THE ROLE OF THE COURTS IN THE ARBITRATION PROCESS

Transcription

1 THE ROLE OF THE COURTS IN THE ARBITRATION PROCESS 22 April 2010 Presentation by Ng Kim Beng Partner, International Arbitration Practice (65)

2 Key Points Courts in Singapore will uphold arbitration agreements and facilitate the process. Any Court intervention circumscribed by the legislative framework. Difficult to set aside arbitration awards; easy to enforce. 2

3 Judicial Attitude towards Arbitration (contd.) Things weren t always this good. A. 60s-80s: Court s watchful; regarded arbitration as inferior process. At one time the Courts used to be very jealous of arbitrations. They used to find all sorts of reasons for interfering with arbitrators and their awards. (Lord Denning MR, Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd s Rep 357). B. Present: Court very supportive of the arbitration process. There was a time when arbitration was viewed disdainfully as an inferior process of justice. Those days are now well behind us. An unequivocal judicial policy of facilitating and promoting arbitration has firmly taken root in Singapore. 3

4 Judicial Attitude towards Arbitration Party autonomy the key philosophy the need to respect party autonomy (manifested by their contractual bargain) in deciding both the method of dispute resolution (and the procedural rules to be applied) as well as the substantive law to govern the contract, has been accepted as the cornerstone underlying judicial non-intervention in arbitration. In essence, a court ought to give effect to the parties' contractual choice as to the manner of dispute resolution unless it offends the law. The role of the court is now to support, and not to displace, the arbitral process. (Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732; [2009] SGCA 41) 4

5 Court Assistance/Intervention is Necessary Actions, reliefs required before tribunal is constituted or where tribunal lacks power. But Court mindful of inherent tension involved: There is always a tension when the court is asked to order, by way of interim relief in support of an arbitration, a remedy of the same kind as will ultimately be sought from the arbitrators: between, on the one hand, the need for the court to make a tentative assessment of the merits in order to decide whether the plaintiff's claim is strong enough to merit protection, and on the other the duty of the court to respect the choice of tribunal which both parties have made, and not to take out of the hands of the arbitrators (or other decision-makers) a power of decision which the parties have entrusted to them alone. (Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334). 5

6 What Determines the Court s Involvement? Lex arbitri: law governing the arbitration (distinguished from governing law of contract). - generally considered to be law of the place of arbitration where proceedings held and award rendered. - determines the relationship between the arbitral tribunal and the national courts. - i.e. determines whether and to what extent judicial review of the award or court intervention during arbitration proceedings is authorised. All arbitrations with seat in Singapore subject to either one of two parallel regimes. 6

7 Arbitration in Singapore The Legislative Framework (contd.) All arbitrations in Singapore come under 2 principal statutes: i. International arbitration International Arbitration Act 2002 (Cap 143A) (IAA) recently amended in 2009 governed by Rules of Court (Order 69A) ii. Domestic arbitration Arbitration Act 2002 (Cap 10) (AA) recently amended in 2009 governed by Rules of Court (Order 69) The mandatory statutory provisions prevail over arbitration rules: a provision of rules of arbitration agreed or adopted by the parties shall apply and be given effect to the extent such provision is not inconsistent with a provision of the Model Law or this Part from which the parties cannot derogate. (s. 15A(1), IAA) 7

8 Arbitration in Singapore The Legislative Framework Why 2 regimes? Domestic arbitration premised on different policy considerations. In purely domestic disputes: Court should have more scope for involvement in domestic arbitrations, since both parties are local. AA, which permits intervention by the courts in a number of ways precluded by IAA and the Model law. The rationale underlying this larger role for the court in domestic arbitration is one of policy - namely, "for the development of domestic commercial and legal practice, and for a closer supervision of decisions which may affect weaker domestic parties. (NCC International AB v Alliance Concrete Singapore Pte Ltd [2008] 2 SLR(R) 565). 8

9 The Legislative Framework International Arbitration Reason for IAA: to enhance Singapore s attractiveness as a international arbitration hub. If Singapore aims to be an international arbitration centre it must adopt a world view of international arbitration. Law Reform Committee s Review of Arbitration Laws, August 1993 How is this world view achieved? By incorporating the Model Law Model Law to have force of law 3. (1) Subject to this Act, the Model Law, with the exception of Chapter VIII thereof, shall have the force of law in Singapore (s. 3, IAA) Model Law drafted by UNCITRAL, the international trade law committee of the united nations seeks to lay down minimum standards for an arbitration regime 9

