International Arbitration in Asia Pacific (FINAL).pptx ... Arbitration in Asia Pacific – Pitfalls...
Transcript of International Arbitration in Asia Pacific (FINAL).pptx ... Arbitration in Asia Pacific – Pitfalls...
© Copyright 2013 by K&L Gates LLP. All rights reserved.
Jo Anne Schwendinger, ACC Singapore, Chapter President; John Deere Asia, Regional General Counsel – Asia Pacific & Sub-Saharan AfricaMark Jenkinson, Petroleum Geo-Services, Head of Legal – Asia Pacific
Raja Bose, K&L Gates, Partner – International Arbitration & Commercial DisputesLian Yok Tan, K&L Gates, Partner – Energy, Infrastructure & Resources Andrea Utasy, K&L Gates, Associate – International Arbitration & Commercial Disputes
International Arbitration in Asia Pacific – Pitfalls and Solutions23 January 2014
Introduction
Overview of Today’s Program
Take away message:
There is no one-size-fits-all when it comes to dispute resolution in Asia Pacific
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Overview of Today’s ProgramPresentations: setting the stage
Dispute resolution in international commercial contracts – threshold considerations ADR Options – what they are, when to use them and when litigation remains the
preferred option International Investment Treaties – how they work and how to structure deals to ensure
investment protection 3 Case Studies – international investment treatiesThe arbitration clause – the most common sources of problems Commercial Factors Legal Factors 5 Case Studies – what happens when the basics are not coveredThe venue: seat, hearing & enforcement The Seat and Its Significance Venue of the Hearing Enforcement Country Specific Issues – Singapore, Indonesia, India, Greater China, Vietnam and
ThailandPanel discussion and Q&A session
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© Copyright 2013 by K&L Gates LLP. All rights reserved.
Raja Bose, K&L Gates, Partner – International Arbitration & Commercial DisputesLian Yok Tan, K&L Gates, Partner – Energy, Infrastructure & Resources Andrea Utasy, K&L Gates, Associate – International Arbitration & Commercial Disputes
Presentations: setting the stage
DISPUTE RESOLUTION IN INTERNATIONAL COMMERCIAL CONTRACTS:
THRESHOLD CONSIDERATIONS
ADR Options: what they are, when to use them and
when litigation remains the preferred option
ADR Options
Mediation Arbitration Med-Arb Conciliation Negotiation Expert determination Dispute resolution boards Multi-party clauses Multi-contract and umbrella clauses
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ADR Options - Mediation
Neutral third party works with parties to resolve differences amicably
Parties ultimately make their own decision with the help of their lawyers
Non-binding process 75% success rate with 90% settled within a day
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ADR Options – Arbitration
Neutral decision maker determines dispute based on case put forward by each party
Advantages of choosing arbitration: Resolution in a neutral forum Confidentiality of proceedings Selection and expertise of tribunal Flexibility of proceedings Efficiency in terms of cost and speed of proceedings Finality of decision Global enforcement of arbitration award
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ADR Options – Med-Arb
Hybrid dispute resolution process whereby parties attempt to mediate their dispute, often within fixed timelines
If dispute cannot be settled through mediation, parties will proceed to arbitrate their dispute
Issues with choosing med-arb: Costs associated with two procedures Potential for abuse, e.g. a party can test the other’s case Possibility of same mediator and arbitrator
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The Case for Litigation – when ADR does not work
Court determines dispute within fixed procedures based on case put forward by each party
Limitations of choosing litigation: Party and dispute ties to forum Public proceedings and documents No selection of decision maker No individually tailored procedure Limited management of cost and speed of proceedings Likelihood of appeal Territorial limitations on enforcement of judgment
Our approach: litigation management, control and supervision
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International Investment Treaties:How they work and how to structure deals
to ensure investment protection
Growth in number of new bilateral investment treaties and other international investment treaties, annual and cumulative, 1980-2011
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Source: UNCTAD, World Investment Report 2012Abbreviations: BIT –bilateral investment treaty, IIA –international investment agreement
HOW DO THEY WORK?
“BITs” = Bilateral Investment Treaties containing provisions which guarantee that the treatment of foreign investors will meet certain standards No contractual relationship needed Relevant to investor-state disputes ONLY
“MITs” = Multilateral Investment Treaties, such as the ASEAN treaty and the NAFTA; containing similar provisions to BITs
WHICH INVESTMENTS ARE COVERED?
