As of 1 September 2015, a search of the Lawtel database of reported decisions of the English courts using the keyword ‘arbitration’ returns a list of 87 decisions, compared with the 94 decisions that were made over the first nine months of 2014. In general, the English courts remain supportive of arbitration. A number of decisions from the Commercial Court concern the recognition and enforcement of foreign awards under the New York Convention 1958 (New York Convention) – each broadly maintaining a pro-enforcement stance. As to the English courts’ discretion to annul awards, this continues to be applied sparingly. Other cases have underlined important principles of English arbitration law, such as the ability of the English courts to issue injunctive relief in support of arbitration agreements. Lastly, the court has employed its power to support the arbitral process, stepping in to appoint arbitrators where questions arise as to the impartiality of arbitral tribunal.
Enforcement and challenge of foreign arbitral awards
After an eventful 2014, the English courts continued to be busy with regards to the enforcement of foreign and English-seated arbitration awards. The court paid deference to the curial court. In one case the court declined to enforce an award set aside at the seat. In another, the court adjourned enforcement proceedings where a challenge to the award was ongoing at the the curial court: placating the award creditor by order full security for the award amount while the outcome was pending. It also gave detailed consideration to what steps constitute a waiver of immunity for a state facing enforcement proceedings.
No enforcement where the award has been set aside: applying the ‘preferred approach’
The English court rarely refuses enforcement of foreign awards made under the New York Convention. In Malicorp Ltd v Government of the Arab Republic of Egypt, Egyptian Holding Company for Aviation and Egyptian Airports Company,1 the court did so for the fifth time only on the bases that the award had been set aside by the curial court and that the respondent had been unable to present its case in the arbitration. The discretion of an enforcing court to set aside an award annulled by the court of the seat is embodied in section V(2)(e) of the New York Convention and is reflected into English law by section 103(2)(f) of the Arbitration Act. The proper application of the discretion is much debated and has not previously been considered by the English courts.
The procedural history of the parties’ long-running saga deserves recounting. Malicorp commenced arbitration against Egypt following the termination by the Egyptian Government of a concession contract for the design, construction and operation of a new airport at Ras Sudr on the Red Sea Coast. The Judicial Administrative Court of the Egyptian Council of State swiftly suspended the proceedings on the basis that there was no arbitration agreement. Nevertheless, in March 2006, the tribunal found in favour of the claimants and ordered the respondent to pay damages; but attempts to enforce the award in France in 2010 failed. The Cairo Court of Appeal then set the award aside in 2012. The decision is currently awaiting appeal at the highest level of the Egyptian courts. Meanwhile, in 2011, an ICSID tribunal rejected a claim brought by Malicorp against Egypt alleging that Egypt had expropriated its investment. Following annulment proceedings, the decision was confirmed.
The matter arose before the English courts in 2012 when Malicorp successfully applied on a without notice basis for permission to enforce the 2006 award pursuant to section 101(2) of the Arbitration Act. Flaux J granted the award debtor permission to apply to set aside the enforcement order.
Egypt relied on two grounds to persuade the court to resist enforcement.
First, invoking section 103(2)(f) of the Arbitration Act, Egypt argued that the award had been set aside and therefore should not be enforced. Egypt specifically referred and relied on arguments presented in the academic community (for example, by Albert Jan van den Berg)2 that once an award has been annulled at the seat, the award is extinguished; there was no award to be enforced. Walker J was reluctant to engage with theory and relied on an approach that focused on the recognition of judgments between courts. He cited a passage in the 2014 case involving Yukos and Rosneft where similar arguments were raised:
In my judgment the answer to the question is not provided by a theory of legal philosophy but by a test: whether the Court in considering whether to give effect to an award can (in particular and identifiable circumstances) treat it as having legal effect notwithstanding a later order of a court annulling the award.3
Therefore, Walker J determined that the ‘preferred approach’ was to proceed on the assumption that while section 103(2) of the Arbitration Act gives the enforcing court the discretion to enforce an award set aside at the seat, it would be wrong to do so if the court judgment was one which the English courts would give effect to (applying English private international law). A court should recognise a foreign court judgment unless it offends against principles of honesty, natural justice and domestic concepts of public policy. In this respect, Malicorp contended that the judgment was tainted by pro-government, pro-Egyptian bias. Assessing the question of bias, the court held that such allegations must be established by ‘positive and cogent evidence’.4 The court dismissed three pieces of evidence presented by the claimants:
- evidence from the Cairo Court of Appeal to the Public Prosecutor concerning the suspension of the arbitration while criminal proceedings were on foot;
- an expert report which the court deemed provided merely generalised and anectodal material; and
- a newspaper report that had little relevance to the matter at hand.
