Tag Archive for: arbitration

A note on “The BBC Nile” in the High Court of Australia – foreign arbitration agreement and choice of law clause and Article 3(8) of the Amended Hague Rules in Australia

By Poomintr Sooksripaisarnkit

Lecturer in Maritime Law, Australian Maritime College, University of Tasmania

Introduction

On 14th February 2024, the High Court of Australia handed down its judgment in Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co KG [2024] HCA 4. The case has ramifications on whether a foreign arbitration clause (in this case, the London arbitration clause) would be null and void under the scheme of the Carriage of Goods by Sea Act 1991 (Cth) which makes effective an amended version of the International Convention on the Unification of Certain Rules of Law relating to Bills of Lading, Brussels, 25 August 1924 (the “Hague Rules”). The argument focused on the potential effect of Article 3(8) of the Amended Hague Rules, which, like the original version, provides:

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Which Law Governs Subject Matter Arbitrability in International Commercial Disputes?

Written by Kamakshi Puri[1]

Arbitrability is a manifestation of public policy of a state. Each state under its national laws is empowered to restrict or limit the matters that can be referred to and resolved by arbitration. There is no international consensus on the matters that are arbitrable. Arbitrability is therefore one of the issues where contractual and jurisdictional natures of international commercial arbitration meet head on.

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Comparative Analysis of Doctrine of Separability between China and the UK

Written by Jidong Lin, Wuhan University Institute of International Law

  1. Background

Separability is a world-recognized doctrine in commercial arbitration. It means that an arbitration clause is presumed to be a separate and autonomous agreement, reflecting contractual commitments that are independent and distinct from its underlying contract.[1] Such a doctrine is embraced and acknowledged by numerous jurisdictions and arbitral institutions in the world.[2]

However, there are different views on the consequences of separability. One of the most critical divergences is the application of separability in the contract formation issue. Some national courts and arbitral tribunals held that in relatively limited cases, the circumstances giving rise to the non-existence of the underlying contract have also resulted in the non-existence of the associated arbitration agreement, which is criticized as an inadequacy of the doctrine of separability.[3] On the contrary, other courts hold the doctrine of separability applicable in such a situation, where the non-existence of the underlying contract would not affect the existence and validity of the arbitration agreement. This divergence would directly affect the interest of commercial parties since it is decisive for the existence of the arbitration agreement, which is the basis of arbitration.

Two contrary judgements were recently issued by two jurisdictions. The Chinese Supreme People’s Court (hereinafter “SPC”) issued the Thirty-Sixth Set of Guiding Cases, consisting of six guiding cases concerning arbitration. In Guiding Case No. 196 Yun Yu v. Zhong Yun Cheng, the SPC explains the Chinese version of separability should apply when the formation of the underlying contract is in dispute.[4] Although the SPC’s Guiding Cases are not binding, they have an important persuasive effect and Chinese courts of the lower hierarchy are responsible for quoting or referring to the Guiding Cases when they hear similar cases. On the other hand, the English Court of Appeal also issued a judgement relating to separability, holding this doctrine not applicable in the contractual formation issue.[5]

 

  1. Chinese judgment

The Chinese case concerns a share transfer transaction between Yun Yu Limited. (hereinafter “YY”) and Shenzhen Zhong Yuan Cheng Commercial Investment Holding Co. Limited. (hereinafter “ZYC”). On 9th May 2017, YY sent the Property Transaction Agreement (hereinafter “PTA”) and the Settlement of Debts Agreement (hereinafter “SDA”) to ZYC. The PTA was based on the Beijing Stock Exchange (hereinafter “BSE”) model agreement. PTA and SDA included a dispute resolution clause in which the parties agreed that the governing law should be Chinese law and the dispute should be submitted to Beijing Arbitration Commission. On 10th May 2017, ZYC returned the PTA and SDA to YY with some revisions, including a modification on the dispute resolution clause, which changed the arbitration institution to the Shenzhen Court of International Arbitration. On 11st May 2017, YY commented on the revised version of the PTA and SDA but kept the dispute resolution clause untouched. In the accompanying email, YY stated, “Contracts confirmed by both parties would be submitted to Beijing Stock Exchange and our internal approval process. We would sign contracts only if we got approval from BSE and our parent company.” On the same day, ZYC returned the PTA and SDA with its stamp to YY. On 27th October 2017, YY announced to ZYC that the negotiation was terminated. On 4th April 2018, ZYC commenced arbitration based on the dispute resolution clause in PTA and SDA.

