Evidence in International Arbitration: Criteria for Admission and Evaluation

Arbitrationthe international journal of arbitration, mediation and

dispute management

2014 Volume 80 No.2

ISSN: 00037877.

Editorial Board

Dr Michael O’Reilly, Editor

Professor Derek Roebuck, Editor EmeritusSenior Research Fellow, Institute of Advanced Legal Studies,

University of London

Dr Gordon Blanke, Book Review EditorCounsel, Baker & McKenzie. Habib Al Mulla, Dubai

Dominique Brown-BersetAttorney-at-Law, Partner, Brown and Page, Geneva

Hew R. DundasChartered Arbitrator

Arthur HarverdChartered Accountant, Carter Backer Winter, London

Julio César BetancourtHead of Research & Academic Affairs at the Chartered Institute of

Arbitrators

Dr Colin OngBarrister, Essex Court Chambers; Dr Ong Legal Services, Brunei

© Chartered Institute of Arbitrators 2014

Published in Association with Sweet and MaxwellSweet & Maxwell ® is a registered trademark of Thomson Reuters (Professional) UK

Limited. Computerset by Sweet & Maxwell. Printed and bound in Great Britain by Hobbsthe Printers Ltd, Totton, Hampshire. No natural forests were destroyed to make this product:

only farmed timber was used and replanted.

Table of Contents

EditorialMichael O'Reilly 123

ArticlesWhen Even Fraud Is Not Nearly Enough. Recourse Against ArbitralAwards and Public Policy Considerations: An Anglo-AustralianPerspectiveJulian Sher and Nicholas Kazaz 124

Section 69 of the English Arbitration Act 1996—When Fact and LawCollideAndrew Tweeddale, Keren Tweeddale and Natasha Nguyen 136

Evidence in International Arbitration: Criteria for Admission andEvaluationKonstantin Pilkov 147

Commercial Arbitration in DubaiDaniel Brawn 156

If It Ain’t Broke, Don’t Change ItNeil Kaplan 172

A Tribute to the Contribution of Hew Dundas to Fifty Issues ofArbitrationDerek Roebuck 176

2013 Alexander LectureInvestomercial Arbitration: Whence Cometh It? What Is It? WhitherGoeth It?Charles N. Brower 179

CasesTwo Rarities: Subpoenaing an Arbitrator for Cross-Examination andCourt Enforcement of a Peremptory OrderHew R. Dundas 196

The Enforcement of Adjudicators’ Awards under the Housing Grants,Construction and Regeneration Act 1996: Part 50Kenneth T. Salmon 204

Enforcement of Foreign Arbitral Awards in India: Lal MahalReducesthe Scope for Court InterferenceRathin Somnath 217

The Application of the Fiona Trust Principle of “One-Stop”Adjudication to a Non-Exclusive Jurisdiction Clause: Ryanair v EssoItalianaJonathan Haydn-Williams 220

Staying DefencesPatrick Taylor 226

Book ReviewsArran Dowling-Hussey 228

Robert Morgan 229

Contributors

DANIEL BRAWN: Senior Associate, Galadari Advocates, Dubai

CHARLES N. BROWER: International Arbitrator, 20 Essex Street, London

ARRAN DOWLING-HUSSEY:DipArb, DipICArb, FCIArb; Barrister; Accredited Mediator;Adjudicator and Arbitrator practising from the Law Library, Dublin and Temple CourtChambers

HEWR. DUNDAS:FCIArb; DipICArb; Chartered Arbitrator; CEDR-Accredited Mediator;International Arbitrator, Mediator and Expert Determiner

JONATHAN HAYDN-WILLIAMS: Senior Counsel, Goodman Derrick LLP

NEIL KAPLAN CBE:QC, SBS, International Arbitrator

NICHOLAS KAZAZ:Solicitor (England & Wales); Barrister (England & Wales); Associatein the London office of Holman Fenwick Willan LLP

ROBERT MORGAN:Barrister (England & Wales, Queensland); Consulting Editor, AsianDispute Review

NATASHA NGUYEN:Lawyer, Corbett & Co Solicitors, London

KONSTANTIN PILKOV:MCIArb; Advocate, Partner, Cai & Lenard, Ukraine

DEREK ROEBUCK:Editor Emeritus, Arbitration

KENNETH T. SALMON: Solicitor; Consultant to Weightmans LLP, Manchester

JULIAN SHER:Barrister and Solicitor (Western Australia); Partner and Head of the Perthoffice of Holman Fenwick Willan

RATHIN SOMNATH:Year V student (BSc (Hons) and LLB (Business Law Hons)), NationalLaw University, Jodhpur

PATRICK TAYLOR: Principal, Patrick J Taylor Solicitors

ANDREW TWEEDDALE:Director, Corbett & Co Solicitors, London

KEREN TWEEDDALE:Barrister; Senior Lecturer at South Bank University, London

EditorialIn this issue we include a selection of articles and presentations covering a wide range oftopics from a variety of jurisdictions.Julian Sher andNicholas Kazaz deal with recourse against awards with a particular focus

on the regime applicable in Australia. Andrew Tweeddale, Keren Tweeddale and NatashaNguyen deal with appeals on a question of law under the English legislation and focus inparticular on the distinction between errors of fact and errors of law. Konstantin Pilkovlooks at the criteria for admission and evaluation of evidence in international arbitration.Daniel Brawn provides an overview of commercial arbitration in Dubai, a seat of growingimportance. And Neil Kaplan proposes that arbitrators may consider directing a “KaplanOpening”—an opening hearing in advance of the main hearing.We then have a specially requested tribute to Hew Dundas whose contribution to this

Journal is unique. Editor Emeritus, Derek Roebuck presents a brief outline of thatcontribution (to date) which comprises 84 articles, 50 of which have appeared in consecutiveissues, the 50th of which appears in this present issue. As the current Editor I would alsolike to thank Hew.We publish the Alexander Lecture 2013 by Charles N. Brower on investomercial

arbitration, that is, arbitration based on a commercial transaction but covered by theinvestment protection regime established by international convention, commonly througha bilateral investment treaty. This is an area of growing importance in world arbitration andthis is a timely contribution.We have the usual reviews of cases. Hew Dundas (in his 50th consecutive piece) deals

with two rarities—subpoenaing an arbitrator for cross-examination and court enforcementof a peremptory order. And not to be outdone Kenneth T. Salmon, whose contribution isalso outstanding, presents the 50th instalment in his series on the enforcement of adjudicators’awards under the Housing Grants, Construction and Regeneration Act 1996.Rathin Somnathconsiders the important case of Lal Mahal decided by the Indian Supreme Court, dealingwith the enforcement of foreign awards. Jonathan Haydn-Williams considers the applicationof the Fiona Trust principle to a non-exclusive jurisdiction clause. And Patrick Taylor looksat a recent case dealing with the difficult question of defences in court which includeelements which may, if advanced as an independent claim, be caught by an arbitrationagreement. Arran Dowling-Hussey and Robert Morgan have provided book reviews.As always, we are grateful to all authors and reviewers and greatly appreciate the time

they spend ensuring that the Journal continues to be a key reference in this field.

Michael O’ReillyEditor

123(2014) 80 Arbitration, Issue 2 © 2014 Chartered Institute of Arbitrators

Articles

When Even Fraud Is Not Nearly Enough. RecourseAgainst Arbitral Awards and Public PolicyConsiderations: An Anglo-Australian PerspectiveJulian Sher

Nicholas Kazaz

The new regime for domestic commercial arbitration reflects how far Australia has comein creating a substantively distinct jurisdiction for commercial dispute resolution as analternative to the courts. An avowed desire to avoid the replication of processes throughthe courts motivated the authors of the UNCITRALModel Law on International CommercialArbitration (the Model Law).1 Their aim was to restrict drastically the scope for curialintervention in order to achieve speedy, cost-effective, fair and final resolution of disputes.The Model Law has now been adopted into Australian state law for domestic commercialarbitrations,2 following its earlier reception into Australian federal law for internationalarbitration.3 It is a moot point whether this makes Australia a more attractive jurisdictionfor those contemplating arbitration. Perhaps the point to be made is that the new legislationshould make domestic arbitration in Australia more time and cost effective than before.

1. Statutory Ethos: England and Wales versus AustraliaThe English4 and Australian legislatures have each taken different approaches to draftingtheir legislation to allow recourse against awards. The objectives of both regimes aregenerally the same, but their methods of reaching those objectives are significantly different.While England and Wales take a restrictive approach, which reflects the special publicpolicy considerations underpinning the English legislation, the Australian approach is amore general reflection of the Model Law, as adopted into the Australian legislation: theuniform Commercial Arbitration Acts (State Acts) and the International Arbitration Act1974 (Cth) (IAA 1974), respectively. The differences between these textual approaches aresignificant, but as regards the practical implementation of those provisions, the distinctionsare perhaps not all that great. In England and Wales, only the most exceptionally seriousof cases will be set aside, even where serious procedural irregularities occur. By contrast,in Australia, following the literal text of the legislation, any breach of natural justice inconnection with the making of an award may arguably be contrary to or in conflict withAustralian public policy, triggering the possibility of recourse, including setting aside.5

Severe restriction of curial intervention has been a fundamental element of Englisharbitration for a long time. By enacting the Arbitration Act 1996 (the English Arbitration

1UNCITRALModel Law on International Commercial Arbitration (1985), with amendments as adopted in 2006.2The uniform Commercial Arbitration Acts (CAA) have come into force in all Australian states and territories

except for the Australian Capital Territory. The Acts are as follows: Commercial Arbitration Act 2012 (WA),Commercial Arbitration Act 2010 (NSW), Commercial Arbitration Act 2011 (Vic), Commercial Arbitration Act2011 (SA), Commercial Arbitration Act 2011 (Tas), Commercial Arbitration Act 2013 (Qld).

3The relevant act is the International Arbitration Act 1974 (Cth) which applies in all Australian states and territories.4England andWales constitute a single jurisdiction. Scotland and Northern Ireland are distinct jurisdictions. When

we refer to England or the United Kingdom, this refers to the jurisdiction of England and Wales.5Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No.2) [2012] FCA 1214 at [19].

(2014) 80 Arbitration, Issue 2 © 2014 Chartered Institute of Arbitrators124

Act), the UK Parliament adopted the Model Law, but went much further, by severelyrestricting the possibility of setting aside in particular. The English courts have interpretedrights of recourse against an award under the English Arbitration Act, as confining settingaside to only the most egregious and reprehensible of cases. The House of Lords explainedthe radical nature of the 1996 changes to English arbitration law in Lesotho HighlandsDevelopment Authority v Impregilo SpA, by reference to the pre-existing law.6 Lord Steynexplained that the major purpose of the changes was “to reduce drastically the extent ofintervention of courts in the arbitral process”.7

On the face of it, that strongly articulated expression of curial exclusion (save for theworst cases, where there is no practical alternative) contributes to the United Kingdombeing a desirable seat for arbitration. This is borne out by indications from the businesscommunity, demanding speed and finality—with cost effectiveness as the additional bonus.8

The enactment of arbitration legislation in Australia and the United Kingdom was theculmination of the historical evolution of the common law. The High Court of Australiarecently observed that historically both Australia and England have approached relationshipsbetween: (i) the parties; and (ii) the parties and the arbitrators in terms of private law.9

Notably, in view of the public policy considerations explicit in the current arbitrationregime, the High Court of Australia has relevantly observed that performance of the arbitralfunction is not purely a private matter of contract, in which the parties have given up theirrights to engage judicial power; nor is it “wholly divorced from the exercise of publicauthority”.10 It was the Court’s view that the development of commercial law should notbe restricted by “the complete insulation of private commercial arbitration”.11 The HighCourt’s conclusion from its analysis of the interaction between the statutory regimes relevantto commercial arbitration was that they involved the exercise of public authority, whetherby the arbitral tribunal or by the court.12

Perhaps counterintuitively, the narrower scope for the English courts to intervene maybe one of the attractions for companies that choose that seat for their arbitrations,13 inpreference to jurisdictions like Australia, arguably perceived to be more liberal or untestedthan the United Kingdom. Australia has not yet had a case testing the extent of curialintervention to set aside an award under the State Acts. One must turn to the ordinaryprinciples of statutory construction laid down by the High Court of Australia, as well asprecedents in the international arbitration context.

There are no explicit insights into the ethos of the State Acts to explain restricted curialintervention and the public policy which the legislation is meant to reflect—other thangeneral considerations, arising from theModel Law (and international arbitration), embodiedin the new legislation as “paramount objectives”. Although there is a relationship betweenthe Model Law and the English Arbitration Act, the expression of purpose and policy fromthe UNCITRAL draftsmen seems a far cry from the explicit comments made by the sponsorsof the English Arbitration Act in the House of Lords.

The question—at least in Australia—is identifying where, on the spectrum of gravity ofpublic policy breaches, one would find the justification for setting aside an award altogether,in contrast to mere remittal to the arbitrators. What is the test for remittal rather than settingaside? An important statutory trigger for such recourse is the public policy ground. How

6 [2005] UKHL 43; [2006] 1 A.C. 221; [2005] 3 All E.R. 789; [2005] 2 Lloyd’s Rep. 310 at [26] and [27].7 Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43; [2006] 1 A.C. 221; [2005] 3 All

E.R. 789; [2005] 2 Lloyd’s Rep. 310 at [26].8Queen Mary, University of London and PWC, International Arbitration Survey 2013: Corporate Choices in

International Arbitration: Industry Perspectives, available online at: http://www.pwc.com/gx/en/arbitration-dispute-resolution/assets/pwc-international-arbitration-study.pdf [Accessed February 18, 2014].

9 TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5 at [9].10Westport Insurance Corp v Gordian Runoff Ltd [2011] HCA 37; 244 CLR 239 at [20].11Westport Insurance Corp v Gordian Runoff Ltd [2011] HCA 37; 244 CLR 239 at [19].12Westport Insurance Corp v Gordian Runoff Ltd [2011] HCA 37; 244 CLR 239 at [19].13There are many reasons for which commercial entities may choose English arbitration, not least the renowned

expertise and breadth of experience available.

Arbitral Awards and Public Policy: An Anglo-Australian Perspective 125

(2014) 80 Arbitration, Issue 2 © 2014 Chartered Institute of Arbitrators

this trigger operates in England and Wales is clear. When this trigger will operate is anacademic consideration, because it is such an exceptional remedy. Its likely operation inAustralia (on the domestic front) will be an interesting comparative (and meanwhile,speculative) exercise, until the first decision is handed down. Any decision will haveprofound relevance to Australia’s perception of itself as an attractive jurisdiction for domesticarbitral dispute resolution.

2. England and Wales

An expression of public policyThe notion that a judgment can always be set aside if impugned by fraud14 is not the normin commercial arbitration, unlike in litigation in general. The recent English decision inChantiers de l’Atlantique,15where the arbitration was tainted by fraud, illustrates this point.The English High Court held that even though the critical expert evidence (given at thearbitration hearing) was fraudulent, the award should not be set aside. In coming to thisdecision, the Court’s view was that the result would probably not have been any differenteven if truthful evidence had been given.This result will by no means have startled those familiar with English commercial

arbitration law. It was merely one of the latest in a consistent line of English authority,articulating how recourse against awards is to be achieved. There is a mandatory statutoryregime, with strict recourse provisions. The key to Chantiers de l’Atlantique is anunderstanding of the English Arbitration Act, the underlying public policy considerations,as well as the law governing the arbitration in question.The decision is of interest in Australia, since it coincides (more or less) with the

introduction of the newModel Law based State Acts. The commonModel Law provenanceof the English and Australian legislation provides limited guidance on how the State Actsare likely to be interpreted and applied in Australia. The English Arbitration Act goes muchfurther than any Australian legislation by explicitly radically restricting curial intervention.Like the Commonwealth, with respect to international arbitration, Australian states and

territories have adopted the Model Law for domestic arbitration. The relevant provisionsallow the setting aside of an award on the application of an aggrieved party on a generallyexpressed public policy ground. It differs markedly from the language of the EnglishArbitration Act which codifies a list of particularised grounds, including the rolled-up fraudand public policy ground.These two approaches to statutory drafting do not of themselves reveal a great deal about

differing approaches to their interpretation in England and Australia. The key to the Englishapproach is the public policy considerations onwhich the English ArbitrationAct is explicitlybased and their implementation by the courts.A feature of the English case law is the explicit reflection of the policy considerations at

the heart of the statutory remedy. This invites the questions whether those considerationsare relevant in Australian domestic arbitration law and how the new State Acts will beinterpreted by the relevant Australian courts. That will involve an analysis of the Englishand Australian legislation, theModel Law and any explanatory material, as well as relevantcase law. Accordingly, Chantiers de l’Atlantique merits further scrutiny.

14Robert Merkin and Louis Flannery, Arbitration Act 1996, 4th edn (London: Routledge, 2008), p.155–163 (notecommenting on the English Arbitration Act s.68).

15Chantiers de l’Atlantique SA v Gaztransport & Technigaz SAS [2011] EWHC 3383 (Comm).

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Chantiers de l’Atlantique v Gaztransport: A summaryThis was an application under the English Arbitration Act to set aside an arbitration awardon the grounds that it was obtained by fraud on the part of the respondent, Gaztransport(GTT). The arbitration was held in Paris in the French language pursuant to the ProceduralRules of the International Commercial Court (ICC), which are essentially akin to theprocedure in civil law jurisdictions including France, as regards matters such as disclosure.The arbitrators were French (albeit the President of the Tribunal was Belgian), and theparties and their lawyers were French. The agreement between the parties out of which thearbitration had arisen was subject to French law.Despite that, the application to set aside was made to the High Court of Justice of England

and Wales because the underlying agreement stipulated that the place of arbitration was tobe London. It followed that the High Court was the supervisory court to which the applicationto set aside had to be made.The claimant in the arbitration (and the applicant in the application to set aside) was a

major French shipbuilding company that specialised in building Liquefied Natural Gas(LNG) carriers designed to carry LNG held at extreme sub-zero temperatures (CAT). GTTwas a company specialising in the design of containment systems technology for LNGcarriers and land-based LNG storage systems. It was jointly owned by significantcorporations, namely, Gaz De France, Total and Saipem.The core of the dispute was whether there was poor workmanship by the shipyard in the

adhesive bonding of the secondary insulation barrier of the containment. Subsequent testsof the LNG vessels suggested that there was indeed a serious fault which needed to berectified before the vessels could enter service. It was agreed that GTT would carry out atest programme in a laboratory. This was done. Unfortunately the results of the tests weretotally unsatisfactory, causing a reaction of some consternation within GTT. Yet GTT didnot tell CAT about these results, which were deliberately concealed—as was theconsternation for that matter.CAT made an application under the English Arbitration Act s.68(2)(g) for the award to

be set aside on the grounds that it was obtained by fraud on the part of the respondent.16

The court articulated the issue before it in the subsequent application to set aside the arbitralaward for fraud as follows:

“[W]hat matters ultimately is whether the allegations now relied upon … establish tothe requisite standard that the Award was obtained by fraud”.

This is a reference to the many allegations in the arbitration and the application to set aside.These involved criticisms not only of GTT’s design, but also of GTT’s failure to disclosethe test results in question.At the arbitration hearing in Paris, GTT called a witness who produced an expert’s report

disclosing certain test results, but not the results which caused the consternation. CAT’scase, in the application to set aside, was that the witness intentionally concealed from thetribunal the existence of the tests and the test results, and made a number of deliberatelymisleading statements to the tribunal.

16The relevant section provides as follows:“(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the

court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal,the proceedings or the award. A party may lose the right to object (see section 73) and the right to applyis subject to the restrictions in section 70(2) and (3).

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considershas caused or will cause substantial injustice to the applicant:…(g) the award being obtained by fraud or the award or the way in which it was procured being

contrary to public policy.”



The tribunal dismissed CAT’s claims on various grounds, the most relevant of whichwas that CAT could not establish the necessary criterion as a matter of French law of “grossfault”.A fewweeks after the award was published, CAT received a tip-off from a whistle-blower

who was a disaffected employee of GTT. He suggested that CAT should look at the varioustest results and that CAT had been the victim of fraud. Subsequently, an anonymouswhistle-blower provided CATwith a document in a plain brown envelope. It was the internalGTT email referring to the test results indicating unacceptable adhesive failures.

Lessons from Chantiers de l’AtlantiqueThe judgment inChantiers de l’Atlantique demonstrates the extremely restrictive approachof English courts to the setting aside of arbitral awards. Flaux J. enunciated the followingfour principles in relation to the English Arbitration Act s.6817:

1. An arbitral award will only be set aside for fraud in extreme cases as s.68 is“designed as a longstop only available in extreme cases”.

2. Fraud is dishonest, reprehensible or unconscionable conduct and it must bedistinctly pleaded and proved, to a heightened burden of proof.18

3. The award itself must have been obtained by fraud. This will be where

“the party which has deliberately concealed the document has, as aconsequence of that concealment, obtained an award in its favour. TheParty relying on section 68 (2)(g) must therefore also prove a causativelink”.19

This means that there has to be fraud in the arbitration itself.4. The evidence of fraud must not be of such a kind “as could have been obtained

or produced at the arbitration hearing with reasonable diligence” and theevidence must be “so material that its production [at trial] would probablyhave affected the result”. It is not necessary to show that itwould have affectedthe result, as this would be to usurp the function of the arbitrators in the eventthat it were to be remitted to them.

It is also useful to note that Flaux J. emphasised that the arbitration had been conductedunder the IBA Rules on the Taking of Evidence in International Arbitration, under whichthere was no duty to disclose relevant documents (as might have been required under EnglishCivil Procedure Rules Pt 31).

The English Arbitration Act and its ethosThe English Arbitration Act allows a party to arbitral proceedings to apply to courtchallenging an award on the ground of serious irregularity affecting the tribunal, theproceedings or the award.20

A serious irregularity means an irregularity which the court considers has caused or willcause substantial injustice to the applicant. The codified list of grounds of irregularity whichmay trigger an application includes “the Award being obtained by fraud or the way in whichit was procured being contrary to public policy”.21

17Chantiers de l’Atlantique SA v Gaztransport & Technigaz SAS [2011] EWHC 3383 (Comm) at [54]–[61].18The burden of proof is set out in Hornal v Neuberger Products Ltd [1954] 1 Q.B. 247 and Re H (Minors) [1996]

A.C. 563.19 Flaux J. was relying on the decision in Elektrim SA v Vivendi Universal SA [2007] EWHC 11 (Comm); [2007]

1 Lloyd’s Rep 693 at [82].20English Arbitration Act s.68(1).21English Arbitration Act s.68(2)(g).

128 Arbitration


Once there is shown to be serious irregularity on one or more of the grounds, the courtmay remit the award to the tribunal, set it aside in whole or in part, or declare it to be of noeffect, in whole or in part.22 The critical requirement is that an irregularity will only be“serious” if it causes or will cause a substantial injustice to the applicant. It follows thateven where fraud is proved, the court must still be satisfied that a substantial injustice tothe applicant will result. “Injustice to the applicant”, in contrast to general injustice, contraryto the values of the justice system, represents the radical pragmatism characterising theEnglish Arbitration Act.A court may only set aside an award, or declare it to be of no effect, if it is satisfied that

it would be inappropriate to remit the matters in question to the tribunal for reconsideration.23

The thrust of this provision is that setting aside is the solution only where the impugnedconduct is of such a kind that there is nothing else left that would be an appropriate formof relief. The effect is to reserve setting aside for the exceptional cases, where it isinappropriate to leave it to the tribunal to rectify its own mistakes, or any flaws in theprocedure adopted in the arbitration.The codified list of possible irregularities is exhaustive, leaving no room for the courts

to develop new grounds of serious irregularity in a manner that might lead to a generalsupervisory jurisdiction.24

Specifying fraud as well as other conduct contrary to public policy as a single groundsuggests the same treatment for both types of conduct. The English courts have, however,observed that where a party has procured the award in a way which is contrary to publicpolicy, but short of fraud, it will normally be necessary to satisfy the court that some formof reprehensible or unconscionable conduct has contributed in a substantial way to obtainingan award in that party’s favour. But it is also said that a court should not be quick to interfereunder this provision. It should only be used in extreme or serious cases.25

The difficulty is in understanding the nature of behaviour so serious, yet not warrantingthe ultimate remedy of setting aside. The best way of illustrating where the line has beendrawn is by referring to actual examples.In Miller’s Timber Trust v Plywood Factory Julius Potempa,26 the plaintiff applied to

have the awards set aside and the umpire removed. The court was not persuaded that thiswas the correct remedy where the umpire had acted honestly and in good faith, despitemaking awards which contravened the prevailing legal requirements.It was said that if the evidence had been that the umpire was disposed to favour one or

other of the parties, the court would not have regarded remittal as the appropriate solution.These observations are obsolete in the context of post-1996 English arbitration law, wherea specific approach to curial intervention is recognised and applied by the courts. They do,however, show that setting aside is reserved for only the worst and most exceptional cases,involving dishonesty and bad faith on the part of the tribunal.Pacol Ltd v Joint Stock Co Rossakhar27 is a more recent example of setting aside, having

been decided under the 1996 Act. Colman J. described it as “the paradigm of a case wherethe award ought to be set aside”. The arbitrators made their award without giving the partiesprior notice of their intention to reopen the question of liability. Remittal was held to beinappropriate because the arbitration would have to be re-opened and re-pleaded. What ismore, it was held that it would be “quite wrong to allow the arbitrators to build anythingon the structure of the award”, by granting a remittal.Setting aside may be either an inappropriate or an appropriate remedy, depending on the

circumstances. It is inappropriate where arbitrators make a genuine mistake, but appropriate

22English Arbitration Act s.68(3).23English Arbitration Act s.68(3).24Merkin and Flannery, Arbitration Act 1996 (2008), p.155–163 (note commenting on the English Arbitration Act

s.68).25Profilati Italia Srl v PaineWebber Inc [2001] 1 All E.R. (Comm) 1065 at [17].26 (1939) 63 Ll. L. Rep. 184.27 [2000] 1 Lloyd’s Rep. 109.



where they make a serious and irrevocable error of justice, affecting the integrity of theentire arbitration.The House of Lords has spoken of “the radical changes brought about by the Act” to

explain its “ethos”.28 In the parliamentary debate on the occasion of the reading of theArbitration Bill in the House of Lords in 1996, the relationship between arbitration andcourt proceedings was put in these words:

“I have never taken the view that arbitration is a kind of annex, appendix or poorrelation to court proceedings. I have always wished to see arbitration, as far as possible,and subject to statutory guidelines no doubt, regarded as a freestanding system, freeto settle its own procedure and free to develop its own substantive law… . That is notthe position generally which has been taken by English law, which adopts a broadlysupervisory attitude …Other countries adopt a different attitude and so does the UNCITRAL model law.

The difference …is … quite a substantial deterrent to people to sending arbitrations… [to England and Wales] ……[The Arbitration Bill] … has given the court only those essential powers which

I believe the court should have; that is, rendering assistance when the arbitrators cannotact in the way of enforcement or procedural steps, or, alternatively, in the direction ofcorrecting very fundamental errors.”29

There was no need for the drafters of the Arbitration Act to set out the circumstances inwhich setting aside would be appropriate because the case law already sufficiently set theparameters.One of the fundamental purposes of the English Arbitration Act was to reduce drastically

the extent of court intervention in the arbitral process.30 The rationale for refusing to setaside awards in cases short of fraud has been expressed as precluding what would otherwisebecome the granting of a remittal or setting aside in virtually every case.31 This propositionwas accepted in Chantiers de l’Atlantique.32 Even where the aggrieved party relied uponfraud, it was still necessary to prove not only that the new evidence was unavailable at thetime of the arbitration, but that it would have had an important influence on the result.33

This criterion is critical because of the language in the English Arbitration Act.The words “obtained by fraud” in the English Arbitration Act have been held to mean

the fraud of a party to the arbitration—or to which the party was privy—not fraud committedby anyone connected with the arbitral process. It has been observed that

“this fits in with the general ethos of the Act, which is to give the courts as little chanceto interfere with arbitrations as possible … If this wording referred to the fraud ofanyone else… involved in the arbitral process… that would give unsuccessful partiescarte blanche to apply to court to set aside or remit an award.”34

The intention is to exclude cases where a witness for one or other party perjures him orherself.35

The House of Lords has remarked that the original conception of s.68 was in these terms:

28 Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43; [2006] 1 A.C. 221; [2005] 3 AllE.R. 789; [2005] 2 Lloyd’s Rep. 310 at [17].

29Lord Wilberforce, Hansard, col.778 (January 18, 1996), as cited in Lesotho Highlands Development Authorityv Impregilo SpA [2005] UKHL 43; [2006] 1 A.C. 221; [2005] 3 All E.R. 789; [2005] 2 Lloyd’s Rep. 310 at [18].

30English Arbitration Act s.1(c).31Profilati Italia Srl v PaineWebber Inc [2001] 1 All E.R. (Comm) 1065 at [20].32Chantiers de l’Atlantique SA v Gaztransport & Technigaz SAS [2011] EWHC 3383 (Comm) at [53].33Elektrim v Vivendi Universal SA [2007] EWHC 11 (Comm); [2007] 1 Lloyd’s Rep 693 at [82].34Elektrim SA v Vivendi Universal SA [2007] EWHC 11(Comm); [2007] 1 Lloyd’s Rep 693 at [80].35Elektrim SA v Vivendi Universal SA [2007] EWHC 11(Comm); [2007] 1 Lloyd’s Rep 693 at [79].

130 Arbitration


“[it] … is really designed as a long stop only available in extreme cases where thetribunal has gone so wrong in its conduct of the arbitration that justice calls out for itto be corrected.”36

This was in the context of an appeal to resolve the issue of whether the arbitrators hadexceeded their powers by making an award in a currency other than that stipulated in thecontract. Lord Steyn observed that s.68 was not designed to achieve the “right” decision,but, rather, a fair arbitral hearing, leading to an impartial arbitral adjudication.The case law reflects the view that applications to set aside will, more often than not, be

unsuccessful.37 It follows that a setting aside order would only be available in cases involvingsuch reprehensible behaviour that no other remedy is appropriate. This would probablyinclude the case where a tribunal itself has committed fraud. It is more difficult to imaginean example where a procedural irregularity committed in good faith would warrant settingaside.

3. Australia

Public policy and Australian domestic commercial arbitrationThe State Acts allow an arbitral award to be set aside if the court finds that “the award isin conflict with the public policy of … [the State]”.38 The reference to public policy shouldbe understood in the context of the paramount object of the legislation, which is “to facilitatethe fair and final resolution of commercial disputes by impartial tribunals withoutunnecessary delay or expense”.39

The public interest in achieving the paramount objective is explicitly recognised. It mustbe achieved

“by enabling the parties to agree about how their commercial disputes are to be resolved(subject to … such safeguards as are necessary in the public interest)”.40

There is no explicit language distinguishing between fraud and other conduct contrary topublic policy, nor does there need to be. 41 Both fraud and failure to apply the safeguardsof natural justice are paradigm examples of conduct in conflict with or contrary to publicpolicy and the public interest. They are both at the heart of the administration of justice.Specifically, the legislation promotes the observation of good faith in the resolution ofarbitral disputes.42

The State Acts provide that they must be interpreted with regard to the need to promotethe application of the provisions of theModel Law, having regard also to documents relatingto UNCITRAL itself and its working groups for the Model Law.43

The International Arbitration Act defines public policy in the context of both theenforcement of foreign awards and recourse against awards.44 With respect to the latter theIAA provides:

36 Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43; [2006] 1 A.C. 221; [2005] 3 AllE.R. 789; [2005] 2 Lloyd’s Rep. 310 at [27], citing the Report of the Departmental Advisory Committee on ArbitrationLaw on the then Arbitration Bill cl.68.

37Elektrim v Vivendi Universal SA [2007] EWHC 11 (Comm); [2007] 1 Lloyd’s Rep 693; Cuflet Chartering vCarousel Shipping Co Ltd [2001] 1 All E.R. (Comm) 398; Thyssen Canada Ltd v Mariana Maritime SA [2005]EWHC 219 (Comm).

38CAA s.34(2)(b)(ii), all state legislation.39CAA s.1C(1) (WA), (NSW), (SA) and (Tas); s.1AC(1) (Qld); s.1AA(a) (Vic). The dual objectives of the case

management system found in the superior courts are reducing delay and achieving cost effectiveness.40CAA s.1C(2)(a) (WA), (NSW), (SA) and (Tas); s.1AC(2)(a) (Vic) and (Qld).41Cf. CAA s.34, all state legislation.42CAA s.2A(1), all state legislation.43CAA s.2A(3) (WA), (NSW), (Vic), (Tas) and (Qld); s.2A(2) (SA). Cf. TCL Air Conditioner (Zhongshan) Co

Ltd v The Judges of the Federal Court of Australia [2013] HCA 5 at [6].44 IAA s.8(7A) and s.19(1)(b) respectively.



“for the avoidance of any doubt … for the purposes of … [the Model Lawart.34(2)(b)(ii)] … an award is in conflict with or contrary to, the public policy ofAustralia if:(a) the making of the … award was induced or affected by fraud or corruption;

or(b) a breach of the rules of natural justice occurred in connection with the making

of the … award.”45

Identical language is used in relation to identifying when the enforcement of foreign awardswould be contrary to public policy. It follows that “public policy” includes procedural aswell as substantive questions.46 On the face of it, any departure from the rules of naturaljustice in connection with the making of an award under the International Arbitration Actwould offend fundamental notions of fairness and justice—in conflict with or contrary topublic policy.47

This is also likely to be the interpretation under the State Acts, in the light of the commonadoption of the Model Law at both state and federal levels. Unlike the IAA, the State Actsdo not define the meaning of “public policy”. They bundle up all impugned conductgenerally, under the rubric of being in conflict with or contrary to public policy.The language imported into the legislation from the Model Law contains guidance. The

Model Law is said to contain an exhaustive list of the grounds on which an award can beset aside. “Violation of public policy”—one of the grounds for setting aside an award—issaid “to be understood as serious departures from fundamental notions of proceduraljustice”.48 The key adjective is “serious”, indicating that the wide language of the State Actmay encompass, but not be confined to, conduct of a “most reprehensible” or a “mostegregious” kind. This suggests a range of impugned conduct, which must at least be serious.Fraud is the obvious example of the most serious violation. But, importantly, it is also a

serious departure from the principles of trust, honesty and integrity at the heart of theadministration of justice. Fraud and corruption are the antithesis of the public interest. Theyare fundamentally in conflict with public policy objectives. It is no coincidence that theword “violation” is used in this context, to give adequate expression to the level ofdisapproval such reprehensible behaviour engenders. The language of the Explanatory Noteto the Model Law, focusing on procedural rather than substantive justice, invites a questionas to the degree of procedural irregularity contemplated. The answer must be “seriousdepartures”, including departures from principles of natural justice—like fraud, equallyantithetical to procedural and to substantive justice.49 This is consistent with the languageof the English Arbitration Act, where the relevant ground for setting aside differentiatesbetween conduct amounting to “fraud or … contrary to public policy”.50

Restrictions on granting recourse against an awardIn the rather Delphic language of the Model Law, the State Acts apply as follows:

“This Act does not affect any other Act by virtue of which certain disputes may notbe submitted to arbitration or may be submitted to arbitration only according toprovisions other than those of this Act.”51

45 IAA s.19.46Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No.2) [2012] FCA 1214 at [19]. An

appeal to the High Court of Australia was successful, but on different grounds.47Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No.2) [2012] FCA 1214 at [50].48Explanatory Note by the UNCITRAL Secretariat to the 1985Model Law on International Commercial Arbitration

as amended in 2006, para.46.49Assistant Commissioner Condon v Pompano Pty Ltd [2013] HCA 7.50Merkin and Flannery, Arbitration Act 1996 (2008), p.155–163; and English Arbitration Act s.68(2)(g).51CAA s.1(5), as incorporated into all State Acts.

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Stating the obvious, it follows that the State Acts do not apply to particular state laws whichexclude submission to arbitration, or which allow submission under some other law. Thelogic is that the State Acts are an exclusive means of seeking relief, save where other lawsexclude such relief altogether, or make specific provision for such relief.The expression of exclusionary intent explicitly delimits the restricted extent of court

intervention, namely: “In matters governed by this Act, no court shall intervene exceptwhere so provided in this Act.”52

Chapter VII of the Model Law (“Recourse Against Award”) makes it crystal clear thatrecourse to a court to set aside an awardmay only bemade in conformity with the proceduresand processes prescribed by the Law.53

To all intents and purposes, this is the last word on the exclusivity question.54 Yet it hasbeen suggested that this may amount to a denial of “curial remedies in regard to excess ofjurisdiction” which “may strike at the very heart of any such provision”.55 These remarksare now obsolete. They apparently stem from the line of authority regarding the operationof traditional privative clauses designed to protect decisions made under enactmentsapplicable to jurisdictional error and judicial review.56 They do not take into account thefundamental policy of pragmatism and flexibility at the heart of the legislation. The StateActs now allow much more flexibility in the choice of remedies, aiming to fix a problem,rather than provide retribution for the aggrieved party. The court may suspend the settingaside application to allow the arbitration to continue, or allow the arbitrators to take othersteps to obviate setting aside the award.57

Seen in this light, two things become apparent. First, even where there is a complaint offraud or of similarly seriously reprehensible conduct, the court has the flexibility to allowarbitrators to deal pragmatically with the source of the complaint. Secondly, the courts areexpected and obliged to grant pragmatic relief, consistent with the paramount object of theState Acts. Even where setting aside is deemed appropriate, the decision will be based onpragmatic grounds consistent with the objectives of the legislation.

Likely developments in AustraliaAustralia has not yet had a domestic arbitration case explaining how the judicial discretionto set aside a domestic arbitral award is, or is likely to be, applied. No Australian caseexplicitly confines the remedy of setting aside an award to only the most extreme cases.Fortunately, guidance is available from cases on the nearly identical regime for internationalarbitration.A question for Australian lawyers remains: how to identify when setting aside is

appropriate in a domestic arbitration.What is the trigger for setting aside instead of remittal?In England and Wales it is explicitly limited to the very worst of cases where the integrityof the administration of justice leaves no alternative. Is the position practically any differentin Australia, despite the differences in the statutory language used?In England andWales, even where serious procedural irregularities have occurred, setting

aside is not there for the asking. In Australia, the level of generality of the statutory languageprompts the question of where the line should be drawn to justify setting aside. It has beenobserved that the ordinary grammatical meaning of the text is that any breach of naturaljustice in connection with the making of an award could justify setting aside.58 Does thismean—by stating it so broadly—that even the most trivial breach would be actionable?

52CAA s.5, all State Acts.53CAA s.34(1).54Bishop v Chung Bros (1907) 4 C.L.R. 1262 at 1273.55Marcus S. JacobsQC,Commercial Arbitration Law and Practice (Sydney: LawBookCompany), p.560, remarking

on the possible effect of Kirk v Industrial Court of NSW (2010) 239 C.L.R. 531.56Cf. Houssein v Department of Industrial Relations and Technology NSW (1982) 148 C.L.R. 88.57CAA s.34(4), all State Acts.58Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No.2) [2012] FCA 1214 at [19].



This issue has attracted some judicial commentary in Australia with respect to internationalarbitration. It is suggested that the setting aside power will be used only in the most seriouscases despite the generality of the statutory language.59What is more, despite the differencesbetween the language of the English and Australian legislation, the Australian courts willnot deny the enforcement of an international award where an English court has previouslyrefused to set aside that award.60

The Federal Court of Australia has questioned the view that less seriously impugnedconduct may qualify for relief, as well as the reprehensible and unconscionable sort ofconduct in the English Arbitration Act.61 The first point is that a breach unlikely to affectthe outcome of an arbitration should not result in the award being treated as being in conflictwith public policy. Secondly, it is said that the inclusion of less serious breaches would beinconsistent with the paramount objective of the State Acts. The final point is that theinclusion of lesser breaches would be inconsistent with the pro-enforcement bias of thearbitration legislation.62 All three of these points not only have considerable force in theirown right, but they all seem entirely consistent with the aim of creating a seamless uniformarbitral system across jurisdictions.

4. A Shared Ethos?In view of the expressed objectives of the Australian domestic arbitration regime and thepublic policy considerations on which it is based, it is unlikely that Australian courts wouldtake a different approach to the English courts. There are, consistently with notions ofcomity and uniformity between jurisdictions, strong indications that Australian courts willfind the English case law persuasive, in relation to both domestic and international arbitration.Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd is a case in point.63 In the aftermath

of an English court refusing to set aside the award,64 the litigation moved to Australia.Coeclerici successfully obtained judgment from the Federal Court of Australia for amountsowing, the appointment of receivers and ancillary relief. In the Australian proceeding GujaratNRE’s defence relied upon provisions of the IAA empowering a court to refuse theenforcement of a foreign award, if it would be contrary to public policy to do so, on theground of a breach of natural justice.65

The Federal Court of Australia discussed in detail the reasons for the judgment deliveredin the English proceedings.66 Despite the English decision that their case was devoid ofmerit, the respondents persisted in arguing that the alleged failure by the arbitrators to grantthem natural justice entitled them to escape the consequences of enforcement of the awardin Australia. But the Federal Court held that one of the relevant circumstances to beconsidered in the Australian proceedings was that the dispute was being dealt with by wayof arbitration, in particular, under the English Arbitration Act.67 The Court held that notonly had they received ample opportunity to be heard, but the English court had actuallyruled against them on that very issue.68 Extending that point, the Federal Court observedthat “it would generally be inappropriate for … [it] … to reach a different conclusion onthe same question as that reached by the court of the seat of the arbitration”.69

59Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No.2) [2012] FCA 1214.60Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882.61Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No.2) [2012] FCA 1214 at [30].62CAA ss.35–36, all State Acts.63 [2013] FCA 882.64NRE Coke Ltd & Anor v Coeclerici Asia (Pte) Ltd [2013] EWHC 1987 (Comm).65 IAA s.8(7)(b); Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [26].66Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [86]–[91].67Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [92].68Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [102].69Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [103].

