Recent Developments in India-Related International Arbitration

Herbert Smith Freehills has issued the latest edition of its Indian international arbitration e-bulletin

In this issue, we consider Indian court decisions, including the rejection of forum non conveniens arguments by the Delhi High Court allowing restaurant chain McDonalds to pursue an arbitration in London and various decisions in which the Indian courts show restraint in relation to interfering with offshore arbitrations. In other news, we consider India's position in seeking to re-negotiate its Bilateral Investment Treaties with 47 countries. Further, we discuss the recently launched Mumbai Centre for International Arbitration to which HSF partner Nick Peacock has been appointed to the Council.

For further information, please contact Nicholas Peacock, Head of India Arbitration Practice, Alastair Henderson, Managing Partner-SE Asia, Donny Surtani, Senior Associate, Kritika Venugopal, Associate or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
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Alastair Henderson
Alastair Henderson
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Donny Surtani
Donny Surtani
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Kritika Venugopal
Kritika Venugopal
Associate
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English court declines execution against state-owned property on grounds of immunity

In L R Avionics Technologies Limited v. The Federal Republic of Nigeria, Attorney General of the Federation of Nigeria [2016] EWHC 1761 (Comm), the English High Court has set aside a charging order enforcing an arbitral award and related foreign judgment made against the Federal Republic of Nigeria ("Nigeria"). The charging order had been issued over a property owned by Nigeria but leased to a private company to process Nigerian visa and passport applications. In reaching its decision, the Court followed recent case law on the circumstances in which it can be said that property is “in use or intended for use for commercial purposes” pursuant to section 13(4) of the State Immunity Act 1978 (“SIA“).

1. ​Background

The claimant, LR Avionics Technologies Ltd. (the "Claimant"), had entered into a contract with Nigeria for the supply of military equipment. The contract was governed by Nigerian law and provided for arbitration in Nigeria under domestic law. Following a dispute, an award was issued for damages and costs to the Claimant (without interest) (the "Award"). Following enforcement proceedings in Nigeria, the Federal High Court of Nigeria entered judgment in terms of the Award and also ordered the defendants to pay interest (the "Nigerian Judgment").

Nigeria did not comply with the Award or the Nigerian Judgment. As a consequence, the Claimant commenced proceedings in the UK to register the Award under s.101 of the Arbitration Act 1996, and the Nigerian Judgment under s.9 of the Administration of Justice Act 1920 (the "Administration of Justice Act").

The Claimant applied to the Court for an interim, and then a final, charging order against freehold office premises (the "Property") owned by Nigeria but leased to a company called Online Integrated Solutions Ltd ("OIS") for the purpose of providing visa and passport services in exchange for an annual rent of £150,000. Nigeria was served (albeit with some irregularities), but did not participate in the proceedings. Once the final charging order was obtained, the Claimant sought an order for sale of the property. At this stage Nigeria issued an application to discharge or set aside the final charging order, arguing that the Property was exempt from execution on the basis of state immunity.

2. The Decision

The Court identified three main "issues of substance" in connection with the question of whether the Property was immune from execution under the SIA. First, could the Award be enforced; second, could the Nigerian Judgment be enforced; and third, in the event that enforcement of the Award or Nigerian Judgment was permitted, was the Property being used for "commercial purposes" such that state immunity would not apply under s.13(4) of the SIA and a charging order could be made against it. The court also considered whether the Property formed part of the Nigerian diplomatic mission.

2.1 The scope of the "arbitration exception" under s.9 of the SIA

Under s.9 of the SIA, where a State has agreed in writing to submit disputes to arbitration, "the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration".  The Court disposed of the first issue quickly by following established case law, to the effect that proceedings "which relate to the arbitration" include those for the recognition and enforcement of an award (Svenska Petroleum Exploration AB v. Government of the Republic of Lithuania [2006] EWCA Civ 1529 and NML Capital Ltd. v. Republic of Argentina [2011] UKSC 11). Accordingly, the Claimant was entitled to register the Award for recognition and enforcement.

