In 2021, the UK Jurisdiction Taskforce of the Lawtech Delivery Panel (“UKJT”),[1] a body established by the Secretary of State for Justice, and chaired by the Master of the Rolls, published Version 1.0 of the Digital Dispute Resolution Rules (“the Rules”).^[2] These arbitration rules, which operate under the law of England and Wales, are intended to be used by parties in commercial disputes, in particular in disputes involving “cryptoassets, cryptocurrency, smart contracts, distributed ledger technology, and fintech applications”.^[3]

The Rules are less than a year old and, at the time of writing, there are no published awards or decisions on any challenges under them. However, they recently received the approval of the Law Commission of England and Wales in its advice to Government on smart contracts in November 2021, where they were discussed in detail, and described as “particularly well-suited for disputes involving smart legal contracts”.^[4] The increasing use of distributed ledger technologies and smart contracts, coupled with the growing sophistication and size of decentralised finance,^[5] make it very likely the Rules will have an increasingly important role going forward.

While the Rules are not the only arbitration rules proposed for smart contracts (the JAMS rules were published in 2018 but remain in draft),^[6] they have a number of innovative features which the JAMS rules do not. As such the Rules are innovative even within this new frontier of dispute resolution. These features may give rise to unique implications in eventual challenges under the Arbitration Act 1996, and in particular challenges under s.67 (substantive jurisdiction) and s.68 (serious irregularity) of the Act.^[7]

Innovative Features of the Rules and Challenges under s.67 and 68 of the Arbitration Act

This paper picks out three innovative aspects of the Rules which may alter how challenges to decisions operate: (1) the provision for on-chain enforcement of arbitral awards by the tribunal;^[8] (2) the provision for anonymity between the parties;^[9] (3) the provision that “automatic dispute resolution” is legally binding between the parties.^[10]

Feature 1: Enforcement by the tribunal

The provision in Clause 11 of the Rules provides for the tribunal to have the power to “operate, modify, sign or cancel any digital asset relevant to the dispute.” This is particularly interesting when understood in the context of disputes arising out of blockchain or distributed ledger technologies (such as those involving cryptocurrencies or cryptoassets). This is because ownership and control of such assets is confirmed by cryptographic means on a distributed ledger, in most disputes satisfying an award would involve taking appropriate steps to record a transaction on such a ledger. The power of a tribunal to operate, modify, sign or cancel any such asset will therefore in many cases be equivalent to the power of a tribunal to enforce the award.

In one sense, this mirrors the result of “on-chain” automatic dispute resolution (discussed briefly below), where awards are often executed automatically on the distributed ledger by a smart contract. But it also represents a radical departure from the traditional enforcement system for arbitration awards.

This power is likely to be attractive to parties using new decentralised technologies where traditional enforcement mechanisms may be more difficult (not simply because of the continuing uncertainty when considering jurisdiction or conflict of laws in distributed ledger disputes, but also because it remains unclear to what extent signatory states to the New York Convention will consider that at least some distributed ledger disputes fall foul of the public interest exception to enforcement). As such, similar powers are likely to be features of arbitration rules for this industry in the future.^[11]

By allowing for tribunal enforcement of the award, the party successful in the arbitration obtains benefits which extend beyond those it could obtain from the Courts when seeking security for costs^[12] or security for the award^[13] when an award is challenged.^[14]

Therefore, where tribunal enforcement occurs, a party seeking to challenge an award will find itself facing unique hurdles. While there is no general rule that enforcement should be stayed pending the determination of a Section 68 challenge,^[15] the party against whom an award is to be enforced in the English Courts would normally have recourse to the provisions of CPR 62.18(9) (to apply to set aside an order made to enforce an award under s.66 Arbitration Act) and CPR 83.7 (to stay enforcement of an award when converted to a judgment).^[16] These are valuable tools to a party resisting an award,^[17] but will not be available to a party where tribunal enforcement has occurred under the Rules.

This necessarily changes the balance of power in any challenge under s.67 or s.68, and does so in a way which has the effect of circumventing the balance struck by the Courts and Parliament under the provisions for staying enforcement and providing for security for costs or the award under Arbitration Act 1996. The party holding the award under the Rules (where tribunal enforcement has been used) holds far more cards than they otherwise would. In effect, they will enter any s.68 or s.67 challenge in astronger tactical position than a successful party under other arbitration rules.[18]

Feature 2: Anonymity

The provision for anonymity during an arbitration under the Rules may well be particularly attractive to parties to transactions on the distributed ledger, where anonymity in the transactions themselves is the norm. The Rules have however recognized that absolute anonymity would not be appropriate, providing for disclosure, providing for disclosure of “identity details” when “necessary for the fair resolution of the dispute, for the enforcement of any decision or award, for the protection of the tribunal’s own interests, or if required by any law or regulation or court order”.^[19] This language should be wide enough to enable the disclosure of “identity details” when a party wishes to challenge the award.

The identity details are defined by the Rules as “for an individual… evidence as to his or her identity and residence and for a company… evidence as to its identity, place of incorporation and principal place of business”.^[20] It is however not clear if  these would be sufficient to enable service of the arbitration claim form, especially given the short time limits under s.70(3) of the Arbitration Act to issue a challenge under s.67 or s.68.[21] (this problem is especially acute if one party is a Decentralised Autonomous Organisation[22]).  These practical uncertainties may well be resolved as challenges occur and decision are reported, but will require resolution by the Courts and early users of this procedure.

Feature 3: Automatic Dispute Resolution

The Rules envision that the parties may engage in automatic dispute resolution, and that such resolution will be binding on the parties. Indeed, the effect of such dispute resolution is often binding in matter of fact because the decision of the process is implemented on-chain by a smart contract. Automatic dispute resolution systems come in different varieties and methods, but often involve the application of game theory (including incentivising decision-makers to make the decision they think the majority will make, rather than the decision they consider ‘correct’^[23]), crowdsourced self-selecting juror decision-making, Artificial Intelligence, and appeal or de novo re-hearing procedures.^[24]

While the Rules describe automatic dispute resolution as “legally binding”, the Further Guidance published alongside the Rules indicate that the Rules “may, for example, be adopted to resolve disputes as to whether the automatic dispute resolution processes have been properly complied with or has worked as intended. Where such automatic processes are present, the parties will need to agree how the Rules are intended to work alongside them”.^[25] This raises the prospect of a situation in which the parties agree to use an arbitration under the Rules to confirm or wrap the decision of an automatic dispute resolution process in a form of an arbitral award.^[26] This will give rise to some unique questions when bringing challenges to awards based on automatic dispute resolution processes, among them: (i) Does a jurisdictional challenge have to be taken during the automatic dispute resolution process in order to sustain a s.67 challenge? (ii) Does the general duty of fairness extend to the automatic dispute resolution process, and can a challenge to an award under s.68(2)(a) on that basis be sustained on appropriate facts? (iii) Could the conduct of jurors in automatic dispute resolution give rise to a challenge for serious irregularity? (iv) Would an admission of an irregularity (caused perhaps by a coding or software error) by the provider of the automatic dispute resolution process fall within s.68(2)(i)?

Conclusion

While disputes arising out of cryptoassets, cryptocurrency, smart contracts, distributed ledger technology – and procedures for resolving such disputes – are in their infancy, this survey suggests that, if widely adopted, the Rules will present the Courts with new and difficult questions when considering challenges to awards, requiring an approach as innovative as that shown in the design of the Rules themselves.

Jonathan Schaffer-Goddard is a Barrister practicing from 4 Pump Court Chambers in London and an LLM candidate (Starr Foundation Global Law School Scholarship) in the International Business Regulation, Litigation and Arbitration program at the NYU School of Law. 

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[1] More information at https://technation.io/lawtechukpanel/

^[2] UK Jurisdiction Taskforce, Digital Dispute Resolution Rules (2021) (“UKJT Rules”), https://perma.cc/FT6E-CUD3

^[3] Clause 1, Digital Dispute Resolution Rules

^[4] Smart Legal Contracts: advice to Government, Law Commission of England and Wales, 2021, para 5.156 https://perma.cc/4WFA-2JYP

^[5] The total value locked (the sum of all assets deposited in decentralized finance protocols) reached USD 250 billion at the end of 2021 on some metrics (https://perma.cc/B8KB-TYEB).

^[6] The JAMS Smart Contract Rules (JAMS Rules Governing Disputes Arising out of Smart Contracts) can be accessed at https://www.jamsadr.com/rules-smart-contracts (https://perma.cc/HW6J-MRVE)

^[7] Challenges under s.69 of the Act are excluded by the Rules (Clause 16, Digital Dispute Resolution Rules: “… The decision or award of the tribunal is final and binding. There is no right to appeal any award on a point of law, and there is no other right of appeal or challenge to such award except as permitted under the Arbitration Act 1996.” While this excludes s.69 appeals, it cannot exclude appeals under s.67 or s.68).

