January 2012

Legal Eagle

Unfortunately, despite best efforts, there are times with legal wrangles arise.  Kinshuk Chatterjee, lawyer at Zaiwalla & Co Solicitors, offers advice on the settlement of disputes between companies

Where there is a business, particularly one which involves cross dealings with third parties, legal disputes do arise and businessmen do get involved in legal suits.  It is advisable that parties should aim at settling the claim. Not always will the claimant get every penny of his claim amount but litigation proceedings involve costs and are time consuming.  In addition, it often results in souring the relations between two business groups forever.

A legal settlement must be conducted and finalised with caution. There have been numerous examples in the past where parties have approached the court to determine what the terms of the settlement were. This negates the purpose of concluding a settlement in the first instance. The terms of the settlement should be clear and well understood between the parties, in other words the parties should be ad idem. A legal settlement is in essence a contract by itself. A promise is made by one party to the other that if the latter forgoes a legal claim, the former will suffer some detriment. It is in consideration of this promise that the party intending to litigate its dispute settles the matter.

Although a legal settlement is a contract, there is no requirement for a standard form for a settlement to be concluded. Settlement agreements are governed by principles of contract law and a chain of emails exchanged between two parties can result in legal settlement so long as the requirements of a contract formation are present.

English courts have a strong propensity to uphold contracts. Therefore a party who subsequently raises an argument that it was not its intention to enter into a binding agreement has to make a very strong argument in court. This can be a daunting task especially if there is no written communication to this effect. Therefore parties should make their intention very clear in writing/ correspondence that they do not consider themselves to be contractually bound. Likewise, consideration is also an important aspect whilst negotiating a legal settlement. A party should understand the value in exchange of which it will agree to relinquish its right to bring or continue its claim in a court of law. Courts do not value the consideration that moved from one contracting party to the other. In other words, a court of law will seldom adjudicate on the issue of whether the value exchanged between parties was adequate but rather whether it was sufficient to fulfil the mandates of a valid consideration under the law of contract.

Therefore parties should make their intention very clear even in informal exchanges as a simple “yes” or “no” in written communication could be said to reflect a party’s intention to settle a matter.

Tank Storage Magazine

January 2012

Settling disputes in the UK

When a legal claim arises, the temptation may be to settle, but caution needs to be exercised in the negotiation process.  It is important for companies to know when to involve solicitors.

In any business, particularly ones which involves cross-dealings with third parties, disputes invariably arise and businessmen get involved in legal suits. There is an apprehension that once a case has begun it will continue for a long time, and that litigant will have to bear the costs of the litigation and the legal costs of their adversary, should the claim be decided against them. Therefore, it is advisable parties aim to settle the dispute.

Provisions have been made in legal procedures which allow parties the scope to make a legal settlement. A Part 36 Offer, as it is popularly called, is a self contained code and provides guidelines for parties on how to make or accept an offer to settle. Interestingly, a Part 36 offer must be in writing and state whether it relates to the full claim or a part thereof and it also allows an opportunity for the person receiving the offer (the offeree) to seek clarifications of the offer made by the offeror.

Parties should exercise abundant caution in making an offer of settlement and conducting settlement dialogue, as it needs to be absolutely sure they conclude a settlement only of that dispute which they intend and no more. There have been numerous examples in the past where parties have approached the court to decide what the terms were of a settlement that was made between the two sides themselves. This negates the purpose of concluding a settlement in the first place. The terms of the settlement should be clear and well-understood between the parties; in other words, the parties should be ad idem. A legal settlement is in essence a contract by itself. A promise is made by one party to the other that if the latter forgoes a legal claim, the former will suffer some detriment and offer the other a benefit. It is in consideration of this promise that the party intending to litigate its dispute settles the matter.

Although a legal settlement is a contract, this does not mean it can only exist as a single, signed legal document. Settlement agreements are governed by principles of contract law, and so a chain of emails exchanged between two parties can result in legal settlement so long as the requirements of contract formation are present. The English Court in Golden Ocean Group Limited v Salgaocar Mining Industries Limited & another did not accept the argument that if an agreement had been made in writing, there was some limit to the number of documents to which reference was permissible. If there was said to have been an agreement in writing, the court was entitled to look at those documents which were said to constitute the agreement, however many they may be.

