On 31 December 2014, the China International Economic and Trade Arbitration Commission (CIETAC) and the China Council for the Promotion of International Trade (China Chamber of International Commerce) (CCPIT) published announcements declaring to “restructure” the CIETAC Shanghai and South China/Shenzhen sub-commissions. Â The announcements will likely put an end to the controversy and uncertainty regarding arbitration clauses that subject disputes to these two sub-commissions following CIETAC’s split in 2012. Continue reading
In the recent decision Transgrain Shipping BV v Deiulemar Shipping SpA (in liq) & Eleni Shipping Ltd  EWHC 4202 (Comm), the English Commercial Court refused an application under s 67 of the Arbitration Act 1996 to set aside an award on the grounds that the arbitrators lacked jurisdiction.
In determining the question of jurisdiction, the Court needed to decide which of two conflicting arbitration clauses in the agreement governed dispute resolution between the parties.
It considered the general principles of contract construction in the case of inconsistent terms, examining the intention of the parties as evident from the terms of the agreement and relevant factual matrix. The Court focused on the common ground between the clauses, and concluded that the arbitration clause which gave most effect to their objective intentions and in this case the “industry standard” was to be preferred.
The AdvocateÂ General Wathelet (the AG) has delivered his much awaited Opinion in the reference to the Court of Justice of the European Union (CJEU) by the Lithuanian Supreme Court in the case of Gazprom (C-536/13). The Lithuanian Court referred to the CJEU three questions pertaining to the effect of the Brussels I Regulation (EC) No 44/2001 (the Regulation). The Regulation determines the member state courts’ jurisdiction and excludes arbitration from its scope. However, the exception has gradually been eroded by the CJEU in decisions such as West Tankers.
The Reference in the present case related to a request to enforce an arbitral award which has a similar effect to an anti-suit injunction and has therefore been of considerable interest to the arbitration community. The background to the reference is more fully explained in our blog post [here]. In his Opinion, AG Wathelet also considered in detail the effect of the Recast Brussels I Regulation (the Recast Regulation), which comes into force on 10 January 2015. This opinion is the first that considers its terms, and, if adopted by the CJEU, would set down a marker for the interpretation of the arbitration exception within the Recast Regulation, with the effect that an anti-suit injunction issued by an arbitral tribunal would be recognisable and enforceable by member state courts.
AG Wathelet concluded that:
- the Regulation does not require the court of a member state to refuse to recognise and enforce an anti-suit injunction issued by an arbitral tribunal; and
- the fact that an award contains an anti-suit injunction is not a sufficient ground for refusing to recognise and enforce it on the basis of Article V(2)(b) of the 1958 Convention because the Regulation is not a matter of public policy.
The Opinion holds great interest for its discussion of the implications of the Recast Regulation (even though it was the current Regulation that was in issue). In the AG’s view, the Recast Regulation aims to correct the boundary which the ECJ (now the CJEU) had traced between the application of the Regulation and arbitration in the West Tankers (Case C-185/07). The decision in West Tankers was seen by many as signifying the death of the anti-suit injunction in Europe. In the AG’s view, it is clear from its legislative history that the Recast Regulation seeks to reinstate the position in which the consideration of the validity of an arbitration agreement as an incidental question falls outside the scope of the Recast Regulation.
The AG also opined on what it means for a court to be seised on the question of the validity of an arbitration agreement in the context of the Recast Regulation. He noted that while a court may be seised on the incidental question of validity of an arbitration agreement, this falls outside the scope of the Recast Regulation. A court is not seised on the substance of the dispute (proceedings which do fall within the scope of the Recast Regulation), until it has decided the issue of the validity of the arbitration agreement.
AG Wathelet also observed that an anti-suit injunction issued by an arbitral tribunal could not be considered in the same way as that issued by a member state court.
Whilst it remains to be seen whether the AG’s opinion will be adopted by the CJEU, his interpretation of the effects of Recital 12 of the Recast Regulation offers hope that a party will be able to protect an arbitration agreement by virtue of an anti-suit injunction, even when parallel proceedings are threatened or brought within the EU.
