Global International Arbitration Update

In arbitration, the main elements are enquiry, hearing of parties, examination of evidence and adjudication of the dispute. Enforcement of an arbitral award is essential. Once the award is given by the Arbitral Tribunal, a party is required to enforce the award in the enforcement court. The courts across the globe have denied enforcement on various grounds. Therefore, the parties dealing with international business houses shall observe the trend followed by various courts across jurisdictions with regard to the enforcement of arbitral award. This newsletter covers the latest arbitration related judgments of different courts in various jurisdictions.

A Serious Irregularity can be a basis for Remission of Arbitral Award: Hong Kong Court

In the matter of P v. M [2018] HK1CFI 2280, the High Court of Hong Kong ordered remission of arbitral award which was passed by the tribunal on the basis of serious irregularity. The parties had entered into a contract which had an arbitration clause. The contract had a clause which said that the claimant has to serve a notice to the other party as a condition precedent to file for a claim. M had sent a letter and an email to P stating the liabilities of P. M invoked the arbitration clause. P objected to the arbitral proceedings as no prior notice was received. M claimed that there was no need for a notice to be served and was granted an award. This was challenged by P stating that the proceedings conducted in arbitration were of serious irregularity and not according to the procedure which was mutually decided by both the parties. P argued that there was no service of a notice which was a condition precedent and a serious irregularity in the arbitration proceedings had taken place as he was not given a fair opportunity to present his case and that it was an unfair arbitration. M argued that there was no need for a service of notice and that P had made statements in the arbitral proceedings and hence was given a fair chance to present his case. The court after hearing both the sides remitted the award on the basis that the procedure followed in the arbitration was not agreed by them. They agreed to follow the procedure under the rules and the contract. The contract provided for service of a notice before a claim is made. As M did not mention the notice in its statements, the tribunal should have believed that no notice is served and should not have passed the award. This was considered as a serious irregularity.

Our Comments:

Arbitration is a creation of parties consent. The Hong Kong High Court was correct in recognizing that not following the agreed pre requisite for initiation of arbitration is a serious irregularity. Enforcement of such award will be against the agreement of the parties which mandated them to file a notice before initiating arbitral proceedings.

Interim Injunction can be granted to Non-Parties in Arbitration: Hong Kong Court

In Company A and Ors. v. Company B and Ors. [2018] HKCU 3575, the High Court of Hong Kong ordered an interim injunction against a non-party to the arbitration. The plaintiffs and the defendants entered into a milestone contract for the transfer of R Co shares. R Co held majority of the Thai Co shares. Some payments were pending from the 1st and 2nd defendant which was disputed through arbitration. The plaintiffs after learning that the defendants are seeking to sell the R Co shares, sought for an interim injunction from the court, which was granted. The defendants after the interim injunction transferred the Thai Co shares to Mr. Y at an undervalued price. The plaintiffs further sought injunction against Mr. Y, who is a non-party to the arbitration and that a receivership be granted until the case is pending. The defendants stated that Sec. 45 of Arbiration Ordinance (Cap 609) which empowers the Court to order interim injunction in an arbitration does not allow the Court to pass an order against non-parties. The issue was whether the court can order interim injunction to a non-party of the arbitration. The Defendant No. 3 (non-party to arbitration) relied on few cases of England Court to state that the Court has no jurisdiction against third parties. The Court held that the powers conferred under Section 45 of the Arbitration Ordinance (AO) are wider than Section 44 of the Arbitration Act, 1996 (England). The power under AO is not limited as it is under Section 44 of the Arbitration Act, 1996. So the court can order interim injunction against non-parties to the arbitration.

Remedies against third parties is one such consideration which parties should consider while opting seat of arbitration. The Indian courts have also recognized that interim measures against third parties can be granted. Such recognition is essential as no remedy against third parties may discourage parties to choose arbitration as a mode of dispute resolution.

