PRC signs the Hague Convention on Choice of Court Agreements: a step forward in the resolution of cross-border litigation

On 12 September 2017, the People’s Republic of China (PRC) signed the Hague Convention on Choice of Court Agreements (Convention).  The Convention, in force since 1 October 2015, seeks to provide certainty in cross-border litigation by allowing parties to choose the exclusive court in which any disputes arising under a commercial agreement will be resolved.  Courts of member states must accordingly respect exclusive jurisdiction clauses in commercial agreements by staying proceedings in favour of the courts of other member states. They must also recognise and enforce judgments of the courts of other member states, subject to certain limited exceptions.

The PRC needs to ratify the Convention before it becomes a member state and bound by the terms of the Convention.  Once the PRC formally joins the Convention, there will be increased opportunities for the recognition of Chinese court judgments internationally and vice versa.

The current status of the Convention

The Convention currently has three parties: Mexico, the European Union and Singapore.  The Convention binds all EU member states except Denmark by virtue of the EU’s approval.  The United States of America and Ukraine have also signed the Convention but have not ratified it.

The Chinese Ministry of Foreign Affairs announced, on the same day as the PRC signed the Convention, that the PRC would “study the approval of the Convention as a priority, so that the Convention can become effective for the PRC as soon as possible“.  It appears likely, therefore, that the PRC will ratify and become a party to the Convention in the near future.

Key features of the Convention

In terms of scope, the Convention only applies to exclusive choice of court agreements, as defined in Article 3.  However, a forum selection clause which meets the defined criteria, but is silent as to whether the jurisdiction of the chosen court is exclusive, will be deemed to be an exclusive choice of court agreement and fall within the scope of the Convention.  It is important to note that the Convention does not cover non-exclusive or “one-way-exclusive” choice of court clauses (where one party is limited to the exclusive court jurisdiction of an agreed country should it bring an action, but the other party enjoys a wider flexibility).  Such choice of court agreements are outside the scope of the Convention and will need to be addressed by national laws, regional regulations or other international treaties.

The application of the Convention is also subject to a number of exceptions. For example, employment contracts and rights in rem over immovable property are excluded. Further, it does not apply to arbitration or related proceedings, or to interim relief.

The key provisions of the Convention are:

  • Article 5, which provides that a court chosen in an exclusive choice of court agreement must hear the case (save for in limited circumstances).
  • Article 6, which provides that a court seised of a matter in relation to which an exclusive choice of court agreement applies, must stay or dismiss proceedings (subject to a limited number of exceptions).
  • Article 8, which provides that the courts of member states are obliged to recognise and enforce a final judgment of the court of another member state named in an exclusive choice of court agreement without review of the merits (subject to a limited number of grounds for refusal of recognition and enforcement).

The Convention applies to “international cases”. The definition of international is based on the circumstances of the case – the default position is that the case is international unless the parties are resident in the same member state and the relationship of the parties and all other elements relevant to the dispute, regardless of the location of the chosen court, are connected only with that state.

Recognition and enforcement of judgements – comparative view with New York Convention

The courts of a member state are obliged to recognise and enforce a final judgment of the court of another member state designated in an exclusive choice of court agreement without review of the merits.  The limited grounds on which an enforcing court can refuse enforcement are exhaustively set out in Article 9 of the Convention.  The grounds are mostly procedural in nature.  Notably, contravention of public policy is one ground of refusal.  Critics worry that this ground is open to abuse in some states.

For commercial parties involved in international transactions, the benefits of the Convention will very much depend on it achieving broad acceptance at a similar level to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, which has been ratified or acceded to by 157 countries.  The UK government has indicated its intention to join the Convention as an individual state as soon as it is free to do so post-Brexit. A vast number of countries have no treaty obligation to dismiss or stay the proceeding when a dispute is submitted to its court, even if parties have exclusively opted for the court of a different country.  When it comes to the recognition and enforcement of judgments, sparsity of member states is also a challenge for the winning party.

