English High Court sets aside award for failure to properly cross-examine a witness on a core issue and basing its decision on matters not properly argued by the parties

In P v D [2019] EWHC 1277 (Comm), the English High Court set aside an arbitral award on the basis that the tribunal had reached a finding of fact on a core issue that had not properly been put to a witness in cross-examination and that the tribunal had based its decision on a case not properly argued by the parties. Under s68 of the Arbitration Act 1996 (the “Act”), the court has the power to set aside an award on grounds of serious irregularity. It is rare for the court to exercise this power – although that does not deter aggrieved parties from submitting applications to set aside. The judgment gives important guidance on the court’s approach on this important procedural issue, and addresses considerations of fairness to witnesses in cross-examination, and to the parties putting those witnesses forward.

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Three Amendments to New Zealand’s Arbitration Act 1996

Overview

The New Zealand Arbitration Act 1996 was amended on 8 May 2019 with the aim of increasing New Zealand’s attractiveness as an arbitral hub by rectifying loopholes which surfaced in cases before various courts.[1] With this view, the key amendments clarify the procedure for challenging jurisdictional decisions and set aside procedures with regard to tribunal composition and procedural issues. In addition, the default ‘quick draw’ appointment mechanism, which operated in circumstances where an arbitrator has not been appointed, has been removed.[2]

Challenges to jurisdictional decisions

The NZ Arbitration Act previously allowed a party to challenge an arbitral tribunal’s decision on jurisdiction by requesting the New Zealand High Court to decide the matter within 30 days of receiving notice of the tribunal’s jurisdictional decision.[3] A tribunal’s jurisdictional decision can be made either in a preliminary phase or together with the merits, however, a party must raise a plea that the tribunal lacks jurisdiction ‘not later than the submission of the statement of defence’.[4]

The amendments insert a new provision, providing that parties’ failure to make a request to the High Court challenging the tribunal’s jurisdictional decision ‘in a timely manner operates as a waiver of any right to later object’ to the tribunal’s decision.

This new provision makes clear parliament’s intention that arbitration be a final and binding form of dispute resolution, which was reflected in the third reading speech: ‘[s]imply, arbitration is a very cost-effective and timely method of resolving commercial and other disputes … [which] reduces the caseload on courts’.[5]

Though the words ‘in a timely manner’ are not defined and left open to interpretation, the policy basis makes clear that jurisdictional challenges should be made early, or otherwise not at all. The Arbitrators’ and Mediators’ Institute of New Zealand Incorporated has suggested that a waiver will occur if:

  • a plea as to jurisdiction is not made before the defence is submitted; and
  • a request to the High Court is not lodged on time and actively pursued.[6]

This provision will apply to any arbitrations that have New Zealand as the place of arbitration.[7]

Set aside

Arbitral awards may only be set aside by an application to the High Court in certain circumstances.[8] Prior to the amendments, a set aside application could be made if:

‘the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this schedule from which the parties cannot derogate, or, failing such agreement, was not in accordance with this schedule’[9]

The narrow references to ‘this schedule’, referring to Schedule 1 of the Arbitration Act, allowed for non-compliance with the broader Arbitration Act without the possibility of set aside. For example, if a procedure adopted by the tribunal conflicted with a mandatory provision of the Arbitration Act located elsewhere than Schedule 1, it would not have given rise to circumstances allowing a set aside application to the High Court.

The amendments correct this loophole by replacing reference to ‘this schedule’ with ‘this Act’.

Similarly, this provision applies to any arbitrations that have New Zealand as the place of arbitration.[10]

Default ‘quick draw’ appointment mechanism

The final amendment relates to a unique – now removed – appointment procedure which was enlivened where a party or third party (eg an appointing authority) failed to make an appointment, or there was failure to agree on an appointment. In those circumstances, a party could specify in writing the failure and propose an appointment if the failure was not remedied within a period specified by that party. That party’s proposed appointment would then take effect upon expiry of the specified period, unless the failure was rectified.[11] This procedure is commonly known as the ‘quick draw’ procedure and was part of additional rules which apply to all international arbitrations and to other arbitrations by party agreement.[12]

This mechanism effectively allowed unilateral appointments and it was noted in the Bill’s third reading speech that such process is ‘unfair’.[13] The amendment repeals entirely the quick draw procedure.

