In a recent Hong Kong Court of First Instance decision MAK v LA  HKCFI 285, the Court was presented with a dispute arising from a bonus letter silent on dispute resolution mechanism, and with conflicting dispute resolution clauses in related contractual instruments, including the employment contract. The Court ultimately concluded that the arbitration agreement extended to the bonus letter. The case provides a timely reminder on the importance of express, clear and consistent dispute resolution provisions where employment terms are contained in multiple agreements. The Court also clarified the relationship between the Labour Tribunal’s jurisdiction and that of the arbitral tribunal.
Tag: Peter Chen
In a “highly unusual case“, the Hong Kong High Court has held an award rendered in HKIAC arbitration proceedings “manifestly invalid” on the basis that the tribunal’s findings were inconsistent with an earlier award rendered in a separate arbitration but involving the same parties and one of the same arbitrators.
The dispute in W v AW  HKCFI 1707 arose from two related agreements, each containing HKIAC arbitration clauses. Two separate arbitrations were commenced involving the same parties and overlapping issues of fact, with one of the parties appointing the same arbitrator to both tribunals. An award in the first arbitration was handed down in March 2020. An award in the second arbitration followed 4 months later in July 2020. The two awards reached different conclusions on an identical claim for misrepresentation.
W, as the successful party in the first arbitration, applied to the Hong Kong court to set aside the second award on the basis that it was in conflict with the public policy of Hong Kong. Amongst other things, it was argued that the second tribunal had ignored findings on common issues made in the first award, and had in fact reached inconsistent findings notwithstanding that one of the arbitrators had been involved in both cases. AW, in turn, applied for leave to enforce the second award together with an order that W pay security for the sums owed under that award.
The Court rejected AW’s application for security. In reaching this decision, the Court acknowledged that in the particular circumstances of this case, the second award was invalid, could not be enforced, and it was likely that W’s application to set aside the second award on public policy grounds would succeed. The fact that AW had nominated the same arbitrator in both proceedings, but that this arbitrator had made contradictory findings, was a material factor in the court’s decision. The inconsistency of the arbitrator’s approach called into question the overall integrity of the process and was a matter of “grave unfairness” to W.
This is a rare instance of the courts in Hong Kong considering an arbitral award invalid. Although the facts of the case are somewhat extreme, the decision does illustrate the pitfalls of running parallel arbitration proceedings under related contracts involving the same parties. Many arbitral institutions, including the HKIAC, introduced consolidation and joinder provisions several years ago to avoid precisely this scenario where separate tribunals might reach inconsistent decisions on common issues of fact. This case therefore provides a practical example of why parties to multi-party disputes should give early consideration to the use of consolidation provisions at the outset of the dispute, or the appointment of common arbitrators between parallel proceedings to minimise the risk of inconsistent decisions.
In late 2015, W and AW entered into two related agreements, a Share Redemption Agreement and a Framework Agreement, as part of a broader transaction involving the acquisition of AW’s interests. W and AW were the only parties to the Share Redemption Agreement, whereas the Framework Agreement also involved four other parties. Both contracts contained HKIAC arbitration agreements.
A series of disputes subsequently arose. W commenced arbitration against AW under the Framework Agreement and, in response, AW filed a counterclaim in the proceedings and commenced a separate arbitration under the Share Redemption Agreement. In both proceedings, AW appointed the same arbitrator and made identical claims of misrepresentation. The remaining arbitrators in both sets of proceedings were different.
On 13 March 2020, the first tribunal issued an award in W’s favour, dismissing AW’s claim for misrepresentation. Just a few months later, however, on 13 July 2020, the second tribunal issued an award in AW’s favour in which it essentially upheld the same misrepresentation claim. Both awards were unanimous decisions.
W applied to set aside the second award arguing (amongst other things) that the discrepancy between the two decisions ran contrary to Hong Kong public policy. In turn, AW applied for leave to enforce the second award and sought an order that W pay security. The decision of Mimmie Chan J was made in the context of the security application, although in rejecting that application she made clear that W had a strong case to set aside the second award on the basis that it was “manifestly invalid“.
W’s claim that the second award should be set aside was based on the principle of issue estoppel, which arises where a particular issue forming a necessary ingredient in a cause of action has been already decided, but then that same issue is re-opened in subsequent proceedings between the same parties involving a different cause of action.
In the present case, Mimmie Chan J found that it was “clear” that the arbitrators in the two sets of proceedings had “made inconsistent findings, on the same issue of fact and law forming a necessary ingredient in the cause of action of misrepresentation“. Although the two proceedings had ultimately been concerned with different causes of action arising from two distinct contracts, the common issues relating to the alleged misrepresentation were necessary and essential to the reasoning of both arbitral tribunals. Their findings, however, were contradictory and could not be reconciled.
Crucially, the Court found that W was entitled to expect the second tribunal to have dealt with the question of issue estoppel after the first award had been handed down. The fact that AW had appointed the same arbitrator in both sets of proceedings was an important point of distinction in this case. The arbitrator should have been alive to the potential for inconsistent decisions once he had seen the reasoning adopted in the first arbitration, such that “fairness and justice of the case required him to invite submissions to be made by W and AW in Arbitration 2 as to the effect of Award 1 on the issues to be decided in Arbitration 2“. Instead, the arbitrator himself made inconsistent findings across the two arbitrations, because he did not issue a dissenting decision in either case even though the findings of the tribunal were contradictory.
Importantly, the Court noted that it was not an answer to say that the two arbitrations were confidential. Specifically, this did not prevent AW’s appointed arbitrator from disclosing the first award to the other members of the second tribunal. Citing previous authority on this issue, Mimmie Chan J noted that: “the legitimate use of an earlier award in a later arbitration between the same parties would not raise the mischief against which confidentiality rules are directed“.
The Court therefore found the failure to deal with and explain these inconsistencies constituted “injustice and grave unfairness to W“, which fell short of fairness and due process underpinning the arbitral process. Accordingly, the Court held that the second award was “manifestly invalid“.
As noted above, and as acknowledged in the decision, this is a highly unusual case. The fact that AW had appointed a common arbitrator in both proceedings – and that this arbitrator should have been able to deal with the potential inconsistency in the two awards – was a material factor in the court’s reasoning. This heightened the sense of unfairness to W. This was not simply a case where two separate tribunals had reached inconsistent decisions. Rather, in this case, the same arbitrator in two proceedings had reached findings which were plainly contradictory. It was this point in particular which appears to have tipped the scales.
