High Court of Singapore, DFL v. DFM, 15 March 2024

Enforceability of arbitration agreements pursuant to DIFC-LCIA Rules is at risk

This decision concerns a challenge to enforcement of a DIAC tribunal's provisional award granting a proprietary injunction over the respondent's assets.

In 2021, the Dubai International Financial Centre Arbitration Institute was abolished and the DIFC-LCIA Rules ceased to be operative by virtue of Decree 34 of 2021. In October 2021, a press release made by the DIFC noted arbitrations arising out of agreements referencing the DIFC-LCIA Rules would be administered by DIAC with the DIAC Rules, unless parties agreed otherwise.

The Court noted that the parties' submission to arbitration is purely contractual. That being the case, they cannot be compelled to submit to arbitration under a set of rules that they did not agree to. In forming this view, the Court took consideration of the significant differences between the two sets of rules. The Court quoted Gary Born, stating the express agreement on institutional rules "concern[s] the basic architecture of the arbitration and typically have a substantial impact on the arbitral proceedings".

Nevertheless, the Court dismissed the respondent's application on the basis that a jurisdictional objection was not previously raised, and it could not, therefore, rely on such a ground to challenge the enforcement of the award. The Court noted that by not raising a jurisdiction objection in its submissions, the respondent "demonstrated an unequivocal, clear and consistent intention to submit to the tribunal's jurisdiction…"

Notably, the Court of Cassation in Dubai has acknowledged an arbitration agreement may be impossible to implement if it "designates an arbitration institution or appointing authority that does not exist". See Case No. 1444 of 2022 discussed below in the Germany update.

Takeaway?

This decision is one of the first to take a stance on enforcement of a DIAC award rendered under a DIFC-LCIA arbitration clause in Singapore although, because of the facts of the case, the decision serves more as a reminder to parties that they should raise a jurisdictional objection during the proceedings and not wait until the enforcement phase to do so.

Dubai Court of Cassation, Sobha Engineering and Contracting LLC v. Emerald Palace Interior Decoration LLC, Case No. 821/2023, 5 February 2024

Tribunals presiding over Dubai seated arbitrations may not be able to award legal costs, without express agreement, notwithstanding the ICC Rules of Arbitration 2021

On 5 February 2024, the Dubai Court of Cassation upheld the earlier judgment, rendered on 21 April 2023.

In that case, the Dubai Court of Appeal partially set aside an arbitration award issued under the ICC Rules of Arbitration 2021 (the Rules). The Court of Appeal considered the tribunal had exceeded its jurisdiction by ordering the recovery of legal fees of the of successful party on the basis that it was not explicitly authorised to do so by a) the arbitration agreement; b) agreement between the parties' representatives; c) the arbitration rules.

In respect of the arbitration rules, it held article 38(1) of the Rules "do[es] not explicitly provide that the arbitral tribunal has the power to decide on the legal costs of the legal representatives”.

Takeaway?

Parties may consider adding in their ICC arbitration clauses, when the seat of arbitration is Dubai, the fact that the arbitral tribunal has competence to decide on the issue of costs, including legal fees.

French Court of Cassation, Douala International Terminal v. Port Autonome de Douala, 19 June 2024, No. 23-10.972

Arbitration & conflicts of interest

Can undisclosed close personal ties between an arbitrator and a party’s counsel lead to the annulment of an award? The French Court of Cassation addressed this question in a mediatised decision published this morning.

The case involved the Douala International Terminal (DIT) and the Port Autonome de Douala (PAD), concerning a contract for the management and operation of a terminal at the port of Douala, Cameroon. After a dispute arose, DIT, represented by Emmanuel Gaillard, initiated an ICC arbitration.

Following an unfavourable partial award, PAD sought annulment before the Paris Court of Appeal based on the alleged lack of independence and impartiality of the president of the tribunal, citing a eulogy he had published in honour of Emmanuel Gaillard (who tragically passed away in April 2021) which suggested close personal ties.

The Court annulled the award, noting in particular that although DIT argued that PAD had waived its right to challenge the arbitrator’s impartiality by not doing so earlier (despite expressing doubts during the arbitration), the eulogy’s revelations was new and significant (§10). DIT initiated a recourse against this decision before the Court of Cassation.