10 International Arbitration Model Law Key features of Model Law: party autonomy over the proceedings. the absence of any appeal procedure. restriction of judicial intervention in the proceedings to default powers. free enforceability of award other than clear unfairness in procedure or lack of jurisdiction. 10

11 Domestic Arbitration Arbitration Act The AA shares a common bedrock with the IAA, including the preservation of commercial certainty by limiting curial intervention, but with certain modifications tailored to suit domestic arbitration. (NCC International AB v Alliance Concrete Singapore Pte Ltd [2008] 2 SLR(R) 565). Key differences between the IAA and AA: The courts may intervene in an international arbitration only where the Model Law or IAA so permits (Model Law, art. 5), whereas a court dealing with matters under the AA is endowed with powers that exceed those of the arbitral tribunal. A stay of judicial proceedings is mandatory in an international arbitration (Model Law, art. 8) but discretionary in a domestic arbitration (AA, s.6). 11

12 Differences between AA and IAA (contd.) In the case of an international arbitration the courts and the arbitrators have concurrent power to exercise a range of interlocutory powers (IAA, s.12). In the case of a domestic arbitration the arbitrators and the courts also have concurrent interlocutory powers, in which case the courts must have regard to what has been done by the arbitrators (AA, s.31(1)-(3)), although only the courts can secure the amount in dispute, grant a freezing order or grant an interim injunction (AA, s.31(2)). Some supervision by the Courts over the conduct of arbitration in domestic arbitration is desirable. For example, the power to grant Mareva injunctions and Anton Piller injunctions is vested in the Court, and not in the arbitral tribunal. (Singapore Parliamentary Debates, Official Report (5 October 2001) Domestic arbitrators, but not international arbitrators, have the power to issue an award striking out a claim if the applicant has allowed the claim to become stale (AA, s.29(3)). 12

13 Differences between AA and IAA A point of law can be referred to the court for a preliminary ruling under the AA, s.45, but there is no equivalent provision in the IAA or the Model Law. Where there is a time limit for the making of an award, the court may extend that time limit in the case of a domestic arbitration only (AA, s.36). There is no provision for the consolidation of proceedings where an international arbitration is taking place, although the parties may agree on consolidation in the case of two or more domestic arbitrators (AA, s.26). There is provision for an appeal against a domestic award for error of law (AA, s.49), but an international award cannot be challenged on this basis. 13

14 Which Act Applies? (contd.) When does which regime apply? Unless the IAA applies, any arbitration in Singapore will be governed by the AA. (s. 3, AA). Application of the AA and IAA is mutually exclusive. (s. 5(4), IAA). When does IAA apply? s. 5, IAA: By express agreement (Sub-section (1)) This includes institutional rules. Eg: SIAC Rules, Rule 32. Sembawang Engineers and Constructors Pte Ltd v Covec (Singapore) Pte Ltd [2008] SGHC 229: nomination of such rules prevails over fact that arbitration is otherwise domestic. Fact that Singapore law governs and place of arbitration in Singapore irrelevant; key question is whether arbitration is international. 14

15 Which Act Applies? An arbitration is international if: At least one of the parties has a place of business outside Singapore (Sub-section. 5(2)(a)) If party has more than one place of business, the place of business for purposes of the IAA will be that which has the closest relationship to the arbitration agreement (which has to be outside Singapore). The question is not which place has the closest relationship to the agreement, but which place of business of the party carrying out the substantial performance has the closest relationship to the agreement, even if that party has a place of business in Singapore. (Mitsui Engineering & Shipbuilding Co Ltd v PSA Corp Ltd [2003] 1 SLR 446 The place of arbitration is situated outside the state in which the parties have their places of business. Any place where a substantial part of the obligations is to be performed, or the place with which the subject matter is most closely connected, is other than the state in which the parties have their place of business. (Eg: 2 Singapore companies) Parties expressly agree subject matter relates to more than one country. 15

