David Breslin, Partner, Fladgate LLP (email@example.com)
Frances Jenkins, Associate, Fladgate LLP (firstname.lastname@example.org)
The English Court has issued a number of recent judgments in respect of arbitration matters and its supervisory powers under the Arbitration Act 1996 We summarise some of the more important decisions emerging, including those relating to “apparent bias” challenges against an arbitrator.
The Claimant (Progas) brought UNCITRAL arbitration proceedings against the Islamic Republic of Pakistan pursuant to the Mauritius-Pakistan Bilateral Investment Treaty, alleging that the government of Pakistan expropriated their investment. The Tribunal dismissed the claim and made an award of costs in Pakistan’s favour.
The Claimant brought a challenge to the award under s 68(2)(d) of the AA 1996. The Defendant applied for: (i) security of their costs in defending the challenge to the award under s.70(6) AA 1996; and (ii) the costs awarded to them by the Tribunal to be paid into Court or otherwise secured under section 70(7) AA 1996. In relation to application (i), the key question is whether the party bringing the claim has sufficient assets. In relation to application (ii), generally the courts should not order security unless the applicant can demonstrate that the challenge to the award will prejudice its ability to enforce the award which usually require evidence of dissipation.
The Claimant’s claims and s.68 challenge were funded by a professional litigation funder (“PI”), a subsidiary of Burford Capital (“BC”). PI had not contracted to accept liability for adverse costs orders but prior to the hearing BC had written letters offering to ensure that PI would meet any such orders if the Claimant could not.
In relation to application (i), the Judge rejected the Claimant’s argument that it had sufficient assets available as the Defendant could seek a third party costs order under s.51 of the Senior Courts Act 1981 against the litigation funder. The Judge further rejected the Claimant’s position that the letter from BC would ensure their subsidiary met any adverse cost orders as BC had made no legally binding commitments to either the Claimant or the Defendant to cover any adverse costs orders. This letter was not evidence of assets available to the Claimant. Therefore Pakistan was awarded £400,000 by way of security for costs.
With regard to application (ii), the Court did not find evidence that the Claimant was involved in asset dissipation. The Court rejected Pakistan’s arguments holding that the approach established by existing authorities should be applied whether or not the case involves commercial funding or not. As such, this application was dismissed.
The Privy Council found by a majority (Lord Sumpton dissenting), and “with some reluctance” that the Judge presiding over winding-up proceedings should have disclosed his involvement with one of the parties before determining the winding up petition and that, in the absence of any such disclosure, a fair minded and informed observer would see a real risk of bias.
The dispute was between BTU Power Company and its predominantly Qatari shareholders. Mr Almazeedi was a director of BTU and had been accused of financial mismanagement. In 2011 the Qatari shareholders applied to the Court in the Cayman Islands for a winding up petition which was heard by Mr Justice Cresswell who appointed liquidators in January 2012 and ordered Mr Almazeedi to pay costs.
At the time of the dispute, Cresswell J was a Supplementary Judge at the Qatar Civil and Commercial Court at the Qatar Financial Centre. This was not disclosed to the parties. Given that a number of the shareholders had links to the Qatar state, and the CEO and chairman of one of the shareholders were both, at different times, the Minister of Finance of Qatar, Mr Almazeedi appealed on the grounds of Cresswell J’s lack of independence and that a fair minded and informed observer would see a real risk of bias.
The Court held that the Judge should have disclosed his involvement with Qatar before determining the winding up petition. The Court considered that a fair-minded and informed observer would regard Creswell J as unsuitable to hear proceedings given his links to Qatar.
The dispute arose from delays in the performance of a contract for the design, construction and sale of drilling rigs between DSME and Songa Offshore. A third party engineering and design consultancy was to provide the hull design (including the front-end engineering design (“FEED”) documentation). It was alleged by DSME that the FEED documentation was defective and, under the contract, Songa was to bear responsibility for additional costs, expenses or delays. Songa contested this. The question of design responsibility under the contracts was determined separately in two arbitrations in which DSME was held to bear full design responsibility, including FEED.
Section 70(3) contains only two express start dates for the running of the 28 days for any challenge to an award: (i) “the date of the award” and (ii) the date when the parties are notified of the outcome of “any arbitral process of appeal or review”.
The Awards were published on 18 July 2017. However, there were a number of clerical errors (accidental slips) in the award and DSME applied to the Tribunal to correct these errors. This application was unopposed. The Tribunal issued a Memorandum of Correction on 14 August 2017, 27 days after the Awards were published.
On 8 September 2017 (24 days after the 28 day deadline to challenge had expired) DSME issued an Arbitration Claim Form seeking permission to appeal the Awards. Songa applied for an order that DSME’s application be struck out on the grounds that it was not been brought within the 28-day limit. DSME responded that the 28 days ran from the date of the Memorandum of Corrections and so it was brought in time.
The Court drew a distinction between a “material” correction and an “immaterial” correction. The Court held that the correction/clarification process under s 57 cannot be regarded as an “available process of appeal or review” under s 70(3). Therefore, applying for an “immaterial” correction will not, in of itself, push back the start date for the running of time. However, where a correction or clarification must be sought in order to be able to bring the challenge to the award itself (i.e. a material correction), then time runs from the date of that type of correction or clarification being made.