The Court of Cassation upheld the Court of Appeal’s decision, finding in particular that:

i.    the arbitrator has a duty to disclose any close personal or professional ties throughout the arbitration (§13),

ii.    “close” relationships requiring disclosure do not typically include academic or professional interactions unless they suggest a personal closeness beyond such contexts (§§14-15),

iii.    remarks in the eulogy, which inherently contained “a degree of emphasis and exaggeration” (“I admired and loved him”), should be interpreted as an expression of tribute to a respected figure in the field of arbitration rather than evidence of influence (§16),

iv.    other remarks contained in the eulogy, however, established a link between the close personal ties and the ongoing arbitration, as the president admitted he consulted Emmanuel Gaillard on “important choices” and that he “looked forward to hearing his formidable, razor-sharp pleadings again, where precision and insight were even more captivating than any rhetorical flourish” (§§17-18), and

v.    such ties, based on "an objective fact", could lead parties to reasonably doubt the president’s independence and impartiality, and “should have been disclosed by him to allow parties to exercise their right to challenge” (§19).

Takeaway?

This decision underlines the arbitrators’ obligation to disclose throughout the procedure any new facts which may raise doubt as to their independence and impartiality (the latest illustration being the Telecom Italia decision). It further suggests that, while mere professional and academic connections do not require disclosure, personal ties must. The arbitrators are left with the difficult task to appreciate the extent of such disclosure.

High Court of Justice of England and Wales, Mordchai Ganz v. Petronz FZE and Abraham Goren, 25 March 2024

Balancing Confidentiality and Transparency in English Court Judgments linked to Arbitration: Helpful Guidance

Facts of the Case

In Mordchai Ganz v. Petronz FZE and Abraham Goren [2024] EWHC 1011 (Comm), the English Commercial Court considered whether to publish a non-anonymised judgment linked to arbitration proceedings commenced by Mordchai Ganz against Petronz FZE and Abraham Goren.

In the judgment in question, the Court had determined challenges brought by Mr Ganz pursuant to section 67 (challenge to substantive jurisdiction) and section 68 (serious irregularity causing substantial injustice) of the English Arbitration Act 1996 to a decision by the underlying arbitral tribunal that (i) a share purchase agreement containing an arbitration agreement was not authentic, (ii) the arbitration agreement was therefore invalid, meaning (iii) the Tribunal lacked substantive jurisdiction to consider Mr Ganz's claim. Both challenges failed.  The Second Defendant Mr Goren then objected to the publication of the judgment.

Judgment and Analysis

In considering Mr Goren's application, the Court provided helpful guidance on factors to be considered when determining whether an arbitration-related judgment should be published:

• It accepted that parties may have expectations around the confidentiality of an arbitration and its subject matter – but said this needed weighing up against the public interest in publishing judgments;
• It highlighted that in addition to a broader public interest in publishing judgments to maintain transparency and confidence in the administration of justice, "arbitration is an important feature of international commercial and financial life and there is a legitimate interest in its operation and practice";
• It did not accept arguments around Mr Goren's expectation of confidentiality linked to the LCIA rules where (i) there was no valid arbitration agreement and (ii) in any event the LCIA rules do not prevent the publication of Court judgments linked to arbitration; and
• It rejected arguments around the potential for reputational damage, noting that any such damage would be due to Mr Goren's own actions.

Takeaway?

This case additionally serves as a useful reminder that arbitration parties seeking assistance from the English Courts cannot necessarily expect to maintain confidentiality over all matters dealt with in the underlying arbitration.

Regional Court Essen, 2 O 447/22, 12 April 2024

Achmea and no end?

In a recent judgment the Regional Court Essen has added another – and for sure not the last – facete to two of the most complex and long-lasting sagas in the field of investment treaty arbitration, namely the ECJ’s Achmea case law and Spain’s potential liability for the reforms of its solar industry. This time the court had to decide whether Spain could use the Achmea case law to obtain an anti-suit injunction preventing the German energy behemoth RWE from trying to enforce its EUR 28 million ECT/ICSID award against the state in the US.