16 The Court s Function in the International Arbitration Process Model Law excludes curial intervention unless expressly permitted. Article 5 of Model Law: in matters governed by this law, no court shall intervene except where so provided in this Law. Provision requires all instances of court involvement in arbitration proceedings to be specifically stipulated. Residual powers of the court excluded (Mitsui Engineering and Shipbuilding Co Ltd v Easton Graham Rush [2004] 2 SLR 14). Rationale: to promote certainty for parties and tribunals, to know when curial assistance or supervision can be expected. Such certainty regarded as beneficial to international commercial arbitration. 16

17 The Court s Function in the International Arbitration Process (contd.) Underlying philosophy and objective for curial intervention in international arbitrations : Art. 9, Model Law Article 9. Arbitration agreement and interim measures by court It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure. Access to such measures is thought to be conducive to making the arbitration efficient and to securing its expected results. Hence, Article 17 of Model Law (1985) states generally as follows: Article 17. Power of arbitral tribunal to order interim measures Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute. The arbitral tribunal may require any party to provide appropriate security in connection with such measure. 17

18 The Court s Function in the International Arbitration Process (contd.) The Model Law (1985) is, however, silent on the nature and extent of curial assistance envisaged. It was thought that this was a matter better left for member states to determine, and incorporate as necessary as part of their national arbitration laws. Specific extent of curial intervention prescribed by the IAA: s. 12(1) and 12(7) These provisions were designed to empower the court to grant injunctive relief and other orders for the interim preservation of property pending the making of an award in international arbitration. 18

19 Specific Powers of the Court under the IAA Hence, prior to the latest amendments to the IAA (2009), the court's power to provide interim relief in international arbitrations was prescribed by s. 12(7) read with s. 12(1) of the IAA, as follows: Powers of arbitral tribunal 12.-(1) Without prejudice to the powers set out in any other provision of this Act and in the Model Law, an arbitral tribunal shall have powers to make orders or give directions to any party for (a) security for costs; (b) discovery of documents and interrogatories; (c) giving of evidence by affidavit; (d) the preservation, interim custody or sale of any property which is or forms part of the subject-matter of the dispute; (e) samples to be taken from, or any observation to be made of or experiment conducted upon, any property which is or forms part of the subject-matter of the dispute; (f) the preservation and interim custody of any evidence for the purposes of the proceedings; 19

20 Specific Powers of the Court under the IAA (contd.) (g) securing the amount in dispute; (h) ensuring that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party; and (i) an interim injunction or any other interim measure.... (7) The High Court or a Judge thereof shall have, for the purpose of and in relation to an arbitration to which this Part [ie, Pt II of the IAA] applies, the same power of making orders in respect of any of the matters set out in subsection (1) as it has for the purpose of and in relation to an action or matter in the court. 20

21 Specific Powers of the Court under the IAA (contd.) s.12(7) of the IAA does not give supervisory jurisdiction to the High Court with respect to interim relief. Confers co-extensive jurisdiction/powers to the High Court and the arbitral tribunal to grant such relief. Section 12(7) read with sub-section 12(1) of the IAA merely provides an alternative for the parties to apply to the High Court if applications for interlocutory relief may not be conveniently made to the tribunal or if it is more expedient to do so in court. When a party wishes to avail himself of these over-lapping powers, he should first have recourse to the arbitrator, and should not invoke the Court s power unless the arbitrator s order proves ineffectual. 21

22 Specific Powers of the Court under the IAA (contd.) Fact that court s power confined to a single sub-section of the provision headed powers of the tribunal indicates court s power is only incidental to the tribunal s. NCC International AB v Alliance Concrete Singapore Pte Ltd [2008] 2 SLR(R) 565: In our view, therefore, a contextual interpretation of sub-sections 12(1) and 12(7) of the IAA unequivocally points towards the court's powers being employed only to the extent that the exercise of such powers would essentially aid arbitration proceedings being or to be diligently pursued. In short, the court's role is to assist in the arbitration process and not to resolve the dispute at hand either directly or indirectly. The courts power to grant interim relief in international arbitration proceedings will only be exercised sparingly, in limited circumstances. 22

23 Specific Powers of the Court under the IAA (contd.) Examples of such situations include: those where third parties over whom the arbitral tribunal has no jurisdiction are involved, where matters are very urgent (e.g. to preserve property pending the outcome of arbitration) or where the court's coercive powers of enforcement are required. The court will be even more reluctant to intervene to grant interim orders before arbitration is commenced. (Cetelem SA v Roust Holdings Ltd [2005] 1 WLR 3555, a case involving application for pre-arbitration mandatory injunction). 23