Virtually all treaties define "investment" "every kind of asset" (e.g., typical Dutch BITs) "every kind of investment" (e.g., typical US
BITs) Some treaties add: "owned or controlled directly
or indirectly"
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SUBSTANTIVE PROTECTIONS Fair and equitable treatment Protection against expropriation
Most BITs provide that states must not expropriate – or take a measure equivalent to expropriation of – an investment except where such an act is (i) for a public purpose; (ii) on a non-discriminatory basis; (iii) carried out in accordance with due process; and (iv) accompanied by appropriate compensation.
Can be “direct” or “indirect” Direct expropriation includes classic forms of expropriation such as
nationalisation of entire industry; taking of property during wartime or national emergency; compulsory acquisition of property by a state without compensation;
Indirect expropriation covers measures that are not outright acquisitions but which in effect are equivalent.
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SUBSTANTIVE PROTECTIONSTribunals have found indirect expropriation in the following situations: Seizure of two hotels and possession of these for almost a
year, with resulting devastation of hotel facilities which rendered them useless for the investor (Wena Hotels v Egypt, ICSID Case No. ARB/98/4)
Failure to renew a hazardous waste landfill permit, without which the landfill (the investment) could no longer operate (Tecmed v Mexico, ICSID Case No. ARB/00/2)
Forced changes to a joint business venture, as a result of which a successful TV-station was unexpectedly deprived of its broadcasting licence (CME v Czech Republic, UNCITRAL, 2003)
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SUBSTANTIVE PROTECTIONS
Protection Against Discrimination National Treatment requires states not to
discriminate between foreign investors and its own nationals Most Favoured Nation (MFN) Treatment
requires States not to discriminate between investments of different foreign nationals
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SUBSTANTIVE PROTECTIONS
Protection against arbitrary measures Full protection and security, covering failure to protect
against physical violence/destruction of property by host state, agents, local community
Right to repatriate investments and returns in the convertible currency in which the investment was made
Additional protection of contractual undertakings assumed by State – the so-called “umbrella clause”
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ACCESS TO INDEPENDENT DISPUTE RESOLUTION MECHANISM:
Most international investment treaties afford investors with direct access to international arbitration (ICSID or UNCITRAL): neutral forum independent from local courts of the place of the
project
separates the dispute from the vagaries of national law; the state’s conduct is assessed against international law standards
Most arbitrations are held under the aegis of ICSID (International Centre for Settlement of Investment Disputes) in Washington, D.C. ICSID has 159 member states
the member states cannot refuse to recognize or enforce arbitral awards e.g., on public policy grounds
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ICSID MEMBER STATES ICSID in force
ICSID signed, ratification pending
Former members, withdrawn
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WHEN TO OBTAIN INVESTMENT TREATY PROTECTION
Valuable for any cross-border transaction M&A, long term supply/offtake, finance, extractive
Especially when designing holding structures Relevant until dispute arises with the host State Continuous nationality rule / fresh investment Provides negotiation leverage when there is
dispute Consider other implications E.g., tax; transaction costs; corporate and financial
disclosure requirements; etc.
