The ICC standard arbitration clause potentially invalid in Russia

According to Russian media, the ICC has recently applied to the Russian Supreme Court (“SC“) asking that it clarify the approach of Russian courts to the ICC standard arbitration clause demonstrated in one of their cases (No. A40-176466/17). In this case the Moscow Arbitrazh Court and appeal courts (including the SC), found that a reference to the arbitration rules of an arbitral institution was not sufficiently clear evidence that the parties had agreed on that specific institution to administer the resolution of their disputes.

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Contracting with governments: pitfalls, arbitration, sovereign immunity and enforcement

Entering into a contract with an entity owned or controlled by the state poses unique challenges not faced when dealing with a private commercial counterparty. Parties should be aware of certain distinctive features of negotiating with a state entity from the start of any commercial relationship. It is particularly important for parties to consider these implications when conducting business in the Middle East given that:

i. state entities play a major role in the procurement of major projects, particularly in GCC countries; and

ii. the reconstruction of infrastructure and the development of natural resources in countries such as Iraq require significant foreign investment in the form of contracts with state-owned entities.

Determining whether or not a commercial party is dealing with a state entity is not always a straightforward process in the Middle East. As such, parties should take extra care and consider the following factors at the outset:

a) the capacity of the entity to enter into an arbitration agreement;

b) the ability of the state in question to raise a defence of sovereign immunity in the future; and

c) the investment treaty protections that a company may be able to utilise.

In this article, we set out the key factors that parties should consider when negotiating with a state entity in order to maximise the protections available should a dispute arise at a later point.

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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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Implied horizontal contract prompts stay of proceedings S9 AA 1996

In Mercato Sports v Everton[1], the English High Court found that two parties were bound by an implied horizontal contract containing an arbitration clause. Accordingly, it granted a stay of proceedings under section 9 of the Arbitration Act 1996 (‘S9 AA 1996’). In this case, a football agent (the Claimant)[2] sought payment for bringing a player to the attention of Everton (the Defendant) and by doing so, it enabled them to sign the player. While Claimant and Defendant had no direct contractual relationship, the Court established that both were bound by the Football Association’s Rules (‘FA Rules’), in particular by the arbitration agreement therein. While the Court emphasized that such arrangements would not always automatically lead to an implied horizontal contract, the parties’ dealings in this case did lead to an implied contractual relationship, governed by the FA Rules.

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LCIA-MIAC Joint Venture Agreement Terminated

The London Court of International Arbitration (the LCIA) and the Government of Mauritius have announced the termination of their joint venture which established the LCIA-MIAC Arbitration Centre. LCIA-MIAC was created in 2011 as a focal point for international arbitration in Africa. In terminating the joint venture both the LCIA and the Government of Mauritius have nonetheless restated their commitment to international arbitration both in and in relation to Africa.

The termination will take effect from 27 July 2018. Parties to contracts should not include provisions for LCIA-MIAC arbitration in their arbitration agreements after this date.

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HONG KONG COURT OF FIRST INSTANCE STAYS COURT PROCEEDINGS TO ARBITRATION, REITERATES S.20 PRINCIPLES

In Leung Kwok Hung trading as Kaiser (M&E) Decoration Engineering Company v. Johnson Controls Hong Kong Limited [HCCT 56/2017], the Hong Kong Court of First Instance granted the Defendant’s application under s.20 of the Arbitration Ordinance, staying Court proceedings in favour of arbitration. In doing so, Justice Mimmie Chan noted that the principles for granting such a stay were clear and had not been disputed by the parties.

In light of the termination of the parties’ subcontract containing the arbitration clause, the Court reiterated that the arbitration agreement is separable from the underlying contract and confirmed that the matters in dispute between the parties relating to alleged breach, termination of contract and payment fell within the scope of the clause.