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Gujarat NRE subsequently made an unsuccessful appeal to the Full Court of the FederalCourt of Australia,70 confirming Australia as a pro-enforcement jurisdiction anddemonstrating that the Australian courts will tend to give weight to decisions of the courtof seat of the arbitration.

5. Conclusions: Where Next?The State Acts must be interpreted so as to promote uniformity between the application ofthe legislation to domestic commercial arbitrations and the application of the Model Lawto international commercial arbitrations.71 The court must not exercise its power to set asidean award unless it is satisfied that it would be inappropriate to remit the matters in questionto the arbitral tribunal.72 This is despite the plain words of the State Acts saying simply,without elaboration, that recourse is available whenever public policy is breached. Theelement of propriety was presumably added to give effect to the paramount objective of theState Acts.

It follows that remittal is the default position, setting aside being reserved only forinappropriate cases. These are the rare cases where remittal would be inadequate to redressbreaches so serious as to bring the administration of justice into question, for example,securing an award by corrupt means.

It has been suggested that the discretion to set aside an award will only be exercised“when fundamental notions of fairness or justice are offended”.73This broad general approachis consistent with the meaning of the legislation. It allows setting aside when appropriate,that is to say, where conduct seriously offends public policy. Equally, it finds pragmaticsolutions short of setting aside in most cases, where radical surgery is not the solution.

The new arbitration regime is designed to keep intervention by the courts to a minimum,apparently even where egregious conduct occurs. The signs are that Australian courts arefollowing this approach, guided by universal public policy considerations inherent in theModel Law.

In the most serious cases, the court may set aside an award. However, this will take placeonly on the rarest of occasions. Instead, remittal is likely to become the default recourse inthe majority of cases.

70Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109.71CAA s.2A(1), all State Acts.72CAA s.34A(8), all State Acts.73Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No.2) [2012] FCA 1214 at [33].



Section 69 of the English Arbitration Act1996—When Fact and Law CollideAndrew Tweeddale

Keren Tweeddale

Natasha Nguyen

1. IntroductionIt has often been said that an arbitrator is master of the facts.1 Challenges to arbitrators’awards have rarely ever been permitted based purely on an error of fact.2 In Vinava ShippingCo Ltd v Finelvet AG (The Chrysalis)3 Mustill J. remarked, albeit as obiter dicta, that thecourt had no jurisdiction to consider appeals on questions of fact—even if the parties agreed.Similarly, in Geogas SA v Trammo Gas Ltd (The Baleares)4 Steyn L.J., in the Court ofAppeal, held that: “The principle of party autonomy decrees that a Court ought never toquestion the arbitrators’ findings of fact.”

The Arbitration Act 1996 (AA 1996) has sought to reinforce this position. The AA 1996s.69, which governs appeals, is highly restrictive. It applies only to appeals on questions oflaw arising out of the award and that question must be one which the arbitral tribunal wasasked to determine. Furthermore, the AA 1996 s.81(2) makes clear that:

“Nothing in this Act shall be construed as reviving any jurisdiction of the court to setaside or remit an award on the ground of errors of fact or law on the face of the award”.

A “question of law” is defined by the AA 1996 s.82(1), which states that it means a questionof English law for a court in England and Wales or one of Northern Irish law for a court inNorthern Ireland. This is the case even if the law of the contract is similar to English law.5

However, the situation is less clear when questions of fact are bound into questions oflaw. A question of mixed fact and law can arise where the arbitral tribunal needs to decideon the interpretation of a contract, custom or statute. Furthermore, it used to be thought thatwhere a finding of fact was based on no evidence whatsoever, this gave rise to a point oflaw.6However, given the emphasis in the AA 1996 on less judicial intervention, this principlehas recently come under the scrutiny of the courts. This article looks at recent case lawwhich has considered when the courts will entertain appeals which involve questions ofmixed fact and law. It also considers how the courts approach identifying a question of law.

2. Identifying a Question of LawThe starting point for any challenge under the AA 1996 s.69 is to identify a question oflaw. In Kershaw Mechanical Services Ltd v Kendrick Construction Ltd,7 Jackson J. (as he

1Mustill & Boyd, Commercial Arbitration, 2nd edn (London: Butterworths, 1989), p.596; and Steyn L.J. inGeogasSA v Trammo Gas Ltd [1993] 1 Lloyd’s Rep. 215 at 227 CA.

2An example of where a challenge was permitted was in themiddle of the nineteenth century when it was permissibleto challenge an award where the arbitrator admitted there was an error of fact:Mills v The Master, etc. of the Mysteryof Bowyers 3 K. & J. 66.

3 [1983] 2 All E.R. 658.4 [1993] 1 Lloyd’s Rep. 215 at 232 CA.5Reliance Industries Ltd v Enron Oil and Gas India Ltd [2002] 1 All E.R. (Comm) 59.6 See, e.g. Edwards (Inspector of Taxes) v Bairstow [1956] A.C. 14.7Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] EWHC 727 (TCC).


then was) addressed the issue of approaching appeals under s.69 by reference to four distincttopics. These were:

1. What evidence can the court consider in determining an appeal under the AA1996 s.69(2)?

2. Is there a philosophy of non-intervention which should influence the court?3. What degree of deference should be shown to the arbitrator’s decisions on

questions of law?4. How should the court identify any questions of law arising out of an award?

What evidence can the court consider in determining an appeal under theAA 1996 s.69(2)?In most cases the court can only consider the arbitral award as evidence.8 For example,HOK Sport Ltd v Aintree Racecourse Co Ltd9 concerned an appeal against the decision ofan arbitrator on the measure of damages payable to Aintree. It was alleged that the architect,HOK Sport Ltd, had breached its duty of care in failing to warn that a newly constructedsports stand would have lower seating capacity than required. The parties had prepared andserved “voluminous evidence and documentary materials”10 including sections of thepleadings, closing submissions and the transcript of evidence in the arbitration. H.H. JudgeThornton QC held that none of this material was admissible in relation to whether therewas a question of law arising out of the award. Judge Thornton referred to the followingdicta from Coleman J. in Foley’s Ltd v City and East London Family and CommunityServices11:

“The jurisdiction provided under section 1 of the 1979 Act provides for the court toconsider any questions of law arising out of an award. For that purpose the court is tobe provided with the award. If the award does not indicate in the reasons attached toit precisely the route which the arbitrator has followed from the submissions indicatedin the award to the conclusion at which he has arrived, it is open to a party to applyunder section 1(5) of the Arbitration Act for further reasons.… That and only that, is the available material upon which the court can determine

applications for leave to appeal.”

Judge Thornton confirmed that the above passage was equally applicable to AA 1996 s.69.However, on rare occasions, exceptions to the strict approach in HOK Sport are made

due to the particular facts of the case, such as in Kershaw v Kendrick.12 This case concernedan appeal against an arbitrator’s partial award determining what sums were due to asub-contractor on its final account. The case turned on the true interpretation of a passagerelated to pricing (referred to as “the Qualification”) which formed part of a series of itemsof correspondence incorporated into the sub-contract. Although the arbitrator had identifiedthe correspondence in his award, it had not been fully reproduced. Jackson J. determinedthat in this case the award could not be read in isolation: it formed part of a series ofdocuments which needed to be examined in order to properly interpret it. He concludedthat the guidance in Hok Sport should be modified so that, in addition to the award, thecourt can also look at any documents referred to in the award which it needs to read in orderto determine the appeal. What is evident, however, is that the courts will only allow a limitedamount of evidence to be adduced by the applicant in order to determine the issue of lawthat is the subject of the appeal.

8 If the parties have agreed to dispense with a reasoned award AA 1996 s.69(1) states that an appeal cannot bebrought.

9 [2002] EWHC 3094 (TCC).10 [2002] EWHC 3094 (TCC) at [15].11 [1997] A.D.R.L.J. 401 at 402–403.12Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] EWHC 727 (TCC).

Section 69 of the English Arbitration Act 1996—When Fact and Law Collide 137


Is there a general philosophy of non-intervention which should influencethe courts?Recent first instance decisions show that judges have divergent views on whether there isa general philosophy of non-intervention. This issue arose in Kershaw v Kendrick, wherethe respondent argued that a philosophy of non-intervention by judges underpinning theAA 1996 should discourage the court from allowing an appeal under s.69(2)(a). Theargument relied on a passage from the judgment of Lord Steyn in Lesotho HighlandsDevelopment Authority v Impregilo Spa13 in which his Lordship referred to thenon-interventionist role of the court as the ethos of the AA 1996. In Kershaw v Kendrickthe appellant argued that Lesotho was irrelevant as it did not concern an appeal under s.69(which had been barred under the ICC rules) but concerned a challenge under the AA 1996s.68. Furthermore, the parties inKershaw v Kendrick had expressly agreed that there shouldbe an appeal on questions of law to the court.Jackson J. found that there was no philosophy or ethos underpinning the AA 1996 that

would prevent a court from deciding any questions of law raised by an appeal. He came tothis conclusion based on the principle of party autonomy which is one of the principles onwhich Pt 1 of the AA 1996 is founded. If the parties have agreed that an appeal should lieto the courts on any questions of law, this should not be prevented. Moreover, the principleof non-intervention stated in s.1(c) is qualified by the words “except as provided by thisPart”; s.69(2)(a) being a provision falling within that exception. Lesothowas distinguishedon the basis that it concerned a challenge under the AA 1996 s.68.In contrast, inNational Trust for Places of Historic Interest or Natural Beauty v Fleming14

Henderson J. remarked15 that

“… The court should … be very sparing in its interventions in the arbitral process,and this philosophy is reflected in the provisions of section 69.”

Judge Hegarty QC referred to this comment in Harvey v MIBI16 and also made a similarobservation17:

“I accept that a commitment to the autonomy of the dispute resolution process chosenby the parties is a factor which underpins the present approach to judicial interventionin arbitration matters, as enshrined in the 1996 Act.”

Judge Hegarty then stated:

“I very much doubt if even a total absence of any evidential basis for a finding of factcan give rise to a question of law for the purposes of section 69”

and gave his judgment accordingly.

What degree of deference should be shown to the arbitrator’s decisions onquestions of law?Numerous authorities have stated that, as a general rule, courts should seek to upholdarbitration awards. In Kershaw v Kendrick, Jackson J. considered a line of cases beginningwith The Chrysalis18which considered the way in which courts should approach arbitrationawards. Mustill J. considered that the arbitrator’s approach to decision making should bein three stages. First, the facts should be ascertained (this includes making findings on any

13 [2005] UKHL 43; [2005] 3 W.L.R. 129.14 [2009] EWHC 1789 (Ch).15 [2009] EWHC 1789 (Ch) at [12].16 Unreported December 21, 2011 (Lawtel transcript 2011 12 26706791).17Harvey v MIBI Unreported December 21, 2011 (Lawtel transcript 2011 12 26706791) at [40].18Vinava Shipping Co Ltd v Finelvet AG (The Chrysalis) [1983] 2 All E.R. 658.

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facts which are in dispute); secondly, the relevant law should be determined; and thirdly,the law should be applied to the ascertained facts (this stage involves an element of judgmentby the arbitrator). Mustill J. pointed out19 that there was not “a uniquely ‘right’ answer tobe derived from marrying the facts and the law, merely a choice of answers, none of whichcan be described as wrong”.This scenario is illustrated by White Rosebay Shipping SA v Hong Kong Chain Glory

Shipping Ltd.20 In this case the issue was whether a party had affirmed a charterparty by itsconduct. The court held that whether a party had done so or not was a judgment for thetribunal and as the exercise of a tribunal’s judgment was not a mechanical exercise andwould result in different conclusions from different tribunals, there was no “right” answer.The court could not say that in applying the law of affirmation to the facts there was oneanswer only. This meant that the court could not conclude that the tribunal must havemisunderstood the principles it directed itself to apply and so must have erred in law. Thecourt stressed that it was not its role to substitute for the tribunal’s answer the answer itmight have given had it been the tribunal of fact.Mustill J. in The Chrysalis was of the view that only the second stage could properly be

the subject of an appeal under the AA 1996 s.69. He observed21 that:

“In some cases an error of law can be demonstrated by studying the way in which thearbitrator has stated the law in his reasons. It is, however, also possible to infer anerror of law in those cases where a correct application of the law to the facts foundwould lead inevitably to one answer, whereas the arbitrator has arrived at another; andthis can be so even if the arbitrator has stated the law in his reasons in a manner whichappears to be correct: for the court is then driven to assume that he did not properlyunderstand the principles which he had stated.”

However, Mustill J. recognised that a court might be less willing to substitute its ownjudgment for that of the arbitrator if the issue concerned an area of industry in which thearbitrator had extensive practical experience. The Chrysalis therefore sets out a very narrowscope for appeals on issues of mixed fact and law and subsequent courts have shown anunwillingness to widen it.Following The Chrysalis, Bingham J. in Zermalt Holdings SA v Nu-Life Upholstery

stated22:

“As a matter of general approach, the courts strive to uphold arbitration awards. Theydo not approach them with a meticulous legal eye, endeavouring to pick holes,inconsistencies and faults in awards, and with the objective of upsetting or frustratingthe process of arbitration. Far from it. The approach is to read an arbitration award ina reasonable and commercial way, expecting, as is usually the case, that there will beno substantial fault that can be found with it.”

In Gill & Duffus SA v Société Pour L’exportation Des Sucres SA,23 Sir John DonaldsonM.R. expressed a general reluctance to reverse the decision of a trade tribunal. However,the issue at hand in that case was one of contract construction and thus one of law. As therewas no suggestion that contracts for the sale of sugar differed from contracts for the saleof any other soft commodity, there was no reason to consider that the tribunal was in abetter position than the court to come to a decision in this case.

19Vinava Shipping Co Ltd v Finelvet AG (The Chrysalis) [1983] 2 All E.R. 658 at 663.20 [2013] EWHC 1355 (Comm); [2013] 2 All E.R. (Comm) 449.21Vinava Shipping Co Ltd v Finelvet AG (The Chrysalis) [1983] 2 All E.R. 658.22 [1985] 2 E.G.L.R. 14 at 14. The principle was subsequently approved inMajorboom Ltd v National House

Building Council [2008] EWHC 2672 (TCC) at [10].23 [1986] 1 Lloyd’s Rep. 322.



By contrast, in Andre et Cie v Cook Industries24 one of the issues which arose concernedthe interpretation of some exchanges by telex. Bingham J. considered that though theconstruction of the exchanges was a question of law, these exchanges took place in a contextwhere communications were sent from trader to trader in a fast-moving situation. In thesecircumstances a trade tribunal would have an insight that was not available to the court. Hewas not willing to differ from the tribunal’s decision in such a situation unless the tribunal’sdecision was plainly untenable.From this line of authority Jackson J. in Kershaw v Kendrick derived two principles25:

“1. The court should read an arbitral award as a whole in a fair and reasonableway. The court should not engage in minute textual analysis.

2. Where the arbitrator’s experience assists him in determining a question oflaw, such as the interpretation of contractual documents or correspondencepassing between members of his own trade or industry, the court will accordsome deference to the arbitrator’s decision on that question. The court willonly reverse that decision if it is satisfied that the arbitrator, despite the benefitof his relevant experience, has come to the wrong answer.”

In Seagrain LLC v Glencore Grain BV26 the court applied the second of Jackson J.’sprinciples. In Seagrain the arbitrators decided that the sending of the samples to a particularlaboratory did not constitute an executive act under a clause of the contract. The court held27:“This is the kind of issue on which the court gives considerable weight to the views of thetrade tribunal.”However, while deference is often given by the courts to the views of trade tribunals it

is not invariably so. In Novasen SA v Alimenta SA28 Popplewell J. stated that29:

“I would naturally be reluctant to differ from a trade tribunal such as the FOSFABoardof Appeal on a question of the interpretation of one of its standard clauses unless Iwere satisfied that despite the collective experience of the Board it were wrong.Nevertheless in this case the deference due to their views is somewhat tempered bythe fact that the tribunal did not articulate any reasoning for their conclusion, either asto the wording of the clause, or as to the commercial considerations which might haveinfluenced the effect which they found the clause to have … I do not therefore findmy conclusion affected by the deference which I naturally afford to the views of theparties’ chosen and specialist tribunal.”

Thus courts will often give deference to the views of arbitral tribunals where that tribunalis possessed of some special skill or knowledge—such as a trade tribunal. However, wherethe tribunal is simply giving its view on a matter of law, where it is no more qualified toopine on the point of law than a court, then such deference will not usually be given.

How should the court identify questions of law arising out of an award?One of the issues faced by the courts is the tendency of appellants to try to pass off questionsof fact as questions of law. This was noted in the DAC Report on Arbitration Bill 1996(DAC Report)30:

“There have been attempts, both before and after the enactment of the Arbitration Act1979, to dress up questions of fact as questions of law and by that means to seek an

24 [1986] 2 Lloyd’s Rep. 200.25Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] EWHC 727 (TCC) at [57].26 [2013] EWHC 1189 (Comm); [2013] 2 All E.R. (Comm) 640.27 Seagrain LLC v Glencore Grain BV [2013] EWHC 1189 (Comm) at [37].28 [2013] EWHC 345 (Comm); [2013] 2 All E.R. (Comm) 162.29 [2013] EWHC 345 (Comm); [2013] 2 All E.R. (Comm) 162 at [26].30The DAC Report at [286].

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appeal on the Tribunal’s decision on the facts. Generally, these attempts have beenresisted by the Courts but to make the position clear, we propose to state expresslythat consideration by the Court of the suggested question of law is made on the basisof the findings of fact in the award.”

In Majorboom Ltd v National Housing Building Council,31 Coulson J. referred to thisstatement within the DAC Report and found that the purported questions of law raised bythe applicant were in reality questions of fact. He emphasised that the AA 1996 s.69 requiresthe identification of “clear, crisp questions of law”.32 He observed that the detailed natureof the questions posed in this case only served to demonstrate that they were not questionsof law at all and the approach adopted by counsel, in deconstructing the words of thearbitrator, did not receive a warm welcome from the court.33 Nevertheless, Coulson J.recognised that when arguments are refined, sometimes an applicant will be able to identifymore clearly in argument the issues of law on which he seeks permission to appeal.Similarly, in Penwith DC v VPDevelopments Ltd,34Akenhead J. dismissed an application

for leave to appeal under the AA 1996 s.69. He called the case a “prime example of a whollyunjustified application”35 and emphasised the following36:

“As this Court and the Commercial Courts have said on many occasions, parties mustnot come to the Court seeking leave to appeal on an apparent question of law whichon any sensible analysis is in reality an appeal on a question of fact. The Court willnot and should not treat what may arguably be an incorrect finding of fact as a questionof law.”

The approach that the English courts have consistently adopted is that the question of lawshould be clearly and succinctly stated. If the question of law cannot be clearly expressedthen the likelihood is that it will involve not only questions of law but also questions offact. Nevertheless, inHok Sport,37H.H. Judge Thornton QC considered that where a questionhas been clumsily phrased it is open to the court to amend the wording of a suggestedquestion of law as raised by the application to confine the question to one of law whicharises out of the award.

Can the court infer an error of law based on the arbitrator’s findings?Recent cases have applied the three-stage approach set out by Mustill J. in The Chrysalis38in deciding whether an arbitrator has made an error of law. Ramsey J. referred to theseguidelines in London Underground v Citilink Telecommunications Ltd,39 concurring withMustill J. that only the stage at which the arbitrator ascertains the law can be subject to anappeal under the AA 1996 s.69. Ramsey J. also referred to the judgment of Steyn L.J. inThe Baleares,40 which observed that sometimes parties ask the court to draw reasonableinferences from the arbitrator’s findings of fact. Steyn L.J. considered this to be anotheroblique way to challenge an award based on findings of fact. He stated that the purpose ofthis argument is often to put forward a new legal argument which was not put before thearbitrators. He asserted that it is

31 [2008] EWHC 2672 (TCC).32Majorboom Ltd v National Housing Building Council [2008] EWHC 2672 (TCC) at [14].33Majorboom Ltd v National Housing Building Council [2008] EWHC 2672 (TCC) at [16].34 [2007] EWHC 2544 (TCC).35Penwith DC v VP Developments Ltd [2007] EWHC 2544 (TCC) at [1].36Penwith DC v VP Developments Ltd [2007] EWHC 2544 (TCC) at [23].37Hok Sport Ltd v Aintree Racecourse Co Ltd [2002] EWHC 3094 (TCC); [2003] B.L.R. 155.38Vinava Shipping Co Ltd v Finelvet AG (The Chrysalis) [1983] 2 All E.R. 658.39 [2007] EWHC 1749 (TCC); [2007] 2 All E.R. (Comm) 694.40Geogas SA v Trammo Gas Ltd [1993] 1 Lloyd’s Rep 215.



“contrary to well established principle for the Court to draw inferences from findingsof fact in an award on the basis that it would be reasonable to do so”.41

He considered that the court may only draw inferences from findings of fact when thoseinferences are “truly beyond rational argument”.42

In Penwith,43 Akenhead J. set out some general observations at the end of the judgmentas to when a proper application under AA 1996 s.69 should be made. His Lordship stated:

“Applications for leave to appeal on questions of law must not be dressed up asquestions of law when they are, on proper analysis, criticisms of the Arbitrator’sfindings of primary and secondary fact. It is not enough to say on an application forleave to appeal on a question of law that the Arbitrator made findings of fact whichno reasonable Arbitrator could or should havemade. It is not for the Court to substituteits own view of the facts for that of the Arbitrator. Whilst one can understand thefrustration of a party against whom an Arbitrator has made a controversial finding offact, that frustration does not justify an application to the Court for leave to appeal ona question of law.”

The circumstances in which the court may draw inferences from the facts were describedin the decision of Lord Diplock in Pioneer Shipping v BTP Tioxide (The Nema)44:

“… it may be that the facts found are such that no reasonable person acting judiciallyand properly instructed as to the relevant law could have made the determination underappeal. In these circumstances, too, the court must intervene. It has no option but toassume that there has been some misconception of law that has been responsible forthe determination.”

In Majorboom,45 Coulson J. accepted that a mixed question of fact and law may be thesubject of a s.69 application. However, Coulson J. emphasised46 that the courts haverepeatedly stated that there can be no error of law if the conclusion reached by the arbitratoris within the permissible range of conclusions open to him or her.47

In MRI Trading AG v Erdenet Mining Corp LLC48 Eder J., at first instance, allowed anappeal under s.69 and varied the tribunal’s award.49 The issue in the case turned on whethera purported contract was legally binding on the parties. The tribunal had concluded that itwas not binding because of uncertainty; however, in arriving at its conclusion the tribunalhad failed to take account of other documents such as a settlement agreement which had tobe read with the contract to understand what the parties had intended. Eder J. concluded50

that “no reasonable tribunal correctly applying the relevant legal principles could havereached such a conclusion”. Erdenet appealed to the Court of Appeal. Tomlinson L.J., givingthe leading judgment, noted that the parties had agreed the relevant principles of law to beapplied by the tribunal in deciding whether an agreement was not legally binding foruncertainty.51 Tomlinson L.J. remarked that the tribunal had failed to take account of oneof those principles and therefore its decision that the contract was unenforceable was

41Geogas SA v Trammo Gas Ltd [1993] 1 Lloyd’s Rep 215 at [229].42Geogas SA v Trammo Gas Ltd [1993] 1 Lloyd’s Rep 215 at [229].43Penwith DC v VP Developments Ltd [2007] EWHC 2544 (TCC).44 [1982] A.C. 724 at 742.45Majorboom Ltd v National Housing Building Council [2008] EWHC 2672 (TCC).46Majorboom Ltd v National Housing Building Council [2008] EWHC 2672 (TCC) at [8].47 See also The Matthew [1992] Lloyds Rep. 323; Foleys Ltd v City and East London Family and Community

Services [1997] A.D.R.L.J. 401; Benaim (UK) Ltd v Davies Middleton & Davies Ltd [2005] EWHC 1370 (TCC);and Sinclair v Woods of Winchester Ltd [2006] EWHC 3003 (TCC).

48 [2012] EWHC 1988 (Comm); [2013] 1 All E.R. (Comm) 1.49MRI Trading AG v Erdenet Mining Corp LLC (MRI Trading) [2012] EWHC 1988 (Comm); [2013] 1 All E.R.

(Comm) 1 at [26].50MRI Trading AG v Erdenet Mining Corp LLC (MRI Trading) [2012] EWHC 1988 (Comm); [2013] 1 All E.R.

(Comm) 1 at [15].51MRI Trading AG v Erdenet Mining Corp LLC [2013] EWCA Civ 156; [2013] 1 Lloyd’s Rep. 638 at [16].

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“flawed”.52 Tomlinson L.J. therefore agreed with the decision of Eder J. that the tribunalhad erred in not having regard to the settlement agreement and dismissed the appeal.Equally, an error of law was inferred in (1) Wuhan Ocean Economic & Technical

Company Ltd and (2) Nantong Huigang Shipbuilding Co Ltd v Schiffahrts-Gesellschaft“Hans Murcia” MBH & Co KG.53 The arbitral tribunal held that a shipbuilder’s failure toprocure renewal of a refund guarantee within a reasonable time before its expiry was abreach of an implied term within the shipbuilding contract. Moreover, the tribunal held thatseven days before expiry of the guarantee this failure had become a repudiatory breach.Cooke J. found that, in holding that the breach was repudiatory, the arbitrators had erredin law by failing to give effect to their finding that whenever arbitration was commencedthe refund guarantee would be extended automatically as a matter of construction. Thus thebuyers were under no risk of losing the refund guarantee provided that they commencedarbitration, as they could do after the expiry date. Cooke J. concluded that although thearbitrators had set out the right test for repudiatory breach they had not applied it correctly.The conclusion they reached was one which no reasonable arbitrator could reach by applyingthe correct test to the facts in this case.MRI Trading54 and The Hans Murcia55 have shown that the courts will intervene where

they consider that the arbitral tribunal’s decision is not one that a reasonable tribunal could,correctly applying the relevant legal principles, have reached.MRI Trading illustrates thatit is not always easy to determine what a question of law is and what a question of fact is.It might, for example, be argued that identifying the documents which make up a contractis a question of fact. However, the judge concluded that it was a question of law becauseit involved issues of contractual interpretation. Tsakiroglou & Co v Noblee Thor GmbH56

indicates the difficulties that the courts have in deciding what is a question of fact and whatis a question of law. The case revolved around whether a contract had been frustratedbecause of the closure of the Suez Canal. At first instance this was said to be a question offact. However, before the House of Lords it was said to be a question of law by one LawLord, a question of evidence by another and a question of mixed fact and law by a thirdLaw Lord.

3. Does a Question of Law Arise Where there Is Insufficient or NoEvidence to Support a Fact?There have been various attempts to circumvent the principle that the arbitrator’s findingsof fact must be taken as conclusive. Most commonly, attempts have been made to arguethat the issue of whether there is insufficient evidence or no evidence to support a materialfact is itself a question of law. Under the AA 1950 this was a legitimate ground forchallenging an award: Edwards (Inspector for Taxes) v Bairstow.57

Following the introduction of the AA 1979 the question whether theEdwards v Bairstow58

principle was still applicable came before the courts. In The Baleares59 Steyn L.J. held thatan appeal on the Edwards v Bairstow principle did not constitute an appeal on a point oflaw under the AA 1979. Steyn L.J. stated60:

52MRI Trading AG v Erdenet Mining Corp LLC [2013] EWCA Civ 156; [2013] 1 Lloyd’s Rep. 638 at [18].53 [2012] EWHC 3104 (Comm); [2013] 1 All E.R. (Comm) 1277.54MRI Trading AG v Erdenet Mining Corp LLC [2013] EWCA Civ 156; [2013] 1 Lloyd’s Rep. 638.55Wuhan Ocean Economic & Technical Cooperation Co Ltd v Schiffahrts-Gesellschaft Hansa Murcia mbH & Co

KG [2012] EWHC 3104 (Comm); [2013] 1 All E.R. (Comm) 1277.56 [1962] A.C. 93.57 [1956] A.C. 14.58Edwards (Inspector for Taxes) v Bairstow [1956] A.C. 14.59Geogas SA v Trammo Gas Ltd [1993] 1 Lloyd’s Rep 215 at [228].60Geogas SA v Trammo Gas Ltd [1993] 1 Lloyd’s Rep 215 at [228].



“The Arbitrators are the masters of the facts. On an appeal the Court must decide anyquestion of law arising from an Award on the basis of a full and unqualified acceptanceof the facts of the Arbitrators. It is irrelevant whether the Court considers those findingsof fact to be right or wrong. It also does not matter how obvious a mistake by theArbitrators on an issue of fact might be. That is of course an unsurprising position.After all, the very reason why parties conclude an arbitration agreement is becausethey do not wish to litigate in the Courts. Parties who submit their disputes bindthemselves by agreement to honour the Arbitrator’s Award on the facts. The principleof party autonomy decrees that a Court ought never to question the Arbitrator’s findingsof fact.”

However, this was obiter dicta and the point was not addressed by the other members ofthe Court of Appeal. Although the approach advocated by Steyn L.J. was followed inSecretary of State for the Environment v Reed International61 and Blexen Ltd v G PercyTrentham Ltd62 there were other first instance decisions which contradicted Steyn L.J.’sviews on whether the Edwards v Bairstow principle was still good law. In Capital andCounties Plc v Hawa,63 Millet J. was of the opinion that where there was no evidence tosupport a fact then this gave rise to an error of law. It seemed however to be accepted thatfinding a fact based on insufficient evidence would no longer give rise to a right to challengeon a point of law.

Following the introduction of the AA 1996 the issue of whether a complete lack ofevidence gave rise to a point of law was considered by Etherton J. inGuardcliffe PropertiesLtd v City & St James.64 Etherton J. concluded that Reed International had been wronglydecided and chose to follow the approach of Millet J. in Capital and Counties.65 Similarlyin Fence Gate Ltd v NEL Construction Ltd66 H.H. Judge Thornton QC held that it may bepossible to raise a question of law where there was a complete lack of evidence to supporta material finding of fact. The judge made a distinction between circumstances where afinding of fact is made on insufficient evidence and where it is made on a complete lack ofevidence.

The leading textbooks seemed also to favour the approach of Steyn L.J. Mustill andBoyd67 stated that

“it is now clearly impossible to challenge the findings of fact in an award on the groundthat there was no evidence to support them”.

Russell68 stated:

“the argument that it is a question of law whether there is material to support a findingof fact is no longer available”.

However, Merkin’s69 conclusion was different and seemed to followH.H. Judge Thornton’sapproach in Fence Gate Ltd v NEL. While Merkin accepted that an award could not bechallenged for insufficient evidence to support the arbitrator’s findings of fact, it may bepossible to challenge it on the basis that there was no evidence at all.70

61 [1994] 1 E.G.L.R. 22.62 (1990) 21 Con L.R. 61, 65.63 [1991] 2 E.G.L.R. 133, 134.64 [2003] 2 E.G.L.R. 16.65Capital and Counties Plc v Hawa [1991] 2 E.G.L.R. 133 at 134.66 [2001] All E.R. (D) 214.67Commercial Arbitration, 2001 Companion Volume, 2nd edn (London: Butterworths, 2001), p.357.68David St John Sutton, Judith Gill and Matthew Gearing (ed.), Russell on Arbitration, 22nd edn (London: Sweet

& Maxwell, 2002), p.395.69Arbitration Law, 3rd edn (London: Routledge, 2004), paras 15.42–15.44 and 21.9–21.11.70Referred to by Cooke J. inDemco Investments Commercial SA&Ors v SE Banken Forsakring Holding Aktiebolag

[2005] EWHC 1398 (Comm) at [42].

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More recent authority has however moved away from the view that a complete absenceof evidence can give rise to a point of law. In Demco Investments Commercial SA & Orsv SE Banken Forsakring Holding Aktiebolag,71 Demco Investments applied for permissionto appeal against arbitrators’ findings that a company it had sold to the respondent hadmis-sold pensions to investors. The arbitrators had considered evidence for 222 samplecases where mis-selling had been alleged. Demco Investments argued among other thingsthat the arbitrators had made an error of law in making factual findings on some of thesample cases based on inferences which no reasonable arbitrator could have made. CookeJ. found that the AA 1996 left no room for appeal on this basis. Section 34(2)(f) providesthat it is for the Tribunal to decide all procedural and evidential matters. The DAC Reportfurther supports this position, stating that:

“Clause 34(2)(f) helps to put an end to any arguments that it is a question of lawwhether there is material to support a fact.”72

As neither the DAC Report nor the AA 1996 s.34(2) had been raised in GuardcliffeProperties Ltd v City & St James or in Fence Gate Ltd v NEL Construction Ltd, Cooke J.considered that he was not bound to follow those decisions.73

The issue was again addressed in London Underground,74 which involved a challengeto an award in relation to claims for delay to the Connect Project. This was a Private FinanceInitiative project involving the replacement of the communications system in London’sunderground rail network. Citilink sought to distinguish Demco and referred to SurefireSystems Ltd v Guardian ECL Ltd75 and Rhesa Shipping Co SA v Edmunds76 to support theirsubmission that where there was no satisfactory evidence on a particular point, the partybearing the burden of proof should fail on that point. Ramsey J. distinguished these casesand adopted the reasoning in Demco, concluding that the arbitrator’s findings are not opento be questioned as the admissibility, relevance or weight of any evidence is wholly a matterfor the arbitrator under the AA 1996 s.34(2)(f).

Despite the recent trend of finding that a complete lack of evidence did not give rise toa point of law, the issue was again raised in House of Fraser Ltd v Scottish Widows Plc.77Peter Smith J. reviewed all the authorities on this issue and came down in favour of theapproach adopted by Ramsey J. in London Underground and Cooke J. inDemco. A similarconclusion was reached inGuangzhou Dockyards Co Ltd v ENE Aegiali I78where the court,albeit as obiter dicta, referred to Steyn L.J.’s statements in The Baleares with approval.Equally in Watson (On Behalf of Dollingstown Football Club), Re Application (for Leaveto Appeal)79Coghlin L.J., in the High Court of Northern Ireland, referred to the observationsof Steyn L.J. and held that they probably applied, although it was not necessary to reach afinal conclusion on this point.

The current trend is therefore not to allow an appeal on a point of law where the arbitraltribunal has made a material finding without evidence to support this conclusion. Amistakeof fact will not amount to an excess of jurisdiction or constitute misconduct. The courtshave stressed that it is simply not possible for a party to seek permission to appeal againstan arbitrator’s findings of fact no matter how wrong they might seem to be.

71Demco Investments Commercial SA & Ors v SE Banken Forsakring Holding Aktiebolag [2005] EWHC 1398(Comm); [2005] 2 Lloyd’s Rep. 650.

72DAC Report at [170].73Demco Investments Commercial SA & Ors v SE Banken Forsakring Holding Aktiebolag [2005] EWHC 1398

(Comm); [2005] 2 Lloyd’s Rep. 650 at [43].74 London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC); [2007] 2 All E.R.

(Comm) 694.75 [2005] EWHC 1860 (TCC).76 [1985] 1 W.L.R. 948.77 [2011] EWHC 2800 (Ch).78 [2010] EWHC 2826 (Comm); [2011] 2 All E.R. (Comm) 595.79 [2011] NIQB 66 at [33].



4. ConclusionAs can be seen from a review of the case law, applications to appeal against arbitrationawards under the AA Act s.69 rarely stand a chance of success unless there is a clear errorof law within the award. The evidence which the court can consider in such appeals isgenerally limited to the award, subject to the qualification that the court may consider otherrelevant documents referred to in the award in order to interpret a legal issue such as acontract term. The courts will consider questions of mixed law and fact; however, if sucha question concerns matters within the arbitrator’s expertise the court may pay moredeference to his decision making. Moreover, the court will not intervene with the arbitrator’sdecision when there is no right answer and the arbitrator has made a decision which isreasonable. However, the court may infer an error of law if no reasonable arbitrator wouldhave come to the same conclusion because, for example, it seems that the arbitrator failedto interpret a contract correctly or has misunderstood the law. Although there are conflictingauthorities on whether an issue of law arises where there is no evidence to support a fact,recent case law suggests that an appeal under AA 1996 s.69 will not succeed as this doesnot give rise to a point of law.

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Evidence in International Arbitration: Criteria forAdmission and EvaluationKonstantin Pilkov

1. IntroductionArbitration rules give broad authority to arbitrators regarding the consideration of evidence.1

They usually do not set any formal procedure of admission and evaluation of evidence andsay little if anything about the criteria for such admission and evaluation. The UNCITRALArbitration Rules (as revised in 2010) art.27(4) provide that once a party offers evidenceto prove the facts it relies on, the tribunal is required to “determine the admissibility,relevance, materiality, and weight of the evidence offered”.

The American Arbitration Association (AAA) International Arbitration Rules art.20(6)provide that “[the] tribunal shall determine the admissibility, relevance, materiality andweight of the evidence offered by any party”.

Likewise, the London Court of International Arbitration (LCIA) Arbitration Rulesart.22.1(f) empower the tribunal

“to decide whether or not to apply any strict rules of evidence (or any other rules) asto the admissibility, relevance or weight of any material tendered by a party on anymatter of fact or expert opinion”.

The vast majority of national arbitration laws also recognise the discretion of arbitrators inthese issues.2 Thus, there is wide recognition of the arbitral tribunals’ discretion to admitany relevant evidence they deem to have probative value, as well as of their power to rejectevidence that is irrelevant or repetitious or unsuitable to prove the facts it purports to prove.On the other hand, in international arbitration the parties are free to submit any evidencein order to prove the facts necessary to establish their cases. However the growing importanceof the time and cost efficiency of arbitration makes arbitrators believe that they should notconsider everything that each party has to submit or request.

Though arbitral tribunals both ad hoc and institutional regularly consider evidentiaryquestions, especially those concerning relevance, reliability and the distinction betweenadmissibility (in the broad sense) and evidentiary weight, a degree of confusion in theapplication of those criteria still exists. This article aims to assist in distinguishing what,from the assessment of evidential value or weight, is required for admissibility, an issue tobe decided at the end of the proceedings in light of all of the evidence.

2. AdmissibilityA party seeking to challenge an award because a tribunal refused to admit evidence, andby doing so negatively affected the party’s right to present the case, may succeed. However,it is far more difficult to convince a court that an arbitration tribunal erred when it admittedthe evidence but failed to properly evaluate its significance. In countries which based theirarbitration laws on the UNCITRALModel Law or other arbitration-friendly legislation and

1 In this article the term “evidence” refers to both the information which is supposed to prove a fact in dispute andthe means of evidence which contains such information. This term is also used with respect to materials, expertopinions or witness statements which being refused in admission or production, or excluded from evidence orproduction cannot be considered as evidence in its strict sense if they lack any of the criteria of the admissible evidence.

2See e.g. English Arbitration Act 1996 s.34(1) and (2); German ZPO s.1042(4); Austrian ZPO s.599(1); UkrainianInternational Arbitration Act s.19(2).


court practice it is hardly possible to challenge an award on the grounds that the arbitratorimproperly evaluated the evidence. This is resulting in arbitral tribunals often agreeing toadmit most of the evidence submitted by the parties, but giving serious consideration to theweight that is to be attached to that evidence.

Indeed, the concept of the general admissibility of relevant evidence is recognised ininternational arbitration. It was largely taken from the common law tradition (e.g. the USevidence lawwith respect to admissibility establishes one seemingly simple rule: all relevantevidence is generally admissible, evidence which is not relevant is not admissible).3 Thus,generally speaking all relevant evidence is admissible in arbitration, except as otherwiseprovided by mandatory rules, or by agreement of the parties.

The concept of deciding to “admit” or “exclude” evidence gives the broad meaning tothe term “admissibility”; that includes the evaluation and assessment of evidence in decidingthe case. Arbitrators admit evidence; that is why admissibility is the most general conditionfor evidence to be admitted. In theory, the tribunal shall not consider evidence ruledirrelevant, immaterial or inadmissible sensu stricto. That is, evidence is admissible sensulato if the criteria of relevance, materiality and admissibility sensu stricto are met. Webelieve that when arbitration rules and arbitration laws refer to “admissibility” as the specificcriterion of evidence they use it mostly in the specific narrow sense which will be discussedfurther below.