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USE OF INVESTMENT TREATIES IN CORPORATESTRUCTURING
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MOTHER COMPANY (MC) IN STATE A (HOME STATE)
HOLDING COMPANY (HC#1) IN STATE B
HOLDING COMPANY (HC#2) IN STATE C
PROJECT COMPANY (PC) IN TARGET (HOST) STATE D
100 % INTEREST
100 % INTEREST
100 % INTEREST
STATE D
STATE A
STATE CSTATE B
NO TREATY
MC has no direct claim against STATE D, as there is no investment treaty between STATE A and STATE D PC usually has no claim, as it a STATE D company;
BUT: The group may claim through HC#1 or HC#2 as indirect investors in STATE D HC#1 and HC#2 have separate claims under investment treaties #1 and #2 respectively HC#1 and HC#2 may claim in parallel, or the group may choose the more favorable investment treaty
3 Case Studies:International Investment Treaties
CASE STUDY (1)
A US company which has built a plant in Congo
During a civil war, the plant was occupied and destroyed by military forces
The US company did not have a contractual relationship with the Congolese Government
CASE STUDY (2) A US company acquired rights to develop very
lucrative hydrocarbon fields in Venezuela Venezuelan Government subsequently forced
the US company to renegotiate the original deal under the threat of nationalization
US and Venezuela had not agreed to a BIT
CASE STUDY (3) Australian company obtained an arbitral award
in its favor in a contractual dispute with Indian SOE (state-owned enterprise)
Indian SOE disputed award and court proceedings dragged on for many years
THE ARBITRATION CLAUSE:THE MOST COMMON SOURCES
OF PROBLEMS
Factors Affecting the Arbitration Clause
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Select the arbitration rules
Consider enforcement of award
Choose institutional or non-institutional (ad hoc) arbitration. If institutional, select the administering institution
Prescribe the language(s) of the arbitration
Prescribe the law governing the contract
Prescribe the number of arbitrators Determine the
method for selecting the tribunal
Select the seat of the arbitration
Review capacity of parties to arbitrate
Importance of confidentiality Address multiple parties
and/or multiple contracts
Consider nationality of the parties to the contract
Legal Factors (Party Definable)
Commercial Factors
Prescribe the law governing the arbitration agreement
Commercial Factors
COMMERCIAL FACTORS – IMPORTANCE OF CONFIDENTIALITY All seats/venues are not equal when considering
approach to confidentiality in arbitration All Rules are not equal 2013 SIAC rules
“The parties and the Tribunal shall at all times treat all matters relating to the proceedings and the award as confidential.”
2012 ICC rules Do not mandate confidentiality – opt in
Real world considerations (Listed Companies)
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COMMERCIAL FACTORS – MULTI-PARTY AND MULTI-CONTRACT TRANSACTION (1) Multi-party Appointment of arbitral tribunal
Consensus Each “side” Appointing authority
Joinder & intervention Drafting: Notice of any proceedings commenced under arbitration clause must be
given to all parties Set deadline for each contracting party to intervene or join other parties No arbitrator appointed before expiry of deadline
Joinder permitted under ICC and SIAC rules subject to certain conditions
ICC and SIAC rules silent re intervention
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COMMERCIAL FACTORS – MULTI-PARTY AND MULTI-CONTRACT TRANSACTION (2) Multi-contracts Arbitration clause in related contracts
Compatible / “back-to-back” & tribunal appointed under one contract has jurisdiction to consider and decide issues connected to related contracts
Agree stand-alone dispute resolution protocol
Consolidation of arbitral proceedings ICC rules permits consolidation if: parties have agreed to the consolidation and the claims are made under
the same arbitration agreement; or where the arbitrations are between the same parties, the disputes arise
in connection with the same legal relationship and the arbitration agreements are compatible
SIAC rules silent re consolidation
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COMMERCIAL FACTORS – ENFORCEMENT
Location of assets Availability of route to enforcement New York Convention in place Is it actually applied in practice?
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COMMERCIAL FACTORS - NATIONALITY OF PARTIES TO THE CONTRACT
Many institutional rules of arbitration require that a sole arbitrator or the chair of a three person tribunal is of a neutral nationality to the parties
Also softer considerations flowing from cultural differences
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COMMERCIAL FACTORS – CAPACITY OF PARTIES TO ARBITRATE / CONDITIONS PRECEDENT
National law in some countries precludes nationals from arbitrating disputes of a specific nature and/or limits available venue
Mandatory pre-arbitral steps
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Legal Factors
Legal Factors
Law governing the contract Impacts parties’ rights, obligations and remedies
Law governing the arbitration agreement Impacts whether and extent to which parties’
agreement to arbitrate is recognised and enforced Seat of the arbitration Determines the law governing the arbitration
procedure May impact enforcement of the arbitration award
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Legal Factors (cont’d)
Institutional vs non-institutional (ad-hoc) arbitration Cost implications, support of secretariat and
management of administrative matters, composition of the tribunal
e.g. SIAC, ICC, HKIAC, CIETAC, LCIA, AAA/ICDR
Arbitration rules Can apply to institutional or non-institutional arbitrations Consider re-prescribing aspects of arbitration procedure e.g. SIAC, ICC, HKIAC, UNCITRAL Industry-specific e.g. GAFTA, PORAM (chain and circle
contracts), FOSFA, FIDIC (DAB), LMAA, ISDA
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Legal Factors (cont’d)
Number of arbitrators Cost implications, potential for delay, likelihood of
neutrality, risk of dissenting decision Selection of the tribunal Institutional rules may prescribe method adequately Consider express qualifications for tribunal
Language of the arbitration Impact on intra-tribunal dynamics, choice of arbitrators
and lawyers Potential tactical advantage
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5 Case Studies:What Happens When the Basics
Are Not Covered?