^[8] Clause 11, Digital Dispute Resolution Rules: “The tribunal shall have the power at any time to operate, modify, sign or cancel any digital asset relevant to the dispute using any digital signature, cryptographic key, password or other digital access or control mechanism available to it. The tribunal shall also have the power to direct any interested party to do any of those things.”

^[9] Clause 13, Digital Dispute Resolution Rules: “The claimant and each respondent must provide details and evidence of their identity to the reasonable satisfaction of the tribunal. If the incorporating text allows for anonymous dispute resolution, or the parties agree, then a claimant or respondent may provide identity details confidentially to the tribunal alone and need not include them in a notice of claim or initial response. In that case the tribunal shall not disclose the identity details unless disclosure is necessary for the fair resolution of the dispute, for the enforcement of any decision or award, for the protection of the tribunal’s own interests, or if required by any law or regulation or court order.”

^[10] Clause 4, Digital Dispute Resolution Rules: “The outcome of any automatic dispute resolution process shall be legally binding on interested parties.”

^[11] In light of the challenges that this procedure raises (are set out below), and the likelihood of this procedure being more widely adopted, the problems caused by the use of this procedure may be worthy of consideration by the Law Commission in its recently announced review of the Arbitration Act 1996 (https://perma.cc/BFD5-PUFV).

^[12] Section 70(6), Arbitration Act 1996

^[13] Section 70(7), Arbitration Act 1996

^[14] The circumstances in which the Court will order security for costs or security for the award are limited by considerations of availability of assets (Azov Shipping Co v Baltic Shipping (No 2) [1999] 2 Lloyd’s Rep 39), the prospects of the challenge (MDIL (UK) Ltd v Mittal Steel Skopje (CRM) AD [2008] EWHC 2243 (Comm)) and prejudice on party seeking to enforce if order not made (see for example: Konkola Copper Mines Plc v U&M Mining Zambia Ltd [2014] EWHC 2146 (Comm)). Applications are often unsuccessful.

^[15] BSG Resources Ltd v Vale SA & Ors [2019] EWHC 2456 (Comm), at [55]

^[16] It has been held by the High Court that there is an inherent jurisdiction to suspend enforcement while a challenge is ongoing, even if no application has been made to enforce the award. Apis AS v Fantazia Kereskedeli KFT[2001] 1 All ER 348. See also Socadec SA v Pan Afric Impex Co Ltd [2003] EWHC 2086.

^[17] A v B [2020] EWHC 952 (Comm) is a recent example of a successful application under CPR 62.18(9) to set aside an order to enforce a judgment entered under Section 66 of the Arbitration Act.

[18] The likelihood of this procedure for tribunal enforcement being more widely adopted in the crypto industry means that the impact of tribunal enforcement of an award may be worthy of consideration by the Law Commission in its recently announced review of the Arbitration Act 1996 (https://perma.cc/BFD5-PUFV).

^[19] Digital Dispute Resolution Rules, Clause 13

^[20] Digital Dispute Resolution Rules, Clause 2

[21] An extension of time is available under s.80(5) of the Arbitration Act 1996. The relevant caselaw and the principles derived from it are set out in State A v Party B & Anor [2019] EWHC 799 (Comm), [28] – [33]

[22] For an explanation of what a DAO is, see: https://ethereum.org/en/dao/ (https://perma.cc/TL3F-F2JV)

^[23] Kleros, Short Paper v1.0.7, page 2 (https://kleros.io/whitepaper.pdf) 

^[24] See surveys of such systems in Allen, DWE, Lane, AM and Poblet, M. 2019, The Governance of Blockchain Dispute Resolution, Harvard Negotiation Law Review, vol. 25, pp. 75-101 and Yann, Federico and Bruno, 2021, Decentralized Justice: A Comparative Analysis of Blockchain Online Dispute Resolution Projects, Frontiers in Blockchain, vol 4 (https://doi.org/10.3389/fbloc.2021.564551)

^[25] Digital Dispute Resolution Rules, page 12

^[26] The status of awards rendered by automatic dispute resolution processes is a matter of debate, and it is likely that in many (if not all) cases they are not by themselves enforceable awards under the New York Convention 1958.

When challenging arbitral awards, it is said that ‘as parties have made their bed … they must lie in it’ –[1] parties ‘must live with the decision of the arbitrator, good or bad’.[2] This is a manifestation of party autonomy in ‘limiting the scope of post-award review’[3] to narrow grounds such as ‘fraud or corruption’ or ‘a breach of … natural justice’ through their choice of the relevant seat of arbitration.[4] Viewed in conjunction with Singapore courts’ stance of ‘minimal curial intervention in arbitration proceedings’,[5] it is no surprise that the setting aside of awards by Singapore courts is a ‘[r]are’ and ‘exceptiona[l]’ occurrence.[6]

The decision by the Singapore High Court (the ‘Court’) in BZV v BZW[7] to set aside the arbitral award in the case (the ‘Award’) for breaches of natural justice (the ‘Decision’) thus provides some valuable insights in this regard. For one, it highlights the limits imposed by parties on courts’ control over arbitral awards. Relatedly, the Court’s analysis also helpfully illustrates the extent to which judicial deference can no longer cover for deficiencies in an award. Moreover, the unique facts of the case precipitate a discussion on whether Singapore courts should be given greater latitude to set aside awards.

Last, this paper eschews any superfluous understanding that ‘national courts are the sole guardians to watch over arbitral awards’, and evaluates the Decision through the valuable and perceptive lens of the ‘[s]hared [c]ontrol of [a]rbitral [a]wards’ exercised by the parties (the ‘Parties’), the tribunal (the ‘Tribunal’), and the Court.[8]

I.   Background Facts and Summary of the Decision

In BZV v BZW, the plaintiff and defendants entered into a shipbuilding contract (the ‘Contract’) for the purchase of a vessel by the plaintiff buyer from the defendant shipbuilders. A dispute arose between the Parties which proceeded to arbitration, where the plaintiff alleged that the defendants had (a) ‘delayed in delivering the vessel’ (the ‘Delay Claim’),[9] and (b) ‘breached the Contract by delivering the vessel with [incorrect] generators’, having provided the plaintiffs with generators of a lower ingress protection rating (IP23) than contractually specified (IP44) (the ‘IP44 Claim’). In response, the defendants argued, inter alia, that the plaintiff was entitled to neither the Delay nor IP44 Claim since ‘the delay was in fact caused by the plaintiff’,[10] and the plaintiff was ‘estopped from asserting that the defendants were under an obligation to deliver the vessel with generators rated IP44’.[11]

The Tribunal dismissed the plaintiff’s claims, prompting the plaintiff’s application to the Court to set aside the Award. The plaintiff relied on, inter alia, section 24(b) of the Singapore International Arbitration Act (the ‘IAA’), arguing that the Tribunal ‘breached natural justice in dismissing its claim’.[12] In turn, apart from contesting the claim, the defendants argued that (a) the plaintiff’s application under article 34(3) of the Model Law was filed outside of the three-month window and ought to be dismissed ‘in limine’, and (b) even if the Award should be set aside, the Court should remit the Award to the Tribunal under article 34(4) of the Model Law.[13]

The Court quickly disposed of the defendants’ preliminary objection, finding that article 34(4) of the Model Law only required that the Originating Summons and not the supporting affidavit be filed within the specified three-month time limit. The plaintiff had complied with this and had made a valid application.[14]

Importantly, the Court allowed the plaintiff’s application under section 24(b) of the IAA in finding that the Tribunal had rendered its Award ‘in breach of the fair hearing rule and … natural justice’, and declined to remit the Award to the Tribunal.[15] On both the Delay and IP44 Claims, the Court found that the Tribunal’s reasoning had ‘no nexus to any of the defendants’ defences’.[16] On the Delay Claim, the Tribunal had failed to ‘apply its mind to determine … an essential issue’ – whether the plaintiff’s acts actually caused the delay.[17] As for the IP44 Claim, the central tenet of the Tribunal’s conclusion that the plaintiff was estopped from rejecting the IP23 generators was its initial impression that the plaintiff’s representative had expressed that the IP23 generators were acceptable.[18] However, this was ‘based on an entirely false premise’ as the Tribunal had ‘misidentified’ the representative as the plaintiff’s, who was actually the defendants’ instead.[19] When responding to the plaintiff’s request to correct the Award under article 33(1)(a) of the Model Law, the Tribunal only had corrected the reference to the representative, but not its conclusions on liability. This therefore led to a gap in the Tribunal’s reasoning.[20]

II.   Analysis and Key Takeaways

Overall, the Decision well illustrates the equilibrium of control between the Parties, Tribunal, and Court. While it appears that the right outcome was reached, it is nevertheless proposed that parties in Singapore-seated arbitrations be given greater autonomy to empower courts to review and set aside awards for patent errors of fact.

