INSIDE ARBITRATION: ISSUE #8 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. We once again take a regional focus, turning to our practitioners in Europe for their latest insights.

The full digital edition can be downloaded in PDF via the link below.

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In addition to sharing knowledge and insight 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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CONTRACTUAL DISPUTE ARISING OUT OF HACKING: ENGLISH COURT CONSIDERS CHALLENGE TO AWARD UNDER s68 AND s69 OF THE ARBITRATION ACT 1996

In a rare example of a successful challenge under s68 of the Arbitration Act 1996 (the Act), in K v A [2019] EWHC 1118 (Comm), the English Court held that there was a serious irregularity when the GAFTA Board of Appeal (the Tribunal) found K liable based on an interpretation of a clause in the contract which had not been argued by A. The Court concluded that the Board may have reached a different view if K had had an opportunity to address the argument, and remitted the Award back to the Tribunal. The application for leave to appeal under s69 of the Act was rejected as the Court found that there was no error of law in the Tribunal’s finding that the payment obligation on K was to make payment into A’s account, not just to A’s bank.

The case arose following the hacking of the intermediary broker’s (V‘s) email accounts. Whilst A had provided the correct account details to V, the details provided to K (purportedly by V but actually by the fraudster), resulted in the payment of the contract price into the fraudster’s account. After discovery of the fraud, a payment shortfall arose out of complications in the eventual payment of the purchase price to A. A sought to recover the shortfall in the arbitration.

The case shows the importance of understanding where the risk passes under a contract for fraud or hacking of the type which can interfere with performance by the parties of their contractual obligations.

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FINAL DUTCH MODEL BIT PUBLISHED: POTENTIAL FOR CLAIMS AGAINST INVESTORS AND LINK BETWEEN GENDER EQUALITY AND INVESTMENT

The Dutch Government has recently published the final version of its model Bilateral Investment Treaty (the Model BIT). The key changes since the May 2018 Draft Model BIT (discussed in our blog post here) are addressed below.

The Model BIT includes some practical guidance for investors as to how the requirement of “substantive business interests” in a Contracting Party may be fulfilled. Among the innovative provisions, it includes a potential liability on investors in their home State for significant damage, personal injury or loss of life caused in the host State and a commitment to promote equal opportunities and participation for women and men in the economy.

The Model BIT reflects a change in emphasis in modern international investment agreements. The investor protections remain but there is an undoubted rebalancing of the operation of those provisions in the context of the treaty as a whole to address what is perceived by many to be a historic investor-bias in treaty drafting. Further, the Model BIT seeks to implement policy aims through a number of provisions which require recognition of, or aspirational behaviour towards, the achievement of certain development goals by the Contracting Parties.

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The discontinuation of LIBOR and arbitration: issues of substance and procedure for parties and arbitrators

The global financial markets are currently preparing for the phasing out of the London Inter-bank Offered Rate (or LIBOR) and other Inter-bank Offered Rates (or IBORs). LIBOR is the most widely used benchmark interest rate globally, employed in an estimated US$350 trillion worth of financial contracts worldwide. LIBOR may also be used in commercial contracts – for example, in price adjustment mechanisms in share purchase agreements, price escalation clauses or as a reference rate for contractual interest on late payments. LIBOR may also be specified in arbitration clauses as a benchmark rate for interest on the award.

Many financial instruments affected by the discontinuation of LIBOR will include arbitration clauses. As discussed below, whilst the substantive disputes arising from the end of LIBOR will be the same whether they are resolved in a court or by an arbitral tribunal, there are some additional considerations particular to the arbitration process which are relevant in the context of LIBOR discontinuation disputes. Further, even when determining a dispute which does not arise from the end of LIBOR, arbitral tribunals may have to grapple with how to award interest where an arbitration clause uses LIBOR as a reference point. Read more in the E-bulletin here.

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Third party intervention in investment arbitration: Tribunal admits NGO submissions in Gabriel Resources’ claim against Romania concerning mining project

The Tribunal in Gabriel Resources v Romania recently issued an order (the Order) in response to an application (the Application) made by three Romanian NGOs, as non-disputing parties, for participation and an amicus submission (the Submission) in an ICSID arbitration under the Canada-Romania BIT (the BIT). Gabriel Resources’ allegations of breach of the BIT arise in relation to a proposed open pit mining development in Roşia Montană, Romania (the Project) which was not implemented.

