Arbitration Report. Arbitrator Disqualification in Overlapping Arbitrations. Round Up of Recent English Case Law

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1 Arbitration Report Issue Arbitrator Disqualification in Overlapping Arbitrations Round Up of Recent English Case Law New ICDR and LCIA Rules Group of Companies Doctrine in Germany

2 NOTE FROM THE EDITOR Dear Readers, In this issue of the Baker Botts Arbitration Report, we provide a snapshot of developments in international arbitration, including institutional rule changes and significant recent case law. The Report touches on key issues facing parties and practitioners, from ethics and transparency to procedural efficiency to the role of national courts in arbitration. On the ethics and transparency front, we discuss whether an arbitrator should be disqualified for involvement in overlapping arbitrations or repeat appointments by the same party or counsel (page 8). The Report also overviews the new UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (page 23). Treaty-based investor-state arbitrations continue to be a topic of much controversy. In addition to addressing the new UNCITRAL Transparency Rules, we consider the award in Guaracachi America, Inc. & Rurelec Plc v. Bolivia, which provides guidance on both the propriety of pursuing multiple investor claims under different BITs in a single proceeding and when a denial of benefits clause must be invoked to have effect (page 6). The Report also summarizes the compensation award in ExxonMobil s nationalization case against Venezuela (page 26). Improving procedural efficiency has been another key theme of arbitration users and practitioners. The ICDR and the LCIA have joined the group of institutions tackling this challenge with new procedural rules. The Report highlights the most important changes in the new ICDR and LCIA rules (page 19). Finally, we examine how national courts around the world are intervening in arbitration proceedings and reviewing awards. The Report includes updates on the U.S. Ninth Circuit decision in In re Wal-Mart Wage and Hour Employment Practices Litigation (page 10), which rejected an arbitration agreement s waiver of all judicial review under the Federal Arbitration Act; notable English case law touching on the powers of the English courts under the Arbitration Act 1996 (page 11); Banyan Tree Corporation PTE Ltd v. Meydan Group LLC, which dealt with the DIFC Courts jurisdiction to hear an application for recognition and enforcement of a Dubai award without prior ratification by the Dubai courts (page 17); a Singapore court s conclusion that it had the power to grant injunctive relief in aid of a Singapore arbitration (page 22); and a German court decision touching on the group of companies doctrine as a basis for binding non-signatories to an arbitration agreement (page 29). The Report also outlines an amendment to the DIFC Arbitration Law 2008 clarifying the DIFC Court s power to stay its proceedings in favor of a non-difc arbitration (page 16). While the global developments in international arbitration could fill volumes, our selection of topics offers useful insight into some of the most noteworthy issues. We hope to have piqued your interest and provided some useful insights. Jonathan Sutcliffe Editor

3 February 2015 Two Claimants, Two Treaties, One Proceeding and Denial of Benefits 6 Disqualification of an Arbitrator: Overlapping Arbitrations and Repeat Appointments 8 U.S. Ninth Circuit Rejects Waiver of All Judicial Review in Arbitration Agreement 10 Round Up of Recent English Case Law on Arbitration 11 DIFC Arbitration Law 2008 Amended to Remove Uncertainty Surrounding the DIFC Court s Power to Stay its Proceedings in Favor of a Non-DIFC Seated Arbitration 16 DIFC Courts Have Jurisdiction to Hear an Application for the Recognition and Enforcement of a Dubai Award Without Prior Ratification of the Award by the Dubai Courts or the Presence of Assets in the DIFC 17 The ICDR and LCIA Update Their Rules: An Increased Focus on Procedural Efficiency 19 Singaporean Courts Have Broad Powers to Grant Permanent Injunctive Relief in Aid of Arbitrations Seated in Singapore 22 The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration 23 ExxonMobil is Awarded Compensation for Venezuelan Nationalizations 26 The Group of Companies Doctrine in Germany 29 Contributors The editor of the Arbitration Report is Jonathan Sutcliffe, Partner, Dubai. The following contributed articles to this issue of the Arbitration Report: Andrew M. Behrman, Partner, New York; Ryan Bull, Partner, Washington; Vernon Cassin, Associate, Washington; Chris Caulfield, Partner, London; Derek Craig, Senior Associate, New York; Alex Escobar, Partner, London; Ernesto Féliz De Jesús, Associate, London; Laurie Frey, Associate, London; Johannes Koepp, Partner, London; Noah Mink, Associate, Washington; Faris Nasrallah, Associate, Dubai; Juliana Barbosa Pechincha, Associate, New York; Philip Punwar, Partner, Dubai; Cameron Sim, Associate, London; Jennifer Smith, Partner, Houston; Kiran Unni, Barrister, London; Natasha Zahid, Associate, Dubai.

4 THE BAKER BOTTS INTERNATIONAL ARBITRATION GROUP EXPANDS IN NEW YORK Baker Botts s global International Arbitration practice has recently expanded with highly regarded arbitration lawyers Edward Schorr and Andrew Behrman joining Michael Goldberg in New York. These lawyers handle claims before arbitral tribunals and U.S. courts in many sectors, including the energy and technology sectors, two of the firm s core strengths. The arbitration practice in New York enhances the firm s ability to provide clients with access to skilled arbitration counsel in jurisdictions around the world. New York is yet another cornerstone of our global arbitration practice to which all of our clients can turn with extreme confidence for resolving disputes around the world. Our New York International Arbitration team augments the high level of expertise that our clients expect from a law firm with our history and status in the arbitration world. Our Practice Contract review at drafting stage Pre-arbitration remedies Arbitration proceedings Post-award recovery or challenge International Arbitration Sector Experience Energy Technology & IP M&A Employment Construction Arbitral Tribunals Experience ICC AAA ICDR Ad Hoc (UNCITRAL) LCIA PCA SCC EDWARD T. SCHORR Partner edward.schorr@bakerbotts.com MICHAEL GOLDBERG Partner michael.goldberg@bakerbotts.com ANDREW M. BEHRMAN Partner andrew.behrman@bakerbotts.com

5 TWO CLAIMANTS, TWO TREATIES, ONE PROCEEDING AND DENIAL OF BENEFITS Guaracachi America, Inc., a Delaware company ( GAI ), and Rurelec Plc, a U.K. company ( Rurelec ), together brought claims in a single arbitration proceeding against the Plurinational State of Bolivia ( Bolivia ) as a result of Bolivia s nationalization of GAI s and Rurelec s joint % shareholding in Empresa Electrica Guaracachi S.A., a power generation company incorporated in Bolivia ( EGSA ). The arbitration was conducted under the 2010 UNCITRAL Rules. Two Claimants, Two Treaties, One Proceeding GAI and Rurelec each relied on two different bilateral investment treaties ( BITs ). These were, respectively, the Bolivia-United States BIT and the Bolivia-United Kingdom BIT. Bolivia objected to the Tribunal s jurisdiction on the ground that it had not consented to the joinder or consolidation of the claims. The Arbitral Tribunal, in an award dated 31 January 2014, dismissed the objection and upheld its jurisdiction over the joint claims. The Tribunal found that it was undisputed that Bolivia gave its consent to the arbitration of investment disputes with investors from the U.K. and the U.S. in, respectively, Article 8 of the Bolivia-United Kingdom BIT and Article IX of the Bolivia-United States BIT. It was also undisputed that each of the Claimants had accepted the offer of arbitration made by Bolivia in the BITs. This gave rise to the matching of consents indispensable for the Tribunal s jurisdiction rationae voluntatis over the disputes. The Tribunal rejected Bolivia s argument that express consent was required. Further, the Tribunal held that this was not a consolidation at all. The Claimants did not commence two separate arbitrations in respect of two independent arbitral claims that had subsequently been consolidated. The Claimants submitted, ab initio and in the same arbitration, two claims regarding the same dispute and involving the same set of facts, yet allegedly in violation of two different BITs. The object of both claims was the same, since the allegedly unlawful action by Bolivia was also a single one affecting two companies of different nationalities. Issue

