GIVE MANDATORY MEDIATION A CHANCE: INSIGHTS FROM THE LCAM-HSF SURVEY ON COMPULSORY MEDIATION

Study shows support by members of the dispute resolution community for some degree of mandatory mediation in both litigation and arbitration proceedings.

Please use this link to access the recording of a live webinar in which Craig Tevendale, Chris Parker KC, Gill Mansfield and Jonathan Wood discuss the survey’s outcomes. 

Herbert Smith Freehills partnered with the London Chamber of Arbitration and Mediation (LCAM) to conduct a survey of perspectives on compulsory mediation in arbitration and mediation (the Survey). The results are in and we are pleased to share the insights they provide. Continue reading

THE FINAL DECISION IN THE VIDATEL CASE: THE APPLICATION OF THE PRINCIPLE OF EQUALITY IN THE CONSTITUTION OF THE ARBITRAL TRIBUNAL

In Vidatel v. PT Ventures, Mercury and Geni case (Cass. Civ. 1ère, 9 November 2022, No 21-17203), the French Supreme Court upheld the 2021 decision of the Paris Court of Appeal (26 January 2021, n°19/10666), rejecting Vidatel Ltd’s (Vidatel) request to set aside the 2019 ICC award rendered in favour of PT Ventures SGPS (PTV).  This case provides interesting further guidance on how the French courts may approach the principle of equality and how it can interact with the parties’ arbitration agreement.

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PRIVATE EQUITY FIRM PREVAILS OVER INDIAN PROMOTOR’S GUERRILLA TACTICS, MAKING NEW LAW ON THE ARBITRABILITY OF DISPUTES IN SINGAPORE

In an ugly corporate divorce related to an online matrimonial website, the Singapore Court of Appeal decided that the arbitrability of a dispute will be determined at the pre-award stage by reference first to the law governing the arbitration agreement (Anupam Mittal v Westbridge Ventures II Investment Holdings [2022] SGCA, available here).

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Arbitration, the creature which can be tamed: the Federal Court of Australia clarifies the interplay between a non-municipal legal system and the statutory regime for enforcement of arbitral awards

A drawcard for arbitration is its flexible nature, which makes it a suitable mechanism for resolving a wide range of bespoke disputes. This flexibility can allow a tribunal to resolve disputes in accordance with specific laws and procedures which the parties select – including non-municipal systems of law.

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HONG KONG COURT CONSTRUES INCONSISTENT DISPUTE RESOLUTION CLAUSES IN RELATED CONTRACTS

In a recent decision that involved interlinked agreements containing different dispute resolution clauses, the Hong Kong Court of First Instance refused to stay court proceedings in favour of arbitration, on the basis that the centre of gravity of the dispute did not fall within the contracts that contained the arbitration agreement.

Zpmc-Red Box Energy Services Limited v Philip Jeffrey Adkins and Others [2021] HKCFI 3501

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Full Court of the Federal Court of Australia gives guidance on award enforcement

In an appellate judgment, the Full Court of the Federal Court of Australia has ruled that a foreign arbitral award is not enforceable because the arbitral tribunal was not constituted strictly in accordance with the parties’ arbitration agreement. Notably, the decision also considers the courts’ discretion to enforce an award even where a party establishes a ground for non-enforcement, an issue on which there was previously “no authoritative statement in Australia”.

The Full Court allowed an appeal from its first instance decision that enforced a foreign award pursuant to the International Arbitration Act 1974 (Cth).

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ENGLISH SUPREME COURT TO DECIDE APPROACH TO DETERMINING GOVERNING LAW OF ARBITRATION AGREEMENT

On 27 and 28 July 2020, the Supreme Court heard an expedited appeal against a recent judgment of the Court of Appeal in Enka Insaat ve Sanayi AS v OOO Insurance Co Chubb [2020] EWCA Civ 574, which we discussed in one of our previous blog posts. The Supreme Court is asked to consider two issues: (i) the correct approach to determining the proper law of an arbitration agreement; and (ii) the role of the court of the seat of arbitration in determining whether foreign proceedings give rise to a breach of an agreement to arbitrate.