Since this evidence did not reach the required level of cogency, the allegation of bias failed; the judgment met the test of recognition by the English court. Given this, Walker J reasoned that there was no room, ‘as a matter of discretion, to give effect to the Cairo award’.5
The second ground Egypt relied on concerned the nature of the remedies awarded to Malicorp. Malicorp’s claim related to the payment of damages for breach of the concession agreement. Egypt’s defence in the arbitration turned on evidence of fraud by Malicorp, which entitled Egypt, it argued, to avoid the contract. In its award, the tribunal found that the contract was void for mistake – a ground argued by neither party – assessing that Egypt bore 10 per cent of the responsibility. The damages that stemmed from this were calculated by applying a statutory mechanism which was also entirely new to both parties. The English court agreed that Egypt had not had an opportunity to put its case in relation to the award of damages and was therefore entitled to not enforce the award (section 103(2)(c) of the Arbitration Act). Though the court acknowledged that it still had discretion to enforce the award despite this failure, it determined that the failure in this case was too serious to ignore.
The New York Convention is premised on an agreement by state parties to recognise and enforce arbitral awards, with discretion to refuse enforcement only in limited circumstances. Walker J’s ‘preferred approach’ acknowledges the state’s discretion to enforce an award that has otherwise been set aside by the court of the seat. But ultimately it pays more credence to the principle of comity between courts that requires judgments to be enforced unless they offend against fundamental principles of due process.
States must take care not to waive immunity – step in the proceedings
The London Steamship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain & Anor6 concerned the enforcement of two London-seated awards against Spain and France. The underlying dispute related to a sunken oil tanker, MT ‘Prestige’, that caused extensive oil pollution in waters off the coast of North-West Spain. Spain and France took criminal action against various individuals and also pursued the owners of the vessel and its protection and indemnity insurers (the Club) for civil law breaches in Spain. In those proceedings, the Club acknowledged its liability under the International Convention on Civil Liability for Oil Pollution Damage (CLC) but argued that, with regard to claims not covered by the CLC, the states were bound by an English law arbitration clause contained in the Club’s insurance rules. Accordingly, the Club commenced arbitration proceedings in London seeking negative declaratory relief in respect of non-CLC liability to the states. The tribunal upheld most of the Club’s claims finding that the states were bound by the arbitration clause in the Club’s rules, and the ‘pay to be paid’ clause operated as a condition precedent to the Club’s liability to the states. To secure primacy over any inconsistent Spanish judgment under the Brussels Regulation on the same issues, the Club issued proceedings in the English court to enforce the awards under section 66 of the Arbitration Act. Spain filed an acknowledgment of service but sought to set aside the service out of the jurisdiction of the claim. Spain later applied to challenge the award made against it under sections 67 and 72 of the Arbitration Act arguing (among other things) that the arbitrator lacked jurisdiction since there was no arbitration agreement. It served supporting witness evidence that included the statement that ‘if it is correct that there was no valid arbitration agreement, [Spain is] immune from suit on the basis of the [State Immunity Act 1978 (SIA)]’ .7 France failed to issue an acknowledgement of service, nor did it challenge jurisdiction formally. But it did challenge the award under sections 67 and 72 on the same grounds as Spain.
At first instance, Hamblen J found that both Spain and France had lost immunity. Applying Through Transport Mutual Insurance Association (Eurasia) Ltd v New India Insurance Co (The Hari Bhum) (No 1),8 Hamblen J held that both France and Spain were party to the arbitration agreement in the Club’s rules. By agreeing to arbitrate, both states lost immunity by the operation of section 9(1) of the SIA.9 The lower court also determined that the claims were arbitrable and therefore there were no grounds to resist enforcement of the declaratory award.
The Court of Appeal agreed that the states had lost immunity but its reasoning differed from that of the lower court. In particular, it focused on section 2 of the SIA, which provides the grounds on which a state is deemed to have submitted to the jurisdiction (and prevents the state from claiming immunity). Specifically, section 2(3)(a) of the SIA stipulates that a state is deemed to have so submitted ‘(a) if it has instituted the proceedings; or (b) [...] if it has intervened or taken any step in the proceedings’. Section 2(4)(a) of the SIA contains a saving clause whereby ‘any step taken for the purpose only of claiming immunity’ does not amount to a waiver of sovereign immunity. Civil Procedure Rule 11 deals with the procedure for disputing the court’s jurisdiction, and provides (at Rule 11(5)) that if an acknowledgement of service is filed by a defendant and no challenge to jurisdiction is made, it is treated as having accepted the jurisdiction of the court.