A.   Party Autonomy as a Constraint on the Remit of the Court’s Review of the Award

First, parts of the Decision establish that parties do exercise a considerable degree of control over their award, most significantly by selecting the seat of arbitration (and, thus, the lex arbitri). Inasmuch as the Court easily dismissed the defendants’ preliminary objection, some insight can yet be gleaned as to the balance of control. Primarily, the Court noted that even if the plaintiff had requested to extend the three-month period, the Court was ‘prepared to accept’ that article 5 of the Model Law ‘excludes the court’s general procedural power’ to do so.[21] Thus, in choosing the lex arbitri, the Parties exerted control by restricting the Court from exercising its procedural powers.

Next, a constant refrain of the Court was that insofar as the plaintiff’s alleged breaches of natural justice were properly characterised as ‘attempt[s] to seek … review of the [A]ward on the merits’, this was ‘impermissible’.[22] This merely reflects the Court enforcing party autonomy in deciding on the lex arbitri, and as a corollary, the contours of possible post-award actions. If the Parties wanted an appeal on a point of law, they could have opted to arbitrate with English or Hong Kong Law as the lex arbitri.[23]

This fetter on the Court’s review certainly operated at its greatest and most dramatic where the Court noted that if the Award had not been corrected (to correctly attribute the defendants’ representative’s statement), while this would have left ‘an egregious and fundamental error of fact patent on the face of the [A]ward’, the Court would not have been able to set aside the Award as ‘a tribunal’s error – no matter how fundamental, egregious or patent, and whether of fact or law – is no basis whatsoever on which to set aside an award’.[24]

B.   Tribunals’ and Courts’ Control: Judicial Deference and its Proper Limits

Second, certain nuances in the Court’s analysis reflect the limits of courts’ control over arbitration (in deference to tribunals), yet the Court’s ultimate finding of a breach of natural justice also draws the line beyond which judicial deference can no longer countenance a faulty award. Generally, the Court granted the Tribunal ‘fair latitude’ in reading the Award ‘with all the generosity [it] could muster’ without intent ‘to find fault … or errors’.[25] Indeed, the Court did adopt the most favourable interpretations: [26] for instance, ‘no breach [by the defendants]’ was construed liberally as meaning ‘no liability [to the plaintiff]’, to ensure consistency with the Tribunal’s earlier finding that the defendants had not fulfilled a contractual obligation.[27] However, ‘[e]ven on a generous reading’, the Court found breaches of natural justice. There was ‘no sign anywhere in the [A]ward’ relating to any finding of causation (vis-a-vis the Delay Claim), and ‘nothing … in the [A]ward’ to support the finding that the plaintiffs represented to the defendants that the IP23 generators were acceptable (regarding the IP44 Claim).[28] Judicial deference, therefore, rightly exists only to the point where a tribunal’s error is ‘demonstrably clear on the face of the record’.[29]

Notably, the Court declined to extend such deference to the Tribunal’s ‘general and self-serving paragraph’ which stated that the Tribunal ‘ha[d] considered in detail [all] documents and submissions’ and that any failure to specifically mention any argument ‘d[id] not suggest that [it] h[ad] not been considered’.[30] This could not ‘immunise [the] [A]ward against an allegation that the [T]ribunal ha[d] breached the fair hearing rule’, and so the Court ‘gave this paragraph no weight’.[31] This is certainly welcomed as judicial deference should not be used to support such boilerplate paragraphs and give Tribunals carte blanche to commit breaches of natural justice.

C.   Expanding Party Autonomy and Courts’ Control: Setting Aside Awards for Errors of Fact?

Last, the unique facts of this case bring certain difficulties to the fore. For one, while the Court’s hands would undoubtedly have been tied if the Tribunal had not corrected its error – as a ‘fundamental, egregious or patent … [error] of fact … is no basis … to set aside an award’ –[32] this strikes as quite dissatisfactory in the circumstances. Indeed, the Tribunal had ‘read a key piece of evidence hopelessly wrong’.[33] Next, the plaintiff’s subsequent request for a correction left the Tribunal in a difficult position, since on the one hand correcting the error would risk the Award being set aside for a breach of natural justice, and on the other, leaving it untouched would be ‘professionally dishonest’ in allowing the defective Award to be upheld.[34] In fact, the propriety of the Tribunal’s correction is also doubtful as corrections under article 33(1)(a) of the Model Law are only allowed for computational, typographical or clerical errors. The Tribunal’s error ‘c[ould not] on any view’ be a mere ‘clerical error’ as the Tribunal clearly ‘intended to find, albeit on an erroneous factual basis’ that the representation was attributable to the plaintiff.[35] This puts similarly situated tribunals in an even more impossible position, as allowing the correction is legally ‘wrong’, yet would lead to the ‘right’ outcome in allowing defective awards to be set aside.

Circling back to party autonomy, within the current Singapore lex arbitri, parties are ‘entitled to a fair decision, but not necessarily a correct one’.[36] It is within this framework that judicial deference, even to factually or legally defective awards, exists. However, it is perhaps time to recognise that in exceptional circumstances an error of fact is a basis upon which a court should be allowed to set aside an award. On these particular facts, the error was both indisputable, and undisputed – the Tribunal agreed to correct, and the defendants did not object.[37] Moreover, this was a central plank of the Tribunal’s reasoning on the IP44 claim.[38]

Such a proposal understandably brings with it concerns that this will erode efficiency and finality as hallowed virtues of arbitration. While a detailed examination of this proposal to amend the IAA is beyond the remit of this paper, suffice to say, courts can safeguard these virtues by imposing appropriate costs awards on parties bringing frivolous claims on these grounds, deterring others from the same. Further, courts can weed out unmeritorious challenges by requiring parties to first obtain leave to appeal, as is the procedure under the English Arbitration Act on appeals on points of law.[39] Indeed, an opt-in mechanism to allow parties to appeal to the Singapore High Court on points of law is under consideration by the Ministry of Law,[40] and BZV v BZW makes a strong case that patent errors of fact should, at the very least, be included for consideration as well.

III.  Conclusion

BZV v BZW thus aptly exemplifies how various entities’ control an award, while exposing potential deficiencies in the balance of control – or at least, in parties’ options to adjust the balance. It was perhaps fortunate for the plaintiffs that the Tribunal corrected the Award in the manner it did, exposing the Award to the successful set aside application.[41] However, future parties may not be so fortunate, and parties ought to be allowed to empower courts to exercise greater review to prevent such defective awards from being enforced. Finally, this analysis is also a testament to how the framework of control over arbitral awards is a useful analytical tool to understand the underlying tensions and drivers of how different entities act, and understand potential problems in a holistic manner.

Kay Han Lee is an LL.M. candidate (Dean’s Graduate Scholar) in the International Business Regulation, Litigation and Arbitration program at the NYU School of Law, on a dual-degree program with the National University of Singapore Faculty of Law where he is also pursuing an LL.B. (Hons).

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[1] Iris Ng and others, ‘Five Recurring Problems in International Arbitration: The Relationship between Courts and Arbitral Tribunals’ (2020) 8 Indian J Arb L 19, 20.

[2] TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] SGHC 186, [2013] 4 SLR 972 [65].

[3] Friedrich Rosenfeld, ‘The Shared Control of Arbitral Awards’ in Larry A. DiMatteo, Marta Infantino, and Nathalie M-P. Potin (eds), The Cambridge Handbook of Judicial Control of Arbitral Awards (CUP 2020) 443.

[4] See, e.g., International Arbitration Act (Cap 143A, 2002 Rev Ed Sing) s 24.

[5] BLC v BLB [2014] SGCA 40, [2014] 4 SLR 79 [51].

[6] Sapna Jhangiani and Jarret Huang, ‘Limits, Latitude, and Lacunae: Rare Set-aside of Award in CBX v CBZ’ (Kluwer Arbitration Blog, 26 July 2021) <http://arbitrationblog.kluwerarbitration.com/2021/07/26/limits-latitude-and-lacunae-rare-set-aside-of-award-in-cbx-v-cbz/> accessed 21 November 2021.

[7] [2021] SGHC 60.

[8] Rosenfeld (n 3) 443 (control is also shared with arbitral institutions, and courts at the place of enforcement).

[9] BZV v BZW (n 7) [1], [89].

[10] id [95].

[11] id [98].

[12] id [48].

[13] id [20], [217].

[14] id [45].

[15] id [224]-[227] (the Tribunal’s reasoning ‘d[id] not inspire confidence’ that it would genuinely re-evaluate the case).