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Absence of a bilateral or multilateral treaty for enforcement of judgments between UK and Lebanon leads to English Court issuing anti-suit injunction in favour of arbitration

In the case of Perkins Engines Company Limited v Mohammed Samih Hussein Ghaddar & Ghaddar Machinery Co. S.A.L [2018] EWHC 1500 (Comm) the English Court was asked to issue an anti-suit injunction against court proceedings brought in Lebanon. The relevant dispute resolution clause between the parties provided for English court jurisdiction to the extent that “reciprocal enforcement procedures” exist between the United Kingdom and Lebanon, failing which, disputes were to be submitted to arbitration. The Court found that the ordinary and natural meaning of the words required the existence of a multilateral/ bilateral treaty facilitating reciprocal enforcement of judgments in the United Kingdom and Lebanon. Since no such treaty existed, an anti-suit injunction should be granted against the Respondents in respect of proceedings they had brought in Lebanon.

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Win some, lose some: English court considers contractual limit on period to bring a claim in arbitration under section 12 of the Arbitration Act 1996

The English Commercial Court (the Court) has considered[1] the principles governing contractual time-bars and an application under s12 of the English Arbitration Act 1996 (the Act) to extend a contractually agreed limitation period to allow the claimant to bring claims in an arbitration.

As a matter of English law, parties are generally held to the consequences of exceeding a contractual time-bar, especially when the consequences are explicit. Parties should, therefore, be wary of agreeing such a deadline in circumstances where their ability to meet a deadline may potentially be impacted by the conduct or inaction of third parties. When such time-bar relates to the bringing of proceedings by arbitration, a court dealing with an application for extension of that time-bar under s12 will first consider whether there are exceptional circumstances which explain why the time-bar has been exceeded. Assuming that there are “exceptional circumstances”, the court will then consider whether the parties would have contemplated that the time-bar “might not” have applied. Finally, in deciding whether to exercise its discretion to grant the extension, the court will consider whether the applicant has “acted expeditiously and in a commercially appropriate fashion to commence proceedings“.

Context

Factual background

The parties to the proceedings were parties to back-to-back voyage charters and occupying the middle of the charter chain. The charters included an arbitration clause and the following time-bar at Clause 67:

Any claim other than the demurrage claim under this contract must be notified in writing to the other party and claimant’s arbitrator appointed within thirteen (13) months of the final discharge of the cargo and where this provision is not complied with, the claim shall be deemed to be waived and absolutely barred.

A dispute arose regarding the condition of the cargo. The holder of the bill of lading covering the cargo issued a Statement of Claim against the head owners at the top of the entire chain. This triggered various notices down the chain, which were alleged not to comply with the contractual time bar.

The claimant applied to the Court for:

  1. declarations that their claims against the charterers had been brought in time, notwithstanding the wording of Clause 67;
  2. in the alternative, an extension of time under s12 of the Act either to validate the notices of arbitration they had served on the defendant charterers or for such extension of time as the Court saw fit.

The Court’s decision

Time-bar wording to be given literal meaning

The Court found that Clause 67 should be given a literal reading, even though the parties’ intention was that claims for breach of contract would be passed up or down the chain, and a party may not know about the claim in time. Such clauses operate mutually and make commercial sense: at the end of the relevant period the parties know where they stand regarding any outstanding claims and the difficulties of dealing with a claim only long after the event are largely averted. The parties took the risk that it may not be possible to pass on a claim validly received within the required period.

It was, therefore, necessary to consider whether the Court should exercise its power to extend time under s12.

Section 12 application

Section 12(1) provides that where an arbitration agreement “provides that a claim shall be barred, or the claimant’s right extinguished, unless the claimant takes within a time fixed by the agreement some step (a) to begin arbitral proceedings … the court may by order extend the time for taking that step.

Any party to the arbitration agreement may apply for such an order after exhausting any arbitral process to obtain an extension of time, but the Court “shall make an order only if satisfied –

  • that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or
  • that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.

Relevant factors

The Court accepted that where parties agreed a contractual time-bar, they must be taken to have contemplated that non-compliance “in not unusual circumstances arising in the ordinary course of business” would result in a claim being time-barred, unless the other party’s conduct would make it unjust. The Court adopted Hamblen J’s factors in SOS Corporation Alimentaria SA & Anor v Inerco Trade SA [2010] EWHC 162 (Comm), viz:

  1. whether there were circumstances beyond the parties’ reasonable contemplation and, if so, had they contemplated them, whether they would also have contemplated that the time-bar might not apply;
  2. whether the circumstances significantly contributed to the non-observance of the time limit;
  3. if the circumstance was “not unlikely” or “prone to” occur, or “not unusual“, the test would probably not be satisfied, but if was “relatively exceptional” it would be outside the reasonable contemplation of the parties;
  4. as to whether the parties would also have contemplated that the time-bar might not have applied in the circumstances in question, the test is whether they would contemplate that the time limit “might not” apply rather than it “would not” apply or “must not” apply. In general, time limit clauses are addressed at steps which the party in question can reasonably be expected to take within the prescribed time.

