The Lord Chief Justice a couple of days ago gave a bullish speech in Beijing about London as an arbitration centre post-Brexit. Despite the self-serving nature of the speech, one suspects he may well be right. At least post-Brexit we should with a bit of luck get shot of the ECJ control over jurisdiction; be able to abandon The Front Comor  EUECJ C-185/07,  1 AC 1138 and go back to issuing anti-suit injunctions against Euro-proceedings that infringe London arbitration agreements; and possibly get rid of tiresome Brussels I provisions that make life difficult for P&I clubs which want to insist on arbitrating here (see, for details, this post). But as usual, to know the details we have to wait and see.
In London Arbitration 12/17 the tribunal considered a conflict as to law and jurisdiction arose under two clauses in a time charter. Clause 31, headed ‘Law and Arbitration’ provided for mediation and, if the dispute could not be resolved within sixty days, by reference to a single arbitrator, with arbitration to be “[h]eld at London, UK and…conducted in accordance with relevant acts and rules there under excluding any laws, opinions, or regulations that would require application of the laws of any other jurisdiction.” The parties appointed their own arbitrators and a third was appointed by the President of the London Maritime Arbitrators Association (LMAA). Charterers then raised the point that the contract was not subject to arbitration but rather to Egyptian law and jurisdiction pursuant to cl. 21, headed, APPLICABLE LAW, which provided: “This Contract and the relationship of the parties hereunder shall be governed by and interpreted in accordance with the laws of Egypt and parties hereby agree to submit to the jurisdiction of the Egyptian Courts in Cairo.”
The tribunal had to decide, under its general power to make a finding on its own jurisdiction, which clause, as a matter of construction more closely expressed the intentions of the parties. The tribunal found in favour of cl.31 which appeared under the more all-embracing heading: “Law and Arbitration”, whereas Clause 21 appeared under the heading “Applicable Law”, no reference being made in the heading to jurisdiction. Further the reference in clause 31 to attempts at settlement as a prelude to arbitration did not sit with an intention for the Egyptian courts to have jurisdiction.
Silver Dry Bulk v Homer Hulbert Maritime  EWHC 44 (Comm) involved an arbitration where the defendant had ceased to exist by the time arbitration was commenced. Silver Dry Bulk Company Ltd, a Maltese company and a 100% subsidiary of General National Maritime Transportation Company (“GNMTC”), the Libyan national maritime company had bought a vessel from Homer Hulbert Maritime, a Marshall Islands company, which was a 100% subsidiary within the Sinokor group of companies, a Korean ship owner and operator. Silver Dry claimed that part of the purchase price represented a secret commission to one of Colonel Gaddaffi’s sons who at the time had complete control over GNMTC.
Shortly after completion of the sale Homer Hulbert filed articles of dissolution. Under the law of the Marshall Islands a dissolved company is kept alive for three years for the puposes of prosecuting suits by or against them. After expiry of that time Silver Dry commenced arbitration against Homer Hulbert. The arbitration clause in the sale contract provided: “On the receipt by one party of the nomination in writing of the other party’s arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the decision of the single arbitrator appointed shall apply.” Receiving no response from the dead company, after 14 days Silver Dry constituted their arbitrator as sole arbitrator. They claimed that Homer Hulbert continued to survive sufficiently for the purpose of being the defendant to a claim in arbitration, an issue which it wanted to be decided by the sole arbitrator, applying the principle of kompetenz-kompetenz. The ultimate intent behind the proceedings seems to have been to go against the Korean parent company
To avoid wasting time and expense of arbitrating if the arbitration were subsequently turn out to be a nullity, Silver Dry asked the court the court should make an order under section 18(3) of the Arbitration Act 1996 directing that the arbitral tribunal has been validly constituted. The provision gives the Court power to (a) give directions as to the making of any necessary appointments;(b) direct that the tribunal shall be constituted by such appointments (or any one or more of them) as have been made; (c) to revoke any appointments already made;(d) to make any necessary appointments itself
Teare J refused to make such an order. When there is an issue whether a tribunal would have jurisdiction, it has been held that the court has power to make the orders listed in section 18(3) if the claimant can satisfy the test of showing a good arguable case. However, these powers can only be exercised if there has been “a failure of the procedure for the appointment of the arbitral tribunal”. That will not be the case if the procedure has operated in the way that it was supposed to, albeit without the cooperation of one of the parties. Here the appointment procedure had worked as contemplated by the parties’ agreement, with the claimant’s nominee automatically becoming sole arbitrator after 14 days, for which no assistance from the court was required.