Applicable to Hong Kong?

International treaties acceded to by the PRC are not automatically binding on Hong Kong.  The PRC Central Government must seek the view of the Hong Kong Government, before deciding whether the treaty is applicable to Hong Kong (pursuant to Article 153 of Hong Kong’s Basic Law).  At this stage, there is no indication of the Central Government having done so in relation to the Convention.

It is worth noting that the mutual recognition and enforcement of judgments between Hong Kong and Mainland China is not governed by international treaties, but by a special arrangement between the two regions. Since 2008, a judgment obtained in Hong Kong is enforceable in the PRC and vice versa under An Arrangement on Reciprocal Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region pursuant to Choice of Court Agreements between Parties Concerned (Arrangement).  As it currently stands, only final monetary judgments where the court assumes the jurisdiction by virtue of an exclusive choice of court agreement can be enforced under the Arrangement.

From an international perspective, Hong Kong has a statutory registration scheme for the recognition and enforcement of foreign judgments made in 15 designated countries, under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319). Foreign judgments other than those qualifying for enforcement under that Ordinance, including those from important trading partners such as the UK and the US, can however only be enforced in Hong Kong under common law, which entails issuing fresh proceedings in Hong Kong based on the foreign judgment.  The mechanisms currently in place in Hong Kong will continue to operate, pending any decision by Hong Kong and the PRC on the applicability of the Convention to Hong Kong in future.

Practical implications for international parties dealing with Chinese parties vice versa

The Convention, if and when ratified by the PRC, will provide an important new option of dispute resolution in litigation – alongside international arbitration – for international parties dealing with Chinese parties and vice versa.  For many types of commercial contracts (subject to exceptions mentioned above) where parties can agree on an exclusive choice of court, the Convention may prove to be a useful instrument to ensure certainty and speed in commencing and resolving disputes.

For further information, please contact Gareth Thomas, Dominic Geiser, Rachel Yu or any of your usual contacts at Herbert Smith Freehills.

Gareth Thomas
Gareth Thomas
Partner, Head of commercial litigation
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+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner
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+852 2101 4629
Rachel Yu
Rachel Yu
Senior Associate
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+852 2101 4220

 

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English High Court refuses stay of proceedings despite possible overlap with issues subjected to parallel ICC arbitration proceedings.

A consortium of construction companies (the Consortium) was unsuccessful in obtaining a stay of court proceedings pending before the English High Court (the Court), even though parallel related ICC arbitration proceedings are ongoing. The Court rejected the application for a stay under section 9 of the English Arbitration Act 1996 (s9) on the basis that the proceedings, which concerned advance payment guarantees governed by English law and containing exclusive English jurisdiction clauses, concerned a “matter” outside the scope of the arbitration agreements. The Court found further that there was no compelling case for a stay to be granted under its inherent jurisdiction.

This decision illustrates the practical difficulties, costs and delays, caused when parties agree that disputes related to the same construction project are to be determined in different fora.

Autoridad del Canal de Panama v Sacyr SA and others [2017] EWHC 2228 (Comm) Continue reading

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Filed under Arbitration Act 1996, Arbitration proceedings, Europe, Jurisdiction, Stays

Article: Paris Court of Appeal upholds UNCITRAL award in Ukraine v OAO Tatneft

Laurence Franc-Menget has published an article in the Revue de l’arbitrage, the journal of the Comité Français de l’arbitrage, discussing  the Paris Court of Appeal’s decision on an application by Ukraine to annul an $112 million UNCITRAL award against it in favour of OAO Tatneft.  The article, in French, considers the interpretation by the Court of the definition of emanation for the purpose of establishing jurisdiction of an investment arbitral tribunal. To read the full article, please click here.

This article was first published in the Revue de l’arbitrage, 2017, n°2, p. 500 et seq. Continue reading

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Herbert Smith Freehills hires three new projects and disputes partners in China

Herbert Smith Freehills has appointed three partners to its Mainland China team, specialising in projects and projects-related disputes.

