Month: September 2011

Introduction

Just a few weeks ago, the International Chamber of Commerce (“ICC”) revealed its new Arbitration Rules, which will enter into force on January 1st, 2012 (the “Rules”). With the revised Rules comes the introduction of a new Emergency Arbitrator Procedure, a concept previously known to other institutional arbitration rules such as those of SCC, SIAC or AAA ICDR, yet new to the arbitral process under the rules of the ICC. The framework of the new procedure is Article 29 of the Rules, which is accompanied by Appendix V setting out the procedure for obtaining relief from an emergency arbitrator.

The Need for Pre-Arbitral Interim Relief

It is generally known that the constitution of an arbitral tribunal can take a considerable amount of time. Before the arbitral tribunal is constituted, a party seeking to apply for interim relief will usually have no option other than turn to a competent state court.

In many cases, that party will find its needs met if the court grants the relief requested and such relief can be enforced accordingly. In other cases, however, applying to a state court may not be a valid option. In some instances, it might be impossible, e.g. where the parties have validly excluded any state court jurisdiction, including the power to grant interim relief.

Yet, even when not impossible, it may prove inconvenient or otherwise undesirable for a party to apply to a state court for interim relief. Applying to a state court is arguably against the parties’ initial intention to exclude such courts from their disputes, i.e. against the very reason why they entered into an arbitration agreement in the first place. This holds true especially in cases where the parties opted for arbitration because they have a particular desire for confidentiality, or chose arbitration because the nature of their relationship calls for special expertise which a state court may not have. In other instances, the relief sought may not be available from the competent state court, which will usually be bound by its own lex fori when determining the content of interim measures. Finally, the party seeking interim relief may be unwilling to resort to the state courts in the territory of its adversary and to the laws of such state after having avoided such a situation by opting for arbitration on “neutral” terrain and under “neutral” laws. This is where the ICC’s new emergency arbitrator comes in. Pursuant to Article 29(1) of the Rules, a party in need of urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal (defined as “Emergency Measures”) may make an application for such measures pursuant to the Emergency Arbitrator Rules in Appendix V.

The Key Principles governing the New ICC Emergency Arbitrator Rules

The new ICC Emergency Arbitrator Rules can be summarized in five key principles:

The first key principle of the new emergency arbitrator rules is that they apply automatically to parties having opted to arbitrate their dispute under the ICC Rules. There are, however, specific requirements that must be met in order for the “Emergency Arbitrator Provisions” as defined in Article 29(5) of the Rules (“EAP”) to apply automatically, namely that (a) the application is submitted prior to the transmission of the file to the arbitral tribunal in terms of Article 16 of the Rules (Article 29(1) of the Rules), (b) the arbitration agreement was concluded after 1 January 2012 (Article 29(6)(a) of the Rules), (c) there is no agreement on another pre-arbitral procedure providing for similar relief (Article 29(6)(c) of the Rules), and (d) there is no agreement of the parties to opt-out of the EAP (Article 29(6)(b) of the Rules). In order to allude the parties to the latter possibility, the ICC has added a new Standard Arbitration Clause to its repertoire which includes the respective “opt-out wording”.

A second key principle is that the ICC emergency arbitrator is an additional option available to the parties to an ICC arbitration agreement which corresponds to their chosen means of dispute resolution. Article 29(7) of the Rules expressly provides that the EAP are not intended to prevent any party from seeking urgent interim or conservatory measures from a competent judicial authority. This rule applies without restriction before an application has been made for Emergency Measures and “in appropriate circumstances” even thereafter.

A third key principle is that Emergency Measures are only obtainable in cases of “true” urgency. Because it was decided to apply an opt-out system for the ICC’s emergency arbitrator, it was felt necessary in order to avoid abuse of the EAP to narrow the scope of application of such rules to situations where a measure truly cannot await the constitution of an arbitral tribunal, and to explicitly stipulate such substantive prerequisite in Article 29(1) of the Rules.