The practical significance of the judgment is that it highlights the risks of running separate, parallel proceedings on matters arising from the same underlying suite of contracts. As indicated above, most institutional rules now provide comprehensive mechanisms for the consolidation of arbitrations, or the joinder or parties, to prevent this sort of difficulty arising. There may also be advantages in this situation from appointing the same arbitrators in related proceedings to mitigate the risk of inconsistent findings. That being said, the Court noted expressly in this case that it did not consider W to be “at fault” for having appointing different arbitrators in the two proceedings, even though it knew that AW had appointed the same co-arbitrator in both cases: “It is the right of a party to appoint any arbitrator of its choice. It is entitled to expect that whoever it appoints, the candidate would discharge his/her duty to act fairly and impartially“.
For more information, please feel free to get in touch with any of the contacts below, or your usual Herbert Smith Freehills contact.
Technology, media, and telecommunications (“TMT”) as an overarching sector has experienced sustained growth and turmoil for a number of years characterised by cross-border collaboration, expansion, consolidation and, of course, innovation. The sector (and in particular the telecommunications sector) remains a focus for direct investment and capital demands for the underlying infrastructure such as full fibre networks, 5G networks, data centres, mobile towers and subsea cables – driven by the ever-increasing demand for data both at a consumer and enterprise level – remain high. Against this background, we continue to see investor-state disputes arise and develop into arbitrations. This article aims to consider any new trends in this area, and to offer some thoughts on the potential implications for investors and states.
For readers who are interested, our last survey on investor-state arbitrations in the TMT sector in 2018 may be found here. The number of active TMT cases has increased further from our last report, where we concluded that investor-state arbitration in this sector was “on the rise“. We identified 68 active cases in our last report – there are 71 active cases between May 2019 and May 2020.
While the incidence of disputes and claims continues to be high, so too does the percentage of settlements. This is perhaps reflective of the global need to build out the infrastructure support innovation and the delivery of content, supporting consumers interacting digitally on the move, machines communicating with machines and SMEs, enterprises and governments moving to the cloud, which tends to provide incentives for both sides to solve disputes as they arise and threaten investment and development, rather than treat them as reasons to abandon projects and write-off growth opportunities.
The broad purpose and character of investor-state arbitrations will be familiar to many readers. Those who require a primer or reminder of the essential characteristics may listen to our podcast series here. Investor-state arbitrations exist to enable foreign investors aggrieved by the conduct of a ‘host’ state to bring claims directly against the host state on defined grounds based on standards of treatment promised by that host state to investors from a particular state or group of states which are typically contained in an International Investment Agreement (“IIA”). Such IIAs are intended to offer a safe environment to encourage foreign investment between two states, or within a connected group of states. Typical protections will include a promises of non-discrimination, fair and equitable treatment (“FET”), and a commitment to compensate for any expropriation conducted by the host state (e.g. on nationalisation). Where an investor considers that these promised protection have been, or will be, breached, the investor may bring claims directly against the host state pursuant to the dispute resolution mechanism provided for in the IIA (which will often be international arbitration). In this regard, IIAs enjoy a number of advantages over relying on claims made between or through states, or in the national courts of the host state, including (1) providing a direct cause of action for investors against the host state; (2) allowing for claims to be heard by a neutral tribunal; (3) promising a higher prospect of enforcement and higher level of finality; and (4) offering greater procedural flexibility.
Our main sources of case information come from the International Centre for Settlement of Investment Disputes (“ICSID”) database and The United Nations Conference on Trade and Development (“UNCTAD”) Investment Dispute Settlement Navigator, accessible here and here, respectively. Where detailed case information is not available or is limited due to parties’ choice of non-disclosure, we have gathered information from case reporters or news bulletins, which we cite below.
We recorded 71 active investor-state arbitrations in the TMT sector between May 2018 and May 2020, up from 68 cases in May 2018. According to ICSID, the information and communication sector made up 6% of the total ICSID caseload in 2019. The sector also constituted 6% of the new cases registered in 2019 (compared to 8% in 2017).
We then recorded the most up-to-date status of the cases – settled, decided in favour of the investor, decided in favour of the state or discontinued. After compounding the data, we found that between May 2018 and May 2020, 42% of the concluded cases in the TMT sector were settled before a final award, see Figure 1. This is a high rate of settlement and supports the general understanding that the initiation of proceedings may give investors more leverage, and states a greater impetus, to negotiate a satisfactory settlement. There are bound to be other unreported disputes that were settled at an early stage prior to commencing arbitration.
Looking into the distribution of cases amongst the telecommunications, media and technology sub-sectors, we observe that a great majority of cases have arisen from the telecommunications industry, which amount to 75% of the total caseload of both concluded and pending cases for the TMT sector, see Figure 2 below.
The large amount of investment treaty arbitrations in telecommunications perhaps reflect both active cross-border investment and the ‘host’ governments’ often active involvement and regulation. Of course, it may also reflect the more mature and embedded nature of much of the investment in the telecoms sector.
The Technology behind the Disputes
As observed above, 75% of the TMT investment arbitration cases captured by our survey are within the telecommunications sub-sector. Mobile telecommunications services and networks have attracted global investors venturing into different countries in the past years, and indeed decades. Within our survey period alone (which covers roughly two years), we have identified on-going or newly concluded disputes concerning 2G mobile technology spectrum resources in India, 2G mobile technology licenses in India, 4G mobile technology network development in Poland, mobile operation services in Nepal, and wireless spectrum licenses in Canada, to name a few.
The marked concentration of investor-state disputes in the mobile telecommunications industry is perhaps not surprising. The industry is capital-intensive, in both tangible and intangible forms. It requires a substantial amount of risky, high up-front sunk cost investment over a long period of time before investments reap returns. The mobile communications industry is often heavily regulated by the host government (in particular in developing economies), and the state or the state-owned enterprises often play a pivotal role. These characteristics of the industry and high sensitivity to state action or inaction create fertile ground for disputes to arise.