6 Bolivia had argued that the BITs were silent as to the possibility of multi-party arbitration. The Tribunal held that the silence of a particular provision does not limit the scope of consent already given. As expressed in Ambiente Ufficio v. Argentina: the institution of multiparty proceedings therefore does not require any consent on the part of the respondent Government beyond the general requirements of consent to arbitration. Finally, the Tribunal noted that there was no fundamental incompatibility between the consents to arbitration in the two BITs that would have resulted in a violation of their terms by the mere fact of the claims being heard together. Denial of Benefits Bolivia raised an objection based on Article XII of the Bolivia-United States BIT, which contains a so-called denial of benefits clause. This provision allows a State to exclude certain investors from the scope of the BIT if, for example, they have no substantial presence in the home jurisdiction. In this case, the clause required the Tribunal to consider whether Bolivia s denial of benefits was valid as a matter of substance (rationae materiae) and was invoked timely (rationae temporis). For the objection to succeed, the Tribunal had to find: that GAI was owned or controlled by a national of a third State (i.e., other than the United States); that GAI had no substantial business activities in the United States; and that the denial of benefits was timely. In terms of substance, the Tribunal found that GAI was owned and controlled by nationals of a third country, namely, by Birdsong Overseas of the British Virgin Islands, and ultimately by Rurelec of the United Kingdom. The Tribunal also found that the Claimants had furnished insufficient evidence to prove that GAI carried on substantial business activities in the U.S. at any point in time. Finally, the Tribunal found that Bolivia had not imposed on GAI any requirement that it be a special purpose vehicle incorporated in the United States. Rationae materiae, therefore, Bolivia s denial of benefits was valid. value, thus the denial of benefits cannot frustrate any legitimate expectations. The Tribunal held that the objection to jurisdiction was made in a timely fashion. As emphasized in Ulysseas, Inc. v. Ecuador: [a]ccording to the UNCITRAL rules, a jurisdictional objection must be raised not later than the statement of defence (Article 21(3)). The Tribunal explained that [t]he very purpose of the denial of benefits is to give the Respondent the possibility of withdrawing the benefits granted under the BIT to investors who invoke those benefits. As such, it is proper that the denial is activated when the benefits are being claimed... It will be on that occasion that the respondent State will analyse whether the objective conditions for the denial are met and, if so, decide on whether to exercise its right to deny the benefits contained in the BIT, up to the submission of its statement of defence. Finally, the Tribunal concluded that it would be odd for a State to examine whether the requirements of Article XII had been fulfilled in relation to an investor with whom it had no dispute whatsoever. In that case, the notification of the denial of benefits would per se be seen as an unfriendly and groundless act, contrary to the promotion of foreign investments. This award thus addresses two jurisdictional questions of interest. First, it considers the question of the presentation of claims arising from two different BITs in a single arbitration proceeding. Ultimately, the Tribunal found nothing in the applicable BITs that prevented this course of action, and much to support it in terms of procedural efficiency and consistency. Second, the award is the first to dismiss a claim on the basis of a denial of benefits clause. The Tribunal stressed the underlying rationale of the clause. Eventual denials do not come as a total surprise for the investor. The BIT is not secret and its terms are understood and accepted at face value. In terms of timeliness, Bolivia denied the benefits of the BIT in its Statement of Defense. The Claimants argued that the denial of benefits could not apply retroactively once the investment had been made, since the purpose of such provision was to enable a State to alert investors in advance that they are no longer afforded protection of the BIT. The Tribunal disagreed. It held that investors, upon choosing to rely on the relevant BIT, are aware of the possibility of such a denial and of the conditionality of the consent to arbitration. They accept it at face Issue

7 DISQUALIFICATION OF AN ARBITRATOR: OVERLAPPING ARBITRATIONS AND REPEAT APPOINTMENTS Ascertaining whether a party-appointed arbitrator is sufficiently independent and impartial from the parties and the lawyers involved can be difficult. What is the burden of proof applied to disqualification proceedings? Must one come forward with clear evidence of actual bias or is it sufficient to prove the existence of reasonable doubt as to independence or impartiality? In ICSID jurisprudence, it is becoming increasingly established that proof of actual dependence or bias is not required to disqualify an arbitrator; rather, bringing forward evidence of the appearance of dependence or bias is enough. Specifically, if a party can show that a third party would find that there is an evident or obvious appearance of lack of impartiality or independence based on a reasonable evaluation of the facts, the other members of the tribunal may disqualify the arbitrator. One important consideration in assessing perceived impartiality is whether an arbitrator has previously served on a different tribunal with overlapping parties and facts. The problem arises because the arbitrator may have obtained documents and information in one arbitration that are relevant to the dispute to be determined in another. As noted in EnCana Corporation v. Republic of Ecuador, the arbitrator cannot reasonably be asked to maintain a Chinese wall in his own mind: his understanding of the situation may well be affected by information acquired in the other arbitration. (Partial Award on Jurisdiction, 27 Feb 2004, para 45.) The unchallenged arbitrators should examine whether the facts alleged in the two cases are similar or identical. If so, they should then examine whether, based on a reasonable evaluation of the facts in the later arbitration, a third party would find that the challenged arbitrator s knowledge of the facts in the first arbitration gives rise to an evident or obvious appearance of lack of impartiality. (See e.g., Caratube International Oil Company LLP v. Republic of Kazakhstan, Issue

8 Decision on the Proposal for Disqualification, 20 March 2014, para 77.) For example, in Caratube, an arbitrator was disqualified based on the appearance of lack of impartiality where he had previously served on a tribunal involving the same respondent but different claimants. (Id). Although the industries involved were completely unrelated, the claimants in the two arbitrations were related individuals with overlapping corporate interests. In both cases the claimants relied on similar fact patterns to attempt to show alleged state-sponsored harassment and intrusion into their private affairs to prove expropriation of investments. Moreover, some of the individuals who submitted witness statements in the first case (the contents and probative value of which were examined and assessed by the first tribunal), were found likely to submit witness statements in relation to the same facts in the second case. The unchallenged arbitrators found that the overlapping facts presented were potentially relevant to the determination of some of the legal issues in the proceeding before them. Despite the challenged arbitrator s assurances that he would not discuss or disclose anything that transpired in the prior arbitration and would not form any opinion based upon his external knowledge, the unchallenged arbitrators held that there was an evident or obvious appearance of lack of impartiality as he might, even unwittingly, make a determination based on information to which he was privy from the prior arbitration. An additional and independent reason for disqualification (or at least an aggravating circumstance) may arise where an arbitrator, having been exposed to a body of knowledge from one arbitration, creates an imbalance within the tribunal because the two other arbitrators may not be privy to the same information. The facts may even be incompatible or contradictory with the facts presented in the later arbitration and therefore might disadvantage one of the parties. Finally, repeated appointment of an arbitrator by the same law firm can give rise to questions as to an arbitrator s ability to exercise independent judgment. The oftcited IBA Guidelines on Conflicts of Interest in International Arbitration (which concern the issue of disclosure by arbitrators and, while indicative, are typically not binding under the ICSID Convention and Rules) recommend that a nominated arbitrator disclose two or more prior appointments by a party or more than three appointments by counsel within a three-year period. In ICSID jurisprudence, there appears to be a split as to whether the mere fact of prior appointments by the same law firm, without more, indicates a manifest lack of independence or impartiality. For example, in OPIC Karimum Corp. v. The Bolivarian Republic of Venezuela it was held that multiple appointments of an arbitrator are an objective indication of the view of parties and their counsel that the outcome of the dispute is more likely to be successful with the multiple appointee as a member of the tribunal than would otherwise by the case... [and] may lead to the conclusion that it is manifest that the arbitrator cannot be relied upon to exercise independent judgment as required by the [ICSID] Convention. (Decision on the Proposal to Disqualify, 5 May 2011, paras 47 and 50.) Other tribunals have required more. For example, in both Tidewater v. The Bolivarian Republic of Venezuela and Caratube International Oil Company v. Republic of Kazakhstan, the unchallenged arbitrators found that a potential conflict of interest may arise from multiple appointments, but only if either the prospect of continued and regular appointment might influence the arbitrator s judgment or there is a material risk that the arbitrator may be influenced by factors outside the record as a result of his knowledge derived from other cases. (Tidewater Inc. v. The Bolivarian Republic of Venezuela, Decision on the Claimants Proposal to Disqualify, 23 December 2010, para 62; Caratube International Oil Company LLP v. Republic of Kazakhstan, Decision on the Proposal for Disqualification, 20 March 2014, para 107.) In conclusion, if there is a possibility that an arbitrator is exposed to facts or legal arguments in one case that might affect his objectivity and openmindedness with regard to the facts and issues to be decided in another, he runs the risk of disqualification. Multiple prior appointments of the same arbitrator by a party or counsel may also raise questions as to possible influence by external factors and lead to disqualification. Issue

