Legal Eye Arbitration Bulletin

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1 View the online July 2012 Legal Eye Arbitration Bulletin Welcome to the latest bulletin from Bristows' Commercial Disputes team. This bulletin has been prepared by the Arbitration group within the team. The Team is led by Partner, Mark Brown. Should you have any comments on this bulletin, we would be delighted to hear from you. Please click HERE your comments to us. Clarification of the arbitration jurisdiction exception confusion of parallel proceedings? Mark Brown, Petro Franchi Forward to a colleague In this issue Clarification of the arbitration jurisdiction exception confusion of parallel proceedings? No Extension of Time to Section 68 Challenge to an Arbitral Award Where Case Is Weak Court s Power to Set Aside Permission to Appeal an Arbitral Award Confirmed Mark Brown Send T: The Brussels Regulation governs the jurisdiction and enforcement of judgments in civil matters in the European Union. The Regulation is now in the final stage of a significant review, the Council of the European Union having published its recommendation for the clarification of the arbitral exception of Article 1(2) in June and a vote in the European Parliament being scheduled for autumn However, the intended clarification of the arbitration exception may well result in the confusion of parallel proceedings. The status quo The basic principle under the Regulation is that a defendant should be sued in the state in which it is domiciled (Article 2). However, arbitration proceedings are not covered by the Regulation (Article 1(2) (d)). So when proceedings are brought in the defendant s state of domicile despite an arbitration clause prescribing arbitration proceedings in another member state, there is a potential conflict of jurisdiction on any dispute about the arbitration agreement. There are three seminal cases in this area. In brief, the first is the case of Marc Rich v Societa Italiana Impianti (The Atlantic Emperor) [1992] 1 Lloyds Rep 342 (ECJ). The Italian defendant had refused to take part in the arbitration in London, and the European Court of Justice was asked by the English courts to decide whether article 1(2)(d) applied to national proceedings concerning the About the team Click HERE to find out about Bristows' Commercial Disputes practice Click HERE to see previous Legal Eye - Arbitration Bulletins Like us on Facebook Follow us on Twitter Follow us on LinkedIn

2 appointment of the arbitrator and the arbitration process. The ECJ held that appointment of an arbitrator was covered by the arbitration exception, so the Regulation did not apply and the English courts had jurisdiction. In the second case, Van Uden Maritime BV v Kommanditgesellschaft in Firma Deco Line and Another Case C-391/95 [1999] 2 WLR 1181, the Dutch claimants started arbitration proceedings in the Netherlands, and also applied to the Dutch court for an interim payment under the Netherlands Arbitration Act. Deco Line (the German domiciled defendant) maintained that under the Regulation the German courts should have jurisdiction. The question was referred to the ECJ, and the ECJ agreed with Deco Line that interim measures were not ancillary to the arbitration and so the German courts had jurisdiction. In the third case Allianz SpA & Generali Assicurazioni Generali SpA v West Tankers Inc (Case C-185/07 the ECJ, perhaps controversially ruled[1] that while the specific proceedings before the English court (seeking an anti-suit injunction against national proceedings) fell within the arbitration exception, the relevant, substantive proceedings were those before the Italian court (seeking to pursue certain related tortious claims) and they did not fall within the arbitration exception. Accordingly, the Regulation applied and the Italian courts had jurisdiction. Proposed reform On the background of the West Tankers case, the reform of the Regulation went through a number of proposals with the ultimate effect of reversing the controversial aspects of the West Tankers decision. The European Commission published [draft amendments][2] to the Brussels Regulation in December 2010, which proposed to maintain the arbitration exception but adding a new rule that obliges a court seised of a dispute to stay proceedings if its jurisdiction is contested on the basis of an arbitration agreement and an arbitral tribunal has been seised of the case or court proceedings relating to the arbitration agreement have been commenced in the Member State of the seat of the arbitration. The rapporteur of the European Parliament s Legal Affairs Committee (LAC) published a [draft report][3] on the proposed changes to the Regulation in 2011, proposing to spell out in article 1(2)(d) that the exception applies to arbitration including judicial procedures ruling on the validity or extent of arbitral competence as a principal issue or as an incidental or preliminary question. The Council s general approach [proposal][4] published in June 2012 rejects the changes to article 1(2)(d), but transfers some of the language in a new, and rather long, recital: This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have made an arbitration agreement, from referring the parties to arbitration or from staying or dismissing the proceedings and from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law. A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and

