Upereme BANI Conference Paper of Stephen Nathan QC Blackstone - - PDF document

1 Upereme BANI Conference Paper of Stephen Nathan QC Blackstone Chambers, Temple, London International arbitration continues to thrive, but there is a growing international concern within the business community about the length of time and the cost of the arbitration process. It is all very well to obtain an Award in one’s favour, but that may only be the first half of the battle. Let me share with you some of the experience in England. In the years from 2015 to March 2018 - just over 3 years - there were only 247 appeals to the Commercial Court in London on issues of serious procedural irregularity or a point of law, and out of those 247 only 6 succeeded. In the last year of the recent statistics, there were 49 challenges to an award on grounds of serious procedural irregularity, but only 2 succeeded (eg P v D and Oldham v QBE Insurance (Europe) Ltd in 2017). In the same year, 56 parties tried to appeal on a point of law; only 10 were given permission by the Court and, out of those 10, only 1 succeeded. The second part of the battleground is the enforcement of the Award. Obviously, one hopes always that the loser will pay up: the facts of commercial life and the need for corporations and governments to be seen to pay up promptly at the end of an arbitration are a great incentive to encourage prompt payment. In addition, the New York Convention intended that enforcement should not be allowed to become a drawn-out process: In England, the New York Convention provisions on enforcement are reflected in Section 101 to 103 of the Arbitration Act 1996. And that it is the route used in most cases where enforcement through the court becomes necessary. In cases where the Award has been made in one

• f the few countries which are not a party to the Convention, you may instead be able to enforce

through S.99 of the 1996 Act and the Geneva Convention on the Execution of Foreign Arbitral Awards 1927, or, if the Award was made in a Commonwealth Country, you can use the Foreign Judgments (Reciprocal Enforcement) Act 1933, provided that the Award has first been converted inti a judgment in the foreign commonwealth country. And, if all else fails, under Section 104 of the Arbitration Act 1996 you can turn to the old Common Law principles which allow the enforcement of Awards made in any country. In practical terms, however, the procedure in the Civil Procedure Rules, coupled with the limited exceptions to enforceability set out in the New York Convention, is supposed to be straightforward and this has meant in practice that it is ought to be very hard to resist enforcement of a foreign Award in England. This is now all the more certain following the recent case in the UK Supreme Court between Taurus Petroleum Ltd v State Oil Marketing Co. of the Ministry of Oil, Iraq (“SOMO”) [2017] UKSC 64. In

• rder to enforce an International Arbitration Award which SOMO had refused to honour, Taurus

initially obtained a Third Party Payment Order against the London branch of Credit Agricole, a French Bank in relation to letters of credit relating to quite different oil transactions and the appointment of a receiver over the funds receivable by SOMO. SOMO was sole owner of the debts, but payment to it was not to be made direct: instead the beneficiary of the letters of credit was the Central Bank of Iraq and the letters provided for payment into the Central Bank of Iraq’s “Oil Proceeds Account” at the Federal Reserve Bank of New York. It was a deliberate precaution by the Iraqi Oil Ministry which was intended to foil any attempt to seize the proceeds of the letters of credit.

2 The UK Supreme Court was at pains to emphasise that successful international commerce depends

• n the enforcement of contracts, the enforcement of arbitration awards and the enforcement of
• judgments. The Supreme Court held that, on both the international plane and the domestic plane,

there is a clear public policy in the UK to ensure the efficient recognition and enforcement of arbitrations awards. (The Supreme Court’s statement of strong principle reflects too what the Judge said in another recent decision of the Commercial Court, Diag Human v Czech Republic [2014] EWHC 1639 Comm.) In this case, although SOMO had no presence in England, Lord Clarke held that its trade “involved a long term connection with the jurisdiction” and that it was entirely foreseeable that a large part of the letters of credit used in its trade would be issued in London, since London is one of the major financial centres in the world and the international oil trade is conducted predominantly through letters of credit. It was predictable that, if SOMO failed to honour an Award, it would find itself being sued in the English courts. Under English law, the situs of a debt is the debtor’s residence, but since 1981 letters of credit had been treated differently, so that the situs of the debt was the place of payment. The Supreme Court