The inadmissibility of evidence may serve as a ground for it to be refused in admissionor in the ordering of production, or excluded from evidence if already admitted. Beforeaddressing the main focus of this article, it is necessary to distinguish between refusal orexclusion on purely procedural grounds (e.g. non-compliance with the terms establishedby the tribunal for submissions) and exclusion on the grounds of inadmissibility. The partiescan agree or the tribunal can determine that evidence must be submitted in a timely fashion;in that respect, the tribunal can set a specific deadline for submission and can refuse anyevidence submitted after that deadline. Non-compliance with the deadline by the submittingparty does not directly affect the properties of the evidence and shall be dealt with as if itwere a procedural issue, that is, evidence may be admitted if procedural fairness is notprejudiced. A similar approach can be taken if a party requests leave to exclude documentswhich were not exchanged. The arbitrators should not consider those documents to beautomatically inadmissible. Where documents were not exchanged in accordance with therules of procedure, the arbitrators may adjourn the hearing to afford the disadvantaged partya fair opportunity to examine and comment on the documents.

RelevanceRelevance is probably the first matter parties and arbitrators have to consider when decidingwhether particular materials deserve to be offered as evidence or requested for production.The term “relevant evidence” in common law generally means evidence having a tendencyto make the existence of any fact that is of consequence in the case more probable or lessprobable than it would be without the evidence. This definition is used in the common lawof evidence in which the concept of materiality is merged with relevance. However, ininternational commercial arbitration these criteria are separated, as the majority of arbitrationrules empower arbitrators to decide on relevance and materiality. The International BarAssociation (IBA) Rules on the Taking of Evidence in International Arbitration (the IBARules) clearly specify relevance to the case and materiality to its outcome as two maincriteria for evidence to be admitted or requested for production. Having that in mind wewould tend to define the relevance of evidence in international arbitration as having a logicalconnection with what the evidence purports to prove in the case.

3US Federal Rules of Evidence r.402.

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Both common and civil law take the approach that relevance, not being a matter of strictlaw, rests upon common sense and a general convention about reasoning. In civil law theconnection with the law is more visible: the applicable law helps to determine in generalwhat is relevant (i.e. what needs to be proved for a case to be resolved).Though relevance is named as the first criterion for admission in practice it is not easy

to separate the wheat from the chaff. Arbitrators are reluctant to limit the evidence that canbe submitted and normally err toward permitting parties to present evidence, including theintroduction of materials of questionable relevance.4 Arbitrators are mindful of the fact thattheir award can be set aside if a party was “unable to present the case”. It should beemphasised that parties must only be afforded a fair opportunity for presenting their cases;this does not mean that arbitrators are required to wait until a party actually avails itself ofthe right to be heard. Thus, a party cannot insist on the admission of evidence that thetribunal considers irrelevant. However, it would be unrealistic to rely fully on that way ofthinking. As national arbitration laws usually do not counterbalance that basic principle ofarbitral proceedings which protects the party’s right to be heard and do not help arbitratorswith any special rules concerning relevance,5 we may conclude that any irrelevancy-basedrefusal to admit evidence submitted by a party is associated with significant risk, unless theevidence is manifestly irrelevant.

MaterialityIn common law systems the concept of materiality is merged into the concept of relevanceand retains no independent viability.6 However, in international arbitration practice themateriality criterion is considered mostly in relation to its connection to the outcome of thecase, whereas relevance concerns the general relationship between evidence and the case.The relevance of each element of materiality is a more or less independent category, just

as the admission of one piece of evidence that proves the fact in question does not diminishthe relevance to the same fact of any other piece of evidence. Materiality is a dependantcategory: after the admission of one piece of evidence each subsequent piece of evidenceor testimony concerning the same fact becomes less material. Materiality is thus ultimatelyconnected with the sufficiency of evidence: after the tribunal is provided with sufficientevidence any other relevant evidence of the same fact is no more material to the outcomeof the case. (For example, once the date of the appointment of a company’s officer isconfirmed by an extract from a public register there might be no need for the tribunal toreceive a board resolution on the appointment.) Tribunals can exclude evidence that isduplicated. Such evidence is excluded as lacking sufficient materiality, but not as lackingrelevance. Besides, evidence cannot be both irrelevant and immaterial, as the materialitycan be assessed only with respect to the relevant evidence.The risk associated with immateriality-based refusal to admit evidence may be significant

where a tribunal ultimately recognises the non-existence of the facts which a party wasaiming to prove with that evidence. It may happen that, after sufficient evidence has beenadmitted and any further evidence has been refused, the reliability of some of the admittedevidence becomes doubtful. This situation may require the tribunal to invite the parties topresent additional evidence.

4George M. Von Mehren and Claudia T. Salomon, “Submitting Evidence in an International Arbitration: TheCommon Lawyer’s Guide” (2003) 20(3) Journal of International Arbitration 290.

5Among the exceptions is the Swedish Arbitration Act s.25 (SFS 1999:116) that empowers arbitrators to refuseto admit evidence if it is “manifestly irrelevant”.

6See US Federal Rules of Evidence r.401, which deals with relevance and does not mention materiality as a separatecriterion.

Evidence in International Arbitration: Criteria for Admission and Evaluation 149


Admissibility sensu strictoIn contrast to relevance and materiality, admissibility sensu stricto is a purely legal criterion.Arbitral tribunals possess broad discretion in determining admissibility sensu stricto underthe IBARules and the majority of arbitration rules. However, this discretion faces a numberof limitations in practice, even in those cases when arbitration rules specifically state thatevidence need not be admissible in law to be admitted by the tribunal.7

The admissibility criterion functions through rules of exclusion which are based eitheron the assumption that a trier-of-fact may attach undue weight to particular types of evidence(e.g. hearsay) or on the belief that certain values or interests need to be protected (e.g.privileges). Unlike the relevance andmateriality criteria, the legal systems in many countriesare quite specific about the limits imposed on the admissibility of particular evidence. Thismight be illustrated by the fact that substantive laws in many countries often contain specificrules which affect the admissibility of evidence in national court proceedings.8 This oftenleads to a debate about whether those rules are procedural (and as such part of the lex foribut not part of the lex arbitri), in which case it is not mandatory for arbitrators to followthem; or whether those rules are integral parts of the substantive law and have to be appliedby the arbitrators. In the latter case it is within the arbitrator’s discretion how to apply thesubstantive law. However, it is widely recognised by scholars and arbitration practitionersthat the discretion of arbitrators in determining admissibility is subject to the followinglimitations:

1. Evidence obtained in a manner that is contrary to international public policy(e.g. testimony obtained through torture) shall not be admissible.

2. Evidence may be protected by a privilege or secret (professional privilege,trade secrets, governmental secrecy). Although most arbitration laws andmost arbitration rules are silent on this issue,9 it is generally recognised thatarbitrators must take into consideration the above-mentioned privileges andsecrets.10

It is beyond the scope of this article to analyse problems related to privilege in arbitration.It is sufficient to say that privilege rules allow a person or party to refuse to disclose certaininformation, even though that information might be relevant and reliable.11 At this point wecan agree that privilege rules affect the admissibility of evidence.12

Thus, while deciding on admissibility sensu stricto arbitrators should take intoconsideration at least international public policy and the applicable privilege rules. In bothcases it is the party that opposes the admission of the evidence who bears the burden ofproof that the evidence is inadmissible sensu strictu.

When can questions of admissibility be determined in arbitration?The practice in international arbitration tribunals is to admit most if not all the evidenceand to rely on the arbitrators’ skills in the evaluation of evidence. Arbitrators are akin to

7 See, e.g. Singapore International Arbitration Centre (SIAC) Rules 2013 r.16.2.8The Ukrainian Civil Code art.218(1) envisages that a court decision cannot rest on witness testimonies if some

matters regarding the existence of an agreement are in question.9The AAA International Arbitration Rules are among the exceptions. They explicitly state that “[t]he tribunal shall

take into account applicable principles of legal privilege, such as those involving the confidentiality of communicationsbetween a lawyer and client” (art.20).

10 See Anne Véronique Schlaepfer and Philippe Bärtsch, “A Few Reflections on the Assessment of Evidence byInternational Arbitrators” (2010) 3 International Business Law Journal 211. See also the IBARules art.9(2)(b) whichenvisage that the tribunal has the power to exclude any evidence on the grounds of “legal impediment or privilegeunder the legal or ethical rules determined by the Arbitral Tribunal to be applicable”.

11Richard M. Mosk and Tom Ginsburg, “Evidentiary Privileges in International Arbitration” (2001) 50(2) TheInternational and Comparative Law Quarterly 345.

12Michelle Sindler and Tina Wustermann, “Privilege Across Borders in Arbitration: multijurisdictional nightmareor a storm in a teacup” (2005) 23(4) ASA Bulletin 620.

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professional judges, but not to the jury in common law courts. They do not need to be“protected” from hearing inadmissible evidence or withdrawn till the question ofadmissibility is argued by the parties and decided by the professional judge. Although inmany national court proceedings there is a fundamental distinction between evidentiaryobjections that affect the admissibility of evidence and those that affect its weight, ininternational commercial arbitration it is the same person, the arbitrator, who decides theadmissibility and the weight of evidence. Thus, the classic concerns of common law courtson the admissibility of evidence do not apply in international arbitration. How does thisstatement correspond to a situation in which a tribunal determines that it should not reviewa document of questionable admissibility, and appoints an independent expert to reviewand report on that document without disclosing its content? This is not a case of arbitratorsprotecting themselves from considering any potentially inadmissible evidence. The practiceof review by an impartial expert is used only because in deciding whether the evidence isadmissible the in camera procedure is not generally applicable in international commercialarbitration, for any evidence presented to arbitrators should be presented to the other partyas well.However, if the question of admissibility sensu stricto can be considered before the

content of the evidence has reached the tribunal, it may be useful to do so. We may notdisagree that “it is not easy to ‘undo’ an impression, even if it is ultimately decreed that theimpression should never have been made”.13

Thus, it is advisable to raise questions relating to the relevance, materiality or admissibilityof evidence at the time when the evidence is submitted or requested for production. In caseswhere the above questions were not known at the time when the evidence was submitted,they may be raised immediately after the issues do become known.

Different approaches to admitting, ordering production of or excludingevidenceAs Patricia Shaughnessy noted, refusing to admit evidence is distinct from, albeit relatedto, refusing to order the production of evidence.14Wemight even say that arbitrators usuallydeal differently with the criteria of relevance andmateriality when there are questions aboutthe admission of evidence offered by a party, requests for the production of evidence or theexclusion of the admitted evidence to be decided.This difference is colourfully demonstrated in documents of the International Institute

for Conflict Prevention and Resolution in which it is recognised that

“since requests for information based on possible relevance are generally incompatiblewith the need for speed and efficiency, disclosure should be granted only as to itemsthat are relevant and material and for which a party has a substantial, demonstrableneed in order to present its position”.15

Though materiality has already been mentioned, the “substantial, demonstrable need inorder to present its position” which a party might have is nothing more than the materialitycriterion. Thus, since the production of evidence requires the expenditure of time and effort,the materiality criterion is the one to emphasise.The IBA Rules also show how the admission of evidence submitted is distinct from

ordering the production of evidence.Materiality is paramount in the latter case as the tribunalneeds to compare the production of evidence with the burden which has to be placed on the

13Ula Cartwright-Finch and Craig Tevendale, “Privilege in International Arbitration: Is It Time to Recognize theConsensus?” (2009) 26(6) Journal of International Arbitration 834.

14 Patricia Shaughnessy, ”Dealing with Privileges in Arbitration” (2007) 51 Scandinavian Studies in Law 457.15CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration art.1(a),

available online at: http://www.cpradr.org/Resources/ALLCPRArticles/tabid/265/ID/614/CPR-Protocol-on-Disclosure-of-Documents-and-Presentation-of-Witnesses-in-Commercial-Arbitration.aspx [Accessed February 18, 2014].



other party or on other resources to be spent. The IBA Rules16 require the party requestingthe production of evidence to state how the documents requested are relevant to the caseand material to its outcome. The IBA Rules mention the criterion of materiality also inrespect to evidence which is submitted by a party,17 but in this case it is mentioned ratheras a reminder of the ideal qualities of evidence. This is confirmed also by the wording ofart.3.11, which requires the party to believe in the relevance and materiality, not to confirmor prove them. Compliance with the lowest standard of relevance and materiality is testedwhen the tribunal is deciding on the exclusion of evidence. According to the IBA Rules,18

any document, statement, testimony or inspection can be excluded from evidence if theylack sufficient relevance or materiality. Arbitration practice shows that cases in whichevidence is excluded for lacking relevance or materiality may be rare. Material must bemanifestly irrelevant for it to be excluded.This lowering of the relevance and materiality requirements allows us to distinguish three

“standards” which are applied when deciding on the admission of evidence, orderingproduction and exclusion.

3. Evaluation of EvidenceIt is commonly recognised that the admissibility of evidence does not automatically guaranteethat the evidence will be considered as having probative value. There are more or lessexplicit relevance, admissibility and materiality criteria for determining whether a piece ofevidence is admissible, whereas the methods for weighing evidence and determining thesufficient level of proof are subjective and somewhat inexplicable.19 The weight of theevidence usually refers to its persuasive effect on the arbitrator’s mind. It is within thediscretion of the tribunal to evaluate the evidence submitted by the parties, though the partiescan agree on the sufficiency, as will be discussed later.

The weight of the evidence includes questions of credibility (reliability) and the evaluationof inferences which can be made from the evidence.

CredibilityThe ultimate question for any evidence is whether it constitutes reliable proof of what it isoffered to prove. This, of course, turns on a closer inspection of the credibility or reliability(both words are used as synonyms of the other) of the evidence in question. The assessmentof credibility is one of the functions of an arbitrator when weighing up evidence. At theadmissibility stage the evidence is required to be prima facie credible, that is, it must havesufficient indicia of reliability and authenticity to establish that it appears to show what itis offered to prove. The above definition is of course circular, in that it refers to the“reliability and authenticity of the evidence” in defining “credibility of the evidence”. Toput things more simply we can define “credibility” as the capacity of being worthy of beliefor confidence, trustworthy.When the reliability of a document is under investigation the question of its authenticity

is logically prior to the question of reliability. An authentic document—i.e. not aforgery—may or may not be reliable evidence of what it purports to show; and yet, if adocument is not authentic it is hard to imagine how it could be helpful. As a result, theauthenticity of a document is often considered to be a precondition for its use in an arbitrationproceeding.

16 IBA Rules art.3.3(b).17 IBA Rules art.3.11.18 IBA Rules art.9.2(a).19Audun Jøsang and Viggo A. Bondi, “Legal reasoning with subjective logic” (2001) 8(4) Artificial Intelligence

and Law 290.

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Depending on the nature of the evidence and the manner in which it is introduced, anumber of different indicators (internal or external) might be applied to assess its reliability.Internal indicators of reliability of a document include elements of the document itself, suchas signatures, the form of handwriting, etc. External indicators might rely on other evidence:testimony about how a document was obtained, expert testimony on its authenticity, etc.There are also many techniques used when deciding on the reliability of material ortestimonies that contradict each other (e.g. where the inconsistency is between a currentand a prior assertion of fact, the more recent assertion generally is disregarded in favour ofthe earlier assertion).The tribunal can admit relevant and admissible evidence even though the credibility is

in doubt. This admission does not mean that the tribunal cannot afford that evidencedecreased probative value. Ultimately, it is very unlikely that the tribunal would decide tonot admit something into evidence because its authenticity has not been established. In fact,it might be better to admit that document as the reliability of evidence can be fully assessedin its entirety with all other evidence. Besides, if a document is revealed to be a forgery, itis the document itself that proves the lack of authenticity, therefore its admission is necessary.

SufficiencyTo carry its burden of proof, a party has to offer sufficient evidence. It is probable that it isbecause this statement is self-evident that the term “sufficiency” is almost never mentionedin arbitration rules. In assessing the sufficiency of evidence the arbitrator must determinewhether there is any valid line of reasoning and permissible inferences which could lead arational person to the conclusion reached by the arbitrator on the basis of the evidence.Basically, sufficiency is not a criterion of a single piece of evidence, but rather the point atwhich the standard of proof is met. After reaching that point any additional evidence, thoughit is relevant and admissible, does not add anything material to the process of proving thefact.Although the sufficiency can be finally assessed only in the process of weighing the

evidence, the tribunal can take the initiative to manage the case by indicating in advancethe evidence that it considers necessary to establish the prima facie proof of certain factsat issue. In doing so arbitrators should adhere to the due process and impartiality principlesof arbitration proceedings.

4. Party Autonomy and Arbitrators’ DiscretionIn the legal literature analysing the roles of the parties and the tribunal in evidentiary matters,it is often concluded that the rules governing arbitral proceedings make it clear that theadmissibility, relevance, materiality and weight of any evidence are for the arbitrator todetermine. Sometimes it is considered that the tribunal itself determines the relevance,materiality and probative value of all evidence submitted by the parties, and does not needto hear arguments from the parties concerning these matters. It is thus for the parties tosubmit the evidence and for the tribunal to evaluate it.

We would rather tend to the approach that allows the parties to retain autonomy andcontrol over the evidentiary issues, even though the parties rarely use their autonomy inthat way. The majority of arbitration laws do establish an environment in which the partiescan agree on the application of almost any criteria for the evidence. As noted by Holtzmannand Neuhaus the UNCITRAL Model Law art.19(2) specifies that the power conferred onthe arbitral tribunal includes the power to determine the admissibility, relevance, materialityand weight of any evidence. Of course, this provision is not mandatory and is thereforesubject to the parties’ will. Alternatively, they can agree on particular rules of evidence, forexample that certain evidence should be deemed inadmissible, or that a certain kind of



document be sole type of evidence. In this case, the arbitral tribunal should abide by thatchoice.20

Of all the criteria used, the inadmissibility of particular evidence (e.g. special contractualrules which exclude certain materials from evidence) and the issue of sufficiency are thetwo criteria on which the parties most frequently agree. Though it is the arbitrators’ functionto determine whether the evidence in its entirety would rationally support a party’s allegation,the parties may agree on what may constitute sufficient evidence (e.g. by way of indicatingin the contract a document that constitutes sufficient evidence of fulfilment of a contractualobligation).

The inadmissibility of illegally obtained evidence is a significant element in compliancewith public policy rules. That is why in deciding on the admissibility of evidence the tribunalcannot be as flexible as in any other evidentiary matters. In deciding on the admissibilityof evidence the autonomy of the parties and the tribunal may not be contrary to internationalpublic policy.

In any case, even if the parties rely on the tribunal in matters related to the applicationof the criteria for evidence, this only means that the parties do not introduce any specificrules regarding how the relevance, materiality and other criteria should be “measured”.However, when a party submits evidence the opposing party should be provided with anopportunity to comment on the relevance, materiality, admissibility or probative value ofthat evidence.

5. ConclusionsAs we have seen the threshold for admitting evidence in international arbitral tribunals istypically quite low, so admissibility, the key question in much of the legal discussion incourts in common law countries, is not a crucial issue in arbitration. Arbitrators focus moreon the evidentiary weight they are going to give the evidence.

The basic prerequisites of the admissibility of any kind of evidence in internationalarbitration are its relevance and materiality. In general, if evidence is shown to be relevant,material, prima facie credible, and is not barred by an exclusionary rule, it is admissible.The liberal application of these seemingly simple evidentiary rules is necessary to avoidsterile legal debate over admissibility so that the tribunal can concentrate on the pragmaticissues of the case. The tribunal should not, however, be loaded with excessive unnecessarymaterials. From that perspective it might be reasonable for the tribunal to determine thatwhen introducing documents the submitting party must provide a short description of eachdocument, clearly specifying its relevance, materiality and probative value.

Though in international arbitration the trier-of-fact is not a civilian jury, but a professionalfully capable of admitting evidence and rendering objective determinations about theprobative value at the end of the proceeding, questions of admissibility should be decidedinitially, especially if there are claims that any privilege rules apply or if any violation ofinternational public policy is shown. Consideration of any such matters should not lead theprocedure into technical formalities.

Three rather different approaches might be applied when deciding on admission ofevidence, ordering production and exclusion: the relevance and materiality of the evidencesubmitted by a party must be shown for it to be admitted; the relevance and significantmateriality must be stated by a party and recognised by the tribunal for the production ofevidence to be ordered; for evidence already admitted to be excluded it must be manifestlyirrelevant.

20H.N. Holtzmann and J.E. Neuhaus, A Guide to the UNCITRAL Model Law on International CommercialArbitration: Legislative History and Commentary (The Hague: Kluwer Law, 1995), p.566.

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The above “standards” do not apply when dealing with admissibility sensu stricto,because any inadmissible evidence needs to be refused in admission, excluded or refusedin ordering for production.

The criteria for the admission and evaluation of evidence discussed in this article arevery much connected to each other. They may be separated and grouped for convenienceonly. In practice the necessity for the application of any of the criteria for evaluation mayarise at the admissibility stage. The assessment of the materiality of any additional evidencerequires the admitted evidence to be evaluated. The categories of relevance, materiality andweight of evidence are dynamic—anything that was irrelevant to the case may becomerelevant while the case is in progress. The admissibility and reliability of evidence are morestatic criteria; they are almost exclusively attached to the evidence itself and have littlerelation to the case and other evidence. If the authenticity and thus the reliability of adocument is in doubt it is so irrespective of the essence of the case, even if the authenticitywas put in doubt because of contradictions between that document and the set of othermaterials.

Finally, we must emphasise that party autonomy extends also to evidentiary issues andthe application of criteria for evidence, and being a crucial value cannot be negativelyaffected. The arbitral tribunal should abide by the agreement of the parties unless it iscontrary to international public policy.



Commercial Arbitration in DubaiDaniel Brawn

Dubai is one of seven Emirates that comprise the United Arab Emirates (UAE). Dubai haslong been a trading centre for the Middle East and has recently placed itself as a travel huband a five-star tourist destination; Dubai now seeks to place itself as a centre for internationaldispute resolution. In Arabic culture, the preference is to settle disputes by negotiation,either directly between the parties or under the guidance of a leading citizen. The growthof international trade has brought a wider range of disputes and there is reluctance amongstinternational parties to submit their disputes to the Dubai courts, where proceedings areconducted in Arabic, can be lengthy and there is a perception that judges tend to protectthe interests of the establishment. For this reason, international contracts generally providefor disputes to be resolved by arbitration rather than by court litigation.The UAE’s civil law system is based upon its UAE Civil Code,1 which was itself based

upon the Egyptian Civil Code,2 which was based upon the Napoleonic Code to the extentthat it complied with the Islamic Sharia. There is no binding judicial precedent, althoughdecisions of the Court of Cassation (the highest court) may be persuasive. In addition toFederal law, each Emirate has laws and courts of its own and within the Emirates there areFree Zones which have their own commercial laws (UAE criminal law applies within theFree Zones).The leading arbitration centre is the Dubai International Arbitration Centre (DIAC) which

has its own set of Arbitration Rules (the DIACRules). Dubai has also established the DubaiInternational Financial Centre (DIFC), a financial Free Zone with its own commercial lawsand courts and its own Arbitration Law,3 based on the UNCITRAL Model Law, and itsown Arbitration Centre with its own DIFC-LCIA Arbitral Rules (the DIFC-LCIA Rules)administered with the London Court of International Arbitration (LCIA). The ICC Rulesare most commonly used for international arbitration.The purpose of this article is to examine the law relating to commercial arbitration in

Dubai. For convenience, the masculine terms “he” and “his” include the female and, whetherthere is one arbitrator or three, they are referred to as “the tribunal”, where appropriate.

1. Sharia LawA basic understanding of Sharia law is helpful, both because it is the foundation of UAElaw and because the Arab understanding of arbitration is drawn from the Sharia. Shariameans literally “the way” or “the path” and comprises a body of principles pertaining tomoral, economic, social and political issues which Muslims regard as being prescribed byGod to govern human life. There are two sources of Sharia: the Holy Qur’an, whichMuslimsbelieve was recited by God to the Prophet Mohammad (Peace Be Upon Him); and theSunnah, which are the acts and sayings of the Prophet and his Companions while he wasalive. However, the Qur’an and the Sunnah are not self-explanatory and they require scholarsto interpret them and adapt them for contemporary usage as society develops, in order tocreate a code of rules and principles that will assist people to live in accordance with God’slaw. This interpretation and development is achieved by the application of fiqh(understanding) and ijtihad (legal reasoning of a learned jurist). If no acceptable interpretationis readily available, one may be achieved by the application of qiyas (reasoning by analogy

1Law of Civil Transactions, Federal Law No.5 of 1985.2The Hanafi School is the dominant school of Islam in Egypt.3DIFC Law No.1 of 2008.


to deduct legal principles), ijma (consensus of the community), urf (custom and practice)and maslahah (the requirements of public interest, or the common good). Fundamentalprinciples of the Sharia are good faith in one’s dealings with other people and a prohibitionon unjust enrichment.

The UAE follows the Sunni branch of Islam, within which four main schools haveevolved to interpret the Sharia. By art.1 of the Civil Code, if no appropriate provision is tobe found in UAE law then the judge must decide in accordance with the Sharia, havingregard to the most appropriate solution from the schools of ImamMalik and Imam Ahmadbin Hanbal, and if none is found there, then from the schools of Imam al-Shafi’i and ImamAbu Hanifa. By art.27 of the Civil Code, laws may not be applied if they are contrary tothe Sharia.

2. Arbitration under the ShariaThe approach to arbitration under the Sharia differs from that in the West, where an arbitralaward is generally regarded as a binding alternative to a court judgment. In England, forexample, arbitration can be traced back to the early Christian period where, although thedecision of a bishop was not enforceable in law, the parties’ agreement to appoint himincluded a penalty if his decision was not obeyed, and that penalty was enforceable.4 Thedecision itself became enforceable with the introduction of the first English Arbitration Actin 1698,5 and today the award is binding save for a limited right of appeal.

Within the UAE, the Maliki and Hanbali Schools put great trust in arbitration and regardthe arbitrator’s decision as binding; indeed, under the Maliki School, the arbitrator’sappointment cannot be revoked after the commencement of the arbitration. The Shafi Schoolsees the position of an arbitrator as inferior to that of a judge and the appointment can berevoked at any time prior to the publication of the award. The Hanafi School sees thearbitrator as the agent of the party who appointed him and there is no requirement to beneutral or impartial, with the result that the arbitral award has less force than a courtjudgment.6

All four major Schools hold that there must be a dispute which the parties agree to referto arbitration, and that the parties’ mutual agreement to arbitrate forms the basis of thearbitrator’s jurisdiction. Although the Holy Qur’an refers to deciding disputes at arbitration,it is silent as to arbitration clauses and therefore it has been suggested that under the Shariaparties cannot agree to arbitrate future disputes which have not yet arisen. However, inpractice an arbitration clause in a contract is enforced and arbitration is widely used forcontractual disputes. Furthermore, the Sharia does not prohibit the appointment of anarbitrator by a third party and appointing institutions are commonly named in contracts.

Those Islamic scholars who regard arbitration as mere conciliation base their view upona reference to arbitration in Verse 4.35 of the Holy Qur’an which relates to matrimonialdisputes and suggests that there should be one arbitrator from his family and one from hers;this would indeed appear more akin the Western notion of conciliation. Other scholars relyupon Verse 4.58 to argue that an arbitration decision should be binding and that thereforethere should be an odd number of arbitrators. Yet others say that arbitration should bebinding in the same way that a contract would be binding under the Sharia.

The Arab view of arbitration has also been coloured by the recent history of its applicationin Arabia. Kutty argues that arbitration became discredited during the 1960s and 1970swhen certain arrogant Western arbitrators dismissed “with terms of a humiliating nature”

4 James Behrens, “The History of Mediation of Probate Disputes” (2002) 68 Arbitration 138.5 See Lord Hacking, “Arbitration Law Reform in Europe” (1999) 65 Arbitration 180.6 See Zeyad Alqurashi, “Arbitration under the Islamic Sharia”, abstract of paper available online at: http://www

.scribd.com/doc/192000790/Arbitration-Under-the-Islamic-Sharia [Accessed February 18, 2014].

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Arab law as primitive and inadequate.7 Kutty cites Saudi Arabia v Arab American Oil Co,8following which the Saudis passed a resolution prohibiting government agencies fromparticipating in arbitration. Kutty argues that “the legal community throughout the Arabworld is still manifesting its hostility to transnational arbitration” and that many believe“that the international arbitration framework was developed without any consideration beinggiven to their culture, values, and legal traditions”.

The position under the Sharia is therefore somewhat fluid but certainly an arbitral awardis not enforceable until it has been ratified by a judge as being compliant with the law, andit may be set aside if it does not comply.9Kutty points out, however, that as the Holy Qur’anprovides expressly for arbitration in some form and the Companions of the Prophet usedarbitration to settle commercial disputes, there is scope for the evolution of arbitrationpractice as interpretation of the Sharia evolves to meet modern demands.10 Indeed Ayadargues that such interpretation is necessary to Islam and is legitimate and binding.11 In themodern era, many Arab nations have acceded to the New York Convention on theRecognition and Enforcement of Foreign Arbitral Awards (the New York Convention) andhave adopted modern domestic arbitration laws based upon the UNCITRAL Model Law,and have established their own arbitration centres with recognised international rules.

Arbitration procedural lawArbitration proceedings in the UAE are governed by Federal Law No.11 of 1992 arts203–218, as amended by Federal Law No.30 of 2005 (the Civil Procedure Code or CPC),which is not based on the UNCITRAL Model Law (although the DIFC Arbitration Lawis). A draft Federal Arbitration Law based on UNCITRAL has been discussed but remainsonly a draft. The DIAC Rules are the most commonly used, although financial disputesmay be referred to the Emirates Securities and Commodities Authority or the InternationalIslamic Centre for Reconciliation and Arbitration, and some public sector bodies such asthe Dubai Municipality and the Roads and Transport Authority have their own arbitrationrules.An arbitration agreement must be in writing, though it may be incorporated by reference,

as in a charterparty contract,12 and the subject of the dispute must be defined in the termsof reference or in the award.13 If one party seeks a stay of court proceedings to arbitration,he must raise that point at the first court hearing, otherwise he is considered to have waivedhis right to arbitration.14 The Dubai courts accept that the termination of a contract is separatefrom the arbitration agreement contained within the contract, and that the transfer of acontract includes the transfer of the arbitration agreement.15 If the parties are unable to agreethe appointment of an arbitrator, or if a nominated arbitrator refuses or withdraws or isremoved, either party may apply to the court to make the appointment and there is no appealagainst the court’s decision.16 Once appointed, the tribunal must notify the parties of thedate and place of the first hearing within 30 days of the appointment and the award mustbe rendered within six months of the first hearing unless the parties agree an extension orgrant the tribunal the power to order an extension; the tribunal must give a copy of the

7Faisal Kutty, “The Shari’a Factor in International Commercial Arbitration” (2006) Loy. L.A. Int’l Comp. L. Rev.565, 591 and 592.

8 (1963) 27 I.L.R. 117.9 Joseph Schacht, An Introduction to Islamic Law (Oxford: Oxford University Press, 1982), p.189.10F. Kutty, “The Shari’a Factor in International Commercial Arbitration” (2006) 28 Loy. L.A. Int’l Comp. L. Rev.

565, 597.11Mary Ayad, “Harmonisation of International Commercial Arbitration Law and ‘Sharia’” (2009) 6 Macquarie

Journal of Business Law 102.12Civil Appeal No.325 of 2011.13CPC art.203(2) and (3).14CPC art.203(5); Dubai Court of Cassation Case No.228/2007, judgment dated February 24, 2007.15Dubai Court of Cassation, Petition No.40/2004, judgment dated September 26, 2004.16CPC art.204.

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award to each party within five days and the court will consider ratification at the requestof a party in the normal way for filing claims in court.17An arbitral award cannot be enforceduntil it has been ratified by the court, which may rectify material errors in the award.18

Although UAE law does not provide for a right of appeal as such, at both the ratificationand enforcement stages the party resisting enforcement may raise similar arguments to thosethat might be raised if there was a right of appeal. Ratification and enforcement areconsidered below.Parties to court proceedings may agree to submit their dispute to an arbitrator appointed

by the court to hear that dispute and not anything other than that dispute19; the court willsupervise and control the arbitral proceedings20; the tribunal must lodge the award with theclerk of the court within 15 days of making the award and must provide copies to the partieswithin 5 days of that, and the court should fix a hearing within 15 days to consider ratificationof the award.21

Beyond that, arbitral proceedings are flexible and largely unconstrained by legalprocedures other than those agreed by the parties,22 and any institutional rules that theyadopt. Redfern and Hunter point out that: “National courts could exist without arbitration,but arbitration could not exist without the courts”,23 because the assistance of the courts isrequired not only to supervise the arbitral process but also to enforce any ensuing award.UAE law makes no express provisions for confidentiality of arbitral proceedings, but in

practice arbitration is considered confidential. Express provisions are contained in the DIACand DIFC-LCIA Rules24; they may be included in the underlying contract and it is prudentalso to include them in the terms of reference, which the parties should sign to confirm theiracceptance. Under both sets of Rules, the claimant makes a Request for Arbitration to theinstitution and the respondent submits its Answer to the Request, but if there is no Answerthe institution will nonetheless proceed to appoint the tribunal in accordance with thearbitration agreement and transfer the file to the tribunal. The parties submit their Statementof Claim and of Defence (and Counterclaim if there is one) in the customary way.As for corporate transparency, there is no general public access to land registry data or

corporate information such as accounts and names of shareholders, which can hinder thegathering of evidence. Indeed, it can be difficult to discover exactly what the law is, giventhat there is no binding judicial precedent and the civil law system provides a code ratherthan a set of firm rules, although Court of Cassation judgments tend to be followed.Translations of court decisions into English are often unintelligible and translations of theCPC can be misleading; it is advisable to obtain several translations and sit down with anArab colleague to consider to what extent the translations accurately represent the Arabicoriginal.

The DIFC courtsThe DIFC has its own Court of First Instance, Court of Appeal and Execution Judge.Proceedings are conducted in English, procedure is based on the English Civil ProcedureRules, the principles of binding judicial precedent are recognised, and a Power of Attorney(see below) is not required. The DIFC Court has jurisdiction over claims involving DIFCcompanies or contracts which were made or performed within the DIFC area, or which the

17CPC arts 208(1), 210 and 213(3) respectively.18CPC art.215(1).19Dubai Court of Cassation, Case No.133/2007, judgment dated September 23, 2007.20Dubai Court of Cassation, Case No.273/2006, judgment dated February 4, 2007.21CPC art.213(1); art.213(2) relates to arbitrations arising in appeal cases.22CPC art.212(1).23Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 5th edn (Oxford: Oxford University

Press, 2009), para.7.03.24DIAC Rules art.41, DIFC Arbitration Law art.14 and DIFC-LCIA Rules art.30.



parties agree to refer to the DIFC Court.25 A decision of the DIFC Court is executed withinthe DIFC area by the DIFC Execution Judge and outside the DIFC area through the localcourts, subject to certain formalities, and the Dubai Court Execution Judge may not questionthe merits of the DIFC Court decision.26

The DIFC Court of First Instance may ratify domestic and foreign arbitration awards,27

even when the underlying dispute has no connection with the DIFC, and there is only onelevel of appeal. This may become the preferred method for enforcement of foreign awardswithout the numerous challenges that are so common in the Dubai courts. Indeed, it maybe possible to seek ratification of a domestic arbitral award in the DIFC Court, even whenthe dispute has no connection with the DIFC, and then seek enforcement of that decisionin the Dubai courts, or indeed any Gulf Cooperation Council (GCC) country.28 Some Arablawyers complain that the DIFC courts are not compliant with the Sharia, but the processmay be effective given that the Dubai courts may not question the merits of a decision ofthe DIFC courts.

Domestic arbitrationA few words are required in relation to domestic arbitration. For the most part, the DIACRules meet the expectations of international lawyers: the parties exchange their respectivepleadings, including a comprehensive statement of the facts and legal arguments, all therelevant documentary evidence and a statement of the relief sought.29 This works well wherethe parties’ lawyers are familiar with international arbitration proceedings, but there can bedifficulties when a party’s lawyers are not so familiar. Often they expect the process to besimilar to UAE court proceeding: frequently their pleadings contain only generalisedstatements and no supporting documentation, because they expect the judge to know andto apply the law and to make enquiry to discover the facts; a judge hearing a technical claimwill appoint an expert to assess the claim and report as to what sum should be awarded,and it is not unusual for a claimant to apply to DIAC for an arbitrator to appoint an expertto tell the arbitrator how much to award, while the claimant makes no attempt at all toquantify or support its claim. Sometimes a party has clearly fed its pleadings through internettranslation software in which the Arabic words have been translated literally into English.This can produce statements such as:

“The Counter Respondent cannot facilitate but twirl its back at the reliance of grandeurof the 1st Counter Claimant in the case at bar and the incomprehensible idea isdemonstratively sprawled and all told in truth and in fact the causes were significantlyand religiously complied.”

The tribunal may find it challenging to ensure that each party has a fair opportunity topresent its case and to respond to the case of the other party, without creating the impressionof assisting a party with its case. Where problems relate to the use of the English languageor inexperience with English proceedings, the tribunal should exercise patience and explainmatters clearly and grant extensions of time where necessary. However, the tribunal shouldguard against a manipulative respondent seeking to employ wrecking tactics to hinder orprevent the reference from proceeding.

25Dubai Law No.16 of 2011 art.5A.26Under the terms of a 2009 Protocol of Enforcement between Dubai courts and DIFC courts, and confirmed in

Dubai Law No.16 of 2011 art.7(3)(c).27DIFC Court Law No.10 of 2004 art.24(1).28 See GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications art.1.29 See DIAC Rules arts 23 and 24.

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The arbitratorThe traditional application of the Sharia imposed restrictions on who could serve as anarbitrator: he had to have the same qualifications as a judge and be of mature age, wise,free, male and Muslim. The prohibition on women appears to have derived from the lesserweight given to the testimony of women based upon the proposition that they were weakerthan men and their testimony was less credible,30 although other Islamic scholars say thatthere were female arbitrators. The prohibition on non-Muslims was based upon the principlethat only a Muslim could properly apply the Sharia in judging between two other people.This attitude is changing and today there are excellent arbitrators in Dubai who are notMuslim and are not male. As for “free”, slavery was abolished in the UAE in 1963. Thepresent requirements for an arbitrator in the UAE are set out in the CPC art.206: he mustnot be a minor or legally incapacitated or under a guardianship or be a criminal who hasbeen deprived of his civil rights or an undischarged bankrupt. The number of arbitratorsmust be uneven, the arbitrator must confirm in writing his acceptance of the appointmentand if he then withdraws without good reason, the court may order him to paycompensation.31

Under the DIAC Rules, the parties may agree how many arbitrators there should be, butif there is no agreement the default position is one arbitrator unless DIAC decides that threewould be more appropriate for the particular dispute; an arbitrator must be impartial andindependent, and a sole arbitrator or chairman of the tribunal may not be of the samenationality as one of the parties unless the other party agrees.32 The DIFC-LCIA Rules havesimilar provisions.33

Claims against the GovernmentThere is no sovereign immunity as such in Dubai, but no claim may be brought (whetherin court or in arbitration) against the Ruler or the Government of Dubai or any governmentdepartment, institution or corporation without first obtaining consent from the Ruler’sCourt.34 Written details of the claim must be deposited with the Legal Adviser at theDepartment of Legal Affairs, who should notify the relevant government authority withinone week and the authority should respond within 15 days. There is then a two-month periodfor amicable settlement and if that fails, the claimant may then proceed to court or arbitration.The purpose of this provision is not (as cynics might suggest) to prevent such claims

being brought but to allow amicable settlement, in the Arab way. Note, however, that ajudgment or award may not be enforced by seizing or attaching public property35; Article247 of the CPC lists the types of property that may not be seized. These provisions mayhinder the successful claimant from enforcing any award that he may be fortunate enoughto receive, but common practice is for a senior member of one party to have a quiet wordwith a senior member of the other party and reach agreement between themselves.

Public policyIslamic jurisprudence is the reference point for interpretation of UAE law and includes“public order”, which comprises the rules and foundations upon which society is based, insuch a manner as not to conflict with the Sharia.36 As a matter of public policy, “Arbitration

30 Faisal Kutty, “The Shari’a Factor in International Commercial Arbitration” (2006) 28 Loy. L.A. Int’l Comp. L.Rev. 565, 608.

31CPC arts 206(2), 207(1) and 207(2).32DIAC Rules arts 8, 9 and 10.33DIFC-LCIA Rules arts 5 and 6.34Dubai Law No.10 of 2005, which amended Dubai Law No.3 of 1996 Concerning Government Claims.35Law No.10 of 2005 art.3; also UAE Civil Code art.103.36UAE Civil Code arts 2 and 3.



shall not be permitted in matters in which settlement is not permitted”37: this includescommercial agency agreements38; labour disputes39; disputes relating to deferred debt40;issues such as forgery and criminal activity, which must be referred to the court and thearbitration must be suspended until the court has reached a final decision41 (a respondentcan claim that a document has been forged and thereby cause the arbitration to be suspendedfor sometimes up to a year). Insurance disputes can be arbitrated, but an arbitration clausein an insurance contract is void “unless contained in a special agreement separate from thegeneral printed conditions in the policy of insurance”.42

The Court of Cassation recently nullified an award on the ground that the arbitrator hadfound the respondent to be in breach of a law requiring the registration of contracts for thesale of land which the Court deemed was a matter of public policy that could not be resolvedthrough arbitration.43Blanke argues that this decision is flawed and questions its compliancewith the Sharia,44 but in any event the tribunal should endeavour to ensure that its award isenforceable and is well advised to base its decision on breach of contract (i.e. that one partydid not do what it agreed to do in the contract) rather than upon breach of a statutoryprovision which a judge may view as encroaching upon his own jurisdiction.The provisions of the New York Convention art.V(2), by which the enforcement of an

arbitral award may be refused, include that the subject matter of the difference is not capableof settlement by arbitration under the law of that country45 and that enforcement would becontrary to the public policy of that country.46 Such provisions are of particular importancein the UAE, where the judge will consider not only the terms of the contract but also broaderprinciples of public policy and the common good.