There is no requirement for parties to place their signature on a single piece of paper, which can then be forever pin-pointed as ‘the’ legal settlement between the parties. The legal principle that a settlement is for all intents and purposes an enforceable agreement means the essentials of a valid contract ought to be present; a document having the appearance of an agreement is not enough. One may derive comfort from the thought that ‘if I didn’t sign the document, it isn’t a contract’. That thought can be potentially dangerous. If parties have given full effect to an unsigned document through their conduct, the court shall consider that there was a contractual agreement between parties. There are, of course, exceptions to this. Transactions for the transfer of property are agreements where signature of parties is a sine qua non for execution of the contract.

It is also a myth that where the subsequent execution of a further document is contemplated by the parties at the time of what would otherwise be an agreement, that agreement at first instance, whether a single document or a chain of correspondence, is not a binding contract. The intention of parties to create legal contractual relations will be inferred from the conduct of parties: does that conduct suggest that they intended the future document actually to constitute the real agreement, or was it just to be a record of what was already an established agreement between parties? This is an objective test which courts use to ascertain whether an agreement was concluded.

English courts have a strong propensity towards upholding contracts. This is because it is presumed that parties intended to create a legal relationship when entering into a settlement. Therefore, if a party who appears to have made a settlement wants to raise an argument afterwards that it was not its intention to enter into the settlement, it has to make a very strong argument in court. This can be a daunting task, especially if there is no written communication to prove this lack of intention. Therefore, parties should make their intentions very clear in writing, stating that they do not consider themselves to be contractually bound to a legal settlement if that is actually how they feel.

This presumption in favour of upholding settlements is an extension of the principle of consensus ad idem; the Court will conduct an objective test to establish whether the parties were ‘of a mind’, in that they both wanted to create the same legally enforceable settlement. Therefore, a party who intends to displace this presumption is required to make an objective argument that, given the circumstances of the case, it would be incorrect to presume that a legal settlement had been concluded. An argument the party itself did not intend to conclude a legal settlement is a subjective argument and as such would not hold water before an English court or tribunal.

The English courts in such cases take the test of the ‘reasonable bystander’. If a reasonable bystander on his observation found that correspondence between parties had resulted in making an offer and acceptance of that offer, it would not matter that one party did not intend to conclude a legal settlement.

Likewise, consideration is also an important aspect when negotiating a legal settlement. A party should understand the value it will receive in exchange for its agreement to relinquish its right to bring or continue its claim in a court of law. Courts do not make judgments on whether the consideration that moved from one party to the other represents good value to the recipient, only on the question of whether any consideration was present. In other words, a court of law will seldom adjudicate on the issue of whether the value exchanged between parties was adequate, but rather whether it was sufficient to fulfil the requirement of valid consideration under the law of contract. The result of that is that a party who makes a bad bargain cannot look to the courts to help it out.

In a celebrated case, the House of Lords confirmed the doctrine that a court does not investigate the adequacy of consideration when it upheld the ruling that chocolate wrappers sent by members of the public to obtain music records were part of the consideration of the contract, notwithstanding that the company would throw away the wrappers once they were received.

A promise made by a defendant that it will consider the claimant for future business if the latter drops its claim against the former is valid consideration. An offeree cannot then complain that it did not make profit from any future business, and as such there was actually no consideration. In such a case the consideration for dropping the claim was ‘to consider the claimant for future business’ and not ‘to do future business.’ Therefore the fact that the claimant ultimately forsake his claim without ever any monetary benefit is immaterial.

A business person, or for that matter any one who is not well-acquainted with legal nuance, will often use words without stopping to consider that a word used by him may be construed by another in a totally different sense to that which the author had intended. Therefore, parties should make their intentions very clear even in informal exchanges: a simple ‘yes’ or ‘no’ in written communications could be said to reflect a party’s intention to settle a matter.

The presence of a solicitor whilst settlement negotiations are ongoing is always helpful, because the settlement can then be made as watertight as possible, which will in turn ensure that parties do not have to approach the court in future to resolve the issue whether or not there was a settlement, or what its terms where.

Whether a party handles its own legal settlement or is represented by a lawyer, the key is to make the party’s intentions crystal clear. A claimant must be aware that, in effecting a legal settlement, it is essentially giving up its right to bring the claim again in a court of law, and therefore all the issues in the dispute that it wanted to resolve should be meticulously spelled out. This ensures that parties are on the same footing whilst the negotiation is being finalised, and makes an out of court settlement final and meaningful.