Where there has been a failure to appoint, a party may now request the Arbitrators’ and Mediators’ Institute of New Zealand Incorporated to take the necessary measures to secure the appointment.[14]

Conclusion

The amendments are a welcome development that simplify and provide additional certainty in relation to arbitration proceedings which take place in New Zealand.

[1] Carr v Gallaway Cook Allen [2016] NZSC 75; PT First Media TBK v Astro Nusantara & Ors [2013] SGCA 57.

[2] Arbitration Amendment Act 2019 (NZ).

[3] Arbitration Act 1996 (NZ) sch 1, s 16(3) (NZAA).

[4] NZAA sch 1, s 16(2).

[5] Arbitration Amendment Bill – Third Reading (Hansard (debates)), 1 May 2019, Andrew Bayly.

[6] Arbitrators’ and Mediators’ Institute of New Zealand Incorporated, About the Arbitration Act Amendments.

[7] NZAA s 6(1).

[8] NZAA sch 1, s 34(1).

[9] NZAA sch 1, s 34(2)(iv) (emphasis added).

[10] NZAA s 6(1).

[11] NZAA sch 2, 1(4)-(5).

[12] NZAA s 6(1)-(2).

[13] Arbitration Amendment Bill – Third Reading (Hansard (debates)), 1 May 2019, Andrew Bayly.

[14] NZAA sch 1, 11(4); New Zealand Gazette, Appointment of Arbitration Body, 9 March 2017.

Camilla Pondel
Camilla Pondel
Solicitor, Sydney
+61 2 9225 5835

Anne Hoffmann
Anne Hoffmann
Senior Associate, Sydney
+61 2 9225 5561

BEIJING COURT REJECTS APPLICATION TO SET ASIDE TRIBUNAL’S INSTRUMENT RECORDING MEDIATED SETTLEMENT TERMS, CITING LACK OF LEGAL BASIS

In Li Lian Dong and Others v Shen Yi (2018) Jing 04 Min Te 541, a first instance decision made earlier this year, the Beijing 4th Intermediate People’s Court considered whether the court’s power to set aside an arbitral award extends to setting aside the parties’ settlement formally given effect to by the arbitral tribunal in an instrument known under the Arbitration Law of the People’s Republic of China as a “conciliation statement”.

The Court decided that there is no legal ground for Chinese courts to set aside a conciliation statement issued by an arbitral tribunal.  Article 58 of the Arbitration Law provides only for the setting aside of an arbitral award, not a conciliation statement, despite Article 51(2) of the Arbitration Law expressly providing that a conciliation statement has the same legal effect as an arbitral award.

Background

On 12 January 2017, Shen Yi entered into an agreement with Xin Lv Ju (Shanghai) Enterprise Development Limited (Company), Mr Li Lian Dong (the Company’s legal representative) and two other companies to invest in the Company in exchange for the Company’s right to the proceeds from the operation of a certain project (First Transfer Agreement).  On the same day, other parties entered into similar investment agreements with the Company, Mr Li and the other companies.  In 2018, Shen Yi acquired the interests of all these other investors in the project under a second transfer agreement (Second Transfer Agreement).

Subsequently, a dispute arose in relation to the investment.  In April 2018 Shen Yi commenced an arbitration before the Beijing Arbitration Commission pursuant to the arbitration clause in the First Transfer Agreement, naming the Company and Mr Li as the respondents. An arbitral tribunal was constituted.  At the arbitral hearing, the parties agreed to mediation and reached a settlement. At the request of the parties, the arbitral tribunal issued a conciliation statement (No.0216) to confirm the terms of the mediated settlement reached and concluded the arbitration.

Later in 2018, the Company and Mr Li applied to the Court to set aside the conciliation statement, on the basis that (i) Shen Yi failed to produce in the arbitration the Second Transfer Agreement and thus had concealed evidence sufficient to affect the impartiality of the arbitration, and (ii) the arbitration was not in conformity with procedural requirements, both of which are grounds for setting aside an arbitral award under Article 58 of the Arbitration Law. They argued that (pursuant to Article 51(2) of the Arbitration Law) a conciliation statement issued by the arbitral tribunal has the same legal effect as an arbitral award, and can therefore be set aside by the courts on the same grounds as an arbitral award.