Interim measuresIf a party makes an application to the court after the arbitration has commenced, the courtis likely to refer that application to the tribunal, although the court will retain jurisdictionin relation to measures that require the court’s input, such as attachment orders andinjunctions to preserve evidence, and any agreement to the contrary is void.47 The tribunalmay seek court assistance, for example to penalise a witness who fails to attend or refusesto answer, or for third parties to produce necessary documents, or for “legal assistance”.48

There are no specific provisions in UAE law for the tribunal to grant interim relief orconservationary measures and it has been suggested that such provisions would conflictwith the CPC art.220, by which the executive judge alone has jurisdiction “to rule in alldisputes concerning urgent provisional implementation”. Possibly this article relates to theenforcement of final decisions rather than to interim measures taken by the tribunal, but inany event in practice tribunals routinely order interim measures where such provisions areincluded in the institutional rules which the parties choose to adopt. Under the DIACRules,the tribunal can order interim measures, including injunctions and measures for theconservation of goods involved in disputes.49 The DIAC Rules have been interpreted asencompassing orders for security for costs and anecdotally such orders have been made.

37CPC art.203(4).38 Federal Law No.18 of 1981 (as amended), the Commercial Agency Law art.6.39 Federal Law No.8 of 1980 (as amended), the Labour Law.40UAE Civil Code art.733.41CPC art.209(2).42UAE Civil Code art.1028(d).43Baiti Real Estate Development v Dynasty Zarooni Inc Cassation Appeal No.14/2012.44Gordon Blanke, “Public Policy in the UAE” (2013) 79 Arbitration 98.45New York Convention art.V(2)(a).46New York Convention art.V(2)(b).47CPC arts 22 and 24.48CPC art.209(2)(a), (b) and (c) respectively.49DIAC Rules art.31.

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The DIFC Arbitration Law contains similar provisions and the DIFC-LCIA Rules provideexpressly for orders for security for costs.50

Challenging an arbitrator’s appointmentAn arbitrator’s appointment may be challenged on the same grounds as a judge’s, but theapplication must be made within five days of notification of the appointment or the date onwhich the applicant became aware of the grounds for challenge.51 The grounds are52:

• A disqualifying marriage or family or business relationship or inheritancematter between the arbitrator and one of the parties.

• Conflicting interests as counsel, witness or expert in other proceedings.• The arbitrator has previously brought a claim against one of the parties.• One of the parties has worked for him or he has been feeding or housing them

or has received a gift from them.• One of the parties chose him as an arbitrator in a previous case.• A relationship which makes it probable that he will be unable to rule without

bias.

Alternatively, the parties may agree to remove the arbitrator, or the court may remove himif he deliberately neglects his appointed task after it is brought to his attention in writing.53

In DIAC arbitration, a prospective arbitrator is required to provide a Statement ofIndependence disclosing any circumstances that may give rise to justifiable doubts as tohis independence or impartiality.54 Either party may object to a proposed arbitrator andDIAC will be strict in withdrawing the proposal if there is any hint of conflict of interest.An appointment may be revoked if the arbitrator violates the arbitration agreement or doesnot act fairly and impartially as between the parties or fails to proceed with reasonablediligence, or if either party subsequently discovers circumstances that give rise to justifiabledoubts as to his impartiality or independence.55 Similar provisions appear in the DIFC-LCIARules.56

Challenging the tribunal’s jurisdictionUAE law does not provide for the principle ofKompetenz-Kompetenz, by which the tribunalhas jurisdiction to decide its own jurisdiction. The parties may agree in their arbitrationagreement or in the arbitration rules they adopt that the tribunal may rule on its ownjurisdiction, otherwise a party must raise a jurisdictional challenge before the court. InDIAC arbitration, the Executive Committee will refer a jurisdictional challenge to thetribunal if it is satisfied prima facie that there is a valid arbitration agreement (if not, thearbitration will not proceed) and the tribunal will normally rule on its own jurisdiction asa preliminary issue.57 The DIFC Arbitration Law uses similar terms.58

Terms of referenceThe subject of the dispute must be defined in an arbitration document,59 which is taken tomean a terms of reference document separate from the award itself, setting out the nature

50DIFC Arbitration Law art.24, DIFC-LCIA Rules art.25.2.51CPC art.207(4).52CPC arts 114(1) and 115.53CPC art.207(3).54DIAC Rules art.9.8.55DIAC Rules art.13.56DIFC-LCIA Rules art.10. See also DIFC Arbitration Law art.18.57DIAC Rules arts 6.2 and 6.4.58DIFC Arbitration Law art.23(1) and DIFC-LCIA Rules art.22(1).59CPC art.203(3).



of the dispute and the parties’ arguments and evidence, signed by all the parties and initialledon every page. By signing the terms of reference the parties should not afterwards be ableto claim that the arbitration was invalid, unless the tribunal’s decision strays beyond theterms of the arbitration agreement. It is arguable that UAE law does not actually requiresuch a document and that it is sufficient to state the relevant information in the award itself,or that there is no requirement that the terms of reference be signed in Dubai (as the awardmust be), but best practice is to produce a terms of reference document and sign it in Dubai.Although the DIACRules contain no express provisions in relation to a terms of reference

document, advice fromDIAC is that if one of the parties does not sign the terms of reference(it is always the respondent) then the tribunal in its award must set out the steps it took toobtain signature and explain why signature was not obtained. The DubaiMunicipality Rulesand the identical Roads and Transport Authority Rules state that if one of the parties doesnot sign, the tribunal must set a time limit for signature and on expiry of that time limit “thearbitration shall proceed and the award shall be made”. Clearly, it cannot be the case thatthe arbitration is invalid if the terms of reference document is not signed by both parties,because if that were the case then any respondent could void the arbitration by failing tosign.

Power of attorney to bind a company to arbitrationThere are no provisions in UAE law, as there are in other legal systems, whereby a partycontracting with a company in good faith is entitled to assume that the contract is validlyexecuted, and therefore in the UAE a person who signs a contract must prove that he isentitled to do so.60 A limited liability company may appoint up to five managers who maybind the company,61 or the articles of association may name a manager who can bind thecompany, but any other person is required to have a valid power of attorney (POA).A POA may be “general” or “special”.62 An arbitration clause is recognised as being

distinct from the contract in which it is written and therefore a person who signs a contractthat includes an arbitration agreement must have a special POA expressly entitling him notonly to sign the contract but also to agree an arbitration clause,63 because that will excludethe jurisdiction of the court. A company manager may delegate to a third party the right toagree an arbitration clause provided that right is specifically mentioned in the third party’sPOA.64 Without a valid POA granted by someone entitled to grant it, no person may binda company to arbitration and the court may refuse to ratify the award.65

The UAE Civil Code art.925 sets out criteria which determine whether a POA is valid:

(a) The principal must have the right to act in relation to the particular matter.(b) The agent must not be prohibited from acting in the matter entrusted to him.(c) The subject matter of the agency must be capable of being performed by an

agent.

A POA must be typed in Arabic and must be notarised by a public notary. Both the grantorand the grantee or their agents must attend the notary, they must produce the POA itselfand their identity cards and, in the case of a company, the trading licence and the articlesof association. If the POA is issued outside the UAE, it must be notarised in the country ofissue and at the UAE embassy of that country and then translated into Arabic by a certifiedtranslator and legalised at the Ministry of Foreign Affairs in the UAE. It is common for aPOA to have English on the left of the page and Arabic on the right.

60CPC art.58(2).61UAE Federal Law No.8 of 1984 (as amended), the Commercial Companies Law arts 235 and 237.62UAE Civil Code art.926.63CPC art.203(4); see also Dubai Court of Cassation Petition No.164/2008, judgment dated October 10, 2008;

Dubai Court of Cassation, Petition No.273/2006, judgment dated February 4, 2007.64Dubai Court of Cassation, Petition No.220/2004, judgment dated January 17, 2005.65CPC art.216(1)(b).

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The courts take this procedure literally and it is common for the unsuccessful party toargue at the enforcement stage that the award is invalid because the person who signed thecontract was not authorised to agree an arbitration clause. The common law doctrine ofestoppel has no place in UAE law and arguments based upon waiver of the right to objectare unlikely to succeed. It may be possible to convince a judge that there is an injusticewhen the claimant who initiated and lost the arbitration then claims that the award is invalidbecause the person who signed the contract on his behalf was not authorised to agree anarbitration clause. In general, however, the courts insist that a contract must be signed bysomeone who was authorised to sign not merely the contract but also an arbitrationagreement.

Power of attorney to act as counselAn advocate may only act on behalf of a party in court if he has a valid special POA,otherwise his acts will not be valid.66 A foreign principal should appoint an agent withinthe UAE and the principal will be bound by the legal submissions of his agent.67 If anadvocate does not provide his POA at the first court hearing, and the client is representedby a different advocate at the second hearing, the client has not lost the right to request thatthe case be stayed to arbitration, because the first advocate was never acknowledged by thecourt.68

This has been taken to mean that in arbitration too an advocate must hold a valid POA.The Court of Cassation held recently that this requirement does not apply to arbitration,because by the CPC art.212, arbitrators are bound only by the provisions of the CPC Ch.3(i.e. arts 203–218) and any specific procedures agreed upon by the parties; the groundsupon which an arbitral award may be annulled are set out in the CPC art.216 and they donot include the invalidity of the advocate’s POA.69Best practice, however, is for the tribunalto require the advocates to provide copies of their POAs at the preliminary meeting and tocheck that the arbitration agreement and the POAs of the advocates were signed by someonewho was authorised to do so and to record in the terms of reference that the partiesacknowledge that each other’s POAs are valid.It is possible for a POA to be ratified retrospectively,70 although ratification of a contract

may not amount to ratification of an agreement to arbitrate unless the ratification says so.71

Thus if an attorney has a POA to represent a client in court but no special POA to representthe client in arbitration, the client will be precluded from relying on the absence of a specialPOA to arbitrate if he has impliedly conferred authority, for example by giving the attorneydocuments to submit in the arbitration.72 For the sake of completeness, note also that it isnot permitted to appoint an attorney who is an enemy of the opposing party.73

EvidenceIn court proceedings, witness testimonymay not contradict documentary evidence, witnessesare questioned by the judge, they must sign the court’s record of their statement and althoughthere is no general disclosure a party may be required to disclose documents upon whichhe relies.74 Arbitration procedure is more flexible and the law of evidence does not apply

66CPC arts 55(2) and 58(2); Dubai Court of Cassation, Case No.38/2009, judgment dated April 4, 2009.67CPC art.58(1).68Dubai Court of Cassation, Case No.38/2009, judgment dated April 4, 2009.69No citation given but see article by Al Tamimi & Co, “No need for a POA in UAEArbitrations”, available online

at: www.tamimi.com [Accessed February 18, 2014].70UAE Civil Code art.930.71Dubai Court of Cassation, Petition No.220/2004, judgment dated January 17, 2005; Petition No.51/2005, judgment

dated May 28, 2005.72 See Dubai Court of Cassation, Petition No.273/2006, judgment dated March 5, 2007.73UAE Civil Code art.939.74 Federal Law No.10 of 1992, Law of Evidence in Civil and Commercial Transactions arts 36, 44 and 18.



unless the parties agree or the tribunal directs.75 The tribunal determines the extent of anydisclosure and often the IBA Rules on Taking Evidence are adopted. Oral evidence mustbe given on oath,76 which is usually, “I swear by Almighty God that I shall tell the wholetruth and nothing but the truth” but may vary according to the custom of the particularwitness’s religion. Tribunals generally adopt common law procedures whereby cases arepresented by advocates and witnesses are cross-examined by the other party. UAE law doesnot recognise the English concepts of legal professional privilege or “without prejudice”communications and any such documents may be disclosed without the other party’s consent(the DIFC Court does recognise these concepts).There is no requirement in the CPC that an expert must be impartial or independent,

although there is in the DIACRules when the expert is appointed by the tribunal, and similarprovisions appear in DIFC arbitrations.77

The awardThe domestic award should be made in Dubai; it must comprise a copy of the arbitrationagreement, a summary of the parties’ cases and their evidence, together with the reasoning,place and date of the award; it must be signed by all the arbitrators (this is taken to meanthat the decision and its reasoningmust be signed on every page, the remainder of the awardshould be initialled),78 any dissenting opinion must be included and if one arbitrator refusesto sign, that fact must be mentioned in the award; if the award is not in Arabic, then forenforcement purposes a translation is required; the award is deemed made on the date it issigned; a copy must be given to each party within five days79; the award must be renderedwithin six months of the preliminary meeting unless the parties agree explicitly or implicitlyto extend that period or grant the tribunal the power to extend it, or the court extends it.80

At the ratification stage, the court may return the award to the tribunal to address omissionsor make clarifications, in which case the tribunal must issue its decision within three months,or alternatively, the court can itself correct material flaws.81 Often the recipient of afavourable award is well aware of the difficulties he will face in achieving enforcement ofthe award and he uses it to leverage a favourable settlement by agreement. This reflects theArab desire to settle matters between themselves and their notion that arbitration is notbinding but is an aspect of conciliation.Under the DIACRules, the six-month period commences on the date the tribunal receives

the file from DIAC but the tribunal can extend the period by six months on its own motionand the Executive Committee of DIAC may extend it further.82 It is advisable to includesuch a provision in the terms of reference. The DIFC Arbitration Law does not impose asix-month requirement and the DIFC-LCIA Rules are silent as to a situation in which thearbitration is conducted under those Rules but under UAE law and has been running forsix months but the award has not been made.

CostsUnder the CPC, the tribunal may “assess their fees and the costs of the arbitration and theymay rule to impose all or part of this on the losing party”, although the court may amendthis assessment in a manner appropriate to the effort expended and the nature of the dispute.83

75By virtue of CPC art.212.76CPC art.211.77DIAC Rules art.30.1; DIFC Arbitration Law art.33; the DIFC-LCIA Rules art.21.78Dubai Court of Cassation, Petition No.233 of 2007, judgment dated January 13, 2008.79CPC arts 212(4)–(7) and 213(3), respectively.80CPC art.210; Dubai Court of Cassation, Case No.222/2006, judgment dated February 25, 2007.81CPC arts 214 and 215.82DIAC Rules art.36.3 and 36.4 respectively.83CPC art.218.

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In DIAC arbitration there is a fee (currently AED 5,000)84 payable to DIAC for registeringa claim or a counterclaim. DIAC will then require an “advance on costs” based upon thevalue of the claim in accordance with a table attached to the appendix to the Rules, whichis intended to cover the anticipated fees and expenses of the tribunal and of any expertappointed by the tribunal, although the amount may be increased if the arbitration provesmore complex than anticipated. The advance on costs should be paid in equal shares byboth parties but if (as commonly happens) the respondent fails to pay its share, the claimantwill be obliged to pay the respondent’s share in addition to its own, or the claim will notproceed, and the same applies if the claimant fails to pay its share of the advance on costsin relation to any counterclaim. If (as commonly happens) the respondent fails to mentionin its Answer to the Request for Arbitration that it has a counterclaim, and then includes acounterclaim with its defence, the tribunal should inform DIAC, who will notify the partiesof the increased advance on costs required in relation to the value of the counterclaim; thetribunal may continue with the arbitration while payment is sought, but may not issue itsaward until payment has been made in full. If the amount of the claim or counterclaim isincreased during the arbitration, the tribunal should inform DIAC, who will require anincreased fee.Under the DIAC Rules, the tribunal may decide in its final award which party shall bear

the costs and in what proportion,85 and this will include DIAC’s fee and the advance oncosts, but the Rules are silent specifically as to the successful party’s legal costs. Generallythese are awarded in accordance with “the English Rule” that costs should follow the event.In DIFC arbitration, the fees are set out in the schedule of arbitration costs appended to theDIFC-LCIA Rules and the successful party may be awarded its reasonable legal costs toreflect its relative success and failure in the arbitration, unless the parties have agreedotherwise and provided they were claimed in the arbitration.86

However, a setback occurred in 2013 when the Court of Cassation held that under theDIAC Rules, “costs” include the DIAC fee and the advance on costs, but not the attorney’sfees; if a party chooses to be represented by an attorney he does so at his own cost, whichis why the Rules do not include legal costs; pursuant to the CPC art.216(1), the arbitratorsexceeded their jurisdiction by awarding costs of AED 110,000 whereas general practice inthe court is to award nominal attorney’s fees of AED 500–2,000.87 The order for AED110,000 in attorney’s fees was severed and AED 1,000 was substituted; the rest of the awardwas confirmed. This decision does not accord with normal practice in DIAC arbitrationsand does not address the common situation where both parties apply for their costs, therebyarguably as a matter of contract granting the tribunal jurisdiction to award costs.

InterestThe Sharia prohibition on payment of interest might suggest that an arbitral award couldbe unenforceable for public interest considerations under the UAE Civil Code art.3, but inpractice this is not the case. As with most Arab jurisdictions, the UAE has legalised thepayment of interest and in those Arab states that have not, the part relating to interest maybe severed and the rest of the award enforced. In the UAE, in relation to commercial debt,if the contract does not stipulate a rate of interest the rate may not exceed 12 per cent.88

However, in arbitration as in court proceedings interest is usually awarded at 9 per centunless the contract proscribes a rate, either as a figure or as a percentage above the prevailingEIBOR rate.89 In the DIFC Court, interest is awarded at 1 per cent above the three-month

84The UAE dirham is pegged to the US dollar at 3.67; there are currently six dirhams to the English pound.85DIAC Rules art.37.10 and Appendix to the Rules art.4.86DIFC Arbitration Law art.38(5)(f) and DIFC-LCIA Rules art.28.87Real Estate Objection for Cassation, Claim No.282/2012, judgment dated February 3, 2013.88UAE Federal Law No.18 of 1993, the Commercial Transactions Law art.76.89Emirates Interbank Offer Rate.



EIBOR rate. Unlike courts, arbitral tribunals can award compound interest, which is likelyto be enforceable in Dubai, although possibly not in Abu Dhabi.Anecdotally, where the respondent has refused to pay its share of the advance on costs

or has otherwise sought to delay or wreck the arbitration, and the tribunal’s final decisiongoes against the respondent, some tribunals have been known to hit the respondent with 12per cent interest as a punishment. Twelve per cent is indeed a punishment, but such a practicemay be frowned upon by a judge at the enforcement stage and a rate of 9 per cent isconsidered more appropriate.

Ratification of domestic awardsCommonly the losing party will refuse to honour the award and the winning party mustseek to enforce it through the courts, which involves a two-stage process of ratification(because a domestic arbitral award must be ratified by the court before it can be enforced)followed by execution90; international arbitral awards are dealt with separately below. Atthe ratification stage, the court should not consider the merits of the award,91 but whetherit complies with legal requirements and if it does not comply the court may refuse torecognise it or may return it to the tribunal for clarification within three months.92 There isno right of appeal as such against an arbitrator’s decision,93 and the court will not hear thecase de novo, but commonly the unsuccessful party will raise at the ratification stage thesame arguments that it would have raised if the right of appeal had been available. Anydecision of the Court of First Instance can be appealed to the Court of Appeal and then tothe Court of Cassation unless the parties have expressly waived the right of appeal or thevalue of the dispute does not exceed AED 200,000.94 When ratified, the award can be takento the Court of Execution (see below), where this process starts again, with the result that,in extreme cases, the ratification and execution process can take several years to achieve.A recent case held that a domestic arbitral award can only be set aside under the CPC

art.216 on grounds linked: (1) to the arbitration agreement; or (2) to the proceedings:

(a) no proper arbitration agreement or it had lapsed or the tribunal exceeded itsjurisdiction;

(b) the tribunal was not properly appointed, or the subject of the arbitration wasnot stated, or a party was not competent to agree to arbitration or an arbitratordid not fulfil the legal requirements; or

(c) there is an invalidity in the award or in the procedure.95

From a summary of all the provisions of the CPC, it appears that an awardmay be challengedon the following grounds:

• The arbitration agreement was not in writing (art.203(2)).• The subject of the dispute was not defined in the arbitration document

(art.203(3)).• The award was rendered with no or an invalid arbitration deed (art.216(1)(a)).• The tribunal exceeded its jurisdiction under the arbitration agreement

(art.216(1)(a)).• The tribunal considered matters that by lawmay not be arbitrated (art.203(4)).• The tribunal was not properly appointed (art.216(1)(b)).• The tribunal did not decide in accordance with the law (art.212(2)).

90CPC arts 214 to 216 relate to court ratification of arbitral awards; arts 235 to 238 relate to implementation offoreign judgments and arbitral awards; and arts 239 to 243 relate to execution.

91Dubai Court of Cassation, Case No.273 of 2006, judgment dated February 4, 2007.92CPC art.214.93CPC art.217.94CPC art.173; see also Dubai Court of Cassation, Case No.278/2008, judgment dated April 14, 2009.95Dubai Court of Cassation, Petition No.270 of 2008, judgment dated March 24, 2008.

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• The tribunal did not issue its decision within six months, without a validextension (art.210(1) and (2)).

• The arbitrators were not properly appointed (art.216(b)).• An arbitrator was a minor or under a guardianship or was deprived of his civil

rights because of some criminal penalty or was an undischarged bankrupt(art.206(1)).

• The person who signed the arbitration agreement lacked capacity (art.203(4)).• Witnesses did not swear the oath (art.211).• Some form of procedural irregularity, such as failure by an arbitrator to sign

both the reasoning and the dispositive (i.e. the substance) of the award(art.216(1)(c)).

• Public policy considerations.96

The unsuccessful party commonly resists enforcement on whatever grounds come to hand(there is no disincentive, because awards of costs in the courts are nominal) and appealsany adverse decision as far as the Court of Cassation, in order to delay payment for so longthat the other party is willing to accept a compromise settlement rather than continue tryingto enforce the award for its full amount. Other common tactics are for a recalcitrantrespondent to ignore procedural requirements, for example by filing submissions out oftime so that they are rejected, or to refuse to accept delivery of documents, and then relyupon this apparent injustice to argue that he was denied a fair opportunity to present hiscase.

Enforcement of foreign arbitral awardsThe CPC art.235 sets out conditions for the enforcement of foreign court orders and art.236applies this to foreign arbitration awards. The conditions are:

(a) The UAE courts did not have jurisdiction and the foreign courts did.(b) The court that made the order had jurisdiction under the laws of that country.(c) The parties to the dispute were properly notified and represented.(d) The order has become final and binding according to the law where it was

made.(e) The award does not conflict with a previous ruling of a UAE court and it does

not contravene propriety or public order.

By the CPC art.238:

“The principles stipulated in the preceding articles shall be not-withstanding any rulingsor pacts between the State and any other state in this regard”.

The UAE has entered into a number of treaties and conventions for the enforcement ofarbitral awards, including the NewYork Convention97 and the ICSID Convention, and some38 bilateral treaties, particularly with other Arab states, some 28 of which are actually inforce.A common reservation made by states ratifying the New York Convention is that

recognition of foreign awards is confined to those rendered in states that recognise andenforce judgments of the ratifying state. There are six official languages of the New YorkConvention and Arabic is not one of them; confusion was caused when this mutualrecognition reservation appeared on the New York Convention website in relation to theUAE, but it is now accepted that the UAE did not in fact make any such reservation whenit signed the Convention.

96 See Petition No.146/2008, judgment dated November 9, 2008.97Decree No.43 of 2006 of June 13, 2006, which came into force on November 19, 2006.



The grounds upon which enforcement of foreign arbitral awards may be refused arealmost identical under the New York Convention art.V, the UNCITRALModel Law art.36and the DIFC Arbitration Law art.44(1):

(i) a party was under some incapacity, or the arbitration agreement is invalidunder the law to which the parties have subjected it or, in the absence of anyindication thereon, under the law of the state or jurisdiction where the awardwas made;

(ii) a party was not given proper notice of the appointment of an arbitrator or ofthe arbitral proceedings or was otherwise unable to present his case;

(iii) the award deals with a dispute that does not fall within the terms of thesubmission to arbitration, or it contains decisions on matters beyond the scopeof the submission (although it may be possible to sever those parts);

(iv) the composition of the tribunal or the procedure was not in accordance withthe parties’ agreement or, in the absence of such agreement, with the law ofthe state or jurisdiction where the arbitration took place; or

(v) the award has not yet become binding on the parties or has been set aside orsuspended by a court of the state in which the award was made; or

(vi) if the court in the country where recognition is sought finds that:the subject matter of the dispute would not have been capable ofsettlement by arbitration under the laws of that country; or

(a)

(b) enforcement of the award would be contrary to the public policy ofthat country.

The New York Convention art.VII(1) envisages enforcement under an available bilateralor multilateral treaty if that is more favourable. As for enforcement of an ICSID award, bythe Washington Convention art.54:

“each contracting state must recognise an ICSID award as if it were a final judgmentof its own national courts and enforce the obligation imposed by that award”.

It is fair to say that the Dubai courts have in the past been suspicious of arbitration andreluctant to enforce arbitral awards which they felt impinged upon their own jurisdiction.In the well-known Bechtel case,98 an international arbitration award against a governmentdepartment was set aside on the ground that witnesses had not given evidence under oathas required by the CPC art.211. The Court may have been seeking to shield the governmentbody from an unfavourable award, but the decision sent a negative message to theinternational legal community.The Dubai courts have recently been more willing to respect international arbitration,

although they remain protective of their own jurisdiction in relation to domestic arbitration.In one 2012 case, the losing party resisted enforcement of a foreign arbitral award on variousgrounds including: the person who signed the arbitration clause lacked capacity to sign; theformation of the tribunal was invalid; the arbitrator applied English rather than UAE law;there were no terms of reference; the witnesses were not sworn in properly; a copy of thearbitration agreement was not appended to the award; and the award was not rendered withinsix months. The Court of First Instance held that this was an international arbitration awardand therefore the court’s supervisory role was limited to ensuring that the award did notbreach the terms of the New York Convention, because the provisions of the CPC do notapply to the enforcement of foreign awards. This decision was upheld by the Dubai Courtof Cassation, which held that the CPC applies to domestic arbitration awards, while theNew York Convention applies to international arbitration awards.99

98 International Bechtel v Department of Civil Aviation of the Government of Dubai, Dubai Court of Cassation,Petition No.503/2003, judgment dated May 15, 2005.

99Dubai Court of Cassation, Case No.132/2012, judgment dated September 18, 2012.

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ExecutionThe successful party must now seek to have the award enforced by the Execution Court,although the unsuccessful party may already have taken steps to conceal his assets. Theexecutive judge will ask the losing party to make payment within 15 days, failing whichhe will decide whether to enforce the award by attaching any assets or enforcing againstassets which have previously been attached and selling them through public auction to settlethe award amount. If property is located in the area of another court, the judge may transferthe matter to the executive judge of that court to supervise the sale of the property, but it isthe first judge who distributes the proceeds between the creditors.100

The losing party in the arbitration may seek to resist execution on the same grounds thathe sought to resist ratification. In addition, the decision of the executive judge may itselfbe appealed on grounds that101:

(a) The executive judge lacked jurisdiction to execute the award.(b) The particular property should not have been seized or sold.(c) Persons other than the adversaries participated in the seizure.(d) Issues relating to the order of priority between the creditors.(e) There are grounds to defer implementation.(f) A person seeks to avoid imprisonment for failure to pay the sum ordered.(g) Deferment of payment by the debtor or payment in instalments.

3. ConclusionThe Dubai courts are coming to terms with international arbitration and are less jealous oftheir own jurisdiction and more willing to enforce arbitration awards provided they complywith Sharia principles of fairness and good order. The DIFCCourt may become the obviousvenue for the enforcement of international arbitration awards, but if Dubai hopes to becomeamajor centre for dispute resolution it requires a modern legal structure which is recognisableto the business community, which supports the arbitration process swiftly and which enforcesdomestic as well as foreign awards. English is the language of international business andparties resent the expense and variable quality of translations of documents and convolutedprocedure. Dubai has a new Company Law and a proposed new Insolvency Law; a modernArbitration Law based upon the UNCITRAL Model Law is urgently required to carry thelegal system into the twenty-first century, so that modern business people may feel confidentto use Dubai as a venue to resolve disputes.

100CPC arts 219 and 220.101CPC art.222(1).



If It Ain’t Broke, Don’t Change ItNeil Kaplan

When it was once suggested to Groucho Marx that he should do something for posterityhe famously replied, “What has posterity ever done for me?” I do not think for one momentthat Official Referee George Alexander Scott (1862–1933) thought the schedule which nowbears his name would be used in its various forms 80 years after his death.For those not familiar with it, the “Scott Schedule” is simply a way of setting out claimed

defects with columns for both parties to summarise briefly their arguments on each pointand a blank column for the judge or tribunal to write in its decision.1 Not only is the ScottSchedule format used to list defects in construction cases; it can also be used just asefficiently for listing a multiple range of topics that need a decision by a tribunal.Alan Redfern has booked his place in posterity as the founding co-author of an excellent

book on international commercial arbitration. However, just to be sure, he adapted the ScottSchedule into the “Redfern Schedule” which we all now use for itemising disputed documentrequests.2

Lucy Reed was probably too young to worry about posterity when she suggested the“Reed Retreat”—more of which later.A suggestion made by Klaus Sachs in a paper given in Rio became labelled the “Sachs

Protocol”. This was a method by which the tribunal and the parties worked together withexperts to attempt to determine precisely what had happened in a complex project.3

Even I havemade amodest attempt to create an eponymous schedule which is a pro-formaschedule to be used for itemising costs claimed in an arbitration.4

The purpose of this article is to suggest something new which I guess might be calledthe “Kaplan Opening” (KO).Before exploring it further let me set out the relevant background.When I started practice at the bar far more reliance was placed on oral advocacy. Over

the last 30 years or so there has been a substantial increase in the use of written advocacyat the expense of orality.A crucial piece of oral advocacy was the opening of a case. In those days the judge rarely

had an opportunity of getting to know the case and had frequently been given the papersonly the night before. There were not as many specialised lists as there are today and casemanagement as we know it today was more a thing of the future.Thus, the opening of a case was absolutely crucial. You had the judge or tribunal in your

hands. You could explain the case to them whilst at the same time making it clear that theycould only decide the matter in your client’s favour. You took them through the agreedbundle (far more skeletal that its fleshier modern counterparts) and by the time you hadfinished you could be sure that the tribunal fully understood your case.At the end of an opening, however good, things could only go downhill. Witnesses might

not come up to proof. The judgemight see a point you hadmissed or avoided. Your opponent

1Examples of Scott Schedules are set out in John Tackaberry and Arthur Marriott, Bernstein’s Handbook ofArbitration and Dispute Resolution Practice, Vol.2 (London: Sweet & Maxwell, 2003), paras A54-071, A54-073and A54-074.

2For an explanation of Redfern Schedules see Nigel Blackaby and Constantine Partasides, Redfern and Hunter onInternational Arbitration, 5th edn (Oxford: Oxford University Press, 2009), paras 6.113–6.116.

3 See Alison Ross, “A Sachs-y New Approach to Expert Evidence?” (2010) 5(3) Global Arbitration Review.Available online at: http://globalarbitrationreview.com/journal/article/28513/a-sachs-y-new-approach-expert-evidence[Accessed February 18, 2014].

4 See Neil Kaplan, “Problems at Both Ends” in S. Kroll, L. Mistelis, P. PeralesViscasillas and V. Rogers,International Arbitration and International Commercial Law: Synergy, Convergence and Evolution (London:WoltersKluwer, 2011), pp.284, 288–290.


might have dented one or more of your witnesses in cross-examination—or just been verypersuasive.There is a story, more likely to be true than apocryphal, that when two well-known QCs

were against each other in a construction case, the one acting for the plaintiff stood up andimmediately referred the judge to p.1 of the agreed bundle. Opposing counsel, sensing thathis learned friend would be taking the judge through the bundle by reading out each page,immediately intervened and suggested to the judge that it might be of assistance if insteadboth counsel gave a 15-minute summary of their respective cases. Plaintiff’s counsel turnedgreen as his introduction to the bundle was contemporaneous with that of the judge. A shortadjournment enabled him to find out from his instructing solicitor what the case was about.How different it all is today. By the time the case gets to an oral hearing the tribunal will

be drowning in the claimant’s memorial on the merits, with witness statements anddocuments relied upon, the respondent’s defence memorial with witness statements anddocuments relied upon, claimant’s reply, and if necessary the defence to counterclaim andat least one rejoinder. On top of all that there may be skeletal opening arguments some ofwhich will be far from skeletal.It is not an exaggeration to say that in many cases the tribunal will have received hundreds

and sometimes a thousand or more pages of submissions alone.When the hearing commences provision might have been made for an hour or two for

brief written openings then straight into the cross-examination of the claimant’s first witness.The present procedure whereby everything is put in writing at length and effectively

dumped on the tribunal is perhaps a reaction to the present state of the common law whichhas taken away all immunity of counsel in the conduct of litigation and arbitration, hencemaking it a necessary safeguard (especially in particularly litigious jurisdictions) to throwin everything in order to protect the advocate from possible suit—mostly frivolous.However, the modern procedure is based on a fallacy and that is that the tribunal is capable

of taking in and processing all this material. Lucy Reed in her lecture in Hong Kong inDecember 2012 explained how important, even crucial, it is for a counsel in internationalarbitration to

“focus not so much on what may go on in an arbitrator’s head but more on how muchcan fit in an arbitrator’s head”.5

This is not new. As the Roman lawyer, Quintilian, said in the first century AD:

“[W]e must not always burden the judge with all the arguments we have discovered,since by so doing we shall at once bore him and render him less inclined to believeus”.6

Advocacy is after all the art of persuasion. To be persuasive you need to be succinct.7

5Lucy Reed, “Tribunal Decision-Making: Art, Science, Sport?”, available online at: http://neil-kaplan.com/#kaplan-lecture [Accessed February 18, 2014].

6Quintilian’s Institutes of Oratory, Book V, Ch.12.8. Quintilian’s treatise on the art of oratory is an exhaustiveanalysis of Roman educational practices, treasured for centuries by Western scholars. Available online at: http://rhetoric.eserver.org/quintilian/ [Accessed February 18, 2014].

7As to the benefits of brevity in pleadings, Lucy Reed said this in her 2012 Kaplan Lecture (“TribunalDecision-Making: Art, Science, Sport?”, available online at: http://neil-kaplan.com/#kaplan-lecture [AccessedFebruary 18, 2014]:

“My first position as a lawyer was as law clerk to a US federal trial judge, the Honorable Barrington D. Parker.One case in front of Judge Parker involved a challenge by the US Postal Service to a private company that wasdelivering business mail in competition with the Postal Service and, allegedly, in violation of the US ConstitutionArticle I, Section 8(7), which gives the federal government sole authority ‘[t]o establish post offices and postroads.’ The company and the Postal Service filed extensive written submissions and evidence, and spoke atlength in the hearing. The postal workers union, represented by one Mozart Ratner, entered the case as amicus.Mozart Ratner filed, in my memory, a 10-page brief that elegantly framed the Constitutional arguments. MozartRatner spoke at most for a fewminutes at the hearing. The end of the story? His presentations effectively becameJudge Parker’s opinion in favor of the Postal Service.You will surmise that I am a fan of the Mozart Ratner approach to pleading.”

If It Ain’t Broke, Don’t Change It 173


Christopher Newmark has sensibly made the point that, to improve

“the tribunal’s understanding of the case early in the proceedings is not difficult, butit does require a deliberate effort on the part of both counsel for the parties and thetribunal. Counsel should appreciate that there are significant advantages to be gainedin terms of case management from developing the issues in the case more fully fromthe outset. And the tribunal must commit to reading and becoming familiar with thewritten materials it is sent from the start of the proceedings. If this is done, then thetribunal can work with the parties to develop bespoke procedures that are suitable forthe case, thereby taking advantage of the flexibility that arbitration offers.”8

How then do we achieve this? This leads me nicely to my proposal which I believe willameliorate the problems to which I have adverted.At a convenient time in the arbitration, probably after the first round of written submissions

and witness statements but well before the main hearing, the tribunal should fix a hearingat which both counsel will open their respective cases before the tribunal. They may berequired to serve skeleton arguments in advance. After the openings any expert witnessshould make a presentation of his or her evidence and explain the areas of difference fromthe expert of like discipline on the other side.What are the advantages of this proposal?

1. It will ensure that the whole tribunal will read into the case at a far earlierstage than hitherto.

2. It will enable the tribunal to understand the case from that point on, and willinform its subsequent case preparations.

3. It will enable the tribunal to have a meaningful dialogue with counsel aboutperipheral points, unnecessary evidence and gaps in the evidence.

4. It will facilitate the tribunal in putting points to the parties which they willthen have time to consider and to respond to.

5. It will enable the tribunal to meet and discuss the issues far earlier than hithertoand thus meet the aspirations of the Reed Retreat.

6. It will assist in ensuring speedier and, I would suggest, better awards.7. Bringing the parties together, with their trial counsel, well in advance of the

hearing, means that there is a chance that at least part of the case may besettled, or points of disagreement minimised.

Further, the fact that the parties are physically in front of the tribunal tends to engendermore of a reasonable approach, which is quite different to the aggressive way that lawyersoften communicate with each other when not before the tribunal. Much of what is producedas a result of this aggressive display is not helpful to the tribunal. It is worth pointing outthat whereas it is easy to write offensively it is far harder to replicate this verbally in frontof three arbitrators and the other side without losing credibility or sympathy.I hope it can be said that taking an approach like this would be complying with the

exhortation contained in the Hong Kong Arbitration Ordinance s.46, which requires thetribunal

“to use procedures that are appropriate to the particular case, avoiding unnecessarydelay or expense, so as to provide a fair means for resolving dispute to which thearbitral proceedings relate”.9

One possible objection may be that it will increase the cost of the arbitration. I do not believethat this is necessarily so, as it may in fact result in the dropping of some issues and may

8Christopher Newmark, “Controlling Time and Costs in Arbitration” in Lawrence Newman and Richard Hill, TheLeading Arbitrators’ Guide to International Arbitration, 2nd edn (New York: JurisNet LLC, 2008), p.83.

9Also see the UK Arbitration Act 1996 s.33.

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assist in ensuring that the main hearing proceeds more expeditiously and thus moreeconomically. But in any event it will ensure a better informed tribunal which will assistin ensuring a better award and a speedier one too. But even if it does increase the costsmarginally it is surely a worthwhile price to pay to enjoy the obvious benefits it will provide.Too many counsel think that they should control the way in which a case is presented to

a tribunal. Most experienced tribunals, however, have their own way of organising theproceedings and if this proposal catches on counsel will just have to understand that thisprocedure will assist not only the tribunal but also the parties.This early dialogue with counsel may also help to prevent the service on the tribunal,

fairly late in the day, of a large number of authorities. The tribunal will be able to remindcounsel of the wise and practical words of Lord Diplock in Lambert v Lewis in the contextof counsel citing cases to illustrate a well-established principle:

“The citation of a plethora of illustrative authorities, apart from being time andcost-consuming, presents the danger of so blinding the court with case law that it hasdifficulty in seeing the wood of legal principle for the trees of paraphrase.”10

It is also surprising how much space is taken in written submissions explaining to anexperienced tribunal such complex issues such as “offer and acceptance” and the implicationof terms! Although not all tribunals are comprised of legal geniuses, it ought to be assumedthat a tribunal chosen by the parties or appointed by an institution will at least understandthe basic principles of law. Is it really necessary to cite Carlill v Carbolic Smoke Ball Co11or Donoghue v Stevenson12 to a common law tribunal?13

In my view, there is also a lot to be said for imposing reasonable page limits. I acceptthat it might be difficult to arrive at a fair figure for the early rounds of submissions, butby the time one gets to closing written submissions, surely, it must be reasonable for atribunal to impose page limits. In my experience, too many arbitrators are reluctant to dothis, but I think that it does concentrate the mind of the drafter so as to enable him or herto be succinct in the final summary of the case. If it is not possible, at the end of the case,with all that has been said and written previously, to be able to summarise succinctly whereyour case has ended up, something must have gone wrong.I am pleased to be able to end by stating that this article is not theoretical. I have used it

in a technical case where I was sole arbitrator and had no expert of my own, nor assessor.The KO took place three months prior to the hearing and I found it of immense benefit inmy preparation for the hearing. I believe counsel found it valuable too. It certainly flushedout some issues which were then dealt with in the time available prior to the hearing. Hadthese issues only been raised at the main hearing a real problem would have been created.I therefore encourage my colleagues to consider using the KO because I am sure they

and the parties will benefit from its advantages. So to adapt a slogan used many years ago:“KO rules—OK?”

