In Grindrod Shipping Pte Ltd v Hyundai Merchant Marine Co. Ltd, the English High Court (“the Court“) rejected an application under s68 of the Arbitration Act 1996 (“the Act“) to challenge an Award (the “Award“). Six years after the proceedings had commenced, the tribunal (“Tribunal“) issued a final award dismissing the claim under s41(3) of the Act on the ground of inordinate and inexcusable delay. Grindod Shipping challenged the award under s68 of the Act, arguing that the Tribunal’s decision was based on grounds not advanced by the respondent. The Court concluded that the issues had been sufficiently “in play” for all sides to have had a fair opportunity to respond. There was no breach of the tribunal’s duty to act fairly and impartially and therefore no procedural irregularity.
After a number of years of public debate in a variety of fora, the discussion of the future development of investor-state dispute settlement (ISDS) has recently moved to the United Nations Commission on International Trade Law (UNCITRAL). UNCITRAL Working Group III (WGIII) has been given a broad mandate to identify concerns regarding ISDS, consider whether reform is desirable and, if so, develop relevant solutions to be recommended to UNCITRAL.
WGIII started its work in the 34th session which took place from 27 November to 1 December 2017. As discussed further below, a number of key points were discussed, including: (i) the duration and costs involved in the procedure; (ii) the allocation of costs; and (iii) transparency. There was also some preliminary consideration of possible developments or changes in relation to the treatment of these issues. The Report of the 34th session indicates that some states advocate a fact-based analysis of ISDS but others note the need to address wider public perceptions of ISDS, as these can raise concerns over the legitimacy of the system.
Bringing the debate about the future of ISDS under the auspices of UNCITRAL, involving high level government representatives from across the world, and also in view of the transparent nature of WGIII’s process, raises the stakes, and perhaps also the prospects, of a more systemic reform. However, whilst the forum has the potential to generate a multilateral plan for ISDS, it is hard to discern any broad consensus at this stage either on the nature of the perceived problems associated with the current system of ad hoc arbitration, or on how those problems may be resolved. This is apparent from the Report and also from the audio recordings (helpfully summarised by IA Reporter, here). The 35th session will take place on April 23 to April 27 2018, following which further clarity on these issues may emerge.
In its recent judgment in Progas Energy Limited and ors v Pakistan , the English High Court (the Court) granted Pakistan’s request for security for their costs in defending a challenge to an investment treaty award. The Court declined Pakistan’s application for security for its unpaid costs in the arbitration awarded to them by the tribunal. The case is of particular interest because the Court considered the relevance to the applications of the fact that the Claimants were funded by a third-party funder.
In Oldham v. QBE Insurance (Europe) Ltd  EWHC 3045 (Comm), the Commercial Court held that the arbitrator’s decisions on costs could be challenged on grounds of serious irregularity under Section 68 of the Arbitration Act of 1996 (the Act) on the basis that the applicant had been denied the opportunity to make submissions. This decision is a rare instance of the English Courts intervening in the conduct of an arbitration in order to protect the integrity of the process, and ensure equal treatment of parties to the arbitration. Continue reading
In this short video in our Observations on Arbitration series, Professional Support Consultants Vanessa Naish and Hannah Ambrose talk about the myths and realities surrounding the arbitration process. The discussion draws out key points and common misconceptions about arbitration, touching on costs and duration, confidentiality, party autonomy, availability of interim relief, summary judgment and enforcement of arbitral awards.
For more information, please contact Vanessa Naish, Professional Support Consultant, Hannah Ambrose, Professional Support Consultant or your usual Herbert Smith Freehills contact.
An ICSID tribunal has rejected a State's application for security for costs in circumstances in which the other party had third-party funding in the form of ATE insurance which specifically provided for cover of the State's costs.
Italy's request for security for costs
The application formed part of arbitral proceedings brought by Eskosol S.p.A. in liquidazione ("Eskosol") under the Energy Charter Treaty and the ICSID Convention against the Italian Republic ("Italy"). Italy sought security for costs in support of its ICSID Arbitration Rule 41(5) application for summary dismissal of Eskosol's claims on the basis that they are manifestly without legal merit.
In a resolution adopted on 21 February 2017, the Paris Bar Council (Conseil de l'Ordre) indicated its support for third-party funding. The resolution confirms that third-party funding is in the interests of both clients and counsel, particularly in the context of international arbitration. It is also not prohibited by French law.
In Blanalko Pty Ltd v Lysaght Building Solutions Pty Ltd  VSC 97, Croft J of the Victorian Supreme Court confirmed that a party is not required to rely on, or comply with the time constraint in, Art 33(3) of the Model Law to obtain a further Award in circumstances where the arbitrator has made ‘a conscious decision not to deal with an issue’. The decision also provides useful commentary on the functus officio doctrine and the circumstances in which an Award labelled ‘Final Award’ is not, relevantly, a ‘final Award.’
We reported previously (here) on the Singapore Parliament's passage of the Civil Law (Amendment) Bill (Bill No. 38/2016) (Bill) on 10 January 2017.
