Posts tagged: seat

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 !

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

The Law of the Agreement to Arbitrate

In Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd [2013] the Court was faced with a dispute in relation to an alleged contract for the sale and purchase of steel.

Negotiations for the contract had involved Habas, its agents, and VSC.  Various drafts of the contract had suggested different governing laws of the underlying contract and arbitration clause.  Habas argued that its agents had known that it would only accept Turkish law and Turkish arbitration and that the agents did not have actual authority to agree to any other arbitration clause.  However, following further negotiations between the agents andVSC, the final contract did not provide an express choice of law, but simply provided for ICC arbitration in London.

VSC commenced arbitration proceedings, claiming damages.  The arbitral tribunal found that Habas’s agents, had ostensible authority to conclude the contract and arbitration agreement. It consequently found that there was a binding London arbitration agreement and awardedVSC damages.  Habas made various applications, including a challenge the tribunal’s jurisdiction and its award, under section 67 of the Arbitration Act 1996.

Habas acknowledged that, where there was no express law governing the underlying contract, it was clear on authority that the applicable law of the arbitration agreement should be that of the seat.  However, it argued that, in this case, there was good reason for departing from that principle, because the agents had exceeded their actual authority by agreeing to the London arbitration clause and it was only because of this, that it was possible to say that the arbitration agreement had its closest connection with English law.  Habas argued that English private international law should determine the proper law of the arbitration agreement without reference to the London arbitration clause. On that basis, the proper law of the arbitration agreement was Turkish law, being the law with the closest connection to the underlying contract.

The Court concluded that, even if it was the case that there was no actual authority for the agents to agree the London arbitration clause, the applicable law of the arbitration agreement was English law.

On the assumption, as argued by Habas, that as there was no choice of the law of the underlying contract, the law of the underlying contract would be Turkish law, being the law with which the underlying contract was most closely connected.

Referring to the conclusions reached in Sulamerica [2012] and Arsanovia [2012], the terms of the arbitration clause may themselves connote an implied choice of law.  Referring to the decisions in Cie Tunisienne v Cie d’Armement [1971] and Egon Oldendorff v Liberia Corp [1996],  the terms of the arbitration clause may operate as an implied choice of law for the underlying agreement.

The Court concluded:

  • There is no logical link between the issue of authority and the issue of the law with which a contract has its closest connection.  Determining the latter question involves a consideration of the terms of the contract as made, rather than the authority with which it was made.
  • It is well established that validity is determined by the putative proper law of the contract.  Furthermore, there is no reason why that principle should be limited to issues of validity arising out of lack of actual authority.
  • Habas’s argument involved English law giving special treatment to actual authority for conflicts of laws purposes. As a matter of English law, actual authority is not a stronger or more effectual form of authority than ostensible authority. As between the principal and the third party, there is no difference between actual and ostensible authority.
  • Habas’s argument would potentially affect the validity of many contracts which would otherwise be valid and binding because the agent had ostensible authority as a matter of English law as the putative applicable law, and for reasons outside the knowledge and control of the third party and contrary to the representations made to him as to that authority.
  • The first question that should be asked is: what is the applicable law of the putative agreement? All other questions then follow.
  • There is authority on agency principles which states that, whether an agent has ostensible authority is a matter for the law of the putative contract, and that law “also governs apparent authority to subject a contract, whether directly or indirectly, to a particular system of law” (Bowstead and Reynolds on Agency (Sweet & Maxwell, 19th edition, 2010) at paragraph 12- 016).
  • There are a number of decisions in which ostensible authority has been treated as being governed by English law as the result of putative agreement to a clause in a contract, without any consideration of actual authority to agree that clause and notwithstanding that it was being alleged that there was no actual authority to enter into the contract.
  • There are authoritative decisions in which arguments similar to that advanced by Habas had been rejected. In The Parouth [1982] (followed by the Court of Appeal in The Atlantic Emperor [1989] ) the Court of Appeal rejected an argument that, where the issue between the parties was whether a contract was made, it would be wrong to allow the English arbitration clause to be a factor pointing towards English law and that it should be treated neutrally.