10 [1982] A.C. 225 HL at 274–275.11 [1893] 1 Q.B. 256.12 [1932] A.C. 562; 1932 S.C. (H.L.) 31; 1932 S.L.T. 317.13 I accept, of course, that different considerations might apply with a mixed tribunal.

If It Ain’t Broke, Don’t Change It 175


A Tribute to the Contribution of Hew Dundas toFifty Issues of ArbitrationDerek Roebuck

This issue is the fiftieth in which one of Hew Dundas’s 84 contributions has appeared. Hisgift to the journal is unique and unlikely ever to be equalled, though I’m sure every readershares my hope that it will be greatly extended.Hew sent in his first note not long after I became editor. “On Uberrima Fides” appeared

in February 2002, in the first issue of Vol.68, coinciding with a new publisher and newformat. It was a good omen. It corrected the suggestion in an earlier article that English lawrequired parties to all contracts to act in good faith. Its tone was measured but authoritative.The courts have since shown that to have been justified.Thereafter the flow of case notes, with articles and the occasional book review, has been

as rich as it has been regular. To the next number Hew contributed no less than four casenotes. No one writes a better. He adopted the structure he was consistently to follow:Introduction; The Facts; The Law; The Decision; Conclusion; sometimes with a paragraphof background, or description of the history in the lower courts, and sometimes with extendedcomment. They became the models for other contributors to learn from.The next number had three of Hew’s case notes, and the fourth had four more: 12

contributions on matters of immediate practical importance to CIArb members. The journalwas giving them more value and had taken on a new stature, which the intellectual qualityof those case notes justified.The 2003 volume had five more case notes, plus an article: “Recent Developments

Regarding Costs in Litigation” (2003) 69 90–101. Costs were a subject of special concernto Hew, which he has shared with the present editor and, indeed, with another regularcontributor, David Altaras, who also wrote an article on costs in the same number, whichwas devoted to costs. Their practical relevance is self-evident; what needs perhaps to beexpressed is their contribution to the proclaimed ambition of the journal, to be part of thetransformation of the Institute into a learned society.Another continuing concern of Hew’s has been appeals from awards under the Arbitration

Act 1996 s.69. “Appeals on Questions of Law: Section 69 Revitalised” (2003) 69 172–183not only reported the decisions in Lobb v Aintree1 and Northern Pioneer,2 it also reviewed,explained, criticised and justified the state of the law and practice then. Hew developed hiscritique in later numbers, e.g. (2007) 73 127–137, with a proper recognition of thecontribution of the master: “Mustill LJ’s dictum in Aden Refinery3 appears, with the benefitof hindsight, splendid common sense”.Appeals and costs were included in Hew’s critical review article, “Arbitration and the

English Courts: Progress and Regress” (2006) 72 104–118, which comprehended all themore important developments in the first ten years of implementation of the ArbitrationAct 1996.A superficial count of Hew’s case notes would miss both their quantity and range. For

example, what at first glance appears to be one note, “Questions of Law, Extensions ofTime, Injunctions and Bias” (2006) 72 373–387, reviews four decisions, one from the HighCourt of Australia.

1HOK Sport v Aintree TCC Case HT 02-122 [2002] All E.R. (D) 250.2CMA CGM SA v Beteilungs KGt MS Northern Pioneer Schiffahrtsgesellschaft mbH & Co [2002] EWCA Civ

1878; [2003] 1 Lloyds Rep. 212.3Aden Refinery Co Ltd v Ugland Management Co Ltd [1987] 1 Q.B. 650.


The special value of Hew’s work is the careful thinking based on practical experience.His range of contacts in many various fields of arbitration is impressive, perhaps unequalled.He gave us a glimpse in (2003) 69 172–183 at 172:

“The principal purpose of the present article is twofold: (1) for purposes of completenessof Arbitration, to bring the record up-to-date with reports of the two recent importantcases; and (2) to argue that s69 does have a continuing validity. I am fortified in thislatter context by a solicitors’ in-house newsletter which stated (echoing commentsmade to me separately by two leading maritime arbitrators):

‘So few arbitrated disputes now reach the courts that one wonders how Englishcommercial law will develop, all appealed awards being private matters. This isparticularly worrying in the context of some of our key markets, such as shipchartering and, of course, reinsurance, where standard form contracts or clausesare widely used, the effect of which impacts on many of our clients. In light ofthat, the decision of the Court of Appeal in [Northern Pioneer4] was welcome.’”

That’s it! Busy members, with little time to spend, probably at the weekend, with easierreading as a temptation, are more likely to press on after such an introduction.They would be unwise to fail to read any of his pieces, lest they miss simple but essential

hints such as this, in relation to a recent decision on partial enforcement (2008) 74 337:

“Given that CIArb award writing teaching is to combine all the amounts payable intoone total (for simplicity), care will have to be taken (in appropriate circumstances)with the way this is expressed.”

And he goes on to show how it should be done. There has never been any sign of Hew’slove and command of the most abstruse scholarship tempting him to forget what we are allabout.Hew likes nothing better than a good argument. That is one of the reasons he has, I

suspect, enjoyed writing his case notes as much as we have enjoyed reading them. But heknows the value of what he calls “common sense”. For example, he sees no value inpublishing arbitrators’ dissenting opinions (2010) 76 762–763:

“It has always been my view… that dissenting opinions are to be discouraged as faras possible…. In a recent case in which I was involved, the outset of tribunaldeliberations saw a powerful dissenting voice; the end result was a unanimous, seamlessaward, in part possibly because the dissenter, so I suppose (I do not know for certain),saw the dangers of visible dissent, in part (I do know for certain) because of outstandingdiplomacy on the part of the chairman, who handled the proponents of two powerfullyand diametrically opposed starting points so that there was never any ill-feeling,rancour, or even harsh words exchanged.”

A good fight, bringing out the best of both sides, with agreement on the better argument.That is Hew’s vision of arbitration.All Hew’s case notes treat the judges with proper respect but his first care is to tell it

straight. “A victory for common sense” is real approbation (2009) 75 452. On the next page“I am unpersuaded that the present case fits his Lordship’s maxim” (that justice must beseen to be done) is gently withering. His note in (2009) 75 284–288 on Metropolitan vAtmore5 is blunt: “In summary, this decision is, in my opinion, plain wrong.”Such a straightforward approach to criticism is invaluable. Hew is ever aware of any hint

of judicial policy. He knows that what the practitioner wants to know is not so much whatthe courts have said but what that indicates they will hold.

4CMA CGM SA v Beteilungs KGt MS Northern Pioneer Schiffahrtsgesellschaft mbH & Co [2002] EWCA Civ1878; [2003] 1 Lloyds Rep. 212.

5Metropolitan Property Realizations Ltd v Atmore Investments Ltd [2008] EWHC 2925 (Ch).

A Tribute to the Contribution of Hew Dundas to Fifty Issues of Arbitration 177


Unsupportable challenges to arbitrators on the ground of conflict of interest are deplorablechicanery. Hew will have nothing to do with them and his excoriations are blunt (2012) 7880:

“While counsel … is, no doubt, obliged to use every ‘proper’ avenue … some of hisarguments seem … at best wafer-thin, more accurately spurious, and it is greatly tobe hoped that Flaux J’s robust dismissal of them means that they do not reappear.”

The ideological foundation for all Hew’s work is unshakeable: arbitration must serve theparties. As he wrote in (2008) 74 100:

“In the vernacular, ‘Obvious, innit?’ From my perspective of years in the commercialworld, I am greatly heartened by their Lordships emphasizing the importance of theperceptions of the businessman, being the user of arbitration.”

How did that “businessman” evade my editorial cosh? I usually had my way aboutgender-specific language though I had to give in to his insistence on the use of what mustbe some sort of plupluperfect tense particular to his native land. And, though neither of uscould ever be called a pedant, we could rejoice together when the outcome of a disputedepended on a “simple typographical error” or “a multi-billion dollar potential liability wasmaterially affected by the positioning of an apostrophe” (2012) 78 386.I know Hew was pleased when he received the accolade his case notes deserved, being

cited with approval by a judge he admired. I thought he had mentioned that in a later notebut, try as I might, all my efforts have failed to find it. I guess he was too modest to do morethan mention it to me.I have never understood how Hew does it. He is the busiest of all the busy people I know.

Yet he never fails to meet a deadline or any other obligation, which he takes on morewillingly and with greater cheerfulness than most. I have sometimes wondered whether heisn’t a syndicate, as Joyce Grenfell joked that Enid Blyton was. But then the next emailreveals that Hew was at his desk at 03.30 this morning.From the start Hew took responsibility for making sure, through his writings that

Arbitration developed steadily towards our common goal, of a learned journal which servedthe needs of its readers for the best thinking on all matters of importance, while performingthose reporting functions of a professional journal which a newsletter could not.Wise old William West said in his collection of useful precedents, published in 16476:

“And as physicians should unprofitably store themselves with the understanding ofthe several natures and properties of herbs and roots and other simples, and the art ofPhysic, if they did not show us the use and fruit thereof in curing diseases, and restoringhealth: so doubtless the doctrine of all other arts and sciences is idle and barren if useand practice be not therewith conjoined.”

Hew’s writings are all testimony to that truth. Long may he add to them, turning his 50contributions into the century we look forward to applauding in another 12 years.

6WilliamWest, The First Part of Symboleographie: Which may be Termed the Art, or Description, of Instrumentsand Presidents (London: Miles Flesher, last edn 1647 reprinted Clark NJ: Lawbook Exchange, 2008), Preface.

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2013 Alexander LectureInvestomercial Arbitration: Whence Cometh It?What Is It? Whither Goeth It?Charles N. Brower*

“It is more in keeping with the dignity of the foreign sovereign to submit himself tothe rule of law than to claim to be above it.”1

It is an understatement to say that I am honoured beyond measure by the invitation extendedby the Chartered Institute to deliver this year’s Alexander Lecture. I have of course beenmade aware of the enormous contributions made by the late John Russell Willis Alexanderto international arbitration and to this Institute, for which I express my deep respect. Indeed,it was his initiative that created this distinguished lecture series.Since the inaugural Alexander Lecture was given in 1974 by the inimitable Lord Justice

Denning, then Master of the Rolls, he has been followed by a succession of the greatestpersonalities in the law. I am humbled—deeply humbled—by the lineage I have been invitedto follow.I would like to acknowledge my indebtedness to the French artist Paul Gauguin, whose

monumental painting “Whence Come We, What Are We, Whither Go We”, done in Tahitiin 1897, has inspired the title of this Alexander Lecture.

1. IntroductionUntil recently, international dispute settlement processes did not acknowledge the unique,hybrid nature of the investor-State relationship. The rules and practices of commercialarbitration focused on purely private disputes between two private entities, and were notoriginally designed to factor in the exercise of a host State’s public authority. Treaty-basedadjudication, on the other hand, was restricted to inter-State disputes under publicinternational law, which mainly governed relations between sovereign States. In suchcircumstances, a foreign investor mistreated by its host State was forced to choose betweenthe proverbial rock and its opposing hard place: the only options available to it were eitherto co-operate with the host State, e.g. by submitting to its laws and public authority; or toconvince its home government to intervene on its behalf.2 This most often was a choicebetween two hopeless alternatives.

Since the mid-twentieth century, however, the field of contractual arbitration hasdeveloped special rules and practices to provide certain minimum safeguards against theunreasonable exercise of public authority by a contracting host State. In parallel, publicinternational law processes have come to enable private investors to invoke directly theresponsibility of sovereign States. Thus, foreign investors can rely today upon bothcontractual and treaty-based dispute resolution processes to protect themselves against thepolitical risks inherent in foreign investment.

This lecture argues that as a result of these developments a distinct, hybrid field of lawhas emerged which I propose be dubbed “investomercial” arbitration, and which addresses

*The author expresses his deep gratitude to Shashank P. Kumar, his immediate past Legal Adviser at the Iran-UnitedStates Claims Tribunal and an advocate enrolled with the Bar Council of Delhi, for his devoted assistance in thepreparation of this lecture.

1Rahimtoola v The Nizam of Hyderabad [1958] A.C. 379 at 418 per Lord Denning.2 See e.g. Noel Maurer, The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American Property

Overseas (Princeton NJ: Princeton University Press, 2013), p.20.


the relationship between foreign investors and host States. Investomercial arbitration isneither purely private, nor strictly public. Rather, it represents a phenomenon whereby thecontractual and treaty-based dispute settlement processes complement each other and worktogether to minimise political risk and provide a secure, independent and predictable legalregime for cross-border investment flows. Investomercial arbitration has helped us movefrom gunboat diplomacy to an era in which cross-border investment disputes are settledpeacefully, based on some notion of the rule of law. It marks a shift from a power-based toa rules-based approach for settling international investment disputes.3 Thus the conventionaldistinction between commercial arbitration and treaty-based investor-State arbitration is nolonger valid. The real distinction is between investomercial arbitration on the one hand,and strictly private-party arbitration on the other.

Following this Introduction, Part 2 addresses the question “Whence cometh it?” Itdelineates the hybrid nature of the relationship between foreign investors and host States,identifying its peculiar characteristics. Parts 3 and 4 together endeavour to describe “Whatis it?” Part 3 shows how contractual arbitration between foreign investors and host Stateshas developed to account for the involvement of State parties by importing internationallaw. Part 4 looks at how the treaty-based arbitration process that by definition involvesinternational law nonetheless has come to account for the private, contractual interest inthe underlying relationship between the foreign investor and the host State. Part 5 venturesto answer “Whither goeth it?”

2. The Relationship between the Foreign Investor and the Host StateSuccinctly stated, investomercial arbitration is a product of the dual role played by Statesas both contracting parties and lawgivers.

Several vehicles are available to investors for investing abroad, the most common andsimple example being an investment contract concluded with the government of the hostState or a State-owned entity.4 Before an investor enters into such a contractual relationshipwith the host State, it is, relatively speaking, in the driver’s seat. It offers the host Stateprospects of generating employment, increasing exports, injecting capital into the localeconomy, productivity and technology spillovers, hence the promise of overall economicgrowth and development.5

Once the contract is concluded and the investment made, however, the bargainingpositions are immediately and starkly reversed. Then it is the State that is behind the wheel.Under the investment contract, the investor usually makes long-term commitments of capitaland other resources in order to ensure the economic viability of its investment.6 Theinvestment becomes virtually immobile, the long investment horizons ensuring that theinvestor cannot easily withdraw from its contractual commitments. Debt financing of theinvestment poses further limitations on the investor’s freedom. By contrast, the host Statemay be tempted to renege on its contractual promises to the foreign investor.7 Once aninvestor has “sunk” its investment, a State may decide to terminate or unilaterally modifyits contractual relationship with the investor by exercising its public authority. This

3 See generally, Maurer, The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American PropertyOverseas (2013).

4For a discussion of the various types of investment contracts, see Jan Ole Voss, The Impact of Investment Treatieson Contracts between Host States and Foreign Investors (Leiden: Brill, 2010), pp.17–25.

5Nathan M. Jensen, Nation States and the Multinational Corporation: A Political Economy of Foreign DirectInvestment (Princeton NJ: Princeton University Press, 2006), pp.28–33; Andrew Guzman, “Why LDCs Sign TreatiesThat Hurt Them: Explaining the Popularity of Bilateral Investment Treaties” (1997) 38Virginia Journal of InternationalLaw 639, 660.

6See e.g, Margarita T. B. Coale, “Stabilization Clauses in International Petroleum Transactions” (2002) 30DenverJournal of International Law and Policy 217 at 219.

7 Ivar Alvik, Contracting With Sovereignty (Oxford: Hart Publishing, 2011), pp.2–3; see generally RaymondVernon, Sovereignty at Bay: The Multinational Spread of US Enterprise (New York: Basic Books, 1971).

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phenomenon, whereby the contracting parties’ relative bargaining positions are reversed,totally and swiftly, has given rise to the term “obsolescing bargain”.8

Mindful of the obsolescing nature of the bargain, an investor can seek to leverage itsinitial advantage to secure better terms and assurances from the host State, but this may, inturn, only tempt the host State further to exit the bargain once the investment is made.9 Thusan investor, if it over-bargains, may preordain the State’s destruction of its bargain. Therelationship between investor and host State often becomes a constant see-saw or tug-o’-war.

The obsolescing nature of the bargain and the ensuing inevitable political risks arepeculiar features of alien investments with host States, as distinguished from purelycommercial transactions, and have a clear and present effect on investment decisions.10

Even as econometric studies show a “degree of ambiguity” in their conclusions, survey-basedanalyses “unequivocally support” the view that foreign investors account for political risksin their investment decisions.11 Similarly, UNCTAD, in its 2013 edition of the WorldInvestment Report, states that one of the main reasons for the 18 per cent “sharp decline”in cross-border investment flows in 2012 was “policy uncertainty in a number of majoreconomies” which “gave rise to caution among investors”.12

The international community has developed a variety of strategies to address the politicalrisk inherent in cross-border investments. Means to account for political risk vary fromthird-party political risk insurance to a variety of corporate approaches aimed at managingpolitical risk.13 Insofar as the political risk inherent in cross-border investments essentiallyrepresents the problem of the uncertainty of the host State’s conduct, international disputesettlement processes, too, have responded to provide greater security and certainty forcross-border investment flows.

3. Contractual ArbitrationAlthough a State may be acting in its private capacity when entering into contracts withforeign investors, it also can easily exercise its public authority, e.g. through legislativechanges, to escape from its contractual commitments according to its perceived needs and,more importantly, its convenience. As the Tribunal in Amco Asia v Indonesia acknowledged,this feature distinguishes investment contracts with States from purely private, commercialcontracts:

“However, it [the relationship between Amco Asia and Indonesia] is not identical toa private law contract, due to the fact that the State is entitled to withdraw the approvalit granted for reasons which could not be invoked by a private contracting entity,and/or to decide and implement the withdrawal by utilising procedures which aredifferent from those which can and have to be utilised by a private entity.”14

Under the private process of commercial arbitration, as developed in disputes between twoprivate parties, unless the parties are able to agree otherwise, the municipal law of the hostState normally is considered to be the proper law governing the investment contract, which

8Vernon, Sovereignty at Bay: The Multinational Spread of US Enterprise (1971), p.46.9Alvik, Contracting With Sovereignty (2011), p.3.10Multilateral Investment Guarantee Agency (MIGA),World Investment and Political Risk 2009 (Washington

DC: MIGA, 2010), p.28.11Multilateral Investment Guarantee Agency (MIGA),World Investment and Political Risk 2009 (Washington

DC: MIGA, 2010), Annex 5, p.89.12UNCTAD,World Investment Report 2013 (New York: UNCTAD, 2013), p.xii.13 Jeswald W. Salacuse, The Three Laws of International Investment: National, Contractual, and International

Frameworks for Foreign Capital (Oxford: Oxford University Press, 2013), p.246.14Amco Asia v Indonesia (1985) 24 International Legal Materials 1022 at 1029 (the Award was subsequently

annulled, but for other reasons relating to the valuation of the investment).

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an arbitral tribunal is bound to apply.15 Such law is of course notoriously subject to change.16

If an arbitral tribunal constituted to resolve a contractual dispute is bound to apply themunicipal law of the host State as the proper law, the contractual arbitral process alonecannot offer any meaningful protection against the political risk inherent in the investmentcontract.17

To get around this problem, arbitrating parties and tribunals alike have fashioned fivesolutions. The first of these is to include international law in the governing law clause ofthe investment contract. Based on the principle of party autonomy, parties to an investmentcontract remain free to agree to the application of national and and/or international law,18

and have done so on numerous occasions.19 Such a choice may be express or implied.20

Thus in TOPCO v Libya,21 the choice of law clause stated that the:

“Concession shall be governed by and interpreted in accordance with the principlesof law of Libya common to the principles of international law and in the absence ofsuch common principles then by and in accordance with the general principles of law,including such of those principles as may have been applied by international tribunals.”

Moreover, even in cases in which the national law governs the investment contract, whetherby choice of the parties or by the application of mandatory rules of national law, internationallaw may come to apply “indirectly” through its incorporation into the national legal systemat issue.22 While the autonomy to choose the law governing an investment contract mayseem obvious to many now, it is important to remember that until relatively recently (somewould argue, even now)23 the Calvo Doctrine, which rejected outright the applicability ofinternational law to investment contracts, held considerable sway in the internationalcommunity.24

15Hege Elizabeth Kjos, Applicable Law in Investor State Arbitration: The Interplay between National andInternational Law (Oxford: Oxford University Press, 2013), pp.83–84.

16Derek William Bowett, “State Contracts with Aliens: Contemporary Developments on Compensation forTermination or Breach” (1988) 59 British Yearbook of International Law 49; Robert Y. Jennings, “State Contractsin International Law” (1961) 36 British Yearbook of International Law 156, 156–157.

17This is not to say that the political risk will always translate into host State action, or that the host State actionmay not be justified under the applicable law, but only that even such a purely private process as commercial arbitrationhas evolved in response to the involvement of sovereign States in what otherwise would be a private process.

18 Institut de Droit international, Resolution on Arbitration Between States, States Enterprises or State Entities,and Foreign Enterprises (Santiago de Compostela, September 12, 1989), art.6; Hege Elizabeth Kjos, Applicable Lawin Investor State Arbitration: The Interplay between National and International Law (Oxford: Oxford UniversityPress, 2013), p.70.

19Kjos, Applicable Law in Investor State Arbitration: The Interplay between National and International Law(2013), p.71.

20 Sapphire International Petroleums Ltd v National Iranian Oil Company (1963) 35 I.L.R. 136 at 172; Kjos,Applicable Law in Investor State Arbitration: The Interplay between National and International Law (2013), pp.71–80(highlighting the need for “a more careful approach in finding the implicit choice of law”, p.76).

21 Texaco Overseas Petroleum Co v The Government of the Libyan Arab Republic, Award on the Merits, January19, 1977 (1978) 17International Legal Materials 1, para.32.

22 See e.g. BG Group Plc v Argentina, Award, December 24, 2007, para.97; LIAMCO v Libya; LIAMCO v Libya,(1981) 20 International Legal Materials 1, 37; Kjos, Applicable Law in Investor State Arbitration: The Interplaybetween National and International Law (2013), pp.181–189 (concluding that “arbitral tribunals may and do applyinternational law to the dispute when the national legal order in question incorporates international law. Yet, the factthat no State is fully ‘monist’… should caution investors in relying on the application of international law via nationallaw”).

23 See e.g. M. Sornarajah, The Settlement of Foreign Investment Disputes (The Hague: Kluwer Law International,2000), p.241.

24 Jan Ole Voss, The Impact of Investment Treaties on Contracts between Host States and Foreign Investors (Leiden:Brill, 2010), pp.39–41 (summarising the various arguments and reasons against the principle of party autonomy ininvestment contracts, but noting that “it is still the predominant view that the principle of party autonomy governsthe choice of law in international contracts between State entities and foreign investor”, p.40); D. Shea, The CalvoClause: A Problem of Inter-American and International Law and Diplomacy (MinneapolisMN:Minnesota UniversityPress, 1955), p.18;Wenhua Shan, “From ‘North-South’ Divide to Private Public Debate: Revival of the Calvo Doctrineand the Changing Landscape in International Investment Law” (2007) 37 Northwestern Journal of International Lawand Business 631; Kjos,Applicable Law in Investor State Arbitration: The Interplay between National and InternationalLaw (2013), pp.163–164.

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As the second solution to the State-as-both-party-and-lawgiver problem tribunalsthemselves, deciding contractual disputes between foreign investors and host States, haveresorted to applying various theories of “internationalisation” to argue that investmentcontracts, by their very nature, are governed by public international law,25 “transnationallaw”, “general principles of law”26 and even “principles rooted in the good sense and commonpractice of the generality of civilised nations—a sort of ‘modern law of nature’”.27 Scholars,too, have argued that investment agreements with alien investors, by their very nature, aresubject to “quasi” public international law,28 and find theirGrundlegung in the internationalsphere.29 Thus, an international investment contract, being governed by its very nature bya set of rules other than the national law of the host State, remains governed by those rulesdespite a change in the municipal law of the host State.

The third device for injecting international law into an otherwise contractual arbitrationcan be provided by the rules under which the investor and its host State arbitrate. Beholdthe ICSID Convention, which was designed for contractual investment arbitration,30 andart.42(1) of which provides that “[t]he Tribunal shall decide a dispute in accordance withsuch rules of law as may be agreed by the parties”,31 but expressly authorises the combinedchoice of national and international law as the applicable law32:

“In the absence of such agreement, the Tribunal shall apply the law of the ContractingState party to the dispute (including its rules on the conflict of laws) and such rules ofinternational law as may be applicable.”

A fourth mechanism used to insulate the investor-State contractual relationship fromsubsequent changes in the law governing the contract is the so-called “stabilisation clause”.Such a clause protects the investor against unilateral modifications of the law governingthe contract by the host State.33 This is done by specifying in the investment contract thatsubsequent legislation and changes by the State party do not apply to its contractualrelationship with the investor. Because such a clause “freezes” the law governing theinvestment contract, any different, subsequently enacted national law of the host State isineffective as regards a later dispute. This protects the investor against unfair exercise ofregulatory authority by the State to modify its contractual relationship with the investor expost. Tribunals have confirmed the effect of stabilisation clauses on the public authority ofhost States to change their laws vis-à-vis investors covered by such clauses.34 In its 1979

25Sapphire International Petroleums Ltd v National Iranian Oil Company (1963) 35 I.L.R. 136 at 173 (the arbitratorwent on to note that: “[t]his contract therefore has a quasi international character which releases it from the sovereigntyof a particular legal system, and it differs fundamentally from an ordinary commercial contract”).

26V.V. Veeder, “The Lena Goldfields Arbitration: The Historical Root of Three Ideas” (1998) 47 Internationaland Comparative Law Quarterly 747, 752.

27Petroleum Development v Sheikh of Abu Dhabi, Award, September 1951, (1952) 1(4) International andComparative Law para.149.

28Richard B. Lillich, “The Law Governing Disputes under Economic Development Agreements: Reexaminingthe Concept of ‘Internationalization’” in Charles N. Brower and Richard B. Lillich (eds), International Arbitrationin the 21st Century (Irvington NY: Transnational Publishers, 1993), p.61.

29 Prosper Weil, “The State, the Foreign Investor, and International Law: The No Longer Stormy Relationship ofa Ménage à Trois” in S. Schlemmer-Schulte and K.-Y Tung (eds), Liber Amicorum Ibrahim F.I. Shihata (The Hague:Kluwer Law International, 2001), pp.839, 844–845.

30Antonio R. Parra, The History of ICSID (Oxford: Oxford University Press, 2012), p.132.31 ICSID Convention art.42(1).32Duke Energy v Ecuador, ICSID Case No.ARB/04/19 Award, August 18, 2008, para.196; ICSIDModel Clauses,

Doc. ICSID/5/Rev. 2 (February 1, 1993), V, A.33L.J. Bouchez, “The Prospects for International Arbitration: Disputes between States and Private Enterprises” in

A.H.A. Soons (ed.), International Arbitration: Past Prospects (Leiden: Martinus Nijhoff, 1990), p.115.34LETCO v Liberia, Award (1986) 26 International Legal Materials 646, 666–667; Revere Copper v OPIC, Award

(1986) 56 International Legal Reports 258 at 280; AGIP v Congo, Award (1979) 21 International Legal Materials726 at para.84; CMS v Argentina, ICSID Case No.ARB/01/8 Award (2005) para.151. Even tribunals which haveadopted a “markedly different” approach to the interpretation of the stabilisation clause at issue compared to theTexaco award have agreed with the “the principle that contractual limitations on the right to nationalize were possibleunder public international law”: Christopher Greenwood, “State Contracts in International Law—The Libyan OilArbitrations” (1983) British Yearbook of International Law 27, 81 (in discussing Kuwait v Aminoil, (1982) 21International Legal Materials 976).



Athens Resolution on “Arbitration between States, State enterprises, or State Entities, andForeign Enterprises” the Institut de Droit international expressly recognised that

“[t]he parties may agree that domestic law provisions referred to in the contract shallbe considered as being those in force at the time of conclusion of the contract”.35

Insofar as stabilisation clauses protect against subsequent changes in the actual proper lawof an investment contract, it can be said that such clauses

“constitute an alternative to an explicit choice of public international law or generalprinciples of law rather than a way in which to achieve a more profound, or justdifferent, degree of internationalisation”.36

A 2008 study by John Ruggie and the International Finance Corporation noted that “[t]hepractice of using stabilization clauses of some kind is widely established across industriesand regions of the world”.37

The fifth device for eliminating the possible effects the State as lawgiver can have onits contractual obligations to an investor is “delocalisation” of the lex fori.38 As with respectto the internationalisation of the proper law, one does not have to believe fully in theoriesof delocalisation39 to appreciate real and significant developments in the arbitral processdesigned to account for the participation of sovereign States.

As one example of what can happen, the capacity of a State or a State-owned entity toparticipate in the contractual arbitration process may be considered to be different, as faras the State itself is concerned, from that of private investors. It is not unusual for States orState entities to be prohibited under their relevant domestic law from submitting disputeswith private entities to arbitration.40 Such a State or its entity may therefore argue that itlacks the capacity to arbitrate disputes with private foreign investors. While this underscoresthe importance of confirming the authority of the State party or representative signatory tothe contract before the contract is concluded,41 such confirmation does not necessarilyforeclose the possibility of an incapacity objection by a State when a dispute arises. Evenif a contract with an arbitration clause is concluded, a State can later enact legislation whichmandates reference of all disputes arising under investment contracts to its domestic courts.42

In response to this problem, several national laws on commercial arbitration haveresponded by expressly recognising that a State or a State-owned entity which is party toan arbitration agreement cannot rely on its own law to contest its capacity to be a party toan arbitration or the arbitrability of a dispute covered by the arbitration agreement.43 This

35 Institut de Droit international, Resolution on [t]he Proper Law of Contract in Agreements between a State anda Foreign Private Person (Athens, September 11, 1979), art.3.

36Ole Spiermann, “Applicable Law” (2005) 2(5) Transnational Dispute Management 22.37 Stabilization Clauses and Human Rights: A research project conducted for IFC and the United Nations Special

Representative of the Secretary-General on Business and Human Rights, May 27, 2009, p.4, available online at: http://www.ifc.org/wps/wcm/connect/9feb5b00488555eab8c4fa6a6515bb18/Stabilization%2BPaper.pdf?MOD=AJPERES&CACHEID=9feb5b00488555eab8c4fa6a6515bb18 [Accessed February 18, 2014].

38See generally, Jan Paulsson, “Delocalization of International Commercial Arbitration:When andWhy It Matters”(1983) 32 International and Comparative Law Quarterly 53.

39 See e.g. W. Michael Reisman, Systems of Control in International Adjudication and Arbitration: Breakdownand Repair (Durham NC: Duke University Press, 1992), pp.132–134.

40Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 5th edn (Oxford: Oxford UniversityPress, 2009), p.97 (citing the examples of France, Belgium and Venezuela). In some States, e.g. the Mercosur States,such limitations may relate to the notions of administrative decisions and contracts. See Eduardo Silva-Romero, “ICCArbitration and State Contracts” (2002) 13(1) ICC International Court of Arbitration Bulletin 34, 39–41.

41Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 5th edn (Oxford: Oxford UniversityPress, 2009), p.98.

42Robert Y. Jennings, “State Contracts in International Law” (1971) 37 British Yearbook of International Law156, 172 (referring to the Losinger case, Permanent Court of International Justice Series A/B No.67).

43 See e.g. Swiss Private International Law Act 1987 art.177(2); Tresor Public v Galakis, Cour de cassation, May2, 1966, 93 Clunet 648 (1966); Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 5th edn(Oxford: Oxford University Press, 2009), p.98; Eduardo Silva-Romero, “ICCArbitration and State Contracts” (2002)13(1) ICC International Court of Arbitration Bulletin 34, 38.

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position is now supported by the practice of arbitral tribunals themselves that have concludedthat a State party “cannot legitimately shirk the obligations resulting from the arbitrationagreement to which it has freely consented”.44

Whether this issue is classified as one of “capacity”, “arbitrability”45 or even “immunity”,46

it reflects the common belief that it is “plainly unsatisfactory for a State or State agency tobe entitled to rely on its own law to defeat an agreement it has freely entered into”.47 AsKlaus Peter Berger explains:

“The notion of sovereignty as developed in public international law and the confidenceof the private party in the validity of the arbitration agreement concluded with the stateor state-controlled party bind the state to the arbitration agreement which it cannotrescind unilaterally by invoking its internal law. This rule is a specification of the moregeneral principle of ‘non concedit venire contra factum proprium’ which in itself, isa general principle of transnational law.”48

Another example of delocalisation relates to the defence of State immunity to the judicialrecognition and enforcement of arbitral awards. To the extent that the control mechanismfor the contractual arbitral process requires that awards be recognised and enforced by thedomestic courts of a particular jurisdiction, States have sought to claim immunity from thejurisdiction of the national courts supervising the arbitration (primary jurisdiction) as wellas immunity from execution of the award in the courts tasked with enforcing the award(secondary jurisdiction).49

With respect to immunity from the jurisdiction of the courts of the primary jurisdiction,it is now generally accepted that the existence of an arbitration agreement between a Stateand an investor amounts to a waiver of the State’s jurisdictional immunity.50 This positionis reflected in the national laws of several States.51 In contrast to the effect of an arbitrationagreement on the jurisdictional immunity of a State party to a contractual arbitrationproceeding, however, a waiver of the State’s immunity from proceedings for the enforcementor execution of an arbitral award in a secondary jurisdiction cannot generally be impliedfrom the existence of an arbitration agreement.52 In order to solve this problem, the ICCRules of Arbitration expressly provide that “[e]very award shall be binding on the parties”and that

44Faced with an objection that a State or State entity was forbidden from concluding arbitration agreements underits national law, the ICC International Court of Arbitration refused to rule on the validity of the arbitration agreement,allowing the arbitration to proceed: Eduardo Silva-Romero, “ICC Arbitration and State Contracts” (2002) 13(1) ICCInternational Court of Arbitration Bulletin 34, 39–41.

45See e.g. Tresor Public v Galakis, Cour de cassation, May 2, 1966, 93 Clunet 648 (1966); Blackaby et al., Redfernand Hunter on International Arbitration (2009), p.99.

46 Court of Appeal, Stockholm, June 19, 1980, (1981) 20 International Legal Materials 893.47Blackaby et al., Redfern and Hunter on International Arbitration (2009), p.98.48Klaus Peter Berger, “Re-examining the Arbitration Agreement: Applicable Law—Consensus or Confusion?”

in Albert Jan van den Berg (ed.), International Arbitration 2006: Back to Basics? ICCA Congress Series 2006Montreal (The Hague: Kluwer, 2007), pp.301–334.

49Blackaby et al., Redfern and Hunter on International Arbitration (2009), pp.667–668. On the concept of Stateimmunity, seeMalcolmN. Shaw, International Law, 2nd edn (Cambridge: Cambridge University Press, 1988), p.373(noting that the “independence and equality of states made it philosophically as well as practically difficult to permitmunicipal courts of one country to manifest their power over foreign sovereign states, without their consent”). Seealso Hersch Lauterpacht, “The Problem of Jurisdictional Immunities of Sovereign States” (1951) 28 British Yearbookof International Law 220.

50Blackaby et al., Redfern and Hunter on International Arbitration (2009), p.667.51 See e.g. English State Immunity Act 1978 s.9. See also UN Convention on Jurisdictional Immunity of States

and their Property art.17; US FSIA, 28 U.S.C. s.1605(a)(6). See further Blackaby et al., Redfern and Hunter onInternational Arbitration (2009), p.668; G.R. Delaume, “Recognition and Enforcement of State Contract Awards inthe United States: A Restatement” (1997) 91 American Journal of International Law 476.

52Blackaby et al., Redfern and Hunter on International Arbitration (2009), p.668.



“[b]y submitting the dispute to arbitration under the Rules, the parties undertake tocarry out any award without delay and shall be deemed to have waived their right toany form of recourse insofar as such waiver can validly be made”.53

An earlier version of this rule was at issue in Creighton v Qatar before the French courts.In 1982, Creighton Ltd, a company incorporated in the Cayman Islands with operations inthe United States, entered into a contract with the Government of Qatar for the constructionof a women’s hospital in Doha. In November 1986, however, Creighton was expelled fromthe project by the Qatari Government. Creighton commenced ICC arbitration under thecontract in 1987. Following a final award in its favour in October 1993, Creighton appliedto enforce the award in French courts against Qatari Government bank accounts in France.Qatar objected, by claiming immunity from execution. Following lengthy proceedings inFrench courts, in 2000 the Cour de cassation found that, by participating in the ICCarbitration, Qatar had waived not only its immunity from jurisdiction, but also its immunityfrom execution.54 In reaching this conclusion, the Court relied upon the “principles ofinternational law governing the immunities of foreign states” and an earlier version of theICC Rule noted above.55

To summarise, it is true that “States are bound to fulfill their [contractual] obligationsto the same extent as private persons”.56 But, State parties to investment contracts arefundamentally different from private parties to commercial contracts. States, unlike privateparties, possess the power unilaterally to rewrite their contractual relationship with aninvestor through a legislative change in the proper law. This is a political risk inherent ininvestment. To address this, contractual arbitration has developed various mechanismsaimed at restricting the host State’s control over the proper law and the dispute settlementprocess. In terms of the applicable law, this has been achieved through: (1) a direct choiceof international and/or national law as the proper law; (2) theories of internationalisation(including an indirect reference to international law in monist jurisdictions); (3) applicablearbitration rules; and (4) stabilisation clauses. The arbitral process has similarly responded(5) with various theories of “delocalisation” of the lex fori, the rules relating to the capacityof States to submit disputes to arbitration, and developments in the area of State immunityfrom the recognition and enforcement of arbitral awards.

4. Investment Treaty ArbitrationConversely to contractual arbitration, which originates in private investment contracts, theorigins of treaty-based arbitration lie in public international law instruments betweensovereign States. This does not, however, mean that the underlying investment contract andthe domestic law of the host State become irrelevant. To the contrary, the treaty arbitrationprocess is inextricably linked to the underlying investment contract as well as to the domesticlaw of the host State.

By entering into investment treaties,57 State parties express their general consent tosubmit disputes with foreign investors to arbitration. This general offer is accepted when aspecific foreign investor challenges the actions of the host State in a manner prescribed bythe given treaty, e.g. by serving a notice of dispute. As has been pointed out by the Courtof Appeal of England and Wales, the agreement to arbitrate which results from following

53 ICC Rules 2012 art.34(6). The rule can also be found in the 1988 Rules (art.24) and the 1998 Rules (art.28(6)).54Creighton Ltd v Qatar, decision of the Cour de cassation of July 6, 2000, (2000) 25 Yearbook of Commercial

Arbitration.55Eduardo Silva-Romero, “ICCArbitration and State Contracts” (2002) 13(1) ICC International Court of Arbitration

Bulletin 34, 44 (suggesting that the Cour de cassation can be seen as recognising the ICC Rule as a “general principleof international commercial law” or lex mercatoria).

56 Saudi Arabia v Aramco, Award (1958) 27 International Law Reports 117, 192.57Bilateral investment treaties (BITs), multilateral treaties, Energy Charter Treaty (ECT) and investment chapters

in free trade agreements (FTAs).

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the treaty route is not itself a treaty. It is an agreement between a foreign investor on theone side and the host State on the other.58 The law governing this agreement is internationallaw, but that does not make it a treaty because a foreign investor does not possess thepersonality to conclude treaties under international law.59 It is a contract governed byinternational law.

Thus, the first means by which an otherwise purely contractual dispute between aninvestor and its host State may be submitted to a treaty-based tribunal for decision is anarbitration clause that extends beyond claims for breach of the treaty’s substantiveprotections.60 Whether a tribunal actually has the jurisdiction to consider purely contractualclaims depends of course on the scope of the State’s consent as contained in the text of agiven treaty. Many investment treaties contain generic compromissory clauses in whichcontracting State parties consent to submit to arbitration “any” or “all” disputes arising outof or in connection with protected investments.61 In Article 9 of the Italy-UAE BIT, forexample, the two States agree to submit “[a]ll kinds of disputes or differences … betweenthe Contracting State and an investor of the other Contracting State concerning aninvestment” to international arbitration. The United States’ 2012 Model BIT goes one stepfurther and specifies that claims concerning a breach of “an investment agreement” maybe submitted to arbitration.62 Other treaties limit the jurisdiction of tribunals to claimsalleging a violation of the substantive standards of protection set out in the treaty itself,such as those relating to expropriation, fair and equitable treatment, national treatment,etc.63

Most arbitral tribunals have interpreted such generic provisions as conferring jurisdictionalso over purely contractual claims.64A leading authority on this continues to be the decisionof the ad hoc Committee in the Vivendi proceeding. In its decision, the ad hoc Committeeobserved that Article 8 of the Argentina-France BIT, which provided that “[a]ny disputerelating to investments made under this Agreement between one Contracting Party and aninvestor of the other Contracting Party” may be submitted to arbitration

“does not use a narrower formulation, requiring that the investor’s claim allege a breachof the BIT itself. Read literally, the requirements for arbitral jurisdiction in Article 8do not necessitate that the Claimant allege a breach of the BIT itself: it is sufficientthat the dispute relate to an investment made under the BIT”.65

Some tribunals, however, have had difficulty concluding that such broad compromissoryclauses confer jurisdiction over purely contractual claims.66 The Tribunal in SGS v Pakistandid not “see anything” in the broadly worded text of Article 9 of the Pakistan-SwitzerlandBIT that could be read as conferring jurisdiction over “claims resting ex hypothesi exclusivelyon contract”.67 The Tribunal in LESI-DIPENTA v Algeria reached a similar conclusion onthe scope of the generic clause in the Algeria-Italy BIT. It reasoned that the consent of Stateparties to the treaty “is not given extensively for all rights and claims that could be relatedto an investment”. Instead, the Tribunal read into the text of the compromissory clause

58Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 1116 [32]–[33].59 James Crawford, “Treaty and Contract in Investment Arbitration” (2008) 24 Arbitration International 351, 361.60Cf. J. Griebel, “Jurisdiction over ‘Contract Claims’ in Treaty-Based Investment Arbitration on the Basis of the

Wide Dispute Settlement Clauses in Investment Agreements” (2007) 4(5) Transnational Dispute Management 14.61Zachary Douglas, The International Law of Investment Claims (Cambridge: Cambridge University Press, 2009),

p.234; Anthony Sinclair, “Bridging the Contract/Treaty Divide” in Christina Binder et al. (eds), International InvestmentLaw for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford: Oxford University Press, 2009), pp.92,93.