For more information:

This article was written by Kinshuk Chatterjee, a lawyer at Zaiwalla & Co Solicitors. k.chatterjee@zaiwalla.co.uk; +44 207 312 1000; www.zaiwalla.co.uk

Heating and Ventilation News

30th November 2011

Conducting and settling disputes requires caution

On introducing myself as a lawyer to a gentleman I met at a recent party, he quipped that he had been enjoying himself thoroughly until I told him I was a lawyer. He then wanted to know how many of us lawyers were at the party. Businessmen clearly despise legal disputes, and given their way they would have nothing to do with lawyers. The real business world, however, does not work like that.

Where any business is trading, particularly one which involves cross-dealings with third parties, disputes arise and businessmen get involved in legal suits.  It is advisable that parties should aim to settle the claim. A claimant will not always get every penny of the amount he claims, but litigation proceedings incur costs and are time-consuming, and they often permanently sour the relations between businesses.

A legal settlement must be conducted and finalised with caution. There have been numerous examples in the past where parties have approached the Court to decide what the terms were of the settlement that was made by the two sides themselves. This negates the purpose of concluding a settlement in the first place.

The terms of the settlement should be clear and well-understood between the parties; in other words, the parties should be ad idem. A legal settlement is in essence a contract by itself.

A promise is made by one party to the other that if the latter forgoes a legal claim, the former will suffer some detriment. It is in consideration of this promise that the party intending to litigate its dispute settles the matter.

Although in essence a contract, this does not mean that it can only exist as a single, signed legal document. Settlements are governed by principles of contract law, and so a chain of emails exchanged between two parties can result in legal settlement so long as the requirements of contract formation are present.

English Courts have a strong propensity towards upholding contracts. Therefore, a party who raises an argument subsequent to the contract that it was not its intention to enter into a binding agreement has to make a very strong argument in Court. This can be a daunting task, especially if there is no written communication to this effect.

Parties should make their intentions very clear in writing, stating that they do not consider themselves to be contractually bound if that is actually how they feel. Consideration is also an important aspect when negotiating a legal settlement. A party should understand the value it will receive in exchange for its agreement to relinquish its right to continue its claim.

Courts do not make judgements on the value of the consideration that moved from one party to the other, only on the question of whether consideration was present. The result of that is that a party who makes a bad bargain cannot look to the Courts to help them out.

Therefore, parties should make their intentions very clear even in informal exchanges: a simple “yes” or “no” in written communications could be said to reflect a party’s intention to settle a matter.

Kinshuk Chatterjee is a lawyer at  Zaiwalla & Co Solicitors

Site Recorder

1st December 2011

Settlement of Disputes

In any business, particularly one which involves cross-dealings with third parties, disputes invariably arise and businessmen get involved in legal suits. There is an apprehension that once a case has begun it will continue for ages, and that litigant will have to bear the costs of the litigation and the legal costs of their adversary, should the claim be decided against them. Therefore, it is advisable that parties should aim to settle the dispute.

Provisions have been made in legal procedures which allow parties the scope to make a legal settlement. Part 36 of the Civil Procedure Rules provides a statutory procedure for parties on how to make or accept an offer to settle. These directives serve a significant purpose in reducing uncertainty between parties regarding proposed terms of settlement. However, all legal settlements do not emanate from Part 36 offers made by a litigant to its adversary, especially in arbitration proceedings, which are not governed by the rigours of Civil Procedure Rules.

When making an offer of settlement, abundant caution should be exercised in making an offer of settlement and conducting settlement dialogue, as a party needs to be absolutely sure that he concludes a settlement only of that dispute which he intends and no more.

There have been numerous examples in the past where parties have approached the Court to decide what the terms were of a settlement that was made between the two sides themselves. This negates the purpose of concluding a settlement in the first place. The terms of the settlement should be clear and well-understood between the parties; in other words, the parties should be ad idem. A legal settlement is in essence a contract by itself. A promise is made by one party to the other that if the latter forgoes a legal claim, the former will suffer some detriment and offer the other a benefit. It is in consideration of this promise that the party intending to litigate its dispute settles the matter.

Although a legal settlement is a contract, this does not mean that it can only exist as a single, signed legal document. Settlement agreements are governed by principles of contract law, and so a chain of emails exchanged between two parties can result in legal settlement so long as the requirements of contract formation are present. The English Court in Golden Ocean Group Limited v Salgaocar Mining Industries Limited & another did not accept the argument that if an agreement had been made in writing, there was some limit to the number of documents to which reference was permissible. If there was said to have been an agreement in writing, the Court was entitled to look at those documents which were said to constitute the agreement, however many they may be.