9 U.S. NINTH CIRCUIT REJECTS WAIVER OF ALL JUDICIAL REVIEW IN ARBITRATION AGREEMENT Parties seeking to enforce arbitral awards, as well as drafters of arbitration agreements, should note a U.S. court decision holding that parties cannot agree to waive all judicial review of an arbitral award. In In re Wal-Mart Wage and Hour Employment Practices Litigation, 737 F.3d 1261 (9th Cir. 2013), the Ninth Circuit Court of Appeals ruled that the terms of an arbitration agreement cannot override the statutory grounds for vacating an award for procedural unfairness. The parties in Wal-Mart had served as plaintiffs counsel in an employment dispute, which settled. The settlement agreement provided that any fee disputes among counsel would be resolved through binding, nonappealable arbitration. A dispute arose over the $28 million in fees, which a sole arbitrator then allocated. A court confirmed the award, and some of the parties appealed. The respondent argued that the court of appeals lacked jurisdiction to review the decision confirming the award because of the non-appealability clause. The Ninth Circuit noted that U.S. courts have construed these clauses in two different ways. Some have read non-appealable to stand for the proposition that the parties waive review of the merits of the arbitration. Others have read it to mean that the parties intended to foreclose review on any basis, including the grounds for vacating an award under Section 10(a) of the Federal Arbitration Act (FAA). These grounds include partiality, corruption, fraud, and that the tribunal exceeded its powers. The Ninth Circuit held that the procedural protections provided in Section 10(a) of the FAA are mandatory and cannot be waived. While the FAA generally protects parties autonomy to govern arbitration by contract, parties may not waive or eliminate the statutory grounds for vacating an award. The U.S. Supreme Court had previously held that parties cannot expand the scope of judicial review beyond that provided in the FAA. Issue

10 Hall Street Associates v. Mattel, Inc., 552 U.S. 576, 585 (2008). The Ninth Circuit in Wal-Mart reasoned the FAA also precludes parties from limiting review. It bolstered this conclusion by noting one purpose of the FAA was to guarantee a minimum level of due process and procedural fairness in arbitration. This goal would be defeated if parties could simply contract around these protections. While this case considered a single ad hoc domestic arbitration, the decision s implications reach further. Rulings of the Ninth Circuit are binding precedent governing federal courts in nine states in the western U.S., including California. As other U.S. courts address this issue, they may find this opinion persuasive in its extension of Supreme Court doctrine. Arbitral awards rendered in the U.S., even those involving non-u.s. parties or non-u.s. law, have been held subject to the FAA s grounds for vacatur in addition to those provided by the international conventions. See Yusuf Ahmed Alghanim & Sons v. Toys R Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997). Moreover, as many of the grounds for refusing enforcement under the New York and Panama Conventions protect fundamental procedural fairness, the Ninth Circuit s reasoning could have implications even for U.S. enforcement of awards rendered elsewhere if a court were to hold that the procedural protections provided by the Conventions are also not waivable. ROUND UP OF RECENT ENGLISH CASE LAW ON ARBITRATION Four recent cases before the English Commercial Court resulted in notable decisions touching on the powers of the English courts under the Arbitration Act 1996 (the Act ). The decisions in Diag Human SE v. Czech Republic and IPCO (Nigeria) Ltd v. Nigerian National Petroleum Corporation dealt with the courts enforcement powers under s. 103 of the Act where a challenge to an award is pending before another court or arbitral tribunal. The court in BDMS Limited v. Rafael Advanced Defence Systems, in determining whether to order a stay of court proceedings under s. 9 of the Act, considered whether a party s refusal to pay an advance on costs entitles the non-defaulting party to bring a claim in court instead of arbitration. Finally, the court in Brockton Capital LLP v. Atlantic-Pacific Capital, Inc. addressed circumstances in which a court should exercise its power under s. 68 of the Act to set aside an award for unfairness. Issue

11 Does issue estoppel arise where a foreign court has found that an award is not yet binding and enforceable? In Diag Human SE v. Czech Republic [2014] EWHC 1639 (Comm) (Eder J), the Claimant ( Diag ) sought to enforce in England an arbitral award that the Supreme Court of Austria had previously held was not yet binding on the parties and therefore should not be enforced. The principal question before Mr. Justice Eder ( Eder J ) was whether the Austrian court s decision precluded the English court from itself determining whether the arbitral award was binding. Eder J held that where a foreign court had determined that an arbitral award was not binding, an English court would not reopen that determination, even if the English court considered that the foreign court s decision was wrong on the facts or as a matter of English law. In 2008, an arbitral tribunal in the Czech Republic made an award requiring the Czech Republic to pay substantial damages plus interest to Diag (the Czech Award ). A provision in the arbitration agreement between Diag and the Czech Republic allowed either party to seek an additional review of the Czech Award by other arbitrators if the party submitted an application within 30 days of the date of the Czech Award. Following the making of the Czech Award, the Czech Republic sent a series of timely letters purporting to invoke the arbitral review process, and a new arbitral tribunal was constituted. In the meantime, Diag instituted enforcement proceedings in various jurisdictions, including Austria. In the Austrian proceedings, the Czech Republic relied on Article V(1)(e) of the New York Convention 1958 to contend that the Czech Award should not be enforced because it was not yet binding due to the pending arbitral review. Diag countered that the Czech Republic had not properly invoked the arbitral review process within the time limit and that, therefore, the Czech Award had already become binding at the expiration of the 30 days. The Supreme Court of Austria agreed with the Czech Republic that the Czech Award had not yet become binding because of the pending arbitral review. It concluded that whether the application for review had been properly filed was a matter for the arbitral tribunal to determine. It therefore declined to enforce the Czech Award. Diag subsequently brought enforcement proceedings in England. The Czech Republic submitted that the English court should refuse to enforce the Czech Award under s. 103 of the Act, which is based on Article V of the New York Convention, on the ground that the Czech Award had not yet become binding. It contended that the English court was bound by the Austrian court s determination. Under the doctrine of issue estoppel, the decision of a foreign court on an issue will bind an English court in later proceedings between identical parties where (1) the foreign court was one of competent jurisdiction, (2) its decision on the issue was final and conclusive, and (3) its decision was made on the merits. Eder J concluded that there was no reason why issue estoppel should not apply where a foreign court handling enforcement proceedings had decided that an award was not binding. In reaching that conclusion, Eder J recognized that questions of arbitrability and of public policy may be different in different states and that a decision in a foreign court refusing to enforce an award under the New York Convention on public policy grounds of that state will not ordinarily give rise to an issue estoppel in England. Nonetheless, he saw no reason why, if the conditions for the application of issue estoppel are met, it should make a material difference that the prior decision on the same issue was made in the context of enforcement proceedings as opposed to any other type of proceedings. Based on the prior case law, Eder J could find no reason why issue estoppel could not arise from a ruling made by a foreign court in the context of an enforcement proceeding, so long as the issue was the same and the decision was on the merits. In the case at hand, the Austrian court had previously considered and decided the identical issue presented to the English court. Diag had previously raised, and the Austrian court had rejected, the argument that there was no validly and timely instituted review process and that, therefore, the Czech Award had become binding. The Austrian court s prior decision gave rise to an issue estoppel that precluded Diag from raising the matter again before the English court. It was irrelevant whether Eder J might have reached a different conclusion on the facts or as a matter of English law if the issue had first been raised before him. In the circumstances, enforcement of the Czech Award was refused. What amounts to a sufficient change of circumstances for a renewed application to enforce an award? In IPCO (Nigeria) Ltd v. Nigerian National Petroleum Corporation, [2014] EWHC 576 (Comm) (Field J), the English Commercial Court dealt with a renewed application to enforce an arbitral award under ss. 101 and 103 of the Act. Mr. Justice Field ( Field J ) denied the application because the Claimant had not shown that Issue

