HSF team play key role in significant ICSID Award dealing with an Intra-EU BIT Case

Members of the HSF Paris disputes team have played a key role in obtaining a successful ICSID award for Chèque Déjeuner (“CD“), the French meal voucher issuer. The claim related to tax reforms introduced by the Orban government which effectively excluded CD (and other foreign voucher-issuers) from the Hungarian market. As a result, CD commenced ICSID proceedings under the France-Hungary bilateral investment treaty (“BIT“) in December 2013, alleging that Hungary had breached its obligations in respect of expropriation and fair and equitable treatment (“FET“).

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First Emergency Arbitration Procedure in China

The Beijing Arbitration Commission (BAC) recently administered the first emergency arbitration proceeding in mainland China. Wei Sun was the emergency arbitrator who heard the application and he has since published a discussion of the matter online. Although the decision has not been made public, the case was also discussed online by the applicants’ counsel who referred to it as the “GKML case”.

Background

The two applicants, who were the Claimants in the main arbitration, were companies registered in Hong Kong. The first respondent was a company registered in the Cayman Islands and the second respondent was a Chinese national with assets in Hong Kong. The second respondent was the controlling shareholder of the first respondent and the dispute related to a share repurchase agreement. The applicants applied under Article 63 of the current Beijing Arbitration Commission Arbitration Rules, which came into force on 1 April 2015 (“2015 BAC Rules“), for an emergency arbitrator to grant the following interim relief measures:

  1. Disclosure by the respondents of information about their assets;
  2. An order preventing the respondents from dissipating their assets;
  3. An order preventing the respondents from commencing a lawsuit or similar procedure to deter enforcement; and
  4. An order preventing the respondents from encouraging others to act contrary to 1 – 3 above.

Applicable rules

Article 63 of the 2015 BAC Rules provides that, after the BAC has accepted a case, any party seeking interim measures may by written application to the BAC apply for the appointment of an emergency arbitrator in accordance with the applicable law. The BAC will then appoint an emergency arbitrator within two days of receiving payment of application fees from the applicant. In this case, Wei was appointed on the same day that the applicants submitted the request for emergency arbitration.

Article 63(4) grants the arbitrator broad discretion to determine the interim application procedure by providing that an emergency arbitrator shall consider the application for interim measures in such manner as he or she deems appropriate, and shall ensure that the parties have a reasonable opportunity to present their cases.

Under Article 63(5) the emergency arbitrator shall issue a decision within 15 days of appointment. In this case, the decision was rendered within 11 days.

Decision

Wei noted the broad discretion under Article 63(4) and, taking into account the arbitration rules of other institutions such as the ICC, SCC, ACICA and HKIAC, applied the following criteria for determination of the requests:

  1. The claimants’ likelihood of success on the merits of their case;
  2. The urgency of the case; and
  3. The reasonableness of the interim measures sought.

On application, Wei found (i) the applicants had a reasonable possibility of success on the merits and (ii) the harm that would be caused to the applicants if the respondents were to dispose of their assets outweighed the damage that would be caused to respondents if the interim measures were to be granted. Wei then considered the reasonableness of each separate measure being requested, and found that:

  1. The general disclosure of the respondents’ assets was not urgent and the applicant should not be able to take advantage of this information for later use;
  2. While it is important to maintain the status quo of the respondents’ assets, an injunction preventing asset dissipation should be confined to those assets specifically identified by the applicant.
  3. An injunction preventing the respondents from commencing a lawsuit or similar proceeding would violate their basic procedural rights.
  4. It was reasonable to prohibit the respondents from encouraging others to engage in conduct restricted by the interim order.

Consequently, Wei issued an interim order prohibiting the respondents from disposing of the assets specifically listed by the applicants and from instructing or encouraging others to do the same.

The claimants then applied ex parte to the Hong Kong High Court for enforcement of the decision. The Court granted leave to enforce the emergency arbitration order in Hong Kong and held that it be extended to third parties so as to restrain them from transferring shares or making payments to the respondents.