The Club argued that the submission of the application notice alone was sufficient to waive immunity. However, Moore-Bick LJ clarified that where states are concerned, the requirements of English procedural law were not determinative since the relevant test is that under section 2(3) of the SIA. This codifies international customary law regarding the principles of consent that apply to states for the purposes of waiving a right to immunity that it would otherwise enjoy. The Court of Appeal held that the service of an acknowledgement does not demonstrate an election to waive immunity, even if Rule 11(5) is triggered.10
In considering the applications to challenge the awards by both France and Spain, the Court of Appeal applied the ‘acid test’ to determine whether a party has taken a step in the proceedings otherwise than for the sole purposes of claiming immunity (under section 2(4) of the SIA). The Court held that, in this case, a witness statement served by Spain in support of its application clearly invited the court to determine whether the tribunal had jurisdiction, and only thereafter to consider the state’s immunity under the SIA. This was not a step that merited exemption under section 2(4) of the SIA, and instead it constituted a step in the proceedings sufficient to waive immunity. France’s application had the same effect. The awards should be enforced.
Adjournment of enforcement ordered but with full security pending challenge proceedings abroad
Travis Coal Restructured Holdings LLC v Essar Global Fund Limited11 concerned an application by a Cayman company against a Delaware company for the enforcement of an ICC award to the tune of over US$200 million under section 101 of the Arbitration Act. The defendant cross applied for an adjournment of those enforcement proceedings on the basis of a pending challenge to the award at the seat of arbitration in New York as is permitted under section 103(5) of the Arbitration Act and also sought to challenge the award under section 103(2) of the Arbitration Act on grounds of a lack of due process. Travis argued that if an adjournment was ordered, then security should be granted in its favour. The court applied the test used by Gross J in IPCO (Nigeria) v Nigerian National Petroleum Corporation:12
- is the application for adjournment being used as a delaying tactic;
- does the application abroad have a realistic prospect of success; and
- was there likely to be any delay and any resulting prejudice caused by the adjournment?
In respect of the application for security, the relevant test is whether, on a sliding scale, the award is valid. Mr Justice Blair found that, while the challenge applications could not be said to be brought in bad faith, the award was likely to be valid and therefore it was likely that the proceedings were brought purely to delay enforcement. Nevertheless, given that the New York courts would determine the challenges soon, and paying heed to the principle of comity between courts, Blair J ordered the adjournment pending the outcome of the challenge proceedings. Since, on the evidence, the delay in enforcement was likely to cause Travis prejudice, security was awarded in the full amount of the claim.
High threshold for challenges maintained
As usual, there were a number of reported decisions on challenges to English-seated awards. The decisions below emphasised the high threshold the court applies to eliminate technical and unmeritorious challenges of arbitration awards for lack of substantive jurisdiction or for serious irregularity under sections 67 and 68 of the Arbitration Act, respectively. As such, section 67 applications failed because:
- even if the tribunal had been wrong to reject its jurisdiction over the dispute, it would in any case have rejected the claims on the merits (the error as to jurisdiction was inconsequential);13
- a court jurisdiction clause in the settlement agreement superceded the arbitration provision in the earlier consultancy agreement and therefore the award had been granted without jurisdiction;14 and
- the applicant had failed to challenge a previous partial award in relation jurisdiction and had therefore lost the right to challenge jurisdiction in respect of the final award.15
One section 67 application succeeded. In Hellenic Petroleum Cyprus Ltd v Premier Maritime Ltd,16 the court had to consider the claimant’s challenge under section 67 that jurisdiction was wanting on the basis that it had never agreed the terms of a draft time charter, which included a London arbitration clause. Flaux J, in granting the application, held that the arbitration had wrongly accepted jurisdiction where, on a proper analysis, the alleged arbitration agreement failed for want of acceptance by one of the parties.
The Secretary of State for the Home Department v Raytheon Systems Ltd17 is a rare example of a successful challenge on the ground of serious irregularity under section 68(2)(d) of the Arbitration Act (the tribunal’s failure to consider all the issues put to it). The claimant, the UK government, challenged a £224 million LCIA award in favour of a US-owned defence contractor arguing that two issues on liability and three on quantum had not been considered by the tribunal. Generally speaking, an application under section 68(2) of the Arbitration Act involves a narrow test of ‘substantial injustice’ to be applied.18 Akenhead J held that the claimant had suffered substantial injustice in this case. This included the tribunal’s failure to assess the nature and seriousness of any default of the US-owned contractor in determining whether the claimant’s termination of the contract was reasonable, and whether the contractor was responsible for any cost incurred through its own deficient performance. The award was set aside. Had the tribunal considered the relevance of the defaults, the tribunal could well have established that the contractor was in material breach and the termination of the contract was justified, with the result that the claimant would have won on liability. The judge granted permission to appeal his decision, but the matter was subsequently settled by the parties.