The SPC held that separability means the arbitration agreement could be separate and independent from the main contract in its existence, validity and governing law. To support its opinion, the SPC refers to Article 19 of the People’s Republic of China’s Arbitration Law (hereinafter “Arbitration Law”), which stipulates that: “An arbitration agreement shall exist independently, the amendment, rescission, termination or invalidity of a contract shall not affect the validity of the arbitration agreement.” SPC submits that the expression “(t)he arbitration agreement shall exist independently” is general and thus should cover the issue of the existence of the arbitration agreement. This position is also supported by the SPC’s Interpretation of Several Issues concerning the Application of Arbitration Law (hereinafter “Interpretation of Arbitration Law”), [6]Article 10 of which stipulates: “Insofar as the parties reach an arbitration agreement during the negotiation, the non-existence of the contract would not affect the validity of the arbitration agreement.” Thus, the SPC concluded that the existence of an arbitration clause should be examined separately, independent from the main contract. Courts should apply the general rules of contractual formation, to examine whether there is consent to arbitrate. If the court found the arbitration clause formed and valid, the very existence of the main contract should be determined by arbitration, unless it is “necessary” for the court to determine this matter. The SPC concludes that the PTA and SDA sent by YY on 11st May 2017 constituted an offer to arbitrate. The stamped PTA and SDA sent by ZYC on the same day constituted an acceptance and came into effect when the acceptance reached YY. Thus, there exists an arbitration agreement between the parties. It is the arbitral tribunal that should determine whether the main contract was concluded.

 

  1. English judgment

The English case concerns a proposed voyage charter between DHL Project & Chartering Limited (hereinafter “DHL”) and Gemini Ocean Shipping Co. Limited (hereinafter “Gemini”). The negotiations were carried on through a broker. On 25th August 2020, the broker circulated what was described as the Main Terms Recap. It is common ground that the recap accurately reflected the state of the negotiations thus far. Within the Recap, both parties agreed that the vessel would be inspected by Rightship. This widely used vetting system aims to identify vessels suitable for the carriage of iron ore and coal cargoes. Also, both parties agreed that the dispute should be submitted to arbitration. There was an attached proforma, including a provision that the vessel to be nominated should be acceptable to the charterer. Still, that acceptance in accordance with detailed requirements set out in clause 20.1.4 “shall not be unreasonably withheld”. By 3rd September, however, Rightship approval had not been obtained. DHL advised that “(p)lease arrange for a substitute vessel” and finally, “(w)e hereby release the vessel due to Rightship and not holding her any longer.” In this situation, the attached proforma was not approved by DHL, and there is no “clean” fixture, [7]which means the parties did not reach an agreement. After that, Gemini submitted that there is a binding charter party containing an arbitration clause and commenced arbitration accordingly.

The Court of Appeal made a detailed analysis of separability. Combining analysis of numerous cases, including Harbour v. Kansa, [8]Fiona Trust, [9]BCY v. BCZ[10] and Enka v. Chubb, [11]and analysis of International Commercial Arbitration written by Prof. Gary Born, the Courts of Appeal concluded that separability should not be applied if the formation of the underlying contract is in dispute. Separability applies only when the parties have reached an agreement to refer a dispute to arbitration, which they intend (applying an objective test of intention) to be legally binding. In other words, disputes as to the validity of the underlying contract in which the arbitration agreement is contained do not affect the arbitration agreement unless the ground of invalidity impeaches the arbitration agreement itself. But separability is not applicable when the issue is whether an agreement to a legally binding arbitration agreement has been reached in the first place. In this case, the parties agreed in their negotiations that if a binding contract were concluded as a result of the subject being lifted, that contract would contain an arbitration clause. However, based on the analysis of the negotiation and the commercial practice in the industry, the Court of Appeal concludes that either party was free to walk away from the proposed fixture until the subject was lifted, which it never was. Thus, there was neither a binding arbitration agreement between the parties.

 

  1. Comments

Before discussing the scope of the application of separability, one thing needed to be clarified in advance: Separability does not decide the validity or existence of the arbitration agreement in itself. Separability is a legal presumption based on the practical desirability to get away from a theoretical dilemma. However, separability does not mean the arbitration agreement necessarily exists or is valid. It only means the arbitration agreement is separable from the underlying contract, and it cannot escape the need for consent to arbitrate.[12] Therefore, the existence of the arbitration agreement should not be considered when discussing the scope of application of the arbitration agreement.

The justification of the doctrine of separability should be considered when discussing its scope of application. The justification for the doctrine of separability can be divided into three factors: (a) The commercial parties’ expectations. Parties to arbitration agreements generally “intended to require arbitration of any dispute not otherwise settled, including disputes over the validity of the contract or treaty. (b) Justice and efficiency in commerce. Without the separability doctrine, “it would always be open to a party to an agreement containing an arbitration clause to vitiate its arbitration obligation by the simple expedient of declaring the agreement void.” and (c) Nature of the arbitration agreement.[13] The arbitration agreement is a procedural contract, different from the substantive underlying contract in function. If these justifications still exist in the contract formation issue, the doctrine of separability should be applied.

