdiction to hear the claim and that the claim be stayed under s.9 of the 1996 Act.  Applying orthodox, albeit relatively recent, jurisprudence,[10] the burden of proof rested with BDMS to show that the arbitration agreement was inoperative or incapable of being performed.

The court granted the stay, concluding that although the failure to pay the advance did amount to a breach of the arbitration agreement, although the breach was not a repudiatory one, nor was the arbitration agreement rendered inoperative.

The judge addressed the issues under four headings.

  • Whether there was a breach of the arbitration agreement

The judge considered the different views expressed in ICC commentaries (as summarised above) as to whether the requirement that an advance on costs be paid under Article 30(3) of the ICC Rules gave rise to a contractual or merely a procedural obligation. He concluded that, as a matter of English law, the Article 30(3) requirement was a contractual one, an approach which was consistent with the Resin case, the contractual agreement to arbitrate under the 1998 Rules and the mandatory terms in which Article 30(3) is expressed: “the parties would, as a matter of contract, comply with mandatory requirements imposed on the parties under the Rules.”[11]  He noted that an arbitral tribunal can order the defaulting party to pay the advance, either by means of an interim award or measure.  Also any unpaid portion of the advance may be paid by posting a bank guarantee under Appendix II, Article 1.6 of the 1998 Rules.

  • Whether the breach was repudiatory

Although the court in Resin did not consider the issue of repudiatory breach, its reasoning was relevant to the issue.  If the refusal to pay rendered the arbitration unworkable, then if the refusal was a breach of contract and it may well have been repudiatory.  Having referred to various commentaries and the TRH Graphic decision, the judge accepted that there was a clear and unequivocal refusal by the defendant to pay its share of the costs. This was a continuing breach so there was no question of affirmation.

When the respondent / defendant refused to pay there were a number of possible outcomes:

  • The security for costs application could have been heard before there was any possibility of withdrawal. Had the tribunal ruled in the defendant / respondent’s favour and security may have been provided by the claimant, whereupon as the defendant had made it clear, that the advance would be paid.
  • The advance on costs issue could have been dealt with at a preliminary issue hearing, as the tribunal had ordered.
  • The claimant could have simply paid the defendant’s share.
  • The claimant could have objected against withdrawal of the claims to the ICC court potentially keeping the reference alive whilst the security for costs issue was resolved.

However, none of these scenarios had materialised. Nevertheless, the judge concluded that the breach was not repudiatory for the following reasons:

  • This was not a case where the respondent / defendant was refusing to participate in the arbitration. Indeed, it was actively participating. It had actively participated, for example, by settling the terms of reference: “Its refusal to ‘play by the rules’ was limited to the issue of payment of the advance … a matter which was to be addressed at the forthcoming preliminary issue hearing.  Further, the refusal was not absolute, but was a refusal to pay unless security for costs was provided.”
  • The breach did not deprive the claimant of its right to arbitration. It was open to the claimant at all times to pay or post a bank guarantee for the respondent / defendant’s share and seek an interim award or an order that the advance be paid by the defendant. In any event it could have sought such an order in the final award, or objected against withdrawal to the ICC Court.
  • The rules provide means whereby the arbitration could have proceeded and the withdrawal of the claims avoided.
  • For a breach to go to the root of the contract, it is generally necessary to show that the innocent party has been deprived of substantially the whole benefit of the contract.  It was difficult to see how the claimant was so deprived when he had the means to prevent that occurring and to seek recourse.
  • It had to be proved that the arbitration agreement was repudiated, not merely the particular arbitration reference. If a claim is deemed withdrawn as a result of non-payment of the advance on costs, there is no restriction on the same claim being brought to arbitration in the future (Article 30(4)). Future arbitration of the same claim is expressly contemplated so that the consequences as to arbitrability do not necessarily attach to the consequences of a failure to pay the advance on costs.

Finally, it is worth noting a failed attempt to argue for repudiation in another case (not considered by the court in BDMS).  In Elektrim SA v Vivendi Universal SA[12] it was argued that the deliberate concealment of a document and / or perjured evidence was a repudiatory breach.  The court rejected the submission on the evidence and on the basis that there was no implied term in the terms contended for.  Nevertheless, the court was apparently willing to accept that there could be a repudiatory breach with the attendant consequences in the appropriate case.