Cross-border investment played – and continues to play – a key role in the global deployment of 4G mobile technology networks and preceding generations of mobile technology. As the world races to the development and deployment of ubiquitous 5G mobile technology networks, cross-border investment will continue to play a key role. Of course, international investment opportunities are not limited to the underlying 5G network infrastructure. For instance, the increased peak speeds, lower latency and more efficient traffic handling characteristics of 5G mobile technology will enable massive IoT – the ability to connect millions of things to the Internet – which in turn will stimulate international investment in services and solutions in adjacent sectors such as transport and energy.
The foreseeable high volume of cross-border investment in mobile telecommunications means that both investors and states may benefit from our observations of some recurring themes that led to investor-state disputes in the TMT sector which we set out below based on the cases we surveyed.
Dealing with Changing Regulations
The TMT sector, especially the telecommunications industry, is highly regulated. When host governments introduce or change regulations this may significantly affect the profitability of investments especially if these decisions are unexpected and therefore had not been factored into investors’ original business plans. We identified multiple cases submitted as a result of the host government’s change of regulations and policies.
Global Telecom Holding S.A.E. v. Canada
The Egyptian claimant (“GTH”) entered into a joint venture with other Canadian investors to obtain wireless spectrum licenses which were auctioned in Canada in 2008. The joint venture operated mobile telecommunications services in parts of Canada. GTH’s investment in the joint venture included an option to acquire a controlling stake in the joint venture. However, GTH was not allowed to take over the joint venture pursuant to a national security review under the Investment Canada Act.
At the time of investment, Canada had in place a transfer restriction that prohibited GTH from selling its interest in the joint venture to other incumbent operators in Canada within five years of its investment (“Transfer Framework”). GTH intended to sell its interest following the end of five years. However, this was not allowed due to a regulatory change in Canada’s Transfer Framework. GTH eventually exited the market in late 2014 by selling its shares to one of the original partners in the joint venture, allegedly suffering a loss of US$927 million.
GTH alleged that Canada breached several of its obligations under the Canada-Egypt Foreign Investment Promotion and Protection Agreement (“FIPA”) including the obligation to accord fair and equitable treatment, full protection and security, national treatment and to refrain from imposing restrictions on the transfer of investments and returns.
The Tribunal ultimately held by a majority that neither the Canadian government’s national security review, nor the change to the Transfer Framework breached its obligations under the Canada-Egypt FIPA, including in the provision of fair and equitable treatment. One key factor highlighted in the Tribunal’s reasoning was that the passage of the five-year “locked-in” period was a necessary but not sufficient condition to sell the stakes to other Incumbent operators. GTH should not have had any reasonable expectation that the sale of its interest would be automatically approved by the Canadian regulators after the expiry of five years.
Deutsche Telekom AG v. The Republic of India
Following two rounds of equity investment in 2008 and 2009, Deutsche Telekom held a 20% interest in a company called Devas Multimedia Private Limited (“Devas”), via its wholly-owned Singaporean subsidiary Deutsche Telekom Asia Pte Ltd (“DT Asia”). The Indian state-owned entity Antrix and Devas had in place a 2005 agreement to lease the S-band electromagnetic spectrum capacity provided by two orbiting Indian satellites (“Devas Agreement”).
In February 2011, the Indian Cabinet Committee on Security (“CCS”) approved the annulment of the Devas Agreement (“CCS decision”). When Deutsche Telecom brought arbitration alleging India’s breach of the FET obligation under the Germany-India BIT, India justified its decision by invoking the “essential security interests” carve out of the Germany-India BIT. The investor also made alternative claims direct and indirect expropriation, and breach of full protection and security. After analysing in detail the events that led to the CCS’ decision, the tribunal found that “a mix of reasons or objectives led to the annulment of the Devas Agreement”. These include military-related concerns (which did seem to fall under the essential security rubric), as well as other rationales, including the perception that Devas did not pay enough for its contractual rights and the desire to use satellite space for other “societal needs, such as train-tracking, disaster management, tele-education, tele-health and rural communication”.
Given this mix of rationales, the Tribunal turned to examine “whether the CCS decision was necessary to protect those interests, in the sense that it was principally targeted to safeguard ‘to the extent necessary’ the defence and other strategic needs that fall within the purview of “essential security interests”. The Tribunal found that India had “failed to establish that the CCS decision was necessary to protect” its essential security interests.
On that basis, the Tribunal found CCS’ cancellation of the Devas Agreement arbitrary and lacking transparency, and in breach of the FET obligation under the Germany-India BIT.
India sought to challenge the Award in the Swiss Federal Tribunal, being the court of supervision of the arbitration. In December 2018, the First Civil Law Court of the Federal Tribunal rejected India’s application for the annulment of the Award.
Telcell Wireless, LLC and International Telcell Cellular, LLC v Georgia
A subsidiary of the two claimant companies (“Magticom”) was embroiled in a dispute with Georgia’s telecommunications regulator, the National Communications Commission (“GNCC”). Magticom announced in 2018 that it would be increasing prices for mobile data tariffs, but it delayed its plans after the GNCC protested against the price increases. In early 2019, Magticom and another local competitor reportedly made another announcement about increasing their tariffs. However, in February 2019, the GNCC again suspended the price hike before it could come into effect.
The facts of this case are still scarce due to limited disclosure by the parties. This appears to be a dispute caused by the host government’s price control and regulations on mobile communications services. The claim is brought under the Georgia – U.S. BIT, and the tribunal has also been recently formed.
Continuation of Concessions/Contracts
In a highly regulated sector, the concession right or the licence is of course key to the value of an investment. Several cases in our survey revealed the potential for mismatch in the expectations of the renewal of such rights.
Neustar, Inc v Republic of Colombia
Between 2009 and February 2020, Neustar operated the .CO internet domain under a 10 year concession agreement with the Colombian government, which, according to the company, was renewable for another 10-year term. The dispute arose when Colombia’s Ministry of Technology, Information and Communication refused to renew the concession agreement.
Neustrar initiated arbitration proceedings in March 2020 with ICSID based on the Colombia-US Trade Promotion Agreement. The case is currently at an early stage, and further details are yet to emerge.
Joshua Dean Nelson. Jorge Luis Blanco and Tele Fácil v. United Mexican States
Nelson, Blanco and a Mexican national (“Miguel Sacasa”) founded Tele Fácil in 2009 in a bid to enter the Mexican market to provide telephone, internet and cable television services. The company was awarded a concession by the Mexican government in 2013.