It is necessary to distinguish the contract formation issue and contract validity issue, especially the substantive validity issue, when discussing the applicability of those justifications. The contract formation issue concerns whether parties have agreed on a contract. The ground to challenge the formation of a contract would be that the parties never agree on something, or the legal condition for the formation is not satisfied. The contract substantive validity issue is where the parties have agreed on a contract, but one party argue that the agreement is invalidated because the true intent is tainted. The grounds to challenge the substantive validity would be that even if the parties have reached an agreement, the agreement is not valid because of duress, fraud, lack of capacity or illegality. The formation and validity issues are two different stages of examining whether the parties have concluded a valid contract. The validity issue would only occur after the formation of the contract. In other words, an agreement can be valid or invalid only if the agreement exists.

It is argued that separability should be applicable to the formation of contract. Firstly, separability satisfies the parties expectation where most commercial parties expect a one-stop solution to their dispute, irrespective of whether it is for breach of contract, invalidity or formation. Furthermore,  the application of separability would achieve justice and efficiency in commerce. Separability is necessary to prevent the party from vitiating the arbitration obligation by simply declaring a contract not concluded. In short, since the justifications still stand in the issue of contract formation, separability should also apply in such an issue.

The English Court of Appeal rejected the application of separability in the formation of contract holding the parties’ challenge to the existence of the main contract would generally constitute a challenge to the arbitration clause. However, the same argument may apply for invalidity of the underlying contract. Since the arbitration agreement is indeed concluded in the same circumstances as the underlying contract the challenging to the validity of the contract may also challenge the validity of the arbitration clause, while separability still applies. On the contrary, the Chinese approach probably is more realistic. The SPC ruled that separability applies where the formation of the underlying contract is disputed. But before referring the dispute to arbitration, the SPC separately considered the formation of the arbitration clause. Only after being satisfied the arbitration clause is prima facie concluded, the court declined jurisdiction and referred the parties to arbitration.

 

[1] Ronan Feehily, Separability in international commercial arbitration; confluence, conflict and the appropriate limitations in the development and application of the doctrine, 34 Arbitration International 355 (2018), p. 356.

[2] See Blackaby Niegel, Constantine Partasides et al., Redfern and Hunter on International Arbitration, Kluwer Law International; Oxford University Press 2015, pp. 104–107.

[3] See Gary B. Born, International Commercial Arbitration (3rd edition), Kluwer Law International 2021, pp. 492-493.

[4] The Guiding Case No. 196: Dispute in Validity of Arbitration Agreement between YunYu Limited and Shenzhen ZhongYuanCheng Commercial Investment Holding Co. Limited.

[5] DHL Project & Chartering Ltd v Gemini Ocean Shipping Co Ltd [2022] EWCA Civ 1555 (24 November 2022)

[6] SPC’s Interpretation of Several Issues concerning the Application of Arbitration Law, Fa Shi?2006?No. 7.

[7] Clean Fixture is a concept in the maritime area. It means the Parties’ confirmation that the contract has been concluded and that there are no further Subjects and/or restrictions to the execution of the agreed Contract. The Fixture is not clean until both parties have waived their subjects/restrictions.

[8] Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] QB 701.

[9] Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, [2007] 4 All ER 951.

[10] BCY v BCZ [2016] SGHC 249, [2016] 2 Lloyd’s Rep 583.

[11] Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [2020] 1 WLR 4117

[12] See McNeill M. S. & Juratowitch B., Agora: Thoughts on Fiona Trust: The Doctrine of Separability and Consent to Arbitrate, 3 Arbitration International 475 (2008).

[13] See Gary B. Born, International Commercial Arbitration (3rd edition), Kluwer Law International 2021, p. 428.

Brentwood Industries v. Guangdong Fa Anlong Machinery Equipment Co., Ltd. –A third way to enforce China-seated arbitral awards made by foreign arbitration institution

Brentwood Industries v. Guangdong Fa Anlong Machinery Equipment Co., Ltd.–A third way to enforce China-seated arbitral awards made by foreign arbitration institution

by Jingru Wang

Wuhan University Institute of International Law

Background

Nationality of an arbitral award marks the source of the legal validity of the award. Most countries generally divide the awards into domestic awards and foreign awards, and provide different requirements for their recognition and enforcement. It is a common practice to determine the nationality of the arbitral award by the seat of arbitration, which is the so-called “territorial theory”. However, Chinese law adopts the “institutional theory”, which raises controversy concerning the nationality of the arbitral award made by foreign arbitration institutions located in mainland. After long-term debate in practice, the Brentwood Case[1] finally confirmed that China-seated arbitral awards made by a foreign arbitration institution shall be regarded as Chinese foreign-related awards.

 

Fact and decision

Guangzhou Intermediate People’s Court (hereinafter, “the court”) delivered the judgment on Brentwood Industries v. Guangdong Fa Anlong Machinery Equipment Co., Ltd. on 6 Aug 2020[2]. After DUFERCOS Case[3], it is another landmark case that granted the enforcement of arbitral award made by a foreign arbitration institution in mainland China.