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In this short podcast, senior professional support lawyers Hannah Ambrose and Vanessa Naish look at some of the issues surrounding the drafting of arbitration clauses for complex transactions, and provide insight into how to draft consolidation and joinder provisions to ensure that your dispute resolution clauseÂ is both effective and efficient. Continue reading
In Schindler Lifts (Hong Kong) Ltd v Sui Chong Construction and Engineering Co Ltd  HKEC 1967, the Hong Kong District Court ordered stay of an action pending referral of the dispute to arbitration, despite the defendant having filed a defence in Hong Kong Small Claims Tribunal proceedings, which were later discontinued. Continue reading
This year there have been several important cases in the international arbitration space in Australia, as well as the introduction of new arbitral and court rules, and significant developments in relation to investment treaty arbitration for Australian investors. Continue reading
One year on since the International Swaps and Derivatives Association (“ISDA“) published its 2013 Arbitration Guide, the ISDA Arbitration Committee recently met in London to discuss the reception to the Guide, and to consider any proposals for amendment or expansion.
The Guide was published in September 2013 following an extensive consultation process involving all levels of ISDA’s global membership. Along with an overview of arbitration, the Guide contains model arbitration clauses for use with the ISDA 2002 Master Agreement and the ISDA 1992 Master Agreement (Multicurrency â€“ Cross Border), the market leading standard form agreements for documenting over-the-counter derivatives transactions. The model clauses are designed to be included in the Schedule to new Master Agreements, but are also readily adaptable for use when amending an existing Master Agreement to provide for arbitration.
Herbert Smith Freehills has been involved throughoutÂ the consultation process andÂ attended the Arbitration Committee meeting on 1 December 2014. It was clear from participants at the meeting that the publication of the Guide was received positively by both market practitioners and arbitration specialists, and that it remains of interest to a wide audience. This reception is consistent with the growing appeal of arbitration in the derivatives markets (and the broader financial services sector) over the past four years, a sector that has traditionally favoured English or New York court jurisdiction. A fair amount of anecdotal use of the Guide has also been reported, particularly within emerging markets, although there are no hard statistics on the uptake to date.
Proposals for amendments to the Guide focussed on providing more bespoke information on arbitrationÂ specifically tailored to the derivatives market, including:
- a greater emphasis on the prospects for parties to protect derivatives investments though investment arbitration, in view of the decision in Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka (ICSID Case No. ARB/09/2) which found that a hedging agreement qualified as an ‘investment’ for the purposes of the Germany-Sri Lanka bilateral investment treaty and the ICSID Convention;
- addressing the derivatives market’s apparent desire to appeal awards within the arbitration process, mentioning, for example, the AAA-ICDR’s optional appellate rules;
- further explanation of optional arbitration clauses;
- further explanation of the different urgency measures available under the various arbitral rules, including the option to appoint an emergency arbitrator, where applicable; and
- explanation of the differences between arbitral institutions in terms of the specialisation of arbitrators available for appointment under their rules.
The Arbitration Committee also considered suggestions from ISDA Members to extend further the current suite of arbitration clauses offered in the Guide, including the use of Frankfurt, Stockholm or the Dubai International Finance Centre as seats.
The Guide already provides for a number of different combinations of arbitral rules/institution and seats of arbitration, reflecting the preferences of ISDA Members during the previous consultation process, including the ICC Rules (London, New York or Paris seat), LCIA Rules (London seat), AAA-ICDR Rules (New York seat), HKIAC Rules (Hong Kong seat), SIAC Rules (Singapore seat), Swiss Chambersâ€™ Arbitration Institution Rules (Zurich or Geneva seat), and PRIME Finance Rules (London, New York or The Hague seat).
ISDA is committed to keeping the Guide, including the current combinations of rules and seats, under review, and is open to receiving further input from ISDA Members in this regard.
To discuss ISDA’s Arbitration Guide or use of arbitration in financial markets contracts, please contact Nicholas Peacock, Partner, Dominic Kennelly, Associate, Emily Blanshard, Associate, or your usual Herbert Smith Freehills contact.