The dispute concerns a series of measures taken by Mexico’s state telecoms regulator, the Federal Institute of Telecommunications (“IFT”). Tele Fácil needed to connect indirectly via a third party with the dominant telecommunications service provider (“TelMex”), however Tele Fácil and TelMex had differences relating to some of their commercial terms. In 2014 , the IFT ruled unanimously in Tele Fácil’s favour ordering both sides to sign an agreement to interconnect indirectly via a third party within 10 business days for a term of three years. TelMex, however, challenged IFT’s ruling and sent back a draft agreement to the claimants which reduced the duration of the contract from three years to 21 days. The claimants referred the matter back to the IFT for the implementation of its rulings.
The IFT then undid its prior ruling in April 2015, deciding instead that all previously agreed terms between Tele Fácil and TelMex, including the price to be paid, were no longer valid.
The case was brought to ICSID in 2016 based on NAFTA, on the grounds of unlawful expropriation and breach of FET obligations.
The claimants allege that the IFT originally recognised their legitimate investment rights, but then “dramatically, unjustifiably and illegally” reversed its own rulings. They argue that the IFT’s reversal of its original decision amounts to an expropriation of its investment, as one of Tele Fácil’s principal assets, the agreed terms for interconnection, was “deprived of all value” and its related rights “extinguished”.
The Claimants lost the case on both grounds. One fatal flaw in their case was that the draft agreement on the rates between Tele Fácil and Telmex was never signed. Tele Fácil therefore had no “rights under the Interconnection Agreement”, hence no investment to be expropriated of. The Tribunal also found no evidence suggesting that IFT’s second ruling was arbitrary, discriminatory, grossly unfair or lacking due process. Consequently, the FET claim also failed.
Public Joint Stock Company Mobile TeleSystems v. Turkmenistan (II).
MTS, which is part of the Russian conglomerate Sistema headed by Vladimir Yevtushenkov, invested in the telecommunications services in Turkmenistan. Its licence was valid until July 2018.
MTS attempted to negotiate with Turkmenistan’s regulatory authorities and the state-owned companies to extend permission to use frequencies and other resources necessary to operate in the country. Turkmenistan’s position is that while MTS’ licence for communications services was valid until July 2018, the company’s contract with TurkmenTelekom expired and the state entity had no obligation to extend it.
MTS was forced to suspend its operations in Turkmenistan. It alleges that the actions of state-owned entity TurkmenTelekom resulted in the disconnection of its local subsidiary’s international and long-distance zonal communication services and internet access, and harmed its investment. It has brought an arbitration under the Russia-Turkmenistan BIT which is ongoing.
Fines and taxes
Our survey also identified a number of disputes related to fines, taxes or other levies imposed by the ‘host’ state within the survey period, some with substantial amounts of money at stake.
Telefónica, S.A. v. Republic of Colombia
In 2017, a domestic arbitral tribunal at the Bogota Chamber of Commerce issued an award against the local subsidiaries of Telefónica and a Mexican company (“América Móvil”), for failing to comply with contractual obligations to revert ownership of certain telecoms infrastructure to the state in 2013. Telefónica was reportedly fined US$1.02 billion.
Although Telefónica paid the fine, it first put Colombia on notice of a dispute under the Colombia-Spain BIT for the fine. In March 2016. Negotiations between the parties were attempted but eventually broke down. In February 2018, Telefónica submitted the disputes to ICSID, claiming Colombia’s indirect expropriation in the form of the fine, and breach of FET obligations. The proceeding is reported to be at the document production stage as at mid-2020.
Axiata Investments (UK) Limited and Ncell Private Limited v. Federal Democratic Republic of Nepal
Axiata acquired an indirect 80% interest in Ncell – Nepal’s largest mobile network operator – via the subscription of 100% shares in Reynolds Holding Limited. The dispute relates to the imposition of a capital gains tax on Axiata’s acquisition of Reynolds Holding Limited from TeliaSonera in 2016, levied on Axiata’s subsidiary Ncell. The Nepalese government demanded over US$348 million, but this was resisted by the claimants.
Axiata and Ncell commenced proceedings against Nepal at ICSID in May 2019, based on the UK-Nepal BIT. The proceeding is on-going.
The two year survey period (May 2018- May 2020) in our study provides an illuminating snapshot of the sorts of issues are leading to investor-state arbitrations in the TMT sector.
Changes to regulations, licence renewals, and regulatory fines and levies are aspects of the TMT environment that most companies will encounter in their operations. However, it is the capacity for such matters fundamentally to undercut the profitability of a cross-border investment, coupled with the investment protections promised by host states seeking to attract such investment, that lead to such matters becoming the focus on investment treaty claims.
Investors, and regulators, need to be alive to the possibility of such disputes leading to investment treaty claims. Even before then, investors also need to be aware of the existence of the network of investment treaties, and the requirements to fall within the scope of the protection of such treaties, so that such recourse will be available to them should the worst happen.
In a world when remote connection, developing technologies, and home media consumption have become more important than ever, the focus and investment on the TMT sector will be greater than ever.
For more information, please contact Nicholas Peacock, Partner, Aaron White, Partner, Peter Chen, Associate, or your usual Herbert Smith Freehills contact.
 The ICSID Caseload Statistics, Issue 2019-2, https://icsid.worldbank.org/en/Documents/ICSID_Web_Stats_2019-2_(English).pdf, p. 12.
 The ICSID Caseload Statistics, Issue 2019-2, https://icsid.worldbank.org/en/Documents/ICSID_Web_Stats_2019-2_(English).pdf, p. 12, p. 25.
 Telefónica S.A v. Mexico, ICSID Case No. ARB(AF)/12/4; Orange SA v. Jordan, ICSID Case No. ARB/15/10; Dunkeld v. Belize (II), PCA Case No. 2010-21; Dunkeld v. Belize (I), PCA Case No. 2010-13; Orascom Telelcom Holding S.A.E v. Algeria, PCA Case No. 2012-20; Millicom International Operations v. Senegal, ICSID Case No. ARB/08/20; Mobile TeleSystems v. Turkmenistan, ICSID Case No. ARB(AF)/11/4; Vivendi v. Poland, UNCITRAL; MTN v. Yemen, ICSID Case No. ARB/09/7; E.T.I. v Bolivia (II), UNCITRAL; E.T.I. v Bolivia (I), ICSID Case No. ARB/07/28; Telefónica v. Argentina, ICSID Case No. ARB/03/20; France Telecom v. Argentina, ICSID Case No. ARB/04/18; Motorola v. Turkey, ICSID Case No. ARB/04/21; IBM v. Ecuador, ICSID Case No. ARB/02/10; Lemire v. Ukraine (I), ICSID Case No. ARB(AF)/98/1; Ameritech v. Poland, UNCITRAL; France Telecom v. Poland, UNCITRAL; Telekom Malaysia v. Ghana, PCA Case No. 2003-03; France Telecom S.A. v. Argentine Republic, ICSID Case No. ARB/04/18; PT Ventures, SGPS, S.A. v. Republic of Cabo Verde, ICSID Case No. ARB/15/12.