  • Whether the arbitration agreement was “inoperative”

Although the judge was prepared to assume, without deciding the issue, that an arbitration agreement may be inoperative even if there has been no accepted repudiation of the arbitration agreement, in this case he held that that was not the case. His reasons for finding that the breach did not go to the root of the contract (i.e was not repudiatory) applied equally to his reasons for finding that the arbitration agreement was not made unworkable and thereby inoperative.

  • Whether a stay is to be granted under section 9

Rafael argued that the time to assess whether the arbitration agreement was inoperative was when the proceedings were commenced and at that time, there was no alleged repudiatory breach. However, the judge held that the arbitration agreement did not need to be inoperative at the time of commencement of the proceedings.  If the court is satisfied on the evidence before it at the hearing (or at some stage after the proceedings had been commenced) that the arbitration agreement has become irrevocably inoperative, then the court should give effect to that conclusion, regardless of the position at the start of the arbitration proceedings.

The judge indicated that if, contrary to his conclusion, the arbitration had been repudiated he would have refused a stay.  This must be a logically correct, if the arbitration agreement is repudiated (and accepted) then there is no agreement to refer disputes to arbitration and the appropriate national court will have jurisdiction and hence the court proceedings (assuming they were commenced in the correct national court) should be allowed to continue.

Conclusions

The tactical approach of not paying an advance on costs (for it is invariably tactical rather than genuine impecuniosity – claimants are rarely well advised to pursue impecunious respondents) can be frustrated by a tactical response of a claimant paying or posting a guarantee and seeking interim measures and / or an interim or partial award.  The position is straightforward where there are mandatory obligations to pay an advance or deposit.  Rules that are coached in terms of a request need to be approached with care as the result may well be different.

The tactical ploy will inevitably cause delay in the arbitration proceedings and incur costs, the solution is clear and robust actions by the claimant and the arbitral tribunal.  Certainly in matters subject to English law the position is clear where there is incorporation of institutional rules with mandatory payments of advances.  There should be very few cases where default should be tolerated or debated: rather it should be dealt with summarily and robustly.

It is, however, also clear that there can be situations where a respondent will be in repudiatory breach.  These will probably be situations where respondents simply do not engage at all in the arbitral process.  This appears to be the position in TRH Graphic and the judge in BDMS was at pains to emphasise that Rafael had engaged in the arbitral process save for the payment of the advance.  The judge may also have been influenced by the fact that Rafael was wholly owned by the Israeli government and hence its ability to pay was, presumably, not questioned.  So a defaulting respondent might wish to demonstrate that it is defaulting on principled grounds, such as seeking security and that it would be well able to pay the advance if the impediment to providing the security were removed.  Conversely, respondents run significant risks if they refuse to pay an advance and refuse to engage in the arbitral process.  Their actions may well amount to repudiation permitting a claimant recourse to national courts.



[1] Article 30 of the 1998 Rules (equivalent to Article 36 in the 2012 Rules) provides that:”…(3) The advance on costs fixed by the Court shall be payable in equal shares by the Claimant and the Respondent. Any provisional advance paid on the basis of Article 30(1) will be considered as a partial payment thereof. However, any party shall be free to pay the whole of the advance on costs in respect of the principal claim or the counterclaim should the other party fail to pay its share. When the Court has set separate advances on costs in accordance with Article 30(2), each of the parties shall pay the advance on costs corresponding to its claims. (4) When a request for an advance on costs has not been complied with, and after consultation with the Arbitral Tribunal, the Secretary General may direct the Arbitral Tribunal to suspend its work and set a time limit, which must be not less than 15 days, on the expiry of which the relevant claims, or counterclaims, shall be considered as withdrawn. Should the party in question wish to object to this measure, it must make a request within the aforementioned period for the matter to be decided by the Court. Such party shall not be prevented, on the ground of such withdrawal, from reintroducing the same claims or counterclaims at a later date in another proceeding.”

[2]  [2014] EWHC 451 (Comm)

[3] Although see the discussion at footnote 11 of the mandatory provisions of the ICC Rules that are not replicated in all Rules.

[4] Note that this is expressly contemplated by the LCIA Rules: Article 24.4 (or 24.5 in the 2014 draft).