Silver Dry also applied under section 44 for the issue of Letters of Request directed to the Korean courts for the production of emails between specified individuals or email accounts, connected with the negotiation of the sale, for a limited period. Teare J refused to make such an order. The issue of a Letter of Request would require him to make a representation to the foreign court that (1) there was, or at the very least there probably was, an arbitration in existence for the purpose of which production of the documents is requested and (2) the documents were required for the purpose of the arbitration. He was not able to do so as the issue of the continued existence of Home Hulbert remained to be decided. The position might be different if the sole arbitrator had expressed a view that production of the documents was necessary in order for there to be a fair resolution of the issues in the arbitration, but this was not the case.
Among the all-too-numerous public law cases slated for hearing in the Supreme Court this coming term, three solid commercial appeals beckon. IPCO (Nigeria) Ltd v Nigeria National Petroleum Corp  EWCA Civ 1144 is about arbitration and security for costs (hearing 2 Feb). Wood v Capita Insurance  EWCA Civ 839 (7 Feb) is yet another case on interpretation of contracts to add to the burgeoning jurisprudence which almost every judge faced with an interpretation issue now feels constrained to mention in his judgment. And, for financial law buffs, there is Taurus Petroleum Ltd v SOMO  EWCA Civ 835 (21/22 March) on the situs of a L/C debt (and an incidental question of who the creditor is). Happy days.
Three years ago, under s.44 and s.46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, a terror was removed from court litigation in accordance with the theme of the Jackson reforms. Since 2013, although a lawyer can agree a success uplift in fees, costs recoverable from the other side are limited to the amount of the “ordinary” fee: the amount of the uplift cannot be recovered.
Not so, it seems, with arbitration. A couple of weeks ago, in Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd  EWHC 2361 (Comm), the Commercial Court held that costs awardable by ICC arbitrators could include such figures under the general costs power in s.59 of the Arbitration Act 1996. As a result, where the successful party had agreed to borrow money for the arbitration from a litigation funder and had agreed to repay the greater of 300% of the sum advanced, or 35% of the damages, the whole sum payable was recoverable from the losing side. This being arbitration on a grand scale, the sum in question was, as near as makes no difference, a far-from-paltry £2 million.
The decision is noted here, among other places (it was briefly on BAILII but then pulled for some undisclosed reason). It has raised a very large stir. The point is controversial (can the extra costs of getting access to the money to pay one’s lawyers really count as a legal or similar expense?), and there must be a distinct prospect of the decision being disowned on appeal. Meanwhile, risk-averse parties with arbitration clauses to draft might well care to take pre-emptive action. They should remember that the powers possessed by arbitrators are themselves a matter for agreement, and could well consider introducing a standard term in any arbitration clause to the effect that any power in the arbitrators to award costs shall not extend to anything other than monies paid to one’s lawyers and other direct expenses of the litigation (e.g. expert witness fees).
On 12 July 2016, the Arbitral Tribunal, established pursuant to Annex VII of the 1982 Law of the Sea Convention (LOSC or LOS Convention), delivered its award in the South China Sea Arbitration (The Republic of the Philippines v. The People’s Republic of China). In 2013, the proceedings were unilaterally initiated by the Philippines concerning the relevant disputes in the South China Sea between the Philippines and China. Having declared under Article 298(1)(a) LOSC its non-acceptance of arbitration with respect to maritime boundary disputes or those involving historic titles, China has refused to participate in the proceedings. Irrespective of the refusal of China to participate – which, in hindsight, seems to have not worked to its advantage – the Tribunal found in 2015 that it had jurisdiction to proceed to deal with the matter on the merits.
A critical aspect for the Tribunal to assess was whether the declaration made by China pursuant to Article 298(1)(a)(i) LOSC would prohibit it from considering the case on the merits, because the submissions of the Philippines were concerned with categories of disputes that China has excluded from the jurisdictional reach of an international court or tribunal: those concerning a historic title or maritime delimitation. The Tribunal concluded that the matters brought to its attention did not bear on the issue of delimitation (para. 214), since disputes over whether certain maritime features have entitlements to maritime zones are separate from the issue of delimitation, which is essentially concerned with dividing overlapping entitlements that have been established. On the matter of a historic title, the Tribunal went to analyse the meaning of ‘historic title’. In this context, it was deemed critical that reference was made to ‘title’, which means in legal jargon the complete ownership over something. The word ‘sovereignty’ only surfaces in the LOSC in connection with the territorial sea, where the coastal State has sovereignty up to a point that is 12 nautical miles (nm) removed from its coast. Given the Chinese reliance on that it has certain historic rights over the South China Sea, its claim was interpreted as not being concerned with the claiming of a historic title (paras. 225-226, 229).