Case Study #1
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Case Study #1
Jurisdiction
Any disputes resulting from or in connection with this contract will be ultimately decided in accordance with the regulations of the Court of Arbitration of the International Chamber of Commerce by one or more arbitrator(s) appointed in accordance with this regulation.
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Case Study #2
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Case Study #2Other Terms and ConditionsNotwithstanding that the terms of FOSFA 81 are incorporated into this contract, for dispute resolution purposes only the arbitration clauses in the standard terms of FOSFA 81 relating to arbitration shall not apply and any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (SIAC Rules) for the time being in force, which rules are deemed to be incorporated by reference in this clause…
ArbitrationShould any dispute arise between the contracting parties to which no agreement can be reached, these disputes shall be settled by arbitration, which shall take place in Singapore in accordance with FOSFA Rules of Arbitration and Appeal.
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Case Study #3
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Case Study #3ArbitrationThis Contract shall be governed by and construed in accordance with the law of Singapore. All disputes in connection with this Contract or the execution thereof shall be settled by friendly negotiation. If no settlement can be reached, the case in dispute shall be submitted for arbitration to the Singapore International Arbitration Centre (“SIAC”) in accordance with English Law…
Governing LawThis Contract shall be governed and construed by the laws and courts of Singapore.
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Case Study #4
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Case Study #4
Arbitration
All disputes arising under this agreement … shall be subject to arbitration in Singapore … Arbitration shall be by one arbitrator who shall be selected jointly by the parties, or if the parties fail to agree on an arbitrator within 14 days, appointed in accordance with the [ICC] Rules. The arbitrator shall have expertise in the international pulp and paper industry and marketing practices Worldwide. The arbitrator shall be required to resolve the dispute within 90 days of appointment …
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Case Study #5
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Case Study #5
Arbitration
All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators, appointed in accordance with the said Rules, who must be fluent in the English and Chinese languages and experienced with the legal and business aspects of the subject of this contract. The law governing the contract shall be the laws of the People’s Republic of China. The place of arbitration shall be Hong Kong.
(modified from original wording)
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THE VENUE:SEAT, HEARING AND ENFORCEMENT
The Seat and its Significance
The Seat - Defined Seat vs Venue Seat – the legal domicile or juridical home of the
arbitration Venue – the place where the arbitration hearings
physically take place
Often the seat and venue of an arbitration are the same, but this need not always be the case
In most cases, the seat of the arbitration is the country the parties have specified as the place of the arbitration in their arbitration agreement
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The Seat – Impact on the Arbitration Determines what law governs the arbitration procedure
(aka “curial law” or “lex arbitri”) supervisory jurisdiction intervention of courts party autonomy award final and binding
Determines the nationality of the arbitration award
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The Seat – Pro-Arbitration vs Other SeatsPro-arbitration (arbitration-friendly) Parties given considerable
freedom to agree on how the arbitration should be conducted
Minimal involvement of the courts, generally supportive of arbitration
Little or no review of the merits of an award or decision; limited review of the procedures followed
e.g. Singapore, Hong Kong, London, Paris, Dubai, New York and Washington, D.C.