[5] [1981] Lloyd’s LR 302

[6] Cour de Cassation, 19 November 1991, 1992 REV.ARB 462

[7] [2008] ABCA 104

[8] Eamon and Holub, “See you in court! Respondents’ failure to pay the advance on arbitration costs” (2009) Int. ALR 168; James E. Redmond, “Party’s refusal to pay advance on costs rendered arbitration ‘inoperative’ pp 38-39 IBA Legal Practice Division Arbitration Newsletter March 2009; Jonette Watson Hamilton, International Commercial Arbitration, Too Costly Private Justice? University of Calgary Faculty of Law Blog on Developments in Alberta Law.  The Eamon and Holub article is supportive of the Resin decision, the other two more critical: e.g. Redmond: “… it appears questionable that the arbitration agreement could be properly described as inoperative or incapable of being performed.  Under ICC Rules, steps remained open to resolve the problem …

[9] Under English law, for a breach to be repudiatory, it must be shown that the party in breach: has clearly and unequivocally evinced an intention not to perform its obligations under the arbitration agreement in some essential respect, or, has committed a breach of the arbitration agreement which went to the root of the contract. The agreement is brought to an end by promptly accepting the repudiatory conduct.

[10] Joint Stock Company ‘Aeroflot-Russian Airlines’ v Berezovsky [2013] 2 Lloyd’s Rep 242 at [74] and Golden Ocean Group Ltd v Humpuss Intermoda Transportasi Tbk Ltd [2013] EWHC 1290 (Comm)

[11] It may be material that the ICC Rules use mandatory language for the payment of deposits: “The advance on costs fixed by the Court … shall be payable in equal shares …” (Art. 36.2) (emphasis added).  Similar mandatory language of payment is to be found in the SIAC Rules (Art. 30.2).  The LCIA Rules (Art. 24 – there is no material change in the 2014 draft) provide that the LCIA Court “direct” the parties to pay deposits and the decisions of the Court are binding (Art.29).  Conversely, the HKIAC (Art. 40), ICDR (Art.33) and Swiss (Art. 41) Rules merely provide for requests to be made of the parties albeit with the sanction of suspension or termination for non-payment.  The difference in language may well be material.  Under English law the obvious place to seek to ‘beef up’ the request to some form of obligation is s.40 which imposes on the parties an obligation to “do all things necessary for the proper and expeditious conduct of the arbitral proceedings.”  It is, however, clear that s.40 is a statutory duty and not the source of an implied term: Elektrim SA v Vivendi Universal SA [2007] EWHC 11 (Comm).  The remedies for breach of s.40 are contained in the Act in ss. 41 and 42 (pre-award) and s.68 (post-award).  It follows from s.40 being a statutory rather than a contractual duty that a breach cannot amount to a repudiatory breach.  As implied terms generally have to be necessary it is difficult to conceive of a necessary implied term of the agreement to arbitrate when there is an existing statutory duty in near identical terms.

[12] [2007] EWHC 11 (Comm)

I am pleased to announce the ‘birth’ of the Guide to the IBA Rules

I am pleased to announce the ‘birth’ of  “The IBA Rules on Taking Evidence in International Arbitration – A Guide”.  The Guide reproduces the Rules and the Commentary by the IBA Committee and I have added my own thoughts on how practitioners and arbitral tribunals might approach issues that arise from the Rules.

The IBA Rules are commonly used in international commercial arbitration (and investor – state arbitrations) and yet there are few guides to their use and interpretation.  I trust my thoughts benefit the discussion of their application.

The book is available from the publishers, Cambridge University Press, at http://www.cambridge.org/gb/knowledge/isbn/item6969277/?site_locale=en_GB (and other good bookshops!)

 

 

Tribunal alleged not to have considered issues

In the absence of any right of appeal awards are increasingly challenged on the basis of serious irregularity, under section 68 of the Arbitration Act 1996.  In order to challenge an award under section 68, the irregularity has to be one which has caused or will cause substantial injustice to the applicant, and the irregularity has to be of a certain kind.  These are set out in section 68(2), and include:

  • Failure by the arbitrator to comply with the general duties under section 33 of the 1996 Act.
  • Failure to deal with all the issues that were put to the arbitrator.