 The case adds to the principles cited in cases such as  Sulamerica and Arsanovia on how to determine the applicable law of an arbitration agreement, in the absence of any express choice.  It highlights, in particular, that the terms of the arbitration clause themselves may suggest an implied choice of law.

The Court also distinguished between the ability of an agent to bind a principal to a choice of law clause when acting outside actual authority, and the ability to bind the principal to a clause which might affect the implied choice of a system of law, such as an arbitration choice of seat clause.

Court Injunctions in Aid of Arbitration

In Doosan Babcock Ltd v Commercializidora de Equipos y Materiales Mabe [2013], the Court considered the scope of section 44(3) of the Arbitration Act 1996. Section 44(3) empowers the courts in cases of urgency to make an order for interim relief for the purpose of preserving evidence or assets.  Crucially “assets” include contractual rights or ‘choses in action’.

Babcock had made an application for an injunction restraining the Respondent (known as Mabe) from making demands for payment under two “on demand” performance guarantees, on the ground that Mabe had failed to issue certain certificates as required by the contract. The significance was that guarantees were stated to expire upon the issuance of the certificates.

Babcok argued that it was entitled to interim relief on the grounds that:

  • any demand under the performance guarantees would be a breach of the contract, as Mabe had wrongfully failed to issue the certificates: had the certificates been issued, the guarantees would have expired;
  • if Mabe was entitled to make demands under the guarantees, its position would not be significantly prejudiced by the grant of an injunction for a short period, as there was some time left until the long-stop expiry date;
  • on the other hand, Babcok could not be adequately compensated in damages for the loss it would suffer if its application was dismissed.

Section 44(3) provides that: “If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.

Cetelem SA v Roust Holdings [2005]  held that section 44(3) could be used to preserve a contractual right if the effect of any order made pursuant to section 44(3) was to preserve the value of that right. A contractual right was not preserved if a failure to give effect to it would destroy much or all of its value (as would occur if Mabe did not issue the certificates and then demanded payment under the performance guarantees), the case was one where the Court was empowered to grant an injunction under section 44(3) provided that the requirements of urgency and necessity were also met. These requirements were met, as there was sufficient evidence to suggest that Mabe intended to make demands under the performance guarantees.

Under English law, a court will not take action to prevent a bank from paying out on an “on demand” bond or guarantee unless material fraud is established at a final trial or there is clear evidence of fraud at an interim stage in proceedings. However, a court can grant an interim injunction restraining a beneficiary from making a demand under such a bond or guarantee.

In deciding whether to grant interim relief, the court will consider the criteria established in the case of American Cyanamid Co v Ethicon Ltd [1975]; but the applicant must show that it has a “strong case” that, under the terms of the underlying contract to which the bond relates, the beneficiary is not entitled to make a demand on the bond. The Court made an order restraining Mabe from making demands under the performance guarantees for a defined period.

This is an example of applying established principles but it is an interesting case nevertheless.  The power under s44(3) is a useful one especially as, in appropriate cases, the Court can grant an interim injunction that, in effect, amounts to the final relief that a tribunal would be asked to adjudicate upon.  Cetelem makes clear that provided the injunction is a genuine interim injunction and court ensures, by obtaining appropriate undertakings from the claimant, that the substantive rights of the parties would ultimately be resolved by arbitration such an injunction may be granted.

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.

Law of the Arbitration Agreement

In Sulamerica v Enesa Engenharia [2012] , the Court of Appeal was asked to determine the law applicable to an arbitration agreement contained in two insurance policies. Whilst the law of the insurance policies was Brazilian, the Court confirmed that the law of the arbitration clause is legally distinct from the contract of which it forms a part. On the facts, the Court upheld the High Court’s decision that the law of the seat of the arbitration (which was English law) should apply in this case and set out a test by which to ascertain the relevant law.

Background

The case involved two policies relating to the construction of a hydroelectric generating plant in Brazil. The insured, Enesa, submitted a claim under the policies for physical damage and consequential losses. The insurer, Sulamerica, denied liability under the policies and commenced arbitration proceedings seeking declarations of non-liability and that a material alteration had occurred. The policies provided for arbitration in London.