Less arbitration-friendly Limitations on how the arbitration
can be conducted (mandatory vsnon-mandatory provisions)
Courts more likely to intervene in the arbitration process
More scope for the courts to review an award or decision and the procedures followed
e.g. Indonesia, India
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Venue of the Hearing
Venue of the Hearing –Commercial and Practical Concerns Convenience of the Tribunal and the parties
Location of the Tribunal Location of the parties Location and nature of the evidence
Infrastructure of the hearing location Arbitration facilities Service providers Local consultants and experts International accessibility
Costs associated with the hearing location
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Enforcement
Enforcement – The New York ConventionConvention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) Majority of signatory states will recognise and enforce an
arbitration award made in that or another signatory state as if that award was an order of the court 149 convention states Limited grounds for refusing enforcement
Without the benefit of the New York Convention, a party would need to pursue full enforcement proceedings in the local national courts of the country (or countries) in which they are trying to enforce the arbitration award Increased time and cost of enforcement Greater risk that the award will not be recognised and enforced
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Enforcement – The New York Convention
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Countries which are not signatories to the New York Convention
Country Specific Issues
Singapore Pro-arbitration bias, efficient Timing for enforcement – 1-2 months if unopposed, up to a
year if opposed The term “Singapore public policy” as a ground for refusal of
enforcement is narrowly construed PT First Media TBK v Astro Nusantara International BV & Ors
(2013, Singapore Court of Appeal) Held that a party to an international arbitration seated in Singapore has
the option to choose whether to either: make an active challenge to an award; or wait until the award is sought to be enforced in Singapore
Availability of “active” and “passive” remedies
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Indonesia International arbitrations governed by Law No. 30 of 1999 Enforcement issues
Documents to be submitted to enforce foreign awards are, in practice, often difficult and time consuming to obtain
Registration of awards required to be effected by the arbitrators or their duly authorised representatives; arbitrators must therefore include in the award or a separate document a power of attorney to the parties, or to either of them, to effect registration of the award
SIAC proactive in enforcing awards in Indonesia
Language issue Paragraph 1 of Article 31 of Law 24 of 2009 on National Flag, Language, Emblem
and Anthem requires contracts executed with Indonesian government institutions, Indonesian private entities or Indonesian citizens to be in Bahasa Indonesia
2013 decision by the West Jakarta District Court held that a contract (in the English language) made between an Indonesian company and a foreign company was null and void because it violated Language Law No. 1
Parties tend to include provision that the English version of the agreement trumps the Bahasa Indonesia version in the event of inconsistency
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Indonesia (cont’d)
BANI – a viable alternative? Very little information about enforcement of BANI
awards outside Indonesia Potentially greater enforceability of BANI awards in
Indonesia due to simplicity of registering BANI award Unavailability of legal costs except in “extraordinary
circumstances” BANI arbitrations tend to have regular hearings at
weekly or bi-weekly intervals Subject to supervisory jurisdiction of the Indonesian
courts
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India Arbitration favoured due to massive backlog in Indian courts Governing law - Arbitration and Conciliation Act 1996
Part I applies to arbitrations conducted in India, as well as international arbitrations involving Indian parties regardless of the place of arbitration
Part II applies to the enforcement of foreign arbitral awards
Express notification in official Gazette required in relation to each specific country before awards from that country may be enforced pursuant to Part II of the Act i.e. not all awards from New York Convention signatories are enforceable Only about 45 signatories gazetted (China and Hong Kong recently added)
Lengthy enforcement process, often as long as 2-3 years
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India (cont’d) Prominent cases - Applicability of Part I of the Act Bhatia International v Bulk Trading SA (2002, Supreme
Court) Held that Part I of the Act applied to international arbitrations
held outside India, unless explicitly and/or implicitly excluded
Venture Global Engineering v Satyam Computer Services (2008, Supreme Court) Held that Indian courts have jurisdiction to set aside foreign
awards on grounds that they violate Indian statutory provisions and are contrary to Indian public policy
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India (cont’d) Prominent cases - Applicability of Part I of the Act Bharat Aluminum Co v Kaiser Aluminum Technical Services
Inc (2012, Supreme Court) (“BALCO”) Part I of the Act only applies to arbitrations which take place in