Following the above, there is no requirement for parties to place their signature on a single piece of paper, which can then be forever pin-pointed as ‘the’ legal settlement between the parties. The legal principle that a legal settlement is for all intents and purposes an enforceable agreement means that the essentials of a valid contract ought to be present; a document having the appearance of an agreement is not enough. So much so, that if parties have given full effect to an unsigned document through their conduct, the Court shall consider that there was a contractual agreement between parties. There are, of course, exceptions to this. Transactions for the transfer of property are agreements where signature of parties is a sine qua non for execution of the contract.

It is also a myth that where the subsequent execution of a further document is contemplated by the parties at the time of what would otherwise be an agreement, that agreement at first instance, whether a single document or a chain of correspondence, is not a binding contract.

English Courts have a strong propensity towards upholding contracts. This is because it is presumed that parties intended to create a legal relationship when entering into a settlement. Therefore, if a party who appears to have made a settlement wants to raise an argument afterwards that it was not its intention to enter into the settlement, it has to make a very strong argument in Court.

This presumption in favour of upholding settlements is an extension of the principle of consensus ad idem; the Court will conduct an objective test to establish whether the parties were ‘of a mind’, in that they both wanted to create the same legally enforceable settlement. Therefore, a party who intends to displace this presumption is required to make an objective argument that, given the circumstances of the case, it would be incorrect to presume that a legal settlement had been concluded. An argument that the party itself did not intend to conclude a legal settlement is a subjective argument and as such would not hold water before an English Court or Tribunal.

Likewise, consideration is also an important aspect when negotiating a legal settlement. A party should understand the value it will receive in exchange for its agreement to relinquish its right to bring or continue its claim in a Court of law. Courts do not make judgements on whether the consideration that moved from one party to the other represents good value to the recipient, only on the question of whether any consideration was present. In other words, a Court of law will seldom adjudicate on the issue of whether the value exchanged between parties was adequate, but rather whether it was sufficient to fulfil the requirement of valid consideration under the law of contract.

In a celebrated case, the House of Lords confirmed the doctrine that a court does not investigate the adequacy of consideration when it upheld the ruling that chocolate wrappers sent by members of the public to obtain music records were part of the consideration of the contract, notwithstanding that the company would throw away the wrappers once they were received.

A business person, or for that matter any one who is not well-acquainted with legal nuance, will often use words without stopping to consider that a word used by him may be construed by another in a totally different sense to that which the author had intended. Therefore, parties should make their intentions very clear even in informal exchanges as a simple “yes” or “no” in written communications could be said to reflect a party’s intention to settle a matter.

Kinshuk Chatterjee is a Lawyer at  Zaiwalla & Co Solicitors, a niche London law firm specialising in international commercial arbitration and litigation k.chatterjee@zaiwalla.co.uk 0207 312 1000 www.zaiwalla.co.uk

Food Processing

13th December

Settlement of Disputes

Author : Kinshuk Chatterjee

A legal settlement must be conducted and finalised with caution, particularly in the food industry where unnecessary expenses should be avoided at all costs.

In any business, particularly one that involves cross-dealings with third parties, disputes invariably arise and businessmen get involved in legal suits. There is an apprehension that once a case has begun it will continue for ages, and that litigant will have to bear the costs of the litigation and the legal costs of their adversary, should the claim be decided against them. Therefore, it is advisable that parties should aim to settle the dispute.

A legal settlement must be conducted and finalised with caution. There have been numerous examples in the past where parties have approached the Court to decide what the terms were of the settlement that was made by the two sides themselves. This negates the purpose of concluding a settlement in the first place.

The terms of the settlement should be clear and well-understood between the parties; in other words, the parties should be ad idem. A legal settlement is in essence a contract by itself. A promise is made by one party to the other that if the latter forgoes a legal claim, the former will suffer some detriment. It is in consideration of this promise that the party intending to litigate its dispute settles the matter.

It is a myth that a legal settlement has to exist as a single, signed legal document. Settlement agreements are governed by principles of contract law, and so a chain of emails exchanged between two parties can result in legal settlement so long as the requirements of contract formation are present.
English Courts have a strong propensity towards upholding contracts.

Therefore, a party who raises an argument subsequent to the contract that it was not its intention to enter into a binding agreement has to make a very strong argument in Court. This can be a daunting task, especially if there is no written communication to this effect. Therefore, parties should make their intentions very clear in writing/correspondence, stating that they do not consider themselves to be contractually bound if that is actually how they feel.