62US Model BIT 2012 art.24(1)(a)(i)(C).63 For example, Malaysia-Ghana BIT art.7(1); NAFTA art.1116; ECT art.26(1).64SGS v Philippines, ICSID Case No.ARB/02/6 para.131; SGS v Paraguay, ICSID Case No.ARB/07/29 para.129.65Compañía de Aguas del Aconquija SA and Compagnie Générale des Eaux/Vivendi Universal v Argentine

Republic, ICSID Case No.ARB/97/3, Decision on Annulment, July 3, 2002, para.55.66 Joy Mining v Egypt, ICSID Case No.ARB/03/11, Decision on Jurisdiction, August 6, 2004, para.64;

LESI-DIPENTA v Republic of Algeria, ICSID Case No.ARB/03/8 Award, January 10, 2005.67 SGS v Pakistan, ICSID Case No.ARB/01/12, Decision on Jurisdiction, August 6, 2003, para.161.



“a requirement that measures complained of amount to a violation of the bilateralagreement, which means in particular that they be of an unjustified or discriminatorynature … . This is not necessarily the case for any breach of contract.”68

While these latter decisions may have been driven by “philosophical concerns”,69 theynonetheless have been subject to doubt for two reasons. First, reading “requirements” ofthe sort posited by the LESI-DIPENTATribunal into the text of a dispute settlement provisionwhich confers jurisdiction over “any” or “all” disputes arguably is inconsistent with therules of treaty interpretation contained in the Vienna Convention on the Law of Treaties.These rules require that the express terms of the treaty must be taken as the authenticexpression of the agreement of the parties.70

A second doubt is represented by the comments of Gaillard, a member of theLESI-DIPENTA Tribunal, who has separately cautioned that

“it may seem odd to interpret a treaty as creating a jurisdictional basis for a treaty-basedtribunal in cases where it is not called upon to rule on alleged violations of that treaty[because] [t]here is always a danger in divorcing the jurisdictional provisions fromthe substantive terms of the same treaty in that this may suggest that the treaty-basedtribunal has jurisdiction but is invited to rule in a vacuum.”71

However, there is nothing inherently “odd” in a treaty-based tribunal being vested with thejurisdiction over claims not relating to the given treaty.72 The Iran-United States ClaimsTribunal, established pursuant to the Algiers Accords between Iran and the United States,has decided a number of claims by United States nationals against Iran alleging a breachof contract. Similarly, other treaty-based tribunals have readily found jurisdiction overnon-treaty claims, including claims based entirely on national law73 and even customaryinternational law.74 Moreover, tribunals with jurisdiction over non-treaty-based claims arenot “invited to rule in a vacuum”. If the parties to an investment contract are unable to agreeon the applicable law, the practice of tribunals suggests that national law primarily appliesto contractual claims.75 This does not mean that international law will inevitably beirrelevant.76Article 30(2) of the USModel BIT, for example, provides that a tribunal taskedwith adjudicating claims concerning the alleged breach of an investment authorisation orinvestment contract “shall apply”:

“(a) the rules of law specified in the pertinent investment authorization orinvestment agreement, or as the disputing parties may otherwise agree; or

(b) if the rules of law have not been specified or otherwise agreed:

68 LESI-DIPENTA v Republic of Algeria, ICSID Case No.ARB/03/8 Award, January 10, 2005, paras 25–27 astranslated in Anthony Sinclair, “Bridging the Contract/Treaty Divide” in Christina Binder et al. (eds), InternationalInvestment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford: Oxford University Press,2009).

69Anthony Sinclair, “Bridging the Contract/Treaty Divide” in Christina Binder et al. (eds), International InvestmentLaw for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford: Oxford University Press, 2009), p.96.

70Richard Gardiner, Treaty Interpretation (Oxford: Oxford University Press, 2008), pp.144–145.71Emmanuel Gaillard, “International Arbitration Law” (2005) New York Law Journal (October 6) (emphasis

added).72See Robert Jennings and Arthur Watts (eds), Oppenheim’s International Law (Oxford: Oxford University Press,

1992), p.927.73 Iurii Bogdanov, Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of the Republic of Moldova, Award,

September 22, 2005 s.2.1.74Chevron Corp and Texaco Petroleum Corp v The Republic of Ecuador, Interim Award, December 1, 2008,

para.109.75Kjos, Applicable Law in Investor State Arbitration: The Interplay between National and International Law

(2013), pp.172–175; Société Ouest Africaine des Betons Industriels (SOABI) v Senegal, ICSID Case No.ARB/82/1,Award, February 25, 1988, para.5.02;Compañía de Aguas del Aconquija SA andCompagnie Générale des Eaux/VivendiUniversal v Argentine Republic, ICSID Case No.ARB/97/3, Decision on Annulment, July 3, 2002, para.96.

76See also, on the role of international law when national law primarily applies, Kjos, Applicable Law in InvestorState Arbitration: The Interplay between National and International Law (2013), pp.181–211.

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the law of the respondent, including its rules on the conflict of laws;and

(i)

(ii) such rules of international law as may be applicable.” (Footnoteomitted.)

A second means by which treaty-based tribunals can exercise jurisdiction over claimsconcerning the breach of an investment contract is the use of the so-called “umbrella clause”.A 2003 study noted that approximately 40 per cent of the BITs surveyed contained someform of an umbrella clause.77 While the actual language of such clauses is obviouslyimportant for determining their scope and effect,78 a typical umbrella clause requires that

“[e]ach Contracting Party shall constantly guarantee the observance of commitmentsit has entered into with respect to the investments of the investors of the otherContracting Party”.79

Tribunals and scholars offer four distinct and greatly divergent theories on the scope andeffect of such a clause.80 At the most negative end, those subscribing to the “narrow”interpretation of umbrella clauses generally refuse to give them any effect, arguing that the“appropriate interpretative approach is … in dubio mitius”,81 and that such clauses do not“have the effect of transforming all contract disputes into investment disputes under theTreaty”.82The biggest argument against the “narrow interpretation” approach is that, contraryto the rule of effet utile, it refuses to give any meaning to the text of such clauses.83

At the opposite, most positive end of the spectrum, certain tribunals and scholars takethe position that an umbrella clause automatically “elevates” a contractual breach to a breachof the treaty.84 According to such a “broad” view, the umbrella clause has the effect ofdirectly “internationalising” the investment contract, with the result that any breach of thecontract would automatically and immediately constitute a breach of the treaty. The criticismof this approach is similar to that of the internationalisation of investment contracts ingeneral, namely, that international law is not designed to provide a complete framework ofthe proper law for a contract between a private investor and a host State.85

In between these two extremes are two views, both positive as regards the effect of suchclauses, but conceptually divergent. Expressing the more conservative of the two views,some tribunals have taken the position that

77 J. Gill et al., “Contractual Claims and Bilateral Investment Treaties—AComparative Review of the SGS Cases”(2004) 21 Journal of International Arbitration 397, 403 (“[I]n a sample of bilateral investment treaties taken fromInvestment Treaties (ICSID ed., 2003), 94 of 236 (about 40%) contained umbrella clauses”).

78 For example, the Salini Tribunal was of the view that the Italy-Jordan BIT art.2(4) (1996), which required eachcontracting party to “create and maintain in its territory a legal framework apt to guarantee to investors the continuityof legal treatment including the compliance, in good faith, of all undertakings assumed with regard to each specificinvestor”, only represented a commitment “to create and maintain a legal framework apt to guarantee the complianceof all undertakings assumedwith regard to each specific investor”. Salini Costruttori SpA& Italstrade SpA v HashemiteKingdom of Jordan, Decision on Jurisdiction, November 9, 2004, para.126. See also Andrew Newcombe and LluísParadell, Law and Practice of Investment Treaties (Alphen aan den Rijn: Kluwer Law International, 2009), pp.445–448;Jan Ole Voss, The Impact of Investment Treaties on Contracts between Host States and Foreign Investors (Leiden:Brill, 2010), pp.231–235.

79 Switzerland-Pakistan BIT art.11.80 See e.g. M. Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between

International Law andMunicipal Law (Alphen aan den Rijn: Kluwer Law International, 2010), Ch.7; James Crawford,“Treaty and Contract in Investment Arbitration” (2008) 24 Arbitration International 351, 367.

81 SGS v Pakistan, ICSID Case No.ARB/01/12, Decision on Jurisdiction, August 6, 2003, para.171.82 Joy Mining v Egypt, ICSID Case No.ARB/03/11, Award on Jurisdiction, August 6, 2004, para.81.83See e.g. Jan Ole Voss, The Impact of Investment Treaties on Contracts between Host States and Foreign Investors

(Leiden: Brill, 2010), pp.252–255; James Crawford, “Treaty and Contract in Investment Arbitration” (2008) 24Arbitration International 351, 368.

84 See e.g. Fedax NV v Venezuela, ICSID Case No.ARB/96/3, Award, March 9, 1998; Emmanuel Gaillard,“Investment Treaty Arbitration and Jurisdiction over Contract Claims—The SGS Cases Considered” in Todd Weiler(ed.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties andCustomary International Law (New York: Transnational Publishers, 2005), pp.324, 344.

85 See below.



“[p]urely commercial aspects of a contract might not be protected by the [umbrellaclause] in some situations, but the protection is likely to be available when there issignificant interference by governments or public agencies with the rights of theinvestor”.86

As Crawford points out, this approach is riddled with the problem of indeterminacy anduncertainty as it focuses on the character or motive of the breach.87 The Tribunal in SGS vParaguay appeared to recognise this in noting that

“[i]t is thus difficult to articulate a basis on which the State’s actions, solely becausethey occur in the context of a contract or a commercial transaction are somehow nolonger acts of the State, for which the State may be held internationally responsible”.88

The other, more positive view is the “integrationist” or indirect approach, which gives effectto umbrella clauses, but stops short of automatically converting contractual claims to treatyclaims by way of some “instant transubstantiation”.89 According to this position, a breachof the investment contract can lead to the breach of an umbrella clause, but it is the treatybreach which provides the cause of action for the foreign investor in the arbitrationproceeding. As explained by the ad hoc Annulment Committee in CMS v Argentina:

“In speaking of ‘any obligations it may have entered into with regard to investments’,it seems clear that [the umbrella clause] is concerned with consensual obligationsarising independently of the BIT itself (i.e. under the law of the host State or possiblyunder international law) … The effect of the umbrella clause is not to transform theobligation which is relied on into something else; the content of the obligation isunaffected, as is its proper law.”90

The use of treaty arbitration for pursuing claims based on the breach of a contract, whetherby virtue of a generously broad arbitration clause or due to an umbrella clause, raises theissue of the law applicable to the investment contract in such an arbitration. The vast majorityof investment treaties today that provide to the foreign investor a direct procedural right ofrecourse specify the choice of international law, either by itself,91 or in combination withthe national law of the host State,92 as the law to be applied by the tribunal.93 As earliernoted, Article 42 of the ICSID Convention provides that:

“(1) The Tribunal shall decide a dispute in accordance with such rules of law asmay be agreed by the parties. In the absence of such agreement, the Tribunalshall apply the law of the Contracting State party to the dispute (including itsrules on the conflict of laws) and such rules of international law as may beapplicable.”94

The tribunal in Goetz v Republic of Burundi observed that the

“[c]hoice of law clauses in investment protection treaties frequently refer to theprovisions of the treaty itself, and more broadly, to international law principles andrules. This leads to a remarkable comeback of international law after a decline in

86CMS v Argentina, ICSID Case No.ARB/01/8, Award, May 12, 2005, para.299.87 James Crawford, “Treaty and Contract in Investment Arbitration” (2008) 24 Arbitration International 351, 368.88 SGS v Paraguay, ICSID Case No.ARB/07/29, Award, February 10, 2012, para.72.89 SGS v Philippines, ICSID Case No.ARB/02/6, Decision on Jurisdiction, para.126.90CMS v Argentina, ICSID Case No.ARB/01/8, Decision on Annulment, September 25, 2007, para.95. See also

MTDEquity v Chile, ICSIDCase No.ARB/01/7, Decision onAnnulment,March 21, 2007, para.187;Marion Unglaubev Costa Rica, ICSID Case No.ARB/08/1 and ICSID Case No.ARB/09/20, Award, May 12, 2012.

91 For example, NAFTA art.1131(1).92 For example, US Model BIT 201293Kjos, Applicable Law in Investor State Arbitration: The Interplay between National and International Law

(2013), p.222.94 ICSID Convention art.42(1).

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practice and jurisprudence, in the legal relations between host States and foreigninvestors”.95

Despite the primary applicability of international law in investment treaty disputes, however,domestic law does not lose its relevance.96 Moreover, the relevance of domestic law is notrestricted to its consideration as a fact or evidence97; it goes further, as tribunals may berequired to apply national law.98

In elucidating the hybrid foundations of international law, Douglas explains that

“[c]ustomary international law contains no substantive rules of property law. They[sic] cannot be a source of rights in property. Nor do investment treaties purport to laydown rules for acquiring rights in rem that are exercisable against the world at large.It is therefore the municipal law of the host state that determines whether a particularright in rem exists, the scope of that right, and in whom it vests.”99

Since investment treaties do not contain substantive rules of property law, Douglas notesthat “[t]here must be a renvoi to a municipal property law”.100 To the extent that investmenttreaties

“require a territorial nexus between the investment and one of the contracting Stateparties, that property law is the municipal law of the state in which the investor allegesthat it has an investment”.101

In other words, although investment treaties often specify the types of assets and rights thatare protected as an “investment”, these rights and assets are acquired from, and subsist in,the domestic law of the host State. This may appear to suggest that States can rely on theirdomestic law as an excuse for the non-fulfilment of their obligations under publicinternational law. However, as explained by Judge Morelli in his Separate Opinion in theBarcelona Traction case:

“There is nothing abnormal in this reference of an international rule to the law of agiven State. In reality, no subordination of international responsibility, as such, to theprovisions of municipal law is involved; the point is rather that the very existence ofthe international obligation depends on a state of affairs created in municipal law,though this is not so by virtue of municipal law but, on the contrary, by virtue of theinternational rule itself, which to that end refers to the law of the State.”102

Expropriation claims provide a good example of this logic. When an investor alleges thebreach of a treaty provision concerning expropriation, the claim is a treaty claim andinternational law primarily applies.103 But, there cannot be an expropriation unless theclaimant demonstrates the existence of proprietary rights in the first place. Therefore, “the

95Goetz v Republic of Burundi, ICSID Case No.ARB/95/3, Award, February 10, 1999 (2000) 15 ICSIDReview—Foreign Investment Law Journal 457, 488–489.

96Kjos, Applicable Law in Investor State Arbitration: The Interplay between National and International Law(2013), pp.240–269.

97Case Concerning Certain German Interests in Polish Upper Silesia (Germany v Poland), Judgment, May 25,1926, Permanent Court of International Justice Ser.A No.7, p.19.


99Zachary Douglas, “The Hybrid Foundations of Investment Treaty Arbitration” (2004) 74 British Yearbook ofInternational Law 151, 197–198.

100Douglas, “The Hybrid Foundations of Investment Treaty Arbitration” (2004) 74 British Yearbook of InternationalLaw 151, 198.

101Douglas, “The Hybrid Foundations of Investment Treaty Arbitration” (2004) 74 British Yearbook of InternationalLaw 151, 198.

102Case Concerning the Barcelona Traction, Light and Power Co, Ltd (Belgium v Spain), Separate Opinion ofJudge Morelli [1970] 3 International Court of Justice Reports 234.




legal materialisation of the Claimant’s alleged investment is a fundamental aspect of themerits”.104 InAzinian vMexico, a USwastemanagement corporation brought an expropriationclaim against Mexico under Article 1131(1) of NAFTA, which expressly provides thatNAFTA tribunals are required to settle disputes “in accordance with this Agreement andapplicable rules of international law”. The fact that NAFTA tribunals “may not decide adispute by reference to the internal law of a Nafta Party”105 did not prevent the AzinianTribunal, however, from finding in favour ofMexico on the ground that a competentMexicancourt had held the contract to be invalid under Mexican law, and therefore “there is bydefinition no contract to be expropriated”.106 This approach has been confirmed by severaltreaty-based tribunals,107 as well as the Iran-United States Claims Tribunal.108

Tribunals asked to adjudicate a claim concerning the breach of a contract on the basisof a generic compromissory clause in an investment treaty must respect the parties’ choiceof applicable law in the underlying contract. In the absence of such agreement, the lawgoverning the contract may be taken to be the domestic law of the host State.109 Claimsconcerning the alleged breaches of umbrella clauses require the application of internationallaw as well as the proper law of the underlying contract in a two-step process. A claim forthe breach of an umbrella clause is in the first instance a treaty claim. Therefore, a tribunalmust begin by applying the rules of treaty interpretation contained in the Vienna Conventionin order to determine the scope and effect of such a clause in the treaty. Next, in order todetermine whether there has been a breach of the underlying contract that triggers a breachof the umbrella clause, a tribunal presumably will apply the law chosen by the parties tothe contract, or, in the absence of an agreed choice by them, apply the national law of thehost State, subject, however, to any rules applicable under the treaty.110 In MTD Equity vChile, the claimant argued that the investment contracts at issue were governed byinternational law because they were internationalised through the umbrella clause in theBIT. The ad hoc Committee and the Tribunal had no hesitation in rejecting this argument:

“The Tribunal has to apply the BIT. The breach of the BIT is governed by internationallaw. However, to establish the facts of the breach, it will be necessary to consider thecontractual obligations undertaken by the Respondent and the Claimants and whattheir scope was under Chilean law.”111

The application of the proper law of the underlying contract by a treaty-based tribunal taskedwith determining whether there has been a contractual breach has important implicationsfor bringing contractual claims before treaty-based tribunals. For example, the host Statemay not itself be a party to an investment contract, which may have been concluded betweenthe foreign investor and a State entity. In such a case, the ability of a foreign investor tobring a claim against the State party to an investment treaty for the breach of a contractwith its State entity will depend upon the law of the host State, and not the internationallegal rules of State responsibility dealing with the attribution of conduct. This is becausethe domestic law of the host State, which is the proper law of the investment contract, will

104Generation Ukraine v Ukraine, ICSID Case No.ARB/00/9, Award, September 16, 2003, para.8.8.105 International Thunderbird Gaming Corporation v United Mexican States, Award, January 26, 2006, para.88.106Robert Azinian v United Mexican States, ICSID Case No.ARB(AF)/97/2, Award, November 1, 1999, para.100.107For example,EnCana Corp v The Republic of Ecuador, LCIACase UN3481, Award, February 3, 2006, para.184;

International Thunderbird Gaming Corp v United Mexican States, Award, January 26, 2006, para.208.108For example,George E. Davidson (Homayounjah) and The Government of the Islamic Republic of Iran, Award

No.585-457-1 (March 5, 1998), reprinted in 34 Iran-U.S. C.T.R. 3, 22–23.109Kjos, Applicable Law in Investor State Arbitration: The Interplay between National and International Law

(2013), pp.171–176. But see ICSID Convention art.42(1): “In the absence of such agreement, the Tribunal shall applythe law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules ofinternational law as may be applicable”.


111MTD Equity Sdn. Bhd. & MTD Chile SA v Chile, ICSID Case No.ARB/01/7, Decision on Annulment, March21, 2007, para.73. See also Award, May 25, 2004, para.187.

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determine the definition of “State” for the purposes of the underlying contract. Thus, if theState entity that is party to a contract possesses a distinct legal personality under the domesticlaw of the host State, a contractual claim against the host State may be found to be notsubject to the jurisdiction of a tribunal constituted under a treaty.112 It was for this reasonthat the ad hoc Committee in Vivendi observed that:

“whether there has been a breach of the BIT and whether there has been a breach ofcontract are different questions. Each of these claims will be determined by referenceto its own proper or applicable law—in the case of the BIT, by international law; inthe case of the Concession Contract, by the proper law of the contract, in other words,the law of Tucumán. For example, in the case of a claim based on a treaty, internationallaw rules of attribution apply, with the result that the state of Argentina is internationallyresponsible for the acts of its provincial authorities. By contrast, the state of Argentinais not liable for the performance of contracts entered into by Tucumán, which possessesseparate legal personality under its own law and is responsible for the performance ofits own contracts.”113

To summarise, the hybrid nature of the relationship between the investor and the host State,and the political risk inherent therein, motivate the application of international law incontractual disputes and domestic law in treaty disputes. Moreover, with the advent of BITswith generic compromissory clauses and umbrella clauses, the dispute settlement processunder investment treaties can often provide a meaningful remedy for the breach of theunderlying contract. Thus there are three similarities between contractual arbitration andtreaty-based arbitration:

• First, in both types of arbitration, the agreement to arbitrate is a contractbetween the investor and the State.

• Second, in both cases, the investment contract forms the bundle of rightsultimately sought to be protected. These rights are acquired, and subsist under,domestic law, usually that of the host State.

• Finally, both contractual and investment treaty arbitration seek to account forthe hybrid nature of the contractual relationship between the investor and theState. This is achieved by appealing to international law through mechanismsaimed at regulating State conduct.

Ergo, investomercial arbitration!

5. Concluding RemarksNow, “Whither goeth it?”

In 2012, 58 new treaty-based arbitrations were initiated, which, as UNCTAD has noted,then constituted the “highest number of known treaty-based disputes ever filed in one yearand confirms that foreign investors are increasingly resorting to … arbitration” underinvestment treaties.114This increase in investment arbitration does not, however, automaticallyimply the irrelevance of contractual arbitration. Between 1972 and June 30, 2013, 19 percent of all cases registered and administered by ICSID had arisen out of investment contracts

112V. Heiskanen, “State as a Private: The Participation of State in International Commercial Arbitration” (2010)7 Transnational Dispute Management 1; James Crawford, “Treaty and Contract in Investment Arbitration” (2008)24 Arbitration International 351, 363.

113Compañía de Aguas del Aconquija SA and Compagnie Générale des Eaux/Vivendi Universal v ArgentineRepublic, ICSID Case No.ARB/97/3, Decision on Annulment, July 3, 2002, para.96 (footnote omitted).

114UNCTAD, Recent Developments in Investor-State Dispute Settlement (ISDS), IIA Issues Note No.1 (May 2013),available online at: http://unctad.org/en/PublicationsLibrary/webdiaepcb2013d3_en.pdf [Accessed February 18,2014].



between foreign investors and host States.115 Similarly, in its 2012 Report on States, StateEntities and ICC Arbitration, the ICC Commission on Arbitration and ADR reported thatapproximately 10 per cent of all ICC arbitration proceedings involved a State or a Stateentity.116 The viability and continuing relevance of contractual arbitration for complexcross-border deals is reflected in the fact that in at least 22 contract-based arbitrationsbetween foreign investors and States or State-owned entities active in the period 2011–2012a minimum of US $1 billion was in dispute. By comparison, for the same period,approximately 48 treaty-based disputes were active in which at least US $1 billion was indispute. Moreover, in several instances, investors pursued both treaty and contractualarbitration proceedings.117

The disparity in absolute numbers of treaty-based and contractual arbitrations may beexplained by the fact that, in the case of investment treaties, States express their generalconsent for all prospective disputes concerning protected investments. By contrast, consentto contractual arbitration is specific, and is usually expressed through pre-negotiatedarbitration clauses in investment contracts. If States restrict the scope of their consent toarbitrate under investment treaties, as some States appear to have done,118 or back out ofinvestment treaties altogether,119 there may be an increase in the use of contractual arbitrationby foreign investors to protect against the political risk associated with investing abroad.Indeed, even an economist who advised an earlier Australian Government to dropinvestor-State arbitration clauses from its BITs recently observed that

“when an investor sinks substantial sums of money into an investment, they are morelikely to negotiate individual investment contracts with their own disputes provisions”.120

In order to protect against the political risk inherent in investment contracts, any effectivethird-party dispute settlement mechanism must account for the hybrid nature of theinvestor-State relationship. Since an investment contract is ultimately always grounded indomestic law (usually the law of the host State), a dispute settlement process confinedentirely to the national legal order does not provide any guarantee against the political riskthat a State may unilaterally change the terms of an investment contract through changesin its domestic law. This is the reason why the contractual arbitration process in variousways incorporates international law, which is more directly concerned with the exercise ofa State’s sovereign authority. Investment treaty arbitration, on the other hand, is effectivein regulating sovereign conduct, and provides a direct right to an investor to pursue a claimagainst a host State. Yet, it has to account for the reality that the bundle of rights thatconstitutes the investment contract is grounded in domestic law. The treaty cannot be whollyseparated from the contract, or from domestic law. The treaty and the contract are mutuallyreinforcing.

115 ICSID, The ICSID Caseload—Statistics, Issue 2013-2, available online at: https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=CaseLoadStatistics [Accessed February 18, 2014].

116 ICC Commission on Arbitration and ADR, ICC Commission Report: States, State Entities and ICC Arbitration,2012, p.2, available online at: http://www.iccwbo.org/Advocacy-Codes-and-Rules/Document-centre/2012/ICC-Arbitration-Commission-Report-on-Arbitration-Involving-States-and-State-Entities-under-the-ICC-Rules-of-Arbitration/ [Accessed February 18, 2014].

117 See Michael D. Goldhaber, “Arbitration Scorecard” (2013) (July) Focus Europe 22.118 ICSID Press Release, “Ecuador’s Notification under Article 25(4) of the ICSID Convention”, December 5,

2007, available online at: https://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=OpenPage&PageType=AnnouncementsFrame&FromPage=Announcements&pageName=Announcement9 [AccessedFebruary 18, 2014].

119UNCTAD, Denunciation of the ICSID Convention and BITs: Impact on Investor-State Claims, IIA Issues NoteNo.2, December 2010, p.1, available online at: http://unctad.org/en/docs/webdiaeia20106_en.pdf [Accessed February2, 2014].

120See Douglas Thompson, “London: The economic case against investment treaties” (2013) 8(6)Global ArbitrationReview, November 7, available online at: http://globalarbitrationreview.com/news/article/32032/ [Accessed February18, 2014] (reporting the remarks of Emma Aisbett, a professor of economics at the University of Hamburg, at the21st Investment Treaty Forum of the British Institute of International and Comparative Law held on October 24,2013 in London).

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Far from distinguishing it from commercial arbitration, the hybrid nature of investmenttreaty arbitration represents a fundamental and essential feature of any fair, impartial andeffective mechanism for third-party adjudication of disputes between a foreign investor anda host State. This is because the public-private nature of the dispute settlement processreflects the peculiar nature of the relationship between the investor and the State. From sucha functionalist perspective, contractual arbitration and investment treaty arbitration are notso different, as they both seek to account for the exercise of a State’s public authority andthe political risk it entails for cross-border investment flows. Both represent law’s attemptsto keep pace with reality.

It has been debated whether or not contractual arbitration and investment treaty arbitrationare, or are not, like apples and oranges.121 Frankly, this is a nonsensical debate. Apples andoranges are both fruits, whose purpose is to be eaten for the benefit of the same consumer.122

Indeed, spectrometric analysis by NASA has confirmed that “apples and oranges are verysimilar”.123 The details of contractual arbitration and investment treaty arbitration may bequite different. Yet, both exist to serve the international community’s need for certaintyand security in cross-border investment flows. They are not, as Romanians would say, likegrandmothers and machine guns.124 Together they constitute “investomercial” arbitration,in which an orange a day will keep the doctor away well into the future just as surely asdoes an apple!

121See Sebastian Perry, “Investment and Commercial Arbitration: Like Apples and Oranges,” (2013) 8(5) GlobalArbitration Review, October 14, available online at: http://globalarbitrationreview.com/news/article/31965/investment-commercial-arbitration-apples-oranges/ [Accessed February 18, 2014].

122 See e.g. Leonard Barkan,Mute Poetry, Speaking Pictures (Princeton NJ: Princeton University Press, 2013),p.27 (noting that “[a]pples and oranges—both fruit, both sweet, both (roughly) spherical—might, after all, be quitereasonable objects of comparison”).

123 Scott A. Sandford, “Apples and Oranges—A Comparison” (1995) Annals of Improbable Research, availableat: http://www.improbable.com/airchives/paperair/volume1/v1i3/air-1-3-apples.html [Accessed February 18, 2014].

124Leonard Barkan,Mute Poetry, Speaking Pictures (Princeton NJ: Princeton University Press, 2013), p.27.



CasesTwo Rarities: Subpoenaing an Arbitrator forCross-Examination1 and Court Enforcement of aPeremptory Order2

Hew R. Dundas

1. IntroductionSeveral previous articles in Arbitration have examined frequently recurring topics such aschallenges to and appeals against awards so readers will by now be very familiar with theminutiae of ss.67, 68 and 693 and with the considerable body of jurisprudence developedaround them. The present Case Notes cover two issues arising under the Act, the first ofwhich appears to be the first case of its kind, the second apparently only the second of itskind.

In Sumner, the issue concerned whether, in the loser’s challenging an award, the arbitratorcould be compelled by court order to appear in court in the hearing of that challenge to becross-examined and in Patley Wood the issue was what considerations should govern thecourt’s exercise of its discretionary power given by s.42 to enforce an arbitrator’s peremptoryorder

2. Sumner

Ordering the arbitrator to give evidence—the factsA rent review in respect of the lease of a property in Falmouth was determined in anarbitration; the claimants were the landlords, Costa was the tenant and D, the seconddefendant, was the arbitrator, nominated by the President of the Royal Institution of CharteredSurveyors (the RICS).Each of landlords and tenant were represented in the arbitration by surveyors acting as

experts and the arbitration was on a documents-only basis save that D had the right to holda hearing if he considered it appropriate (in fact there was no hearing). The experts addressedthree potential comparables4 very close by. D’s award was duly issued on January 30, 2012and, since his valuation was lower than the existing rental of £40,000 p.a., the rental stayedthe same since the review was upwards-only.In the award, D stated that he derived no assistance from comparable Y (wholly different

to X and Z) and said (inter alia):

“9.4 [The tenant’s expert] states that [comparable Z] should not be attributed anysignificant weight due its timing post subject review date and could not havehad any secondary effect of influencing a prospective tenant bidding for thesubject property at the review date. [The landlord’s expert] contends the

1 Sumner & Makin v Costa Ltd & D [2013] EWHC 4116 (Ch), per H.H. Judge Simon Barker QC, judgment datedJuly 14, 2013 but not posted on BAILII until December 20, 2013.

2Patley Wood Farm LLP v Brake & Brake [2013] EWHC 4035 (Ch), per Peter Smith J., judgment dated December18, 2013.

3References in the form s.00 are to section 00 of the Arbitration Act 1996 (the Act) unless otherwise stated.4 For the purposes of this article, the three comparables are called X, Y and Z.


transaction was agreed closest to the subject review date by inference drawnfrom the date on which the agreement to lease was signed.

9.5 On the basis of the evidence presented to me by [the landlords’ expert] it wasnot until 4 months after the subject review date that … a binding contract on[comparable Z was signed]. Accordingly for this reason, having regard to theestablished case law on post review date evidence, I prefer [the tenant’sexpert’s] approach and have not accordingly attributed any weight to thistransaction.

9.6 The transaction which I find to be most helpful based on the evidencepresented to me is [comparable X].”

The key words, so far as affects the present proceedings, were in para.9.5: “having regardto the established case law on post review date evidence”. Relevant case law is the decisionof Staughton J. in Segama NV v Penny Le Roy5 of which p.109A-C is included in the RICSHandbook of Rent Review (the RICS Handbook) at para.7.9.6 under the heading “(e)Evidence of open market lettings and rent review agreements taking place after the reviewdate: admissible”.The landlords issued proceedings against the tenant, focusing on D’s un-particularised

reference to case law on post-review date evidence; they also made a s.68 challenge and as.69 appeal, seeking: (1) under s.68, remitting the award to another arbitrator or to thearbitrator generally or at least on the effect of comparable Y on the rent review; (2) unders.69, granting leave to appeal and determination of questions of law inter alia as to: (a)whether a transaction agreed four months after the review date was admissible and hadpotential weight in relation to its primary effect, that of evidencing the state of the marketat the review date; (b) whether a reasonable arbitrator in D’s position could in thecircumstances logically, reasonably and properly have given comparable Z no weight andsimply derive the rent from comparable X.On the same date, agents for the landlord’s solicitors wrote to D asking him: (1) to set

out and explain the case law to which he had regard and how he had applied it; (2) to admitthat there had been irregularities in the conduct of the arbitration; and, (3) to withdraw orreconsider his award. D replied that his reasons were as set out in his award and that he hadnothing further to add, save that he stood by the award.The landlords next issued new proceedings against the tenant and D jointly, seeking,

inter alia, under ss.57, 68 and 70 that (1) D be required to clarify his award and set out hisfull reasoning and case law to which he had had regard and (2) remitting the award to adifferent arbitrator or to D.In a witness statement, D inter alia conceded that his reference to “case law” had not

been well chosen, i.e. not technically in the way that a lawyer would refer to “case law”and he confirmed that nothing had been relied on beyond that provided by the parties, i.e.confining the references to “case law” to the commentary from the RICS Handbook. Healso addressed an alternative approach to valuation on the hypothesis that weight was indeedto be attached to comparable Y, explaining that he would not have disregarded comparableX altogether and given weight only to comparable Y and concluding that he would havemade a small adjustment and then split the difference between the rental adopted (i.e. basedon X) and comparable Y. He observed that the relevant rent would, even then, still havefallen short of £40,000 p.a.The landlords now applied for an order entitling them to cross-examine D in the

forthcoming challenge hearing, an application opposed byD’s counsel. The former contendedthat cross-examination was essential in order to understand or be clear as to D’s reasoningand their counsel pointed to the original reasons at para.9 of the award, the confirmation ofthose reasons with a statement that D had nothing to add and then, three months later, a

5 (1984) 1 E.G.L.R. 109.

Subpoenaing an Arbitrator and Enforcement of a Peremptory Order 197


witness statement explaining the reasons already given and supplementing those reasonsby four matters as to which there had been no evidence.What had emerged was that D had never relied, as such, on “case law”—that being a

non-lawyer’s term of art referring only to the summary in the RICS Handbook. The factthat D appeared to have, or may be criticised as apparently having, misunderstood thesubstance of the note in para.7.9.6 was not a ground for cross-examination, although itmight be a ground for permission to appeal, which would be a matter for later consideration.However, the landlords’ counsel itemised a long list of matters concerning D and his awardupon which cross-examination was appropriate and he also made submissions as to theconsequences of a refusal of permission to cross-examine, specifically: (1) the landlordswanted to be able to submit that inferences must be drawn enabling them to succeed ontheir substantive challenges to the award; and (2) this included whether there might be anypoint in doubt.Concerning the court’s jurisdiction, the landlords’ counsel submitted (inter alia):

(1) the application for cross-examination was only partly about the arbitratorbeing required to give reasons; it was also a matter within the court’s inherentpower to control its own process in order to ensure that matters before it weredealt with justly; in this context, the general principle set out at s.1(c) shouldbe understood as not inhibiting the court’s general power over its own process;

(2) s.70(4) provided that, where a tribunal had given either no reasons orinadequate reasons with the result that the matter in issue on an applicationor under appeal could not be considered properly, the court could order thetribunal to state the reasons in sufficient detail for that purpose;

(3) in principle there was no jurisdictional objection to an order forcross-examination;

(4) authority6 existed for the proposition that an arbitrator may be compelled toappear before a court by subpoena, albeit that it was not clear from the reportof that case whether that subpoena had been confined to the production ofdocuments;

(5) the present hearing, apart from this application and the question of whetheror not permission should be given to appeal, was a final hearing; it wasaccepted that for the purposes of an appeal or an application it would be arare and special case for oral evidence to be taken, but even then jurisdictionexisted7;

(6) in this case the court should be satisfied that the claims are not “fishing” sincethere were material inconsistencies requiring explanation: (a) as to what werethe full reasons for the award; and (b) in order to reconcile the apparentinconsistencies between the award and D’s witness statement; and

(7) the position of an arbitrator is quite different from that of a judge, and thepolicy reasons for “protecting” a judge in cross-examination about his or herdeterminations were not applicable.

In response, D’s counsel submitted (inter alia) that:

(1) as to the law, the jurisdiction is at best questionable and, in the light of s.1(c),the limit of the court’s power to require reasoning is that set out at s.70(4);

(2) that power is a power to order the tribunal to state reasons, not a power to beexamined upon them; logically, it envisaged only written material beingordered;

6 Lendon v Keen [1916] 1 K.B. 294.7Civil Procedure Rules (CPR) Pt 32.7 in relation to cross-examination of a witness on an application or hearing

other than a trial.

198 Arbitration


(3) although this was a final hearing, these proceedings were not a trial but wereapplications under s.24 (for removal) and s.68 and, subject to permission toappeal being granted, s.69; accordingly, the relevant part in the CPR is Pt32.7(2), and the notes thereto make clear that, whilst no guidelines are givenin relation to cross-examination, it will only be in an exceptional case wheresuch an order was made;

(5) there was no escaping that an order would be equivalent to an order forcross-examination of a judge on his or her judgment, which would beimproper;

(6) the court has appropriate powers to correct inadequacy in an award and/or inarbitrators under ss.68, 69 and 24; cross-examination was not usual, even ona removal application;

(7) D’s witness statement was not a response to a request for clarification unders.57(3), but was an answer to the questions raised in a letter from the landlords’solicitors;

(8) responding by way of written evidence was and is the appropriate course foran arbitrator in such a situation; requiring an arbitrator to give oral evidencewent too far;

(9) the context of the award was a dispute conducted and decided on documentsonly by non-lawyers who were all specialists in valuation; accordingly theirawards are not to be expected to be to the standard of a judgment, nor arethey expected to give rise to oral evidence;

(10) the key criteria by which an award was to be judged were those identified orreferred to by Morgan J. in the recent case of Compton v Spence8 citingspeeches by Lord Phillips, then Master of the Rolls, in English v EmeryReimbold & Strick Ltd9 and by Lord Brown in South Bucks District Councilv Porter (No.2)10; in particular Lord Phillips observed that the award mustidentify the issues vital to the conclusion and explain their resolution but neednot be comprehensive and Lord Brown observed that the reasoning must giverise to substantial doubt as to whether there had been an error in law;

(11) what the landlords were really seeking were further reasons sufficient toundermine the award but that was an improper approach because “furtherreasons” are addressed by Parliament through the provisions of s.70(4) underwhich a court may compel the statement of further reasons where those givenare not sufficient for the court to consider the matter before it; and,

(12) finally, there was no basis for any attack made on D’s integrity, as had clearlybeen the landlords’ intention (per their counsel’s skeleton argument) that onepurpose of cross-examination was to attack D’s professional character, goingbeyond partiality and embracing dishonesty.