Background

In June 2020, the Supreme Court allowed OOO Insurance Co Chubb (“Chubb Russia”) to proceed with its appeal against the judgment in favour of Enka Insaat ve Sanayi AS (“Enka”). Chubb Russia was seeking to overturn the decision of the Court of Appeal, which precluded it from pursuing a subrogation claim in the Russian courts (the “Russian Court Claim”). The Court of Appeal had determined that the Russian Court Claim was brought in breach of the arbitration agreement (the “Arbitration Agreement”) in the main contract (the “Contract”).

The decision of the Court of Appeal

The Court of Appeal concluded that: (i) the English court as the court of the seat was necessarily an appropriate court to grant an anti-suit injunction and questions of forum conveniens did not arise; and (ii) the Arbitration Agreement in the Contract was governed by English law. In particular, on issue (ii) the Court of Appeal held that there was nothing to suggest an express choice of Russian law as the governing law of the Contract and/or the Arbitration Agreement. Accordingly, in the absence of any countervailing factors which would point to a different system of law, the parties had impliedly chosen that the Arbitration Agreement was governed by the law of the seat, i.e. English law.

The Court of Appeal emphasised that if there is no express choice of law in an arbitration agreement itself, then it is necessary to review whether the express law of the main contract also applies to the arbitration agreement. However, the law of the contract would apply to the arbitration clause only in the minority of cases. In “all other cases, the general rule should be that the…[arbitration agreement]  law is the curial law, as a matter of implied choice”, unless there are powerful factors to counter this being the implied choice of law. If there is no implied choice of law, the law of the arbitration agreement will be the system of law with which the arbitration agreement has its closest and most real connection.

Russian court proceedings

As noted in our previous blog post, Chubb Russia filed the Russian Court Claim in May 2019. The decision of the first instance court dismissing the claim was published in full in May 2020. Although the Russian Court Claim was dismissed, the court also dismissed Enka’s motion seeking dismissal without considering the merits of the case in reliance on the Arbitration Agreement, noting that the dispute did not fall within the Arbitration Agreement. Both Enka and Chubb Russia appealed, and the Russian appellate court is due to hear the appeal at the end of October 2020.

Supreme Court hearing: brief overview of the parties’ positions

Overview of submissions made by Chubb Russia

Chubb Russia argued that the Arbitration Agreement formed an integral part of the Contract, and therefore, upon the application of the rules of contractual construction, the Arbitration Agreement should be governed by the same system of law as the Contract (i.e. Russian law, being the law impliedly chosen by the parties). Chubb Russia also argued that it would be just and convenient for the English court to stay the English proceedings to allow the Russian court to determine whether it had jurisdiction to hear the Russian Court Claim.

Overview of Enka’s submissions

Enka argued that the Arbitration Agreement was a separate contract, and the starting point should accordingly be the Arbitration Agreement itself (rather than the Contract, as suggested by Chubb). By agreeing to arbitration seated in London, the parties (i) impliedly agreed that the Arbitration Agreement was governed by English law; and (ii) therefore submitted to the jurisdiction of the English courts to grant an injunction to restrain a breach of the Arbitration Agreement and to determine whether there was such breach.

Comment

This case is likely to become the leading English law authority on the applicable principles relating to the approach to determining the proper law of an arbitration agreement. It remains to be seen whether the Supreme Court agrees with the Court of Appeal in relation to the significance of the law of the seat for the purpose of determining the proper law of the arbitration agreement.