Likewise, consideration is also an important aspect when negotiating a legal settlement. A party should understand the value it will receive in exchange for its agreement to relinquish its right to bring or continue its claim in a Court of law. Courts do not make judgements on the value of the consideration that moved from one contracting party to the other, only on the question of whether consideration was present.

In other words, a Court of law will seldom adjudicate on the issue of whether the value exchanged between parties was adequate, but rather whether it was sufficient to fulfil the mandates of a valid consideration under the law of contract. The result of that is that a party who makes a bad bargain cannot look to the Courts to help them out.

In a celebrated case, the House of Lords confirmed the doctrine that a court does not investigate the adequacy of consideration when it upheld the ruling that chocolate wrappers sent by members of the public to obtain a music record from the company making this offer, were part of the consideration, notwithstanding that the company would throw away the wrappers once received.

Therefore, parties should make their intentions very clear even in informal exchanges: a simple “yes” or “no” in written communications could be said to reflect a party’s intention to settle a matter. One should bear in mind that not all legal disputes can be settled in the same manner as disputes which involve some kind of pecuniary consideration.

There may be legal disputes involving infringement of compliance measures (product liability cases) imposed by a regulator or infringement of an intellectual property where permanent injunction from using the trademark or copyright is the standard remedy.

For instance in the manufacturing industry the company may often find itself in a dispute defending its intellectual property or defending itself against a personal injury claim or even a dispute involving breach of compliance measures. In such cases an out of court settlement is plausible only in the second case where the compensation amount can be negotiated with the Claimant.

Manufactures are also faced with trade union actions and often a settlement between the management and the union may result in striking of potential industrial action. For instance plans for industrial action were called off by workers of Heinz in the Kitt Green unit when a revised pay structure increasing basic pay by 3.9% was accepted by a majority vote. This apart manufacturing industries operating in the retail market are faced by claims by unhappy consumers. In such cases too the company should aim at concluding a legal settlement with the complainant, of course bearing in mind what has been discussed earlier.

* Kinshuk Chatterjee is a Lawyer at Zaiwalla & Co Solicitors.
Kinshuk Chatterjee, Zaiwalla & Co: k.chatterjee@zaiwalla.co.uk 0207 312 1000 www.zaiwalla.co.uk

The Expert and Dispute Resolver

Winter 2011

Settlement of Disputes

I recently met a gentleman at a party who quipped that he had thoroughly enjoyed meeting me until I told him that I was a lawyer. He then wanted to know how many of us lawyers were at the party. Businessmen clearly despise legal disputes, and given their way they would have nothing to do with lawyers. The real business world, unfortunately, does not work like that.

When any business trades, particularly in a way which involves cross-dealings with third parties, disputes invariably arise and businessmen do get involved in legal suits. There is an apprehension that once a case has begun it will continue for ages, and that litigant will have to bear the costs of the litigation and the legal expenses of their adversary, should the claim be decided against them.

A legal settlement is therefore an important tool for putting an end to legal proceedings and allowing parties to effect a compromise. In fact, it is advisable that parties should aim to settle the claim. A claimant will not always get every penny of the amount he claims. However, litigation proceedings incur costs and are time-consuming, and they often permanently sour the relations between two business groups.

Provisions have been made in legal procedures which allow parties the scope to make a legal settlement. Part 36 of the Civil Procedure Rules provides a statutory procedure for settlement which is complete in its own right. A Part 36 Offer, as it is popularly called, is a self contained Code and provides guidelines for parties on how to make or accept an offer to settle. Interestingly, a Part 36 offer must be in writing and state whether it relates to the full claim or a part thereof and it also allows an opportunity for the person receiving the offer ‘the offeree’ to seek clarifications of the offer made by the offeror.

These directives serve a significant purpose in reducing uncertainty between parties regarding proposed terms of settlement. However, all legal settlements do not emanate from Part 36 offers made by a litigant to its adversary. For instance, arbitration proceedings are not governed by the rigours of Civil Procedure Rules and parties are left much to their own discretion as to how best to make an offer of settlement through regularly exchanged correspondence.

When making an offer of settlement, parties should be cautious to compromise only to the extent they desire. A legal settlement is, more often than not, a full and final settlement where parties relinquish their right to re-litigate the issues at hand. Therefore, abundant caution should be exercised in making an offer of settlement and conducting settlement dialogue, as a party needs to be absolutely sure that he concludes a settlement only of that dispute which he intends and no more.