Brentwood Industries (hereinafter, “plaintiff”) concluded a sales contract with three Chinese companies (hereinafter, “defendants”) and agreed that “any dispute arising out of or in relation to the agreement shall be settled by amiable negotiation. If no agreement can be reached, each party shall refer their dispute to the International Commercial Chamber (hereinafter, “ICC”) for arbitration at the site of the project in accordance with international practice.” Due to the defendants’ delay in payment, theplaintiff submitted their disputes to the ICC for arbitration. Since the “project” mentioned in the arbitration clause was the “Guangzhou Liede Sewage Treatment Plant Phase IV Project” listed in Article 3 of the “Supplementary Agreement”, located in Guangzhou, China, the seat of arbitration shall be Guangzhou, China. After defendants refused to perform the award, which was in favor of plaintiff, plaintiff resorted to the court for recognition and enforcement.

Under current Chinese law, there are two possible ways to enforce the arbitral award made by a foreign arbitration institution in mainland China: (1) Classify such an award as a foreign award by the location of the arbitration institution under Art. 283 Civil Procedure Law of the People’s Republic of China (hereinafter, “Civil Procedure Law”), which provides that an award made by a foreign arbitration institution must be recognised and enforced by a people’s court pursuant to international treaties or the principle of reciprocity. (2) Classify such award as non-domestic award provided by the last sentence of Art. 1(1) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter, “New York Convention”), which provides that the convention shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.

Besides the aforementioned choices, the court provided a third way. It ruled that the arbitral award made by a foreign arbitration institution in mainland China shall be regarded as Chinese foreign-related arbitral award. If a party fails to perform the arbitral award, the other party may refer to Art. 273 of the Civil Procedure Law for recognition and enforcement. Under Art. 273 of the Civil Procedure Law, after an award has been made by an arbitration institution of the People’s Republic of China for foreign-related disputes, no party may file a lawsuit in a people’s court. If a party fails to perform the arbitral award, the other party may apply for enforcement to the intermediate people’s court of the place where the domicile of the person against whom an application is made is located or where the property is located.

 

Comment

Since Long Lide Case[4], Chinese court had affirmed the validity of arbitration agreements providing arbitration proceedings conducted by a foreign arbitration institution in mainland China. But in practice, arbitral awards based on these agreements still face the dilemma in recognition and enforcement. Because in China, different from international practice, the nationality of an arbitral award is determined by the location of the arbitration institution instead of the seat of arbitration, which is referred to as the “institutional theory”. Under Art. 283 Civil Procedure Law, to recognise and enforce an award made by a foreign arbitration institution by a people’s court, the people’s court shall handle the matter pursuant to international treaties concluded or acceded to by the People’s Republic of China or in accordance with the principle of reciprocity. It impliedly refers to the New York Convention. However, concerning the determination of the nationality of the arbitral award, the New York Convention adopts the “territorial theory”, which provides: “this Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought”. The “territorial theory” adopted by the New York Convention collides with the provision of the Civil Procedure Law. The confusion on application of law has not yet been dispelled.

In response to the conflict between domestic legislation and international convention, judicial practice has shown inclination to convert towards the “territorial theory”. For example, in DMT case[5], the nationality of an arbitral award made by ICC in Singapore was deemed Singapore rather than France. But in line with the “territorial theory”, arbitral awards made in mainland China shall therefore be deemed as Chinese awards. Under the “reciprocity reservation” filed by China, the New York convention shall only be applied to the recognition and enforcement of awards made in the territory of another contracting state. Hence, the New York Convention shall not be applied to China-seated arbitral awards.

As early as DUFERCOS Case, the court defined the arbitral award made by the ICC in Beijing as non-domestic and therefore enforced it under the New York Convention. However, it failed to clarify what exactly constitutes a non-domestic award and how to interpret the reciprocity reservation. Originally, both non-domestic awards and reciprocity reservation were methods to encourage the acceptance and enlarge the application of the New York Convention. Conversely, their coexistence has impaired the effect of the New York Convention.

From this perspective, the Guangzhou Intermediate Court did find another way out by completely avoiding such conflict. The current Chinese law divides arbitral awards into: (1)domestic awards; (2)Chinese foreign-related awards; (3)foreign awards. Compared with domestic awards, Chinese foreign-related awards take into account the particularity of foreign-related factors, and the review standards for recognition and enforcement are less strict, subject to procedural review only. Compared with foreign awards, Chinese foreign-related awards can be set aside by Chinese court, which makes them under more restrictive supervision. That is reason why some argued that China-seated arbitral awards will be subject to stricter supervision by Chinese court because there are more diversified judicial review channels.[6] Indeed, arbitral awards made by Chinese foreign-related arbitration institution are under triple supervision carried out by the seat of arbitration, the place of recognition and enforcement, and China. But it should be noted that when it comes to China-seated arbitral awards made by foreign arbitration institution, China, as the seat of arbitration, has the inherent power to review the arbitral award and set it aside. Moreover, according to Art. 70 and Art. 71 of the Chinese Arbitration Law, reasons for setting Chinese foreign-related arbitral awards aside do not exceed the scope of reasons for refusing recognition and enforcement of these awards. Therefore, they are not imposed with any additional burden by being regarded as Chinese foreign-related arbitral awards. Concerning the recognition and enforcement of Chinese foreign-related award, Art. 274 of the Civil Procedure Law provided a more tolerant standard than the New York Convention. Compared with Art. 5 of the New York Convention, the legal capacity of the parties to the agreement and the final effect of the award are no longer obstacles to recognition and enforcement. Since arbitral awards made by foreign arbitration institutions are regarded as Chinese foreign-related award, they are treated more favorably than foreign awards concerning recognition and enforcement. Left the legal problems behind, it showed China’s effort to support the arbitration within the current legislative framework.