For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, Olga Dementyeva, Associate or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445

Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

Olga Dementyeva
Olga Dementyeva
Associate
+44 20 7466 7644

ENGLISH COURT OF APPEAL UPHOLDS STAY OF COURT PROCEEDINGS IN FAVOUR OF ARBITRATION, AS RELIEF UNDER THE COMPANIES ACT 2006 FELL WITHIN THE ARBITRATION AGREEMENT AND WAS ARBITRABLE

In Bridgehouse (Bradford No. 2) Ltd v BAE [2020] EWCA Civ 759, the English Court of Appeal upheld a stay of court proceedings in favour of arbitration under s9 of the English Arbitration Act 1996 (the “Arbitration Act”). The issue in dispute related to a company’s claim for relief under section 1028(3) of the Companies Act 2006 (the “Companies Act”), a provision which gives the court the power to give directions to put a previously dissolved but restored company in the same position as if it had never been dissolved.

The Court of Appeal rejected Bridgehouse’s (“BB2”) arguments, finding that the dispute fell within the parties’ arbitration agreement and was capable of arbitration. This decision is significant because it once again confirms the starting presumption that by entering into an arbitration agreement, the parties intend to arbitrate all disputes between them. It also analyses the extent to which disputes that engage public interest factors or may require the involvement of the courts or third parties can be arbitrable.

Facts

BAE Systems plc (“BAE”), entered into a contract (“the Contract”) with BB2 under which BAE was to procure the sale to BB2 of two parcels of land for sums totalling £93 million. The Contract stated that if BB2 suffered an “Event of Default”, BAE had the right to terminate the contract. An “Event of Default” included “being struck off the Register of Companies or being dissolved or ceasing for any reason to retain its corporate existence”.

On 31 May 2016, BB2 was struck off the register and dissolved for failure to file its accounts and annual return for the year ended 31 December 2015. BAE gave notice to terminate the Contract on the basis that there had been an Event of Default.

On 24 June 2016, BB2 made a successful application to the Registrar of Companies for administrative restoration. Section 1028(1) of the Companies Act provides that “The general effect of administrative restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.” Therefore, BB2 was effectively restored to its pre-dissolution position.

The Contract contained two conflicting dispute resolution provisions. Clause 19.1(a) of the Contract was to apply if “any dispute arises between the parties to this agreement arising out of the provisions of this agreement”, in which case the dispute was to be referred to ad hoc arbitration (the “Arbitration Clause”). Separately, the Contract contained a jurisdiction clause providing that the English courts had exclusive jurisdiction to settle disputes.

BAE initially issued proceedings in the Chancery Division seeking a declaration that the Contract had been validly terminated. However, following BB2’s successful application under section 9 of the Arbitration Act for a stay in favour of arbitration, the matter was referred to arbitration.

The arbitration

The arbitrator determined that BAE had validly terminated the Contract. The Arbitrator rejected, among others, BB2’s contention that any effective termination had to be reassessed retrospectively as a result of BB2’s restoration to the register by virtue of section 1028(1) of the Companies Act. The Arbitrator considered that section 1028(1) did not serve to undo BAE’s decision to terminate the Contract during the period between striking off and restoration.

In its submissions in the arbitration, BB2 reserved the right (if its primary position failed) to make an application to the court for relief under section 1028(3) of the Companies Act, which provides that the court has the power to “give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register”.

Chancery Division proceedings

As foreshadowed in its reservation of rights in the arbitration, and following an unsuccessful challenge to the arbitral award under s69 of the Arbitration Act, BB2 issued a claim in the Chancery Division seeking relief under section 1028(3) of the Companies Act.

BAE applied for BB2’s claim to be stayed under s9 of the Arbitration Act, claiming that any such dispute should also be resolved by (a second) arbitration. BB2 opposed this application for a stay, arguing primarily that its claim did not fall within the scope of the Arbitration Clause of the Contract because it did not arise out of the provisions of that Contract. If that was wrong, BB2 contended that the arbitration agreement was “inoperative” because the dispute was not capable of being settled by arbitration, on the basis that either the Arbitration Act or English public policy prohibited the reference of statutory remedies such as this one to arbitration.

