Indian Courts settle key issues relating to enforcement of awards

In five recent judgments, the Indian courts have offered important guidance on the enforcement of both domestic and international awards in India.

This post first discusses three judgments of the Supreme Court of India (“Supreme Court“), clarifying the interpretation of the Arbitration and Conciliation Act, 1996 (“Arbitration Act“), in light of recent amendments intended to simplify the enforcement process.

Next, the post covers two judgments of the Delhi High Court and Rajasthan High Court on challenges to enforcement of awards, which offer useful guidance on the courts’ approach to issues of public policy.

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Astro v Lippo: First Media appeal succeeds in Hong Kong

At its final attempt, First Media has overturned the Hong Kong courts’ earlier decisions to enforce five arbitral awards against it.

In a judgment dated 11 April, the Hong Kong Court of Final Appeal (CFA) unanimously allowed First Media’s appeal, set aside the orders of the courts below, and extended time for First Media to apply for leave to set aside the orders granting Astro leave to enforce the awards in Hong Kong.

This is a long-awaited victory for First Media, which has always maintained that the awards were made without jurisdiction, despite its decision not to apply to set aside the tribunal’s award on jurisdiction. However, it is not the final hurdle. First Media must now convince the Court of First Instance, as the enforcing court, to accept its jurisdictional objection and set aside the enforcement orders, while Astro will certainly resist.

Astro Nusantara International B.V. and Others v. PT First Media TBK [2018] HKCFA 12; FACV 14/2017 (11 April 2018) Continue reading

Inside Arbitration: Issue #5 of the publication from Herbert Smith Freehills’ Global Arbitration Practice

We are delighted to share with you the latest issue of the publication from the Herbert Smith Freehills Global Arbitration Practice, Inside Arbitration.

In addition to sharing knowledge and insights about the markets and industries in which our clients operate, the publication offers personal perspectives of our international arbitration partners from across the globe.

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SPC publishes new judicial interpretations on arbitration

The Supreme People’s Court of China (SPC) has released two judicial interpretations (Interpretations) on arbitration. The Interpretations were passed on 20 November 2017 and 4 December 2017. The texts of both were made public on 29 December 2017 and became effective on 1 January 2018. The Interpretations are the latest in a series of steps by the SPC to improve the regime for both domestic and cross-border arbitration in mainland China.

The Interpretations primarily address the judicial review of arbitration cases. The important provisions that have been given effect include:

  • Extending the existing “reporting system” to domestic arbitrations in order to achieve judicial consistency
  • Granting parties limited opportunities to participate in the reporting system to improve transparency
  • Encouraging parties to state expressly the law they intend to govern a foreign-related arbitration agreement
  • Clarifying that the decisions of the PRC Courts under the “reporting system” are not subject to appeal.

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English Court rejects claim that notice of arbitration given in a foreign language is not proper notice

In a dispute between an English company and a Russian company, the English High Court (the Court) refused to set aside an order enforcing a Russian arbitration award on the grounds that the English company had not been given notice of the arbitration or the appointment of arbitrators. The English company claimed that a series of letters in Russian, informing it of the arbitration proceedings, did not constitute proper notice as they were not provided with an English translation. However, as the headings of the letters were in English and contained the English word “arbitration”, and related to a contract in which the company had agreed to Russian language arbitration, the Court held that the English company ought to have known that the documents related to arbitration, and that the letters therefore constituted a valid notice.  The Court’s comments suggest that there are a number of practical steps that a party can take when beginning an arbitration against a counter-party which does business in a language different from that of the notice.  These are discussed further below.

Oao v Magneco Metrel UK Ltd [2017] EWHC 2208 (Comm)

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US Court blocks enforcement of award due to effect of the terms of arbitration agreement

In Diag Human S.E. v Czech Republic Ministry of Health, the United States District Court for the District of Columbia (the Court) has dismissed an application brought by Diag Human (Diag) to enforce a 2008 arbitration award it obtained against the Czech Republic. The decision rests on the implications of triggering a review process that the parties had agreed in their arbitration agreement and is illustrative of the importance in making sure that any bespoke review or appeal proceedings which are agreed by the parties are clear as to their effect on any award.

Background

The background is more fully described in our blog posts here and here. In summary, Diag and the Czech Ministry of Health agreed to arbitrate claims by Diag that the actions of a senior Czech official had crippled its business activities in the Czech Republic. Further to an ad hoc arbitration under the Czech Arbitration Act 1994, and subsequent to the tribunal having issued an interim award and a partial award (the Partial Award), a final award (the Award) was issued in 2008 ordering the Czech Republic to pay Diag over US$325m in damages as well as both pre and post-award interest. However, the arbitration agreement provided for a review process, under which “an arbitral award could be subject to review by a second tribunal of arbitrators…selected in the same manner as the first and subject to the same rules of procedure” if a party submitted an application for review within 30 days of receipt of the award to be reviewed. If no application for review was submitted within 30 days, then the award would take effect and be enforceable. Both parties triggered the review process in relation to the Award within the 30 day period (although Diag later withdrew its application) and a second tribunal (the Review Tribunal) was constituted to review the Award. The Review Tribunal issued its final resolution (the Resolution) in 2014. The Review Tribunal upheld the Czech Republic’s position that, under Czech law, the Partial Award constituted the entire award issued to Diag. On this basis, it decided in its Resolution that: (i) the review proceedings are discontinued and (ii) neither party shall be entitled to compensation of the costs of the review proceedings. As discussed further below, in these enforcement proceedings before the Court each party took a different position on how the Resolution affected the Award.