The court removes an arbitrator for want of impartiality
Sierra Fishing Company & Ors v Farran, Assad and Zbeeb19 concerned failures to repay amounts due under a loan advanced by Dr Farran and Mr Assad for the purchase of fishing vessels by the claimant. The arbitrator (Zbeeb) had been a legal adviser to the bank of which the first defendant (Farran) was chairman, and his father (and co-partner in their law firm) had acted for and continued to advise both the first defendant and the bank. In considering whether to remove the arbitrator, the court applied the relevant test under section 24(1)(a) of the Arbitration Act. It held that a fair-minded observer would conclude that there was at least a real possibility that the arbitrator would be predisposed to favour Dr Farran in order to maintain a business relationship with him and his bank. In making his decision, Popplewell J observed that arbitrators cannot absolve themselves of their duty to disclose any circumstances that may cast doubt on their impartiality, whatever ‘due diligence homework’ may be available to the parties. The fact that Zbeeb erroneously thought that it was for the claimant to offer this information reinforced the fair-minded observer’s doubts as to his impartiality; he was removed.
Interestingly, the court also sought assistance from the IBA Guidelines on Conflicts of Interest, holding that there was a real possibility that the relationship between Farran and Zbeeb fell within both the non-waivable and waivable Red Lists as well as the Orange List. The IBA Guidelines on Conflicts of Interest have been highly influential since their introduction in 2004 and were revised in October 2014. The amendments to the Guidelines are fairly light touch and focus on updating the situations covered by the Guidelines. They now include guidance on the effect of advance waivers on disclosure obligations and the application of the Guidelines to players in the arbitral process not previously mentioned, such as administrative secretaries, third-party funders and insurers.
Fundamental principles of English arbitration confirmed
Presumption of one-stop may not be relevant in multi-contract situations
Without establishing new law, a number of cases this year clarified important principles of arbitration law. The first is that formulated in Fiona Trust & Holding Corporation v Privalov.20 This landmark case held that the proper construction of an arbitration clause should start from the presumption that the parties, as rational business people, are likely to have intended any dispute arising out of their relationship to be decided by the same tribunal. The case of Fiona Trust related to the scope of an arbitration clause where multiple issues arose out of a single contract. This rebuttable presumption militates against the potential fragmentation of disputes which was unlikely to have been intended by the parties and advocates for a common sense, commercially minded interpretation of arbitration clauses. However, the scope of this ‘one-stop, one jurisdiction’ principle is less clear in cases where there are multiple contracts (either in a string of contracts or by way of an agreement package) each with different dispute resolution mechanisms. This has been considered in a number of cases this year.21 Mr Justice Carr drew together the main emerging principles in the last of these cases, C v D1, D2 and D3.22 Carr J noted that the presumption may apply where there are multiple related agreements between the parties. If there are inconsistent arbitration provisions, it may be necessary to identify the ‘centre of gravity’ or to identify which agreement lies at the commercial centre of the claim to determine which is the most appropriate regime applicable to the group of contracts. But where the agreements contained separate and distinct arbitration clauses dealing with different or parallel aspects of the relationship between the parties, the presumption may not be applicable.23 In these instances, the parties’ wish to deal with disputes in different forums should displace the presumption.
The court’s power to issue anti-suit injunctions is unfettered by the Arbitration Act
In Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP,24 the Supreme Court notably clarified the scope of its inherent power under section 37 of the Senior Courts Act 1981 to issue anti-suit injunctions against the commencement of litigation in breach of the arbitration agreement whether or not arbitral proceedings are ‘on foot’ or even contemplated. If no arbitral proceedings are ongoing, the power of the courts under section 44 of the Arbitration Act (which permits the courts to make various orders to support the arbitral proceedings) has no application. The recent case of Southport Success SA v Tsingshan Holding Group Co Ltd25 clarifies the correct legislative basis for such relief in cases where arbitration proceedings are on foot. The claimant, owner of the vessel M V ‘Anna Bo’, had initiated arbitration proceedings pursuant to a bill of lading against the defendant for dangerous loading of the vessel whilst chartered for the transportation of nickel ore to China. Meanwhile the defendant brought proceedings in China to recover certain transshipment costs despite an arbitration agreement that the claimant alleges has been incorporated into the bill of lading.
