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Recent international arbitration developments




Dubai new Arbitration Law and Rules enhance appeal of DIFC arbitration


On 1 September 2008, the DIFC issued a new Arbitration Law (DIFC Law No. 1 of 2008). The enactment of this new law, together with the establishment of the DIFC-LCIA Arbitration Centre in February 2008, significantly enhances the DIFC as a venue for resolving international commercial disputes. In particular, the requirement in the old arbitration law for disputes to have a DIFC connection has been removed. DIFC arbitration is therefore now open to parties, wherever they are based.

The DIFC-LCIA Centre has also published its own arbitration rules, closely based on the widely used LCIA Arbitration Rules. The Rules set out how the arbitration will be conducted. For example, they include provisions on the appointment of the tribunal and the language of the arbitration proceedings (in the absence of agreement on this point, the Rules provide that the language of the arbitration clause will be the language of the arbitration).

DIFC-LCIA arbitration awards can be enforced internationally under the New York Convention (the UAE acceded to the New York Convention in 2006). Further, a DIFC Court judgment can be obtained on a DIFC-LCIA arbitration award. That judgment can, under arrangements already in place, be converted into a judgment of the Dubai Courts which will be enforceable regionally under the Riyadh Convention for Judicial Cooperation. If enforcement proceedings are likely to be brought in the Middle East region, this will be a key advantage in opting for DIFC-LCIA arbitration.

Recent developments have therefore significantly enhanced the reach and appeal of DIFC-LCIA arbitration. DIFC now offers an arbitration law based closely on the UNCITRAL model law, an arbitration centre associated with the highly regarded LCIA, an independent, common law style court system and a location within a Middle Eastern state which is a signatory to the New York Convention.


New HKIAC Arbitration Rules introduced


On 1 September 2008, the HKIAC introduced its new "Administered Arbitration Rules" (the "New Rules").

Prior to the introduction of the New Rules, HKIAC arbitrations were generally conducted in accordance with the UNCITRAL Rules, supplemented by the HKIAC Procedures for the Administration of International Arbitration (the "Procedures"), which largely dealt with logistical issues. The New Rules, which are available on the HKIA's website, represent a departure from this regime in that they are a standalone set of rules. Interestingly, they were strongly influenced by the Swiss Rules which are derived from the UNCITRAL Rules. This illustrates the HKIAC's decision to adopt a "light touch" institutional approach (with a view, amongst other things, to keeping fees low), rather than follow the model of more intensive institutional involvement favoured by (for example) SIAC, the ICC and CIETAC.

The transitional provisions are set out in Article 1 of the New Rules. This provides that the New Rules will apply (unless the parties have agreed otherwise and irrespective of the date of the arbitration agreement) to any arbitrations initiated pursuant to an arbitration clause which specifically refers to the New Rules, provides for arbitration "administered by the HKIAC" or contains words to the same effect.

The New Rules also provide that they supersede the Procedures save where the parties agreed before 1 September 2008 to adopt the Procedures. The position in relation to arbitration agreements which provide for UNCITRAL Rules arbitration administered by the HKIAC is therefore somewhat complex:

  • where the arbitration agreement was entered into before 1 September 2008, the Procedures will apply;
  • where, however, the arbitration agreement is dated after 1 September 2008, the New Rules provide that the HKIAC shall be the appointing authority and shall "invite" the parties to agree to the application of the New Rules (without specifying what will happen if the parties decline that invitation).

Whilst it of course remains possible to provide for arbitration pursuant to the UNCITRAL Rules with the HKIAC as the appointing authority, it is therefore unclear whether the compromise option of UNCITRAL Rules arbitration administered by the HKIAC (without the application of the New Rules) remains available. Parties drafting HKIAC arbitration clauses would therefore be well advised to be clear as to whether they are seeking to achieve: (i) arbitration conducted pursuant to the New Rules and administered by the HKIAC; or (ii) UNCITRAL Rules arbitration with the HKIAC as the appointing authority.


Singapore arbitration clause providing for ICC Rules arbitration administered by SIAC upheld


In the recent case of Insigma v Alstom, the Singaporean Courts upheld an arbitration agreement providing for disputes to be "resolved by arbitration before the Singapore International Arbitration Centre in accordance with the Rules of Arbitration of the International Chamber of Commerce".

Alstom initially commenced an ICC arbitration. Insigma disputed the ICC's jurisdiction, arguing that the arbitration agreement required disputes to be resolved by arbitration before SIAC conducted in accordance with the ICC Rules. Alstom subsequently withdrew the ICC arbitration and started a SIAC arbitration. Both parties nominated arbitrators and the two party nominated arbitrators in turn nominated the Chairman of the Tribunal, with all three nominations confirmed by SIAC.