The Chancery Division granted a stay in favour of arbitration, and BB2 appealed. The questions for the Court of Appeal were:

  • Did the Arbitration Clause apply to BB2’s claim for relief under section 1028(3) of the Companies Act?
  • Was that application in any event capable of arbitration (in other words, was the dispute “arbitrable”)?

Court of Appeal proceedings

Applicability of the Arbitration Clause

BB2 argued that the issue between the parties no longer arose out of the provisions of the Contract, which was the purported scope of the Arbitration Clause. Instead, the question was whether statutory relief should be granted. BB2 relied in particular on the fact that section 1028(3) of the Companies Act is, in principle, capable of affecting third parties, who would not be bound by the outcome of the arbitration.  BB2 said that made it inherently unlikely that the Arbitration Clause was intended to apply to such matters. BB2 also relied on the exclusive jurisdiction clause in the Contract, which it said was evidence that the parties envisaged some matters would fall outside the scope of the Arbitration Clause and fall to be determined by the courts rather than in arbitration.

In rejecting these arguments and determining that the dispute “arose out of the provisions of the Contract”, the Court of Appeal held as follows:

  1. BB2 only required the relief because BAE had terminated the Contract. The fact that the dispute related to whether relief should be given pursuant to statute did not mean that it did not also arise out of the Contract.
  2. The question of whether BB2 was entitled to relief under section 1028(3) of the Companies Act was intimately connected with section 1028(1), a provision which had already been ruled on by the arbitrator, so it clearly fell within the arbitrator’s remit.
  3. Following Fiona Trust, there was a presumption that the parties are likely to have intended any dispute arising from their relationship to be decided by the same tribunal. It could not be inferred from the existence of the exclusive jurisdiction clause that the Arbitration Clause was of more limited application than it would otherwise be taken to have. The exclusive jurisdiction clause ensured that the English courts would have jurisdiction over issues arising from the arbitration or an expert determination (as the Contract provided that an independent person could act as an expert rather than arbitrator). The Arbitration Clause should therefore be presumed to apply to this dispute.
  4. Very often, and indeed in this case, an application under section 1028(3) of the Companies Act would be of no significance to anyone but the immediate parties. If in a particular case third party interests were engaged, that might have implications for the relief that an arbitrator could grant. But that did not mean that disputes as to the application of section 1028(3) could not fall within the Arbitration Clause at all.

Arbitrability

The court considered both whether the Companies Act prohibited reference to arbitration and whether arbitration was precluded by public policy considerations. BB2 argued that applications under section 1028(3) engaged public interest factors which rendered them unsuited to arbitration, which is why Parliament tasked “the court” with granting relief. They were ancillary to applications to restore a company to the register, which could not be determined by arbitration.

The Court of Appeal held that the dispute was capable of arbitration:

  1. There was nothing in the Companies Act which precluded arbitration, including the reference to “the court” in section 1028(3). The fact that an arbitrator cannot grant all the remedies available to a court is not a reason to treat an arbitration agreement as having no effect, and is not determinative of whether the subject matter is arbitrable.
  2. Section 1(b) of the Arbitration Act explains that it is founded on the principle that the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest. Following previous case law, this was a “demanding test”.
  3. Relief under section 1028(3) did not affect company status and an application for such relief would normally be private, affecting only the company and one or more specific individuals or entities. This was comparable to essentially “internal disputes” which were the subject of unfair prejudice petitions under section 994 of the Companies Act, and which had already been held by the English court to be arbitrable.[1] There was a distinction between statutory sections which were motivated by public policy considerations and those which needed to be the subject of court proceedings out of public interest.
  4. Applications under section 1028(3) of the Companies Act were not unsuited to an arbitrator: they required consideration of what directions and provisions were just for placing that company and other persons in the same position as if it had not been dissolved or struck off, which fell within the arbitrator’s capabilities. Although this could lead to procedural complexity (as there would inevitably need to be an order for restoration made by the court), procedural complexity alone would not generally be capable of giving rise to non-arbitrability. Indeed, section 48 of the Arbitration Act provides for an arbitrator to have “the same powers as the court…to order a party to do or refrain from doing anything”.