Procedural observations by the emergency arbitrator

In his discussion of the case, Wei said he used three techniques to improve the efficiency of the proceeding. These were:

  1. allowing electronic submission of documents;
  2. providing a list of issues to keep the parties’ arguments focused on key concerns; and
  3. conducting the hearing by teleconference.

Wei said he offered the parties a “second chance” to present their cases through the submission of post-hearing briefs before 6pm on the 10th day of proceedings. He also noted that it was important to cooperate closely with the secretary in the proceedings and in this matter he had the benefit of effective and strong secretarial support from the BAC.

Wei commented on the role of an emergency arbitrator, suggesting they may “act as the “guardian” to parties prior to the constitution of the arbitral tribunal, defusing conflicts and saving time and costs, but it is also critical to be aware of the limitations of the [emergency arbitration] proceeding in the existing legal framework, especially with respect to the enforceability both domestically and internationally“.

Discussion

The GKML decision is significant not only because it is the first emergency arbitration held in mainland China, but also because it offers certain insight as to the criteria considered by an emergency arbitrator in determining whether to grant interim measures. However, it is unclear whether similar criteria would be adopted in future emergency arbitration proceedings in mainland China.

The use of emergency arbitration proceedings has been on the rise globally and it remains to be seen whether this milestone will encourage further emergency proceedings in mainland China.

 

Helen Tang
Helen Tang
Partner, Shanghai
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Briana Young
Briana Young
Professional Support Consultant, Hong Kong
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Opening of the Abu Dhabi Global Market Arbitration Centre

On 17 October 2018, the Abu Dhabi Global Market Arbitration Centre (ADGMAC) officially opened its doors to any parties looking to resolve their disputes through arbitration or mediation. The ADGMAC, based in Al Maqam Tower, Al Mayrah Island, offers parties a venue to hold their hearings in Abu Dhabi which is equipped with state-of-the-art technology and facilities.

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Filed under Middle East, UNCITRAL Model Law

Indian Supreme Court rules that Indian courts have jurisdiction to hear an application to set aside an award issued in Malaysia

In its recent decision in Union of India v Hardy Exploration and Production (available here), the Supreme Court of India found that a contractual clause stipulating Kuala Lumpur as the ‘venue’ of arbitration did not amount to a choice of juridical seat. While the Indian courts’ jurisdiction to hear set-aside applications will be excluded if the seat of the arbitration is outside India, the Supreme Court found that in this case there was no chosen seat (and the tribunal had not determined a seat), notwithstanding the choice of Kuala Lumpur as the venue for the arbitral proceedings, and the fact that the award was signed in Kuala Lumpur. Since this was a case where the arbitration agreement pre-dated 6 September 2012 (the date of the key Supreme Court ruling in BALCO), it appears that the Court did not find it necessary to positively determine that the seat was in India; the fact that an overseas seat had not been established appears to have been sufficient for the Indian courts to have jurisdiction to hear the application.

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Filed under Arbitration clauses, Arbitration laws, Arbitration proceedings, Challenges to awards, Court intervention, Enforcement, India

English Court of Appeal refuses Micula Appeal against stay of ICSID Award but orders Romania to provide £150m Security

In Micula & Ors v Romania [2018] EWCA Civ 1801 the English Court of Appeal (the “Court”) dismissed an appeal against the High Court’s stay of enforcement of a 2013 ICSID award in favour of Swedish investors Ioan and Viorel Micula (the “Appellants” or “claimants“) against Romania (the “Award“), but allowed an appeal against the High Court’s refusal to order Romania to provide security.