[16] id [149], [191].

[17] id [145].

[18] id [172]-[173].

[19] id [175].

[20] id [175].

[21] id [26] (emphasis removed).

[22] id [131], [153].

[23] Arbitration Act 1996 (UK) s 69 and Arbitration Ordinance (HK, 2011, Cap 609) sch 2, items 5, 6.

[24] BZV v BZW (n 7) [191].

[25] id [52], [109].

[26] id [141], [161].

[27] id [161] (which was therefore a ‘breach’ of contract).

[28] id [145], [191].

[29] id [52].

[30] id [128].

[31] ibid (emphasis added).

[32] id [191].

[33] Nicholas Poon, ‘Singapore—the arbitral tribunal’s right to be wrong, up to a point (BZV v BZW)’ (LexisNexis, 27 April 2021) <www.lexisnexis.co.uk/legal/news/singapore-the-arbitral-tribunals-right-to-be-wrong-up-to-a-point-bzv-v-bzw>.

[34] ibid.

[35] BZV v BZW (n 7) [184].

[36] Ng and others (n 1) 20.

[37] BZV v BZW (n 7) [182]-[183].

[38] id [187].

[39] Patric McGonigal, ‘The Appeal of the Law: Singapore’s Decision to Hold Off Introduction Option to Appeal on Point of Law and Other Changes’ (King & Wood Mallesons, November 2020) <https://pulse.kwm.com/international-arbitration/appeal-arbitral-award-on-law-singapore/> accessed 24 November 2021.

[40] ibid.

[41] One view is, possibly, that the Tribunal recognised the patent error it had committed, and decided that the partial correction was the best way for a set aside application to succeed – but this is, admittedly, a generous interpretation.

Professor Franco Ferrari, the Center’s Director, and a renowned expert on the United Nations Convention on Contracts for the International Sale of Goods (CISG), has just published a paper focusing on the interpretation of the CISG in which he identifies two interpretative trends, both of which are disruptive of the uniformity aimed at by the drafters of the CISG; the homeward trend and the outward trend. As for the homeward trend, it has been defined as the tendency of interpreters of the CISG to read the expressions used in the CISG in light of the domestic law in which the interpreter was trained. On the other hand, the “outward trend”, an expression coined by Professor Ferrari in earlier writings, is defined by Professor Ferrari as the “the tendency of those interpreting a uniform law instrument to project foreign law onto the provisions of an international instrument where these provisions refer to legal concepts unknown in the system in which the interpreter is trained”. As Professor Ferrari points out in his paper, both trends go against the very idea behind the creation of a uniform sales law and must therefore be combatted. In his paper, Professor Ferrari makes a suggestion on how to do so successfully.

The paper is entitled Tendencia nacionalista vs tendencia importadora en la jurisprudencia de la CVIM, and is published in The Transnational Sales Contract. 40 years influence on the CISG on National Jurisdictions edited by F. Benatti et al., Milan, 2022, p. 199-217.

Professor Franco Ferrari, the Center’s Director, has just published a paper on the importance of the seat of arbitration entitled “Lex facit arbitrum 2.0” in the Italian peer reviewed law journal Diritto del commercio internazionale. The paper, which builds of earlier papers authored by Professor Ferrari, shows what implications the choice of the seat of arbitration has over the course of an arbitration’s life-cycle. As the paper shows, the choice of the arbitral seat identifies the lex loci arbitri and, thus, the applicable arbitration framework. As Professor Ferrari shows, this does not mean that an arbitration will only be governed by the national arbitration regime of the seat. Different national arbitration regimes may be – and generally are – applicable to any given arbitration.

On 19 February, from 9.30 am to 6.00 pm, the Center for Transnational Litigation, Arbitration, and Commercial Law alongside NYU’s International Arbitration Association will host the 11th Annual NYU Vis Practice Moot.

The 11th Annual Vis Practice Moot, to be held online, will welcome teams from selected law schools from across the world as well as many distinguished professionals and academics, who agreed to act as arbitrators, including Professor Franco Ferrari, the Center’s Director.

The Practice Moot rounds aim to provide a helpful forum for the Willem C. Vis International Commercial Arbitration Moot participants to practice their oral advocacy skills by pleading before, and receiving constructive feedback from, panels of experienced arbitrators from all around the world. The Practice Moot also enables the participating teams to meet and have a chance to plead against each other before the actual rounds, where more than 3000 students from about 370 law schools from around the world will compete.

For more info, please see the flyer.

On December 1st, 2021, Professor Franco Ferrari will host Italian Supreme Court Justice Francesco Cortesi, a two-time scholar-in-residence at the Center, who will give a talk at NYU on the autonomous interpretation of uniform law instruments in general, and the United Nations Convention on Contracts for the International Sales of Goods (CISG) in particular. Justice Cortesi, who graduated in 1994 cum laude from Bologna University School of Law, and specialized in international commercial law at Tilburg University School of Law (Netherlands) under the supervision of Professor Franco Ferrari, the Center’s Director who at the time was professor at Tilburg University, was appointed Judge at Court of Bologna in 1999. In 2001, he was assigned to the Court of Rimini, where he mainly dealt with disputes regarding contracts, consumer law issues and professional malpractice torts. In 2007, he moved to the Court of Forlì, where he was able to focus on those very same areas of law. During his tenure there, he also rendered some of the most relevant decisions concerning the United Nations Convention on Contracts for the International Sales of Goods, many of which have been translated into various languages, including English. In 2006, Justice Cortesi was appointed to the Government Committee for the revision of the Italian Civil Code. In January 2016, Justice Cortesi was appointed to the Italian Supreme Court, thus becoming one of the second youngest justice ever appointed to the Italian Supreme Court.

Professor Franco Ferrari, the Center’s Director, has just published a paper entitled “Plures leges faciunt arbitrum” in issue 3/2021 of Arbitration International.

In his paper, Professor Ferrari asserts that in international arbitration the lex loci arbitri has not lost its importance, which is not to say that it operates as the exclusive source of the arbitral process. While it is still the law of the seat that primarily furnishes arbitration its legal framework, in the form of ground rules in accordance with which arbitral activity may validly take place at the arbitral seat, it is not the only law imposing itself upon an international arbitration. In other words, the regulatory sovereignty of the State of the seat of arbitration is not necessarily the only one to be triggered during the different stages of an arbitration’s life-cycle. This is due to the fact that this regulatory sovereignty encounters both subject-matter limitations and territorial limitations, and, therefore, depending on what matter is to be addressed – and when and by whom – may call into play the regulatory sovereignty of States other than that of the seat. Thus, plures leges faciunt arbitrum.

The paper can be downloaded here.

NYU’s Center for Transnational Litigation, Arbitration, and Commercial Law is glad to invite you to a webinar entitled “Text, Context, and Applicable Law: Arbitral Decision Making?” to take place on 15 November 2021, from noon to 1.30 pm (NY time).

As it commonly known, arbitrators often confront a text/context duality in interpreting contracts. The applicable law may impose the adoption of one approach over the other – e.g., New York-textualist versus California-contextualist. However, whether unimposed or even imposed, leeway remains, and an arbitrator’s unstated (and perhaps unconscious) philosophy of language is the hidden hand in the interpretive action. Divining “ordinary meaning,” and thereby “intention,” is the art and the frustration. In the webinar, it will be suggested that arbitrators should try to examine — openly — that hidden hand. Moreover, in doing so, they should consider whether approaches to the interpretation of texts in other disciplines, including the use of corpus linguistics (as promoted by Thomas Lee/Stephen Mouritsen), would improve arbitral decision-making.

The speakers will be Laurence Shore and Klaus Peter Berger.

For more info and a registration link, please see the attached flyer.

The Center for Transnational Litigation, Arbitration, and Commercial Law will be hosting a webinar on October 14, 2021 from 12:30 PM to 2:00 PM (New York Time) called, “Does a Right to a Physical Hearing Exist?”.

In September 2020, Giacomo Rojas Elgueta, James Hosking and Yasmine Lahlou, in collaboration with ICCA, launched the research project “Does a Right to a Physical Hearing Exist in International Arbitration?”  The project arose from the need for reliable, jurisdiction-specific, information relating to a legal issues arisen due to the increased use of remote arbitral hearings triggered by the COVID pandemic. On the occasion of this webinar, the three co-editors will discuss the challenges of putting together a project that ultimately resulted in the submission of 77 national reports, all based on a standard survey questionnaire and model response, the national reporters were provided  with. The three co-editors will also discuss the main take-aways of their research project.

Please see the attached flyer for more information.

Registration is required.