3 enforcement of this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question. On the other hand, where a court, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not prevent that the court s judgment on the substance of the matter be recognised and, as the case may be, enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958, which takes precedence over this Regulation. This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of the arbitral tribunal, the powers of the arbitrators, the conduct of the arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition and enforcement of an arbitral award. According to the clarification, the Regulation, it seems, is not preventing a national court seised under the Regulation to rule on the validity of the arbitration agreement. A ruling that the agreement is null and void is, however, not enforceable under the Regulation, leaving the opportunity for a court of the state of the seat of the arbitration to give a conflicting judgment that the agreement is valid and progressing the matter to arbitration. At the same time (or on the other hand, as the recital puts it) if after ruling that the agreement is null and void the court proceeds to give judgment on the substantive issue, that substantive judgment can be enforced. This may potentially lead to a situation where there are two conflicting rulings, a judgment from a national court which held the arbitration agreement null and void and an arbitral award in a state where the national court held the arbitration agreement valid. The first is enforceable under the Regulations, and the second under the New York Convention. As the European Parliament is due to vote on the proposal on 19 November 2012, the negotiations are not quite over yet and there is scope for further change. The legislation can be tracked [here][5] and we will provide an update on the Parliament s decision when delivered. [1] See also [article] in the June 2011 issue of this bulletin - HERE [2] Please click HERE [3] Please click HERE [4] Please click HERE [5] Please click HERE

4 No Extension of Time to Section 68 Challenge to an Arbitral Award Where Case Is Weak Edward Goold In Nestor Maritime SA v Sea Anchor Shipping Co Ltd, the English Commercial Court recently referred to the underlying weakness of a case in refusing to grant an extension of time for a section 68 challenge to an arbitral award under the UK Arbitration Act 1996 ( the Act ). Although section 68 challenges rarely succeed, when they are granted the applicant can potentially benefit from a powerful range of remedies, namely, remission of the award to the tribunal for reconsideration, the setting aside of the award, or a declaration that the award has no effect (all of these remedies can take effect in part or in whole). For a section 68 challenge to succeed, the applicant needs to demonstrate a serious irregularity in the arbitral process that has caused, or will cause, them a substantial injustice. This is a difficult standard to meet and as a result most section 68 challenges fail. A further obstacle to a successful section 68 challenge is that it must be brought within 28 days of the arbitral award. If it is not, an extension of time is required before the challenge can be heard. The dispute between the parties involved the purchase of a PANAMAX vessel and centred on parts of the sale documentation. In finding for the defendant, the tribunal determined that the sale documentation prepared by the claimant evidenced fraud on its part. The claimant brought a host of challenges to the award, both under section 68 and section 69 (i.e. an appeal on a point of law rather than a challenge on the grounds of serious irregularity). Subsequently, with the section 69 challenges dismissed and only a week remaining until the hearing of the original section 68 challenges, the claimant brought a further section 68 challenge, alleging that the defendant had known about the fraudulent nature of the documentation and had, as a result, in turn fraudulently relied upon that same documentation in the arbitration. The further section 68 challenge threatened to kick the award into the long grass, with the Commercial Court being unable to allocate sufficient time to hear the two week challenge (essentially a re -run of the entire arbitration) for months. Mr Justice Eder found that the challenge failed under section 73 of the Act. Section 73 provides that, where grounds for an objection have emerged and a party continues to take part in the arbitration without raising it at that point in time, the party may lose the right to object at a later date unless he can show that he did not know, and could not with reasonable diligence have discovered, the grounds for the objection at the time. In the instant case, it was clear during the arbitration that there were grounds to suspect that the documentation was fabricated and consequently that, by not raising the defendant s reliance on the fabricated documentation at the time, the claimant s further section 68 challenge was defeated by section 73. However, of particular relevance was Mr Justice Eder s reference to the fundamental weakness of the new evidence submitted in support of the further section 68 challenge. Of central importance was the purported destruction of a collection of rough notes from the key witness, thereby requiring oral evidence from him and a number of