+44 20 7466 2833
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English Court of Appeal considers whether the mandatory stay provisions of s9(1) of the Arbitration Act of 1996 apply to winding-up petitions
The English Court of Appeal dismissed an appeal brought against a recent High Court decision to stay a winding-up petition in favour of arbitration proceedings, in Salford Estates (No. 2) Limited v Altomart Limited  EWCA 575 Civ.
Agreements to arbitrate are generally strictly enforced under s9(1) Arbitration Act 1996. This provision enables a party to an arbitration agreement, against whom legal proceedings in the High Court or county court are being brought (whether by way of claim or counterclaim), to apply to the court to stay the proceedings where they relate to a matter which was to be referred to arbitration under the agreement. The Court of Appeal recently clarified in Salford Estates (No. 2) Limited v Altomart Limited that the mandatory stay provisions of s9(1) do not apply to winding-up petitions brought on the basis that a company is unable to pay its debts where what is in dispute is whether the company is unable to pay its debts.
Facts and Decision
Salford Estates (No. 2) Limited (“Salford“) entered into an underlease with Altomart Limited (“Altomart“) on 29 April 1974 (the “Lease“), for the use of commercial premises in a shopping centre in Salford. Altomart, the lessee, was under an obligation to pay an annual service charge to Salford, and a portion of the insurance premium on the property. The Lease contained a broad arbitration agreement which provided that “any dispute or difference” arising out of or in connection with the Lease would be referred to arbitration.
A dispute subsequently arose between the parties regarding the scope of Altomart’s obligation to pay the service charge and the insurance rent under the Lease, which was referred to arbitration in accordance with the terms of the Lease. The final arbitral award rendered in November 2013 established the fixed amount of arrears owed by Altomart to Salford from 1 April 2010 to 31 March 2013. When Altomart did not immediately pay the sums due, Salford threatened to issue winding-up proceedings unless Altomart paid not only the fixed amount of arrears set out in the award, but also further sums it claimed were due under the contract for the year ending on 31 March 2014 by 31 January 2014. Altomart sent a cheque to Salford for the fixed sum it owed under the award on 31 January. However, acting on its threats, Salford presented a winding-up petition on the same day before the cheque arrived, on the grounds that Altomart was unable to pay its debts as they fell due (ss122(1) and 123(1)(e) of the Insolvency Act 1986).
Altomart applied to strike out or stay the petition on several grounds, including that part of the debt was subject to a genuine dispute as Altomart considered it was being overcharged. Accordingly, it argued that proceedings should be stayed pursuant to s9 of the Arbitration Act for the disputed debt to be referred to arbitration. The High Court judge granted the stay on the basis that, even if he did not consider that there was a bona fide and substantial dispute regarding the alleged debt, the mere raising of a defence or of a dispute was sufficient to bring the arbitration provisions into play, and therefore trigger the stay provisions of s9 of the Arbitration Act (following Rusant Ltd v Traxys Far East Ltd  EWHC 4083 (Comm) and Halki Shipping Corp v Sopex Oils Ltd  1 W.L.R. 726).
Salford appealed against the order staying the winding-up petition, arguing that a winding-up petition based on an unpaid debt should not be stayed in favour of arbitration proceedings, unless the debt is bona fide disputed on substantial grounds. The appeal was dismissed.
Departing from the High Court judgment, the Court of Appeal held that the mandatory stay provisions in s9(1) of the Arbitration Act do not apply to winding-up petitions brought on the basis that a company is unable to pay its debts where what is in dispute is whether the company is, in fact, unable to pay its debts, or more specifically, whether there is outstanding and due a particular debt mentioned in the petition. Attention was drawn to the fact that, in contrast with the wording of s9(1) (“whether by way of claim or counterclaim“), the winding-up petition was not a claim for the payment of a debt, even if the making of a winding-up order might result in the right to payment of the debts mentioned.