Decision

The Court rejected the application to set aside the conciliation statement. In particular, it found that the conciliation statement was not an arbitral award, and the Arbitration Law only provides for setting aside of the latter.

The Court went on to find that there was no factual basis to support the set aside application. In rejecting the applicants’ factual case, it referred to the formal transcript of the arbitration hearing, which it found to clearly record that Shen Yi had produced the Second Transfer Agreement in evidence during the hearing, and the authenticity of the same was not disputed by the applicants at the hearing.  The applicants therefore did not make out their case that Shen Yi had concealed evidence, nor was there procedural irregularity in the arbitration.

Discussion

In, effectively, rejecting Article 58 of the Arbitration Law as empowering the court to set aside a settlement given effect to by the arbitral tribunal through a “conciliation statement”, the Court in this case appears to have preferred similar approaches taken by a number of local Intermediate People’s Courts in the recent years, over the approach taken by the Supreme People’s Court’s (SPC) in at least one case (see SPC’s reply to the Guangdong Province Higher People’s Court in [2010] Min Si Ta Zi No. 45), which is that the grounds in Article 58 of the Arbitration Law can be referred to in dealing with an application to set aside a conciliation statement, but that the review should be limited to the procedure of the rendering of the particular conciliation statement in question and not the substance of the conciliation statement.  Whilst the Court’s decision is one of the latest on this issue, it remains to be seen whether more judicial clarity will be given by the SPC in a formal interpretation document, which may put the sometimes inconsistent approaches taken by local courts to rest.

Michelle Li
Michelle Li
Partner, Shanghai
+86 21 2322 2162
Helen Tang
Helen Tang
Partner, Shanghai
+86 21 2322 2160
Briana Young
Briana Young
Foreign Legal Consultant (England & Wales)/Professional Support Consultant, Hong Kong
+852 2101 4214

Back whence it came: Hong Kong Court remits Award for serious irregularity

A tribunal had decided liability and awarded sums as due on a basis not advanced by the claimant. In P v M [2018] HKCFI 2280, The Hong Kong Court of First Instance decided that this approach breached the “fundamental rule of natural justice that each party should be given the fair and reasonable opportunity to present its case and to deal with the case of its opponent.” The relevant parts of the Award were declared a nullity, and it was remitted to the tribunal to hear submissions on the issues that it had decided were determinative.

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Indian Supreme Court rules that Indian courts have jurisdiction to hear an application to set aside an award issued in Malaysia

In its recent decision in Union of India v Hardy Exploration and Production (available here), the Supreme Court of India found that a contractual clause stipulating Kuala Lumpur as the ‘venue’ of arbitration did not amount to a choice of juridical seat. While the Indian courts’ jurisdiction to hear set-aside applications will be excluded if the seat of the arbitration is outside India, the Supreme Court found that in this case there was no chosen seat (and the tribunal had not determined a seat), notwithstanding the choice of Kuala Lumpur as the venue for the arbitral proceedings, and the fact that the award was signed in Kuala Lumpur. Since this was a case where the arbitration agreement pre-dated 6 September 2012 (the date of the key Supreme Court ruling in BALCO), it appears that the Court did not find it necessary to positively determine that the seat was in India; the fact that an overseas seat had not been established appears to have been sufficient for the Indian courts to have jurisdiction to hear the application.

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Be on time to preserve your right to Active Remedies – the Singapore High Court considers a party’s duty to apply promptly when challenging the jurisdiction of an arbitral tribunal

In Rakna Arakshaka Lanka Ltd (“RALL“) v Avant Garde Maritime Services (Private) Limited (“AGMS“) [2018] SGHC 78, the Singapore High Court dismissed an application to set aside an award on jurisdiction, on the basis that the applicant had failed to challenge the tribunal’s preliminary ruling on jurisdiction within the deadline stipulated under section 10(3) of the International Arbitration Act (“IAA“) and Article 16(3) of the UNCITRAL Model Law. The decision provides guidance on the distinction between active and passive remedies in the context of applicable deadlines when seeking to set aside an award on grounds of jurisdiction, and resisting enforcement on the same basis.

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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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