Professor Franco Ferrari, the Center’s Director, will participate in a hybrid conference to take place on Friday, October 1, 2021, in Coimbra on the occasion of the entry into force in Portugal of the United Nations Convention on Contracts for the International Sale of Goods (CISG). On that occasion, Professor Ferrari, an expert in all things CISG, will address when the CISG applies in the context of international arbitration. In his talk, Professor Ferrari will point out that the CISG’s application in arbitration is due to reasons very different from the leading to the CISG’s application in litigation, and that arbitrators need to become aware of this.

For more info on the event, please turn to this link.

On Tuesday, Sept. 21, 2021, from 11.00 am – 1.00 pm, Professor Franco Ferrari, the Center’s Director, will give a lecture addressing the applicability of the 1980 United Nations Convention on Contracts for the International Sale of Goods (“CISG”) in arbitration. On the occasion of the webinar, hosted by Bologna University School of Law, Professor Ferrari’s alma mater, he will show how and why in international arbitration, the CISG, but the same holds true for other uniform substantive law conventions as well, applies for reasons other than those leading to the CISG’s application before state courts. As he will show, the application of the CISG in arbitration depends on the applicable arbitration-specific private international law rule. If this rule designates the law of a Contracting State as the applicable law, the CISG will apply as part of the law of that State (provided that its internationality requirement, its rationae materiae requirement, and it ratione temporis requirement are met). In addition, the CISG may apply on  its own, i.e. independently of the law of any Contracting State, if the applicable arbitration-specific private international law rule allows the application of “rules of law”.

For more info and to register, please see the flyer.

This is to invite you on behalf of NYU’s Center for Transnational Litigation, Arbitration, and Commercial Law to a webinar entitled “Introduction to International Arbitration in Africa” to take place on September 23, 20021, from 9.00 am – 10.15 (NY time).

This event, to be moderated by Mr. Domenico Di Pietro (GST LLP, London/Miami), will allow participants to get an idea of the status quo of international arbitration in Africa. The starting point will be an overview of the historical development of arbitration in Africa as well as the legal framework applicable in the various African countries to be analyzed by the two speakers, Ms. Ndanga Kamau (Ndanga Kamau Law, The Hague) and Professor Emilia Onyema (SOAS University of London). When addressing the legal framework, the speakers will also identify Model Law and non-Model Law jurisdictions on the African content and address the impact of OHADA and the New York Convention on arbitration in Africa. As part of their focus on the legal framework, the speakers will also analyze the institutional framework in the sense of the arbitral institutions operating on the African continent. The speakers will also address practical issues, such as the implications of choosing to seat an arbitration in an African jurisdiction, the importance of African arbitrators and counsel in international arbitrations with seats in Africa and outside Africa, and the attitudes of domestic courts vis-à-vis arbitration at both the pre-award and the post-award stages.

For more information, including short bios of the speakers see the brochure.

On the occasion of the 2021 Brazilian Arbitration Day at NYU, to take place on Aug. 31, 2021, from 9.00-noon, Professor Franco Ferrari will give the keynote speech entitled “The impact of anti-Covid measures on substantive law solutions”. The event, once again co-hosted by CAM-CCBC (Centro de Arbitragem e Mediação) and NYU’s Brazilian Legal Society, will be opened by Ms. Eleonora Coelho, President of CAM-CCBC, and will also feature Marcelo Ferro, Christian Leathley, Erika Levin, Pedro J. Martinez-Fraga, Rose Rameau, Guilherme Recena Costa, Frederico Singarajah, and Gretta Walters. Luíza Kömel, Deputy Secretary General of CAM-CCBC, and Rekha Rangachari, Executive Director of the New York International Arbitration Center, will act as moderators for the sessions on “Persuasion: Strategies for effective oral advocacy skills from the Counsel’s and the Tribunal’s perspectives” and “Arbitration War Stories: what the books don’t teach you”, respectively.

Registration is required.

Professor Franco Ferrari, the Center’s Director, has just published an article in Diritto del commercio internazionale, a peer reviewed Italian law journal. In his article, Professor Ferrari, one of the leading academics in the field of unification of law in general, and the United Nations Convention on Contracts for the International Sale of Goods (CISG) in particular, argues that in the arbitration context, uniform substantive law conventions apply for reasons that do not compare to those that lead to their application in litigation. In arbitration, their application will depend on the autonomous arbitration-specific conflict of laws rules. If these rules designate the law of a contracting State as the law applicable, the uniform substantive law conventions apply as part of the law of that State. But the conventions may also apply on their own, independently of the law of any contracting State, if the applicable arbitration-specific conflict of laws rule allows for the application of “rules of law”.

Daniel Gaw

Introduction

When determining the seat of arbitration and the proper law of an arbitration agreement, is it relevant that the choice of a particular seat and/or law may invalidate the arbitration agreement? In BNA v. BNB,[1] the Singapore Court of Appeal (“SGCA”) reached a result that effectively answered this question in the negative. Specifically, the Court held that the law of the People’s Republic of China (“PRC”) governed an arbitration agreement despite a real risk that the arbitration agreement would be rendered invalid as a result. In doing so, the Court reversed the decision of the Singapore High Court (“SGHC”),[2] which had held that Singapore law governed the arbitration agreement.

This paper takes a closer look at the case and highlights three key takeaways relating to: (a) the express choice of law for an arbitration agreement; (b) the implied choice of law for an arbitration agreement; and (c) the relevance of the validation principle. It concludes that the SGCA’s decision was correct notwithstanding the unsatisfactory outcome for the party that relied on the arbitration agreement.

Summary of the Case

Facts

In BNA v. BNB, the Korean sellers commenced arbitration against a Chinese buyer for alleged non-payment of amounts due under a contract for the sale of industrial gases (the “Agreement”). Article 14.1 of the Agreement provided that “[t]his Agreement shall be governed by the laws of the People’s Republic of China”, while Article 14.2 provided for disputes to be “submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules”.

The buyer objected to the tribunal’s jurisdiction. It contended that the arbitration agreement was invalid because: (a) the arbitration was seated in the PRC and the arbitration agreement governed by PRC law; (b) PRC law prohibited a foreign arbitral institution like SIAC from administering the arbitration of a domestic dispute; and (c) in any event, even if the dispute had sufficient foreign elements, PRC law nonetheless prohibited a foreign arbitral institution from administering an arbitration seated in the PRC.

The tribunal’s decision

The majority of the tribunal held that it had jurisdiction over the dispute because: (a) the arbitration was seated in Singapore; (b) the arbitration agreement was thereby governed by Singapore law; and (c) PRC law was therefore irrelevant on the question of jurisdiction.[3] In reaching that decision, the majority applied the validation principle and effective interpretation principle, which it summarised as follows: “[I]t makes no commercial or logical sense for parties to intentionally select a law to govern an arbitration agreement which would then invalidate it.”[4] The dissenting arbitrator, however, took the view that the tribunal lacked jurisdiction because: (a) the proper law of the parties’ arbitration agreement was PRC law; (b) the parties’ dispute was classified in PRC law as a domestic dispute; and (c) PRC law prohibited a foreign arbitral institution from administering the arbitration of a domestic dispute.[5]

The SGHC’s decision

Dissatisfied with the tribunal’s jurisdictional decision, the buyer asked the SGHC to decide the issue pursuant to Section 10(3) of the Singapore International Arbitration Act. The SGHC upheld the tribunal’s jurisdiction on the basis of two key findings.

First, the court considered that the arbitration agreement referred not only to Shanghai, but also Singapore, as a potential seat of arbitration. Specifically, the reference to the SIAC Rules included Rule 18.1 thereof, which provided that if the parties did not agree on a seat of arbitration, then it shall be Singapore unless the tribunal determines otherwise.[6] The question was therefore whether the phrase “arbitration in Shanghai” amounted to an agreement by the parties on the seat of arbitration. As a matter of construction, the court held that the reference to Shanghai merely identified the venue of arbitration and not a seat, as Shanghai was a city and not a law district.[7] In contrast, the express reference to the SIAC Rules was “the clearest possible manifestation” of the parties’ intention to have their arbitrations seated in Singapore.[8]

Having found that Singapore was the seat of arbitration, the SGHC turned to determine the proper law of the arbitration agreement, applying the three-stage choice of law analysis set out by the English Court of Appeal in Sulamérica v Enesa Engelharia SA:[9] (a) Have the parties expressly chosen the proper law of their arbitration agreement? (b) If not, have they impliedly done so? (c) If there is no express or implied choice, then with what system of law does the arbitration agreement have its closest and most real connection?[10]

            Under the first stage, the court found that the express choice of law to govern the main contract did not amount to an express choice of law in respect of the arbitration agreement. Proceeding to the second stage, the court accepted that the starting point was that the proper law of the contract (PRC law) would also govern the arbitration agreement.[11] It held, however, that this presumption was displaced in favour of the law of the seat (Singapore law). This was because the choice of PRC law “would defeat the parties’ manifest intention to resolve their disputes through arbitration”.[12] Interestingly, the court did so despite having rejected the validation and the effective interpretation principles as being “nakedly instrumental”.[13]   

The SGCA’s decision

On appeal, the SGCA reversed the SGHC’s decision. The key point of departure for the SGCA was the SGHC’s interpretation of the phrase “in Shanghai” as referring merely to the venue of arbitration and not the seat. In the SGCA’s view, “where parties specify only one geographical location in an arbitration agreement, and particularly where, as here, the parties express a choice for ‘arbitration in [that location]’, that should most naturally be construed as a reference to the parties’ choice of seat”.[14] The fact that Shanghai is not a law district was immaterial as commercial parties often only specify either the city or country in their arbitration agreements.[15] Given that the parties had agreed on the PRC as the seat of arbitration, the default choice of Singapore as the seat under SIAC Rule 18.1 did not apply.