There are a number of critical substantial findings of the Tribunal to be found in the award, some aspects which may have more wide-reaching implications. The following four findings will be briefly discussed in this blog post:
- One of the main findings of the Tribunal is that it dismissed the validity under international law of the Chinese ‘nine-dash line’. The specifics of the nine-dash line have never been really elaborated on by China, and have given risen to different interpretations (see e.g. here, here, here and here). One interpretation is that China has claimed to have some sort of a ‘special’ historic right over the relevant areas of the South China Sea that are within the nine-dash line, by virtue of a long and consistent practice of where some measure of authority was continuously exercised. A second interpretation is that the maritime features located within the nine-dash line are all under the sovereignty of China and, at least some of them, could project maritime zones up to at least the 200 nm limit. According to the Tribunal, the extent of maritime entitlements of States in the South China Sea are regulated by the LOSC, and the nine-dash claim of China, as far as it goes beyond the limits imposed by the LOSC, is superseded by the LOSC. Although the Tribunal found the alleged Chinese historic rights to be fully incompatible with the LOS Convention, basically, the rights China claimed to have are in fact assigned to other coastal States in the area under the concept of the Exclusive Economic Zone (EEZ). However, the door was left open for that under certain circumstances – and following, amongst others, the judgment in the Chagos Marine Protected Area Arbitration (Mauritius v. United Kingdom) – a historic title and right might be brought under the regime set out in the LOS Convention (para. 238).
- Another critical finding was that none of the maritime features China claims to have sovereignty over, including those that are part of the hotly contested Spratly Islands, have entitlements to an EEZ or continental shelf. Therefore, according to the Tribunal, there was no overlap of the entitlements of China and the Philippines to the same maritime space, given that China has no territory from which it is entitled to claim maritime zones up to at least 200 nm, which would have otherwise created an overlap with the entitlements and claims of the Philippines. As regards the hotly contested Spratly Islands, the reasoning of the Tribunal suggests that these have at best an entitlement to a territorial sea. According to the Tribunal, none of the disputed maritime features that are part of the Spratly Islands meet, without human assistance, the conditions set out under Article 121(3) of the LOSC, that is that they can sustain human habitation or economic life of their own. The threshold concerning when isolated maritime features would be entitled to an EEZ and continental shelf seems to have been set high by the Tribunal. Its approach as to how to define a ‘rock’ within the meaning of Article 121(3) of the LOSC may have more widespread consequences, and may raise some concerns on the part of other States that are faced with similar issues.
- Pursuant to the LOS Convention, different types of maritime features have different entitlements to generate maritime zones, ranging from those that can claim zones up to the 200 nm mark to those that due to their characteristics have no entitlements to maritime zones at all. Falling into this latter group are so called low-tide elevations. These can, assuming they are located in close proximity to the coasts of States, be relevant in the measuring of the baseline, but have no entitlements to maritime zones of their own. In contrast, islands are principally treated similarly to land and have entitlements to a territorial sea, EEZ and continental shelf. Rocks, on the other hand, may only be accorded part of the treatment that islands receive: that is, whenever they fall within the paragraph 3 exception of Article 121 LOSC, that they are unable to sustain human habitation or have an economic life of their own, the most they can generate in terms of maritime zones is a territorial sea. For example, Scarborough Shoal, which has been the venue for various incidents between China and the Philippines, was classified by the Tribunal as a rock that is unable to meet the two conditions set out in Article 121(3) of the LOS Convention. Further, the Tribunal found that Mischief Reef is a low-tide elevation, which is thus unable to generate any maritime zones of its own. As a result of this classification, and given that low-tide elevations cannot be appropriated by States, there could be no sovereignty dispute over Mischief Reef, and more generally between China and the Philippines. The Tribunal went on to state that Mischief Reef is firmly placed in what can be regarded to be the EEZ of the Philippines. Therefore, amongst others, fishing activities that have been performed by Chinese fishermen at Mischief Reef infringed on the sovereign rights the Philippines has over the EEZ, pursuant to the LOS Convention. This same reef was also used by China to construct a large artificial island on top, whilst proceedings before the Tribunal were already set in motion. Given that this happened without the consent of the Philippines, which would have been required because Mischief Reef is a low-tide elevation located within its EEZ and continental shelf, China infringed on the sovereign rights that the Philippines has in this regard.