Tribunal’s non-disclosure of central point to arbitral award becomes a ground for setting aside: English Court

The English High Court in the case of RJ and another v HB [2018] EWHC 2833 (Comm) set aside an arbitral award on the ground of serious irregularity. The parties had entered into various agreements wherein HB agreed to transfer shares in a bank to RJ for a consideration of US$75 million. There was no share transfer and HB alleged that RJ and RJ’s corporate vehicle (L Ltd) had failed to take steps to obtain the regulatory approval required to accept the transfer. As a consequence, HB brought arbitration proceedings against RJ and L Ltd, seeking to force RJ to take required steps towards effecting the agreed share transfer. The arbitrator invited the parties to settle their disputes. The parties were unable to settle their disputes. Pursuant to which, the arbitrator passed the final award declaring that RJ was the beneficial owner of the bank shares HB had purchased. RJ made a setting aside application to the English Court on the basis of serious irregularity. It argued that such relief was never claimed by any of the parties and neither the tribunal raised such share ownership structure during the course of arbitral proceedings. As a consequence, neither of the parties were given the opportunity to make their submission on this. The Court set aside the arbitral award stating that arbitrators should request parties’ views when introducing a novel point in a dispute.

Our Comments:

This judgment signifies the conduct of an arbitral tribinal and specifically lays importance to the fact that the tribunal shall consider parties submission while making any new point in the award. Allowing new points in the arbitral award will cause substantial injustice since the parties will be deprive of their right to present the case.

ICC standard arbitration clause held invalid: Russian Court

The Russian Supreme Court in N A40-176466/2017 refused the enforcement of an arbitral award on the ground that it violates the public policy and the standard arbitration clause in the contract is invalid as it failed to provide for a specific arbitration court. The dispute arose between the parties on the grounds of the Respondent’s improper performance under a contract. The contract contained the standard arbitration clause of the ICC. The tribunal issued an award in favour of the Claimant for the recovery of EUR 3.6 m plus interest. The Claimant approached the Russian court for the enforcement of the award. The Russian courts disallowed enforcement stating that the Respondent had been in insolvency, reached a settlement with its creditors and was supposed to pay the debts in instalments. The enforcement of the award would prejudice other creditors, therefore, it violates the Russian public policy. The other reason for refusing enforcement was that the arbitration clause failed to provide for specific arbitration court and therefore is uncertain.

Our Comments:

This judgment is important for those who are dealing with Russian parties. It is advisable to amend the recommended standard arbitration clauses of any arbitral institution to make it clear that any disputes are to be referred to arbitration, administered by the named arbitration institution in accordance with its rules.

Arbitration Clause in FIFA and UEFA Agreements held inapplicable: Brussels Court

RFC Seraing Football Club and Doyen Sports Investment Limited had an agreement with FIFA and UEFA. The agreement provided for an arbitration clause. A ban was put on Third-Party Ownership by the football associations. This ban was challenged by the Football Club and Doyen Sports in a Belgian Court against FIFA, EUFA and Belgian Football Association. The respondents challenged this in the Brussels Court of Appeal saying that the agreement had an arbitration clause and matters relating to the agreement cannot be challenged in Courts. The plaintiffs argues that the Belgian Code of Civil Procedure provides that arbitration can referred only on clauses which defined legal relationship and delimit the scope of potential dispute between the parties. The respondents replied that the clause applied to activities and corporate purposes of FIFA and UEFA and that reference to CAS limits the scope to sports litigation. The Court dismissed the appeal and said that cases cannot be referred to CAS for arbitration as ‘activities and corporate purposes’ does not define legal relationship and that matters being referred to CAS does not define scope as CAS can at any time amend its own by-laws. The Court found that the arbitration clause in FIFA and UEFA agreements are inapplicable.

Our Comments:

This judgment may open the gates for players challenging the awards delivered by the Court of Arbitration of Sports (‘CAS’). However, the International Council of Arbitration for Sport issued a noted on 12 September 2018 concluding that the risk that a national court does not recognize CAS arbitration or does not enforce a CAS award is very limited.