Category: Dispute resolution

Arbitration agreements — for once, perhaps we should be the world’s policeman

Whatever the position as regards English jurisdiction clauses, we’ve known for nigh on a quarter-century that you can’t get an ASI in London to protect the agreed jurisdiction of a foreign court. In 1998 Airbus Industrie G.I.E. v Patel [1999] 1 A.C. 119, our judges firmly eschewed the idea that they should operate as a kind of Global Good Litigation Police, and said that that foreign fora wanting to guard their jurisdiction as a choice of place to litigate could be expected to do their own dirty work.

But what about arbitration? Does a similar rule apply to complaints that a defendant is blithely suing away in Ruritania under a contract containing on the face of it a clause calling for arbitration in Utopia? A decision a week ago from Sir Nigel Teare suggests a possible Yes.

In G v R [2023] EWHC 2365 (Comm) suit was brought in Russia on a performance bond governed by English law. The claimant pointed out that the bond provided for any disputes to be settled by ICC arbitration in Paris, and to make sure this happened sought an ASI from the High Court. Could it get it? The answer was a fairly resounding no. In fact the claimant fell at the first fence; having failed to show that the agreement to arbitrate, as against the main contract, was governed by English law, he failed to seise the court of the matter in the first place.

But apart from that, even if the contract to arbitrate had been governed by English law, the judge thought England was not shown to be the appropriate jurisdiction. The fact that England could grant ASI relief whereas the French court, as the court of the seat, could not, went for little: the parties having chosen a French seat, there was nothing wrong with saying that having made their bed they should lie in it, and thus be stuck with the limited remedies available in France. Nor was there much relevance in a (hypothetical) English governing law, even if that had been chosen, since there was unlikely to arise any serious issue of English law that it would be difficult for a foreign tribunal to determine.

We have, if we may say so with great respect, our doubts about this decision.

First, there is an argument that if parties choose to have an arbitration agreement governed by English law, that should incline a court in favour of doing their best to make available the remedies normally applying in English law for breach of it. If so it should actually be a strong pull in favour of the English courts being an appropriate venue. The parties in G v R, had they (as the claimant argued) chosen English law as the lex arbitri, would one suspects have been somewhat nonplussed at the information that the English courts were nevertheless closed to them as an inappropriate forum. To that extent, the differing view of the Court of Appeal on an interlocutory appeal in SQD v QYP, decided the day before G v R (and noted here), and also a similarly divergent view expressed in March this year by Calver J (noted here), seem to carry more conviction.

Secondly, unlike choice of court agreements, there is something approaching an agreed international regime in force for international arbitration agreements under the New York Convention, which very strongly favours giving the most robust protection possible to such agreements. (Indeed, it was the notoriously casual attitude of the Russian courts towards the New York Convention that spawned the satellite litigation in G v R in the first place.) There is something to be said for an “all hands to the pumps” approach here, with the English courts doing their best to uphold the New York system.

This issue is clearly heading fast towards the Court of Appeal, if not further. Meanwhile, what should practitioners do if they wish to feel secure in reserving their seat on the Eurostar for that ICC session in Paris? First, they must make clear, preferably expressly, that the lex arbitri is English – something doubly important, if the Law Commission’s recommendation is enacted that the presumptive lex arbitri should always be that of the seat, rather than that of the matrix contract.

They should also – as some already do — expressly confer at least non-exclusive jurisdiction on the English court in matters related to the arbitration agreement. Not only will this make service out easier: it will make it much harder for another party to deny that the English court is indeed the appropriate one to seek relief in. True, the parties cannot force the court by agreement to exercise its discretion in favour of the always-discretionary remedy of an injunction. But they can sure use tactful means to smooth its way to that destination.

A DAY TO REMEMBER: THE 2019 HAGUE JUDGMENTS CONVENTION ENTERS INTO FORCE

At last, we no longer lack functional global rules for the recognition and enforcement of judgments. Only a couple of days ago, on 1 September 2023, the Hague Judgments Convention 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (HJC) entered into force. This is a momentous event for private international law and a real game-changer for international dispute resolution. With its entry into force, the HJC can now be utilised by commercial parties and contribute to a swift resolution of disputes by shortening expenses and timeframes for the recognition and enforcement of a foreign judgment in other jurisdictions. Having adopted the HJC, the Hague Conference achieved its target to guarantee the effectiveness of court judgments similar to arbitral awards as ensured by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

A year ago and almost around the same time we provided some comments on the provisions of the Convention determining the procedure for becoming effective (see here: Hague Judgments Convention to enter into force! – The Institute of International Shipping & Trade Law (IISTL) Blog). According to Articles 28 and 29 of the HJC, the Convention shall enter into force on the first day of the month following the expiration of the twelve months after the second State has deposited its instrument of ratification, acceptance, approval, or accession. On this occasion, the Convention was ratified by Ukraine and the EU on 29 August 2022, and now has a force of law for both. In addition, Uruguay ratified the treaty on 1 September, and it will come into force for the latter 12 months later.