- More generally, and in addition to the actions undertaken concerning Mischief Reef, the land reclamation works and construction of artificial islands that China conducted on a broader scale, and in relation to a number of other maritime features (e.g. Cuarteron Reef, Fiery Cross Reef) in the South China Sea, were heavily condemned by the Tribunal. The Tribunal found that China aggravated the existing dispute between China and the Philippines through the reclamation works it conducted, whilst the dispute was brought to the consideration of the Tribunal. It also found that the Chinese actions aggravated the existing dispute between the parties over the Spratly Islands – however, it needs to be noted that this dispute figures, besides China and the Philippines, four additional players (i.e. Taiwan, Malaysia, Vietnam and Brunei). The Chinese reclamation works and building of artificial islands were also condemned for not being in line with the obligations that States have under the LOSC, particularly under Article 192 and 194(5) LOSC, in relation to the protection of the marine environment.
Directly after the award on the merits was handed down, China sought to brush over the validity of the award as being farcical in the extreme. In a further – undeniably weak – attempt to challenge the value of the award, a government sanctioned press release resorted to attacking a number of the individual members of the Arbitral Tribunal for exhibiting a perceived lack of consistency between the decision that the Tribunal arrived at and their earlier pronounced views in literature. In support of its position that the Arbitral Tribunal wrongly found to have jurisdiction over the dispute, in its view essentially by misconstruing what lies at the core of the dispute, China in this same press release cited heavily from an article previously published by Talmon, who expressed his misgivings over the Tribunal assuming jurisdiction over the dispute.
Given that the award was dismissed with a significant measure of exaggeration by China, and that it already indicated earlier, and subsequently reinforced its intentions to not follow the final outcome of the award, the question remains as to what effect the award might have on the (sometimes volatile) situation in the South China Sea. The position that China finds itself in is not an easy one. However, contrary to the ad hominin arguments aimed against individual members of the Tribunal, and the perceived biased composition it was argued to have according to the Chinese side, there is no doubt that the Tribunal was impartial and constructed in conformity with the LOS Convention – which not unimportantly, China is a party to. Although the award of the Tribunal is not enforceable, it carries substantial (diplomatic) weight. The fact that its legal position concerning the South China Sea was overwhelming rejected by the Tribunal will necessitate a rethinking on the part of China of its legal arguments, if it wants to pursue an amicable solution through diplomacy. Entering into negotiations with other claimant States bordering the South China Sea, on the basis of a position that has been essentially rejected by an independent Tribunal that has been constructed in accordance with the LOSC, is unlikely to bear much fruit.
In London Arbitration 13/16, reported in LMLN, the claimants commenced arbitration against X and Y under a Conline booking form containing a London arbitration clause. The form evidenced a contract between X, as merchants, and the claimant. The claimants alleged that during the voyage an accident occurred due to alleged misdescription of the cargo by X and Y at the port of loading. A claim under the booking note could clearly be made against X, but what about Y? They were described in the booking note as the merchant’s representative at the loading port and were also named as the shipper in the bill of lading that was eventually issued. Y objected to the jurisdiction of the tribunal as they were not a party to the booking note, an objection accepted by the tribunal who declared that it had no jurisdiction and ordered the claimants to bear Y’s costs and the costs of the award. Claims against Y might exist in tort or under the bill of lading, but Y was not a party to the booking note. The position was not changed by the contemplation of the claimants and X that the booking note was an interim contract which would be superseded by the bill of lading.
In The CV Stealth  EWHC 880 (Comm) time charterers sought permission to appeal against the award of an arbitrator who had found them liable to the shipowners in respect of the consequences of the vessel’s detention following an attempt by the sub charterer to load a cargo of oil from Venezuela without the necessary export permission. The finding was on the basis of an indemnity under cl. 13 of Shelltime 4 form, off hire under cl. 21, and for breach of cl.28 which provided … No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the vessel to capture or seizure by rulers or governments.” The appeal was on the basis that the arbitrator had committed an error of law in not construing cl.28 as having prospective effect at the time the relevant order was given by the charterer. Popplewell J found that the arbitrator had construed the clause prospectively and found that the risk of loading the unauthorised cargo had existed at the date the order was given. He also expressed the view that by analogy with the charterer’s obligation to nominate safe ports, if the risk arises whilst the vessel is en route, the owners would be entitled to refuse to continue to comply with the order, if they were aware of it. In the event of continued compliance, the charterers would be in breach of provided that the risk arose before it became impossible for the charterers to give fresh orders which could be complied with in time to avoid the risk.