The fourth key principle is that the application of the EAP is limited to signatories to the arbitration agreement or successors thereof (Article 29(5) of the Rules). The main purposes of this limitation are to provide the responding party faced with an application for Emergency Measures with a certain degree of protection and to provide an easy substitution test for the prima facie test under Article 6 of the Rules (see Article 1(5) of Appendix V). An additional benefit is that the application of the EAP to treaty-based arbitrations is excluded.

And finally, the fifth key principle is the protection of the responding party. This principle is reflected in the fact that there is no default answer to the application for Emergency Measures within a certain short deadline, that the applicant must pay a fee for the emergency arbitrator procedure to the ICC upfront (Articles 1(3)(h), 7 of Appendix V), but also that the applicant must, as a rule, file a request for arbitration within 10 days from the application, absent which the President will terminate the emergency arbitrator proceedings (Article 1(6) of Appendix V).

The emergency arbitrator’s decision is rendered in the form of an order (the “Order”; Article 29(2) of the Rules, 6(1) of Appendix V) which is binding on the Parties and which the parties undertake to comply with (Article 29(2) of the Rules, Article 6(6) of Appendix V). The Rules and Appendix V are silent on the question of enforcement of the Emergency Arbitrator’s Order. It is submitted that the Order has the same legal nature as an order for interim measures by an arbitral tribunal under Article 28(1) of the Rules. Therefore, it should be enforceable in state courts under provisions such as Articles 17H and 17I of the UNCITRAL Model Law providing for the recognition and enforcement of interim measures granted by arbitral tribunals. Whether – applying a “substance-over-form” approach – the Order could qualify as an award so as to be enforceable under the New York Convention or national legislation based thereupon, is questionable.

Conclusion

In sum, the new Emergency Arbitrator Rules are a well-drafted, well-balanced, tailor-made solution for an emergency arbitrator procedure under the auspices of the ICC. The ICC has succeeded in drafting a tool which will further the attractiveness of ICC arbitration and which will serve the parties to ICC arbitration by effectively protecting their rights for years to come.

Dr. Christopher Boog is a partner elect in Schellenberg Wittmer in Zurich and a member of its International Arbitration Practice Group. He is a member of the Zurich bar and a graduate from the Law Schools of the Universities of Fribourg (Master of Law, with honors), Amsterdam (International Law Certificate) and Zurich, where he obtained his doctorate summa cum laude. Christopher Boog was a research fellow at Columbia Law School in New York and regularly publishes and speaks on topics of international arbitration and transnational litigation.

Democratic Republic of Congo and ors v FG Hemisphere Associates LLC

To most clients a judgment or an arbitral award is only worth the paper it is written if it can be enforced.  Enforcement of judgments and arbitration awards against States poses particular challenges. In the former context, the English Supreme Court recently provided guidance in NML Capital Ltd v Republic of Argentina [2011] UKSC 31 (“Argentina”). In the latter context, the difficulties are exemplified by the epic 3:2 decision of the Hong Kong Court of Final Appeal in Democratic Republic of Congo v FG Hemisphere Associates LLC, FACV Nos. 5, 6 & 7 of 2010 (“Congo”). Both cases saw “vulture funds” seeking to enforce a judgment or an award against a sovereign.

While the fund in Argentina drew blood, the fund in Congo drew a blank. The Hong Kong Court of Final Appeal held that a State enjoys absolute immunity from enforcement proceedings in Hong Kong.  While Congo has already enjoyed its fair share of coverage elsewhere, this brief note sets out some thoughts on what the comparative position in Singapore is, and what the practical effects of the decision are for practitioners advising clients between Singapore and Hong Kong as a potential seat of arbitration.

Facts

In 2003, an engineering company Energoinvest obtained two ICC awards against Congo. Energoinvest transferred the benefit of the awards to a US distressed debt fund, FG Hemisphere Associates. FG sought to enforce the awards in Hong Kong. Congo resisted enforcement mainly on the grounds of State immunity. One of the issues confronting the Court of Final Appeal was whether Hong Kong applied the doctrine of:

(a) absolute immunity, where the domestic courts of one State would not normally have    jurisdiction to adjudicate upon matters in which another State is named as defendant        unless there is a waiver; or

(b) restrictive immunity, which recognizes that States do not enjoy immunity from suit      when they are engaged in purely commercial transactions, and do not enjoy immunity       from execution if the relevant assets are used for a commercial purpose.