The HJC provides recognition and enforcement of judgments given in cross-border civil and commercial cases, excluding the carriage of passengers and goods, transboundary marine pollution, marine pollution in areas beyond national jurisdiction, ship-source marine pollution, limitation of liability for maritime claims, and general average. That being said, the HJC is not an ideal framework and does not include every issue that might arise from civil and commercial cases. Yet, it complements the HCCCA not only by sharing the same objectives but also by covering judgments given by non-exclusively designated courts; therefore, it indeed serves party autonomy and ensures the effectiveness of an entire range of choice of court agreements.

The Convention further contributes to certainty and access to justice post-Brexit since it is the only international treaty providing rules for the recognition and enforcement of judgments in cross-border commercial disputes. However, the UK has not ratified the Convention yet and even if it does, the Convention will enter in and for the UK only twelve months after the date it deposits an instrument of ratification. Following the analysis, the Government will make its final decision on becoming a Contracting State to the HJC and on whether to make any reservations. If signed and ratified, the Convention would be implemented in domestic law under the terms of the Private International Law (Implementation of Agreements) Act 2020, subject to appropriate parliamentary scrutiny. Indeed, if ratified, the HJC will not only contribute to access to justice and effectiveness of judgments involving EU-related civil and commercial cases but also the UK’s global judicial cooperation with the other Hague Contracting States will be enhanced. For the previous post related to the UK’s plans to ratify the HJC see: The Ball is Rolling: The UK to ratify the Hague Judgments Convention? – The Institute of International Shipping & Trade Law (IISTL) Blog.

Yet, we must admit the HJC leaves significant matters unresolved. Besides excluding extremely important commercial matters from its application scope, the Convention does not contain any specific regulation of parallel proceedings, lis pendens, and related actions – the famous yet infamous Brussels terminology. In this regard, there is a hope that the Hague Conference will succeed in its Jurisdiction Project. Indeed, if the latter is achieved the three Conventions might well function together and provide safeguards for international commercial parties and global justice.

Choice of court agreements — the Hague Convention 2005 means what it says

It’s not often we get decided cases on the 2005 Hague Convention on Choice of Court Agreements. But the Irish High Court produced a helpful one last week, which practitioners on both sides of St George’s Channel would do well to bear in mind.

In Compagnie de Bauxite & d’Alumine De Dian Dian SA v GTLK Europe DAC [2023] IEHC 324 GTLK, a company controlled by the Russian state but registered in Ireland, had issued a demand guarantee for $20 million in favour of the plaintiffs CBA SA. The guarantee, stated to be governed by English law and subject to the exclusive jurisdiction of the English courts, was in respect of a contract by a Cypriot entity, POLA, to aid CBA in the shipment of quantities of bauxite from Guinea to an aluminium smelter in Limerick.

POLA allegedly fell down in its performance and CBA claimed under the guarantee. GTLK, by then sanctioned by the EU following the Ukrainian debacle, denied liability (predictably if somewhat quixotically, the guarantee being a demand bond), and did its best to play hard to get, pointing out smugly that in any case EU sanctions prohibited it from making any payment without a derogation from the Irish government.

Exasperated, CBA finally sued GTLK in Ireland, claiming payment and potentially a mandatory injunction ordering it to seek the necessary official derogation to enable it to meet any judgment. Faced with the tricky argument that the English jurisdiction clause brought the case directly within the Hague Convention which not only permitted but required the Irish courts to stand aside, CBA argued that enforcing this clause would give rise to manifest injustice within Article 6(c) of the Convention. Why, it said, should it be forced to sue in London and then seek to port its judgment to Dublin, where GTLK’s assets were? Why should it have to face the double uncertainty of whether an English court could issue a mandatory order to an Irish company to petition its own government in Dublin, and if it could whether any such order would be enforceable in Ireland? Was not the injustice was made worse by GTLK’s delay in making its position clear, coupled with CBA’s expenditure of considerable sums on Irish lawyers?