 Astro and South Asian Entertainment v. India, UNCITRAL; Deutsche Telekom v. India, UNCITRAL; Khaitan Holdings Mauritius Limited v. India, UNCITRAL; Maxim Naumchenko, Andrey Poluektov and Tenoch Holdings v. India, PCA Case No. 2013-23; Vodafone v India (I), PCA Case No. 2016-35; Vodafone v India (II), UNCITRAL; Devas v. India, PCA Case No. 2013-09.
 Motorola Credit Corporation, Inc. v. Republic of Turkey, ICSID Case No. ARB/04/21; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20; Cascade Investments NV v. Republic of Turkey, ICSID Case No. ARB/18/4; Ipek Investment Limited v. Republic of Turkey, ICSID Case No. ARB/18/18.
 Juvel and Bithell v. Poland, ICC; Ameritech v. Poland, UNCITRAL; France Telecom v. Poland, UNCITRAL; Vivendi v. Poland, UNCITRAL.
 Nagel v. Czech Republic, SCC Case No. 049/2002; CME v. Czech Republic, UNCITRAL; Lauder v. Czech Republic, UNCITRAL; European Media Ventures v. Czech Republic, UNCITRAL.
 Khaitan Holdings Mauritius Limited v. India, PCA Case No. 2018-50.
 Astro All Asia Networks and South Asia Entertainment Holdings Limited v. India (UNCITRAL Arbitration).
 Juvel Ltd and Bithell Holdings Ltd. v. Poland, ICC Case No. 19459/MHM.
 Axiata Investments (UK) Limited and Ncell Private Limited v. Federal Democratic Republic of Nepal, ICSID Case No. ARB/19/15.
 Global Telecom Holding S.A.E. v. Canada, ICSID Case No. ARB/16/16.
 ICSID Case No. ARB/16/16 – Tribunal rendered award on 27 March 2020.
 PCA Case No. 2014-10, award published in September 2018. On 11 December 2018, India failure to set aside the award in the Swiss Court.
 ICSID Case No. ARB/20/5 – request for arbitration on 12 February 2020.
 ICSID Case No. ARB/20/7 – ICSID registered the request for arbitration on 9 March 2020.
 ICSID Case No. UNCT/17/1.
 ICSID Case No. UNCT/17/1 – Award.
 ICSID Case No. ARB(AF)/18/4 – Tribunal formed on 18 December 2018.
 ICSID Case No. ARB/18/3.
 ICSID Case No. ARB/19/15.
In a recent application (Shell Energy Europe Limited v Meta Energia SpA  EWHC 1799 (Comm)), the English court dismissed a challenge to the court’s previous order under s66 of the Arbitration Act 1996 (“the Act”) granting leave to enforce an award. The challenge was made on the ground that the applicant was not able to participate in the merits hearing in the arbitration, due to difficulty in securing an advocate. In circumstances where the evidence “fell well short” of persuading the Court that the applicant had no choice but to cease its hearing participation, the challenge was unsuccessful.
The applicant in this case, Meta Energia SpA (“Meta”) had participated fully in the underlying LCIA arbitration until the last stage. Less than 10 days ahead of the planned two-day final merits hearing, Meta dismissed its entire legal team, saying this was because it was unsatisfied with the way the legal team had pursued or presented the defence.
Meta was granted a hearing adjournment of two weeks and instructed new solicitors, but said that it was unable to instruct new leading counsel as advocate.
Meta’s new solicitors attended the final hearing, but did not participate other than to make a brief submission that Meta was unable to present its case.
The arbitrators considered whether it was just and appropriate to continue and concluded that it was. The claimant’s legal team reminded the arbitrators of points of substance raised against the claimant, based upon Meta’s written submissions on the merits.
The arbitrators afforded Meta a further period of time to engage with the merits, if it chose to do so after receiving the hearing transcript. Meta did not make any submissions on the merits and did not seek additional time to do so, although it did make a number of comments on costs. The award was then issued in December 2019.
The claimant sought to enforce the award in Italy under the New York Convention, but Meta attempted to resist enforcement there on the basis that Meta had been unable to present its case in the arbitration (Article V.1(b)). The claimant also sought to enforce the award in the UK and in May 2020 had obtained the High Court’s leave pursuant to s66 of the Act to enter judgment in the terms of the award (the “May 2020 enforcement order”). Meta subsequently applied to the Court to set aside the May 2020 enforcement.
S66 of the Act
The summary procedure under s66 of the Act can be used to enforce arbitral awards in arbitrations seated in England and elsewhere. An award creditor can apply to the English court under s66 to enforce an award in the same way as an English court judgment and may also seek judgment in terms of the award. Applications under s66 will be refused either where the award debtor can show that the tribunal lacked substantive jurisdiction (s66(3) of the Act), or where the court refuses the application on discretionary grounds.
In this case Meta sought to persuade the court that there was a “’due process’ complaint”…as a discretionary reason why… [the award] should not be enforced under s.66”.
The Court was unsympathetic to Meta’s argument that it was not able to participate in the merits hearing because it was unable to be represented by leading counsel.
The Court noted that there was no clarity as to how the applicant’s defence in the arbitration could have been improved or set out differently by any new legal team. In addition, Meta had said it wanted to instruct leading counsel to provide the advocacy at the hearing and ”took the view that it would not participate on the merits unless it could be represented by leading counsel”. Despite this, the Court took the view that Meta could have been appropriately represented at the merits hearing by suitable junior counsel. The Court went on further to say that Meta did not need to use the Bar and could have instructed suitable solicitors for the advocacy, there being “highly skilled and experienced international arbitration practitioners, not just the Bar”, able to provide advocacy services in arbitration.