Insigma applied to the tribunal challenging its jurisdiction. Before rendering its decision, the tribunal asked SIAC if it would be prepared to administer the arbitration in accordance with the ICC Rules and, if it was, which bodies within the SIAC would fulfil the roles assumed by the various ICC bodies. SIAC confirmed that it was and that the roles performed by the ICC Secretariat, the ICC Secretary General and the ICC Court would be assumed by the SIAC Secretariat, the SIAC Registrar and the SIAC Board of Directors respectively.

The tribunal held that the arbitration agreement provided for SIAC to administer the arbitration and for the arbitration to be conducted pursuant to the ICC Rules, and that the arbitration agreement was valid, enforceable and capable of being performed. It also rejected Insigma's contention that the tribunal was constituted pursuant to the SIAC Rules rather than the ICC Rules, noting that only the confirmation of the tribunal was made with reference to the SIAC Rules and that this had no practical impact on the constitution of the tribunal.

The Singaporean Court similarly rejected Insigma's challenge to the validity of the arbitration agreement and the constitution of the tribunal. In doing so, it rejected Insigma's arguments that the arbitration agreement was a "disastrous compromise" or was inoperable because the ICC Rules have many unique features which cannot be implemented by any institution other than the ICC. The Court noted that the parties undoubtedly intended to resolve disputes by arbitration and that there is no objection in principle to parties agreeing that one institution should administer an arbitration conducted in accordance with another's rules. It stressed, however, that great care must be taken to avoid an inconsistency between the rules and the institution which could render the arbitration agreement inoperative (and noted, by way of example, that an arbitration clause which provided for ICC administered arbitration pursuant to the UNCITRAL Rules would be of doubtful efficacy). Moreover, the Court held that Insigma could not in good faith dispute the jurisdiction of the tribunal, given that it had been constituted in accordance with the proposal Insigma put forward in its answer in the initial ICC arbitration.

Despite the result in this case, we would ordinarily advise against parties mixing different institutions and rules in their arbitration clauses. There is no guarantee that the approach adopted by the Singaporean Courts would be adopted elsewhere and such clauses often lead to expensive and time consuming multiple proceedings (as occurred in this case). (Insigma Technology Co. Ltd v Alstom Technology Ltd, [2008] SGHC 134)


ICSID Tribunal in Plama v Bulgaria finds no ECT protection for fraudulent investors


A tribunal of distinguished arbitrators, sitting under the auspices of the International Centre for the Settlement of Investment Disputes ("ICSID"), recently dismissed all the claims brought by Plama Consortium Limited ("Plama") against Bulgaria under the Energy Charter Treaty ("ECT"). The tribunal found that the investor obtained its investment through misrepresentation, which the tribunal held to preclude relief under the ECT.

This case is significant as it provides guidance for investors who are contemplating bringing a claim under the ECT. Only four awards have been published in ECT cases to date, but with the large number of states party to the ECT and the proliferation of energy disputes, the number of claims is expected to rise. Already, fourteen cases are known to be currently pending.

The case was brought by Plama, a company registered in Cyprus but owned indirectly by a French individual. In December 1998, Plama purchased an insolvent refinery company, Nova Plama, in Bulgaria, with the consent of the Bulgarian Privatization Agency. After Plama purchased the refinery, it resumed operations for a matter of months, before falling back into insolvency and terminating operations.

Plama initiated arbitration at ICSID claiming that Bulgaria had caused the revival of Nova Plama to fail. It brought its claim under Article 10(1) of the ECT, which provides for the promotion, protection and treatment of investments: in particular, it obliges a State to create "stable, equitable, favourable and transparent conditions" for an investment, to provide "fair and equitable treatment" and to provide "constant protection and security".

In its defence Bulgaria alleged that:

  1. Plama had no activities in Cyprus and its owners were not nationals of a party to the ECT, which meant that Bulgaria could deny Plama ECT protection;
  2. Plama had obtained the consent from the Bulgarian Privatization Agency through misrepresentation which caused its investment to be void from the outset and thus not an "investment" protected under the ECT; and
  3. Bulgaria had in fact not breached its Article 10 obligations.

As regards Bulgaria's first point, the tribunal concluded that Plama was ultimately owned by a French individual. As France is a party to the ECT, it therefore held that Bulgaria could not deny protection to Plama.

On Bulgaria's second point, the tribunal found that Plama had misrepresented itself to the Privatization Agency when the parties had negotiated the approval of the investment. Plama had held itself out to be a consortium of the firms which had been involved at an earlier stage. The Privatization Agency had clearly attached importance to the technical and financial capacity of the consortium members and Plama had done nothing to correct the Agency's misapprehension. The tribunal took the view that granting the protection of the ECT to Plama under these circumstances would be contrary not only to Bulgarian law but also to international public policy.