The general background to the case is the same as in many of the cases against Spain. In the late 1990ies/early 2000s RWE had invested in the Spanish solar industry, as of 2013 Spain had revised its incentive schemes partly with retroactive effect, and in 2014 RWE had commenced and in 2020 won an ECT/ICSID arbitration, with the award ordering Spain to pay damages in the of EUR 28 million. However, in 2018 and 2021 the ECJ had issued its by now famous or infamous judgments in Achmea and Komstroy, finding that intra-EU investment treaty arbitrations such as the one won by RWE were incompatible with the higher-ranking principles of autonomy and effectiveness of EU law (Art. 19 TEU in connection with Artt. 267 and 344 TFEU) and could thus not be enforced within the EU.  As other investors did RWE then turned to jurisdictions outside the EU – in RWE’s case the US; other relevant jurisdictions are for example the UK and Australia – to enforce its award there. As of the time of writing, RWE’s enforcement claim is pending and so far no other award has been successfully enforced.

While the US courts have still to form a coherent position as to what (if any) consequences the Achmea case law has for the enforcement of intra-EU investment treaty awards in the US, Spain filed in 2022 its now decided claim for an anti-suit injunction in order to prevent RWE from trying to enforce its award in the US. Before the Regional Court Essen could render the judgment discussed herein, the matter spiralled into a battle for preliminary anti-suit injunctions between RWE and Spain. While RWE asked the US court for a preliminary anti-anti suit injunction ordering Spain not to pursue the action before the Regional Court Essen, Spain countered by asking the Higher Regional Court Hamm for an anti-anti-anti-suit injunction prohibiting RWE from seeking its injunction in the US. In May 2023, the Regional Court Hamm granted Spain’s request, finding that the anti-suit injunction requested by RWE would have violated the sovereignty of Germany by denying, even if only indirectly, its courts the competence to decide about their own jurisdiction.

However, the order of the Higher Regional Court Hamm turned out to be a pyrrhic victory for Spain, as the reasoning of the of the Higher Regional Court Hamm paved the way for the Regional Court’s Essen judgment to deny Spain’s application for an anti-suit injunction against RWE’s efforts to enforce the award outside the EU. In the material parts of its judgment – the case also had an interesting jurisdictional twist as the court applied by analogy the irreconcilable judgment provision enshrined in Art. 8 sec. 1 of the Brussels I Regulation (recast) to justify its jurisdiction over the Spanish RWE subsidiary that co-won the award – the court found that Spain’s claim was inadmissible and also without merits, mainly because Spain pursued an inadmissible request for legal protection.

The court started by quoting the ECJ case law that anti-suit injunctions must not be granted within the EU as they would violate the principle of mutual trust between domestic courts in the EU and the equivalency of their jurisdiction, regardless of whether the Brussels I Regulation (recast) applies or not. The court went on to explain that while these principles do not exist in relation to courts outside the EU, an anti-suit injunction would violate the principle of territoriality and state sovereignty, as it would at least indirectly interfere with the competence of the local courts to decide on their own jurisdiction. According to the court the principle of competence-competence is an essential part of state sovereignty and respecting the sovereignty of third countries is a core value of the constitutional identity of the EU. The court backed this up by a reference to the decision by the Regional Court Hamm, as it would be contradictory if German courts were to treat foreign anti-suit injunctions as a violation of the German sovereignty and at the same time issue such injunctions against proceedings before foreign courts.

The court saw no need to revise this finding in light of further principles of EU law invoked by Spain:

First, in relation to the ECJ’s Achmea case law, the court saw no conflict with the principles of autonomy and effectiveness, as RWE’s efforts to enforce the award in the US would not remove a dispute concerning the interpretation of EU law from the ECJ’s jurisdiction. Thus, the principle of effectiveness simply does not apply to enforcement proceedings before foreign courts. Furthermore even if the principle of effectiveness were affected, as argued by Spain, it would be in conflict with the EU’s objective to respect the sovereignty of third states, which was also of a constitutional character. In the court’s view, one core value of EU law cannot be enforced by breaching another core value.

Second, the court was unmoved by Spain’s further argument that the requested anti-suit injunction would be necessary to ensure compliance with Spain’s standstill obligation until the EU Commission finally decides whether compliance with the awards against Spain would be a form of prohibited state aid. The court referred to the fact that the current standstill obligation was of Spain’s own making as it could have applied for a fictitious authorisation pursuant to (Art. 4 para 6 Regulation 1589/2015) but had failed to do so.