In response, Enesa commenced proceedings in the Brazilian courts pursuant to the exclusive jurisdiction clause  contained in the policies. Sulamerica sought an interim anti-suit injunction in the English Commercial Court to restrain Enesa from pursuing the Brazilian proceedings in view of the arbitration afoot.

In the anti-suit proceedings, Enesa submitted that the parties had impliedly chosen the law of Brazil as the law governing the arbitration agreement. They relied, in particular, on the facts that the Policy was expressly subject to Brazilian law and the exclusive jurisdiction of Brazilian courts; and that the parties, location of risk and events in question were all Brazilian. In response, Sulamerica argued that the law with which the arbitration agreement has its closest and most real connection was that of England, because the arbitration clause provides that the seat of the arbitration is to be London, England.

First Instance Decision

At first instance, Mr Justice Cooke agreed with Sulamerica that the law of the seat (the law of England) should apply to the arbitration agreement. In so doing, he adopted a ‘closest connection’ test, namely “if there is no express or implied choice of law, the arbitration agreement will be governed by the law with which the agreement has its closest and most real connection“. He determined that the choice of supervisory jurisdiction as England was the deciding factor in this case.

Court of Appeal Decision

The Court of Appeal upheld the Judge. However, the Court provided a more sophisticated analysis and recognised that the closest connection will not always be to the law of the seat. The Court’s two pronged approach was that (1) one cannot assume that the proper law of the arbitration agreement will follow the law of the contract; and (2) that there should be a “three-stage enquiry” into (i) express choice; (ii) implied choice and (iii) closest and most real connection, in that order (albeit (ii) and (iii) would often be hard to separate). Contrary to the decision of the Judge, the Court accepted that, in the absence of other factors, the implied law of the arbitration agreement will often be the same as the law of the substantive contract.

Here, the Court first determined that there was no implied choice of Brazilian law. The two key factors were the choice of another country as the seat of the arbitration (which imported an acceptance that the law of that country relating to the conduct and supervision of arbitrations will apply to proceedings); but also the fact that, under Brazilian law, the agreement to arbitrate would be enforceable only with Enesa’s consent, which tended to undermine the arbitration agreement. The Court then turned to limb (iii) of its test and determined that the law of England had the closest and most real connection with the arbitration agreement in light of the fact that the arbitration was to be held in England and that the English Courts would exercise supporting and supervisory jurisdiction.

As regards the mediation provisions within the policies, the Court of Appeal concurred with the Judge that these did not give rise to a binding obligation to mediate (and so there was no requirement to comply with the mediation clause in order to be permitted to commence arbitration). It was noted that the relevant condition did not set out any defined mediation process, nor did it refer to the procedure of a specific mediation provider.

Finally, the Court of Appeal agreed with the Judge that the scope of the arbitration clause included determinations as to liability. The insured had argued that the words “shall fail to agree as to the amount to be paid” in the arbitration clause meant that the clause applied only to quantum disputes. The Court of Appeal disagreed and noted that it would be unusual for parties to establish separate procedures for determining what in many cases would be different aspects of the same dispute. He had no difficulty in holding that a dispute as to whether there was any liability to pay anything at all fell within the above wording.

Comment

Although the Court of Appeal has provided clearer guidance as to the law which will apply to the arbitration agreement in the absence of express agreement, the case underlines the importance of making an express determination. In particular, it is important to note that an arbitration agreement is a separate agreement to the underlying insurance policy. A policy that provides that a particular law will apply to the policy does not, without more, make the arbitration agreement within the policy subject to that same law.  

Whilst the result is welcome the refusal of the Court of Appeal to give definitive guidance as to how to resolve the “rather unsatisfactory tension” between the approach in cases such as Sumitomo Heavy Industries v Oil and Natural Gas Commission [1994] where it was held that the choice of law to govern the substantive contract will usually be decisive in determining the proper law of the arbitration agreement and CvD  [2007] where it was held that the the choice to arbitrate in London carried with it a choice of English law.  The Court of Appeal said that whichever was the correct approach they led to the same conclusion on the facts ands hence it was unnecessary to decide between them.  Given the desirability of certainty (which the Court recognised) the failure to give definitive guidance is disappointing and either a venture to the Supreme Court or another trip in a different case to the Court of Appeal will be required to bring the required certainty.

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’).

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