No evidence had been put before the court to explain Meta’s decision not to provide written submissions in response to the receipt of the hearing transcript, or to explain how Meta’s position had allegedly been worsened by the hearing having gone ahead.
The Court also noted that no challenge to the award had been made under s68 of the Act, which would be the “normal means to pursue a complaint of lack of due process or other procedural unfairness”. It was in any event clear that there was no arguable basis for any s68 challenge. The arbitrators had been “scrupulously even-handed” and the process “unimpeachably fair”. Meta could have presented and fully developed its case, but simply chose not to do so.
Accordingly, the Court dismissed the challenge, and the May 2020 enforcement order was confirmed.
This judgment confirms the pro-arbitration stance of the English courts in relation to applications for enforcement under s66 of the Act. While the courts will refuse applications where enforcement would not be in the interests of justice, the courts will not exercise their discretion to deny enforcement on questionable grounds.
For more information, please contact Chris Parker, Partner, Rebecca Warder, Professional Support Lawyer, Peter Chen, Associate, or your usual Herbert Smith Freehills contact.
This post has been updated to reflect developments up to 17 March 2021.
In Republic of Mozambique v Credit Suisse International and others  EWHC 1709 (Comm) here, the English High Court gave directions to proceed to a hearing of an application for a stay of English court proceedings under s9 of the 1996 Arbitration Act (the “Act“). The court rejected arguments brought by a number of defendants that determination of the s9 application should be deferred until the arbitrators in ongoing Swiss arbitrations had decided the question of jurisdiction. The court considered the effect on those defendants who were not party to the arbitrations and also the realistic timescale of 2.5-3 years before the arbitral proceedings would be completed. Based on that analysis, the court gave directions for the hearing of the s9 application in January 2021.
The English High Court recently heard an application under s24(1)(a) of the 1996 Arbitration Act (the “Act”) to remove the arbitrator agreed in the arbitration agreement, on the grounds of apparent bias. The challenge was based on the fact that the arbitrator in question had, until recently, been an employee of one of the parties to the arbitration.
The Court was alive to the importance of honouring freedom of contract when the arbitrator had been identified and agreed in the arbitration agreement itself. On the facts of the case, there was no evidence of apparent bias and the application was accordingly refused.
The disputes in question revolved around a family business in the transportation of oil and other commodities, with companies incorporated in both London (the “London Company”) and Nigeria.
In 2009, J, who was solely responsible for the Nigerian company’s trade, threatened to leave the family business. In an attempt to rescue the business and regulate the affairs of the family members, the family members and the companies controlled by them entered into an agreement expressed to be governed by English law (the “Agreement”). The Agreement contains a dispute resolution clause naming a “Mr Y as arbitrator and in the event of his unavailability Mr F”.
Mr F worked as the family accountant from about 1985 and was a full-time employee for the London company until 2002. Between 2002 and 2010, he worked part-time for the family. In 2010, Mr F returned to full-time employment for the London Company and reported directly to J only.
The family relationship became strained again and in September 2019, J commenced arbitration to resolve disputes relating to the interpretation of various provisions of the Agreement and stated in the notice of arbitration that “Mr [F] is the only other person entitled to sit as arbitrator”. Mr Y had died in 2015.
In November 2019, Mr F resigned from his employment with the London Company. He observed that the “family feud between the directors is getting nastier by the day and the employees…have been subjected to constant bullying, fabricated lies and allegations by some directors, for some time now… I, no longer wish to be dragged into this family dispute and with great regret, hereby submit my resignation with immediate effect.”
Some of the family members objected to the appointment of Mr F as arbitrator, arguing that Mr F was conflicted and accordingly unable to act fairly and impartially. They pointed out that Mr F had reported only to J, and that Mr F would potentially be a witness in the dispute. They alleged that Mr F’s resignation might be a sham, or might lead to a claim for constructive dismissal against one of the parties. It was also alleged that Mr F’s refusal to provide some of the family members with information in relation to the company accounts before the commencement of the arbitration demonstrated bias. There were additionally said to have been secret conversations between Mr F and J. An application was made under s24 of the Act to remove Mr F.
In Petrochemical Logistics Limited, Mr Axel Krueger v PSB Alpha AG, Mr Konstantinos Ghertsos  EWHC 975 (Comm) the English High Court considered whether it would be “just and convenient” to maintain two freezing injunctions against the Defendants in support of a London-seated LCIA arbitration. The court declined to continue either injunction, finding insufficient connection with England and Wales in relation to the first injunction (over the bearer shares of a Swiss company), and insufficient risk of dissipation in relation to the second (over shares and assets in a Dutch company). In considering the individual circumstances of the case, the court provided helpful analysis on the exercise of the court’s jurisdiction in support of English and foreign seated arbitral proceedings.
The English High Court recently decided in A and another v. C and Others  EWHC 258 (Comm) (“A v C”) that it did not have jurisdiction under s44(2)(a) of the English Arbitration Act (“the Act”) to issue a coercive order compelling a non-party to an arbitration agreement to give evidence in support of arbitration proceedings seated in New York.
The Claimants wished to compel the third defendant, E, who was not a party to the New York-seated arbitration, to give evidence in England. The claimants had been given permission by the New York tribunal to make such an application to the English court. However, despite the order of the tribunal, the Court ultimately found that it was unlikely that Parliament had intended to give the English courts jurisdiction to make the order sought under s44.
The Court considered the two leading authorities on the issue (Cruz City I Mauritius Holdings v Unitech Limited  EWHC 3704 (Comm) (“Cruz City”) and DTEK Trading SA v Morozov  EWHC 1704 (Comm) (“DTEK”)) and confirmed that the Court does not have jurisdiction under s.44 of the Arbitration Act to make an order against a non-party to the arbitration agreement.
The parties had embarked on a joint venture in relation to an oil field in Central Asia and the Claimants held a 15% interest in the oil field. A dispute arose between the parties, and an arbitration proceeding was initiated by the Claimants. The arbitration proceedings were seated in New York and, by the time of the High Court proceedings, the evidentiary hearing in the arbitration had already taken place. However, there remained an issue as to whether certain bonus payments made by the First and Second Defendants to the arbitration were deductible from the amount claimed by the Claimants in the arbitration.