There have been numerous examples in the past where parties have approached the Court to decide what the terms were of a settlement that was made between the two sides themselves. This negates the purpose of concluding a settlement in the first place. The terms of the settlement should be clear and well-understood between the parties; in other words, the parties should be ad idem. A legal settlement is in essence a contract by itself. A promise is made by one party to the other that if the latter forgoes a legal claim, the former will suffer some detriment and offer the other a benefit. It is in consideration of this promise that the party intending to litigate its dispute settles the matter.

Although a legal settlement is a contract, this does not mean that it can only exist as a single, signed legal document. Settlement agreements are governed by principles of contract law, and so a chain of emails exchanged between two parties can result in legal settlement so long as the requirements of contract formation are present. The English Court in Golden Ocean Group Limited v Salgaocar Mining Industries Limited & another, did not accept the argument that if an agreement had been made in writing, there was some limit to the number of documents to which reference was permissible. If there was said to have been an agreement in writing, the Court was entitled to look at those documents which were said to constitute the agreement, however many they may be.

Following the above, there is no requirement for parties to place their signature on a single piece of paper, which can then be forever pin-pointed as ‘the’ legal settlement between the parties. The legal principle that a legal settlement is for all intents and purposes an enforceable agreement means that the essentials of a valid contract ought to be present; a document having the appearance of an agreement is not enough. One may derive comfort from the thought that “if I didn’t sign the document, it isn’t a contract.” That thought can be potentially dangerous. If parties have given full effect to an unsigned document through their conduct, the Court shall consider that there was a contractual agreement between parties. There are, of course, exceptions to this. Transactions for the transfer of property are agreements where signature of parties is a sine qua non for execution of the contract.

It is also a myth that where the subsequent execution of a further document is contemplated by the parties at the time of what would otherwise be an agreement, that agreement at first instance, whether a single document or a chain of correspondence, is not a binding contract. The intention of parties to create legal contractual relations will be inferred from the conduct of parties: does that conduct suggest that they intended the future document actually to constitute the real agreement, or was it just to be a record of what was already an established agreement between parties? This is an objective test which Courts use to ascertain whether an agreement was concluded.

English Courts have a strong propensity towards upholding contracts. This is because it is presumed that parties intended to create a legal relationship when entering into a settlement. Therefore, if a party who appears to have made a settlement wants to raise an argument afterwards that it was not its intention to enter into the settlement, it has to make a very strong argument in Court. This can be a daunting task, especially if there is no written communication to prove this lack of intention. Therefore, parties should make their intentions very clear in writing/correspondence, stating that they do not consider themselves to be contractually bound to a legal settlement if that is actually how they feel.

This presumption in favour of upholding settlements is an extension of the principle of consensus ad idem; the Court will conduct an objective test to establish whether the parties were ‘of a mind’, in that they both wanted to create the same legally enforceable settlement. Therefore, a party who intends to displace this presumption is required to make an objective argument that, given the circumstances of the case, it would be incorrect to presume that a legal settlement had been concluded. An argument that the party itself did not intend to conclude a legal settlement is a subjective argument and as such would not hold water before an English Court or Tribunal.

The English Courts in such cases take the test of the “reasonable bystander.” If a reasonable bystander on his observation found that correspondence between parties had resulted in making an offer and acceptance of that offer, it would not matter that one party did not intend to conclude a legal settlement.

Likewise, consideration is also an important aspect when negotiating a legal settlement. A party should understand the value it will receive in exchange for its agreement to relinquish its right to bring or continue its claim in a Court of law. Courts do not make judgments on whether the consideration that moved from one party to the other represents good value to the recipient, only on the question of whether any consideration was present. In other words, a Court of law will seldom adjudicate on the issue of whether the value exchanged between parties was adequate, but rather whether it was sufficient to fulfil the requirement of valid consideration under the law of contract. The result of that is that a party who makes a bad bargain cannot look to the Courts to help them out.

In a celebrated case, the House of Lords confirmed the doctrine that a court does not investigate the adequacy of consideration when it upheld the ruling that chocolate wrappers sent by members of the public to obtain music records were part of the consideration of the contract, notwithstanding that the company would throw away the wrappers once they were received.

A promise made by a Defendant that it will consider the Claimant for future business if the latter drops its claim against the former is valid consideration. An offeree cannot then complain that it did not make profit from any future business, and as such there was actually no consideration. In such a case the consideration for dropping the claim was ‘to consider the Claimant for future business’ and not ‘to do future business.’ Therefore the fact that the Claimant ultimately forsake his claim without ever any monetary benefit is immaterial.