Enforcement Proceedings During the Review

Diag brought a series of legal proceedings in a number of jurisdictions concurrent with the review process in an attempt to enforce the Award. The Austrian courts in 2013 determined that the Award could not be binding as the review process was still pending at the time, and a similar decision was taken in the French courts the following year. An application in the English courts was again met with a dismissal due in part to the fact that the review process had been triggered, and also due to the determination that the decision in the Austrian courts created an issue estoppel (see our blog post here).

Enforcement Proceedings Following the Review

In the US, Diag filed an application to enforce the Award in 2013. The Czech Republic moved to dismiss the complaint on numerous grounds and the dismissal was granted after the judge found that the parties did not have a commercial relationship and as such the Czech Republic benefitted from sovereign immunity. This decision was overturned in 2016 by the US Court of Appeals for the DC Circuit, which remanded the case to the lower court. See our blog post here.

The case therefore once again came before the Court. In these proceedings the Czech Republic argued, amongst other things, that the Resolution nullified the Award and therefore there was nothing to enforce. Diag contested that the Resolution had no effect on the Award because it was procedural in nature only, and that only the “decretal” paragraphs of the Resolution (discontinuing the review proceedings and deciding that each side should bear its own costs thereof) had any legal effect.  On this basis, Diag argued that the discontinuation of the review proceedings left the Award intact and enforceable.

The judgment

The Court determined the Award was not a final award that could be enforced under the New York Convention 1958. The Convention provides a number of grounds on which courts may to refuse or defer recognition of a foreign arbitral award, one of which is if the party challenging the enforcement is able to show that the “award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made“.

The arbitration agreement stated that any award “will enter into effect” and the parties will implement the award “if the review application of the other party has not been submitted in the deadline“. However, a review application had been submitted by the Czech Republic within the 30 day deadline so the Award was held not to have entered into effect. The discontinuation of the review proceedings by the Review Tribunal in 2014 effectively ended the arbitration. Therefore by operation of the parties’ own arbitration agreement, the Award never took effect and so never became binding.

Comment

Whilst a refusal to enforce a foreign award under the New York Convention often causes concern, this decision highlights the importance the Court placed on the terms of the parties’ arbitration agreement.  The Court has blocked Diag from being able to enforce the Award, however the decision is consistent with a respect for party autonomy and freedom of contract, as well as showing deference to the jurisdiction of the arbitral tribunal. As the Judge stated in her decision, the courts are “neither authorised to second guess the…[Review] Tribunal’s [R]esolution nor ignore the terms of the arbitration agreement“. The outcome of the US proceedings is consistent with the outcome in other pro-arbitration jurisdictions in which Diag has sought to enforce the Award.

It is important for parties to consider carefully how any review process in an arbitration agreement will operate, the implications for enforcement of an award once that review process has been triggered and whether the outcome of a review will deliver sufficient clarity in relation to the effect on any previous award.

For more information, please contact Christian Leathley, Partner, Amal Bouchenaki, Of Counsel, Hannah Ambrose, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

 

Christian Leathley
Christian Leathley
Partner
+1 917 542 7812
Amal Bouchenaki
Amal Bouchenaki
Of Counsel
+1 917 542 7830
Hannah Ambrose
Hannah Ambrose
Professional Support Consultant
+44 207 466 7585

 

Paris court rejects application for review and withdrawal of arbitral enforcement order, despite allegations of fraud

The Paris Court of First Instance has rejected an application for the review and withdrawal of an enforcement order of an arbitral award, despite allegations of fraud and collusion between the arbitrator and the claimant. It also refused to the state’s request to stay enforcement proceedings until the issuance of a decision in proceedings appealing the arbitral award before the Common Court of Justice and Arbitration.

The case demonstrates the deference given to international arbitral awards by French courts in enforcement proceedings and the limited ability of the courts to review the underlying award. It also reiterates that, as a matter of principle, the only recourse available against an order granting enforcement of a foreign award is an appeal on the grounds permitted under Article 1525 of the French Code of Civil Procedure (CPC). Courts will be restrictive in their interpretation of the CPC and any application for the review or withdrawal of an enforcement order of an international arbitral award is likely to fail. A party will have no means of challenging the enforcement order, absent an appeal under Article 1525 of the CPC, even in cases where allegations of fraud and collusion have been made. (La République du Niger v Africard Co Ltd, Tribunal de grande instance de Paris, summary judgment (ordonnance de référé)).

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

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

Enforcement and dispute resolution under the Withdrawal Agreement and any future relationship agreement: no role for the CJEU….or is there?

On its face, the thrust of the UK Government’s Future Partnership Paper on Enforcement and Dispute Resolution (the Paper), published on 23 August, is to rule out the jurisdiction of the Court of Justice of the European Union (CJEU) to determine the enforcement of rights and obligations by individuals and businesses derived under the Withdrawal Agreement (and any future relationship agreement) and disputes between the EU and the UK.  Since the Paper was published, the Prime Minister has again reiterated the Government’s position that “the UK will be able to make its own laws – Parliament will make our laws – it is British judges that will interpret those laws, and it will be the British Supreme Court that will be the ultimate arbiter of those laws.”

However, as discussed below, whilst perhaps consistent with the stage of negotiations, the Paper is drafted to leave considerable room for manoeuvre, and it leaves many questions unanswered regarding enforcement of rights and obligations under the Withdrawal Agreement and any future relationship agreements and dispute resolution between the UK and the EU after Brexit.

The Paper follows the publication on 22 August of the UK Government’s Future Partnership Paper on Providing a Cross-border Civil Judicial Cooperation Framework, considered in our blog post here, which presented the UK’s position on the extent to which current EU rules on choice of law, jurisdiction and enforcement of judgments should continue to apply as between the UK and the EU Member States post-Brexit. Continue reading