UNITED KINGDOM Arbitration Review 2012

Transcription

1 Page 1 UNITED KINGDOM Arbitration Review 2012 AUDLEY SHEPPARD Clifford Chance LLP As of 1 November 2011, a search of the LAWTEL 1 database of decisions of the English courts using the keyword arbitration returned a list of 61 decisions, an increase from the 58 decisions generated by an identical search for the first ten months of In general, the cases continue to demonstrate a supportive attitude towards arbitration, although the Dallah decision has generated considerable comment. This summary highlights some of the most significant decisions during 2011 impacting upon England s attractiveness as a forum for the resolution of international arbitral disputes. AUTHOR PROFILE UK anti-discrimination legislation does not extend to the appointment of arbitrators In July 2011, the Supreme Court reversed the controversial decision of the Court of Appeal in the Jivraj v Hashwani 2 case, embracing party autonomy and ending months of uncertainty regarding the validity of arbitration agreements imposing faith or nationality qualifications on the choice of arbitrators. Jivraj v Hashwani concerned an English-law governed agreement providing for arbitration in London before arbitrators who were respected members of the Ismaili community. When a dispute arose, one party sought to appoint a retired High Court judge and non-member of the Ismaili community as an arbitrator, contending that the provision was unlawful because it contravened the Employee Equality (Religion and Belief) Regulations 2003 (the Regulations) (now replaced by the Equality Act 2010), as interpreted in light of EC Directive 2000/78/EC. This was resisted by the other side. Referring to the wide definition of employment under the Regulations as employment under...a contract personally to do any work, the Court of Appeal held that arbitrators were employees for the purposes of UK anti-discrimination legislation. Accordingly, any provision that required an arbitrator to be, or not to be, of a certain religion was prima facie discriminatory and unenforceable. Under the Regulations, discrimination may be justifiable if membership of a particular religion or belief is a proportionate and genuine occupational AUDLEY SHEPPARD is a Partner with Clifford Chance, London. Audley s experience lies in International Commercial Arbitration and International Law. He has many years experience in the resolution of disputes arising out of major infrastructure projects and international contracts, as counsel and arbitrator. Audley is Co-chair, International Bar Association arbitration committee; Visiting professor, Queen Mary School of Arbitration, London; Member, ICC Commission on arbitration; Fellow of the Chartered Institute of Arbitration audley.sheppard@cliffordchance. com

2 Page 2 requirement. While conceding that a religious requirement could be a genuine occupational requirement where an agreement empowered the tribunal to act ex aequo et bono, the Court of Appeal held that no religious qualification was needed where a tribunal was mandated to resolve a dispute in accordance with English law. A requirement that arbitrators be members of the Ismaili community was therefore not a justifiable exception. With the Ismaili requirement deemed unenforceable, the legality of the entire arbitration agreement was called into question. The Court of Appeal held that deleting the offending requirement would render the arbitration agreement substantially different from that which the parties originally intended, rendering the whole agreement void. Without a binding arbitration agreement, the parties would have to resolve their differences in court. The potential consequences of this decision stretched beyond religious community arbitrations and English borders. Although the Jivraj case was ostensibly a case relating to a faith requirement for arbitrators - a criterion rarely used in the international arbitration context - its significance became immediately apparent. The definition of employment under the Regulations applies equally to all areas of anti-discrimination law, including nationality, thus putting into doubt the legality of existing arbitration agreements containing this commonplace criterion (whether expressly or by incorporation of institutional arbitration rules, such as the LCIA Rules). While it remained good law, the Court of Appeal s decision cast a shadow over the recognition and enforcement of many international arbitration agreements and awards in England and there was real concern that it could lead to foreign courts doing likewise. This led to parties opting out of the nationality provisions in institutional rules....restoring the status quo and soothing the concerns of arbitration users and practitioners alike, the Supreme Court disagreed with the Court of Appeal and overturned the decision, holding that arbitrators are not employees for the purposes of the Regulations... Restoring the status quo and soothing the concerns of arbitration users and practitioners alike, the Supreme Court disagreed with the Court of Appeal and overturned the decision, holding that arbitrators are not employees for the purposes of the Regulations. Following a detailed analysis of EU case law, the court decided that whether an individual is engaged in employment under a contract personally to do work depended on the nature of the relationship between the parties. Arbitrators are independent providers of services: the arbitrator-parties relationship lacks the element of subordination or control which defines an employee-employer bond.