Takeaway?

Watch this space, as this will for sure not have been the last word in the epic fight between Spain and the foreign award-holders. As the battle for enforcement has by now shifted to jurisdictions outside the EU it is to be expected that Spain will try to bring the question on the compliance of such enforcement efforts with EU law before the ECJ, be it by way of an appeal against this judgment or in other proceedings. It would then be up to the ECJ to finally decide whether a conflict between core values of EU law does exist and, if so, how this is to be resolved, or whether Spain can successfully rely on the state aid defence, on which also the EU Commission still has to decide.

Order of the High Court of Justice of Valencia, Civil Chamber, 25 March 2024

Summary

The claimant, a Latvian businessman, and the respondent, a Spanish citizen, entered into a loan agreement by which the respondent was to repay EUR 1 100 000 by 1 September 2023.

Since the respondent failed to fulfil her obligations, the claimant initiated arbitration proceedings before the Eastern European Court of Arbitration in Riga, Latvia. The sole arbitrator issued a final award on 20 October 2023 upholding the claim thus ordering the respondent to pay the principal amount plus 6% interest and legal costs.

The claimant filed a request for the exequatur (recognition/enforcement) of the Latvian arbitral award before the High Court of Justice of Valencia, Spain. The respondent opposed the recognition of the arbitral award in Spain, alleging, amongst others, the violation of the right of defence since the Court of Arbitration never gave notice of the proceedings to the respondent.

Finally, the High Court of Justice of Valencia granted the request for recognition of the Latvian arbitral award because: (i) all the requirements imposed by the applicable regulations for the recognition of an award in Spain were met; and (ii) the right of defence of the respondent was respected given that (i) the Court of arbitration did try to notify the existence of the proceedings to the respondent (with residence in Spanish territory) in  the way prescribed by the Latvian laws, (ii) the right of defence of the respondent is not violated when it is the respondent who consciously remains outside the proceedings, and (iii) the fact that the arbitration was a fast-track proceedings (45 days of length) was known by the respondent in advance.

Court decision

The High Court of Justice of Valencia addressed the issue through an analysis consisting of: (i) jurisdiction, parties and procedure to be followed; (ii) concurrence of the requirements for requesting and granting the exequatur of the arbitral award; and, (iii) rejection of the grounds for refusal invoked by the respondent, including the non-infringement of her right of defence.

I.    Jurisdiction and procedure to be followed.

In accordance with the Organic Law of the Judiciary and the Arbitration Law, the High Court of Justice of Valencia is the judicial body objectively and territorially competent to hear the application for recognition of a foreign arbitration award.

The Court began its reasoning by framing the applicable legislation to the dispute, which is the Spanish Arbitration Law, whose Article 46 subjects the exequatur procedure to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards done in New York on June 10, 1958 (hereinafter the "New York Convention"). Hence the New York Convention prevails over Spanish Law 29/2015, of July 30, on International Legal Cooperation.

II.    Requirements for granting the exequatur of the foreign arbitral award.

The requirements of the New York Convention have been met as the documents submitted by the claimant were authentic copies of the award and of the arbitration clause. In addition, they have been notarised and officially translated.

III.    Approval of the award: the respondent's rights of defence were not infringed.

The respondent opposed the recognition of the award on two grounds: the infringement of the rights of defence and the inarbitrability of the dispute, both related to Article V of the New York Convention.

• Lack of Notification.

The respondent argued that the arbitral award was issued in violation of her rights of defence since she never had knowledge of the existence of the arbitration proceedings. The respondent pointed out that: (i) no proof of receipt by her of the existence of the arbitration proceedings was provided in the exequatur proceedings; (ii) the proof of mailing provided by the claimant did not specify the sender nor certify the content; (iii) the procedural documents and the certificate of the Latvian Court of Arbitration had no validity as they did not have a stamp or letterhead; (iv) one of the notifications allegedly sent to the respondent had been sent to the claimant's address, not to the respondent's address; (v) the proceedings continued without being suspended, and the arbitral decision was issued within 45 calendar days only without ascertaining whether the respondent had received the notification.