Ordering the arbitrator to give evidence—the judgmentH.H. Judge Barker QC said11 that the starting point must be to consider the court’sjurisdiction.While D’s counsel had not submitted that there was no jurisdiction, albeit that he had

submitted that such was doubtful, the Judge accepted the force of the submissions thatss.1(c) and 70(4) discourage intervention by the court, but they did not prohibit jurisdictionto direct cross-examination; s.1(c) was not mandatory but discouraging, “should not” asopposed to “must not”. He accepted that s.70(4) was aimed at putting the court in a position

8 [2013] EWHC 1101 (Ch); [2013] 2 P. & C.R. 15.9 [2002] EWCA Civ 605; [2002] 1 W.L.R. 2409.10 [2004] UKHL 33; [2004] 1 W.L.R. 1953.11 Sumner & Makin v Costa Ltd & D [2013] EWHC 4116 (Ch) at [36].



to resolve an application rather than providing a portal through which a party may call foran arbitrator to pass and to speak to his or her award. Sections 1(c) and 70(4) do not go sofar, on their natural and ordinary meaning, as to impose anything approaching an absolutebar on an arbitrator being required to state his or her reasons orally under cross-examination;nor did the section go so far as to require the court alone to set out what was to be stated.He did not rule out the possibility of an order being made for an arbitrator to speak orallyto the reasons for an award.Should that happen in this case? In H.H. Judge Barker QC’s judgment it should not.The arbitral process selected by the parties had been written, leaving it to the arbitrator

to call for oral participation if he thought fit, and was to involve only experienced valuationsurveyors and no lawyers. The key requirement was that an expert decision should be madeby someone experienced in the field upon considering the expert evidence of experiencedprofessionals selected by the parties. The sole issue—themarket rent at the review date—wasa factual one and, subject to assumptions and disregards, familiar to the three professionalsinvolved.D had been engaged to produce a written award and had done so. By his, and his own

counsel’s, concession it was not flawless, the reference to “case law” being inapposite orwrong. Further questioning about this would not assist the determination of the forthcomingss.68/69 applications.While allegations of partiality and dishonesty were obviously very serious matters, they

were not themselves a ground for permitting cross-examination, not least because Parliamentcould easily have included such a provision in the Act had it considered that arbitratorsshould be so exposed when their integrity is under challenge.As to the question of drawing adverse influences, it was clearly open to the landlords to

seek to have such inferences drawn but it would be wrong in principle to accede at thisstage to a submission that such inferences could not be refuted. That would be an affrontto the rules of natural justice because D would be denied the opportunity to answer anassertion that an adverse inference should be drawn.The Judge considered the present application for cross-examination to be unnecessary

and inappropriate. If the reasons given in the award could, on the face of what D had written,be shown to be insufficient or worse then the landlords would succeed.In addition, interrogation of the arbitrator would be contrary to the principles which

underpin the process of arbitration, both generally and as deliberately selected by the partiesin this case, namely a relatively inexpensive and swift mechanism for obtaining an expertfinal decision to resolve the commercial dispute.The landlords’ application was dismissed.

3. Patley Wood

The exercise of the court’s discretion under s.42—the factsThe arbitrator had ordered dissolution of a partnership and he was trying to supervise itswinding up and the drawing up of dissolution accounts but the defendants, losers in thearbitration, had refused to comply with a series of arbitrator orders. In particular, they hadrefused to provide the partnership books and records to the partnership accountant or togive the requisite authority to the accountant to liaise with the single joint expert accountantappointed by the arbitrator pursuant to his award, thereby preventing any further steps beingtaken in the arbitration. While the defendants accepted that they had not complied with thearbitrator’s peremptory order, they contended: (1) that the court must not “rubber stamp”that order by issuing an injunction in the same terms; and (2) that, relying on the only s.42decision they could find,12 it must be satisfied that it was appropriate to exercise its discretion

12Emmott v Michael Wilson & Partners Ltd [2009] EWHC 1 (Comm); [2009] 2 All E.R. (Comm) 856.

200 Arbitration


in this way. With a court hearing concerning other challenges to the Award listed for March2014, the defendants’ position was that the Judge should make no order on the present s.42application and should adjourn it to be heard with or immediately after the applicationschallenging the award.The essential issue was the fact that the claimant was, during all the period in dispute, a

partner in the partnership and it remained so until the dissolution was finalised. It followedthat it was entitled to full unrestricted access to the partnership books, irrespective (as wasone of the key issues in dispute) of whether accounts were to be drawn up by the partnershipaccountant, B, or by the accountant appointed in the award, or both. In either case, theclaimant was entitled to see the books for the purpose of progressing those accounts andthere had to be an account and that was an important factor in considering whether or notthe claimant’s s.42 application should be granted.

The exercise of the court’s discretion under s.42—the judgmentSection 42 provides (inter alia):

“42 Enforcement of peremptory orders of tribunalUnless otherwise agreed by the parties, the court may make an orderrequiring a party to comply with a peremptory order made by thetribunal.

(1)

(2) An application for an order under this section may be made—…(b) by a party to the arbitral proceedings with the permission

of the tribunal (and upon notice to the other parties), or…

(3) The court shall not act unless it is satisfied that the applicant hasexhausted any available arbitral process in respect of failure to complywith the tribunal’s order.

(4) No order shall be made under this section unless the court is satisfiedthat the person to whom the tribunal’s order was directed has failedto comply with it within the time prescribed in the order or, if notime was prescribed, within a reasonable time.

(5) ….”

The claimant contended that all the requirements of s.42 had been made out so that it wasentitled to seek to enforce the peremptory order. This was not a wasted exercise since: (1)accounts would be required in any event; and (2) it was a partner and entitled to see thebooks.In Emmott, Teare J. had been faced with a s.42 application but there had been a difference

in that that application was listed together with a s.67 challenge and he heard bothapplications together, granting the s.42 order and dismissing the s.67 challenge.13However,in reaching that latter conclusion he had said this14:

“I shall deal with MWP’s challenge to the jurisdiction but I am not persuaded that,even if [it] succeeded, it would undermine the peremptory order. Mr Emmottcounterclaims a 33% interest in [the] MWP shares. The Steppe shares must be a majorpart of the value of those shares and so the peremptory order can be supported as anorder in support of that counterclaim. This is reflected in the reasons given by thetribunal for its order made on 26 September: This is so whether or not the Respondent’snew proprietary claim to 27% of the Claimant’s Steppe shareholding is successful.”

13Emmott v Michael Wilson & Partners Ltd [2009] EWHC 1 (Comm); [2009] 2 All E.R. (Comm) 856 at [45].14Emmott v Michael Wilson & Partners Ltd [2009] EWHC 1 (Comm); [2009] 2 All E.R. (Comm) 856 at [33].



Thus, Teare J. had been willing to have made the s.42 order even if the s.67 application hadsurvived and, in Peter Smith J.’s view, the same applied here where the s.42 applicationwas being made in the context of the defendants’ multiple challenges to the Award, to beheard (before a different judge) inMarch 2014. It followed that he was prepared to considerthe situation now on the assumption that the defendants had an arguable case that theirchallenges would be successful.Peter Smith J. said that he found Teare J.’s judgment helpful subject to two points: (1)

it was a decision of a judge at first instance and is therefore persuasive; (2) Teare J. had setout how he had exercised his discretion under the particular circumstances before him buta decision on the facts of a particular case was always of limited relevance when a judgewas considering the exercise of a different discretion in a different case. There could inreality be no precedent established by the exercise of a discretion in such circumstances.Nevertheless it was useful to consider Teare J.’s careful judgment, in particular his paras59 and 62 which had, inter alia, been relied upon by Counsel for the present defendants:

“59 I also accept, as submitted on behalf of MWP, that s.42 confers a discretionupon the court and that it would be inconsistent with the existence of adiscretion that the court should act as a rubber stamp on orders made by thetribunal. However, I do not accept that the court must in every case satisfyitself that the case is a proper one for the order which is sought if by that ismeant that the court must reviewDecision[s] made by the tribunal and considerwhether the tribunal ought to have made the order in question. The reasonsthat I do not accept that submission are as follows:(i) It is inconsistent with general principle (c) in the context of sections

33 and 40 of the Act.(ii) The Act confers on the court limited powers to rehear or review

decisions of the tribunal. It would be surprising if a power to rehearor review was hidden within s.42.

(iii) It is true that the making of an order under s.42 exposes the partyagainst whom the order is made to being in contempt of court if hebreaches the order. But that is the purpose of s.42. It may only beexercised when the arbitral process is exhausted and the party inquestion has failed to comply with a peremptory order. I am notpersuaded that the exposure of that party to being in contempt ofcourt requires the court to rehear or review the arbitrator’s decisionto grant the peremptory order.

(iv) Counsel relied on a passage in Merkin On Arbitration at paragraph16-25: “… the court has a discretion under s.42 of the 1996 Actwhether or not to make an order. Relevant factors will doubtless bethe reasonableness of the requirements imposed by the arbitrators’peremptory order, and whether the court takes the view that theproblem could be resolved by the arbitrators themselves in theirapproach to the arbitration” (emphasis added). If this passage isintended to mean that the court will routinely consider whether itwould have made the order I do not consider.…

62 In what circumstances then might a court decide not to make an order that aparty comply with a peremptory order of the tribunal? In general terms theanswer to that question will be where such an order is not required in theinterests of justice to assist the proper functioning of the arbitral process; seepara.212 of [the] DAC report. This is not the occasion for a comprehensivelist of such circumstances, even assuming it were possible to compile such alist. One example might be where there has been a material change of

202 Arbitration


circumstances after the peremptory order was made. Another might be wherethe tribunal has not fulfilled its duty to act fairly and impartially between theparties in breach of its general duty to do so. Another might be where thetribunal has made an order which it had no power to make.”

Peter Smith J. observed that it would be quite wrong for a court to consider the exercise ofits s.42 discretion as being a rubber-stamping exercise since, even without s.42, the courtretained a discretion as to the enforcement of orders which are under appeal. Neverthelesshe accepted and agreed with Teare J.’s observation that the exercise of a s.42 discretion didnot require a court to revisit the order that was being sought to be enforced because thatwould create a great difficulty since the s.42 hearing would then be a lengthy and detailedaffair. The fact that the order was under appeal was, per se, a factor to be borne in mind butwas not conclusive.The other facts that were relevant were that the defendants had not sought to comply

with the peremptory order despite their obligations to do so and were simply attempting toact as if the award had been stayed when it had not been; no credible reason had been putforward to justify this stance and, while the presence of the appeal is also a factor, it is nota decisive one.Peter Smith J. concluded that he should exercise his discretion by acceding to the

claimant’s s.42 application. It was entitled to enforce the award and the defendants were inbreach of their contractual duties and their duties in the arbitration and under the awarditself. The fact that they are challenging the award was one factor but the claimant’s rightsto have access to the accounting records and the undoubted inevitability of accounts in oneform or another being prepared justified the making of the s.42 order.When balanced againstthose factors, the appeal was of no great significance.This arbitration should, given the defendants’ stance, be continued by the court exercising

its power under s.42.

4. Comment/Concluding RemarksIn my submission, both judgments are to be commended as expressions of solid judicialcommon sense leading to wholly correct decisions.

While Peter Smith J. expresses an important caveat concerning the precedential valueof the two s.42 decisions, it is clear that he is wholly aligned in principle with Teare J. and,despite that caveat, we practitioners very largely know where we stand in this context.

Given that the application in Sumner to cross-examine an arbitrator appears to be thefirst of its kind, we have been assisted by comprehensive submissions by respective counseland it remains to be seen what will be decided in any second case, if ever. While there areclear pointers towards such cross-examination being inappropriate as a general rule, H.H.Judge Barker QC was careful to confine himself to the facts of the present case, assistedby the key factor that this was a documents-only rent review arbitration conducted betweenthree valuation surveyors.

5. PostscriptAs you will read elsewhere in this issue of Arbitration, this is a milestone/landmark issuefor me15; may I take this opportunity of expressing mywarmest thanks for: (1) the wonderfulsupport and encouragement from the two Editors I have served under, Professor DerekRoebuck andMichael O’Reilly; (2) the splendid support from Susan Faircloth and the Sweet& Maxwell production team; and, finally (3) the many heart-warming expressions ofgratitude, congratulations, interest, etc. from so many members of the CIArb.

15 I have every intention of reaching 100 in Vol.92(4) (November 2026).



The Enforcement of Adjudicators’ Awards undertheHousingGrants, Construction andRegenerationAct 1996: Part 50Kenneth T. Salmon

1. IntroductionThe Act means the Housing Grants, Construction and Regeneration Act 1996, as amendedby the Local Democracy, Economic Development and Construction Act 2009 Pt 8. The“new” provisions apply to contracts entered into on or after October 1, 2011.

The main regulations are contained in the Scheme for Construction Contracts (England& Wales) Regulations 1998 (the Principal Regulations).1 They have been amended by theScheme for Construction Contracts (England&Wales) (Amendment) (England) Regulations2011.2 The new Scheme applies only to contracts for construction operations in Englandentered into on or after October 1, 2011. For earlier contracts the Principal Regulationsapply.

There are separate Regulations for contracts for work in Scotland applicable to contractsmade on or after November 1, 2011.3 The new Regulations apply only to contracts for workin Scotland entered into on or after this date. For earlier contracts the Scheme forConstruction Contracts (Scotland) Regulations 19984 applies.

There are new separate regulations for Wales, applicable to contracts for constructionoperations in Wales entered into on or after October 1, 2011.5

In this article, a reference to “the Scheme” is to the Principal Regulations for Englandand Wales, or the Scheme for Scotland, as the context so requires.

We are now seeing reported cases under the new provisions as well as cases under theold law. The law is stated at December 31, 2013. This article covers the Court of Appealdecision on the limitation period for recovery of sums paid under an adjudication award;the enforcement and stay of execution when the claimant is insolvent or may be so;jurisdiction and misconceived arguments; and natural justice.

2. Construction Contract—Implied Term—Time for RepaymentAspect Contracts (Asbestos) Ltd v Higgins Construction Plc6 This was an appeal from thedecision of Akenhead J.7 in which he held that the time for a claim for repayment of moniespaid pursuant to an adjudicator’s award ran from the date when the original underlyingright of action had accrued. In so doing he declined to follow the decision of H.H. JudgeStephen Davies (as he then was) in Ennis,8 that there was an implied term that anunsuccessful party to an adjudication was entitled to be repaid sums paid pursuant to theadjudicator’s award if it was subsequently finally decided or agreed that these sums werenot due; and that the cause of action accrued at the date the payment had been made. TheCourt was asked to decide whether Akenhead J. was right not to do so.

1 Scheme for Construction Contracts (England & Wales) Regulations 1998 (SI 1998/649).2Scheme for Construction Contracts (England&Wales) (Amendment) (England) Regulations 2011 (SI 2011/2333).3 Scheme for Construction Contracts (Scotland) Amendment Regulations 2011 (SI 2011/371).4 Scheme for Construction Contracts (Scotland) Regulations 1998 (SI 1998/687) (S.34).5 Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (Wales) Regulations

2011 (SI 2011/1715) (W.194).6 [2013] EWCA Civ 1541, judgment November 29, 2013.7Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2013] EWHC 1322 (TCC); [2013] B.L.R. 417.8 Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 (TCC), H.H. Judge Stephen Davies.


The facts were relatively straightforward and involved a claim by Higgins for paymentfor 17 weeks’ delay said to have been attributable to Aspect’s failure to discover the fullextent of asbestos when surveying a housing estate. The survey was carried out in March2004. Higgins took adjudication proceedings in June 2009. They won before the adjudicatorand in August 2009 Aspect paid them £658,017 by reason of the decision. In February 2012,Aspect took proceedings in the High Court to finally determine the dispute and sought torecover the money they had paid. Higgins counterclaimed the amount they had won in theadjudication. When the counterclaim was met with a limitation defence, Higgins pleadedthe claim against them was also statute barred.

The court was asked to decide four preliminary issues.

1. Was it an implied term of the contract that an unsuccessful party toadjudication would be entitled to seek a final determination by litigation andif successful recover payment made?

2. If there was such an implied term, what was the applicable limitation period?3. What was the limitation period applying to Higgins’s counterclaim?4. Did Aspect have a claim in restitution?

Akenhead J. had found there was no such implied term. It was unnecessary because theunsuccessful party in adjudication could always sue for a declaration that he was not liable(as Aspect had done in its claim form in this case). Although a declaration of non-liabilitywas not formally part of the preliminary issues, he also decided that such a declaration wasan assertion of a cause of action that accrued when the alleged breach of contract or dutyoccurred and that was more than six years ago. He dismissed the claim.

The Court of Appeal construed the parties’ contract having in mind the Schemepara.23(2), which provided that the decision of the adjudicator was binding until the disputewas finally determined. It was thus clear that the binding nature of adjudication wastemporary and liable to be displaced by subsequent legal action or agreement. If moneyhad to be paid which should not have been paid, there must be some mechanism wherebyit could be recovered. Although the need for repayment was not expressed in para.23(2) itwas inherent in the words used and that was the true intent of the paragraph. It did not matterwhether one called this a process of construction or one of implication. It came to the samething—the court was trying to decide what the words meant.

Negative declaratory relief was an ungainly remedy with a number of potentialdisadvantages. In addition it was not at all clear on what juridical basis it could be said thata declaration of non-liability carried with it an automatic right of repayment. Then therewas a difficult question whether a declaration was liable to be time barred at all. This issuewas controversial, given that a cause of action was usually an assertion of entitlement.

The claim was not statute barred because the cause of action accrued at the date of the“overpayment”. The counterclaim was, however, out of time on the conventional groundthat more than six years had elapsed since the breach of contract or duty relied on. Thiscaused no inequality in the parties’ positions, since the successful party always knows hehas a claim and can easily issue proceedings any time he chooses.

The possible issue of unjust enrichment was not argued.

CommentMany will no doubt welcome the implication of the term for repayment by and will regardit as justification for the additional or new limitation period. The rationale for the dismissalof the counterclaim is more debatable. For some of the difficulties which the judgmentleaves unresolved, readers are referred to a review by one of the counsel involved, IsabelHitchings of Crown Office Chambers, in her construction blog posted December 4, 2013

Adjudicators’ Awards: Housing Grants, Construction and Regeneration Act 1996 205


for PLC.9 As she also says it is evident from the judgment that the term as to repayment ishenceforward to be implied into every construction contract.

3. Enforcement—Insolvency—Balancing of Accounts—WhetherSummary Judgment Should be GrantedJ&AConstruction (Scotland) Ltd vWindex Ltd10 The defenders in this Scottish case resistedenforcement of an adjudicator’s award for £120,000 on the basis that the pursuer’s latestaccounts showed an excess of liabilities over assets, that this was a basis for winding upunder the Insolvency Act 1996 (IA) ss.122(1) and 123(2) and that it was proper to inferinsolvency.

For the pursuers it was stressed there had been no formal insolvency event, such as aliquidation or administration order. The pursuers continued to trade as a going concern andhad financial support from associated companies and directors’ loans. To allow contestedaverments as to insolvency to delay matters would run counter to both the need for speedydecision-making in adjudication and the policy that adjudicators’ awards should be enforced.This proposition had powerful support from the opinion of Lord Macfadyen in SLTimber11and qualified agreement from the case of Integrated Building Services.12

His Lordship had recently reviewed this area of law,13 noting that in England a stay ofexecutionwill usually be granted if the claimant is insolvent whereas in Scotland the “Englishsolution” is achieved by the balancing of accounts in bankruptcy.

It came to this: had the defenders averred sufficient by way of alleged insolvency toprevent enforcement, or at least to require an investigation whether the pursuers would beable to reimburse the defenders should the award prove to be erroneous?

His Lordship reviewed English authority on the application of different parts of IA s.123and held its principal function was to define situations in which a company was unable topay its debts for the purpose of winding-up proceedings. The balance sheet and cash flowtests were both aimed at this question, were fact sensitive and not to be applied in amechanistic or arithmetical manner. The starting point was to ascertain if a company was“commercially” able to pay its debts as they fell due. A companymight remain creditworthyand fully able to trade notwithstanding that its liabilities exceeded its assets. The burden ofproof was on the party asserting insolvency. All relevant circumstances were to be takeninto account. There was no rigid demarcation between cash flow and balance sheet; forexample further loans may assist cash flow but also give rise to balance sheet concerns.

If a balance sheet deficiency of itself could prevent or delay enforcement this wouldhave serious ramifications for the operation of the adjudication regime. Even in the contextof winding-up proceedings a balance sheet deficiency did not necessarily mean an orderwould be granted.

Absent clear or uncontested evidence of insolvency, it would be very difficult for adefender to resist enforcement.

Whilst it was tempting to order an enquiry into the pursuer’s finances to do so wouldinject unacceptable delay and uncertainty into the operation of the adjudication system.

The point was not without difficulty. An adjudicator’s award was

9Available online at: http://construction.practicallaw.com/blog/construction/plc/?p=1496 [Accessed February18, 2014].

10 [2013] CSOH 170, per Lord Malcolm, opinion October 30, 2013.11 SL Timber Systems Ltd v Carillion Construction Ltd [2002] SLT 997.12 Integrated Building Services Engineering Consultants Ltd v PIHL UK Ltd [2010] CSOH 80; [2010] B.L.R. 622

at [21], [28] and [34], per Lord Hodge.13Connaught Partnerships Ltd (In Administration) v Perth & Kinross Council [2013] CSOH 149.

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“a novel and unusual legal beast. It amounts to an enforceable illiquid debt—but it hasbeen arrived at by the use of a process designed to provide a quick, rather than a correctresult. It is provisional and subject to the ultimate resolution of the dispute.”14

However, his Lordship concluded that too much violence would be done to the adjudicationregime as intended by Parliament if the defender’s plea were to succeed. Accordingly theaward would be enforced.

CommentLordMalcolm’s opinion in this case is a further illustration of the different approach betweenthe courts of Scotland and England. Whilst in line with previous dicta, this case refines theScottish approach, so that unless there is an insolvency event, there must be clear oruncontested evidence of insolvency before the principle of the balancing of accounts willbe applied. It is interesting to compare this decision with that of Akenhead J. inWestshield,15where the facts warranted an accounting exercise akin to the balancing of accounts; becauseof this summary judgment was refused. A comparison of these two decisions might appearto suggest that the difference of approach between the two jurisdictions has narrowedappreciably. Whether this will prove to be so is, however, uncertain, given the fact-specificnature of the decision inWestshield.

4. Enforcement—Insolvency—Company VoluntaryArrangement—Whether Summary Judgment Should be GrantedWestshield Ltd v Mr David Whitehouse and Mrs Lisa Whitehouse16 This is a decision ofsome importance. It builds on Bouygues17 and distinguishes the decision of Coulson J. inMead.18

The defendants Mr and Mrs Whitehouse (the defendants) employed Westshield (theclaimant) under a JCT minor works contract entered into in August 2007 to carry outsub-structure works for their house in Cheshire. The contract sum was £262,074. Thecontract was not subject to the Act but contained an adjudication clause.

There were delays and variations and the claimant sought additional payment beyondthe £371,000 it had been paid.

The claimant entered into a Company Voluntary Arrangement (CVA) in December2010. Under the CVA the claimant proposed to pay listed creditors (the list did not includethe defendants) £10,000 for 36 months. The CVA showed a balance sheet deficit of some£4.4 million and a sum of £1.8 million was said to be due it for retentions and other disputedsums. One of the CVA provisions contained a set-off clause similar in terms to the InsolvencyRules 1986 (IR) r.4.90.

InMay 2011 the claimant submitted a claim for £270,000. There was little or no reactionto this.

On March 6, 2013 the claimant served a notice of adjudication claiming a total of£279,956 together with other relief.

At first the defendants’ solicitors argued that no dispute had crystallised and reservedtheir position on jurisdiction. Noting that the claimant was in a CVA, they pointed out thatthe claimant would be unable to enforce any award because the defendants were sure toobtain a stay of execution.

14 J&A Construction (Scotland) Ltd v Windex Ltd [2013] CSOH 170 at [14], per Lord Malcolm.15 See 4. Enforcement—Insolvency—Company Voluntary Arrangement—Whether Summary Judgment Should

be Granted.16 [2013] EWHC 3576 (TCC) Akenhead J., judgment November 18, 2013.17Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] B.L.R. 49.18Mead General Building Ltd v Dartmoor Properties Ltd [2009] EWHC 200 (TCC); [2009] B.L.R. 225, Coulson

J.



Mr Paul Jensen was appointed adjudicator. The defendants’ solicitors repeated theirreservation in relation to the lack of a dispute and added extensive arguments about theramifications of the CVA. For the first time they intimated a valid and substantialcounterclaim for negligence relating amongst other things tomembrane and drainage defects.They pointed out that the CVA cl.23(e) required the Supervisor to address the extent of themutual dealings between the parties and reserved the defendants’ position on jurisdictionin this regard also.

In the response to the referral the defendants reserved their position on the crystalliseddispute and CVA and challenged the claim on its merits point by point. There were furthersubmissions and the adjudicator produced his 18-page decision on April 16, 2013. He hadalready indicated that he believed he had jurisdiction and went on to order the defendantsto pay the claimant £132,667.56 including interest and that the defendants should pay hisfees.

The defendants paid the adjudicator’s fees but did not pay the claimant. After the decisionthe defendants’ solicitors wrote a series of letters to the CVA Supervisor arguing, with anincreasing degree of refinement, that the defendants had incurred significant cost and expenseremedying defective works and considered themselves to be creditors, and demanding thatthe Supervisor agree and admit the claims. They submitted a proof of debt leading to aconclusion that there was a net sum of £199,805 due to the defendants. The Supervisordeclined to adjudicate whilst the same issue was being put to the court in enforcementproceedings.

The court refused to grant summary judgment for the following reasons:

1. By virtue of the IA s.5, the defendants were bound by the CVA whether ornot they had notice of the creditors meeting, or had lodged a claim and or hadotherwise participated in the CVA.

2. The existence of the CVA did not act as any bar on adjudication and theadjudicator was right to disregard the defendants’ challenge.

3. The argument about crystallisation of the dispute had been abandoned and itfollowed that the adjudicator had jurisdiction to decide what he did and primafacie the decision was enforceable. The impact of the CVA might have beena defence in the adjudication but was never argued as such by the defendants,who chose to rely on it as a jurisdictional reservation.

4. However, as in Bouygues, there was a real issue whether the decision couldbe summarily enforced. The court had to construe the CVA conditions as ifthey were contractually binding between the parties, in the context of thedefendants having submitted a belated and just sufficiently credible challengeto the substance of the adjudicator’s decision as well as raising an arguablecounterclaim. There were gaps in the submission and a general lack of hardevidence but the court could not say the claims were so lacking as not to bebona fide.

5. On analysis condition 23(e) of the CVA was exactly analogous to the issuethe court addressed in Bouygues. Thus the effect of condition 23(e) was that

“claims and cross claims merge and are extinguished so that … there isonly a single claim represented by the balance of the account”.

To borrow further from Bouygues,

“in those circumstances it is difficult to see how a summary judgmentcan be of any advantage to either party where, as [condition 23(e)] makesclear, the account can be reopened at some stage”.

6. Thus, it was for the Supervisor to carry out the accounting exercise, to givegreater or lesser weight to the adjudication decision as he saw fit provided it

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was done in a bona fide way and could be said to be an accounting undercondition 23(e). The longstop was the right of recourse to the court at leastfor the defendants in accordance with the further provisions of condition 23(f).The court suggested it would almost inevitably be for the best if the matterwas resolved amicably.

7. The right to summary enforcement with reliance being placed on the Acts.108 was undermined by the fact that this was not a statutory adjudication.But it was also undermined by the impact of the IA provisions about CVAs.It mattered not that the counterclaim was not raised effectively in theadjudication, where, as here, it could be said to be a consequence of the mutualdealings envisaged by condition 23(e). There was no issue estoppel or resjudicata.

The question of stay did not arise. However, the court said it would not have granted a staygiven the claimant’s current financial position, where the CVA had almost been compliedwith and it had a strong order book. The question of stay was not completely academic as,if there were no stay, the full sum under the adjudication decision would be paid withoutset-off, whereas the CVA conditions called for an accounting—which allows for both claimand cross-claim to be taken into account.

It followed that the application for summary judgment was dismissed. Any further stepsin the proceedings would have to await the outcome of the Supervisor’s account and theproceedings were ordered to be stayed until further order. The court left open the questionwhether a further summary judgment application might be made after the accounting.

CommentThis decision is curious. It may tend to reduce the efficacy of a CVA when the subjectcompanymight otherwise successfully trade on and potentially out of its financial difficulty.It may be that it will come to be regarded as a decision based on its own peculiar facts: thatit was a contractual not a statutory adjudication and that the CVA had a set-off provisionmodelled on IR r.4.90. That provision lay at the heart of the decision and in the court’sopinion put the case on all fours with Bouygues. In turn this may explain why the court didnot follow the decision of Coulson J. inMead.In adjudication enforcement proceedings, contractual provisions which attempt to override

the Act are usually ignored as being of no effect. This judgment does not say so but perhapsthe fact that it was a contractual adjudication also meant there was no need to have regardto the underlying statutory purpose. Still there may be a scintilla of concern in some quartersthat this potentially offers another route by which an unsuccessful party may avoid theconsequences of an adjudicator’s decision. It remains to be seen whether the same resultwill follow in the case of a statutory adjudication, when perhaps the insolvency regime andthe legitimate purposes of CVAs are more to the fore.

5. Enforcement—Stay of Execution—Financial Position—Existenceof Winding up PetitionAlexander & Law Ltd v Coveside (21BPR) Ltd19 This was an application to enforce anadjudicator’s award in favour of the claimant Alexander & Law Ltd (the contractor) forjust over £200,000 following what was decided to be a wrongful termination of the contractby the defendant Coveside (the employer). The chronology is important.

In May 2011, the employer engaged the contractor for construction works at adevelopment in Buckingham Palace Road, London.

19 [2013] EWHC 3949 (TCC) Coulson J., judgment December 12, 2013.



In February 2013, the contract was varied to provide for extra work to neighbouringproperties.

In March 2013, a certificate became due and was not paid.On March 25, 2013 the contract was terminated by the employer by reason of the

contractor’s poor financial position, the contractor having by then ceased trading.InMay 2013, a director of the contractor set up a new company called A&LConstruction

Ltd.On June 26, 2013 a creditor presented a winding-up petition against the contractor for

a debt of £36,000 (unrelated to the Buckingham Palace Road project). It was supported byeight creditors including the employer whose debt was listed as £471,000. Some of theother debts also related to the works at Buckingham Palace Road.

The adjudication decision was made on August 14, 2103. The bulk of the money awardedarose out of the March certificate.

At the date of the hearing of the summary judgment application on December 3, 2013,the winding-up proceedings stood adjourned (for the second time). One reason for theadjournment was that the Registrar of the Companies Court had been informed by thecontractor of its application for summary judgment which if successful would, it was said,enable it to pay off its creditors.

The employer resisted enforcement and alternatively sought a stay of execution of anyjudgment on the basis that the contractor was insolvent within the meaning of the InsolvencyAct 1986 s.123, because amongst other things it was unable to pay its debts as and whenthey fell due. At the root of the dispute on enforcement was the relevance or otherwise ofthe winding-up proceedings.

Coulson J. granted the application for summary judgment but ordered a stay of execution.The reasons for the decision are summarised below.

Summary judgment

(a) The usual principlesThe court set out the “usual principles” of enforcement as found in previously decidedcases.20

(b) “Near miss” theoryWas there such a thing as a “near miss” theory? That is to say, was it plain that theadjudicator had reservations about his own decision such that the court should consider thisto be a relevant factor? There was no such theory. Once the adjudicator had reached hisdecision, then whatever his reservations might be, that was an end to the matter.

(c) An impecunious claimantThe current position was set out in Straw.21 That case did not consider the position wherethere was a winding-up petition but no order had been made upon it. Research revealed onecase that did deal with that situation, Harwood,22 in which H.H. Judge Seymour enteredjudgment but granted a stay until after the winding-up petition was dealt with. Thus, if the

20Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] B.L.R. 93; Bouygues (UK) Ltd v Dahl-Jensen(UK) Ltd [2000] B.L.R. 49; Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358;[2006] B.L.R. 15.

21 Straw Realisations (No.1) Ltd v Shaftsbury House (Development) [2010] EWHC 2597 (TCC); [2011] B.L.R.47.

22Harwood Construction Ltd v Lantrode Ltd Unreported November 24, 2000 TCC.

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winding-up order was made the stay would continue but if the petition was dismissed thestay would end.

The employer submitted that the contractor was insolvent both because of the evidenceof an unsatisfied judgment and because of the existence of the winding-up petition whichshowed they were unable to pay their debts as and when they fell due. The fact that therewere undisputed supporting creditor debts of £193,838 and a bank overdraft of £260,000,apart from other disputed debts of £90,000, was said to mean that they were likely to bewound up in the next month. If so the order would relate back to the date of presentationof the petition, meaning that the contractor was insolvent at the date of the application forsummary judgment. The fundamental problem with that argument was that it required theTCC to decide whether or not the petition would succeed. Among a number of otherconsiderations the court would be concerned if defending parties thought the existence ofa winding-up petition would provide a means of avoiding enforcement of an adjudicator’sdecision. The court declined to express a view on the likely outcome of the petition. Itdecided the existence of the petition was not a reason not to enter judgment. Therefore,summary judgment was granted.

Stay of executionThe principles to be applied were those set out in Wimbledon.23 The employer had largeclaims against the contractor and no issue arose as to the latter’s financial position at thetime of the contract. That left two issues to be decided.

(a) Inability to repayThe court had first to determine a dispute as to the likely date for repayment. The contractorsuggested that would be November 2015. The court disagreed. Most cases in the TCCwerebrought to trial within a year so the relevant date was November 2014.

The court also concluded that there was a high risk that the claimant would be unableto repay the judgment sum, if so required, in November 2014 for several reasons, namely:

1. The undisputed debts list was £10,000 more than the judgment sum net ofVAT. If no stay was granted there was a possibility that those debts might bepaid off, leaving no reinvestment for the future.

2. There was £90,000 of disputed creditors and it was reasonable to assume thatsome part of the sums claimed was likely to be owed and there would benothing left for these creditors if the undisputed debts were paid.

3. The employer and the court only knew what was in the public domain. Giventhe known debts, there might be other creditors and no money to pay them.

4. There was the bank overdraft of £260,000 and it was plain on the evidencethat the judgment sumwould if paid go in reduction of this sum. If on paymentthe bank decided to cut its losses and not extend the overdraft facility, noother creditor would receive anything.

5. The contractor stopped trading no later than March 2013 but had not takenalternative action such as applying for an administration order which mighthave allowed it to trade its way out of its difficulties. That meant that aninvoice discounting scheme (such as had been suggested as a possibility)would not work—there would be no income to discount.

6. There was no evidence that the contractor had a viable trading future. Thecash flow analysis was made by a director and its adoption and blandassumptions and projections based on it by accountants were “unhelpful”when there was no evidence of trading for the past nine months.

23Wimbledon Construction Co 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC); [2005] B.L.R. 374.



7. Then there was the existence of A&L Construction. The inference was thatit was set up to trade in the contractor’s place but without its debt.

For these reasons the court was in no doubt that the contractor would not be in a positionto repay the judgment sum in November 2014.

(b) Was the employer’s failure to pay the cause (in whole or significantpart) of the contractor’s financial difficulty?The court would focus on the nature and timing of the non-paying party’s default as foundby the adjudicator. In this case the many claims and cross-claims that had never been decidedby the adjudicator were irrelevant for this purpose, as both parties agreed and as had beenrelied on in a previous judgment of the same judge, at [54].24

The court found that the employer was not a significant cause, let alone the sole cause,of the contractor’s financial position. Any contribution the employer may have made wasvery modest. The court listed a number of reasons for that conclusion, the first and mainreason being based on timing. Payment on a certificate was found to be due in late March2013. The contractor had not traded since then. The simple point was irrefutable: the debtsof the creditors whether admitted or disputed were all created prior to that date. The finalreason was that the contractor’s parent company was not seeking repayment of dividendsdue to it. Thus the contractor was only as solvent as its parent company allowed it to be.That again was nothing to do with the employer.

The conclusion was that the employer neither caused nor significantly contributed tothe fact that the contractor was not in a position to repay the judgment sum.

(c) Other mattersThe court took into account the parties’ general conduct. A number of criticisms had beenmade of the employer in the winding-up proceedings regarding non-payment, which thecourt did not accept.

The employer was an SPV. Concern was expressed that the properties the subject of thecontract had been largely sold. But there was no evidence as to the employer’s financialposition and the court was not persuaded that it was relevant. If it became so in the future,the contractor could seek a freezing order.

Execution was stayed.

CommentOne slightly worrying aspect of the decision was the conclusion that the failure to pay thecertified sum due in March 2013 did not make a significant contribution to the contractor’sinsolvency. Although the contractor had not traded from around the time of the certificate,that might tend to suggest a connection between the two events rather than the contrary.

6. Enforcement—Stay of Execution—Voluntary LiquidationMaguire & Co Ltd v Mar City Developments25 The claimant sought to enforce the decisionof an adjudicator whilst preparing to go into members’ voluntary liquidation. A companycan only be voluntarily wound up if it is solvent and it is necessary for the directors to makea declaration of solvency. In this case, the court undertook a full analysis of the claimant’sfinancial position and, adopting what it described as “a cautious approach”, granted a partial

24Pilon Ltd v Breyer Group Plc [2010] EWHC 837 (TCC); [2010] B.L.R. 452.25 [2013] EWHC 3503 (TCC) Edwards-Stuart J., judgment August 13, 2013.

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stay of execution pending the filing of a declaration of solvency, after which the claimantcould apply to lift the stay.26

7. Jurisdiction—Misconceived ArgumentsJG Walker Groundworks Ltd v Priory Homes (East) Ltd27 This was an application forsummary judgment by the claimant on October 11, 2013 to enforce the award ofMr RichardSilver for the sum of £38,832.51, plus interest and by which he also directed the defendantto pay his fees and expenses of £8,260 plus VAT.

The defendant had engaged the claimant by a simple purchase order to construct roads,sewers and groundwork for eight new bungalows. The claimant said that variations andadditions to the works were agreed during the course of the project, the value of which wasincluded in three payment applications. Two applications were paid and a payment wasmade on account of the third application, leaving a balance which the defendant refused topay and which the claimant referred to adjudication.

On enforcement, the defendant served a skeleton argument relying solely on the argumentthat there were “serious errors and inconsistencies” in the award made by the adjudicatorand suggesting that it could not stand. This was soon abandoned as the points made werewholly misconceived.

On themorning of the hearing, however, the defendant served a further skeleton argumentraising two new points, both of which related to jurisdiction. The first argument relied ona precise definition of “the contract” as not including any sum that might be due under the“varied contract” or “contract as varied”. It relied on the fact that the adjudicator referredto “the contract” at many places in his award but never to the contract as varied. It was saidthat the adjudicator had power to determine only what was due under the contract and notwhat was due under the contract as varied, whether the variations were agreed or not.

This submission was not accepted. The notice of intention to refer described the contractas subject to re-measurement; this suggested that the parties anticipated there would bevariations to the scope of the works over the course of the contract. This viewwas supportedby the fact that additional work was set out in full in a document attached to an invoice onApril 30, 2013. The adjudicator was required to determine what was due to the claimant.

The defendant sought to argue a second point, namely that the dispute concerned “thefinal account” yet the claimant sought to widen it to encompass the valuation of an interimvaluation. It relied on references to correspondence and alleged that it was accepted by bothparties in the course of the reference that the dispute was about the claimant’s final account.The court decided the adjudicator plainly had jurisdiction to determine whether or not theapplication in question was an interim application or a final application. He determined thatpoint against the defendant and was right to do so.

The second point was held to have no more merit than the first point and the claimantwas entitled to summary judgment.

The only error the defendant identified was one made by the adjudicator, who found thefinal date for payment to be May 19, 2013 when it should have been June 19, 2013. Thiswas found to be a slip and interest was awarded from the correct date.

In addition, the claimant was entitled to payment of the adjudicator’s fees on the givingof an undertaking to pay those fees to the adjudicator when received from the defendant.

Finally, since the arguments put forward by the defendant were wholly without merit,the defendant was required to explain why it should not pay the costs of the application onan indemnity basis.

26A copy of the judgment was not available and this brief note is based on a report by Practical Law Construction.27 [2013] EWHC 3723 (TCC) Edwards-Stuart J., judgment December 6, 2013. This report was compiled with the

assistance of Jessica Johnson.



CommentIt is of interest that the claim included reimbursement of the adjudicator’s fees even thoughthe claimant had not paid them. Recovery was permitted on the claimant undertaking topass the fees on when paid by the defendant. As might be expected the court was preparedto consider making an order for costs on the indemnity basis and invited written submissions.The judgment does not record the outcome.

8. Natural Justice—Decision Made on Basis for which Neither PartyContendedRoe Brickwork Ltd v Wates Construction Ltd28 The claimant was a brickwork contractorand the defendant the main contractor for the construction of three blocks of flats for theOcean Estate in Tower Hamlets. The claimant claimed its work was delayed by about sixmonths and it had suffered significant loss and expense.

In the adjudication it claimed three heads of loss:

1. Additional preliminaries and loss of overheads and profit (OHP) of £52,000and £121,000 respectively.

2. Loss of productivity for various causes in the total of £465,000.3. Additional supervision and management in the sum of about £122,000

The adjudicator assessed the value of the claims and awarded a gross sum of £381,459 plusinterest. He did not allocate particular sums to the heads of loss. He said the actual net sumdue should reflect the amounts already paid under each head of award and further that “theparties will know what is already paid under each head”.

The defendant resisted the application on two grounds. First, the adjudicator had assessedOHP by way of increasing the amounts awarded for other heads of loss by 13 per cent. Itwas said that he had no jurisdiction to do that; alternatively the approach was adoptedwithout allowing the parties the opportunity to make submissions and was a breach ofnatural justice which had a material impact on findings as to value.

The second ground was that the decision lacked certainty and was unenforceable. Itcontained no findings about the sums paid and since these were not agreed there was noway of knowing what was due. The claimant’s answer to that was to say that the defendanthad since asserted that it had paid £97,992 on account and accordingly there could be nodispute about the balance of £283,467 and it confined its application to that sum plus interest.

The defendant’s principal contention in the adjudication was that the claimant’s claimshould be valued by reference to the cost of the additional/wasted hours and not by usingday work rates or in the latter case there should be no separate claim for OHP. If thedefendant was wrong about that, it said that the preconditions for the application of theHudson formula for calculating the claim had not been met. It was clear that the issuesbefore the adjudicator included the validity of the use of day work rates, the duplicationbetween rates (if used) and the separate claim for OHP based on Hudson.