However, Chinese foreign-related arbitral award itself is a distorting product of the conflicts between “institutional theory” and “territorial theory”. Application of Art. 273 of the Civil Procedure Law can only temporarily ease the tension. “Institutional theory” stipulated by Chinese law is an issue left over from history. “Foreign-related arbitration institutions” historically referred to the China International Economic and Trade Arbitration Commission (hereinafter referred to as CIETAC) and China Maritime Arbitration Commission (hereinafter referred to as CMAC). They were established respectively in 1954[7] and 1958[8]. At that time, only CIETAC and CMAC can accept foreign-related arbitration cases, while domestic arbitration institutions can only accept domestic arbitration cases. Accordingly, arbitral awards made by different arbitration institutions were divided into Chinese foreign-related arbitral awards and domestic arbitral awards. However, nowadays, such restrictions are extinct in practice. In 1996, the State Council of People’s Republic of China issued a document stating that: “The main responsibility of the newly established arbitration institution is to accept domestic arbitration cases; if the parties to a foreign-related arbitration case voluntarily choose the newly established arbitration institution for arbitration, the newly established arbitration commission can accept the case.”[9] In fact, there is no longer division of foreign-related arbitration institution and domestic arbitration institution. Hence, the “institutional theory” can no longer meet the needs of practice. Under the “territorial theory”, the arbitral awards are divided into domestic awards, non-domestic awards and foreign awards. We may wonder whether China would revoke the reciprocity reservation, the obstacle in recognition and enforcement of non-domestic arbitral awards, in the future. Would China-seated arbitral awards made by foreign arbitration institution be defined as non-domestic awards by then? To get out of the dilemma once for all, the responsibility remains on the shoulder of legislative body.

 

[1] https://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=bded4e3c31b94ae8b42fac2500a68cc4

[2]  https://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=bded4e3c31b94ae8b42fac2500a68cc4

[3] https://www.pkulaw.com/specialtopic/61ffaac8076694efc8cef2ae6914b056bdfb.html

[4] https://www.pkulaw.com/chl/233828.html

[5] http://www.pkulaw.cn/fulltext_form.aspx/pay/fulltext_form.aspx?Db=chl&Gid=bd44ff4e02d033d0bdfb

[6]Good News or Bad News? Arbitral Awards Rendered in China by Foreign Arbitral Institutions Being Regarded as Chinese Awards available at: https://www.chinajusticeobserver.com/a/good-news-or-bad-news-arbitral-awards-rendered-in-china-by-foreign-arbitral-institutions-being-regarded-as-chinese-awards?from=timeline

[7] http://www.cietac.org/index.php?m=Page&a=index&id=2

[8] http://www.cmac.org.cn/%E6%B5%B7%E4%BB%B2%E7%AE%80%E4%BB%8B

[9] http://cicc.court.gov.cn/html/1/218/62/83/440.html

 

 

 

 

Uber Arbitration Clause Unconscionable

In 2017 drivers working under contract for Uber in Ontario launched a class action.  They alleged that under Ontario law they were employees entitled to various benefits Uber was not providing.  In response, Uber sought to stay the proceedings on the basis of an arbitration clause in the standard-form contract with each driver.  Under its terms a driver is required to resolve any dispute with Uber through mediation and arbitration in the Netherlands.  The mediation and arbitration process requires up-front administrative and filing fees of US$14,500.  In response, the drivers argued that the arbitration clause was unenforceable.

The Supreme Court of Canada has held in Uber Technologies Inc. v. Heller, 2020 SCC 16 that the arbitration clause is unenforceable, paving the way for the class action to proceed in Ontario.  A majority of seven judges held the clause was unconscionable.  One judge held that unconscionability was not the proper framework for analysis but that the clause was contrary to public policy.  One judge, in dissent, upheld the clause.

A threshold dispute was whether the motion to stay the proceedings was under the Arbitration Act, 1991, S.O. 1991, c. 17 or the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sch. 5.  Eight judges held that as the dispute was fundamentally about labour and employment, the ICAA did not apply and the AA was the relevant statute (see paras. 18-28, 104).  While s. 7(1) of the AA directs the court to stay proceedings in the face of an agreement to arbitration, s. 7(2) is an exception that applies, inter alia, if the arbitration agreement is “invalid”.  That was accordingly the framework for the analysis.  In dissent Justice Cote held that the ICAA was the applicable statute as the relationship was international and commercial in nature (paras. 210-18).