The Bill entered into force on 1 March 2017 as the Civil Law (Amendment) Act 2017 (Act). The framework established by the Act has been elaborated in the accompanying Civil Law (Third Party Funding) Regulations 2017 (Regulations) and related amendments to the Legal Professional Act (Cap. 161) and the professional conduct rules for lawyers in Singapore.
In summary, the Act abolishes the common law torts of champerty and maintenance and confirms that third-party funding is not contrary to public policy or illegal where it is (i) provided by eligible parties (ii) in prescribed proceedings.
The Regulations provide further detail on the reform, confirming that:
- in order for a party to be eligible to provide funding under the Act, the funding of dispute resolution proceedings must be its "principal business" (in Singapore or elsewhere), and the third-party funder must have "a paid‑up share capital of not less than $5 million"; and
- the prescribed categories of proceedings in which third party funding can be used is limited to international arbitration proceedings, and court litigation and mediation arising out of such proceedings (for example, applications for the enforcement of awards, or mediation undertaken prior to or during arbitration).
As expected, the Regulations prescribe specific eligibility requirements for funders. Notably, the requirement in the draft version of the Regulations (which was circulated alongside the Bill) for funds "sufficient to fund the dispute resolution proceedings" has been amended in keeping with the Ministry of Law's original proposals in 2011 that "[t]hird party funders should be entities with at least S$5 million in paid up capital").
Related professional conduct reform
The Act's coming into force was accompanied by related amendments to Section 107 of the Legal Profession Act (Cap. 161) (LPA) and the professional conduct rules for lawyers in Singapore (the Legal Profession (Professional Conduct) Rules 2015 (LPRCR).
Section 107 of the LPA prohibits solicitors from (i) holding any interest of any party in any suit, action or other contentious proceeding; or (ii) acting in any suit, action or other contentious proceeding on a basis which contemplates payment only in the event of success. The Act amends the LPA to clarify that the restriction in Section 107 does not prevent solicitors from:
- introducing or referring a third-party funder to a client, provided the solicitor does not receive any direct financial benefit (excluding their usual fees, disbursement or expense for the provision of legal services to the client);
- advising on or drafting a third-party funding contract for such client or negotiating the contract on their behalf; or
- acting on behalf of the client in any dispute arising out of such contract.
The amendments to the LPRCR concern two principal areas:
- Disclosure: practitioners must now disclose to the court or tribunal and to every other party to proceedings: (i) the existence of any third-party funding contract related to the costs of such proceedings; and (ii) the identity and address of any funder involved, at the date of commencement of proceedings, or as soon as practicable after the third-party funding contract is entered into; and
- Financial interest: practitioners are prohibited from
- holding financial or other interests in; or
- receiving referral fees, commission, fees or any share of the proceeds from,
third-party funders which they have introduced or referred to their client(s), or which have third-party funding contracts with their client(s).
These amendments are consistent with public statements made by Singapore's Senior Minister of State for Law, Ms Indranee Rajah, in January 2017 that Singapore "will be taking a limited but targeted regulatory approach" to third-party funding, and her expectation that "industry-promulgated guidelines or best practices will emerge". In particular, the amendments relating to disclosure follow previous comments by the Ministry of Law disclosure obligations would be a "central tenet" of regulatory reform accompanying the Act. This follows general industry sentiment that any regulation of third-party funding should mainly focus on disclosure (see the 2015 International Arbitration Survey, conducted by Queen Mary University), and addresses Singapore Chief Justice Sundaresh's observation at a CIArb conference in Penang in 2013 that "there is a virtual absence of any form of regulation" in Asia in the context of third-party funders, and a need for "meaningful guidance" on issues such as conflicts of interest, influence and disclosure.
A taste of what's to come?
Under the Act and the Regulations, funding solutions outside of those arrangements described above are not possible. In particular, lawyers remain prohibited from funding proceedings themselves, under contingency arrangements or otherwise.
The Act and the Regulations are consistent with Ms Rajah's repeated statements that the limited reform effected by the Act represents a testbed for a more general roll-out of third-party funding in Singapore. The timeline for such further reform is not known, but many will follow the development of third-party funding in Singapore with keen eyes.
Meanwhile, the Act represents a significant step forward for Singapore as an international arbitration hub, and parties involved in arbitrations seated in the jurisdiction now have access to a broader and more diverse range of funding arrangements.
While the Hong Kong Legislative Council is presently in the process of a similar reform in Hong Kong, a final timeline for implementation is not yet available. We previously wrote about this in a blog post in October 2016 and will continue to monitor its progress.
For further information, please contact Alastair Henderson, Partner, Gitta Satryani, Senior Associate, Daniel Mills, Associate, or your usual Herbert Smith Freehills contact.
The English court has refused a challenge under s68(2)(b) of the Arbitration Act 1996 (the Act) and held that a sole arbitrator did not exceed his powers in including the costs of third party funding within a costs award (Essar Oilfields Services Limited v Norscot Rig Management PVT Limited  EWHC 2361 (Comm)). The principle of recovering funding costs has caused significant controversy since it first came to light on 15 September 2016. The transcript of the judgment, and therefore the court's reasoning, was released on 30 September 2016.