Application: s12 triggered in principle

Following a review of the factual history, the Court found that the “direct, dominant and effective cause” of the relevant notice being served after the expiry of the contractual time-bar was the receipt of the previous claim (that was intended to be passed down the charter chain) on the last day of the stipulated period after the recipient’s business hours. These circumstances were outside the parties’ reasonable contemplation as the eventuality was “in all probability … relatively exceptional“. Further, the parties would have contemplated that the time-bar “might not” apply given the expectation that claims could be passed up or down the charter chain.

Whether just to grant the extension of time sought under s12

However, in the Court’s view, it would only be just to extend the time following a s12 application by a party in a charter chain “if the applicant has acted expeditiously and in a commercially appropriate fashion to commence proceedings” after becoming aware that a claim is being made above or below in the chain. Two of the three applicants did not act expeditiously and in a commercially appropriate fashion. Relevant factors included (i) whether a party investigated the time-bar (either through the operational staff checking the contracts, or informing the legal department or the company’s P&I club and asking for urgent advice); (ii) how soon a party appointed solicitors and nominated an arbitrator; and (iii) how soon it served a further notice down the chain and sought an extension.

Comment

This judgment serves as a reminder of what factors a court will take into account when considering (i) contractual time-bars in an arbitration context and (ii) s12 applications. The basic position on contractual time-bars in a commercial context, especially when the consequences are explicit, is that those consequences will apply. This is the price the parties pay in exchange for certainty. At the time of contracting when it is often unclear who might sue whom, this represents a mutual acceptance of risk.

An English court considering a s12 application will look for exceptional circumstances as to why the time-bar has been exceeded, but, once those have been found, the threshold is whether the parties would have contemplated that the time-bar “might not” (as opposed to “would not” or “must not“) have applied. Finally, the court’s residual discretion whether to extend the time limit (at least in a charter chain scenario) will depend on whether the applicant has “acted expeditiously and in a commercially appropriate fashion to commence proceedings“.

For more information, please contact Nicholas Peacock, partner, Maximilian Szymanski, associate, or your usual Herbert Smith Freehills contact.

 

Nicholas Peacock
Nicholas Peacock
Partner
+44 20 7466 2803
Maximilian Szymanski
Maximilian Szymanski
Associate
+44 20 7466 2596

 

[1] P v Q [2018] EWHC 1399 (Comm)

West Tankers principle unaffected by Recast Brussels Regulation; mandatory foreign jurisdictional rules do not encroach on scope of widely worded arbitration clause

In Nori Holdings Limited et al v PJSC Bank Okritie Financial Corporation [2018] EWHC 1343 (Comm) the English court has applied the Recast Brussels Regulation, finding that the West Tankers principle remains applicable and, as a consequence, refused to grant an anti-suit injunction in relation to parallel EU court proceedings.

At the same time, it found alleged Russian mandatory jurisdictional rules referring an insolvency dispute to the Moscow Arbitrazh Court insufficient to displace the wide and general wording of an arbitration clause, with the result that it granted an anti-suit injunction in relation to non-EU proceedings. Continue reading

New South Wales CA imports arbitration clause from one entity to another, stays proceedings

In Warner Bros Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd [2018] NSWCA 81, the New South Wales Court of Appeal overturned the decision of the New South Wales Supreme Court by referring a dispute to arbitration in California pursuant to the parties’ agreement and by ordering a stay on court proceedings pursuant to section 7(2) of Australia’s International Arbitration Act 1974 (Cth). The Court of Appeal applied a pragmatic approach to determine whether an arbitration clause found in standard term contracts used by other members of a company’s corporate group should be incorporated into the parties’ agreement.

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