The majority (a decision written by Abella and Rowe JJ) offered two reasons for not leaving the issue of the validity of the clause to the arbitrator.  First, although the issue involved a mixed question of law and fact, the question could be resolved by the court on only a “superficial review” of the record (para. 37).  Second, the court was required to consider “whether there is a real prospect, in the circumstances, that the arbitrator may never decide the merits of the jurisdictional challenge” (para. 45).  If so, the court is to decide the issue.  This is rooted in concerns about access to justice (para. 38).  In the majority’s view, the high fees required to commence the arbitration are a “brick wall” on any pathway to resolution of the drivers’ claims.

The majority then engaged in a detailed discussion of the doctrine of unconscionability.  It requires both “an inequality of bargaining power and a resulting improvident bargain” (para. 65).  On the former, the majority noted the standard form, take-it-or-leave-it nature of the contract and the “significant gulf in sophistication” between the parties (para. 93).  On the latter, the majority stressed the high up-front costs and apparent necessity to travel to the Netherlands to raise any dispute (para. 94).  In its view, “No reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it” (para. 95).  As a result, the clause is unconscionable and thus invalid.

Justice Brown instead relied on the public policy of favouring access to justice and precluding an ouster of the jurisdiction of the court.  An arbitration clause that has the practical effect of precluding arbitration cannot be accepted (para. 119).  Contractual stipulations that prohibit the resolution of disputes according to law, whether by express prohibition or simply by effect, are unenforceable as a matter of public policy (para. 121).

Justice Brown also set out at length his concerns about the majority’s reliance on unconscionability: “the doctrine of unconscionability is ill-suited here.  Further, their approach is likely to introduce added uncertainty in the enforcement of contracts, where predictability is paramount” (para. 147).  Indeed, he criticized the majority for significantly lowering the hurdle for unconscionability, suggesting that every standard-form contract would, on the majority’s view, meet the first element of an inequality of bargaining power and therefore open up an inquiry into the sufficiency of the bargain (paras. 162-63).  Justice Brown concluded that “my colleagues’ approach drastically expands the scope of unconscionability, provides very little guidance for the doctrine’s application, and does all of this in the context of an appeal whose just disposition requires no such change” (para. 174).

In dissent, Justice Cote was critical of the other judges’ willingness, in the circumstances, to resolve the issue rather than refer it to the arbitrator for decision: “In my view, my colleagues’ efforts to avoid the operation of the rule of systematic referral to arbitration reflects the same historical hostility to arbitration which the legislature and this Court have sought to dispel. The simple fact is that the parties in this case have agreed to settle any disputes through arbitration; this Court should not hesitate to give effect to that arrangement. The ease with which my colleagues dispense with the Arbitration Clause on the basis of the thinnest of factual records causes me to fear that the doctrines of unconscionability and public policy are being converted into a form of ad hoc judicial moralism or “palm tree justice” that will sow uncertainty and invite endless litigation over the enforceability of arbitration agreements” (para. 237).  Justice Cote also shared many of Justice Brown’s concerns about the majority’s use of unconscionability: “I am concerned that their threshold for a finding of inequality of bargaining power has been set so low as to be practically meaningless in the case of standard form contracts” (para. 257).

The decision is lengthy and several additional issues are canvassed, especially in the reasons of Justice Cote and Justice Brown.  The ultimate result, with the drivers not being bound by the arbitration clause, is not that surprising.  Perhaps the most significant questions moving forward will be the effect these reasons have on the doctrine of unconscionability more generally.

Australia’s first contested ICSID enforcement

In February, the Federal Court of Australia delivered its judgment on the first contested enforcement of International Centre for Settlement of Investment Disputes (ICSID) awards in Australia. In Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157, the Court enforced two ICSID awards—award of 4 May 2017 in Case No. ARB/13/36, and award of 15 June 2018 as rectified by the award dated 29 January 2019 in Case No. ARB/13/31—against the Kingdom of Spain. The two cases were brought by different applicants but were heard and decided together.

The judgment concerns the interaction of two instruments at the intersection of public and private international law. Firstly, it concerns the Foreign States Immunities Act 1985 (Cth), which gives effect to a restrictive theory of state immunity. Secondly, the judgment concerns the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (entered into force 14 October 1966) (Investment Convention), which is given the force of law in Australia by s 32 of the International Arbitration Act 1974 (Cth).

Stewart J framed the issue for consideration as follows (at [2]):

[I]s a foreign state immune from the recognition and enforcement of an arbitral award made under the Investment Convention notwithstanding that the Investment Convention inherently envisages arbitration awards being made against foreign states and it provides that such awards “shall” be recognised and enforced by Australian courts?

The judgment also contains useful consideration of the distinctions between recognition, enforcement and execution in the context of a common law system.