Turning to the proper law of the arbitration agreement, the Court held that the express choice of PRC law to govern the main contract did not constitute an express choice of law for the arbitration agreement.[16] It did, however, amount to an implied choice of law for the arbitration agreement.[17] There was nothing to displace this implied choice because the law of the seat was also PRC law.[18] It followed that the validity of the arbitration agreement was to be determined by the PRC courts applying PRC law.

Analysis

The SGCA’s decision is noteworthy for three points which are discussed further below. 

Express choice of law for an arbitration agreement

            The SGCA decided that an express choice of law in respect of the main contract does not, in and of itself, also constitute an express choice of the same law in respect of the arbitration agreement. The SGCA’s approach is consistent with the concept that the arbitration agreement is separable from the main contract and more specific words are required to make an express choice of law in respect of the arbitration agreement. 

That said, no absolute rule can be laid down in this regard, and it is ultimately a matter of contract interpretation as to whether the parties have expressly chosen a law for their arbitration agreement. For instance, if the parties define the term “Agreement” in a manner that clearly includes the arbitration agreement therein and then subject the entire “Agreement” to a particular law, then that may amount to an express choice of law in respect of the arbitration agreement.[19] 

Implied choice of law for an arbitration agreement

Common law courts have diverged on the issue of whether the law of the main contract or the law of the seat should be presumed to be the implied choice of law for an arbitration agreement. In Singapore, an Assistant Registrar concluded that it should be the law of the seat,[20] while other High Court decisions have ruled in favour of the law of the main contract.[21] Likewise, in the recent UK case of Enka v. Chubb, the Court of Appeal and Supreme Court arrived at different conclusions on this issue – the former preferred the law of the seat,[22] while the latter held in favour of the law of the main contract.[23] The SGCA’s decision in BNA v. BNB confirms that, as a matter of Singapore law, the law of the main contract will presumptively be the implied choice of law for the arbitration agreement, and the choice of a different seat is insufficient to displace that presumption.

Relevance of validation principle

The SGCA purported not to address the validation principle when determining the proper law of the arbitration agreement, reasoning that it had no scope for operation in a case where both the law of the main contract and the law of the seat was PRC law.[24] In this author’s view, however, the Court had implicitly rejected the validation principle when determining that the seat of arbitration was Shanghai. Specifically, the Court held that the potentially invalidating effect of PRC law was irrelevant when determining whether the phrase “arbitration in Shanghai” referred to the venue or the seat of arbitration. This was because there was no evidence that the parties were aware that the choice of proper law of the arbitration agreement could have an impact upon its validity.[25] The Court’s reasoning here was arguably an implicit rejection of the validation principle, which “rests on the rational assumption that parties would prefer to have an agreement upheld than not”[26] and does not require actual evidence that the parties had actually turned their minds to the issue of validity in a particular case.

It is submitted that the SGCA’s approach was correct. The validation principle cannot be used to override a clear and express term of the contract simply because giving effect to that term would invalidate the contract or part of it. In this case, the natural meaning of the phrase “arbitration in [city/country]” is that the specified location would be the seat of arbitration, as confirmed by numerous cases and commentaries.[27] Had the word “Shanghai” been substituted with another city (e.g. London), a court or tribunal would undoubtedly have no difficulty with interpreting that phrase as designating the seat of arbitration. It would be unprincipled to depart from the parties’ express choice of the arbitral seat simply because that choice results in certain undesirable outcomes that they perhaps might not have foreseen.  

Conclusion

The SGCA decided in BNA v. BNB that the words of an arbitration agreement should be given their natural meaning unless there are sufficient contrary indicia to displace that reading, and “the parties’ manifest intention to arbitrate is not to be given effect at all costs”.[28] The decision was correct as it is not the function of the courts to save the parties from the consequences of poorly drafted or ill-advised arbitration clauses. It underscores the importance of choosing the seat of arbitration and proper law of the arbitration agreement with care. 

Daniel Gaw is an LL.M. candidate (Vanderbilt Scholar) in the International Business Regulation, Litigation and Arbitration program at the NYU School of Law and an Associate in Dechert LLP’s International Arbitration group. He holds a Bachelor of Laws (First Class Honours) from the National University of Singapore and was formerly a Justices’ Law Clerk of the Supreme Court of Singapore.

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[1] [2019] SGCA 84.

[2] [2019] SGHC 142.

[3] BNA v. BNB [2019] SGHC 142 ¶ 8.

[4] BNA v. BNB [2019] SGCA 84 ¶ 18.

[5] Id.

[6] BNA v. BNB [2019] SGHC 142 ¶ 104.

[7] Id. ¶ 108.

[8] Id. ¶ 109.

[9] [2013] 1 WLR 102.

[10] BNA v. BNB [2019] SGHC 142 ¶ 17.

[11] Id. ¶ 111.

[12] Id. ¶ 117.

[13] Id. ¶¶ 48 and 53.

[14] BNA v. BNB [2019] SGCA 84 ¶ 65.

[15] Id. ¶ 92.

[16] Id. ¶ 61.

[17] Id. ¶ 62.

[18] Id. ¶ 94.

[19] Kabab-Ji SAL v Kout Food Group [2020] EWCA Civ 6 ¶ 62.

[20] FirstLink Investments Corp Ltd v GT Payment Pte Ltd [2014] SGHCR 12 ¶ 16.

[21] BCY v BCZ [2016] SGHC 249 ¶ 65; Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2016] SGHC 238 ¶ 31.

[22] [2020] EWCA Civ 574 ¶ 91.

[23] [2020] UKSC 38 ¶ 170(iv).

[24] BNA v. BNB [2019] SGCA 84 ¶ 95.

[25] Id. ¶ 90.

[26] Enka v. Chubb [2020] UKSC 38 ¶ 198 (dissenting judgment of Lord Burrows).

[27] BNA v. BNB [2019] SGCA 84 ¶¶ 66-68.

[28] Id. ¶ 104.

Professor Franco Ferrari, the Center’s Director, and Dr. Friedrich Rosenfeld, Global Adjunct Professor at NYU Law in Paris, Visiting Professor at the International Hellenic University in Thessaloniki and Lecturer at Bucerius Law School in Hamburg, have co-authored a book entitled “International Commercial Arbitration: A Comparative Introduction” for which Adjunct Professor John Fellas acted as Consultant Editor.

The book is a concise comparative introduction to international arbitration. With reference to recent case law from leading arbitration jurisdictions and up-to-date rules revisions (including by the German Arbitration Institute, HKIAC, the International Chamber of Commerce, the London Court of International Arbitration (LCIA), the Singapore International Arbitration Centre SIAC), and the Vienna International Arbitration Centre), it provides a comparative analysis of the issues raised in arbitration, from the time of #drafting of arbitration clauses to the rendering of the award and the post-award stage. After introductory remarks on the applicable normative framework, the book covers arbitration agreements and their enforcement, the initiation of #proceedings, the constitution of the tribunal, the taking of evidence, issues arising in complex arbitrations, as well as the #award and the post-award regime.

More information can be found on the publisher’s website.

Introduction

The doctrine of separability, which provides that the invalidity of the substantive commercial contract does not affect the validity of the arbitration agreement except if the arbitration agreement itself is directly impeached as void ab initio, has been widely accepted in the arbitration jurisprudence.