• verturned that rule and held that letters of credit are no different from any other debt. Here the

debtor under the letters of credit was the London branch of Credit Agricole and so the debt was sited in England. The impact of this part of the decision is likely to be considerable, both in relation to unpaid judgments and unpaid Arbitration Awards, since the creditor can now go against the issuing banks in London for Third Party Payment Orders and do not need to search for every different place and every different bank of payments of letters of credit where the beneficiary is a defaulting party to an Arbitration Award. SOMO had also tried to assert that the beneficiary named in the letters of credit was the Central Bank of Iraq and thus the funds had the benefit of sovereign immunity. That failed because the CBI was “no more than a conduit pipe” to discharge the debt due to SOMO and this debt related only to commercial transactions. The CBI had no separate interest of its own in the funds. It is a judgment which sends out an important signal: England is a jurisdiction which is wholly pro- enforcement of foreign Arbitration Awards, including enforcement against the property of state

• companies. And, under specific circumstances, debts due to be paid to central banks of states can

be attached – a reinforcement of the increasing concern that states tend to over-protect their state entities and how to counter that. Importantly too, the Award creditor may be able to obtain an attachment order against the funds where an Award debtor’s business has a connection with the UK, even if the Award debtor itself has no business presence in the UK. In England, we are thus seen quite quietly to be moving towards adopting some of the concepts underlying the exorbitant jurisdiction of the USA courts. This a topic to be watched and one may wonder how far this will be followed in other countries in the Asian world. But for Taurus, this was at all at an enormous price. First, it had to engage in court proceedings at 3 levels and pay for them (until it got a costs order in its favour in the end). But also Taurus started the claim to enforce in March 2013. The SC’s decision was announced in October 2017. It took 4 ½ years for Taurus to obtain its victory!

3 There is also the interesting recent decision of the English Court of Appeal in RBRG Trading (UK) Limited v Sinocore International Co Ltd [2018] EWCA Civ 838. In this case, the English Court confirmed that it adopts a narrow approach to the illegality exception to enforcement under the New York Convention. The seller, Sinocore, presented forged bills of lading in order to obtain payment under the letters of credit issued on the instructions of the buyer, RBRG. Unable to recover payment under the letters of credit, the seller sought arbitration upon the underlying contract and an award in its favour was made in a CIETAC Arbitration Award which it then proceeded to enforce in England The Court of Appeal rejected RBRG’s attempt to block the enforcement on ground of illegality, since it held that there was not a sufficient causal connection between the illegality (the forgery) and the underlying obligation to pay under the contract itself. The Court confines itself to the four corners of the Award and there was nothing which impugned that Award. The Court of Appeal neatly steered around the factors which public policy applies to questions of illegality and the public policy exception under the New York Convention, as set out recently by the English Supreme Court in Patel v Mirza [2016] UKSC 42. In Eastern European Engineering Ltd v Vijay Construction (Proprietary) Ltd [2018] EWHC 1539 (Comm), the Commercial Court grappled with the question as to what happens where the Award creditor sought to enforce an ICC (Paris) Award in several jurisdictions, including the principal jurisdiction of the dispute, the Seychelles. Although the Court had power to grant a worldwide freezing order, it decided not to do so, since there was a risk that this could interfere with the way that the court of the principal jurisdiction (in this case the Seychelles) might handle the question of enforcement of the Award. That court had already discharged an injunction which it had previously

• granted. On the other hand, a domestic injunction would give rise to no such problems of

“competing jurisdictions” and the English Court therefore limited itself to granting a domestic injunction on the assumption that the Award debtor might have assets within the jurisdiction. Effectively, the Court left the Award creditor with the need to chase further for its money. One last point to share with you is another important part of their armoury which the UK commercial courts deploy relating to enforcement of foreign Awards. Where the Award creditor seeks to enforce its Award in the UK and is then met by an application for a stay or a dismissal on the grounds that the Award is under appeal in the place where the Award was made (an exception contained in section 103(2) of the New York Convention), the Commercial Court in England has made it a practice to grant a stay only if substantial security is given by the Award debtor. In one notable case, this was as much as US$50 million; and this practice can itself act as a powerful disincentive to a party to refuse to honour an international arbitration Award. It is a practice which courts elsewhere could be encouraged to follow. November 2018.