It was now well recognised that the court would not interfere with the decision of anadjudicator who had answered the question referred to him even though the court took theview that the answer was wrong or that the adjudicator hadmade an obviousmistake (leavingaside the rare cases where there were concurrent CPR Pt 8 proceedings29 for a declarationat the same time as the application for summary judgment on the award).

In the context of this case the observance of the rules of natural justice meant that theadjudicator should not decide a point not argued or put forward in the submissions madeto him. If he was minded to do so he must give the parties an opportunity to make

28 [2013] EWHC 3417 (TCC) Edwards-Stuart J., judgment November 11, 2013.29 Proceedings under the Civil Procedure Rules Pt 8.

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submissions. By contrast an adjudicator could reach a decision on a point of importance onthe material before him on a basis for which neither party had contended, provided theywere aware of the relevant material and the issues arising had been fairly canvassed. It wasfairly obvious that the conclusion about whether or not there had been a breach of naturaljustice would in the great majority of cases be very fact specific.

The defendant submitted that the adjudicator had not been entitled to identify the numberof hours, apply the contractual all-inclusive day work rate and then make an addition forOHP. The claimant’s response was that it had claimedOHP in addition to its losses calculatedby reference to day work rates and that entitlement had been very much in issue. Onreflection the court narrowly preferred the claimant’s submission and accepted that whatthe adjudicator did fell within the scope of his jurisdiction. In reality the defendant’s realcomplaint was that the adjudicator treated the day work rates as representing the cost oflabour. That point was thoroughly ventilated during the referral. It was true that theadjudicator did not produce a calculation that was consistent with the claimant’s approachbut his methodology differed in only one minor respect from the way in which the case waspresented to him. The effect of that methodology was to produce a lower figure for OHPthan the sum produced by the claimant’s approach. So even if the court had been persuadedthat the adjudicator should have consulted the parties before adopting his own approach,the result had no adverse effect on the defendant so that the breach, if there was one, wasnot a material breach.

The second ground was shortly disposed of. It was true that the adjudicator did notascertain any particular sum due to the claimant. However by the time of the applicationthe defendant had accepted that no more than a stated sum had been paid on account.Accordingly there was no remaining dispute as to what was due under the decision.

The claimant was entitled to summary judgment for the difference.That left a sum of about £50,000 in dispute but that was not a dispute that was before

the adjudicator. The court therefore stayed the action so that this dispute could be referredto adjudication if the claimant was so minded, with permission to both parties to lift thestay on two weeks’ notice.

9. Summary

Construction contract—implied term—time for repaymentSee Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc.By virtue of the Scheme s.23(2), every construction contract contained a term that a sum

paid by the unsuccessful party in adjudication had to be repaid if the dispute was finallydetermined in its favour, and the time for bringing proceedings ran from the date of thepayment.

Enforcement—insolvency—balancing of accounts—whether summaryjudgment should be grantedSee J&A Construction (Scotland) Ltd v Windex Ltd.Unless there was an insolvency event, clear or uncontested evidence of insolvency was

required to resist enforcement. A balance sheet deficiency of itself could not prevent ordelay enforcement as this would have serious ramifications for the operation of theadjudication regime.



Enforcement—insolvency—company voluntary arrangement—whethersummary judgment should be grantedSeeWestshield Ltd v Mr David Whitehouse and Mrs Lisa Whitehouse.Summary judgment was refused in a contractual adjudication where there was a CVA

the provisions of which required an accounting along the lines of the IR r.4.90. The CVAprovisions might have been a defence in the adjudication but had not been relied on as such.

Enforcement—stay of execution—financial position—existence ofwinding-up petitionSee Alexander & Law Ltd v Coveside (21BPR) Ltd.The existence of a winding-up petition was to be taken into account as evidence of the

claimant’s inability to pay its debts as and when they fell due and also at the time thejudgment sum might become repayable. Although the court granted summary judgment,execution was stayed pending the hearing of the petition.

Enforcement—stay of execution—voluntary liquidationSeeMaguire & Co Ltd v Mar City Developments.A partial stay was granted pending the filing of a declaration of solvency, where the

claimant was preparing to go into members’ voluntary winding up.

Jurisdiction—misconceived argumentsSee JG Walker Groundworks Ltd v Priory Homes (East) Ltd.Two arguments on jurisdiction were found to be entirely without merit and the court

required the defendant to explain why it should not make an order for costs on the indemnitybasis.

Natural justice—decision made on basis for which neither party contendedSee Roe Brickwork Ltd v Wates Construction Ltd.There was no breach of the rules of natural justice and the adjudicator had jurisdiction.

An adjudicator could reach a decision on a point of importance on the material before himon a basis for which neither party had contended, provided they were aware of the relevantmaterial and the issues arising had been fairly canvassed.

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Enforcement of Foreign Arbitral Awards in India:LalMahalReduces the Scope for Court InterferenceRathin Somnath

1. IntroductionThe Supreme Court of India, in its judgment in Shri Lal Mahal Ltd v Progetto Grano Spa,1has clarified the Indian position on the enforcement of foreign awards. The judgment hasbeen hailed by the industry as a welcome step towards realigning the arbitrationmechanismin India with the international arbitral framework. This judgment comes close on the heelsof the 2012 Supreme Court judgment of BALCO v Kaiser Aluminium Technical ServicesInc,2 which again had taken a pro-arbitration stance, in limiting court intervention in theenforcement of a foreign arbitral award.

The decision in Lal Mahal concerns the challenge to the enforcement of a foreign arbitralaward on the grounds of “public policy”.3 The court interpreted the term “public policy”relying on its previous decisions in Renusagar Power Co Ltd v General Electric Co,4Oiland Natural Gas Corp Ltd v Saw Pipes Ltd5 (ONGC), Phulchand Exports Ltd v OOO.Patriot,6 all of which were rendered prior to the BALCO judgment. The BALCO judgmenthas had a significant impact in the Supreme Court’s determination of Lal Mahal.

2. Position of the Law Prior to Lal MahalThe Supreme Court in Renusagar had dealt with the challenge to the enforcement of aforeign arbitral award on the grounds of “public policy” under the Foreign Awards Act19617 (the Foreign Awards Act 1961 was the applicable law concerning enforcement beforethe Arbitration and Conciliation Act 1996 took effect). It laid down that a foreign awardcan be challenged on the grounds of “public policy” if it was contrary to: first, thefundamental policy of Indian law; or secondly, the interests of India; or thirdly, justice ormorality.

Subsequently, in ONGC, the court was required to interpret the term “public policy” inthe Arbitration and Conciliation Act 1996 s.34. Section 34 concerns “set-aside” proceedingswhich can only be commenced at the seat of arbitration. Moreover a s.34 application canonly be made within three months of the passing of the award. Therefore, as the set-asideproceeding is the first stage of inquiry, the court interpreted the term “public policy” morewidely and included within its ambit the term “patent illegality”. It did, however, clarifythat the illegality must go to the root of the matter and that, if the illegality is of a trivialnature, it cannot be held to be against public policy. It further held that the award can onlybe set aside if it was so “unfair and unreasonable that it shocks the conscience of the court”.

The term “patent illegality” is so broad that the courts were invariably given a right toassess the merits of the dispute through this judgment. Phulchand (2011) extended thedefinition of “public policy” under the set-aside proceedings of ss.34–48. The Arbitrationand Conciliation Act 1996 s.48 concerns the enforcement of, or challenge to the enforcementof, foreign arbitral awards. The effect of the decision in Phulchand was that the scope of“public policy” to “set aside” an award passed in India (under Pt I s.34) and to challenge

1Civil Appeal No.5085 of 2013.2Civil Appeal No.7019 of 2005.3Arbitration and Conciliation Act 1996 s.48.4 1994 Supp. (1) S.C.C. 644.5 (2003) 5 S.C.C. 705.6 (2011) 10 S.C.C. 300.7 Section 7(1)(b)(ii).


the enforcement of a foreign arbitral award (under Pt II s.48) would be the same. Thereasoning here could be attributed to the position of the law prior to BALCO whereby thecourt in Bhatia International v Bulk Trading SA8 had held that Pt I shall also be applicableto foreign arbitral awards.

Subsequently, in 2012, the decision in BALCO corrected the position of law to bring itin line with established notions of international arbitration law. It held that Pt I shall notapply to foreign arbitral awards; the municipal arbitration legislation (Pt I) must be restrictedto arbitrations seated within the territory of India.

3. Lal MahalThe dispute in Lal Mahal concerned the sale of a particular type of wheat. The contractprovided for the condition of the wheat to be tested and certified by SGS at the place ofloading. SGS India conducted the testing and certified that it complied with the contract.However, once the wheat was delivered, the buyer had a further test conducted by SGSGeneva which found that the wheat was not compliant with the parameters stipulated in thecontract. Therefore the buyer commenced arbitration under GAFTA. The tribunal ruled infavour of the buyer. The seller contended that the contract stipulated that the test could beconducted only at the place of loading; the test by SGS Geneva was therefore invalid.Moreover, the seller ceased to be liable once the goods were loaded on the ship as the partieshad entered into an FOB contract. Aggrieved by the decision of GAFTA, the seller challengedits enforcement on the grounds that the award was against the terms of the contract.

4. AnalysisThe court in Lal Mahal established the difference between the assessment of foreign anddomestic arbitration awards. It applied the narrower interpretation of “public policy”elucidated by the court in Renusagar and struck down its decision in Phulchand, findingthat judgment to be incorrect law.

The reasoning was that the “set-aside” proceeding is the first stage of inquiry at thedomestic level and hence the scope of “public policy” is wider than in an “enforcement”proceeding, which is a second stage of inquiry. The inquiry at the second stage must benarrower in scope as the award has already passed the scrutiny at the seat of arbitration.

Therefore the term “patent illegality” does not fall within the ambit of “public policy”with regard to the enforcement of foreign arbitral awards. The narrower three-pointinterpretation adopted in Renusagar must be applied. The court further stated:

“If a ground supported by the decisions of that country was not good enough for settingaside the award by the court competent to do so, a fortiori, such ground can hardly bea good ground for refusing enforcement of the award”.

The Supreme Court, based on the above reasoning, enforced the award in favour of thebuyer.

5. CommentEvery award can be subjected to inquiry at two stages: the set aside (s.34) stage and theenforcement (s.48) stage. An ideal arbitration framework envisages minimal courtinterference in giving effect to an arbitral award. The inquiry at the first stage is critical asit is bound by limitations, i.e. the set-aside proceedings must be initiated within three monthsof the passing of the award. After three months, the award becomes final and binding. Thereis no such limitation for enforcing the award. In fact one of the grounds for challenging the

8 (2002) 4 S.C.C. 105.

218 Arbitration


enforcement is if the award has been set aside at the seat of arbitration, essentially signifyingthat the award has not yet become final and binding. Therefore, the inquiry envisaged underthe set-aside proceeding (s.34) is a broad or wide scrutiny; the standard of review at theenforcement stage need not be as stringent as that of s.34. A uniform adoption, understandingand interpretation of this international position would promote arbitration as a viable disputeresolution mechanism for resolving international commercial disputes.

A deviation from such an understanding and interpretation would lead to the “doubleexequatur” problem, which was one of the significant limitations of the Geneva Convention.The subsequently drafted New York Convention sought to overcome this drawback bynarrowing the scope for court interference after the award has become final and binding.

The scope for court interference at the enforcement stage must henceforth be narrowerand Lal Mahal has indeed affirmed this position of law from an Indian arbitral jurisprudenceperspective.

Enforcement of Foreign Arbitral Awards in India 219


The Application of the Fiona Trust Principle of“One-Stop” Adjudication to a Non-ExclusiveJurisdiction Clause: Ryanair v Esso ItalianaJonathan Haydn-Williams

1. IntroductionThe Court of Appeal handed down its decision in Ryanair Ltd v Esso Italiana Srl1 onNovember 19, 2013. The main point of interest is the Court’s decision to determine theprospect of success of the “lynchpin” contractual claim, at the stage of deciding whether anon-exclusive jurisdiction clause extended to tortious claims for damages for breach ofcompetition law.

2. The FactsBetween 1999 and April 2006, Ryanair Ltd (Ryanair) contracted with Esso Italiana Srl(Esso) for the purchase of jet fuel at Italian airports. The relevant parts of the applicablelaw and jurisdiction clause provided that:

“This Agreement shall be governed by the laws of England… For the purposes of theresolution of disputes under this Agreement, each party expressly submits itself to thenon-exclusive jurisdiction of the Courts of England.”

In June 2006, the Italian Competition Authority (ICA) decided that certain oil companies,including Esso, which were engaged in the sale of jet fuel at various Italian airports, hadbreached the EC Treaty art.81, now the Treaty on the Functioning of the European Union(TFEU) art.101. The breach consisted of the operation of an information sharing cartelwhich inflated the price of jet fuel supplied at the Italian airports. The ICA fined the cartelmembers. Esso’s fine was more than £66 million.

Ryanair contended that it had suffered loss as a result of the inflation of the price of jetfuel and commenced an action in the English Commercial Court against Esso, alleging:

1. breach of a contract; and2. the commission of a statutory tort under English law in vindication of rights

arising out of TFEU art.101.

The breach of contract alleged was in respect of an express term providing for adjustmentto the contractual price of jet fuel if that price did “not conform to the applicable laws,regulations or orders of a government or other competent authority”, with a proviso entitlingan adversely affected party to terminate the contract. The breach was said to be chargingan unadjusted price, when adjustment should have been made in the light of the unlawfulactivity of the cartel.

When the case came before the Court of Appeal (see 4. below), Ryanair added anallegation of breach of an implied contract term that Esso’s prices for jet fuel would not beinflated as a consequence of any breach by Esso of EU competition law.

Esso was alleged to be liable for the statutory tort, first, in relation to the fuel suppliedunder the contract between Ryanair and Esso and, secondly, in relation to fuel suppliedunder contracts between Ryanair and other cartel members. The “second limb”was advancedon the basis that Esso was jointly and severally liable for any breach of statutory duty

1 [2013] EWCA Civ 1450, Rix, Patten, Tomlinson L.JJ.


committed by any cartel member, which had supplied Ryanair with jet fuel at an inflatedprice.

Esso challenged the jurisdiction of the English court.

3. The First Instance DecisionBefore Eder J., Ryanair argued that the English courts had jurisdiction over the proceedingsby virtue of the non-exclusive jurisdiction clause in the contract between itself and Esso.The argument relied on applying—to a non-exclusive jurisdiction clause—the Fiona Trust2principle, as enunciated by Lord Hoffman in that case in relation to an arbitration clause:

“Inmy opinion the construction of an arbitration clause should start from the assumptionthat the parties, as rational businessmen, are likely to have intended any dispute arisingout of the relationship into which they have entered or purported to enter to be decidedby the same tribunal. The clause should be construed in accordance with thispresumption unless the language makes it clear that certain questions were intendedto be excluded from the arbitrator’s jurisdiction.”

Eder J. accepted Ryanair’s counsel’s submissions, concluding that the English courts hadjurisdiction because:

1. the rational or reasonable businessman would have contemplated that therewould, or at least might, be a contractual claim such as was advanced byRyanair and would also have contemplated that the “first limb” of Ryanair’sbreach of statutory tort claim (in relation to fuel supplied under theRyanair/Esso contract) could also be advanced in the English courts underthe non-exclusive jurisdiction clause;

2. that a single tribunal should resolve both those disputes was consistent notonly with Fiona Trust, but also with The Angelic Grace,3 in which LeggattL.J. had referred to claims that were “so closely knitted together”;

3. the possibility that the breach of tort claim might arise under Italian law wasnot material, since the contract claim would also involve consideration ofItalian law;

4. although the position as to the “second limb” of the statutory tort claim (underwhich Esso was alleged to be jointly and severally liable for Ryanair’s losseson purchases of fuel from other cartel members) was “much more difficult”,it would be a “forensic nightmare” for the contract claim and the “first limb”of the statutory tort claim to be pursued in England, whilst the “second limb”of that claim was pursued in another jurisdiction. Accordingly, it was to bepresumed that rational businessmen would have considered that thenon-exclusive jurisdiction clause was intended to cover such a claim.

Esso appealed.

4. The Court of Appeal’s DecisionThe Court of Appeal upheld the appeal, concluding that the English courts did not havejurisdiction over the proceedings. Rix L.J. delivered the unanimous decision of the Court,noting that:

2Fiona Trust & Holding Corp v Privalov [2007] UKHL 40; [2007] 4 All E.R. 951.3 The Angelic Grace [1995] 1 Lloyd’s Rep. 87, in which the Court of Appeal upheld an injunction to restrain

proceedings in tort commenced in Italy in breach of an arbitration clause, where an arbitration had been commencedin England in respect of contractual and tortious causes of action.

The Application of the Fiona Trust Principle: Ryanair v Esso Italiana 221


1. the “whole edifice” of Eder J.’s decision rested on the claim that Ryanair hada remedy for breach of contract;

2. Esso had conceded before Eder J. that the English courts had jurisdiction overRyanair’s claim in contract, but it was clear from Esso’s skeleton argumentthat its position had also been that Ryanair’s contractual claim had nofoundation; and

3. in its skeleton arguments on appeal, Esso described the contractual claim as“bogus” in that the price adjustment clause was not intended to deal withanti-trust laws, but with governmental fuel price regulation.

On the first day of the appeal hearing the Court raised the question of whether there wasany prospect of Ryanair’s contractual claim succeeding. It seemed to the Court to be anecessary part of Ryanair’s argument based on the Fiona Trust presumption in favour ofthe rational and reasonable businessman’s preference for one-stop adjudication, thatRyanair’s contractual claim had some prospect of success. If there was no arguable claimof breach of contract, it became harder to see why rational businessmen would interpret thejurisdiction clause in the contract as covering a separate claim for breach of statutory dutyarising out of conduct in Italy.

Accordingly, the Court adjourned the hearing to enable Esso to serve amended groundsof appeal and the parties to serve any supplementary skeleton arguments or evidence.

At the resumed hearing, the Court remained of the view that a “holistic” approach wasnecessary, i.e. that the issue of whether the statutory tort claim was so closely connectedwith the contractual claim that the parties must be taken to have contracted on the basis thatthe former would fall within the jurisdiction clause, could not be properly evaluated withoutat the same time evaluating Esso’s argument that the price adjustment provision did notenvisage or cover a claim based on anti-competitive conduct contrary to TFEU art.101. Noargument had been advanced on behalf of Ryanair during the adjournment that theinterpretation of the price adjustment clause could not be grasped at the present stage becauseof matters of matrix or context.

Rix L.J. accepted Esso’s argument that the interpretation which Ryanair sought to giveto the price adjustment clause distorted its plain meaning. He stated that cartel infringementsof TFEU art.101 were “simply not within the purview” of the clause. Accordingly, therewas no prospect of Ryanair having a claim against Esso for breach of that clause.

Ryanair’s additional argument that a term must be implied into the contract that priceswould not be inflated in consequence of any breach of EU competition law was rejected,as having no basis.

Given the Court’s decision that Ryanair’s contractual claim had no prospect of success,or—as Rix L.J. finally put it—“there is no contractual dispute”, the Fiona Trust presumptionthat rational and reasonable businessmen prefer one-stop adjudication could not, in the eyesof the Court, assist Ryanair. Rix L.J. thought that:

“where … all that has happened is that a buyer has bought goods from a seller whohas participated in a cartel … rational businessmen would be surprised to be told thata non-exclusive jurisdiction clause bound or entitled the parties to that sale to litigatein a contractually agreed forum an entirely non-contractual claim for breach of statutoryduty pursuant to article 101, the essence of which depended on proof of unlawfularrangements between the seller and third parties with whom the buyer had norelationship whatsoever”.

The Angelic Grace decision could not assist Ryanair either because there was no contractclaim “closely knitted together” with a claim in tort.

222 Arbitration


5. CommentaryThe decision perhaps gives rise to more questions than answers.

Is the decision subject to appeal to the Supreme Court?According to the LexisNexis website, the deadline for an appeal passed without an appealbeing lodged.

Was the case correctly decided by the Court of Appeal?The key point that led the Court of Appeal to overturn the first instance decision was itsview that the issue of whether Ryanair’s contractual claim(s) had some prospect of successshould be considered at the stage of the challenge to the court’s jurisdiction, rather than ata later point.Rix L.J stated that “It was often part and parcel of a challenge to the jurisdiction that a

claim raised no proper issue for trial” and attributed to Ryanair’s counsel, with approval,the statement that

“evenwhere a claim form is servedwithout permission under the Judgments Regulation,it is open to challenge the court’s jurisdiction on the basis that the claim has noreasonable prospect of success”.

On their face, those are surprising propositions.Article 23(1) of the Judgments Regulation4 provides that:

“If the parties, one or more of whom is domiciled in a Member State, have agreed thata court or the courts of a Member State are to have jurisdiction to settle any disputeswhich have arisen or which may arise in connection with a particular legal relationship,that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusiveunless the parties have agreed otherwise.”

As one author has put it: “Unlike under the national rules, the English court must acceptjurisdiction and hear the case where there is such an agreement”.5

There was such an agreement in the contract between Ryanair and Esso. There is nosuggestion in Rix L.J’s judgment that the jurisdiction clause was invalid or did not extendto Ryanair’s contractual claim(s). Rather, he held that the contractual claims stood noprospect of success. That is not an issue that is open to a court of aMember State to considerin relation to its jurisdiction under the Judgments Regulation art.23(1). The fact that thejurisdiction clause was expressed to be non-exclusive does not take it outside the scope ofart.23(1).It is to be noted that Rix L.J. moves from stating that “Ryanair’s construction of the

clause [the price adjustment clause] simply does not begin to work” to a statement that“there is no contractual dispute”. Those are two different propositions. It is submitted thatthe correct position was that there plainly was a contractual dispute: the court did not considerit was arguable, but that is a different matter. By virtue of the jurisdiction clause and art.23(1),Ryanair was entitled to commence proceedings in England for breach of contract and theEnglish court was seised of the case.The Court was entitled to interpret the jurisdiction clause—in particular whether it

extended to non-contractual claims—according to English law. However, it seems to followfrom the above that Rix L.J’s application of the Fiona Trust principle to the facts of thepresent case proceeded on a false premise. Having set out Lord Hoffman’s exposition of

4Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercialmatters [2001] OJ L12/1.

5 Pippa Rogerson (ed.), Collier’s Conflict of Law, 4th edn (Cambridge: Cambridge University Press, 2013).



the principle, Rix L.J. stated that “Such reasoning, however, does not carry over into asituationwhere there is no contractual dispute”. It is submitted that Lord Hoffman’s reasoningdoes apply to a situation where the English court is clearly seised of a dispute as to allegedbreaches of contract, by virtue of a jurisdiction clause (albeit that it considers the allegationto have no prospect of success), and the issue is raised as to whether it should interpret thatclause as extending to tortious claims.It is worth repeating Lord Hoffman’s expression of the “one-stop adjudication” principle:

“the construction of an arbitration clause should start from the assumption that theparties, as rational businessmen, are likely to have intended any dispute arising out ofthe relationship into which they have entered or purported to enter to be decided bythe same tribunal”. [Emphasis added.]

Lord Hoffman referred to “any dispute” and not to “any dispute with some prospect ofsuccess”. To the extent that the Court of Appeal in Ryanair v Esso sought to imbue rationalbusinessmen with the foresight and knowledge to wish for a one-stop tribunal only wheredisputes have some prospect of success seems unrealistic. It also ignores the fact that wherea tribunal has jurisdiction over a dispute, which it disposes of at an early stage, leavingremaining disputes to be adjudicated by another tribunal, there will be two stops and notone.It is possible that if the Court of Appeal had approached Ryanair v Esso on the basis that

it was seised of a contractual dispute, it might still have concluded that the Fiona Trustprinciple did not require it to interpret the jurisdiction clause as extending to both limbs ofthe statutory tort claim. Lord Hoffman’s words “arising out of the relationship into whichthey have entered” might have justified a finding that the “first limb” of the tortious claim(for the loss on sales under the contract between Ryanair and Esso) was within the scopeof the jurisdiction clause, whereas the “second limb” (for losses resulting from sales of fuelby other oil companies, for which Ryanair sought to make Esso jointly and severally liable)was not. It does not seem inevitable that to split the first and second limbs of the statutorytort claimwould have created a “forensic nightmare”. However, if that were the conclusion,which rational businessmen should be presumed to have contemplated, the result couldhave been that neither of the tortious claims fell within the scope of the jurisdiction clause.

What significance does the Court of Appeal decision have for arbitration?Given that Fiona Trust was concerned with an arbitration clause, any appellate decisionwhich involves consideration of it has potential significance for arbitration. However, justas Rix L.J. stated that by no means all of the Fiona Trust reasoning applies to non-exclusivejurisdiction clauses, the same may be true in reverse.It would perhaps be unfortunate if Ryanair v Esso led parties to argue (or arbitrators to

conclude) that an arbitral tribunal, when ruling on whether an arbitration clause extends tonon-contractual claims, should consider whether a contractual claim has any prospect ofsuccess and, if not, should be disposed of at the stage ofKompetenz-Kompetenz. In practicalterms, arbitrators might take the view that matters of “matrix or context” (to adopt Rix L.J.’sphrase) are often necessary to determine the meaning of contract terms alleged to have beenbreached and that it is seldom appropriate to consider them at a preliminary stage. However,it would not be surprising to see the argument finding its way to the English courts on apreliminary ruling or appeal as to jurisdiction.Given its decision that there was no contractual claim on which to “hang” non-contractual

claims, the Court of Appeal did not grapple with the difference between the two limbs ofthe competition law tort claim. However, it was addressed at first instance, Eder J. concludingthat rational businessmen would not have wanted the “forensic nightmare” of the “firstlimb” of the claim (or, really, claims) being decided in one jurisdiction, whilst the “secondlimb” fell to be decided in another jurisdiction. That conclusion may not transfer readily

224 Arbitration


into the arbitration sphere. The “first limb” concerned loss claimed as a result of inflationof the price of jet fuel sold under the contract between the parties, whilst the “second limb”related to losses in relation to fuel sold to Ryanair by other oil companies, whom—forexample—Esso might have wished to join as third parties. In the context of an arbitration,with no facility to join third parties, it would not seem surprising for rational businessmento have intended a “first limb” type tortious claim to be within the ambit of an arbitrationclause, but a “second limb” type of claim to be outside it.

6. ConclusionIt is submitted that the Court of Appeal adopted the wrong approach in Ryanair v EssoItaliana. Had the Court accepted, as a first step, that it had jurisdiction over the contractualclaim by virtue of the Judgments Regulation art.23(1), rather than conflating that with theissue of whether the contractual claim had any prospect of success, it would have beenunlikely to reach the conclusion that there was no contractual claim. It was that conclusionwhich led the Court to what is submitted to be the erroneous view that the reasoning inFiona Trust did not apply.

The application of the Fiona Trust principle of “one-stop adjudication” might not haveled the Court of Appeal to the conclusion of the Commercial Court, at first instance, thatthe English courts had jurisdiction over both “limbs” of the competition law tort pleadedby Ryanair. It does not seem impossible that the Court of Appeal would have decided thatthere was jurisdiction over the “first limb”, but not the “second limb” of the tort claim.

It is to be hoped that Ryanair v Esso Italiana will have little impact on arbitration,notwithstanding its consideration of the Fiona Trust principle, but there may be a temptationfor parties hoping to limit the scope of an arbitration clause to seek to rely on the decision.



Staying DefencesPatrick Taylor

In the recent English Commercial Court case of Guidance Investments Ltd v GuidanceHotel Investment Company BSC (Closed) Ltd1 a question arose as to whether or not it wasappropriate to stay the defendant’s defence and counterclaim on the grounds that the matterspleaded within it were covered by an arbitration agreement.Guidance Hotel Investment Co (defendant (D)) invests in hotels. Guidance Investments

(claimant (C)) is an investment manager. Under an agreement between them, D agreed topay fees to C for investment services. But by cl.9 of that same agreement the terminationof C’s appointment was covered by a specific Event of Default regime and by cl.13 anydisputes arising out of or in connection with an Event of Default would be referred toarbitration. So, in broad terms, general disputes could be litigated in the courts whereasdisputes about an Event of Default would be arbitrated.C claimed that fees to which it was entitled had not been paid. C issued proceedings to

recover those fees. D pleaded a defence and counterclaim relating to C’s alleged defaultwhich D said caused it loss to the extent that it extinguished any liability it may have to C.C then sought to stay D’s counterclaim on the grounds that the matters pleaded, being relatedto an Event of Default, were caught by the arbitration agreement. D resisted this application.The court (Hamblen J.) first decided that as a matter of construction of the clauses, the

regime in cll.9–13 did not apply to the counterclaim. Accordingly no stay would be ordered.But the court then considered the more interesting question: if it were wrong on the

construction point, how should one deal with a defence presented in court litigation whichincludes a matter which is caught by an arbitration clause?The Arbitration Act 1996 s.9(1) provides:

“A party to an arbitration agreement against whom legal proceedings are brought(whether by way of claim or counterclaim) in respect of a matter which under theagreement is to be referred to arbitration may (upon notice to the other parties to theproceedings) apply to the court in which the proceedings have been brought to staythe proceedings so far as they concern that matter.”

The Court approved Professor Merkin’s summary of the legal position2:

“If C has a claim against D which is not governed by an arbitration clause, and D hasa counterclaim against C which is governed by an arbitration clause and which givesrise to a transaction set-off, C is not entitled to a stay of D’s counterclaim in anyproceedings brought by C. Instead, the court is entitled to resolve the dispute whichgave rise to the counterclaim in order to allowD’s defence to be recognised. The effectis to override C’s right to insist upon arbitration in respect of the counterclaim.”

The authorities which support this proposition were examined. In Aectra Refining v ExmarNV,3 Hoffmann L.J. said it was necessary to distinguish between “independent set-off” and“transaction set-off”: the former does not require any relationship between the transactionsout of which the cross-claims arise, whereas transaction set-off is a cross-claim arising outof the same transaction or one so closely related that it operates in law or in equity as acomplete or partial defeasance of the claim. In the case of transaction set-off, HoffmannL.J. concluded that that the authorities favoured allowing the set-off to be pleaded;notwithstanding its submission to arbitration.4

1 [2013] EWHC 3413 (Comm).2Robert M. Merkin, Arbitration Law, 4th edn (St Helier: Informa Professional, 2012), para.8.29(b).3 [1995] 1 All E.R. 641.4Aectra Refining v Exmar NV [1995] 1 All E.R. 641 at [685c–g].


In the present case C acknowledged that if there is a right of transaction set-off then itmay be relied upon as a defence. C disputed, however, that any such right arose in this casebecause its claim for fees was related to the most recent instalments of fees, whereas D’scross-claim related to historic events. The Court accepted that this potential chronologicalmismatch may be relevant. It then concluded5:

“I am reluctant finally to decide this issue as it involves determination of whether ornot there is a particular right of defence and it is likely to require a consideration ofissues of fact. In particular, it is the Defendant’s case that there has been an ongoingbreach of contract by the Claimant in failing to inform it of the matters which give riseto its claim. But for that breach of duty the claim might well have been raised whenthere was a co-incidence in time between the fees claimed and the events founding thecounterclaim. This may well be relevant to considerations of justice and the functionalrequirement. I am inclined to the view that this is the type of case in which the merefact that the cross-claim arises out of the same contract is unlikely to be sufficient toestablish the injustice necessary to found a right of equitable set-off and that furtherfacts will need to be established. However, since it is not necessary to express a finalview on the matter, I do not propose to do so.”

Although the Court dismissed the application without deciding the matter, this is aninteresting illustration of what remains a difficult area. Had D’s cross-claim fallen withinthe ambit of the arbitration agreement it would have been necessary to decide the point.That would clearly have required evidence. Potentially in this case, the scope of that evidencecould have covered the entire transaction history and could well involve a decision onmanyof the points which would be relevant to the substantive case.

5Guidance Investments Ltd v Guidance Hotel Investments Co BSC (Closed) [2013] EWHC 3413 (Comm) at [94].

Staying Defences 227


Book ReviewsArbitration in England with Chapters on Scotland and Ireland,by Julian D.M. Lew, H. Bor, G. Fullelove and J. Greenaway, (Alphenaan den Rijn: Kluwer Law International, 2013), 792 pp., £140, ISBN:978-9-0411-3998-6.

The majority of this textbook, as is clear from the title, focuses on the spectrum of issuesthat can arise at any point before, during or after the arbitration process from an Englishlaw perspective. One of the 28 chapters looks at Scotland and another chapter looks at thelaw relating to the Republic of Ireland. Not quite half of the chapters are individuallyauthored by practitioners who need little introduction, such as Julian Lew QC (who alsoedits this impressive monograph along with Harris Bor, Gregory Fullelove and JoanneGreenaway), Prof Philip Capper and Klaus Reichert S.C. The other half of the book has anumber of co-authored chapters written by two or three practitioners. The law is stated asof the end of 2012, six or so months before the title’s publication in summer 2013. At £140for a textbook of nearly 750 pages, this work is very affordable when one recalls thatcomparable books have been priced at £350–£400 in recent times.Whilst the main focus of the book is England, the last two chapters of the book might be

commented on at this juncture. At first instance, there is a superficial logic to includingcomment on the two neighbouring jurisdictions to England, with their respective 2010Arbitration Acts; both obviously fall outside the scope of the 1996 Arbitration Act whichunderpins the other 26 chapters. However, on closer examination the rationale for thecommentary, within this title, by former CIArb President HewR. Dundas and Klaus ReichertS.C., of Brick Court Chambers, is not as obvious as might be thought. Those students,practitioners, and others who want a full understanding of the legislative regime governingScottish arbitration would in many instances be able to refer to a relatively recent title thatDundas co-authored with Prof Fraser Davidson and David Bartos.1 The comment just madeis by no means a criticism of Dundas’s contribution to the present work: he more than doeswhat is asked of him in the space available. However, one may only suggest that the 30pages or so within the wider textbook will not be of interest to many readers whose focuslies south of the Scottish border. Whereas those who are more interested than most inScottish arbitration are likely to want to look at the more comprehensive textbook byMessrsDavidson, Dundas and Bartos. The position in relation to the chapter on the Republic ofIreland is similar, albeit slightly different.Irishman Klaus Reichert S.C. is a leading counsel whose practice focuses on international

arbitration from his base at Brick Court Chambers in London. Whilst Reichert, within hisown 17-page chapter in the present work, compliments Barry Mansfield’s 2012 annotationof the Irish 2010 Act,2 he benignly somewhat overstates the significance of that title, whichis a comparatively short annotation of the relevant legislation rather than a morecomprehensive treatment of arbitration in the Republic of Ireland. There is thus, for thetime being, a vacuum in terms of written work that addresses Irish arbitration subsequentto the introduction of the new legislation in 2010. Thus Reichert’s short impressionisticoverview of the position in Ireland is of some help until the lacuna in Irish academiccommentary is addressed by more comprehensive works, as it presumably will be in 2014.Turning to the main part of this book, it is most impressive and is a credit to Julian Lew

and the other editors. The management of the editorial process should not be overlooked

1 Fraser Davidson, Hew R. Dundas and David Bartos, Arbitration (Scotland) Act 2010 (Edinburgh: W. Green,2010).

2Barry Mansfield, Arbitration Act 2010 and Model Law: A Commentary (Dublin: Gill and Macmillan, 2012).


when the scale and diverse range of the contributors is considered. In a clear and easilyaccessible manner the development and operation of the present English arbitral system isauthoritatively outlined. Whilst parts of the book will not be as compelling to some readersas to others, such as the descriptions of the antecedents of arbitral institutions such as theChartered Institute of Arbitrators, the range of issues covered is considerable.Many readerstherefore will understandably be active and interested in particular areas but can if theychoose avoid some areas by “dipping in and out” of the title as their individual professionaland academic demands necessitate. Along with all the substantive mainstream areas, suchas, say, enforcement, there are also useful treatments of somewhat niche areas such ascommodity arbitration in the chapter by Michael Swangard. The team of nearly 45contributors has made a very strong contribution to legal scholarship in this area. It is hopedthat this title will be supported by the arbitral community, and that in the years to come itmay be revised and updated as required. The editors to their credit have in themain addressedthe fact that the chapters are (save for one or two, where an author of an individual chapterco-writes a later chapter) written by different people but also managed, as is needed, tomaintain a continuous identifiable thread through this title dealing with the practice andlaw on arbitration in England.

Arran Dowling-Hussey

Arbitration Law of Korea: Practice and Procedure, by Kap-You(Kevin) Kim and John P. Bang, (New York: Juris Publications,2012), xx + 508pp., US $160, ISBN: 978-1-933833-77-4.

South Korea ticks many of the “plus” boxes for a regional international commercialarbitration jurisdiction in Asia. It was the fourth jurisdiction in the greater Asia region (afterHong Kong, Singapore and India) to adopt (in 1999) the 1985 version of the UNCITRALModel Law (which version remains Korea’s arbitration law and applies to both internationaland domestic arbitration). It was the seventh greater Asian jurisdiction (after Cambodia,India, Japan, the Philippines, Sri Lanka and Thailand) to become a Contracting State to theNewYork Convention. The country’s principal arbitral organisation, the Korean CommercialArbitration Board (KCAB), offers modern procedural rules (the International ArbitrationRules 2011) that meet modern international standards and are substantially nuanced withthe Arbitration Act 1966 as amended. The South Korean courts are arbitration-friendly andconsistently apply a pro-validity approach towards arbitration agreements and awards.Despite these pluses, the gradually increasing international business of the KCAB and

the appeal that South Korea might have as a civil law-based arbitral venue for disputesinvolving parties from (inter alia) Asiatic Russia, North China and even Japan, the countryis not regarded as an Asian hub, though commentators are beginning to perceive it as apotentially emerging one.1As a number of other jurisdictions have learned, themere adoptionof the Model Law does not of itself guarantee admission to the exclusive club of leadingarbitral jurisdictions. Obstacles to hub status in South Korea have, however, been seriouslyaddressed since 2011. These include the absence of government support, previouslyuser-unfriendly international arbitration rules, lack of suitable physical facilities forarbitrations and the inability of international law firms to establish offices in South Korea.The most obvious evidence of change is the launch on May 27, 2013 of the SeoulInternational Dispute Resolution Centre (IDRC), a joint initiative of the KCAB and theKorean Bar Association, with support and funding from the SeoulMetropolitan Government

1Global Arbitration Review, Guide to Regional Arbitration 2013. See Regional Arbitration Centres—Ones towatch: Asia, available online at: http://globalarbitrationreview.com/regional-arbitration/directory/4/article/31490/ones-watch-asia [Accessed February 18, 2014].

Book Reviews 229


and the Ministry of Justice. Modelled on Maxwell Chambers in Singapore, the IDRC’spremises in central Seoul will host several international arbitral institutions, including theICC, LCIA, HKIAC, SIAC and AAA/ICDR.Arriving at just the right time to assist South Korea’s “big push” for international

arbitration business and recognition as an Asian hub comes Arbitration Law of Korea:Practice and Procedure, the brainchild of a leading international arbitration firm, Bae, Kim& Lee LLC of Seoul, of which the General Editors and all contributors are members. Thisalone makes for an admirable degree of uniformity of purpose and approach in the writing,for which both the General Editors and the publishers are to be applauded.The book begins with informative contextual discussion of the history, development and

status of arbitration in South Korea (both international and domestic), and of the factorsfavouring selection of the country as an arbitral seat. This is supplemented by comparativestatistical commentary on the uptake of ICC arbitration between 1998 and 2009 by Asianparties, of whom Korean parties have comprised by far the greatest number.The team of authors then discuss the arbitration process in chronological order, from

arbitration agreement to award, with copious references throughout to the 1966 Act asamended, the KCAB International Arbitration Rules 2011 and the Domestic ArbitrationRules 2011, decisions of the South Korean courts and the opinions of leading overseasarbitration commentators. The only exception to chronology is the chapter on interimmeasures, which appears between the later chapters on court involvement during the arbitralprocess and on the setting aside, recognition and enforcement of awards. Throughout thework, the text is detailed but at the same time easily digestible by the practitioner andsupplemented by discussion of arbitration practice in South Korea.The book is refreshingly free of filler, the three appendices being limited to the texts of

the 1966 Act as amended and the two sets of KCAB rules. The work is also adequately(though fairly simply) indexed for a book of its size.Criticisms of the book are very few. Its international credentials would have been furthered

if, in common with commentaries published in other Model Law jurisdictions, the authorshad discussed the application of international soft law and practice instruments, such asUNCITRAL’s Notes on Organizing Arbitral Proceedings and the IBA’s Rules on the Takingof Evidence in International Commercial Arbitration and Guidelines on Conflicts of Interestin International Arbitration. This is, however, a minor criticism.Accessible, readable and (a rare achievement for any commentary) blending

comprehensiveness with concision, this book will be invaluable both to those lawyers(Korean and foreign) who are familiar with arbitration law and practice in South Korea andto those who seek to learn anew about the subject.

Robert Morgan

230 Arbitration


Evidence in International Arbitration: Criteria for Admission and Evaluation

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