[1] However, it has been adopted by the Indian Supreme Court (“Court”) only recently. By way of its judgment in N. N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Others (“N.N. Global Judgment”), the Court has for the first time answered in negative – “Whether an arbitration agreement would be non-existent in law, invalid or un-enforceable, if the underlying contract was not stamped as per the relevant Stamp Act?”[2]

The N.N. Global Judgment is noteworthy as by applying the doctrine of separability of arbitration agreement from the underlying contract, the Court has undertaken a complete departure from its previous decisions. It has declared that its previous judgments which held that the non-payment of stamp duty on a commercial contract would invalidate even the arbitration agreement and render it non-existent in law and un-enforceable, are bad in law.[3] In fact, since this is the first time the Court has adopted a diametrically opposite view on this issue in complete dismissal of the precedent set by its co-ordinate bench, the issue has now been referred to a Constitution Bench of five judges of the Court so that the law may be authoritatively settled.[4]   

Factual and Procedural Background

Indo Unique had entered into a contract with the Karnataka Power Corporation Ltd. (“KPCL”) pursuant to an open tender. Subsequently, Indo Unique executed a sub-contract, being Work Order dated September 28, 2015 (“Work Order”), with M/s N. N. Global Mercantile Pvt. Ltd. (“Global Mercantile”) for transportation of coal. Clause 10 of the Work Order incorporated an arbitration clause providing for resolution of disputes by an arbitrator appointed by mutual consent. Further, in satisfaction of the requirements of Clause 9 of the Work Order, Global Mercantile had furnished a bank guarantee for INR 33.6 million in favor of the State Bank of India, the banker of Indo-Unique. Thereafter, certain disputes arose between Indo Unique and KPCL. Consequently, Indo Unique invoked the bank guarantee furnished by Global Mercantile under the Work Order.

In response, Global Mercantile filed a commercial suit against Indo Unique and its banker seeking a declaration that Indo Unique was not entitled to fraudulently encash the bank guarantee as the Work Order had not been acted upon and no loss was suffered by Indo Unique as a result. Pursuant thereto, Indo Unique filed an application before the Commercial Court under Section 8 of the Arbitration and Conciliation Act (“Arbitration Act”) seeking reference of the dispute to arbitration. This was opposed by Global Mercantile as not maintainable since the bank guarantee was an independent contract. By way of judgment dated January 18, 2018, the Commercial Court accepted Global Mercantile’s argument and rejected the application while holding that its jurisdiction was not ousted by the arbitration agreement in the Work Order.

Challenging the decision of the Commercial Court, Indo Unique approached the Bombay High Court with a writ petition[5]. The High Court, by way of judgment dated September 30, 2020, set aside the Commercial Court’s judgment. It held that it was the admitted position that there was an arbitration agreement between the parties and therefore the application under Section 8 was maintainable. The High Court further held that the issue that the non-stamping of the Work Order rendered the arbitration agreement unenforceable could be raised by Global Mercantile before a court under Section 11[6] of the Arbitration Act or before the arbitral tribunal. Aggrieved by the decision of the High Court, Global Mercantile approached the Court.

Analysis Of The N.N. Global Judgment

Numerous issues were raised by Global Mercantile before the Court, however this paper concentrates on the findings of the Court on the issue – “Whether an arbitration agreement would be enforceable and acted upon, even if the Work Order dated 28.09.2015 is unstamped and un-enforceable under the Stamp Act?”[7]. Global Mercantile argued that the application under Section 8 of the Arbitration Act for reference of disputes to arbitration was not maintainable. It contended non-maintainability on the ground that the Work Order not being stamped as per the relevant Stamp Act could not be received in evidence or acted upon, thus, the arbitration clause contained therein also could not be enforced. On the other hand, Indo Unique contended that non-payment of stamp duty on the Work Order was a curable defect and did not render the Work Order unenforceable. Therefore, opportunity should be granted to Indo Unique to cure the defect by paying the deficient stamp duty.  

The Court, while arriving at its holdings in the N.N. Global Judgment, analyzed the development of the doctrine of separability internationally through judgments delivered in the United Kingdom[8], United States[9] and France[10]. The Court acknowledged that Section 16 of the Arbitration Act recognizes the doctrine of separability and kompetenz-kompetenz in India. Further, Section 5 and Section 11 of the Arbitration Act enshrine the legislative policy of minimal judicial intervention. A conjoint reading of Section 5 and Section 16 of the Arbitration Act reveals that the issue whether the main contract is voidable is to be resolved through arbitration. On a careful perusal of the relevant Stamp Act, the Court opined that stamp duty is not chargeable on an arbitration agreement and is only payable on the main contract. The non-payment of stamp duty on the Work Order did not invalidate it but only created a deficiency which could be cured by payment of the requisite stamp duty.

The Court held that on an application of the doctrine of separability – (a) the arbitration agreement contained in the Work Order being independent and distinct from the underlying contract; and (b) no stamp duty being chargeable on it – the arbitration agreement would survive independent of the Work Order. Arbitration agreement would not be rendered invalid or unenforceable on the ground that the contract containing it cannot be acted upon due to non-payment of stamp duty. The N.N. Global Judgment declared that the previous judgments on this issue are bad in law for not upholding the doctrine of separability. Further as a co-ordinate three-judges’ bench of the Court had previously arrived at a contrary decision, in deference to the doctrine of stare decisis, the issue was referred to a Constitution Bench of the Court for authoritative determination.

Comments On The N.N. Global Judgment

The issue of enforceability of an arbitration agreement contained in an unstamped agreement has previously been addressed by the Court in numerous judgments. The Court in SMS Tea Estates Pvt. Ltd. v. M/s Chandmari Tea Co. Pvt. Ltd.[11] held that until the payment of stamp duty with penalty, a court cannot act upon the contract which means consequently the court cannot act upon the arbitration agreement contained in the contract. This issue also came up for the consideration of the Court in 2019 in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited[12] wherein it was held that the Stamp Act applies to the whole contract, hence, it is impossible to separate the arbitration clause contained in the contract from the remainder of the contract to give the arbitration clause an independent existence. This position of the Court was further cited with approval by a three judges’ bench in Vidya Drolia & Ors. v. Durga Trading Corporation[13], which held that arbitration agreement presupposes the existence of a valid and enforceable agreement, so it does not exist when a party cannot sue and claim rights based on an unenforceable agreement.

The Court by way of the NN Global Judgment was right in declaring the judgment in SMS Tea Estates Pvt. Ltd. and Garware Wall Ropes Limited as bad in law and doubt the correctness of the view adopted in Vidya Drolia & Ors. as these judgmentscompletely disregard the well-established doctrine of separability.[14]The doctrine of separability is incorporated in Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) which provides that a decision of the arbitral tribunal that a contract is null and void will not automatically render the arbitration clause invalid. The Arbitration Act was codified and implemented in India with a view to implement the Model Law to create a unified legal framework for the fair and efficient settlement of disputes.[15] In fact the doctrine of separability contained in Article 16(1) of the Model Law is codified in Section 16(1) of the Arbitration Act. Therefore, the previous judgments of the SC clearly failed to appreciate that the doctrine of separability is the mandate of the codified law in India and are thus bad in law. 

The legislative policy of promoting arbitration by limiting judicial intervention in arbitration can be gleaned from the 2015 amendment to Section 11 of the Arbitration Act. The Court has interpreted the amendment to reflect the legislative intent that at the pre-reference stage, courts seized of the matter must exercise minimal judicial intervention and only decide on the issue of existence of arbitration agreement.[16] The Court has repeatedly emphasized that under the now amended Section 11(6A) of the Arbitration Act, in deference to the doctrine of kompetenz-kompetenz embodied in Section 16, the scope of court’s examination is limited to determining the existence of the arbitration agreement and all other preliminary / threshold issues are to be decided by the arbitrator.[17] Thus, once a court has prima facie determined that an arbitration agreement exists, issues regarding the invalidity of the agreement due to non-stamping have to be referred to an arbitrator in terms of the arbitration agreement.

Further, the stamp duty is only a fiscal measure to secure revenue and not a weapon of technicality, so there is no bar on an unstamped instrument being acted upon once the defect is cured.[18] In any event, under the Stamp Act no stamp duty is levied on an arbitration agreement. Hence, non-stamping of the main agreement (a) does not affect the validity of the arbitration agreement; and (b) does not render the main agreement void and is only a technical defect which can be cured by payment of stamp duty and penalty. This being the case, a party cannot be permitted to misuse the Stamp Act to deny the other party the pre-agreed remedy of arbitration.  

The N.N. Global Judgment, by accepting the doctrine of separability, has finally brought the Indian arbitration law in line with the international practices. The UK Court of Appeal, while accepting that the principle of separability exists in English Law, had held that if the arbitration clause is not directly impeached it is capable of surviving the invalidity of the contract so that the arbitrator has the jurisdiction to determine the initial validity of the contract.[19] When the validity of the contract is challenged, the arbitration agreement is treated as an autonomous procedural contract and not as an element of a material-legal contract.[20] The internationally accepted doctrine of separability has finally been accepted and applied by India’s apex court.