3 Page 3 This decided the appeal, but the Supreme Court also addressed (obiter) the corollary question of whether parties could legitimately stipulate that arbitrators possess specific religious beliefs (or, by extrapolation, a specific national identity or should not have a specific national identity). The Supreme Court found the Court of Appeal s approach to the genuine occupational requirement exception to be too legalistic and technical: the test was not one of necessity but whether the requirement was genuine, legitimate and justified. The Supreme Court recognised that parties may have more confidence in arbitral proceedings conducted within their own religious communities, making a requirement that the arbitrators be members of the Ismaili community both legitimate and justified. Party autonomy prevailed. That is not to say, however, that parties are now free to discriminate in drafting qualifications for arbitrators in a way that society may find repugnant. As was stated at the hearing, the court retains its inherent jurisdiction to strike down any clause which is contrary to public policy. The Supreme Court s decision ensures that common sense has been restored. Parties can be confident once more in choosing England as the arbitral seat and need not amend their arbitration agreements to opt out of any nationality provisions in their chosen institutional rules. Further, members of faith-based communities may stipulate that arbitrators shall also be members of that community, even where national laws are to be applied. Recognition and enforcement of arbitral awards: an Anglo-French affair The kompetenz-kompetenz principle came under scrutiny this year in the context of seemingly opposing decisions of the English and French courts regarding the recognition and enforcement of arbitral awards. In Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan, 3 the Supreme Court refused to recognise an ICC arbitral award resulting from proceedings in Paris on the grounds that the party against whom enforcement was sought was not a party to the underlying arbitration agreement. The Paris Court of Appeal reached the contrary conclusion, 4 holding the award to be enforceable. The kompetenzkompetenz principle came under scrutiny this year in the context of seemingly opposing decisions of the English and French courts regarding the recognition and enforcement of arbitral awards The dispute in Dallah concerned an agreement to provide housing for Hajj pilgrims in Mecca. Although initially involved in the negotiations, Pakistan s

4 Page 4 Ministry of Religious Affairs created a trust to undertake the project. On its face, the trust, and not the government, entered into an arbitration agreement allowing for disputes to be resolved by the ICC in Paris. Following political upheaval in Pakistan in 1996, the trust came to an end. When disputes in relation to the performance of the project arose, arbitral proceedings were brought against the government. Despite the government not being a signatory to the agreement to arbitrate, the tribunal held that the government was bound by the agreement under French law and made an award accordingly. Attempts to enforce the award under the New York Convention 5 in England proved unsuccessful. The Supreme Court emphasised that, on recognition, an English court is bound to revisit the question of the tribunal s jurisdiction if the party resisting enforcement seeks to prove that there was no arbitration agreement binding upon it; the last word on a tribunal s jurisdiction lay with the court of the place of enforcement. A clean slate approach to the question was adopted; giving a tribunal s judgment some special status [was] to beg the question at issue. 6 The Supreme Court concluded that, because there was no express governing law provision in the arbitration agreement, the question of whether the government was a party to the agreement was to be determined in accordance with the law of the arbitral seat, namely French law. Proceeding on this basis, the Supreme Court resolved that French law ultimately required evidence of a common intention by the parties for the government to be bound by the arbitration agreement. Highlighting a clear change in the structure of the proposed transaction, and the independence of the trust, the court held that the requisite intention was lacking on the facts of the case. The government of Pakistan had not agreed to submit to the jurisdiction of the tribunal and enforcement was therefore refused in accordance with article V(1)(a) of the New York Convention. The Paris court, however, disagreed and enforced the award, holding that the government was indeed a party to the arbitration agreement. Placing particular emphasis on the active role of the government throughout the negotiation, performance and eventual termination of the project, the court concluded that the Ministry had behaved as if it were the true counterparty in the deal, thereby rendering itself bound by the arbitration agreement. Attempts to enforce the award under the New York Convention 5 in England proved unsuccessful. The Supreme Court emphasised that, on recognition, an English court is bound to revisit the question of the tribunal s jurisdiction if the party resisting enforcement seeks to prove that there was no arbitration agreement binding upon it; the last word on a tribunal s jurisdiction lay with the court of the place of enforcement.