Countries such as Australia, US and the UK have adopted the latter, whereas China adheres to the former.

Despite vigorous dissents by Bokhary PJ and Mortimer NPJ which saw the former opening his judgment with characteristic flourish on judicial independence, the majority of the Court of Final Appeal (Chan PJ, Ribeiro PJ and Sir Anthony Mason NPJ) held, inter alia, that because Hong Kong could not have a doctrine of state immunity that was inconsistent with China, the doctrine of absolute immunity applied.  A foreign State is immune from suit, enforcement and execution in Hong Kong, unless waived by that State. An effective waiver is made by an unequivocal submission “in the face of the court”. Written waiver clauses, including jurisdiction clauses and arbitration agreements, do not constitute good waiver.  Because the Court of Final Appeal found no waiver by Congo, the awards in question could not be enforced.  This ruling was upheld upon referral to the Standing Committee of China’s National People’s Congress.

The same principle applies to Crown immunity, which concerns whether a State government or a State entity is able to raise immunity before its own courts. The Hong Kong Court of First Instance held that the PRC government and PRC state entities enjoy absolute Crown immunity before Hong Kong courts: Intraline Resources Sdb Bhd v The Owners of the Ship or Vessel Hua Tian Long HCAJ 59/2008.

Whither Singapore?

The Singaporean position concerning sovereign immunity is codified in the State Immunity Act (Cap 313, 1985 Rev. Ed.). The relevant provision concerning arbitration is section 11, which very simply provides as follows:

Arbitrations.

11. —(1) Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts in Singapore which relate to the arbitration.

(2) This section has effect subject to any contrary provision in the arbitration agreement and does not apply to any arbitration agreement between States.

In the second reading of the State Immunity Bill (Hansard Vol. 39, 7 Sep 1979, Col 408 – 409), the Minister said that the Bill was meant to move Singapore away from the doctrine of absolute immunity, which according to the Minister, had been the “subject to a great deal of criticism” before the UK courts and the Privy Council. The Bill deliberately mirrored the UK State Immunity Act 1978 shorn of the provisions concerning the European Convention on State Immunity.

Consequently, Section 11 of Singapore’s State Immunity Act is in pari materia with section 9 of the UK State Immunity Act 1978.  While the former has yet to see any action, section 9 of the UK Act came under scrutiny in Svenska Petroleum Exploration AB v Government of the Republic of Lithuania and anor [2006] EWCA Civ 1529 (“Svenska”).

In that case, Svenska sought to enforce an ICC award in England against Lithuania. Counsel for Lithuania argued that section 9 of the UK Act is concerned only with proceedings relating to the conduct of the arbitration itself and does not extend to proceedings to enforce any award which may result from it.  Moore-Bick LJ rejected this interpretation. His Lordship was of the view that “if a State has agreed to submit to arbitration, it has rendered itself amenable to such process as may be necessary to render the arbitration effective” and that an application for leave to enforce an award is one aspect of the recognition of an award and “is the final stage in rendering the arbitral procedure effective”.  Execution on property belonging to the State comes under section 13 of the UK Act (mirrored by section 15 of the Singapore Act), which provides that execution on property belonging to a State can only be in respect of property “which is for the time being in use or intended for use for commercial purposes”.

Moore-Bick LJ also quoted the Lord Chancellor in the course of Parliamentary debates over the relevant provision, who explicitly said that the provision was “intended to remove the immunity currently enjoyed by States from proceedings to enforce arbitration awards against them”.

The intent of the English Parliament therefore could not have been clearer. In choosing to enact the English Act as law in Singapore, the intent of the Singapore legislature is unlikely to differ.  Consequently, if a Congo situation arises in Singapore Svenska is likely to be highly persuasive. If this is accepted, this means that in Singapore, unlike Hong Kong, a foreign State is unable to claim immunity against award enforcement proceedings.  To be complete, any subsequent execution pursuant to a successful award enforcement proceeding against a foreign State can only be on State property “being in use or intended for use for commercial purpose”.