Conclusion

In recent times, the Court has adopted a policy to promote India as an arbitration-friendly nation. This is evident from its decision in A. Ayyasamy v. Parmasivam & Ors., wherein it held – “The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution.”[21] The N.N. Global Judgment is another in a series of pro-arbitration judgments of the Court aimed at evolving a robust framework of Indian arbitration law, benchmarked against the best international practices. The World Bank’s Doing Business 2020 report reveals that India ranks 63^rd in the ‘Ease of Doing Business Rankings’.[22] Promoting India as an arbitration-friendly jurisdiction is vital for attracting more investments and the N.N. Global Judgment is a welcome step in that direction.

Ananya Dhar Choudhury is an LL.M. candidate in the International Business Regulation, Litigation and Arbitration program at the NYU School of Law. Prior to attending NYU, she worked as an Associate with the Litigation and Disputes Resolution team at Cyril Amarchand Mangaldas, a leading full-service law firm in India.

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[[1]] Tibor Varady et al., International Commercial Arbitration: A Transnational Perspective 192 (7th ed. 2019).

[[2]] N. N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Others, 2021 SCC OnLine SC 13 at ¶1.

[[3]] Id. at ¶12.

[[4]] Ibid.

[[5]] Under Article 226 of the Constitution of India, every High Court has the power to issue to any person, in its territories, any direction for the enforcement of any of the rights and for any other purpose. Further, Article 227 of the Constitution of India bestows the High Court with supervisory jurisdiction over all courts and tribunals throughout its territorial jurisdiction. Therefore, in this case the Bombay High Court had supervisory jurisdiction over the Commercial Court to pass any direction it deems fit.

[[6]] If the parties fail to agree on the appointment of an arbitrator or tribunal, then either party may approach the court under Section 11 of the Arbitration Act requesting the court to make such an appointment. The decision of the court, pursuant to such a request, is final.

[[7]] N. N. Global Mercantile Pvt. Ltd., supra at ¶2.

[[8]] The House of Lords in Fili Shipping Co. Ltd. and others v. Premium Nafta Products Ltd. and Others, [2007] UKHL 40 held that the main agreement and the arbitration agreement must be treated as having been separately concluded. The arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and not as a mere consequence of the invalidity of the main agreement.

[[9]] The US Supreme Court in in Buckeye Check Cashing, Inc. v. Cardegna et. al., US SC 440 (2006) held that challenge to the contract does not prevent a court from enforcing a specific agreement to arbitrate contained therein.

[[10]] The French Cour de Cassation in Gosset v. Caparelli, Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963), 545 held that the arbitration agreement is completely autonomous in law and remains unaffected by the possible invalidity of the main contract.

[[11]] (2011) 14 SCC 66 at ¶19.

[[12]] (2019) 9 SCC 209 at ¶19, 22.

[[13]] (2021) 2 SCC 1 at ¶147.

[[14]] N. N. Global Mercantile Pvt. Ltd., supra at ¶6.10, 6.12.

[[15]] Preamble to the Arbitration Act; Harpreet Kaur, The 1996 Arbitration and Conciliation Act: A Step Toward Improving Arbitration in India, 6 Hastings Bus. L.J. 261, 264 (2010).

[[16]] Duro Felguera v. Gangavaram Port Ltd., (2017) 9 SCC 729 (affirmed by a three-judge bench of the Court in Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714).

[[17]] Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd, (2020) 2 SCC 455 at ¶7.8, 7.10.

[[18]] Hindustan Steel Limited v. M/s Dilip Construction Company, (1969) 1 SCC 597 at ¶7.

[[19]] Harbour Assurance v. Kansa General International Insurance, [1993] 1 Lloyd’s Rep. 455 (CA).

[[20]] Sojuznefteexport v. Joc Oil Limited, 15 Yearbk. Comm. Arb’n 384 (1990).

[[21]] A. Ayyasamy v. Parmasivam & Ors., (2016) 10 SCC 386 at ¶53.

[[22]] World Bank Group, Doing Business 2020, World Bank, https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf.

Adjunct Professor Pedro Martinez-Fraga was invited to teach a course on private international law at the prestigious Hague Academy of International Law. The Hague Academy, which, since its creation in 1923, has occupied premises at the Peace Palace in the Hague, alongside the highest judicial institutions such as the International Court of Justice and the Bureau of the Permanent Court of Arbitration, is a centre for research and teaching in public and private international law, with the aim of further scientific and advanced studies of the legal aspects of international relations. It does not have a permanent teaching staff, but its scientific body, the Curatorium, freely calls upon academics, practitioners, diplomats, and other personalities from all over the world whom it considers qualified to give courses, in English or French (with simultaneous interpretation). These courses are given in the form of a series of lectures, on general or special subjects.

Professor Martinez-Fraga, a leading practitioner in the field of investor-State international arbitration, international commercial arbitration, and transnational litigation, including complex jurisdictional disputes concerning common law and civil law issues, and co-leader of the International Arbitration practice of Bryan Cave Leigthon Paisner, joins the ranks of other NYU faculty who over the years have taught courses at the Hague Academy, such as Professor Franco Ferrari (Forum shopping despite unification of law, 413 Collected Courses of the Hague Academy of International Law (2021)), Professor Ryan Goodman (International Humanitarian Law and the Use of Lethal Force, 2019), Professor José Alvarez (The public international law regime governing international investment, 344 Collected Courses of the Hague Academy of International Law 193 (2009)), Professor Linda J. Silberman (Cooperative efforts in private international law on behalf of children: the Hague Children’s Conventions,  323 Collected Courses of the Hague Academy of International Law 261 (2006)), who will also give the General Course on private international law during the Hague Academy’s 2021 summer session, Theodor Meron (International law in the age of human rights, 301 Collected Courses of the Hague Academy of International Law 9 (2003), and Status and independence of the international civil servant, 167 Collected Courses of the Hague Academy of International Law 285 (1980)), and late Professors Thomas M. Franck (Fairness in the international legal and institutional system, 240 Collected Courses of the Hague Academy of International Law 9 (1993), and Minimum standards of public policy and order applicable to collective international commodity negotiations, 160 Collected Courses of the Hague Academy of International Law 395(1978)), and Andreas F. Lowenfeld (International litigation and the quest for reasonableness : general course on private international law, 245 Collected Courses of the Hague Academy of International Law 9 (1994), and Public law in the international arena : conflict of laws, international law, and some suggestions for their interaction, 163 Collected Courses of the Hague Academy of International Law 311 (1979)).

On June 7, 2021, from 9.30 to 10.45 am NY time, the Center will host, together with the Milan Chamber of Arbitration, a webinar focusing on the study entitled “Responsible private funding of litigation” authored by Jérôme Saulnier with Ivona Koronthalyova and Klaus Müller, European Added Value Unit, Directorate-General for European Parliamentary Research Services (EPRS), and the research paper annexed to it entitled “State of play of the EU private litigation funding landscape and the current EU rules applicable to private litigation funding”, co-written by Professors Cristina Poncibò and Elena D’Alessandro, University of Turin, Law Department, with cooperation, inter alia, by Dr. Niccolò Landi. While the study aims at determining whether and why the European Union should act in the field of private litigation funding, the research paper’s goal is to give a comprehensive overview of private litigation funding (or third-party litigation funding – TPLF) in the European Union, by describing the main players on the European TPLF market (i.e. funders, claimants and lawyers) and analyzing the EU legal framework.

The event will also compare the key findings of the study and research paper, to be identified by Professor Cristina Poncibò and Dr. Niccolò Landi and Professor Marco Torsello, with private litigation funding in the commercial arbitration context, a topic to be addressed by Dr. Domenico Di Pietro.

Professor Franco Ferrari will moderate the event.

For more information, including how to register, see the flyer.

On 6 May 2021, at 12.30 pm NY time, Professor Franco Ferrari, the Center’s Director, will deliver a lecture on “Limits to Party Autonomy in International Commercial Arbitration”, based on a paper co-authored with Dr. Friedrich Rosenfeld to be published in the forthcoming Cambridge Compendium of International Commercial and Investment Arbitration, which Professor Ferrari is editing together with Professors Andrea Bjorklund (McGill) and Stefan Kröll (Bucerius). The event is co-hosted by and DIS40 (Young Arbitration Practitioners of the Deutsche Institution für Schiedsgerichtsbarkeit e.V. (DIS) – German Arbitration Institute.

In his talk, Professor Ferrari will challenge the liberalist premise that international arbitration is a process between two rational parties who are at liberty to choose how to resolve their disputes by means of alternative dispute resolution. But he will do so without any intention to downplay the key role of party autonomy or to depart from the liberalist tradition. The point that will be made is simply that arbitration involves at least four potential stakeholders whose interests may overlap in some cases but diverge in others. And this entails limitations to party autonomy.

To register and receive the access code for the online meeting, send an email to germany@aia-arbit-40.org.