5 Page 5 Despite reaching differing conclusions, both courts seem to have adopted the same approach to identifying the relevant test under French law to determine whether or not the arbitral tribunal had the requisite jurisdiction to hear the dispute. Both courts arguably embraced a clean slate approach. Whether the parties had consented to participate in the arbitral proceedings was analysed by both courts, not merely presumed as a result of the tribunal s own findings. Where the courts ultimately differed was in the conclusions they reached on the facts of the case. Notwithstanding the actual decisions, both judgments adhere to the underlying tenets of the New York Convention: for awards to be recognised and enforced, the tribunal must have jurisdiction. Court s willingness to grant anti-suit injunctions outside the EU Questions of jurisdiction were also raised in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC, 7 this time in the context of anti-suit injunctions. The Court of Appeal showed a willingness to protect the rights of parties under arbitration agreements and granted an anti-suit injunction restraining litigation in the Republic of Kazakhstan in circumstances where arbitration had not yet commenced and both parties abjured any intention to arbitrate. This case concerned the enforceability of an English arbitration clause in a concession agreement governed by Kazakhstan law between the owner and operator of hydroelectric facilities in the Republic of Kazakhstan. As relationships between the parties worsened, a number of proceedings were commenced in the Kazakhstan courts. Following a decision by the Kazakhstan courts that the arbitration agreement was invalid, legal proceedings were issued in England. Among other things, an anti-suit injunction was sought, under either section 44 of the Arbitration Act 1996 or section 37 of the Senior Courts Act 1981, to prevent the owner from raising disputes falling within the arbitration clause in court proceeding in Kazakhstan. The application was resisted, on the basis that a party cannot seek a declaration or an injunction in the English courts without first commencing arbitration proceedings, or having the intention to commence arbitration proceedings. Questions of jurisdiction were also raised in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust- Kamenogorsk Hydropower Plant JSC, 7 this time in the context of antisuit injunctions. The Court of Appeal affirmed that English courts have jurisdiction to grant

6 Page 6 declarations and continue anti-suit injunctions preventing proceedings outside the EU, regardless of whether there were no actual or intended arbitration proceedings, where an arbitration clause stated that disputes between the parties were to be governed by, and construed in accordance with, English law. The court highlighted that it was now common ground that section 44 of the Arbitration Act 1996 could not be used as a basis for a claim unless current or prospective arbitral proceedings existed. However, section 37 of the Senior Courts Act 1981 supplemented the courts jurisdiction to grant anti-suit injunctions in order to uphold the effectiveness of arbitration agreements. 8 As a result, an anti-suit injunction was possible on the facts of the case. It was deemed unnecessary for parties wishing to raise an issue of the effectiveness of an arbitration clause to first commence arbitration proceedings. The court, however, was careful to point out that any court asked to grant an anti-suit injunction must tread a fine line between providing adequate support for the parties agreement and avoiding the usurpation of the role of arbitrators: a positive declaration on the binding nature of an arbitration agreement may sometimes be seen to overstep the court s jurisdiction in answering a question which should be left for an arbitral tribunal in the future. Jurisdiction to grant anti-arbitration injunctions Treading on the heels of Dallah and AES, the High Court granted an exceptional injunction refraining ICC arbitration proceedings in New York in the recent decision of Excalibur Ventures LLC v Texas Keystone Inc. 9 The facts of this case are complex, involving parallel proceedings in London and New York as well as numerous claims in both contract and tort. An arbitration agreement was contained in a collaboration contract relating to oil and gas exploration rights in Iraqi Kurdistan. In December 2010, Excalibur Ventures LLC (Excalibur) commenced arbitration proceedings in New York against Texas Keystone LLC (Texas) and various other petroleum entities (the Gulf defendants). At the same time Excalibur initiated parallel legal proceedings in the English Commercial Court. Treading on the heels of Dallah and AES, the High Court granted an exceptional injunction refraining ICC arbitration proceedings in New York in the recent decision of Excalibur Ventures LLC v Texas Keystone Inc. 9 The Gulf defendants challenged the jurisdiction of the arbitral tribunal, arguing