  • Hew Kian Heong is one of the leading international construction and infrastructure disputes lawyers in China, regularly acting for Chinese and international clients in complex cross-border disputes.
  • Ellen Zhang is one of the leading lawyers in the Chinese PPP and outbound investment market, advising Chinese companies on complex project development, investment and financing overseas, particularly in the power and infrastructure sectors.
  • Michelle Li has a strong reputation in construction and infrastructure disputes, particularly advising Chinese state-owned enterprises on a broad range of project implementation issues and disputes arising from overseas projects.

“Our firm has already captured a healthy amount of Chinese project and investment work generated by China’s US$900 billion ‘Belt and Road’ initiative,” said CEO Mark Rigotti. “Adding the transactional and disputes experience on complex projects offered by Hew, Ellen and Michelle will complement our existing team perfectly. I’m delighted to welcome them to the partnership.”

The appointments will increase the size of Herbert Smith Freehills’ Greater China team to 27 partners and over 170 other legal professionals in Beijing, Hong Kong and Shanghai.

“The massive scale of the ‘Belt and Road’ initiative is generating huge numbers of infrastructure projects across Asia and beyond – and every new project also has the potential for complex disputes,” said Justin D’Agostino, Managing Partner, Asia. “Hew, Ellen and Michelle will join our existing team advising clients on these developments and add essential projects, financing and projects disputes expertise to our offering.”

 

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Observations on Arbitration: video for in-house counsel on the Myths and Realities of Arbitration

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.

Hannah Ambrose
Hannah Ambrose
Professional Support Consultant
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+44 207 466 7585
Vanessa Naish
Vanessa Naish
Professional Support Consultant
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+44 207 466 2112

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2016 ICC Dispute Resolution Statistics: Record Year for the ICC

The ICC has recently published its full statistical report: the 2016 ICC Dispute Resolution Statistics. This Report demonstrates yet another impressive year of growth for the ICC. In particular, the ICC announced that 966 new cases were filed in 2016. This represents both a record number of cases filed in a single year and an unprecedented growth of 20% from the previous year. Overall, the large caseload numbers, the geographical spread of parties involved and the size of amounts in dispute point towards the ICC maintaining its position amongst the world’s leading arbitration institutions.

We discuss below the key statistics from the Report.

Caseload

While the ICC had previously seen a steady 1%-3% increase in its caseload from 2012 to 2015, it saw a record 20% increase in its caseload in 2016. The chief reason for this growth was attributed by the ICC to continuing expansion in all continents, but with particular emphasis on a surge in cases from North and Central America and from Africa. Interestingly, there was an increase in the number of multi-party cases, with nearly half of new cases involving three or more parties (43%).

Party nationality and places of arbitration

Nearly 80% of the cases filed at the ICC last year were between parties from different countries. These disputes involved 3,099 parties from as many as 137 different jurisdictions. Filings involving parties from the Americas more than doubled, whilst there was a 50% growth in parties from Africa, and a 22% growth in parties from South and East Asia. The number of parties from Central and West Asia returned to pre-2015 levels (2015 statistics having been influenced by a case involving multiple Israeli parties), whilst the number of parties from Europe remained broadly in line with previous years.

Whilst the three most frequent nationalities of parties filing cases in 2016 were the USA, US Virgin Islands and Belize, this development was attributed to an inflow of multiparty cases involving parties from those jurisdictions. Furthermore, given the Virgin Islands and Belize are popular jurisdictions for incorporation of special purpose vehicles, it is possible that those nationalities may not be truly reflective of the nationality of the disputing parties.

The international reach of the ICC was also reflected in the choice of arbitral seats, with ICC arbitrations seated in 106 cities across the world. Interestingly, the number of African cities chosen by the parties as the place for arbitration rose from 2 to 6 (one arbitration in each of Morocco, Nigeria, South Africa, Tanzania, Egypt, and two arbitrations seated in Algeria), although the total number of African-seated cases remains strikingly low (less than 0.01% of the overall new cases filed).