Section 33 provides that the tribunal is under a duty to act fairly and impartially as between the parties.  The tribunal must give each party a reasonable opportunity to put its case and to respond to its opponent’s case.

In Arduina Holdings BV v Celtic Resources Holdings plc, [2006] the court considered the extent to which a tribunal may have failed to properly evaluate evidence as a basis for a complaint under section 68:

“The assertion that the arbitrator failed to take any or proper consider (sic) of the evidence could in an exceptional case, give rise to a challenge under section 68, based on the general duty of an arbitrator under section 33 if, for example, an arbitrator genuinely overlooked evidence that really mattered, or got the wrong end of the stick in misunderstanding it.  But there is all the difference in the world between such cases and an arbitrator evaluating evidence but reaching factual conclusions on it (as will happen in most arbitrations) which one party does not like.  That cannot be the basis of a complaint under section 68.”

If it is not clear from the award whether or not the tribunal has dealt with an essential issue, the parties and the court should not have to guess whether the tribunal has failed to deal with it, or considered it and dismissed it on the grounds that it was totally devoid of merit as not worth mentioning.  The award should inform whether or not an essential issue has been dealt with.  However, the presence or absence of merit may be relevant to the question of whether substantial injustice has been caused to the applicant (Buyuk Camlica Shipping Trading & Industry Co Inc v Progress Bulk Carriers Ltd [2010] ).

In Petrochemical Industries Company (KSC) v The Dow Chemical Company [2012]  a dispute arose as to whether the claimant (PIC) had failed to enter into a joint venture with Dow. PIC had been obliged to pay US$7.5 billion for a 50% interest in certain assets of Dow.  The dispute arose because shortly before the parties entered into contract, Dow had agreed to purchase another business and Dow asserted that it had intended to use the sums payable by PIC towards the acquisition of that business and that following PIC’s failure to pay, Dow was forced to re-finance the acquisition, and suffered losses as a consequence.

The dispute was referred to ICC arbitration and the tribunal issued a partial award.  The tribunal found that PIC was in breach of contract in failing to pay US$7.5 billion.  It also held that Dow had established that it was entitled to damages for consequential losses of just over US$2 million.

PIC challenged the award on the basis that the tribunal had not dealt with PIC’s argument that it was not enough for Dow to show that the loss was one which the parties had contemplated: Dow also had to show that PIC had assumed responsibility for that loss (the assumption of responsibility issue).

The question of whether there was a serious irregularity within sub-section 68(2)(d) raised three specific questions:

  • Whether the assumption of responsibility question was an “issue” within the meaning of that sub-section.
  • If so, whether it was “put to” the tribunal.
  • Whether the tribunal failed to “deal with” it.

The Court referred to the distinction drawn in the authorities between “issues” on the one hand, and matters often referred to as “arguments”, “points”, “lines of reasoning” or “steps” in an argument. The decisions demonstrate a consistent concern to maintain the “high threshold” that has been said to be required for establishing a serious irregularity, and this concern has sometimes been emphasised by references to “essential”, “key” or “crucial” issues.  However, these adjectives were not intended to import a definitional gloss on the wording in section 68, but simply to allude to the requirement that the serious irregularity must result in substantial injustice.

The Court said it would not attempt the “impossible task” of defining what is an “issue”, but he rejected three “suggested yardsticks” put forward in the authorities, which rely, to a certain extent, on the formulation of issues in the “list of issues” in the arbitration.  The question should be approached by considering the ordinary and natural meaning of the word “issue”, and accepted PIC’s submission that the assumption of responsibility question was an issue within the meaning of section 68(2)(d).  Although it could be difficult to decide where the line demarking issues from arguments falls, on the facts, almost the whole of Dow’s claim could have depended upon how the assumption of responsibility question was resolved.

On the question of whether that issue was “put to” the tribunal, PIC had put the issue about assumption of responsibility to the tribunal in its second pre-hearing memorial, which contained a sub-section headed “PIC did not assume responsibility for Dow’s losses”.  The Court rejected Dow’s argument that PIC had withdrawn or qualified the issue, either through its list of issues or closing remarks made by counsel.