24 Specific Powers of the Court under the IAA The 2006 Amendments to the Model Law Scope and procedure for curial intervention clarified further with 2006 amendments to Model Law, where the revised Article 17 now states: Article 17. Power of arbitral tribunal to order interim measures 1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures. 2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to: a) Maintain or restore the status quo pending determination of the dispute; b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself; c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or d) Preserve evidence that may be relevant and material to the resolution of the dispute. 24

25 Specific Powers of the Court under the IAA The 2006 Amendments to the Model Law (contd.) Insofar as the requirements to be fulfilled by the applicant are concerned: Article 17(A) Conditions for granting interim measures 1) The party requesting an interim measure under article 17(2)(a), (b) and (c) shall satisfy the arbitral tribunal that: a) Harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and b) There is reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination. 2) With regard to a request for an interim measure under article 17(2)(d), the requirements in paragraphs (1)(a) and (b) of this article shall apply only to the extent the arbitral tribunal considers appropriate. 25

26 Specific Powers of the Court under the IAA The 2006 Amendments to the Model Law (contd.) As for the powers of the Court in this regard, a new article 17J was introduced. Article 17 J. Court-ordered interim measures A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration. 26

27 Specific Powers of the Court under the IAA The 2009 Amendments to the IAA (contd.) Parliament recently sought to adopt the 2006 Model Law revisions, by amending the IAA, not the Model Law at Schedule 1 of the Act. As a result, IAA 2009 now features a new s 12A, with the previous s 12(7) repealed. Court-ordered interim measures 12A. (1) This section shall apply in relation to an arbitration (a) (b) irrespective of whether the place of arbitration is in the territory of Singapore. (2) Subject to subsections (3) to (6), for the purpose of and in relation to an arbitration referred to in subsection (1), the High Court or a Judge thereof shall have the same power of making an order in respect of any of the matters set out in section 12(1)(c) to (i) as it has for the purpose of and in relation to an action or a matter in the court. (3) The High Court or a Judge thereof may refuse to make an order under subsection (2) if, in the opinion of the High Court or Judge, the fact that the place of arbitration is outside Singapore or likely to be outside Singapore when it is designated or determined makes it inappropriate to make such order. 27

28 Specific Powers of the Court under the IAA The 2009 Amendments to the IAA (contd.) (4) If the case is one of urgency, the High Court or a Judge thereof may, on the application of a party or proposed party to the arbitral proceedings, make such orders under subsection (2) as the High Court or Judge thinks necessary for the purpose of preserving evidence or assets. (5) If the case is not one of urgency, the High Court or a Judge thereof shall make an order under subsection (2) only on the application of a party to the arbitral proceedings (upon notice to the other parties and to the arbitral tribunal) made with the permission of the arbitral tribunal or the agreement in writing of the other parties. (6) In every case, the High Court or a Judge thereof shall make an order under subsection (2) only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively. (7) 28

29 Effect of Section 12A of the IAA Does not alter the nature and scope of curial assistance for interim relief to be rendered in international arbitration. Seeks to clarify that Singapore Court can make interim orders to assist a foreign international arbitration if necessary, provided such orders would not be inappropriate. Seeks to address the Front Carriers and Swift Fortune cases, which considered the ambit of the Court s power under s.12(7) of the IAA 2002 and s.4(10) of the Civil Law Act. Potential problems: Definition of inappropriate. Would it cut across parties intentions and the sprit of the IAA? 29

30 Effect of Section 12A of the IAA Potential Problems (contd.) Procedural orders such as security for costs and discovery no longer within Court s power. As clarified by the Minister for Law in introducing the Bill before Parliament, The scope of the new powers is limited to interim measures in support of arbitration, for example interim injunctions to preserve assets. They do not extend to procedural or evidential matters dealing with the actual conduct of the arbitration itself like discovery, interrogatories, or security for costs. These procedural matters fall within the province of the arbitral tribunal and must be decided by the tribunal itself. This is similar to the position taken in the UK Arbitration Act.