7 Page 7 that they were not party to the collaboration contract between Excalibur and Texas, and were therefore not bound by the arbitration agreement within it. Excalibur responded that it was for the ICC tribunal to determine whether the Gulf defendants were bound by the arbitration agreement, in accordance with the kompetenz-kompetenz principle, and that any appeal should be to the New York courts in light of their supervisory jurisdiction. Relying on the decision of the Supreme Court in Dallah, the High Court concluded that the English courts have jurisdiction to order anti-suit injunctions refraining arbitral proceedings where the issue in dispute is whether a party is bound by an arbitration agreement. In exceptional circumstances, section 37 of the Senior Courts Act 1981 empowers the English courts to grant injunctions restraining arbitrations with a foreign arbitral seat. On the facts of the case, the court found it appropriate to grant the antiarbitration injunction and for the issue of arbitrability to be decided by the Commercial Court, as opposed to the arbitral tribunal. It held that allowing the New York arbitration to continue against the Gulf defendants would be oppressive, vexatious and unconscionable. In reaching this decision, the judge emphasised, among other things, that the Gulf defendants were not party to the collaboration contract containing the arbitration agreement, had no connection to New York or the ICC, and that Excalibur had elected also to commence substantive proceedings before the English Commercial Court. Despite no dispute arising regarding the existence of the arbitration agreement between Texas and Excalibur, as between themselves, the anti-suit injunction applied to all arbitral proceedings in New York. The court held that all parties had submitted to the jurisdiction of the English courts allowing all inter-related claims to be heard in a single set of proceedings. The circumstances of the case itself are unusual due to its crossjurisdictional nature, and it is unclear to what extent the case will impact on future judicial decisions. However, it may evidence a willingness on the part of some judges to closely supervise questions of arbitral jurisdiction. The circumstances of the case itself are unusual due to its cross-jurisdictional nature, and it is unclear to what extent the case will impact on future judicial decisions. However, it may evidence a willingness on the part of some judges to closely supervise questions of arbitral jurisdiction.

8 Page 8 Unfair prejudice (in company law) and arbitration proceedings In Fulham Football Club (1987) Ltd v Sir David Richards, 10 the Court of Appeal held that there was no express provision in the Arbitration Act 1996 or Companies Act 2006 which prevented a claim of unfair prejudice from being determined by arbitration. Combined, the effect of an arbitration agreement and section 9(4) of the Arbitration Act 1996 was to exclude the right to bring legal proceedings on the same subject matter, unless a statutory exception applied. The case concerned an appeal against a decision under section 9 of the Arbitration Act 1996 to stay a petition for unfair prejudice pursuant to section 994 of the Companies Act 2006 arising out of the allegedly inappropriate behaviour of the chairman of The Football Association Premier League Limited (FAPL). The chairman was accused of facilitating the transfer of a Premier League football player from one club to another to the prejudice of a third. By way of relief, the injured club sought, inter alia, an injunction restraining the chairman from acting as an unauthorised agent or from participating in any way in negotiations regarding the transfer of players. The chairman and FAPL applied for a stay of proceedings on the basis that the various governing rules of the sport required the dispute to be referred to arbitration. Dismissing the application, the Court of Appeal found that questions of unfair prejudice, whether resulting from a breach of contract or some other form of unconscionable behaviour, were plainly arbitrable. A section 994 claim did not attract such a degree of state intervention or public interest as to make it inappropriate for disposal other than by judicial process. The court held that no statutory provision or rule of public policy would prevent an arbitral tribunal from determining an essentially contractual dispute between the parties. Other developments The case concerned an appeal against a decision under section 9 of the Arbitration Act 1996 to stay a petition for unfair prejudice pursuant to section 994 of the Companies Act 2006 arising out of the allegedly inappropriate behaviour of the chairman of The Football Association Premier League Limited (FAPL). This year saw the publication of Commercial Arbitration: The Scottish International Perspectives by Hong-Lin Yu (Dundee University Press) and Third Parties in Commercial Arbitration by Stavros Brekoulakis (OUP). The LCIA has had 205 referrals (arbitration and mediation) filed up to the end