A business person, or for that matter any one who is not well-acquainted with legal nuance, will often use words without stopping to consider that a word used by him may be construed by another in a totally different sense to that which the author had intended. Therefore, parties should make their intentions very clear even in informal exchanges: a simple “yes” or “no” in written communications could be said to reflect a party’s intention to settle a matter.

The presence of a solicitor whilst settlement negotiations are ongoing is always helpful, because the settlement can then be made as watertight as possible, which will in turn ensure that parties do not have to approach the Court in future to resolve the issue whether or not there was a settlement, or what its terms where.

Whether a party handles their own legal settlement or is represented by a lawyer, the key is to make the party’s intentions crystal clear. A Claimant must be aware that, in effecting a legal settlement, it is essentially giving up its right to bring the claim again in a Court of law, and therefore all the issues in the dispute that it wanted to resolve should be meticulously spelled out. This ensures that parties are on the same footing whilst the negotiation is being finalised, and makes an out of court settlement final and meaningful.

Kinshuk Chatterjee is a Lawyer at  Zaiwalla & Co Solicitors

Kinshuk Chatterjee, Zaiwalla & Co.  Having qualified in 2007, Kinshuk joined the Supreme Court of India and was posted as a legal assistant to The Honerable Mr Justice Dalveer Bhandari. Thereafter he moved to the UK for a Masters degree specialising in corporate governance. Kinshuk has been involved in corporate litigations, breach of confidentiality claims and also advises on start-ups and privately owned businesses.

22nd November 2011

IMO Representative Speaks Out On The Piracy Of Freight Shipping Off Somalia

Anger at the Current Situation Pervades the Industry Worldwide

UK – SOMALIA – WORLDWIDE – Our article of a couple of days ago told of the Assembly of the International Maritime Organization (IMO) which is currently meeting in London and mentioned in passing that piracy remains high on the agenda. Now Sarosh Zaiwalla, a specialist in shipping law and a Permanent Representative to the IMO has commented on the current situation as regards the hijacking of bulk freight and container vessels passing through the troubled waters of the Gulf of Aden and beyond.

Mr Zaiwalla’s comments illustrate the increasing frustration which the global shipping community feels as year after year the problem of piracy worsens whilst little seems to be happening, either to address the political problems in Somalia, or to take internationally coordinated steps to deal with the situation directly using an armed response. Speaking to the Handy Shipping Guide Mr Zaiwalla said:

“In October, I addressed the Indian Shipping Summit in Mumbai. As a commercial lawyer who specialises in Shipping Arbitrations, I thought I would be asked about cargo disputes and Bills of Lading. The Indian Shipping Community however, despite always being a profoundly commercial group, had one thing on their minds that overtook even their bottom lines.

“International World Trade relies on the ability of traders to transport huge amounts of goods on giant moving structures across the most hostile seas in the world. These traders face enough challenges from nature and ill-fortune. It is nothing short of outrageous that, over the last few years, ship owners and seafarers have been forced to add the very real threat of violent piracy to the dangers of their normal lives. Piracy is a major threat not only to the shipping industry, but also to peace throughout the globe – if the world does nothing to stand up to people who use AK-47s and grenades to take the property of others, then what will stop thieves adopting the same tactics on the land?

“The Gulf of Aden off the coast of Somalia is now almost a no-go area for international ships. The most recent large scale act of piracy took place during the Indian summit, when the Italian ‘Monte Cristo’ was captured in this area. The crew managed to hide in their citadel, while the rest of the world wondered what could be done. It is a matter of great satisfaction that an international NATO force took charge and freed those men, but that is something that has not happened enough. More commonly, ransoms are paid for seafarers and cargo, meaning that expensive ‘Kidnap and Ransom’ insurance policies have added to the cost of shipping.

“The individual navy vessels from different countries that attempt to counter piracy are few in number and grossly inadequate for the task of patrolling the whole of the Indian Ocean. There is at present no coordinated approach. As a result, pirates are often captured only to be fed and returned to Somalia, free to go back to their old work of piracy.

“If international forces are to coordinate in order effectively to tackle piracy in the long term, I believe that they must combine their efforts into a UN Naval task force. This force could then concentrate on patrolling the coast of Somalia, from where the vast majority of the pirates emerge. I hope that we will all be surprised by the effect that could be brought about by such a force monitoring all small vessels leaving Somalia’s coastline to ensure they were genuine fishing vessels.