5 other individuals at the prospective hearing. When the defendant s solicitors pointed out to the claimant s solicitors that a copy of the key witness rough notes had been disclosed in the arbitration and that, further, it had required its own dedicated bundle for the arbitration hearing, the claimant s solicitors undertook a wholesale revision of the key witness evidence which, the judge noted, in quoting the defendant s counsel, set new standards for invention. Consequently, an extension of time was refused, and the challenge was dismissed. Practitioners should note the need to bring a section 68 challenge expeditiously as soon as the serious irregularity becomes known. One should also note the practical stance adopted by the Court in referring to the merits of the case in refusing to grant the extension; in particular, that while the application was strictly defeated by the section 73 statutory hurdle, the fundamental weakness of the case played a significant role in the judge s deliberations. Court s Power to Set Aside Permission to Appeal an Arbitral Award Confirmed Edward Goold In the recent case of Latvian Shipping Company v The Russian People s Insurance Company, the English Commercial Court held that it has jurisdiction to set aside an order granting permission to appeal an arbitral award under section 69 of the UK Arbitration Act 1996 ( the Act ) without the need for a hearing. This power arises under the English Civil Procedure Rules ( the CPR ) and also under the Court s inherent jurisdiction, regardless of time limits that apply to parties rights to appeal the original order. Section 69 of the Act provides for the parties right to appeal on a question of law arising out of the award. Before an appeal can be heard, the applicant needs to gain permission from the Court. This is not granted lightly and requires the successful applicant to satisfy the Court on a number of grounds[1]. Once the appeal is heard the Court may confirm the award, vary the award, remit the award in whole or part to the tribunal for reconsideration in light of the determination of the appeal, or set the award aside in whole or part. Although Mr Justice Field declined to categorically define the circumstances where jurisdiction under the CPR may be exercised to set aside permission for a section 69 appeal, he found that such circumstances included situations where a subsequent event destroyed the basis for the permission to appeal and/or where the judge had been misled. Similarly, in the latter circumstance the Court could also set aside the permission under its inherent jurisdiction. In the instant case, the defendant had obtained an arbitral award in its favour in relation to losses arising from damage to a vessel s propeller. The dispute between the parties centred on whether the damage had occurred in a grounding incident in North Carolina (as argued by the claimant) or in navigating icy conditions in Quebec (as argued by the defendant). In finding for the defendant, the arbitral tribunal held that an admission by the defendant that some minor damage had probably been

6 sustained during the grounding was of very limited significance. The claimant was subsequently granted permission to appeal under section 69 of the Act on the basis that the tribunal had found that some probable damage had occurred during the grounding. This was despite repeated denials by the defendant that it had made any admission on the point. The defendant applied to the tribunal, which amended the original award to state that it was possible that some damage had occurred during the grounding and also acknowledged that the defendant had not made any relevant admission. The claimant proceeded to argue that time had expired for the defendant to apply to court to set aside the permission to appeal the arbitral award. Although in the instant case the Court declined to set aside the order[2], Mr Justice Field confirmed that the Court has the power to do so under the CPR and also under its inherent jurisdiction. Such situations include circumstances where the judge may have been misled and/or circumstances where subsequent events have destroyed the original basis for the granting of the permission to appeal. [1] For the full list, please refer to section 69(3)(a)-(d) of the Act. [2] As Mr Justice Field held that Mr Justice Burton had not been misled as to the extent of the defendant's "admission" on the propeller damage issue when granting permission for the claimant to appeal. The information contained in this document is intended for general guidance only. If you would like further information on the above, or advice on any other commercial disputes issues, please do not hesitate to contact or any other member of our team. Update my subscription preferences Forward to a colleague Unsubscribe 100 Victoria Embankment London EC4Y 0DH T +44 (0) , F +44 (0) info@bristows.com, Bristows, see Terms of Use

Challenge, recognition and enforcement of an award

Challenge, recognition and enforcement of an award International Commercial Arbitration and International Sales Law Anastasiia Rogozina, LL.M., к. ю. н. Schedule International Arbitration 29.11 Arbitration