9 Page 9 of October 2011, which is a slight decrease from the 216 filed for the same tenmonth period last year also marked another step by the LCIA in its pursuit of new horizons. By an agreement with the government of the Republic of Mauritius and a specially incorporated Mauritian company, the LCIA-MIAC Arbitration Centre was established. Notes * The author is grateful for the assistance of Carla Lewis and Josie Ainley in preparing this article LAWTEL database, available from Sweet & Maxwell at [2011] UKSC 40. [2010] UKSC 46. Government of Pakistan v Dallah, case no: 09/28533, Paris Court of Appeals, France. New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Per Lord Saville at para159, [2010] UKSC 46. [2011] EWCA Civ The court took pains to emphasise that whilst section 37 of the Senior Courts Act 1981 could be used to grant an anti-suit injunction on the facts of the case, this section could not be relied upon where a dispute falls squarely within the parameters of section 44 of the Arbitration Act [2011] EWHC [2011] EWCA Civ also marked another step by the LCIA in its pursuit of new horizons. By an agreement with the government of the Republic of Mauritius and a specially incorporated Mauritian company, the LCIA-MIAC Arbitration Centre was established. "This article was first published in the Global Arbitration Review special report, The European & Middle Eastern Arbitration Review

10 CONTACT DETAILS PO BOX VICTORIA STREET WEST AUCKLAND 1142 NEW ZEALAND Phone: (09) Fax: (09) CONTRIBUTIONS Contributions to ReSolution are welcome. ReSolution is published four times a year in March, June, September and December. Readers are invited to submit material to be considered for publication by to the editor at editor@nzdrc.co.nz. Contributions may consist of articles, case notes, book reviews, news of forthcoming events and other matters of interest to readers. Contributors are entirely responsible for the accuracy of case names and citations, quotations and other references, spelling etc. All contributions should be in final form and in word format. COPYRIGHT This issue of ReSolution and all material and information contained herein are subject to the full protection given by the Copyright Act In many cases the copyright of individual articles remains the property of the author and articles and commentaries should not be reproduced without first obtaining the express authorisation of the relevant third party copyright owner concerned. If you are in any doubt as to whether a proposed use is covered by this licence please consult the Editor. DISCLAIMER: ReSolution is published by NZDRC and NZIAC. ReSolution is a newsletter and does not purport to provide a comprehensive analysis of the subjects covered or to constitute legal advice. ReSolution is intended to promote and engender discussion, debate, and consideration of all matters in relation to the development and application of the law, the resolution of disputes, and the processes that are used for the resolution of those disputes. Articles, commentaries and opinions are intended to raise questions rather than to be emphatic statements on the subjects covered and the views expressed are the views of the author and are not necessarily those of the directors, servants and agents of NZDRC or NZIAC. Information published is not guaranteed to be correct, current or comprehensive and NZDRC and NZIAC accept no responsibility for the accuracy of any information published in ReSolution and no person should act in reliance on any statement or information contained in ReSolution. Readers are specifically advised that specialist legal advice should be sought in relation to all matters in relation to, or in connection with, the subjects covered and articles published in ReSolution.