In examining Plama's claims, the tribunal concluded on each point that there was no substantial wrongdoing. In its analysis of the Article 10 protections, the tribunal sought extensive guidance in the published awards of investment treaty cases, including BIT and NAFTA cases. This demonstrates the importance of the existing investment arbitration jurisprudence in understanding the precise scope of the ECT, particularly since ECT jurisprudence is still in its infancy. Together with other recent cases such as AMTO v Ukraine, in which the investor also failed in its claim, these cases provide at least some guidance for investors to consider before bringing an ECT claim. (Final award in Plama Consortium Limited v Republic of Bulgaria, ICSID case No. ARB/03/24).


UK Court refuses to enforce an award because defendant was not a party to the arbitration agreement


In the recent Dallah Real Estate v Pakistan case, the High Court concluded that Pakistan was not a party to an arbitration agreement, even after an arbitral tribunal in Paris had ruled otherwise and rendered its award. This case is notable as a rare example of a refusal by the English Courts to enforce an award under the New York Convention.

In 1994, Dallah and the Government of Pakistan entered into a Memorandum of Understanding by which Dallah was to acquire land in Mecca and contract with a trust set up by the Government of Pakistan for the use of the land. Dallah and the trust, a separate legal entity, subsequently entered into the contracts for development of housing on Dallah's plot. These contracts referred disputes to ICC arbitration in Paris. The trust was established on the basis of a temporary ordinance, and the trust ceased to exist once that ordinance lapsed.

A dispute arose under the contracts between the trust and Dallah, which Dallah referred to arbitration in Paris against Pakistan. Pakistan resisted jurisdiction, insisting that it was not a party to the contracts, and refused to participate in the arbitration.

Dallah obtained an award in the arbitration and sought to enforce it in London. Pakistan resisted enforcement claiming that the arbitration agreement was invalid (one of the grounds for refusing enforcement under the New York Convention, as implemented by the English Arbitration Act).

The Court held that this provision should be construed to include the issue of whether the party against whom the award is invoked is bound by the arbitration clause.

To determine the question of whether Pakistan was party to the arbitration agreements, the Court and the tribunal applied different laws: whereas the tribunal had applied transnational law, the Court applied French law, being the law of the seat. Having considered all of the relevant factors pursuant to the applicable French law principles, Aikens J held that Pakistan was not a party to the arbitration agreement and thus refused enforcement of the award.

This judgment provides an interesting example of investors' difficulties when contracting with states or state owned entities. Parties should always seek local advice as regards the capacity of a state party to enter into commercial contracts and the applicable procedures. They should also ensure that the counterparty remains accountable for the duration of the contract. Furthermore, to reduce uncertainty as to the interpretation of an arbitration agreement, parties are advised to include where possible an express agreement on the law applicable to the arbitration agreement. (Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan [2008] EWHC 1901 (Comm)).


Hong Kong challenge proceedings dismissed


The Hong Kong Courts recently dismissed challenge proceedings brought against the chair of the tribunal in an international arbitration seated in Hong Kong between ZTE, a mainland Chinese corporation, and JSIT, a South Korean company.

The challenge was brought by ZTE and was based primarily on the assertion that the chair, Mr Philip Yang, had failed to disclose his close professional and social relationship with JSIT's counsel, Freshfields and in particular Dr Michael Moser. Mr Yang maintained that that relationship was strictly professional and social in arbitration related matters, and that he had similar relationships with virtually all of the law firms in Hong Kong which handle arbitration cases consistently.

In preparation for its application, JSIT had sent a 15 point questionnaire to Mr. Yang regarding that relationship. Mr. Yang initially refused to answer the questionnaire, citing a difference between an arbitrator's duties of disclosure in relation to independence and impartiality and a party's right to cross-examine the arbitrator, but answered it once he was ordered to appear in the court proceedings.

In rejecting JSIT's challenge to Mr Yang, Wong J applied the test of whether an "objective fair minded and informed observer who had read the relevant correspondence in context" would consider Mr Yang to be biased. She held that Mr Yang's relationship with JSIT's counsel was not a "disqualifying relationship" and that he did not have an obligation to disclose that relationship. (Jung Science Information Technology Co Ltd v ZTE Corporation HCCT 14/2008).


ECJ AG opines in West Tankers: anti-suit injunctions in support of arbitration agreements incompatible with Brussels Regulation


On 4 September 2008, the Advocate General of the European Court of Justice delivered her Opinion that anti-suit injunctions should not be brought in the Courts of an EU Member State to restrain court proceedings in another EU Member State even where they are brought apparently in breach of an arbitration agreement.

The judgment of the European Court of Justice is due to follow in a couple of months.

Herbert Smith, Asia Arbitration E-Bulletin
20 November 2008

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