Although the arbitral tribunal had already heard evidence from the assistant general counsel responsible for drafting and negotiating the agreements, the Claimants sought evidence from E, who was a non-party to the arbitration and the lead commercial negotiator who had been involved in negotiating the specific bonus payment.
The tribunal granted permission to the Claimants to bring an application in England, where E was domiciled, for the taking of his evidence.
S44 of the English Arbitration Act
Parties may apply under s44 of the English Arbitration Act for court assistance in relation to an arbitration seated within or outside England & Wales. The court’s power under this section is extensive and includes ordering the taking of witness evidence, the preservation of evidence, granting an interim injunction or appointment of a receiver, the sale of any goods which are the subject of the proceedings, and the power to make various other orders relating to property which is the subject of the proceedings.
The Court noted that at first sight the language of s44 lent “some support” to the Claimants’ contention that it was possible for orders to be made against non-parties. The legislation specifically stated at s44(1) that the court had the same power in relation to the particular matters listed as it would do in respect of court litigation. This tended to suggest that the Court had the same power to make orders in respect of non-parties to an arbitration as it did against non-parties to court litigation. It was also noticeable that the specific legislative provision relevant to this case referred to “the taking of evidence of witnesses” and this might be taken as an indication that the provision was mainly focused on taking evidence from witnesses outside the control of the parties to the arbitration.
Cruz City and DTEK
The Court noted that while the wording of the legislation might suggest that the provision could be employed against non-parties, the leading authorities of Cruz City and DTEK made it clear that the question is much less straightforward.
Cruz City concerned an attempt to serve out of the jurisdiction an application for a freezing injunction against non-parties to the arbitration agreement. The court in Cruz City considered the question of application to non-parties and decided that there were a number of indications in s44 itself that it was intended to be limited to orders made against a party to the arbitration agreement. This was primarily because s44 is expressly stated to be subject to contrary agreement between the parties, which the court decided could only mean the parties to the arbitration agreement. Subsection (4) operated so that, unless the matter was urgent, the court could only act on an application made either with the tribunal’s permission or agreement in writing given by “the other parties”. This must again mean the other parties to the arbitration agreement.
In addition, Subsection (5) stated that the court can only act where the arbitrators either have no power or are currently unable to act effectively. This would always be the situation in respect of an order against a non-party. Subsection (6) provided that the court could hand back control in respect of the relevant issues to a tribunal with “power to act in relation to the subject matter of the order”. This could not be relevant to orders made against a non-party. Subsection (7) provided that an appeal could only be made against an order under s44 if the first instance court gave permission. The court commented that it would be surprising if the non-party’s right of appeal was limited in this way in respect of an order against a non-party. The court in Cruz City also noted that s44 was one of only a small number of sections in the Act to apply to arbitrations seated outside England and Wales or Northern Ireland. It seemed unlikely that Parliament would have intended to give the English courts the jurisdiction to give orders against non-parties in support of arbitrations happening around the globe. Had there been any intention to permit the court to make such third party orders this would have been clearly expressed in the Act.
The court in Cruz City accordingly decided that s44 did not allow orders to be made against non-parties and the court in DTEK later reached the same conclusion.
The Claimants’ application to the High Court
In A v C the Claimants advanced two arguments in an attempt to distinguish the current case from the position in Cruz City and DTEK. They firstly contended that s44(2)(a) permitted orders to be made against non-parties because it referred to the taking of the evidence of witnesses, even if this was not the case for other sub-sections of s44(2). Secondly, the difficulties with making orders against non-parties in Cruz City and DTEK arose from the need to serve the applications out of the jurisdiction and this issue did not arise in A v C because E resided in England & Wales.
The Court took the view that the argument that some powers under s.44(2) can be exercised against non-parties, while others could not, was unattractive in the absence of statutory language justifying such a distinction. If s44(2)(a) orders could not be made against non-parties, it would be surprising if coercive orders could nonetheless be made against non-party witnesses. The judge recognised that the English Court could issue letters of request asking foreign courts to take evidence from non-parties, but that ultimately depended on the discretion of foreign courts, which was a different matter from ordering non-parties to give evidence for the purpose of foreign arbitrations.
In respect of the Claimants’ second argument, the Court emphasised that the applications to serve out of jurisdiction in Cruz City and DTEK failed because s44 does not apply to non-parties, not because it is impossible to serve such applications out of jurisdiction.
Appropriateness of the order
The Court further considered whether it would have been appropriate to issue the requested order if the Court had found that it had the power to do so, having regard to the fact that the seat of the arbitration was New York.
The Court concluded that there was no particular inconvenience to the witness and there was sufficient justification for his attendance. The evidence requested was “clearly an issue of importance in the New York Arbitration”. Since the witness was the lead commercial negotiator of the contract under which the bonus was payable, the Court found that there was a sufficient possibility that he may have relevant evidence to give, notwithstanding the evidence already given by the assistant general counsel. It also did not matter that his memory of the events might have been compromised by the passing of time. In any event, his memory could be assisted by reference to the documents. In addition, the Court found that it would not be appropriate to delve too deeply into the relative weight of evidence, as this was “pre-eminently a matter for the arbitral tribunal”.
However, the proposed list of topics on which the Claimants wished to question the non-party was too broad and the Court would have required the Claimants to produce an amended, narrower list of questions. The Court also noted that E had offered to produce a witness statement and evidence by video-link to the arbitral tribunal. The proposal made by E reasonably balanced the interests of the arbitrating parties and E and, even if any order had been granted under s44 of the Act, the order would have been along the same lines.
This case has confirmed that the English courts’ powers in support of arbitration under s44 of the Act do not extend to orders against non-parties to the arbitration, whether or not there is a need to serve the application out of the jurisdiction. Accordingly, the current position is that s44 orders are unavailable against non-parties to the arbitration, even where those third parties are based within England & Wales. The decision is being appealed to the Court of Appeal.
For more information, please contact Nick Peacock, Partner, Rebecca Warder, Professional Support Lawyer, Peter Chen, Associate, Aseel Barghuthi, Associate, Christine Sim, Associate, or your usual Herbert Smith Freehills contact.
In Rabbi Moshe Avram Dadoun v Yitzchok Biton  EWHC 3441 (Ch), the High Court dismissed an appeal against an arbitral award (the “Award”) of the Beth Din of the Federation of Synagogues in London (the “Beth Din”) under s68 of the Arbitration Act (the “Act”). While there were unilateral and undisclosed communications between a member of the tribunal and an individual involved in the case, the Court decided that this did not amount to apparent bias. The decision clearly demonstrates the high hurdle for succeeding with a s68 application.