This case was a Bermuda Form arbitration which concerned the extent to which an arbitrator may accept appointments in multiple arbitrations concerning the same or overlapping subject matter with only one common party without giving rise to an appearance of bias and the extent to which the arbitrator could do so without disclosure.
Following the explosion and fire on the Deepwater Horizon oil rig in 2010, numerous claims were made against Halliburton, BP and Transocean. Halliburton settled these claims and sought to recoup the cost from Chubb, its liability insurer. Chubb refused to pay Halliburton’s claim and the dispute was referred to arbitration. M was appointed as Chairman on application of the parties to the English commercial court, the parties not having been able to agree an appointment
Prior to his appointment, M disclosed that he had previously acted as arbitrator in a number of arbitrations in which Chubb was a party and that he was currently appointed as an arbitrator in two pending references in which Chubb was involved. After appointment, M accepted appointments in relation to separate claims arising out of the same incident made by Transocean against Chubb and a different insurer. These proposed appointments were not disclosed to Halliburton.
Halliburton later learned about these appointments and applied to the court to remove M as an arbitrator. The application was dismissed by the Commercial Court and Halliburton appealed.
The Court of Appeal accepted that inside information and knowledge may be a legitimate concern for a party in overlapping arbitrations involving a common arbitrator, but only one common party, but that in itself does not justify an inference of apparent bias. The Court commented that arbitrators are assumed to be trustworthy and to understand that they should approach every case with an open mind. The mere fact of appointment in overlapping arbitrations does not give rise to justifiable doubts as to the arbitrator’s impartiality. The Court highlighted that disclosure should be given of facts and circumstances known to the arbitrator which would, or might, give rise to justifiable doubts as to his impartiality. Furthermore, the Court concluded that in these circumstances disclosure ought to have been made by the arbitrator but that in this case the non-disclosure would not have led a fair-minded and informed observer to conclude that there was a real possibility of bias.
This judgment demonstrates that courts take the importance of the enforcement of foreign arbitral awards seriously even where a party has behaved fraudulently.
The dispute arose out of RBRG Trading (UK) Limited (“RBRG”) (the buyer) breaching a contract for the sale of rolled steel coils by unilaterally amending the letter of credit to change the shipment date without Sinocore’s consent. Sinocore presented forged bills of lading bearing the amended shipment date but RBRG stopped its bank from paying by applying for an injunction. As a result Sinocore terminated the contract and sold the coils to a different buyer but at a lower price.
In a CIETAC arbitration seated in Beijing, the Tribunal, issuing the Award in favour of Sinocore, held that although Sinocore had behaved fraudulently by attempting to extract payment from RBRG through forged bills of lading, it did not preclude this entity from claiming damages for its losses resulting from RBRG’s breach. Further the Tribunal held that RBRG had indeed breached the contract by unilaterally amending the letter of credit.
Sinocore subsequently obtained an order for enforcement from the English courts. RBRG contended that the recognition and enforcement of the Award would be contrary to public policy on the basis that the award has been procured by fraud (i.e. the forged bills of lading).
RBRG’s application was dismissed on the basis that the award was based on a breach of contract committed by RBRG. This breach predated the forgery and, in any event, the bank had not been deceived by the fraud.
Dismissing RBRG’s subsequent appeal, Hamblen LJ held that “here is nothing which offends English public policy if an Arbitral Tribunal enforces a contract which does not offend the domestic public policy under either the proper law of the contract or its curial law, even if English domestic public policy might have taken a different view”. He noted that there is no public policy issue in refusing the enforcement of an award which is based on a contract during the course of which there has been a failed attempt at fraud. This was, at most, an “attempt” at fraud and as the underlying contract had not been procured by fraud, there was no reason to refuse enforcement of the award.
The English court has considered a rare s.45 Arbitration Act 1996 (“AA 1996”) application for a ruling on a preliminary point of law.
In 2006 Thyssenkrupp Industrial Solutions AG (“Thyssenkrupp”) were engaged to construct a super yacht by Goodwood Investments Holdings Inc (“Goodwood”). In 2010, when cracks appeared in the finished yacht, Goodwood commenced arbitration proceedings for declaratory relief and an order for damages or specific performance. During arbitration proceedings, the parties entered into protracted without prejudice settlement correspondence and at one point Goodwood claimed that Thyssenkrup had entered into a binding settlement agreement. Thyssenkrup disagreed.
The parties agreed to refer this issue to court under s.45 AA 1996 (referral for a ruling on a preliminary question of law arising in arbitral proceedings) and the Tribunal formulated the issue and gave permission to the parties to approach the court. The reason the arbitrators gave permission for the application to be made was because of the inherent difficulty for the arbitrators of reviewing without prejudice correspondence in respect of settlement, if they were then to decide no such settlement had in fact been reached. The knowledge gained in reviewing the correspondence could not influence their decision making when deciding the arbitration.
The court ultimately decided that there was no binding settlement agreement and the correspondence merely consisted of offers and counter-offers. As such, the arbitration could proceed and the parties could rest assured that their without prejudice settlement correspondence would not taint the decision of the Tribunal.
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