An anti-suit injunction was issued without notice on an interim basis by Blair J in favour of the claimant. At the return date, the defendant argued that the injunction be discontinued on the basis that, inter alia, arbitral proceedings were ‘on foot’, and that the conditions of section 44 of the Arbitration Act should be satisfied before the court takes jurisdiction to order injunctive relief. Philips J dismissed this argument and continued the injunction, clarifying that section 37 of the Senior Court Act 1981 was the appropriate legislative basis in cases such as this, where parties seek an injunction to enforce the negative promise made by parties in an arbitration agreement not to pursue each other in the courts. Section 44 of the Arbitration Act applies only to the orders for the purposes of and in relation to the arbitral proceedings; in no sense should section 44 of the Arbitration Act operate as a limitation on the courts’ power under section 37 of the Senior Courts Act 1981.
In April 2015, the School of International Arbitration at the Centre for Commercial Law Studies, Queen Mary University of London, hosted its 30th Anniversary Celebration Conference, ‘The Evolution and Future of International Arbitration: The Next 30 Years’.
The LCIA issued three guidance notes on its new rules of arbitration. Two of the notes address the practicalities of LCIA arbitration generally (with one addressed to the parties and the other to the arbitrators). The third explains emergency arbitrator procedures under the LCIA Rules explaining in detail the difference between expedited formation of the tribunal and the new emergency arbitrators mechanism, and providing case studies detailing their application in practice.
The LCIA also appointed a new president, Judith Gill QC, who will be working alongside William W Park until he steps down from the role in 2016.
In response to concerns about the potential effect of the EU’s economic sanctions against Russia on arbitration proceedings involving Russian parties, the ICC, the LCIA and the SCC have published a joint article seeking to clarify the scope of the sanctions on arbitral instructions based in the EU. The institutions have clarified that the EU sanction regulations apply only to a limited number of persons and entities; Russian parties are free to agree to arbitration in any venue within the EU. That said, some asset-freezing restrictions could come into play where a designated party appears as or is a controlling entity of a party targeted by EU restrictions, or where a party is an entity trading in dual-use goods and technology for military use in Russia or for any military end-user in Russia. In these cases, the note makes various recommendations as to how the freezing of funds can be avoided (eg, by applying for an exemption regarding payments of legal services or professional fees).
The authors would like to thank Elena Mishchenko for her support in the production of this chapter. At the time of writing, Elena was working with the arbitration practice with Clifford Chance in London.
-  EWHC 361(Comm).
- Enforcement of Arbitral Awards Annulled in Russia(2010) 27(2) J. Int. Arb. 179-198.
- Yukos Capital S.a.r.l. v OJSC Rosneft Oil Company  EWHC 2188 (Comm), para. 20.
- Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd  UKPC 7, para. 97 and Yukos Capital S.a.r.l. v OJS Oil Company Rosneft (No 2)  EWCA Civ 855, para. 61.
-  EWHC 361(Comm), para. 28.
-  EWCA Civ 333.
-  EWCA Civ 333, para 43.
-  1 Lloyd’s Rep. 206.
- Applying dicta in Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No. 2)  Q.B. 886.
- The case of Maple Leaf Macro Volatility Master Fund v Rouvroy  EWHC 257 (Comm) was distinguished on the basis that it concerned the submission of a private party to the jurisdiction.
-  EWHC 2510 (Comm).
-  2 Lloyd’s Rep 326.
- Integral Petroleum SA v Melars Group Ltd  EWHC 1893 (Comm).
- Monde Petroleum SA v Westernzagros Ltd  EWHC 67 (Comm).
- Emirates Trading Agency LLC v Sociedade de Fomento Industrial Private Ltd  EWHC 1452 (Comm).
-  EWHC 1894 (Comm).
-  EWHC 311 (TCC).
- See BV Scheepswerf Damen Gorinchem v The Marine Institute  EWHC 1810 (Comm).
-  EWHC 140 (Comm).
-  UKHL 40.
- Monde Petroleum SA v Westernzagros Ltd  1 Lloyd’s Rep 330, AmTrust Europe Limited v Trust Risk Group SpA  EWCA Civ 437, Hashwani and others v OMV Maurice Energy Limited  EWHC 1811 (Comm), and C v D1, D2 and D3  EWHC 2126 (Comm).
-  EWHC 2126 (Comm).
- See, C v D1, D2 and D3  EWHC 2126 (Comm), para. 104.
-  UKSC 35.
-  EWHC 1974 (Comm).
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