The High Court of Justice of Valencia concluded that a default declaration in itself does not generate a lack of defence. Therefore, a possible ground for denial of exequatur cannot merely consist of the non-appearance of the respondent in the arbitration. Additionally, assessing the respondent's claims, the Court stated that the notifications were indeed sent to the Spanish address where she was registered, in accordance with Latvian Arbitration Law which allows for postal or electronic mail. Furthermore, the Arbitration Court confirmed that all documentation was sent to the respondent through judicial cooperation with Spain.

All this, combined with the unchallenged messages exchanged between the two parties in which the claimant repeatedly asked the respondent to check her mailbox for certain documents sent, led the High Court of Justice of Valencia to conclude that the respondent's inactivity was not unconscious, but rather seemed to be a strategy of passivity prolonged over time, aiming to avoid the arbitration or enforcement procedure, to later benefit from such a situation, therefore there was no violation of the respondent's right of defence.

Takeaway?

This decision provides an example of the practical implication of a non-responsive party when the notification of the proceedings has been duly performed.

Deliberate and well thought out preparation can bear fruit throughout the rest of the arbitration and, in some cases, may be able to avoid the dispute altogether.

At the preparation stage, it is important to involve all key stakeholders and to ensure that they have all bought into the process and that the strategy is agreed and is clear in everyone's mind.

It is extremely important to understand, as soon as possible, the scope and value of the claim being brought or defended as that will shape the strategy and the internal cost budget.

Clear objectives will avoid wasted time and costs and will also help to identify early on the evidence that will be required to support and/or defend the claim and whether expert evidence will be needed.

This is also the time to consider alternative methods of funding to help minimise exposure to costs.

The first CMC will be an opportunity for the parties to canvas the procedural timetable with the Tribunal.

The first CMC can also set the tone in terms of the expectations of the parties' and the tribunal and therefore it is best to have a clear strategy in place in terms of the timetable and to be ready with a 'back up plan' should the dates and deadlines put forward not be acceptable. The timetable put forward should be supported with justifications which can be aired at the CMC.

Any jurisdiction / threshold / capacity issues should be dealt with early on to avoid wasted costs.

Furthermore, consideration ought to be given as to whether it would be more efficient and cost effective to have a bifurcated arbitration, whereby some issues are dealt with at a preliminary hearing, with further submissions and a second hearing to follow only in the event of a certain outcome of the first hearing.

Whether bifurcation is practical, or indeed useful, will depend on the facts of each dispute, but where deployed effectively it can reduce time and costs as well as promoting early settlement.

Similarly, an expedited arbitration will only be appropriate in certain instances, but where this approach is adopted, it can lead to more significant up-front costs, but if used appropriately it can lead to a far shorter arbitration timetable and reduced costs.

There are a number of useful case management tools that the parties can deploy to reduce time and costs, including:

• early identification of the expert disciplines required and consider whether the parties' experts can produce early joint statements to assist with narrowing the issues in dispute. This can also help the parties know which 'battles' to pick.
• open up dialogue with legal representation on the other side of the dispute; lengthy letters can often be replaced by a short telephone call / video conference (followed up succinctly in writing as needed).
• as the parties approach the hearing, preparing a list of issues to help focus minds.
• consider whether the hearing can be held virtually, there is undoubtedly cost saving by having a virtual hearing, but depending on the number of witnesses and complexity of the issues, it may not always be as effective as an in-person hearing.

Legal teams can spend a lot of time and money assisting clients with retrospective document management. Encouraging clients to put in place document management protocols can cut out a lot of the legal leg work (and cost) if a dispute does arise.

The document production phase of an arbitration can often cost far more time and money than was originally envisaged. If the size of the data pool is significant, consider deploying tools such as TAR (technology assisted review), which is able to work out which documents are likely to be the most relevant and prioritise those so that they are quickly discovered by legal teams whether for good or bad.

Having sight of the most helpful or unhelpful documents quickly will help to shape the strategy moving forwards and avoid time and cost being wasted pursuing certain elements of the claim which are not supported by the facts and/or can be used as a tool to assist settlement discussions.

Having sight of the most helpful or unhelpful documents quickly will help to shape the strategy moving forwards and avoid time and cost being wasted pursuing certain elements of the claim which are not supported by the facts and/or can be used as a tool to assist settlement discussions. To learn more about these insights please contact Bevan Farmer or Garbriella Allin.