12 a sufficient change in circumstances had occurred since an English court previously adjourned enforcement of the award under s. 103(5) of the Act, which gives the court discretion to adjourn recognition or enforcement of an award where a challenge to the award is pending before a competent authority in the place of arbitration. The Claimant ( IPCO ) had commenced English court proceedings to enforce an award (the Nigerian Award ) made against the Respondent ( NNPC ) in 2004 by a tribunal sitting in Nigeria. The English court originally exercised its discretion to adjourn the enforcement proceedings because a challenge to the Nigerian Award was pending before a Nigerian court. The Nigerian challenge proceedings brought by NNPC were at first based on lack of jurisdiction and then later on allegations that IPCO had engaged in fraud during the arbitration. In 2008, IPCO asked an English court to reconsider the adjournment because the Nigerian proceedings were taking longer than expected. However, in June 2009, IPCO and NNPC entered into a consent order under which they agreed to adjourn enforcement until the question of whether the Nigerian Award should be set aside for fraud was decided by the Nigerian court. In the interim, Nigerian authorities initiated, withdrew, and then reinstated criminal fraud charges against IPCO, in the process raising questions about the strength of the fraud evidence. At issue in the instant decision, IPCO in 2013 asked the English court, again, to reconsider enforcement. Field J indicated that, for an English court to reconsider the exercise of its discretion under s. 103(5), the Claimant would need to show a change of circumstances that is significant and causatively linked to the variation of the earlier order. Field J stated that, if there be a sufficient change of circumstance for the original decision on enforcement to be reconsidered, that ought not ordinarily to require any revisiting of the court s earlier decision as to the strength of the challenge to the arbitral award that was the foundation for the original decision to adjourn enforcement. Field J denied IPCO s application because IPCO had failed to demonstrate a sufficient change in circumstances. By entering into the consent order, IPCO had agreed that NNPC s fraud claim presented an arguable challenge to the Nigerian Award. To demonstrate a sufficient change of circumstances, IPCO would have to show that NNPC s fraud challenge was hopeless or not bona fide, which it had failed to do. Moreover, Field J found that, at the time IPCO entered into the consent order, it should have been aware of the risk of delay in the Nigerian proceedings. Field J concluded that, even if he were to consider the application for enforcement anew, he would exercise his discretion to adjourn enforcement pending the outcome of the challenge in Nigeria. Thus, the enforceability of the Nigerian Award was left for the Nigerian court to decide, with the English court s hope that the Nigerian court would expedite its proceedings. The decision illustrates what a claimant must show in order to have an adjourned application for enforcement reopened by an English court. Field J s judgment also suggests that, in most cases, an English court will not reassess the strength of a challenge to an award underlying an adjournment of enforcement under s. 103(5). However, it is yet to be seen whether the judgment will stand, as the Court of Appeal will hear IPCO s appeal in early Does a party s failure to pay an ICC advance on costs amount to a repudiatory breach of the arbitration agreement? In BDMS Limited v. Rafael Advanced Defence Systems [2014] EWHC 451 (Comm) (Hamblen J), the English Commercial Court addressed whether a Respondent s refusal to pay its share of the advance on costs in an ICC arbitration rendered the parties arbitration agreement inoperative. Mr. Justice Hamblen ( Hamblen J ) concluded that the Respondent s refusal to pay was a breach of the arbitration agreement but that, under the specific facts, the breach was not a repudiatory one such as to entitle the Claimant to abandon arbitration and pursue its claim in court. The Claimant ( BDMS ) initiated arbitration proceedings over disputed sums purportedly owed by the Respondent ( Rafael ) under an agreement providing for arbitration in London under the 1998 ICC Arbitration Rules ( ICC Rules ). The ICC wrote to the parties fixing the advance on costs and requesting that each party pay its share. Rafael expressed concerns about BDMS s ability to meet any adverse costs order and stated that it would not pay its share of the advance on costs unless adequate security had been put in place. The arbitral tribunal set a hearing date to address the issue. In the meantime, the ICC sent several requests for payment of Rafael s share of the advance on costs and warned that, without payment, it would consider BDMS s claim withdrawn. The ICC ultimately directed the tribunal to stop work and notified the parties that Issue

13 the claim was deemed withdrawn under Article 30(4) of the ICC Rules. BDMS notified Rafael that it considered Rafael s refusal to pay to be a repudiation of their agreement to arbitrate, and it refiled its claim in the English court. Rafael sought a stay of the English court proceedings pursuant to s. 9 of the Act, under which a court must grant a stay unless the agreement to arbitrate is found to be null and void, inoperative, or incapable of being performed. Hamblen J found that the mandatory requirement to pay an advance on costs under the ICC Rules gave rise to a contractual obligation between the parties because the parties had adopted the ICC Rules in their contract. Rafael s refusal to pay its share breached that obligation. Nonetheless, Hamblen J concluded that the breach was not repudiatory. In reaching the conclusion that the breach was not repudiatory, Hamblen J took into consideration that Rafael s refusal to pay was not absolute, but conditional on its request for security, and that Rafael was not otherwise refusing to participate in the arbitration. Hamblen J also concluded that BDMS had not been denied its right to arbitrate because other avenues were open to BDMS under the ICC Rules, including paying Rafael s share of the advance on costs itself, posting a bank guarantee for Rafael s share, seeking an interim or final award compelling Rafael to pay its share, or objecting to the deemed withdrawal of the claim by the ICC. Moreover, Hamblen J held that the arbitration agreement, not merely the arbitration reference, must be shown to have been repudiated before it will be found inoperative. The deemed withdrawal of BDMS s claim did not prevent BDMS from bringing the same claim in another, future arbitration proceeding. Given that the arbitration agreement had not been repudiated or rendered inoperative, Hamblen J granted Rafael s application for a stay of court proceedings. The court s fact-specific analysis suggests that whether an arbitration agreement is inoperative will be decided on a case-by-case basis. However, Hamblen J s judgment sets out guidance on the options available to a Claimant when a Respondent refuses to pay an advance on costs, and it suggests that even where the available recourse will likely result in costs and delay, a Claimant may need to exhaust these other avenues before turning to the English courts. When will an award be set aside for failure to give a party notice and an opportunity to address its opponent s arguments? In Brockton Capital LLP v. Atlantic-Pacific Capital, Inc. [2014] EWHC 1459 (Comm) (Field J), an English court dealt with a party s application to set aside an arbitral award pursuant to s. 68 of the Act. The applicant ( Brockton ) contended that in breach of s. 33 of the Act, the arbitral tribunal had acted unfairly in deciding that a contractual provision was unenforceable as a penalty when Brockton had had no opportunity to make Issue

14 submissions on the issue. Mr. Justice Field ( Field J ) agreed. Brockton, a private equity fund manager, and Atlantic- Pacific Capital, Inc. ( APC ), an independent placement agent, entered into an agreement appointing APC as the exclusive global placement agent to raise capital for a Brockton property fund ( the Fund ) in exchange for placement fees. Brockton, APC and a third-party investor entered into a separate agreement, amending the first agreement and ensuring that Brockton and APC did not engage in certain objectionable practices. Both agreements were subject to New York law and provided for arbitration in London under the ICC Arbitration Rules. Paragraph 2(g) of the second agreement provided, in the event of APC s breach, that (i) Brockton would be released from any obligation to make further payments to APC and (ii) Brockton would be entitled to terminate the agreements for Cause. Brockton purported to terminate the agreements on the ground of APC s alleged breach. APC brought arbitration proceedings for wrongful termination and disputed Brockton s right to withhold payment of placement fees. Following the arbitration hearing, APC made post-hearing submissions. It contended, for the first time, that paragraph 2(g)(i) of the second agreement, which provided that APC s breach would release Brockton from further payment obligations, constituted an unenforceable penalty. APC s submission made no reference to paragraph 2(g)(ii), which entitled Brockton to terminate the agreements for Cause in the event of APC s breach. Brockton submitted a letter of response in which it reserved its right to object to new arguments raised by APC s post-hearing submission, but did not directly object to them or address APC s argument that paragraph 2(g)(i) was an unenforceable penalty clause. The tribunal made an award in favor of APC (the APC Award ), finding that paragraph 2(g) of the second agreement generally not merely paragraph 2(g)(i) constituted an unenforceable penalty because paragraph 2(g) made no distinction among the various possible breaches that would give Brockton the right to be released from paying fees and to terminate the agreement. its duty of fairness and impartiality under s. 33(1) (a) of the Act. Brockton submitted that the tribunal had acted unfairly by denying it the opportunity to prepare, investigate and present a case in relation to the argument that both paragraphs 2(g)(i) and 2(g)(ii) were unenforceable penalty clauses. Field J was careful to distinguish between, on the one hand, a party having no opportunity to address a point or his opponent s case, and, on the other hand, a party failing to recognize or take the opportunity which exists. The latter will not involve a breach of s. 33 or a serious irregularity. Field J held that the tribunal was entitled to conclude that Brockton had passed up the opportunity of dealing with APC s penalty clause case on paragraph 2(g)(i). In deciding, however, that paragraph 2(g)(ii) was an unenforceable penalty clause without giving Brockton notice or opportunity to address that issue, the tribunal had acted in breach of s. 33. This irregularity caused substantial injustice to Brockton. Had Brockton had the opportunity to present its arguments on the issue, the outcome of the APC Award might have differed. Field J dismissed an additional submission by Brockton that the tribunal was in breach of s. 33 by ignoring and making no reference to certain evidence on a separate issue of contractual construction. Field J held that the duty to act fairly was distinct from the autonomous power of the arbitrators to make findings of fact. It will only be in the most exceptional case, if ever, that a failure to refer to a particular part of the evidence will constitute a serious irregularity under s. 68. Field J ordered remission to the existing tribunal to decide, at its discretion, and on the basis that 2(g)(i) was a penalty provision, the question of whether 2g(ii) was an unenforceable penalty. Brockton challenged the APC Award before the court under s. 68 of the Act, which empowers a court to set aside an arbitral award on the ground of serious irregularity affecting the tribunal, the proceedings or the award, including a failure by the tribunal to observe Issue