The Court of Appeal dismissed the appeal.

Comment

This case is a further reminder that the English courts will give short shrift to arguments which seek to undermine the parties’ arbitration agreement. Where parties agree to arbitrate, they will be held to their bargain, and the court will construe potentially competing dispute resolution provisions to give effect to that agreement to arbitrate.

The Court of Appeal’s judgment is also significant because it analyses the circumstances in which a dispute is capable of being arbitrated where statutory provisions involving the court are engaged. In addition to drawing a close analogy with Fulham Football Club (1987) Ltd v Richards (where arbitration was held to be available in the context of unfair prejudice petitions under section 994 of the Companies Act), the court also referred to a similar conclusion reached by the Singapore Court of Appeal in Tomulugen Holdings Ltd v Silica Investors, in which it held that minority shareholder claims are arbitrable.

It is clear that exceptions to party autonomy in order to safeguard public interests are subject to a demanding test – they require an impact on company status, and implications beyond the company and any particular counterparty (key examples of non-arbitrable questions being the winding up and restoration of companies). Disputes are likely to be arbitrable where they are private, essentially “internal” in nature and do not affect the “status” of the company. Moreover, procedural complexity or potential impact on third parties are not complete barriers to arbitration, even if some issues will need to be determined by the court.

For more information, please contact Craig Tevendale, Partner, Elizabeth Kantor, Associate, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445

Elizabeth Kantor
Elizabeth Kantor
Senior Associate
+44 20 7466 2406


[1]        Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, [2012] Ch 333

MALAYSIA: COURT OF APPEAL REFUSES STAY OF PROCEEDINGS WHERE PARTY ACTS INCONSISTENTLY WITH AN EXPRESS RESERVATION OF RIGHT TO REFER DISPUTE TO ARBITRATION

On 10 June 2020, the Court of Appeal in Yeo Eng Lam v Infinity Vantage Sdn Bhd (Civil Appeal No. N-02(IM)(NCvC)-507-03/2018, Court of Appeal considered whether an express reservation of a right to refer a dispute to arbitration in a defence and counterclaim pleading was effective to preserve a right to elect to arbitrate a dispute wrongly commenced in court. The court also considered whether an application to disqualify solicitors in the disputed court proceedings amounts to a step in the proceedings which would preclude a party from staying the court proceedings in favour of arbitration.

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DON’T COUNT YOUR CHICKENS: AUSTRALIAN COURT FINDS UNLIQUIDATED DAMAGES CLAIM OUTSIDE THE SCOPE OF A NARROWLY DRAFTED ARBITRATION AGREEMENT

In Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82, the New South Wales Court of Appeal found that a claim for unliquidated damages for breach of contract could not be referred to arbitration because it was not within the scope of a narrowly drafted arbitration agreement. Relevantly, the scope of the arbitration agreement was confined to disputes concerning “any monetary amount payable and/or owed by either party to the other under this Agreement.”

The case is a further reminder to parties that they will almost always be best served by drafting the scope of the submission to arbitration broadly.

Background

Inghams entered into a ‘chicken growing contract’ with Mr Hannigan (Agreement), under which Inghams paid Mr Hannigan to receive batches of chicks, grow them into chickens, and return them. Clause 23 of the Agreement contained a multi-tiered dispute resolution clause requiring a dispute first to be mediated and then submitted to arbitration under clause 23.6 if:

  • the parties “fail to resolve the Dispute in accordance with Clause 23.4 within twenty eight (28) days of the appointment of the mediator”; and
  • the dispute “concerns any monetary amount payable and/or owed by either party to the other under this Agreement, including without limitation matters relating to determination, adjustment or renegotiation of the Fee” under certain sections of the contract.

Inghams purported to terminate the Agreement. Mr Hannigan was successful in seeking a court declaration that the purported termination was wrongful and Inghams resumed supplying batches of chicks to him. Mr Hannigan did not seek damages in the proceedings, but made express reservations of his right to do so.