Twomey J was having none of it. He essentially accepted the views of the Hartley and Dogauchi report produced by the HCCH, that “manifest injustice” was a very restrictive concept indeed, being limited to cases such as fraud, corrupt courts and genuine inability of a party to access the chosen forum. Here the essential complaint of CBA was merely that they found it thoroughly inconvenient to have to abide by the clause thay had agreed to: but neither this, nor the fact that there had been some little delay by GTLK and expenditure by CBA, came close to showing manifest injustice.

This must, with respect, be right. The message coming from the Convention is that, very exceptional cases aside, a person who has agreed to exclusive jurisdiction has made his bed and has to lie in it: to this extent, the rule under Hague is a good deal stricter than that at common law, under which a stay of local proceedings may be refused if there are strong reasons to do so (e.g. The El Amria [1981] 2 Lloyd’s Rep. 119 and Citi-March Ltd v Neptune Orient Lines Ltd [1996] 1 W.L.R. 1367). Any reinforcement of this message is a good thing, and will one suspects be welcomed by business.

Two other minor points are worth noting.

First, what happens about the case where a defendant genuinely leads a claimant to believe that he will not invoke the Convention and a claimant then irrevocably seriously relies on this? The Convention does not include estoppel within the Art.6 exceptions to the duty of a national court other than the chosen court to decline jurisdiction. It is to be hoped, however, that English and Irish courts will accept that where estoppel would otherwise be made out, then Article 6(c) will encompass it.

Secondly, on an unconnected issue Twomey J seemed to accept the possibility of a mandatory order on a sanctioned defendant against whom judgment was given to take at least some steps to attempt to lift the sanctions. This would certainly be a useful remedy against stonewalling by a sanctioned entity, and it seems unobjectionable as a matter of principle. Not only was this apparently recognised explicitly in the Irish legislation effectuating the 2005 Convention (see s.9 of the Choice of Court (Hague Convention) Act, 2015), but in England it seems well within the scope and intention of s.37(1) of the Senior Courts Act 1981.

In short, a useful little judgment which English and Irish lawyers alike would be well advised to keep a copy of on their hard disks.

The next step in the reform of the Arbitration Act 1996

Recently, the Law Commission for England and Wales published the Second Consultation Paper on the Review of the Arbitration Act 1996 containing provisional law reform proposals to ensure that the arbitration law remains state of the art. Back in 2021, the Ministry of Justice asked the Law Commission to undertake a review of the Arbitration Act 1996. Following this, the Commission published its first public consultation paper unfolding provisional law reform proposals. The consultation period was open by December 2022. See the previous post about the first consultation paper here: Law Commission to review the Arbitration Act 1996

The consultation questions in the previous paper were around the shortlisted aspects of the arbitration, including confidentiality, independence of arbitrators and disclosure, discrimination, immunity of arbitrators, summary disposal of issues that lack merit, interim measures ordered by the court in support of arbitral proceedings (section 44 of the Act), jurisdictional challenges against arbitral awards (section 67), and appeals on a point of law (section 69). In addition, the Commission encouraged consultees to suggest and comment on any other topics which were not covered but might need reviewing.

It is worth reiterating the main points of my response to the first consultation paper:

  • As of the status quo based on the existing legislation and authorities, relitigation and reconsideration by the court following the challenges brought under Section 67 not only double the waste of time and expenses by the repetitive proceedings and potential parallel or inconsistent judgments but also go against the whole idea of arbitration and the fundamental principle “Kompetenz-kompetenz”.
  • The courts’ powers to grant interim injunctions derive from the two fundamental legal frameworks – Arbitration Act 1996, Section 44 and Senior Courts Act 1981, Section 37. The revision of the existing legal frameworks to reflect the interrelationship and boundaries of the instruments with regard to the court’s powers to make orders in support of arbitral proceedings would be in line with the objectives and general principles of the Arbitration Act 1996 to improve the law relating to arbitration, in general. Indeed, the revision would bring clarity about the application scope of the Act (see the Introductory Act to the Arbitration Act 1996) and contribute to the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.

Based on the suggestions made by the consultees involved in the first round of the reform project, in its second consultation paper, the Commission has made new proposals about the proper law of the arbitration agreement. Furthermore, the Commission considers the following two issues as the most controversial ones among the others and seeks the views of consultees on the revised proposals: (1) challenges to awards under section 67 on the basis that the tribunal lacked jurisdiction; and (2) discrimination in arbitral appointments.

The second consultation paper will be open by 23:59 hours on 22 May 2023. The responses of consultees to this second consultation paper will be taken along with responses to the first consultation to inform the final report and recommendations. All the details of the project and relevant consultation documents are available here: Review of the Arbitration Act 1996 – Law Commission