15 DIFC ARBITRATION LAW 2008 AMENDED TO REMOVE UNCERTAINTY SURROUNDING THE DIFC COURT S POWER TO STAY ITS PROCEEDINGS IN FAVOR OF A NON-DIFC SEATED ARBITRATION The Dubai International Financial Centre ( DIFC ) Authority has amended the DIFC Arbitration Law 2008 after conflicting decisions of the DIFC Court of First Instance were issued concerning the power of that court to stay its proceedings in favor of arbitration proceedings with a seat outside the DIFC. The conflict arose because although Article 13(1) of the DIFC Arbitration Law 2008 required the Court to stay its proceedings in favor of arbitration when requested to do so by a party relying on an agreement to arbitrate, Article 13(1) was not identified at Clause 7 of the DIFC Arbitration Law 2008 as one of those provisions that applied where the seat of the arbitration was outside the DIFC. In Injazat Capital Limited and Injazat Technology Fund B.S.C. v. Denton Wilde Sapte & Co (CFI 019/2010) ( Injazat Capital ), Justice Sir David Steel held that the terms of the DIFC Arbitration Law 2008 precluded him from staying DIFC Court proceedings in favor of arbitration in London under the LCIA Rules. Less than six months later, in IES v. Al Fattan Engineering (CFI 004/2012), Justice David Williams QC held that the DIFC Court was not precluded by the terms of the DIFC Arbitration Law 2008 from invoking its inherent discretion to stay its proceedings. Consequently, the court had power to stay its proceedings in favor of a non-difc seated arbitration. Following its amendment in December 2013, Article 7 of the DIFC Arbitration Law 2008 now makes clear that Article 13(1) applies regardless of where the seat of an arbitration may be. Consequently, Article 13(1) now directly mirrors the terms of Article II(3) of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which the UAE acceded in Issue

16 DIFC COURTS HAVE JURISDICTION TO HEAR AN APPLICATION FOR THE RECOGNITION AND ENFORCEMENT OF A DUBAI AWARD WITHOUT PRIOR RATIFICATION OF THE AWARD BY THE DUBAI COURTS OR THE PRESENCE OF ASSETS IN THE DIFC In Banyan Tree Corporate PTE Ltd v. Meydan Group LLC, the parties entered into a hotel management agreement under which Banyan Tree was appointed as the manager of a hotel owned by Meydan Group. Meydan terminated the agreement, creating a dispute between the parties. The agreement provided for arbitration in Dubai under the auspices of the Dubai International Arbitration Centre. The arbitral tribunal issued an award in favor of Banyan Tree, which Meydan failed to pay. Banyan Tree applied for recognition and enforcement by the DIFC Court of First Instance without first ratifying the award in the Dubai courts and notwithstanding that Meydan was not shown to have a presence or assets in the DIFC. Meydan challenged the jurisdiction of the DIFC Court of First Instance arguing that the Dubai courts were the appropriate forum within Dubai for any claim for recognition or ratification of an award made in Dubai. Meydan further argued that the application was an abuse of process because in its submission the order was sought solely to enable enforcement through the Dubai courts without the need to obtain ratification of the award by the Dubai courts. (Article 7(2) of the Judicial Authority Law provides that arbitral awards ratified by the DIFC Court... shall be enforced by an executive judge at Dubai Courts....) Issue

17 In its decision on jurisdiction, the DIFC Court of First Instance held that in accordance with earlier DIFC Court decisions, the principles of forum non conveniens did not apply as between the DIFC Courts and other courts within the UAE. The Court of First Instance further held that whilst the application itself may or may not eventually succeed on its merits, it was clear that the Court of First Instance had jurisdiction to entertain the application. The Court observed that Article 5(A)(1)(e) of the Judicial Authority Law (Dubai Law No. 12/2004, as amended) provides that the DIFC Court has exclusive jurisdiction over any claim or action where... the Courts have jurisdiction in accordance with DIFC Laws and DIFC Regulations. In this case, jurisdiction was said to arise from the terms of the DIFC Arbitration Law Article 42(1) of the 2008 Law provides that An arbitral award, irrespective of the State or jurisdiction in which it was made, shall be recognised as binding within the DIFC and, upon application in writing to the DIFC Court, shall be enforced.... Applying the language of Article 42(1) to the instant case, the Court of First Instance held that Banyan Tree was entitled to make the application and the Court of First Instance had jurisdiction to hear it even though neither the parties nor the dispute had any obvious connection with the DIFC beyond the application itself. Meydan was granted permission to appeal the decision on jurisdiction to the DIFC Court of Appeal. The Court of Appeal upheld the ruling of the Court of First Instance and found that the DIFC Court had jurisdiction to recognize a domestic arbitration award made within the Emirate of Dubai but outside the DIFC. The Court of Appeal rejected Meydan s arguments that (i) the presence of Meydan or its assets within the DIFC was a pre-requisite to recognition, (ii) forum non conveniens applied, and (iii) that the application for recognition of the award constituted an abuse of process. Justice Sir David Steel held that it is right to say that there is no evidence that Meydan has assets within the DIFC... but there is no basis for asserting that the application for enforcement within the DIFC has no independent purpose. I do not understand it to be accepted that no such assets exist or alternatively that no such assets (whether they currently exist or not) may come within the jurisdiction following an order for enforcement.... The Court of Appeal held that engagement of the enforcement procedures of the DIFC Court did not constitute an abuse of process. The key point to note about the Court of Appeal s decision is that even though Meydan was not known to have assets within the DIFC at the time of the application, the Court of Appeal contemplated a scenario in which a party might legitimately obtain an order in anticipation of assets coming into the DIFC. In so acting, the Court would be granting a precautionary enforcement order to allow a party to obtain details of any assets that are or may become available. Even though the Court of Appeal recognized that the absence of assets in the DIFC may be a relevant consideration to the exercise of its discretion to grant execution, it held that even a judgment creditor is entitled to levy execution against assets which come into the jurisdiction after the judgment is entered or which did not even exist at that time. Issue

18 THE ICDR AND LCIA UPDATE THEIR RULES: AN INCREASED FOCUS ON PROCEDURAL EFFICIENCY In 2014, the International Centre for Dispute Resolution (ICDR), the international arm of the American Arbitration Association (AAA), and the LCIA (formerly known as the London Court of International Arbitration), became the latest arbitral institutions to publish new rules to govern arbitrations administered by those bodies. The main theme in both institutions new rules appears to be an increased focus on procedural efficiency. This update highlights the most important changes in the new ICDR and LCIA rules. ICDR 2014 International Dispute Resolution Procedures 1. International Expedited Procedures (Articles 1(4) and E-1 to E-10) The ICDR has become the first arbitral institution to incorporate into its rules an expedited arbitration procedure for lower value claims. The new rules contain International Expedited Procedures, which will apply in cases where no claim or counterclaim exceeds US $250,000 exclusive of interest and the arbitration costs (unless the parties agree or the ICDR determines otherwise). In such cases, the dispute shall be decided by a sole arbitrator and the default timeline will be as follows: procedural order issued within 14 days of arbitrator appointment; final written submissions due or a one-day oral hearing to take place within 60 days of the procedural order; an award issued within 30 days from final written submissions or the close of the hearing. The rules also presume that any case involving disputes valued at US $100,000 or less will be decided on written submissions. 2. Mediation (Article 5) Another notable feature of the updated rules is the encouragement of mediation as a tool for resolving disputes that have been submitted to arbitration. Following the submission of the Answer, the arbitrator may invite the parties to mediate, or the parties may agree to mediate under the ICDR s International Mediation Rules. The mediation is to run concurrently with the arbitration, and the mediator may not serve as the arbitrator in the case (unless the parties otherwise agree). In addition, Articles 2(3) (g) and 3(4) contain new language emphasizing that parties may designate any interest in mediating the dispute in the Notice of Arbitration or Answer. 3. Joinder and Consolidation (Articles 7 and 8) The previous rules had no provision regarding joinder and consolidation. The new rules allow a party to request the joinder of an additional party by submitting a Notice of Arbitration against the additional party. Any joinder request should be made before the ICDR appoints the first arbitrator. After such appointment, no joinder is permitted absent express agreement of all parties concerned. The revised rules provide a unique method for a party to request the consolidation of two or more pending arbitrations administered by the AAA or ICDR. Any party may request that a consolidation arbitrator be appointed. The consolidation arbitrator will ultimately decide whether or not to consolidate the cases. If the consolidation arbitrator orders that the proceedings be consolidated, each party is considered to have waived its right to appoint an arbitrator for the resolution of the dispute. Instead, the consolidation arbitrator or the Administrator appoints the arbitrator(s). Issue