Mr Hannigan then issued a dispute notice to Inghams seeking damages due to loss of profits for the failure to supply chicks to Mr Hannigan between the date of the purported termination and the date supply resumed. The parties unsuccessfully attempted to mediate and Mr Hannigan contended that clause 23.6 the Agreement entitled him to refer the dispute to arbitration. Inghams commenced proceedings in the New South Wales Supreme Court to restrain the arbitration, seeking declarations that:

  1. Mr Hannigan’s damages claim did not fall within clause 23 of the Agreement; and
  2. even if it did, Mr Hannigan had waived any entitlement to arbitrate the dispute under clause 23 because of his commencement of the wrongful termination proceedings.

The primary judge held that Mr Hannigan was entitled to refer his damages claim to arbitration under clause 23.6 of the Agreement. Inghams appealed, arguing the primary judge erred by:

  1. construing the contract such that the damages claim fell within clause 23.6 and could be referred to arbitration; and
  2. not finding that Mr Hannigan had waived his right to refer the dispute to arbitration.

Decision

Meagher and Gleeson JJA agreed with Inghams and allowed the appeal with costs, finding:

  • The claim for damages was not an amount that was “payable” or “owed” as a result of an express or implied term of the Agreement. The dispute was not one which affected or related to the negotiation, adjustment or determination of any amount “payable” or “owed” under such a term. Accordingly, the dispute did not concern a monetary amount payable under the Agreement.
  • There is an important distinction between monetary amounts which are payable or owed “under a contract” and remedies which arise by operation of law. Whereas liquidated damages are recoverable by a contractual right of recovery, unliquidated damages for breach of contract “are compensation assessed by the court in accordance with common law principles for loss occasioned by breach”.
  • As the dispute was not required to be referred to arbitration, the waiver issue did not arise. If the dispute had been required to be referred to arbitration, Mr Hannigan had not waived his right to do so.

Bell P dissented, holding:

  • The dispute resolution clause should be construed broadly, based on legal principles and textual indications in clause 23.6 which suggest the parties intended it be interpreted liberally, including the use of:
    • the indefinite pronoun “any” in the phrase “any monetary amount”;
    • the alternative formulation “payable and/or owed”;
    • the phrase “including without limitation”; and
    • the broader concept of “monetary amount” instead of “fees”.
  • Mr Hannigan had not waived his right to arbitration because the wrongful termination proceedings did not result in, or occur because of, Mr Hannigan unequivocally abandoning any right claim damages for breach of contract in arbitration at some future time.

Comment

The majority decision follows the recent High Court of Australia decision in Rinehart & Anor v Hancock Prospecting Pty Ltd & Ors [2019] HCA 13, which eschewed adopting the Fiona Trust principle as a principle of Australian law. In Rinehart, the High Court emphasised the importance of construing the words of an arbitration clause, like any clause in an agreement, in its context.

In this case, applying that approach, the narrow formulation found in the arbitration clause (“monetary amount payable and/or owed … under the Agreement”) led to the result that claims for unliquidated damages were outside the scope of the arbitration agreement.

Had the parties used a broader formulation, as is recommended by many arbitral institutions (such as “arising out of or in connection with” or a variant thereof), it is likely the outcome would have been different.

The case therefore serves as another reminder that parties should take care when drafting an arbitration agreement, and seek expert advice from practitioners with expertise in the field when deviating from the model clauses recommended by leading arbitral institutions.

For further information, please contact Brenda Horrigan, Head of International Arbitration (Australia), Chad Catterwell, Partner, Nicholas Brewer, solicitor, or your usual Herbert Smith Freehills contact.

Brenda Horrigan
Brenda Horrigan
+61 2 9225 5536

Chad Catterwell
Chad Catterwell
+61 3 9288 1498

Nicholas Brewer
Nicholas Brewer
+61 3 9288 1049