The Tribunal granted the Application in part, admitting only certain sections of the Submission to the extent that they referred to factual issues within the specific knowledge of the Applicants and in relation to the interests which the Applicants claim to be protected.  However, the Tribunal denied admission to arguments on the law, as well as references to or reliance on testimonies which could not be tested by cross-examination. The Tribunal also rejected the NGOs’ request to attend and participate in the oral hearing.

The Tribunal’s analysis of the conditions relevant to an application by non-disputing parties – and its approach of considering each section of the Submission in relation to those conditions (rather than the Submission as a whole) – provides a significant contribution to jurisprudence in this area. The application in Gabriel Resources is also consistent with a general increase in such third party interventions, particularly in disputes which touch on issues of public interest, such as environmental protection, public health measures, labour standards, cultural rights and/or human rights.  Such a trend is likely to continue with civil society becoming more active in this context.

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Advocate General finds that CETA’s “Investment Court System” is compatible with EU law

One of the Advocates General to the Court of Justice of the European Union, Advocate General Bot, has issued an opinion confirming that the mechanism for the settlement of disputes between investors and states provided for in the Comprehensive Economic and Trade Agreement  between the EU and Canada (the CETA) is compatible with European Union law.

We discuss the content of the Advocate General’s opinion on our new blog piece, published on our Public International Law blog here.

For further information please contact Andrew Cannon, Partner, Hannah Ambrose, Senior Associate, Vanessa Naish, Professional Support Consultant, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852
Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585
Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

English Court rejects Ukraine’s attempt to set aside enforcement order on grounds of state immunity

The English Court (the “Court“) has dismissed an application by Ukraine to set aside a court order permitting Russian investor, PAO Tatneft, to enforce an arbitral award against Ukraine.  Ukraine argued that it was immune from the Court’s jurisdiction by virtue of the State Immunity Act 1978. The Court found that Ukraine had not waived its right to rely on state immunity arguments, despite not having raising them in the arbitration. However, it found that Ukraine had agreed to submit the disputes in question to arbitration under the Russia-Ukraine Bilateral Investment Treaty (the “BIT“) and was therefore not immune from proceedings in connection with the arbitration by virtue of s9(1) of the State Immunity Act 1978 (“SIA“).

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Inside Arbitration: Issue #6 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 insight 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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Reliance v Union of India: English Court confirms that there is no serious irregularity under s68(2)(a) if an issue of construction decided by the tribunal is “squarely in play”

In Reliance Industries Limited & Ors v The Union of India [2018] EWHC 822 (Comm) the English commercial court (the Court) considered a number of challenges to parts of an arbitration award brought under sections 67, 68 and 69 of the Arbitration Act 1996 (the  Act).

The decision provides useful guidance regarding the requirements to be satisfied should a party wish to challenge an award due to a “serious irregularity” under the Act. In particular, the Court confirmed that the general duty under s33 of the Act to give each party a reasonable opportunity to present its case was satisfied if the “essential building blocks” of the tribunal’s analysis and reasoning were in play in relation to an issue, even where the argument (in this case on a point of construction) was not articulated in the way adopted by the tribunal.

In addition to the issues discussed in this blog post, the Court considered the foreign act of state doctrine. This challenge is discussed in a post on our Public International Law Notes blog here.

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State to state dispute resolution in the UK Government’s White Paper: arbitration with a potential role for the CJEU

The White Paper published yesterday, “The Future Relationship between the United Kingdom and the European Union”, includes the UK Government’s proposal for the resolution of disputes between the UK and the EU under what the UK Government views as an “Association Agreement”. This Association Agreement would form the institutional framework for the relationship, with a number of separate agreements (the majority falling within this institutional framework), each covering different elements of economic, security and cross-cutting cooperation.

Under the institutional framework there would be a UK-EU Governing Body, and under that Governing Body and answerable to it, a Joint Committee which would be responsible for the effective and efficient administration of the agreements. The Joint Committee, “through regular and structured dialogue”, would seek to prevent disputes arising, or otherwise play a role in resolving them.

The White Paper emphasises the potential for resolution of disputes through dialogue and non-formal means. However, it also outlines a potential dispute resolution process to ensure that the obligations contained in the institutional framework and agreements can be enforced if needed.

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