19 4. Privilege (Article 22) The inclusion of a provision addressing the applicable rules of legal impediment or privilege is a distinguishing aspect of the new rules. It provides that when the parties, their counsel or their documents would be subject under applicable law to different rules, the tribunal should, to the extent possible, apply the same rule to all parties, giving preference to the rule that provides the highest level of protection. No other arbitral institution s rules contain such a provision. 5. Other efficiency focused provisions The new rules introduced a number of other provisions intended to increase the efficiency of proceedings: the prospective arbitrators are required to sign a Notice of Appointment affirming their availability to serve (Art. 13 (2)); the tribunal and the parties are encouraged to consider how technology, including electronic communications, can be used to increase efficiency (Art. 20(2)); the parties shall make every effort to avoid unnecessary delay and expense, and the tribunal may allocate costs, draw adverse inferences and take additional steps necessary to protect the efficiency and integrity of the arbitration (Art. 20(7)); the tribunal shall manage the exchange of information among the parties with a view to maintaining efficiency and economy (Art. 21(1)); requests for electronic documents should be narrowly focused and structured to make the document collection exercise as economical as possible, and the tribunal may direct testing or other means of limiting any search (Art. 21(6)); U.S. litigation procedures such as depositions, interrogatories and requests to admit are generally inappropriate (Art. 21(10)); a final award must be issued no later than 60 days from the date of the closing of the hearing, unless the parties agree to extend the deadline or the ICDR does so (Art. 30(1)) LCIA Arbitration Rules 1. Emergency arbitrator (Article 9B) LCIA users no longer need to resort to local courts for emergency relief before the formation of the arbitral tribunal. In the case of emergency, a party may apply for the appointment of a temporary, sole arbitrator before the formation of the tribunal. The emergency arbitrator is to be appointed by the LCIA Court within three days of a request. The emergency arbitrator is not required to hold a hearing and must decide the claim for emergency relief no later than 14 days after his or her appointment. 2. Declaration by prospective arbitrator (Article 5.4) The ability of arbitrators to devote sufficient time to the arbitration to which they have been appointed has received considerable attention in the international arbitration community lately. The previous rules required arbitrators to make declarations attesting to their impartiality and independence. Under the new rules, arbitrators must also declare their willingness to devote sufficient time to ensure the arbitration is conducted expeditiously. 3. Law applicable to the arbitration agreement (Article 16.4) English courts have recently been faced with the question of what law should apply to parties arbitration agreements in the absence of an express choice-of-law clause. Article 16 of the new rules addresses this issue. The term Arbitration Agreement is now defined and incorporates both the arbitration agreement itself and the LCIA Rules. If parties have failed to identify a seat of arbitration in their agreement or do not set one prior to the formation of the tribunal, the seat will default to London. The new rules make clear that the law applicable to the arbitration agreement shall be that of the seat of the arbitration, unless otherwise elected by the parties. 4. Conduct of legal representatives (Article 18 and Annex) The most innovative part of the new provisions are those relating to parties legal representation, and they currently have no equivalent in other commonly used arbitral rules. Parties must ensure that their legal representatives appearing before the tribunal comply with the new General guidelines for the parties legal representatives (Annex to the new rules). The guidelines provide that the legal representative should not make false statements to the arbitral tribunal or LCIA Court, should not knowingly procure false evidence, should not conceal documents ordered by the tribunal and should not initiate unilateral contact with the tribunal without disclosure. The tribunal has the express power to rule on whether or not the guidelines have been violated, provided that the legal representative has had an opportunity to answer any complaints. The tribunal may order any or all of the following sanctions: (i) a written reprimand; (ii) a written caution as to future conduct in the arbitration; and (iii) any other measure Issue

20 to fulfill the required duties. In addition, any change or addition to the parties legal representatives has to be notified to the other parties, the arbitral tribunal and the Registrar. The arbitral tribunal s approval may be withheld if the change or addition compromises the composition of the arbitral tribunal or the finality of the award. 5. Joinder and consolidation (Article 22.1) The new rules maintain the right of the tribunal to join third parties to the arbitration provided that the applicant and the third party both consent. Consolidation may occur without the parties agreement with the approval of the LCIA Court where there are multiple arbitrations involving the same parties and only one tribunal has been appointed. In recent years, arbitration proceedings have come under criticism for becoming more expensive and taking longer to resolve. In response to such concerns, a number of international arbitration institutions have revised their rules. The ICDR and the LCIA have now joined the group of institutions attempting to address these issues. The new rules of both institutions are intended to improve the efficiency and economy of the arbitration proceedings. 6. Costs (Article 28.4) This new provision gives more guidance to parties regarding the factors to be taken into account by the tribunal when assessing costs. The tribunal may take into account the parties conduct in the arbitration, including any co-operation in facilitating the proceedings as to time and cost and any non-cooperation resulting in undue delay and unnecessary expense. 7. Other efficiency focused provisions As with the new ICDR Rules, the new LCIA Rules introduce a number of additional provisions focused on increasing the efficiency of proceedings: the Request for Arbitration and the Response can now be submitted electronically (Articles 1.3 and 2.3); the period of time parties have to respond to a Request has decreased from 30 days to 28 days (Article 2.1); the formation of the arbitral tribunal should not be delayed due to deficiencies in either the Request or the Response (Article 5.1); the LCIA Court s default appointment of a sole arbitrator or three-member tribunal will now be made 35 days from the start of the arbitration, instead of 30 days from service of the Request on the respondent (Articles 5.6 and 5.8); the parties and the arbitral tribunal should make contact no later than 21 days after the formation of the tribunal (Article 14.1); the arbitral tribunal should issue the award as soon as possible and set aside adequate time to do so (Article 15.10); hearings may now take place in various formats (by video, telephone conference or in person) or a combination of all three (Article 19.2). Issue

21 SINGAPOREAN COURTS HAVE BROAD POWERS TO GRANT PERMANENT INJUNCTIVE RELIEF IN AID OF ARBITRATIONS SEATED IN SINGAPORE The High Court of Singapore recently concluded, albeit in obiter dicta, that it could issue a permanent anti-suit injunction to restrain a party from pursuing foreign proceedings where a valid arbitration agreement provides for international arbitration in Singapore. (R1 International Pte Ltd v. Lonstroff AG [2014] SGHC 69.) The Dispute R1 International ( R1 ), a Singaporean company, sold five separate orders of natural rubber to Lonstroff AG ( Lonstroff ), a Swiss company. In connection with each order, R1 sent Lonstroff a sales contract providing for arbitration, but Lonstroff did not sign any of the contracts. Lonstroff complained about the second order, alleging the rubber was unsuitable. The parties failed to resolve the dispute, and Lonstroff filed suit in Switzerland. A few months later, R1 attempted to commence arbitration in Singapore, contending the parties were bound by a clause in the sales contract providing for arbitration in Singapore. R1 obtained an interim anti-suit injunction from the Singaporean courts prohibiting Lonstroff from pursuing the Swiss action. Lonstroff then applied to the High Court to discharge the interim injunction, and R1 applied to make the injunction permanent. The Decision The High Court heard the parties applications together. Justice Prakash addressed the threshold issue of whether the parties had even agreed to arbitrate, given that Lonstroff never signed the written sales contract containing an arbitration clause and R1 sent the written contract to Lonstroff four days after the second order had already been delivered to and accepted by Lonstroff. R1 had argued that the parties incorporated an arbitration clause into their agreement by trade custom or, alternatively, by course of dealing. Justice Prakash rejected both arguments and held that the contract for the second order did not contain an arbitration clause. She therefore discharged the interim anti-suit injunction. In light of her decision, Justice Prakash recognized it was not strictly necessary to consider the court s power to grant a permanent anti-suit injunction in aid of international arbitration. Nevertheless, because both sides had argued this issue and because it could have important significance in future cases, she provided her views. While Sections 12 and 12A of the Singapore International Arbitration Act ( IAA ) grant courts the power to issue temporary anti-suit injunctions, without regard to whether an arbitration is seated inside or outside Singapore, Justice Prakash observed that those sections do not give courts the power to issue permanent anti-suit injunctions. Nevertheless, Section 4(10) of the Singapore Civil Law Act ( CLA ) grants courts broad injunctive powers that can be exercised to restrain permanently parties from pursuing foreign proceedings in deference to local proceedings. Issue