India (whether domestic or international) No application for interim relief in India for international
commercial arbitrations seated outside India Therefore, all foreign-seated arbitration agreements after 6
September 2012 do not need to expressly exclude Part I of the Act
BALCO, however appears only to have prospective application. Thus, all arbitration agreements executed before 6 September 2012 still remain subject to the Bhatia principle and express exclusion of Part I may be necessary
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India (cont’d) Therefore, for contracts before 6 September 2012:
If Part I excluded, no problem Take the risk of Part I applying; or Re-enter into their arbitration agreements so as to be subject to
the BALCO regime Indian subsidiary vs Indian partner
Foreign seat – courts will separate seat / venue Foreign law – cannot contract out of Indian law, violates public policy
Applications to the Indian courts usually by foreign parties Bhatia – ICC arbitration seated in Paris, interim relief sought against Indian
party, courts were trying to assist Venture Global – US party applied to set aside foreign arbitral award BALCO – LCIA arbitration, Indian party applied to set aside, arguing that
Part I applied
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Greater China Greater China Region - Mainland China, Hong Kong, Macao,
Taiwan Dispute between CIETAC Beijing and CIETAC Shanghai
(SHIAC), CIETAC Shenzhen (SCIA) and CIETAC South China Split between CIETAC Beijing and CIETAC Shanghai, South China and
Shenzhen following disagreement over 2012 CIETAC Rules CIETAC Beijing announced the suspension of its authorisation to CIETAC
Shanghai, South China and Shenzhen CIETAC Shanghai changed its name to SHIAC, CIETAC Shenzhen to SCIA Potential problems with enforcement
Suzhou Canadian Solar Inc v LDK Solar Co Ltd (2013, Suzhou Intermediate People’s Court), refused to enforce SHIAC arbitral award on the basis that the Award was issued without the relevant jurisdiction; the court held that the split had resulted in SHIAC no longer being the arbitration commission chosen by the parties
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Greater China (cont’d) Consequences for litigants
Any existing or intended arbitral proceedings providing for CIETACarbitration with Shanghai/Shenzhen seat should be referred to CIETAC Beijing
Parties should consider amending any existing contract/agreement providing for CIETAC arbitration in Shanghai/Shenzhen to refer any disputes to either CIETAC Beijing or SHIAC/SCIA
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Greater China (cont’d) Enforcement
Parties at liberty to choose jurisdiction in which to enforce their award
Location of losing party’s assets is primary driver Other factors:
Value of assets in each jurisdiction Ease of enforcement Attitude of courts towards enforcement Strategic considerations – will enforcement over a particular asset prompt the
losing party to comply, recovery of legal costs, etc.
Parties tend to choose HK, followed by Macao, then mainland China; reasons for preferring HK include: Judicial attitude - pro-arbitration Efficient, quick Simple enforcement procedure
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Greater China (cont’d) “Domestic Disputes” vs Foreign Disputes – Jiangsu
Aerospace Wanyuan Wind Power Co Ltd. V LM Wind Power (Tianjin) Co Ltd (2012, Supreme People’s Court) Parties may only arbitrate “foreign related” disputes outside China “Foreign related”
One of the parties is non-Chinese (even wholly owned local subsidiaries of foreign companies are considered local entities)
Performance of contract is/was to be undertaken wholly or partly outside China
Other relevant and substantive circumstances exist outside mainland China regarding the “occurrence, modification or termination of civil rights and obligations”
Unless contract is clearly “foreign related”, parties should agree to arbitration in China under a Chinese arbitration institution (such as CIETAC)
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Vietnam Grounds for refusing enforcement include:
Recognition and enforcement of the foreign arbitral award would be contrary to the “fundamental principles of the laws of Vietnam”
“fundamental principles of the laws of Vietnam” not clearly defined, appears to give wide discretion to courts to refuse enforcement
In practice: Enforcement of foreign awards is uncertain and time consuming Only a small number of foreign awards have been successfully
enforced in Vietnam System remains largely untested
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Thailand 2009 decision of the Thai Cabinet prohibiting arbitration
as a dispute resolution mechanism in any public sector without prior approval of the Cabinet Result - in practice, most public sector entities refuse to accept
arbitration clauses in their commercial contracts
In order to enforce an arbitration award: The application for enforcement must be made within 3 years Enforcement actions must be conducted by the Legal Execution
Department at the request of the judgment creditor (i.e. no direct enforcement)
“Public policy” construed broadly
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© Copyright 2013 by K&L Gates LLP. All rights reserved.
Moderator: Jo Anne Schwendinger, ACC Singapore, Chapter President; John Deere Asia, Regional General Counsel – Asia Pacific & Sub-Saharan Africa
Panel:Mark Jenkinson, Petroleum Geo-Services, Head of Legal – Asia PacificRaja Bose, K&L GatesLian Yok Tan, K&L Gates
Panel Discussion and Q&A