2.2 Enforcement of the Nigerian Judgment

It remained material to determine this question because the Nigerian Judgment included interest, whereas the Award did not. English courts have considerable discretion under the Administration of Justice Act in relation to the enforcement of foreign judgments, and must consider whether enforcement of a foreign judgement would be "just and convenient". The Court accepted the Claimant's submission that the Nigerian Judgment was simply the conversion of an arbitral award into a judgment under a foreign statutory provision similar to s.66 of the Arbitration Act 1996. Accordingly, the Court held that these proceedings were all part of the process of enforcement of an award, and that its discretion should therefore be exercised in favour of enforcement of the judgment, for the same reasons as set out in Svenska and NML Capital.

2.3 Use of the Property for "commercial purposes"

However, the Court decided in favour of Nigeria on the third issue. Its decision turned on whether the Property was immune from execution, or whether the Property was "for the time being in use or intended for use for commercial purposes", such that the exception from immunity contained in s.13(4) of the SIA applied.

During the proceedings and pursuant to s.13(5) of the SIA, the Nigerian High Commissioner issued a certificate stating that the Property was "in use for Consular activities" and not for commercial purposes, which had the effect under the SIA of shifting the burden to the Claimant to prove the contrary.

The Claimant presented seven arguments in an attempt to demonstrate that the Property was being used for "commercial purposes". These included use of the Property by OIS, a private company, against payment of rent, OIS' partnerships with other national diplomatic missions, and the Property's availability (at one point in time) as a property which was available to rent on the open market. The Claimant submitted that OIS was therefore an agent which was operating on a commercial basis, and that this would satisfy the "commercial purposes" requirement under s.13(4) of the SIA.

The Court held that while OIS' operations would constitute a "typical commercial activity" from OIS' point of view, the Property was "being used for a consular activity" when viewed from the Nigerian High Commission's perspective. Noting the decision of the UK Supreme Court in SerVaas Incorporated, the Court observed that "the primary consideration must be the nature or character of the relevant activity". Although the Property may be connected with a commercial transaction (the contract for the supply of services by OIS to Nigeria), but the purpose for which it was in use was the provision of visa and passport services. This provision of consular services would constitute performance of a public function "regardless of whether that function is carried out by the defendant state itself or…an agent". Accordingly, the Court ruled that the Claimant had not discharged the burden upon it of proving that the Property was in use for commercial purposes, and set aside the charging order.

3. Comment

This case provides a useful illustration of the broad scope of the arbitration exception under the English law of sovereign immunity. It upholds the consistent line of case law that immunity will not apply to defeat enforcement proceedings in relation to an arbitral award, and also clarifies that the Court will likely exercise its discretion in favour of enforcing foreign judgments that have been entered in the terms of an arbitral award.

However, the case also highlights that recognition and enforcement of an arbitral award can be a pyrrhic victory if that Award cannot also be executed against that State's property. Notwithstanding the numerous links in this case between the Property and the private sector, the Court was clear that the Property ultimately was in use for public, consular, purposes, and should enjoy immunity.  

Here, the court continued the line of case law begun in Servaas Incorporated by interpreting the "commercial purposes" exception narrowly, thus demonstrating the difficulties associated with executing arbitral awards and court judgments against state-owned property. The Claimant's inability to proceed with execution in this case therefore highlights the importance of including a well-drafted waiver of state immunity in contracts which involve state parties to ensure that a clear written waiver for execution against State property is included, removing the need to rely upon the "commercial purposes" exception.

For further information, please contact Andrew Cannon, Partner, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
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Vanessa Naish
Vanessa Naish
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Filed under Awards, Enforcement, Public International Law, Sovereign Immunity

Angola becomes 157th Contracting State to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Angola has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Its ratification was endorsed domestically via resolution No. 38/2016, published in the Official Gazette of Angola on 12 August 2016. Under Article XII(2) of the New York Convention, the ratification will take effect on the 90th day after deposit by Angola of its instrument of ratification with the Secretary-General of the United Nations.

Angola has one of the world’s fastest growing economies and in 2015 was reported by the US State Department to be sub-Saharan Africa’s second largest oil exporter. Ratification of the New York Convention represents a further step by Angola in fostering and promoting a stable investment climate. It follows the ratification of the Private Investment Law in August 2015, the main purpose of which was to simplify the procedure for national and foreign investment and to provide tax and other incentives.