22 Justice Prakash reasoned that such local proceedings include arbitrations as well as court proceedings. Furthermore, the broad powers granted by Section 4(10) of the CLA are not displaced or limited by Sections 12 and 12A of the IAA. Implications Justice Prakash constrained her opinion to conclude only that Singaporean courts may grant permanent anti-suit injunctions in aid of international arbitrations seated in Singapore. She declined to provide a conclusive view as to whether Singaporean courts could grant permanent injunctive relief in aid of foreign-seated arbitrations, but she expressed a tentative view that they could. The decision in this case provides practitioners with a clear and well-reasoned perspective on how the Singaporean courts may decide these issues, when they are squarely presented. Justice Prakash s views are arbitration-friendly and, if followed, could help to reduce inefficiency (and gamesmanship) incident to parallel proceedings. THE UNCITRAL RULES ON TRANSPARENCY IN TREATY- BASED INVESTOR-STATE ARBITRATION On 1 April 2014, the United Nations Commission on International Trade Law (UNCITRAL) Rules on Transparency in Treaty-based Investor-State Arbitration ( the Transparency Rules ) came into effect. The Transparency Rules have been drafted as a stand-alone instrument available for use in all investor-state arbitrations and, in some cases, their application is mandatory. As such, parties involved in investor-state arbitrations are likely to come into increasing contact with them. To place them in context, the Transparency Rules form part of the attempt to fend off the increasing criticism, particularly from NGOs, leveled against the perceived clandestine nature of treaty-based investor-state arbitration. Presently, the Transparency Rules apply mandatorily only in a limited class of investor-state arbitrations. These are UNCITRAL arbitrations initiated pursuant to treaties concluded on or after 1 April 2014, unless the parties to the treaty have agreed otherwise. For UNCITRAL arbitrations commenced under treaties concluded before that time, the Transparency Rules only apply if the parties to the arbitration so agree, or if the State parties to the relevant treaty have agreed to their application. However, the class of investor-state arbitrations in which the Transparency Rules will apply is likely to increase. On 10 July 2014, UNCITRAL approved a draft convention, the purpose of which will be to provide a mechanism for the mandatory application of the Transparency Rules to investor-state arbitrations arising under treaties concluded before 1 April The Transparency Rules would thereby apply to investor-state arbitrations arising under existing investment treaties concluded between State parties which are signatories to the convention, including to Issue

23 arbitrations not governed by the UNCITRAL Arbitration Rules. It will therefore be of great significance if this convention is adopted by the United Nations General Assembly and individual States in due course. The Transparency Rules impose various duties on the parties and the arbitral tribunal. They also establish a new repository of published information, which will receive documents during the course of the arbitration. The repository is the Transparency Registry at the United Nations in Vienna. The repository must make basic facts about the arbitration available promptly. At the outset of the arbitration, the parties are to provide a copy of the notice of the arbitration to the repository. However, at this stage of the proceedings, neither the parties nor the repository is required to make the actual notice of arbitration publicly available. In respect of the arbitral tribunal, the Transparency Rules impose disclosure duties concerning documents, submissions by third persons and non-disputing parties to the treaty, and the conduct of the hearing. In terms of documents, the arbitral tribunal must provide key documents created in the course of the arbitration to the repository, including the notice of arbitration, the response to the notice of arbitration, the statement of claim, the statement of defense, written submissions, transcripts of hearings, and any orders, decisions and awards the tribunal makes. In addition, the arbitral tribunal must disclose expert reports and witness statements (but not any exhibits to these documents) if a person requests them from the arbitral tribunal. Finally, upon the request of a person, or even upon its own volition, the arbitral tribunal may consult with the disputing parties, and then decide whether to place in the public domain exhibits and any other documents which themselves are not subject to the automatic or mandatory disclosure provisions. The tribunal may either make any such documents available at a specified site, or provide them to the repository. These disclosure requirements are subject to various exceptions, which seek to prevent disclosure to the public of confidential or protected information, and to protect the security interests of States, as well as the integrity of the arbitral process. The arbitral tribunal is empowered in specific circumstances to accept written submissions from a third person who is not a signatory party to the treaty pursuant to which the arbitration was initiated (e.g., an amicus curiae). In deciding whether to grant permission, the arbitral tribunal must take into account various factors, including any significant interest the third person has in the arbitral proceedings and the assistance the submission would afford in bringing a perspective, particular knowledge or insight that is different from the disputing parties. The arbitral tribunal must ensure that the third party s submission is not disruptive or unduly burdensome to the conduct of the arbitration, nor unfairly prejudicial to any disputing party. The arbitral tribunal must also provide the disputing parties with a reasonable opportunity to respond to the third party s submission. In addition, the arbitral tribunal must accept written or oral submissions from non-disputing parties to the treaty pursuant to which the arbitration was initiated in relation to issues of treaty interpretation, but only after consultation with the disputing parties, and only to the extent that any such submissions are not disruptive to or unduly burdensome on the proceedings, nor unfairly prejudicial Issue

24 to any disputing party. Further, the arbitral tribunal may accept written or oral submissions by non-disputing parties on other matters falling within the scope of the arbitration. In deciding whether to accept such submissions, the arbitral tribunal must take the same factors into account in respect of prospective submissions by third parties. In addition, the tribunal must pay due regard to the need to avoid accepting submissions offered in support of the investor s claim, where doing so would be tantamount to affording diplomatic protection to the investor. If any submissions by a non-disputing party are accepted, then the arbitral tribunal must ensure that the disputing parties to the arbitration are given a reasonable opportunity to respond to those submissions. The arbitral tribunal must also ensure the conduct of the hearing conforms to the requirements imposed by the Transparency Rules. The default position is that the arbitral tribunal will hold hearings in public. However, all or part of a hearing may be held in private if there is a need to protect confidential information or the integrity of the arbitral process, or where it is necessary to do so for logistical reasons. Finally, the Transparency Rules preempt three situations where a conflict might arise between the Transparency Rules and other provisions relevant to the arbitration. These other provisions include the applicable arbitration rules, the treaty pursuant to which the arbitration was initiated, and non-derogable laws applicable to the arbitration. Broadly, in the event of a conflict or inconsistency arising in respect of these three categories, the Transparency Rules prevail over the applicable arbitration rules, but are trumped by the relevant treaty provisions and non-derogable laws applicable to the arbitration. Whilst not yet tested fully in practice, the existing framework of arbitration rules generally applying to investor-state arbitrations should be capable of being readily used in conjunction with the Transparency Rules. Issue

25 EXXONMOBIL IS AWARDED COMPENSATION FOR VENEZUELAN NATIONALIZATIONS Five affiliates of ExxonMobil Venezuela Holdings B.V. (a Netherlands company), Mobil Cerro Negro Holdings Ltd and Mobil Venezolana de Petróleos Holdings Inc. (Delaware companies), Mobil Cerro Negro Ltd and Mobil Venezolana de Petróleos Inc (Bahamas companies) (together, the Claimants ) brought arbitration proceedings in 2007 under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States 1965 ( ICSID Convention ) against the Bolivarian Republic of Venezuela ( Venezuela ) claiming a violation of the Netherlands-Venezuela bilateral investment treaty (the BIT ). Issue