Practical implications

One thing is now clear. Practitioners dealing with State counterparties should be slow to adopt a Hong Kong court jurisdiction clause since a State enjoys absolute immunity in Hong Kong. Conversely, State parties may be attracted to Hong Kong as a safe haven to transfer their assets.

Practitioners in Hong Kong are taking pains to explain that Congo has little impact on Hong Kong’s attractiveness as a seat of arbitration. That is because the decision does not affect in any way an arbitral tribunal’s jurisdiction over a State who is party to an arbitration agreement. An arbitration award rendered anywhere in the world, be it Singapore or Hong Kong, will encounter the same hurdle concerning sovereign immunity when sought to be enforced in Hong Kong.

Would the result in Hong Kong be different if the foreign State against which an award is rendered is also party to the New York Convention? China is a signatory to the Convention, Congo is not. The Hong Kong Court of Appeal suggested that, if an award against a foreign State which is signatory to the New York Convention is sought to be enforced in Hong Kong, that may amount to an effective waiver in the form of consent given in an international treaty.

That proposition remains to be tested. It has been pointed out that the New York Convention arguably imposes upon State signatories only an obligation to recognize and enforce foreign arbitral awards — that does not ipso facto translate into a representation by signatory States that any immunity enjoyed will be waived. The drafting history of the New York Convention does not appear to suggest otherwise. The title of the Convention itself underscores this point: it is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Another open and perhaps more pertinent point concerns the status of an arbitration seated in Hong Kong involving a foreign State party. Will the Hong Kong courts enjoy supervisory jurisdiction over that arbitration?  Practitioners observe that an arbitration clause is generally accepted as an implied waiver of immunity under customary international law. That was the view of Lady Hazel Fox CMG QC in her treatise cited by the Hong Kong Court of Appeal in Congo. But until this point is tested before the Hong Kong courts, a non-State party runs the risk of not being able to seek the judicial assistance of the Hong Kong courts in aid of an arbitration against a State party seated in Hong Kong. Even if the Hong Kong courts ultimately rule on this issue affirmatively, the delay and expense that may ensue from a State party challenging the supervisory jurisdiction of the Hong Kong courts may effectively render moot any judicial measure that was being sought, particularly if such measures are time-sensitive. To that extent parties may prefer the speed and certainty Singapore provides, ceteris paribus.

Associate, Wilmer Cutler Pickering Hale & Dorr, London.  LL.B. (First), National University of Singapore, LL.M. (Int’l Business Regulation, Litigation & Arbitration), NYU. Advocate & Solicitor, Supreme Court of Singapore, Attorney & Counselor at law, State of New York.

On 26 September 2011, the Center will host a talk by Professor Jürgen Basedow, Director of the Max Planck Institute for Comparative and International Private Law and Professor of Law at the University of Hamburg, on “A Theory of Party Autonomy in the Conflict of Laws”.

A century ago, authors on both sides of the Atlantic would reject the parties’ ability to choose the law applicable to a contract. Such choice was considered to be a legislative act reserved to the state. The private persons were perceived as being governed by the law, not as determining the governing law. A hundred years later party autonomy is almost generally acknowledged as the primary method of finding the law applicable to a contract. And it is progressively recognized in further areas of the law, too: for torts, matrimonial property regimes, divorce, maintenance etc. Yet, the theoretical foundation for this fundamental change remains elusive. How is it then possible to convince the lawmakers of those countries that have not yet implemented party autonomy? A theory of party autonomy has to explain the consistency of our own law in order to convince others. Departing from a comparative survey over party autonomy in modern legislation, Professor Basedow will deal with the main objections against the freedom to elect the applicable law. He will then outline a theoretical approach that is essentially based on the origin of state and law as described by the political philosophy of the Enlightenment and that is reflected by the modern developments of human rights.

The event will take place on 26 September 2011, in Room 214, Furman Hall 900, 245 Sullivan Street, New York, NY 10012, 6.15-8.00 pm.