As regards the question of whether the tribunal had dealt with the issue under section 68(2)(d), the authorities show that:

  • This depends upon a consideration of the award.
  • The tribunal does not have to set out every step by which they reach their conclusion, or deal with every point made by the parties.
  • The tribunal does not fail to deal with an issue that it decides without giving reasons.

The Court  identified the following further considerations:

  • A tribunal does not fail to deal with issues if it does not answer every question that qualifies as an “issue”. It can deal with an issue by making clear that it does not arise in view of its decisions on the facts or their legal conclusions. Moreover, a tribunal may deal with an issue by deciding a logically anterior point in such a way that the issue does not arise.
  • A tribunal is not required to deal with each issue seriatim: it can sometimes deal with a number of issues in a composite disposal of them.
  • The court’s approach when considering an award is to read it in a “reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it” (Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd, (1985)).
  • This approach may involve taking account of the parties’ submissions when deciding whether, properly understood, an award deals with an issue. Although submissions do not dictate how a tribunal is to structure the disposal of a dispute, awards (like judgments) often do respond to the parties’ submissions and should not be interpreted in a vacuum.

The Court concluded that the tribunal dealt with the issue, admittedly succinctly.  To the extent that the tribunal may have conflated the forseeability question and the assumption of responsibility question, PIC could not complain about the composite disposal of these questions, provided they were both dealt with (which they were).

Accordingly, it was not necessary to decide whether substantial justice would be caused.  Nevertheless, the Court commented that no single test for deciding whether substantial injustice has been, or will be, caused had been found.  Moreover, to the extent that the relevant part of the award was directed to the issue, but fell short of dealing with it, then no substantial injustice was or would be caused.

If the matter was “free from authority” the Court would not regard a tribunal as being in breach of the duty in section 33(1)(a) or (b) if it overlooked evidence, genuinely or otherwise and would have interpreted that section as being concerned with the even-handed conduct of the arbitral proceedings, and not with mistakes in evaluating the evidence by oversight or otherwise.  However, the authorities indicated that the tribunal’s failure to properly consider the evidence could, in exceptional cases, give rise to a challenge under section 68, based on the general duty of an arbitrator under section 33 (Arduina).

LCIA fees increase

 

The LCIA fees increased with effect from 1 July 2012. The LCIA administration fee  increased from £1,500 to £1,750 and the maximum hourly rate that arbitrators appointed by the LCIA may charge (other than in exceptional cases) increased from £400 to £450. The registration fee for the LCIA to act as appointing authority is £1,250.

The LCIA fees continue to give greater transparency than, say, the ICC.  The latter continue to have a value based remuneration paid in stages which can result in a generous fee for the tribunal if matters settle before substantial work is undertaken.

Discriminatory Choice of Arbitrators 2

The decision of the Court of Appeal (see post of 20 July) in Jivraj has generated considerable debate within the arbitration community. In particular, there is widespread concern that the decision applies to arbitration agreements which place restrictions on the nationality of individuals who may be appointed as arbitrators. This includes agreements which incorporate institutional rules, such as the ICC and LCIA Rules, that contain nationality provisions.  Both are seeking to intervene in the appeal.

Both parties applied for permission to appeal to the Supreme Court, with the ICC and LCIA intervening in support of the permission application.  The Supreme Court has recognised the importance of the issues in this case and given permission to appeal. The outcome will provide much needed clarity and certainty for the international business community.

The Appeal is expected to be heard in the second half of 2011.

ICC Statistics show London and English law are alive and well

In 2009, a record 817 new cases were filed with the ICC, bringing the total number of ongoing cases at the end of the year to 1,461. English law was the most popular choice of law (14. 3% of contracts) followed by Swiss law. London was the second most popular place of arbitration behind Paris and selected 73 times although Paris has an in-built advantage over all over seats as if an arbitration clause stipulates ICC arbitration without stating a seat, the ICC (based in Paris) treats it as if Paris were expressly named.

 British arbitrators continued to rank highly with just over 15 % of all arbitrators being of British nationality, close behind the Swiss in terms of popularity. This underlines the importance of the UK, and London in particular, as a place of arbitration and of the quality of British arbitrators.

 The 2009 Statistical Report also reveals that in total 57 arbitrators were challenged in 34 cases under Article 11(1) (‘lack of independence or otherwise’).

WordPress Themes