The original dispute centred on the ownership of shares in a company. A Memorandum of Agreement (the “MOA”) had been signed by the Claimant, the Defendant, the Defendant’s brother and another individual, in relation to a “quasi-partnership” between them.
The case was heard by the Beth Din, a Jewish Rabbinical Court which can be used by Orthodox Jews to arbitrate their commercial disputes, on 2 June and 4 August 2008. The Award was not produced for over five years and was finally issued on 4 April 2014, largely finding in favour of the Defendant. The Claimant subsequently brought an application to challenge the Award under s69 of the Act, on the basis that the Award contained an error of law.
In 2017 the Claimant discovered the existence of a letter dated 23 July 2013, which referred to a unilateral meeting that had taken place around 9 months before the Award was issued, between the Defendant’s brother and a member of the tribunal, the head of the Beth Din. This letter, sent by the Defendant to the tribunal member, also referred to another letter sent to the tribunal member by the Defendant’s brother on 18 July 2013. This second letter was never found and there was no evidence of any reply by the Beth Din.
The Claimant amended his application to challenge the Award to include an application under s68 of the Act, on the basis that there was a serious irregularity affecting the Award. The initial application under s69 was then stayed.
Application under s68
The Claimant sought to challenge the Award under s68 of the Act, on the grounds that the discussion was “highly suspicious”, with the unilateral communications leading to apparent bias on the part of the relevant tribunal member. This challenge was possible because awards of the Beth Din are English-seated arbitration awards and therefore subject to the supervisory jurisdiction of the English court.
The Claimant contended that:
- The discussion between the tribunal member and the Defendant’s brother was due to the Defendant’s brother deliberately attending at the Beth Din’s offices in order to have the opportunity to discuss the case.
- It would have been “implausible and inconceivable that there would not have been a discussion as to the merits of the case”.
- The further delay in producing the Award was “suspicious”, particularly as the Award was ultimately largely in the Defendant’s favour.
- The non-disclosure of both the discussion and the letters in itself amounted to serious irregularity.
Decision of the High Court
The High Court emphasised that the Defendant’s brother had been party to the initial financial arrangements between the parties and had signed the MOA. While he had not given evidence in the arbitration and was not a party, he was nonetheless “clearly a person who featured in the case”.
The Defendant had taken the position that the conversation between the Defendant’s brother and the tribunal member merely involved asking the Beth Din to make a decision in the case. The tribunal member concerned had also given evidence to the Court and confirmed that the conversation had been confined to a query about the timing of the Award.
The Court concluded that the evidence of the Defendant’s brother and the tribunal member as to the limited nature of the conversation was credible. This was because, given the circumstances in which the meeting occurred, at the end of public afternoon prayers at the Federation of Synagogues’ Offices, any conversation would necessarily have been short. The Defendant’s letter of 23 July 2013 confirmed that the discussion was limited to the question of delay and that the tribunal member had promised that the Award would be with the parties within around three weeks. The High Court noted that “the shortness and insignificant nature of the discussion is given more credence by the fact that…[the tribunal member]… did not make a note of the discussion nor inform the Claimant”. There was “no evidence at all to contradict” the accounts of the tribunal member and the Defendant’s brother.
While it was “regrettable” that the letters were not disclosed to the Claimant, there was no evidence that this was deliberate, or done in order to hide the discussion. The further delay in relation to production of the Award was not suspicious in the context of the existing delay.
The Court applied the test for apparent bias as set out in Porter v Magill, which is “whether a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.” It noted that an enquiry by one party to an arbitrator requesting information on the likely timing of an award “cannot possibly be improper or constitute evidence of apparent bias”.
The Court referred to the leading authority on the arbitrator’s duty of disclosure, which is the Court of Appeal’s judgment in Halliburton Company v Chubb Bermuda Insurance Ltd and ors  1 WLR 3361, discussed in more detail here. The tribunal should disclose facts and circumstances that would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased. However, the Court of Appeal has emphasised that non-disclosure of a fact which does not give rise to justifiable doubts as to the arbitrator’s impartiality cannot, in and of itself, justify an inference of apparent bias, as “something more is required“.
The unilateral conversation in the Dadoun v Biton case did not even meet the test of being something that “should have been disclosed”. The non-disclosure of the Defendant’s letter had resulted only from a “failure of administration at the Beth Din”. Had this letter been disclosed to the Claimant at the time, he would then have learned of the conversation itself and would probably have been “totally unconcerned about that”. The non-disclosure of this letter accordingly did not provide evidence of apparent bias. As the 18 July 2013 letter had never been found, it was not possible for the Court to comment on whether it should have been disclosed. The Claimant’s challenge was accordingly dismissed.
This case is a further illustration of the robust approach taken by the English courts to s68 challenges. The courts regularly emphasise the difficulty of meeting the serious irregularity test and very few applications are successful.
The threshold for showing apparent bias remains high, with the Court in this case applying the Court of Appeal’s approach to non-disclosure in Halliburton v Chubb. While the Court of Appeal determined in Haliburton v Chubb that non-disclosure of a fact which does not give rise to justifiable doubts as to the arbitrator’s impartiality will not amount to apparent bias without “something more”, this requirement has proved controversial. There has been particular criticism of the lack of comment in the Haliburton v Chubb judgment about what might constitute “something more”. Haliburton v Chubb has been appealed to the Supreme Court, and the Supreme Court’s judgment is likely to provide useful clarification of the English law in this respect.
The decision in Dadoun v Biton highlights the importance of avoiding all unilateral communications with arbitrators once the tribunal has been appointed, to avoid the risk of future challenges to the award. The case is also a reminder to tribunals that the tribunal’s duty under s33 of the Act to act fairly means that any unilateral approaches, however innocuous or objectively insignificant, should be disclosed to all parties to the arbitration.
For more information, please contact Craig Tevendale, Partner, Peter Chen, Associate, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.
The Maldives recently became the latest state party to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“).
The Maldives acceded formally to the New York Convention on 17 September 2019, which will come into force for the Maldives on 16 December 2019, 90 days thereafter. The Maldives becomes the 161st state party of the New York Convention in a year that marks the 60th anniversary of its coming into effect on 7 June 1959.