Sector and size of disputes

In 2016, the ICC saw cases arising from the finance and insurance sector grow to match the number of cases relating to the construction and engineering sector, which sector has historically led to the highest percentage of ICC cases.

Equally noteworthy were the amounts in dispute. The ICC reports that, at US$112,259,575, the ICC’s average amount in dispute is higher than the average sums in dispute reported by other institutions. However, it also noted that a significant proportion of the ICC’s caseload involved disputed sums below US$5 million (39%). This is what has led to the ICC introducing an expedited procedure (see our blog post here).

Emergency arbitration

In 2016, 25 applications were made to the ICC for the appointment of an emergency arbitrator.  Six of the applications were granted in full or in part, with the remainder dismissed or withdrawn. The average time to complete the emergency proceedings was 18 days. Whilst in many court systems, a party who could establish requirements of urgency could get interim relief within a shorter period, this timescale is nonetheless impressive and demonstrates the utility of the EA procedure in circumstances in which the parties may not wish to involve the courts. It also underlines the point that the emergency arbitration procedure, a novelty only a few years ago, has now become an established part of the international arbitration landscape.

Investor-state disputes

There were 7 new ICC cases filed in 2016 based on bilateral investment treaties; six related to investments made by Turkish parties in countries in Africa and Central Asia, and the seventh related to a claim by a Spanish investor against a Central American state. The ICC also provided administrative services in an UNCITRAL arbitration brought by Spanish investors against a Latin American state, and has indicated that it will publish a revised framework for its role as appointing authority in ad hoc cases or those under the UNCITRAL Rules.

Arbitrators

  • Nationality

The arbitrators appointed and confirmed to ICC tribunals in 2016 were drawn from 76 different nationalities. There was no change in the six most frequent nationalities appointed or confirmed, with arbitrators from the UK, USA, Switzerland, France, Germany and Brazil being, in that order, the nationalities with the highest percentage of appointments and confirmations.  In terms of region, arbitrators from Europe remain those most frequently appointed, representing 57% of all appointments and confirmations in 2016

  • Gender diversity

A further noticeable development in 2016 was the increase in female arbitrators appointed, from 136 in 2015 to 209 in 2016, representing 15% of all confirmations and appointments last year. In 2016, 41% of appointments of female arbitrators were made by the parties (representing a 62% increase in party appointment of female arbitrators from 2015); 46% were made by the ICC Court; 12% were appointed as president of the tribunal by co-arbitrators; and 1% by another appointing authority. The Equal Representation in Arbitration Pledge, to which the ICC is a signatory, was launched in May 2016. It may therefore be expected to have a more significant impact on the gender diversity statistics in ICC arbitration and other institutional arbitration for 2017, and it is to be hoped that this welcome trend continues.

Awards

The Report also provides information about the awards approved by the ICC Court within 2016. The ICC notes a rise in the number of partial awards, suggesting that this “may reflect an increasing trend to bifurcate proceedings”. The statistics highlight the ICC Court’s role in scrutinising awards, with only 3 out of 479 awards in 2016 approved without any comment at all.  However, there is no data available as to the extent of the scrutiny involved, and in our experience many of the comments submitted to the tribunals in question will relate to format or formality.

The Report does not, however, contain information on the duration of ICC proceedings in total nor the amount of time it has taken ICC tribunals to render an award following the close of proceedings. Moreover, it will be interesting to see whether future Statistical Reports address the practical application of the ICC’s policies of applying discretionary reduction in the tribunal’s fees for a delay in producing awards and reducing the ICC’s own administrative fees for undue delay during the scrutiny process. These policies were introduced in introduced in January and July 2016 respectively (see our blog posts here and here).