The Angolan Arbitration Law (Law 16/2003 of 25 July) (the Arbitration Law) is largely based on the old Portuguese Arbitration Law (Law 31/1986 of 29 August) and bears considerable similarity to the UNCITRAL Model Law. The Arbitration Law provides for domestic and international arbitration.

The ratification of the New York Convention will provide reassurance for parties investing or intending to invest in Angola that they can resolve their Angola-related disputes by means of arbitration seated outside Angola, and that arbitral awards made in relation to such disputes should be recognised and enforced in Angola.  Precisely how the Convention obligations will be implemented of course remains to be seen over the coming months, including in the context of the application of the Arbitration Law to those obligations, and the practical commercial and judicial acceptance of arbitration as a method of resolving disputes going forward.

Foreign investors should also continue to consider the application of the Private Investment Law in relation to arbitration. The Private Investment Law permits the arbitration of disputes that arise from investment contracts between the Angolan state (represented by the direct or indirect administration body to which authority is delegated) and the private investor (Article 46(3)). However, if arbitration is chosen as the form of dispute resolution for such investment contracts, it must take place in Angola, and the law applicable to the substance of the contract and the proceedings must be Angolan (Article 46(4)). 

Herbert Smith Freehills launches the second edition of its ground-breaking Guide to Dispute Resolution in Africa in September 2016. The Guide covers all 54 of Africa's diverse jurisdictions.

For further information, please contact Peter Leon, Partner, Andrew Cannon, Partner, or Hannah Ambrose, Professional Support Consultant or your usual Herbert Smith Freehills contact.

Peter Leon
Peter Leon
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Andrew Cannon
Andrew Cannon
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Hannah Ambrose
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Filed under Africa, Enforcement, New York Convention, Uncategorized

International arbitration internship (Hong Kong): applications now open

Herbert Smith Freehills is accepting applications for short-term internships with the firm’s international arbitration group in Hong Kong. Three paid internship positions are open for three to four months each (not extendable), beginning in or around January, May and September 2017.

Interns will work alongside our Greater China international arbitration team. They will have a varied workload, including assisting with current arbitrations and other client work; arbitration-related research; writing papers and journal articles; producing arbitration-related internal know-how, and similar projects. 

For more details please refer to the HSF Careers page (click “apply now” and search Hong Kong openings):

http://herbertsmithfreehills.com/careers/china/graduates/apply-now/international-opportunities/tabs/asia-international-arbitration-internship

Applications must be submitted online via the HSF Careers page on or before 2 September 2016.

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Agreeing to Arbitrate in the UAE: “Apparent Authority” and Article 25 of the UAE Commercial Companies law

It has long been believed that an arbitration clause in a contract could not be enforced against a UAE company unless the person signing the contract had specific authority to bind the company to arbitration, and not simply authority to enter into the contract. In Ginette PJSC and (1) Geary Middle East FZE and (2) Geary Limited, however, the DIFC Courts held that an arbitral award should be recognised and enforced notwithstanding that the individual who signed the arbitration agreement (which was contained in a settlement agreement) on behalf of an Award Debtor did not have express authority to bind the Company to arbitration. 

The Award Debtor, Ginette PJSC (the “Company”), sought to set aside the DIFC-LCIA arbitral award on the basis that Article 103 of Federal Law No. 8 of 1984 (the “Old UAE Companies Law”) provided that a private joint stock company could only be authorised to enter into an arbitration agreement if the power had been granted to the individual in the company’s articles of association or if authority was given by way of a shareholder resolution or a power of attorney. Although the Company’s articles of association granted its board of directors the authority to enter into arbitration agreements, the Executive Managing Director, who signed the settlement agreement on behalf of the Company was not, it claimed, a member of the board. The Company argued that the DIFC Court should set aside the award under Article 41(2)(a)(i) of DIFC Law No. 1 of 2008 (the “DIFC Arbitration Law”) because the arbitration agreement was not valid under the law.  Continue reading

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Filed under Arbitration clauses, Awards, DIFC, Middle East

Multi-tiered dispute resolution clauses in construction contracts: watch out for potential pitfalls

In this article, Elizabeth Kantor and Philip Parrott consider the reasons why parties may wish to include multi-tiered dispute resolution clauses in their construction contracts and warn of common pitfalls which can cause the unwary party to become embroiled in time-consuming and costly procedural battles.