26 The dispute arose out of the imposition by Venezuela of a new oil and gas regime during the presidency of Hugo Chavez. The Claimants argued that the new regime amounted to an expropriation of their investments in two major oil projects in Venezuela Cerro Negro and La Ceiba. In particular, Venezuela had decreed the nationalization of these projects in February The Claimants also invoked a breach of the fair and equitable standard in the BIT due to production and export curtailments imposed on the Cerro Negro project prior to its expropriation. The Award of Damages The Tribunal rendered an award on 9 October 2014, granting US $ 1.4 billion in compensation to the Claimants for (i) the production and export curtailments imposed on the Cerro Negro project, (ii) expropriation of the Cerro Negro project and (iii) expropriation of the La Ceiba project. With regard to the first head of claim, the Tribunal held that certain production and export curtailments imposed by Venezuela on the Cerro Negro Project had breached the fair and equitable standard in the BIT. The Tribunal found that the curtailments imposed from November 2006 were contrary to the project s Framework of Conditions, which had been approved by the Venezuelan Congress. Those measures were therefore incompatible with the Claimants reasonable and legitimate expectations of protection of their investments. The Tribunal distinguished these wrongful curtailments from certain other early measures that were not in breach of the BIT. The Tribunal s assessment of damages under this head aimed to determine the benefit the Claimants would have obtained from production, export and sale of synthetic crude oil but for the unlawful curtailment measures. The Tribunal first determined the impact of these measures in terms of the number of barrels the Claimants would have been able to sell. It then applied the relevant oil prices, as submitted by the Claimants expert, between October 2006 to March The Tribunal added to this the impact on co-production sales. The Tribunal then reduced the resulting balance by deducting production costs, taxes (science and technology tax, drug and alcohol tax, export registration contribution), co-production royalties, capital expenses extraction tax and income tax for 2006 and The Tribunal determined the damages resulting from production and export curtailments at US $ 9,042,482. With regard to the claims for expropriation of Cerro Negro and La Ceiba, the Claimants alleged that Venezuela s nationalization of the projects was unlawful due to Venezuela s failure to pay compensation to the Claimants. The Tribunal, however, took a different view. It held that the mere fact that an investor has not received compensation does not in itself render an expropriation unlawful. An offer of compensation may have been made to the investor and, in such a case, the legality of the expropriation will depend on the terms of that offer... A tribunal must consider the facts of the case. Likewise the lack of agreement on the amount of compensation in such a case also did not render the expropriation unlawful. In this case, Venezuela had made a proposal of compensation, but neither party disclosed the amount. The Tribunal noted that [i]t was the Claimants burden to prove their allegations concerning the position taken by Venezuela during the discussions regarding the compensation to be paid. It found that the evidence did not demonstrate that Venezuela s proposals were incompatible with the requirement of just compensation in Article 6(c) of the BIT. The parties disagreement on the amount of compensation did mean, however, that the Tribunal had to determine the amount itself based on expert evidence. It held the BIT s provision for just compensation to require the determination and payment of fair market value for the expropriated investments. The Tribunal first considered the expropriation of the Cerro Negro project. The parties agreed to use a Discounted Cash Flow ( DCF ) method (i.e., discounting future free cash projections) to assess the net present value of the Claimants investment, but did not agree on the cash flow inputs and the rate of discount. The Tribunal determined that the valuation date was crucial for the calculation, as oil market prices increased in the years following the nationalization. The Tribunal established 27 June 2007, which was the date on which the expropriation took effect, four months following the relevant decree, to be the valuation date. It relied on market prices for oil when calculating the fair market value compensation. Given that the expropriation had not been unlawful, the valuation did not fully reflect the significantly higher post-2007 market oil prices. Additionally, the Tribunal considered evidence on projected production volumes and oil price forecasts as of June With respect to whether confiscation risks should be considered in calculating discount rates, the Tribunal accepted that the general risk of confiscation was relevant to the discount rate. The Tribunal established the value of the Cerro Negro Project at US $ 1,411.7 million. Issue

27 The Tribunal next valued the La Ceiba project. As this project was in an early phase of development, the Tribunal did not view the DCF method as appropriate, and instead sought to determine fair market value by other means. The other investor in La Ceiba, Petro Canada, had accepted compensation of US $ 75 million, but the Tribunal did not accept this as the right amount of compensation either. It found that Petro Canada was not a willing seller, under no pressure to sell as required by the fair market value standard, but instead had accepted to sell on the last day before the deadline. The Tribunal instead established market value at the total... investment in that Project, i.e. US $ million. have been reasonable. Finally, parties contemplating investor-state arbitration claims should take note of the Award s discussion and conclusion on the applicable discount rate purporting to reflect the risk to investment. Prevention of Double Recovery In December 2011, one of the Claimants, Mobil Cerro Negro Ltd., obtained a favorable ICC award against Petróleos de Venezuela S.A. and one of its subsidiaries (together, PDVSA ) on the basis that the 2007 production and export curtailments and the subsequent nationalization of the Cerro Negro Project breached the parties Association Agreement. The ICC Tribunal awarded US$ 747 million plus post-award interest. It was not disputed that PDVSA had paid the awarded amount to Mobil Cerro Negro Ltd. In the ICSID proceeding, Venezuela argued that the Claimants would obtain double recovery if awarded compensation. In its Award, the ICSID Tribunal took note of Mobil Cerro Negro Ltd. s commitment in the Association Agreement to reimburse PDVSA for any sums recovered in the ICSID proceeding as compensation for the 2007 curtailments and the nationalization of the Cerro Negro Project. The Tribunal also noted that the Claimants had expressly stated their readiness to make the required reimbursement to PDVSA. The Tribunal stated that, although the Claimants commitment was based on a contractual obligation that is foreign to the present case, the Tribunal has not reason to doubt the Claimants representation. Given the existence of overlapping claims in the ICC and ICSID proceedings, it was appropriate to avoid any double recovery. The Tribunal did not, however, reduce the amount of compensation it awarded, but instead left the reimbursement to be performed by the relevant parties. By way of general conclusion, the ICSID Tribunal s Award illustrates tribunals comfort using the DCF method to value investments that qualify as going concerns. It also illustrates the continued view of investor-state tribunals that the DCF method should not be applied to projects that do not yet have a proven record of profit, even if certain assumptions on profit might Issue

28 THE GROUP OF COMPANIES DOCTRINE IN GERMANY Pursuant to the group of companies doctrine, a third party non-signatory to a contract containing an arbitration clause can be held to be bound by it, particularly in circumstances where the non-signatory party has participated in the conclusion and performance of the contract. Primarily, the doctrine has been used to extend a tribunal s jurisdiction to nonsignatory companies of the corporate group to which the signatory company belongs. The doctrine has been welcomed by French courts, but vehemently rejected in England. In May 2014, the German Federal Court of Justice (Bundesgerichtshof) issued a decision considering, among other things, the role of the doctrine in German law, which is likely to reignite debate (German Federal Court of Justice, 8 May 2014, Case ref no. III ZR 371/12). The case concerned a Danish registered claimant and an Indian registered respondent. Each party produced casings for electrical equipment. The director general and sole shareholder of the claimant owned a patent to a threedimensional frame design. In 1999, another company, which belonged to the group of companies controlled by the claimant s sole shareholder and was represented by him, entered into a license agreement with the respondent in relation to the new design. The license agreement expired in 2008 and contained an arbitration clause in favor of ICC arbitration in New Delhi. A dispute between the parties arose as to whether the respondent violated the patents by presenting certain casings covered by the patent during a fair in Hanover in 2010 (i.e., after expiry of the license agreement). The claimant initiated court proceedings against the respondent, basing its right to sue on an assignment and litigation authorization declaration given by the patent owner. The respondent raised a jurisdictional objection, claiming that the claimant was bound by the arbitration clause contained in the license agreement. Decision of the Court Setting aside the decision of the Court of Appeals, the German Federal Court made three key findings. First, under German law, the question of whether third parties are bound by an arbitration agreement is governed by the law applicable to the arbitration agreement, at least when the third party itself concluded the arbitration agreement acting as the legal representative of the formal party to the arbitration agreement. Second, in such circumstances, the application of the group of companies doctrine pursuant to a foreign law would not be a violation of the German ordre public. Third, the question of whether an assignee is bound by an arbitration agreement entered into by the assignor is governed by the law applicable to the arbitration agreement, and the written form requirement pursuant to Article II of the New York Convention cannot be invoked by the third party to avoid an arbitration agreement it would otherwise be bound by under the applicable law. Application of the group of companies doctrine In order to decide whether the claimant was bound by the arbitration clause contained in the license agreement, the court first had to decide whether the patent owner, at the same time director general and sole shareholder of the claimant and representative of the company that entered into the license agreement, was bound by the arbitration agreement. According to the German Federal Court, this question must be decided according Issue