Background

The underlying dispute was triggered by a change in Spain’s position on subsidies and regulation concerning renewable energy, and the applicant companies’ investments in renewable energy projects in Spain before that change. The changes caused substantial harm to the value of the investments of the applicants, which are incorporated in England & Wales, Luxembourg and the Netherlands.

Before ICSID tribunals the applicants argued that Spain failed to accord fair and equitable treatment to their investments in breach of Art 10(1) of The Energy Charter Treaty (ECT), opened for signature 17 December 1994, 2080 UNTS 95 (entered into force 16 April 1998). They were successful. Spain was ordered to pay hundreds of millions of Euros across two awards.

Spain then made applications for the annulment of the awards, which included stays of enforcement. For a time, each award was stayed. (In Australia, this resulted in a temporary stay of enforcement proceedings: see Infrastructure Services Luxembourg S.A.R.L v Kingdom of Spain [2019] FCA 1220). The stays were then discontinued, allowing enforcement action to proceed in Australia. At the time of writing, Spain had not complied with the awards in whole or in part.

Enforcement of the ICSID awards in Australia

The Commonwealth of Australia is a generally arbitration-friendly jurisdiction. Part IV of the International Arbitration Act 1974 (Cth) deals with the Investment Convention. Section 33(1) provides the basic proposition ‘that [a]n award is binding on a party to the investment dispute to which the award relates’, while s 35 provides that awards may be enforced through the Federal Court of Australia.

How, then, could Spain challenge enforcement of the ICSID awards? It asserted immunity under s 9 of the Foreign States Immunities Act 1985 (Cth), which provides foreign States with general immunity from the jurisdiction of Australian courts. An exception to the general position is provided in s 10(1) for proceedings in respect of which a foreign State has submitted.

The applicant companies argued that the Investment Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award. The Court was thus asked to consider whether, ‘by being a Contracting Party to the ECT and a Contracting State to the Investment Convention, Spain submitted to the arbitrations under the Investment Convention which produced the awards they seek to enforce’: [179]. The Court held that Spain had submitted. There was no inconsistency between the Foreign States Immunities Act 1985 (Cth) and the enforcement of the Investment Convention via the International Arbitration Act 1974 (Cth).

The Court thus recognised each of the awards. Spain was ordered to pay the applicant companies hundreds of millions of Euros, plus interest, and costs—the scope of which are still to be determined.

Comments on recognition, enforcement and execution

According to Stewart J, ‘[t]he distinction between recognition and enforcement, on the one hand, and execution on the other, is central to [the] reasons’: [6]. The judgment contains dicta that will be useful for teaching private international law in Australia. There is a helpful passage at [89] ff:

Recognition is a distinct and necessarily prior step to enforcement, but recognition and enforcement are closely linked: Briggs A, The Conflict of Laws (3rd ed, Oxford University Press, Clarendon Series, 2013) 140-141; Clarke v Fennoscandia Ltd [2007] UKHL 56; 2008 SC (HL) 122 at [18]-[23].  An award may be recognised without being “enforced” by a court: TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 at [23].  Examples would be where an award is recognised as giving rise to res judicata, issue estoppel, cause of action estoppel or set-off, or as a claim in an insolvent estate.  See Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich [2003] UKPC 11; [2003] 1 WLR 1041 at [15] as an example of recognition by estoppel.

An arbitral award is enforced through the means of the entering of a judgment on the award, either in the form of a money judgment for the amount of an award or for damages for failing to honour an award.  That form of enforcement by a court is an exercise of judicial power: TCL at [32].  There is some debate in the authorities as to whether an award can be enforced by means of a court making a declaration.  See Tridon Australia Pty Ltd v ACD Tridon Inc [2004] NSWCA 146 and AED Oil Ltd v Puffin FPSO Ltd [2010] VSCA 37; 27 VR 22 at [18]-[20].  It is not necessary to enter upon that debate for present purposes because Art 54(3) of the Investment Convention requires the enforcement of only the pecuniary obligations of an award.  That would seem to exclude declaratory awards, injunctions and orders for specific performance.

An award cannot, however, be executed, in the sense of executed against the property of an award debtor, without first being converted into a judgment of a court: Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd (No 2) [2011] FCA 206; 277 ALR 441 at [12]-[13].  Nevertheless, it is not a strain of language to refer to an award being enforced by way of execution.

Thus, depending on the context, reference to the enforcement of an arbitral award can be used to mean the entering of a judgment on the award to the exclusion of execution or it can mean execution, or it can encompass both.

Recognition and enforcement by judgment on the award is equivalent to what is referred to in civilian jurisdictions as exequatur (see Firebird at [47]-[48] and Briggs A, The Conflict of Laws (3rd ed, Oxford University Press, Clarendon Series, 2013), 139).

Comment

Eiser Infrastructure Ltd v Kingdom of Spain provides plenty to think about for those interested in private international law, public international law, and international arbitration. It confirms the intuition that ICSID awards should be easily enforced in Australia.