This article was first published in Construction Law on 9 August 2016.

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Filed under ADR, Arbitration clauses, Construction

English court grants retroactive extension of time to enable arbitral process opportunity to “correct itself”

In a further example of the pro-arbitration exercise of pragmatism, in (1) Xstrata Coal Queensland Pty Ltd (2) Sumisho Coal Australia Pty Ltd (3) Itochu Coal Resources Australia Pty Ltd (4) ICRA OC Pty Ltd v Benxi Iron & Steel (Group) International Economic & Trading Co Ltd [2016] EWHC 2022 (Comm), the English High Court has granted an application under s79 of the English Arbitration Act 1996 (the "Act") to extend the time-limit within which a party could apply to the Tribunal under Article 27 of the LCIA Rules 1998 to correct an ambiguity relating to the identity of one of the Claimants.

Whilst the exercise of the Court's discretion has been helpful to the Claimants, the case is a reminder in transactions with related contracts and multiple parties to ensure that the parties are clearly and correctly defined and the parties bringing claims are those properly entitled to do so, either by virtue of being signatory to the arbitration agreement or by otherwise being able to benefit from it.

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Filed under Arbitration rules, Court intervention, Uncategorized

US Court of Appeals for the Second Circuit upholds decision of Southern District Court and confirms arbitral award against Pemex that was set aside at its seat

The US Court of Appeals for the Second Circuit (the Court of Appeals) has upheld the decision of District Judge Hellerstein in Corporación Mexicana de Mantenimiento Integral, S. De R.L de C.V v. Pemex-Exploración y Producción, No. 10 Civ. 206 (AKH), 2013 WL 4517225, (S.D.N.Y. Aug. 27, 2013), confirming an arbitration award in favour of COMISSA and against PEMEX. The award was affirmed and enforced even though it had been set aside by a court at the seat of arbitration in Mexico. In the opinion of the US Court of Appeals, Judge Dennis Jacobs, joined by Judge Raggi, found that to hold otherwise would be contrary to US public policy and "repugnant to fundamental notions of what is decent and just in this country."

The opinion is interesting for the Court of Appeals' careful consideration of the case's "truly unusual procedural history" and its relevance when considering the grounds for refusing to enforce an arbitral award under the Panama Convention (textually identical to Article V of the New York Convention). It is also interesting to consider this decision in light of the reasoning and rationale being adopted by other national courts which have also grappled with applications to enforce awards set aside at their seat.

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Filed under Enforcement, New York Convention, Panama Convention, The Americas

Challenges to an LCIA award on grounds of serious irregularity and substantive jurisdiction dismissed by the English Court

In C v D [2016] EWHC 1893 (Comm), the Commercial Court (the Court) dismissed an attempt to set aside an LCIA Award.  The claimants brought challenges to a partial award on the grounds of substantive jurisdiction (s67 of the Arbitration Act 1996 (AA 1996)) and serious irregularity (s68 AA 1996).  Both challenges were squarely rejected by the Court.  Click here for a copy of the judgment.

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Filed under Arbitration Act 1996, Challenges to awards, Europe

Staying above the fray: Singapore High Court sets aside arbitral award on basis of breach of natural justice

In JVL Agro Industries Ltd v Agritrade International Pte Ltd, the Singapore High Court set aside an arbitral award on the grounds that the tribunal, in deciding the case on the basis of an issue which the defendant had not advanced, had failed to grant the claimant a fair hearing.

The decision is significant insofar as it demonstrates that whilst the grounds on which a court may set aside an award in Singapore are narrow in scope, it will not hesitate to act when the circumstances justify doing so.

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Filed under Arbitration laws, Asia, Challenges to awards, South East Asia