The Court’s judgment is interesting because although it reaches the same conclusion as the High Court in respect of staying enforcement of the Award, it does so for different reasons. In particular, the Court found (by majority) that:

  1. The High Court was correct to find that an ICSID award is res judicata under English law from the time of the award.
  2. Although the English Arbitration (International Investment Disputes) Act 1966 (the “1966 Act“), which implements the ICSID Convention into English law, requires that ICSID awards be treated in the same way as judgments of the High Court, this does not mean that EU law applies in the same way as it would apply to domestic judgments simply because the UK is a member state at the date of registration of the award.
  3. The principle of res judicata cannot be used to circumvent or significantly obstruct state aid rules (per the CJEU case of Klausner).
  4. Only operative terms (and not, for example, recitals) of EU Commission decisions are legally binding.

The Court’s decision is the latest in the long-running Micula saga, which began as a dispute arising out of Romania’s abolition of certain tax incentives in 2005 in order to comply with EU rules on state aid. Please see here for our blog post on the ICSID award.

The Award has been the target of decisions of the European Commission. In its final decision of 30 March 2015 (the “Final Decision“), the Commission found that payment of the Award by Romania would constitute new state aid incompatible with EU law, and was therefore prohibited. Please see here for our blog post on the Final Decision. The claimants have applied to the General Court of the European Union (the “GCEU“) to annul the Final Decision. The GCEU heard the application in March 2018 and a judgment is awaited.

In 2017, the High Court refused Romania’s application to set aside registration of the Award, but granted a stay of enforcement pending the decision of the GCEU on the annulment application. The Commission intervened in those proceedings. The High Court refused the claimants’ application for security in the meantime on the basis that it would itself risk breaching the Final Decision. The Appellants appealed against both the stay of enforcement and refusal to make the stay conditional upon payment of security. Please see here for our blog post on the High Court’s judgment, which was the subject of the present appeal.

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Filed under Enforcement, Enforcement - Europe, EU, EU Law, Europe, Investment Arbitration

HONG KONG COURT GIVES “DUE WEIGHT” TO SUPERVISORY COURT ON ENFORCEMENT

In U v S [2018] HKCFI 2086, the Hong Kong Court of First Instance (Court) dealt with an application to adjourn an application to set aside an enforcement order. In granting the adjournment, Chan J took into account public policy and considered the “due weight” that was owed to a supervisory court in another jurisdiction.

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Indian Government launches international research project on the impact of Bilateral Investment Treaties on investment flows from/to the country

India entered into its first bilateral investment treaty (BIT), with the United Kingdom, in 1994, as part of a strategy to attract inbound foreign direct investment (FDI).  Having begun to open its economy in the 1990s, India today is a major investment destination.  The Modi government has been keen to attract further investment, including with its “Make in India” campaign.

However, in recent years, a variety of events has led to India being the recipient of a large number of claims by investors under BITs. By 2016, India was one of the most frequently-named respondent states in BIT proceedings.  Following its first loss in a BIT arbitration in 2011 (the White Industries case, discussed here.  Note: India has recently won its first BIT case, discussed here), the stance of the Indian government towards BIT protections for inbound investors appeared to harden, leading it to send notices in 2016 to terminate BITs with 58 countries, including 22 EU countries (discussed here).  This followed its publication of a new 2015 Model BIT (discussed here).  For the remaining BITs not cancelled in 2016/2017 (seemingly because they were within their initial terms), India has circulated a proposed joint interpretative statement to the counterparties to these BITs seeking to align the ongoing treaties with its 2015 Model BIT.

There are no known instances of states agreeing to a new treaty based on India’s 2015 Model BIT, although it was reported last year that the Indian government had approved a joint interpretative note to apply to India’s BIT with Bangladesh

In the meantime, the Indian government, through the Centre for Trade and Investment Law (CTIL), a think-tank established in 2016 by the Ministry of Commerce and Industry, in collaboration with Dr. Rishab Gupta, Partner, of Shardul Amarchand Mangaldas & Co., has instituted a survey on experiences and attitudes towards BIT protections, and their importance to FDI flows into and out of India.  This outbound element is an important aspect of the analysis as Indian businesses are increasingly involved in FDI outside India, and may wish to take advantage of BIT protections over their investments.