31 Other Specific Powers of the Court under the IAA Mandatory stay : s. 6, IAA (1) where any party to an arbitration agreement to which this Act applies institutes any proceedings in any court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter. (2) The court to which an application has been made in accordance with subsection (1) shall make an order, upon such terms or conditions as it may think fit, staying the proceedings so far as the proceedings relate to the matter, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. (3) 31

32 Specific Powers of the Court under the IAA (contd.) s. 6 of the IAA acknowledges the primacy of the specific arbitration agreement in question. In order to obtain a stay of proceedings in favour of arbitration under s. 6, the party applying for a stay, must first show that: applicant is party to an arbitration agreement. the proceedings instituted involve a matter which is the subject of the [arbitration] agreement. In other words, the applicant has to show that the proceedings instituted fall within the terms of the arbitration agreement. If the applicant can show that there is an applicable arbitration agreement, then the court must grant a stay of proceedings unless the party resisting the stay can show that one of the statutory grounds for refusing a stay exists, ie, that the arbitration agreement is "null and void, inoperative or incapable of being performed". 32

33 Appeal and setting aside Judicial recognition of finality of the arbitration process. Another crucial factor that cannot be overlooked is the finality of the arbitral process. Arbitration is not viewed by commercial persons as simply the first step on a tiresome ladder of appeals. It is meant to be the first and only step. (Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732). 33

34 Appeal and setting aside (contd.) Very difficult to set aside awards Setting aside an arbitral award would be a near-herculean task. According to one academic source, Singapore reported cases in 2009: All applications to enforce awards granted. Only one award from a domestic arbitration has ever been successfully appealed against. Grounds to challenge award found in Art. 34 of the Model Law and s. 24 of the IAA. 34

35 Appeal and setting aside (contd.) Model Law: Article 34. Application for setting aside as exclusive recourse against arbitral award (2) An arbitral award may be set aside by the court specified in Article 6 only if (a) the party making the application furnishes proof that: (i) a party under some incapacity; or the said agreement is not valid under the law ; or (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties ; or (b) the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or (ii) the award is in conflict with the public policy of this State. 35

36 Appeal and setting aside (contd.) S. 24 IAA: Court may set aside award 24. Notwithstanding Article 34 (1) of the Model Law, the High Court may, in addition to the grounds set out in Article 34 (2) of the Model Law, set aside the award of the arbitral tribunal if (a) the making of the award was induced or affected by fraud or corruption; or (b) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced. 36

37 Appeal and setting aside (contd.) Art 34 Model Law deals with jurisdictional, procedural and public policy objections. Public policy objections are defined very narrowly (in Art. 34(2)(b)(ii) and s. 24(a)). Public policy under the Act encompasses a narrow scope...should only operate in instances where the upholding of an arbitral award would "shock the conscience, or is "clearly injurious to the public good or... wholly offensive to the ordinary reasonable and fully informed member of the public, or where it violates the forum's most basic notion of morality and justice. (PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA[2007] 1SLR(R)597) 37

38 Appeal and setting aside (contd.) S. 24(b) IAA deals with procedural irregularity Must show that award is fatally flawed by reason of serious deficiencies in the conduct of the arbitration. Deliberate failure to obey instructions is not sufficient (Dongwoo Mann & Hummel Co Ltd v Mann & Hummel GmbH [2008] 3 SLR 871 S. 24(b) IAA: breach of natural justice elements: Which rule of natural justice was breached How it was breached In what way the breach was connected to the making of the award How the breach prejudiced rights (John Holland Pty Ltd v Toyo Engineering Corp (Japan) [2001] 2 SLR 262) 38

39 Appeal and setting aside (contd.) No grounds to challenge award on grounds of errors of law or fact. Errors of law or fact made in an arbitral decision, per se, are final and binding on the parties and may not be appealed against or set aside by a court except in the situations prescribed under s. 24 of the [IAA] and Art 34 of the Model Law. (PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597)

40 Summary and Conclusion Under the IAA regime, although the court has concurrent jurisdiction with the arbitral tribunal to order interim measures, the court will nevertheless scrupulously avoid usurping the functions of the arbitral tribunal in exercising such jurisdiction and will only order interim relief where this will aid, promote and support arbitration proceedings. With the latest amendments to the IAA (2009), there is now even more clarity on the circumstances in which the Court can render assistance, the types of assistance the Court can render, and the requirements for an applicant to satisfy in seeking such amendments. While Courts will readily enforce arbitration awards, there is no appeal against an award obtained under the IAA and it is very difficult to get it set aside. 40

41 THANK YOU For more information, please contact: Ng Kim Beng Tel: (65) Website: 41