However, it begs the question, why Australia? Stewart J speculated that the CJEU’s decision in Slovak Republic v Achmea BV [2018] 4 WLR 87, [60] may have made Australia a more attractive forum for enforcement proceedings in these cases. However, should Spain have any assets in Australia, it may be difficult for the successful companies to get access to them. The High Court of Australia takes a foreign-State-friendly approach to immunity of execution over foreign States’ property. It will be interesting to see what happens next in this dispute.

Book: Pocar – Viarengo – Villata (Eds.), Recasting Brussels I

The Italian publishing house CEDAM has published a new volume on the review of the Brussels I regulation: “Recasting Brussels I“. The book, edited by Fausto Pocar, Ilaria Viarengo and Francesca Clara Villata (all from the Univ. of Milan) includes twenty-five papers divided into five parts, devoted to the scope of application (I), rules on jurisdiction (II), choice-of-court agreements (III), coordination of proceedings (IV) and recognition and enforcement of judgments (V).

Here’s the table of contents (.pdf file):

PART I – SCOPE OF APPLICATION

  • Rainer Hausmann, The Scope of Application of the Brussels I Regulation;
  • Ilaria Viarengo, The Removal of Maintenance Obligations from the Scope of Brussels I;
  • Claudio Consolo – Marcello Stella, Brussels I Regulation Amendment Proposals and Arbitration;
  • Peter Kindler, Torpedo Actions and the Interface between Brussels I and International Commercial Arbitration;
  • Stefano Azzali – Michela De Santis, Impact of the Commission’s Proposal to Revise Brussels I Regulation on Arbitration Proceedings Administered by the Chamber of Arbitration of Milan.

PART II – RULES ON JURISDICTION

  • Burkhard Hess, The Proposed Recast of the Brussels I Regulation: Rules on Jurisdiction;
  • Riccardo Luzzatto, On the Proposed Application of Jurisdictional Criteria of Brussels I Regulation to Non-Domiciled Defendants;
  • Fausto Pocar, A Partial Recast: Has the Lugano Convention Been Forgotten?;
  • Alexander R. Markus, Harmonisation of the EU Rules of Jurisdiction Regarding Defendants Outside the EU. What About the Lugano Countries?;
  • Ruggiero Cafari Panico, Forum necessitatis. Judicial Discretion in the Exercise of Jurisdiction;
  • Marco Ricolfi, The Recasting of Brussels I Regulation from an Intellectual Property Lawyer’s Perspective;
  • Eva Lein, Jurisdiction and Applicable Law in Cross-Border Mass Litigation;
  • Zeno Crespi Reghizzi, A New Special Forum for Disputes Concerning Rights in Rem over Movable Assets: Some Remarks on Article 5(3) of the Commission’s Proposal.

PART III – CHOICE-OF-COURT AGREEMENTS

  • Ilaria Queirolo, Prorogation of Jurisdiction in the Proposal for a Recast of the Brussels I Regulation;
  • Christian Kohler, Agreements Conferring Jurisdiction on Courts of Third States;
  • Francesca C. Villata, Choice-of-Court Agreements in Favour of Third States’ Jurisdiction in Light of the Suggestions by Members of the European Parliament.

PART IV – COORDINATION OF PROCEEDINGS

  • Luigi Fumagalli, Lis Alibi Pendens. The Rules on Parallel Proceedings in the Reform of the Brussels I Regulation;
  • Pietro Franzina, Successive Proceedings over the Same Cause of Action: A Plea for a New Rule on Dismissals for Lack of Jurisdiction;
  • Lidia Sandrini, Coordination of Substantive and Interim Proceedings;
  • Cristina M. Mariottini, The Proposed Recast of the Brussels I Regulation and Forum Non Conveniens in the European Union Judicial Area.

PART V – RECOGNITION AND ENFORCEMENT OF JUDGMENTS

  • Sergio M. Carbone, What About the Recognition of Third States’ Foreign Judgments?;
  • Thomas Pfeiffer, Recast of the Brussels I Regulation: The abolition of Exequatur;
  • Stefania Bariatti, Recognition and Enforcement in the EU of Judicial Decisions Rendered upon Class Actions: The Case of U.S. and Dutch Judgments and Settlements;
  • Manlio Frigo, Recognition and Enforcement of Judgments on Matters Relating to Personality Rights and the Recast Proposal of the Brussels I Regulation;
  • Marco De Cristofaro, The Abolition of Exequatur Proceedings: Speeding up the Free Movement of Judgments while Preserving the Rights of the Defense.

– – –

Title: Recasting Brussels I, edited by F. Pocar, I. Viarengo and F.C. Villata, CEDAM (Series: Studi e pubblicazioni della Rivista di diritto internazionale privato e processuale – Volume 76), Padova, 2012, XXIV – 382 pages.

ISBN 9788813314699. Price: EUR 32,50. Available at CEDAM.

(Many thanks to Prof. Francesca Villata for the tip-off)