Overall, a very strong year indeed for the ICC and one which draws out some interesting trends, particularly in terms of the varying sources of arbitral referrals to the institution.

For more information, please contact Craig Tevendale, Partner, Hannah Ambrose, Professional Support Consultant, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
Email | Profile
+44 207 466 2445
Hannah Ambrose
Hannah Ambrose
Professional Support Consultant
Email | Profile
+44 207 466 7585
Vanessa Naish
Vanessa Naish
Professional Support Consultant
Email | Profile
+44 207 466 2112

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Belgium asks for the CJEU’s opinion on the compatibility of the Investment Court System with European Law

On 6 September 2017 the Belgian Deputy Prime Minister and Minister of Foreign Affairs Didier Reynders submitted a request from Belgium to the Court of Justice of the European Union for an opinion on the compatibility of the Investment Court System (ICS) with the European Treaties.  The Belgian government has made the request in recognition of the concerns raised by the regional assembly of Wallonia about the ICS when it was considering whether or not to sign the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada.

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Filed under EU, EU Law, Europe, ISDS, News, Public International Law

International Arbitration Internship: Applications now open

Herbert Smith Freehills is now accepting applications for two internship opportunities in our international arbitration team in London. The programme offers aspiring arbitration lawyers a chance to work closely with one of the world’s leading specialist arbitration groups.

The two paid internships are for three months each (with no extension), starting in December 2017 or March 2018.

For more details of the role, please click here.

To apply, please visit our careers Page.

Applications must be submitted on or before Friday 22nd September.

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Sovereign immunity in the DIFC Court

Last week, the Dubai International Financial Centre Court issued its decision in Pearl Petroleum Company Limited & Others v The Kurdistan Regional Government of Iraq. The Court upheld its earlier decision which recognised two LCIA arbitration awards totalling US$2 billion issued against the Kurdistan Regional Government of Iraq (the “KRG”) and dismissed KRG’s arguments (1) that the enforcement proceedings should be set aside on the ground that the Court did not have jurisdiction to make such orders against it, and (2) that the DIFC Court should not decide issues of immunity and its waiver. Continue reading

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Filed under Awards, Challenges to awards, DIFC, Enforcement, Jurisdiction, Middle East, Sovereign Immunity

A tale of two BANIs – Uncertainties abound as latest court ruling questions legitimacy of Indonesia’s national arbitration centre

Overview

Since its establishment in 1977, BANI (Badan Arbitrase Nasional Indonesia) has been the most active arbitral institution in Indonesia. With offices across the country, its own rules and procedures and over 100 Indonesian and foreign arbitrators on its list, BANI is well-established and has presided over a steady stream of domestic and international disputes. (Other arbitral institutions exist, but with more limited remits such as Islamic or capital markets transactions.)

For all its success, however (and there can be no doubt that BANI has been a positive influence in the development of Indonesian arbitration), BANI has found itself subject to criticism at various points in its history – most recently that it has been unable to keep up with developments and trends in international arbitration, due to the inflexible nature of its constitution.

September 2016 saw the unexpected establishment of BANI Pembaharuan, a new institution set up to deal with domestic and international general commercial arbitrations. Domestic commentary suggests that BANI Pembaharuan was set up with the stated intention of “institutionalising BANI, not creating a new BANI” (although there is a competing narrative that the BANI Pembaharuan was primarily created because of a disagreement between the BANI’s board members and one of the members of the Indonesian arbitration community).

BANI quickly issued a statement to the effect that it does not recognise BANI Pembaharuan and that its use of the “BANI” acronym is illegitimate. This was followed by multiple proceedings in the Indonesian courts concerning the new institution’s use of the “BANI” name.  Regrettably, this has led to uncertainty as to which institution is rightfully entitled to administer arbitrations where parties have elected to refer to their disputes to “BANI”. Unfortunately, this uncertainty is set to continue for some time, as recent rulings from different courts have been contradictory and are likely to be appealed, prolonging the confusion.

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