However, it was noted that s122(1) of the Insolvency Act of 1986 confers on the court a discretionary power to wind up a company. The Court of Appeal considered that such discretion should be exercised consistently with the legislative policy embodied in the Arbitration Act. It held that, in the circumstances, it would not be appropriate for the companies’ court to conduct a summary judgment type analysis of liability for an un-admitted debt on which the petition was grounded, when both parties had agreed contractually to refer any matters relating to the debt to arbitration. The parties should be compelled to resolve their dispute over the debt by their chosen method of dispute resolution. For courts to exercise their discretion otherwise would inevitably lead to parties with a payment dispute bypassing arbitration agreements and the provisions of the Arbitration Act by presenting winding-up petitions. This would encourage creditors to apply pressure on alleged debtors to pay debts immediately under the threat of liquidation.
This recent judgment may seem to mark a departure from previous case law, by emphasizing that the mandatory stay provisions in s9(1) of the Arbitration Act are not necessarily triggered where winding-up petitions are brought for the non-payment of debts. However, the ruling indicates that, in practice, where the debts forming the basis of the winding-up petitions are disputed and fall within the scope of matters the parties agreed to refer to arbitration, then the courts will nonetheless exercise their discretion to stay or dismiss the petition.
For further information, please contact Nicholas Peacock, Partner, Maguelonne de Brugiere, Associate, or your usual Herbert Smith Freehills contact.
Maguelonne de BrugiereAssociate
+44 20 7466 7488
Singapore International Mediation Centre is launched, offering parties an “Arb-Med-Arb” process in partnership with SIAC
The Singapore International Mediation Centre (SIMC) was officially launched on 5 November 2014. Set up following the recommendations of a Working Group chaired by Edwin Glasgow CBE QC and George Lim SC, the SIMC will supplement the array of international dispute resolution options available in Singapore. In particular, the SIMC will work closely with the Singapore International Arbitration Centre (SIAC) to promote mediation within international arbitration through a new ‘Arb-Med-Arb’ protocol (“AMA Protocol“). Â
Key features and procedure of the Arb-Med-Arb Protocol
The new model AMA Protocol allows a party to commence arbitration under the auspices of the SIAC, and then proceed to mediation under the SIMC. In practice, parties will, as they would in a regular arbitration, commence proceedings under the AMA Protocol by filing with the Registrar of the SIAC a Notice of Arbitration. The Registrar of the SIAC will inform SIMC of the arbitration within four working days from its commencement (or, if parties had not adopted the AMA Protocol at the outset, from the agreement of the parties to refer to their dispute to mediation under the AMA Protocol). After the filing of the Response to the Notice of Arbitration, and the subsequent constitution of the Tribunal, the Tribunal will stay the arbitration for mediation at SIMC. Upon receipt of the case file from the SIAC, the SIMC will fix a date for the commencement of mediation at SIMC (“Mediation Commencement Date“), which will be conducted under the SIMC Mediation Rules. Unless the Registrar of SIAC in consultation with the SIMC extends the time, the mediation shall be completed within eight weeks of the Mediation Commencement Date.
Under the AMA Protocol, the arbitrator(s) and the mediator(s) will be separately and independently appointed by SIAC and SIMC respectively, under the applicable arbitration rules and mediation rules of eac-h Centre. To ensure impartiality of both processes, the arbitrator(s) and mediator(s) will usually be different individuals, unless otherwise agreed by the parties. This represents a departure from the traditional understanding in Asia of the arb-med process in which arbitration and mediation proceedings are conducted by the same person.
It is also worth noting that all mediations conducted under the rules and auspices of the SIMC (which would include mediations under the AMA Protocol) are private, confidential, and without prejudice, unless otherwise agreed by the parties.
If the mediation is successful, the settlement is taken back to the tribunal to be recorded in the form of a consent award. A consent award is generally accepted as an arbitral award and, subject to any local legislation and/or requirements, is generally enforceable in the approximately 150 New York Convention member states. The non-justiciable elements of any mediated settlement (for example, settled disputes that fall outside the scope of the arbitration agreement and hence the tribunalâ€™s jurisdiction) would need to be recorded in a separate settlement agreement (which would not be enforceable under the New York Convention). Parties who cannot settle their disputes through mediation may continue with the arbitration proceedings.