A link to the survey can be found below, which we understand will remain active until the end of October 2018. The survey contains 10-12 questions which vary depending on the initial answers regarding the location and type of entity responding.

http://survey.sogosurvey.com/r/r1ocQs

The outcome of the questionnaire together with the rest of the study results are scheduled to be publicly released by the end of 2018. All stakeholders with experience of or insight into the BIT regime applicable to India are encouraged to participate.

For further information, please contact Nicholas Peacock, Head of the India Disputes Practice, or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
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Filed under Asia, India, India Disputes, Investment Arbitration, ISDS, Public International Law, Trade Agreements

Be on time to preserve your right to Active Remedies – the Singapore High Court considers a party’s duty to apply promptly when challenging the jurisdiction of an arbitral tribunal

In Rakna Arakshaka Lanka Ltd (“RALL“) v Avant Garde Maritime Services (Private) Limited (“AGMS“) [2018] SGHC 78, the Singapore High Court dismissed an application to set aside an award on jurisdiction, on the basis that the applicant had failed to challenge the tribunal’s preliminary ruling on jurisdiction within the deadline stipulated under section 10(3) of the International Arbitration Act (“IAA“) and Article 16(3) of the UNCITRAL Model Law. The decision provides guidance on the distinction between active and passive remedies in the context of applicable deadlines when seeking to set aside an award on grounds of jurisdiction, and resisting enforcement on the same basis.

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Filed under Arbitration laws, Asia, Enforcement, Jurisdiction, Procedures in arbitration

HONG KONG COURT REFUSES SET ASIDE, REJECTS PUBLIC POLICY CHALLENGE

In Paloma Co. Ltd. v. Capxon Electronic Industrial Co. Ltd [[2018] HKCFI 1147], the Hong Kong Court of First Instance rejected a public policy challenge to a New York Convention Award rendered by a tribunal in Japan. The Respondent applied to set aside leave to enforce the Award, alleging that the tribunal’s conduct was biased, and violated basic concepts of morality, justice and public policy.

Deputy Judge Keith Yeung found that there was no evidence of bias on the part of the tribunal, nor any error or matter which would warrant setting aside the award. Yeung DJ relied on Hebei Import & Export Corp. v Polytek Engineering Co. Ltd. [(1999) 2 HKCFAR 111] to reiterate that, in order to refuse enforcement of an award under the New York Convention, the award must be so fundamentally offensive to the jurisdiction’s notions of morality and justice that this could not reasonably be overlooked. In the absence of such conflict, the Court would not look into the merits, nor review any alleged errors or reasoning of the tribunal.

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English Court refuses to grant an injunction against the enforcement of a s1782 US Evidence Order

In a decision dated 24 August 2018, the English Commercial Court (the “Court“) dismissed Dreymoor Fertilisers Overseas PTE Ltd’s (“Dreymoor“) application to continue an injunction preventing the enforcement of an order of a U.S. court granting discovery under section 1782 of the United States Code (the “Order“). The Order required one of Dreymoor’s employees to be deposed and produce evidence for use in various international proceedings by Eurochem Trading GMBH (“ECTG“) against Dreymoor. Dreymoor argued that enforcing the Order would constitute unconscionable conduct as it would interfere with its preparation for arbitration proceedings against ECTG.

The Court accepted that the enforcement of orders such as the Order could potentially be unfair, as they would effectively provide an opportunity to cross-examine the same witness twice. However, whether to injunct the enforcement of such an order required a careful case-by-case analysis. Based on various case-specific factors, the Court decided that it would not be unconscionable to allow ECTG to enforce the Order and dismissed Dreymoor’s application to continue the injunction.

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Filed under Arbitration proceedings, Confidentiality, Court intervention, Document production, Europe, Evidence, Procedures in arbitration, The Americas