Permission to appeal was refused because the statutory criterion in s. 69(3)(a) of the Arbitration Act 1996 was not fulfilled.
The case also raised a procedural issue as to the effect of cl. 41 of the charter which provided “The parties hereby agree that either party may –(a) appeal to the High Court on any question of law arising out of an award;” The clause was clearly drafted with the terms of section 69 of the 1996 Arbitration Act in mind. It scope was limited to a question of law whose determination by the Court may serve a useful purpose for the parties, on a question that will substantially affect the right of the parties.
In March 2014 the laden Turkish container ship Yusuf Cepnioglu grounded on Mykonos and became a total loss, yielding — apart from the odd oil slick — the usual fun for lawyers. The time charterers (Turkish), faced with numerous suits by irate cargo owners to whom they had issued bills of lading, claimed over against the shipowners (Turkish) in London arbitration proceedings for breach of the charterparty. So far so good. Simultaneously, however, the charterers began proceedings in Turkey against the owners’ P&I club to attach directly $13.5 million of its assets in Turkey under a Turkish direct action statute. The club reacted strongly, saying that its contract with the owners, like zillions of other P&I covers, was governed by English law and stipulated for “pay to be paid” and for all claims to be arbitrated in London. It sought an anti-suit injunction. The charterers for their part said that they had a direct action against the club governed by Turkish law, and that English courts had no business telling it how to enforce (or not enforce) its Turkish law rights in Turkish courts. The real point of course was that the charterers wanted to ensure that any claim they had against the club was litigated in Turkey, which would not apply the terms of the P&I cover and would repel any awkward demands for arbitration.
The club won before Teare J and in the CA.
First, the Turkish law was held to give, not a direct claim against the club, but one derivative from the contract between the club and the owners (like the equivalent Spanish and Indian laws: see The Prestige  2 Lloyd’s Rep 33 and The Hari Bhum  1 Lloyds Rep 67). It followed that it was governed by English law and any enforcement was subject to the conditions in the club cover.
However, there then came the issue whether this gave the owners a right to an anti-suit injunction. True, their right to arbitration would be stymied if the charterers weren’t stopped in their tracks. On the other hand, the charterers weren’t party to the P & I cover in that they hadn’t promised not to sue in Turkey. On this point there was a pretty clear conflict of authorities: The Hari Bhum  1 Lloyds Rep 67 said the charterers were right, while The Jay Bola  2 Lloyd’s Rep 279 was for the owners. The Court of Appeal had no doubt that The Jay Bola showed the correct way forward and should be followed. Where someone took over rights that were clearly conditional on arbitration, etc, this in itself was enough to justify the English courts preventing them having an end-run around the requirement by suing elsewhere. One suspects, with respect, that this must be correct. One suspects also that, though this case dealt with the English direct action under the Third Parties (Rights against Insurers) Act 1930 and not its 2010 replacement, there will be no change as and when the latter — finally — does come into force.
More from our friends at HFW here.
In Five Ocean Corporation v Cingler Ship Pte Ltd  SGHC 311 the High Court of Singapore has ordered the sale of cargo subject to a lien exercised by the shipowner on behalf of the head charterer pursuant to a bill of lading incorporating the terms of the sub-charter, which was subject to Singapore arbitration and English law. The order was made pursuant to the powers of the court under s12 A (4) of the International Arbitration Act, which is in similar terms to s 44(3) of the English Arbitration Act 1996. Section 12 A (4) provides “If the case is one of urgency, the High Court or a Judge thereof may, on the application of a party or proposed party to the arbitral proceedings, make such orders under subsection (2) as the High Court or Judge thinks necessary for the purpose of preserving evidence or assets.” All parties were before the court and subject to its in personam jurisdiction.
The court held that an order for sale was “necessary” in order to preserve the “asset”, the disponent owner’s right to detain possession of the Cargo. The vessel was in international waters in the Bay of Bengal and the crew had been on board the vessel for almost four months, and some were falling ill. There was a lack of fresh food, water and medical supplies and overheating of the cargo of coal had been detected, with the risk of self-ignition should it continue to remain in the Vessel’s holds, a dire situation exacerbated by the monsoon season. The shipowners had been willing to exercise their lien under the bill of lading but the court noted that they would have been obliged to do so by reason of the employment clause in the time charter.