“With that in mind, I have used my position as a permanent member of the International Maritime Organisation (“IMO”) to force the issue. I had intended to move a resolution at the IMO for this purpose, but I will not now do so, as the Secretary General of the IMO has informed me that he himself with be moving this resolution. At the IMO’s General Meeting in November I hope to contribute to the pressure that will be required to create a Naval task force that may be able to save many lives, as well as a lot of money, by taking control of the Indian Ocean back from the pirates.

“Short of the creation of a UN naval taskforce, it is not going to be practical to control the plague of piracy. The Somalian pirates are effectively the same as any other terrorist. The only difference is that while international terrorists have so far indulged in acts of terrorism for the sake of their professed political causes, Somalia’s pirates indulge in terrorism only to fill their own pockets.

“Arming ocean-going vessels will go some way towards dealing with pirates, but for this course of action to work, many obstacles must be overcome. For example, Egypt will not allow vessels passing through the Suez Canal to carry on-board guns and ammunition. What also is of concern is the growing ‘industry’ around piracy. The total losses to the International Trade Community on account of piracy in the year so far is estimated to be US$2billion. Out of this US$2 billion, only about US$110 million represents ransom paid to the pirates, just over 1% of the total loss. The rest of the loss is mainly represented by increased insurance premiums, the cost of adapting ships to higher security standards and payments made to the specialist security companies which have sprung up to deal with piracy. At the end of the day, this additional cost falls on the consumer: they increase the freight charges and, consequently, the cost of the goods to the ultimate consumer.

“The 21st Century requires an enlightened approach to combat evils like piracy. It requires the countries of the world to come together, whether or not they share a coastline, to eradicate once and for all the Somalian piracy which has emerged in recent years. Any dragging of feet now would cause serious harm to the safety and livelihood of many innocent people, and would play right into the pirates’ hands.”

Mr Zaiwalla’s views, and those of his Indian shipping industry colleagues are perfectly reasonable but many other observers will be concerned at the thought that more freighters passing through these troubled waters might wish to carry arms, a move which may well lead to an escalation of violence by people who will have no hesitation in using extreme tactics as the disturbing video’s linked to one of our recent articles demonstrated.

Ideally a political solution to the troubles of Somalia together with an officially commissioned military response would be found, but, with the eyes of the world concentrated on a seemingly worsening financial global economy, the question will be if and when impassioned pleas from the likes of Mr Zaiwalla and his IMO colleagues can move this terrible situation on to a better place.

Anyone interested in the background to this story should type pirate into the News Search Box at the top of any page.

Photo: Sarosh Zaiwalla is a leading maritime law specialist and Senior Partner of Zaiwalla & Co Solicitors which specializes in international commercial arbitration and litigation and is Permanent Representative to the International Maritime Organization (IMO).

27th January 2012

Why jurisdiction matters

Kartik Mittal offers some tips on securing security for costs orders

An application for security for costs is a popular and effective tool used by lawyers in litigation and arbitration to protect the defendant against the risk that the claimants, if they lose, will not discharge their obligations under a costs order made against them.  One of the grounds under which the defendant can request the court to make an order for security for costs is that the claimant is resident out of the jurisdiction of the courts of England and Wales (CPR r25.13(2)(a)).

To be successful in an application for security for costs the defendant is required to prove that:

The claimant is resident out of jurisdiction but not resident in a Brussels or Lugano Convention State.

The countries currently governed by the Brussels and Lugano Conventions are the member states of the EC and the European Free Trade Area.

There will be obstacles to or a burden of enforcement of a subsequent order for costs in the context of the particular foreign Claimant or Country concerned (Nasser v United Bank of Kuwait [2001] EWCA CIV 556, [2002] 1 All ER 401)

This limb of the test has become known as “the Nasser test”. The most effective way to prove the existence of this condition is to adduce evidence from a foreign lawyer or firm registered and practicing in the country where the order would have to be enforced. The evidence may touch upon areas such as cost of enforcement, delay, irrecoverable contingency fees or procedural difficulties in the enforcement of foreign judgments.

It may be difficult for a defendant to persuade the court to make an order for security for costs in cases where the UK has reciprocal arrangements for recognition and enforcement of judgments with the foreign country, or where the foreign country has procedures in place for recognising English judgments.

Recently, my firm was involved in the case of Sadruddin Hashwani v Nurdin Jivraj [2010] EWCA Civ 83, in which Mummery LJ dismissed an application for security for costs and held that it would be unjust to make such an order against a claimant resident in Pakistan. He concluded this on the basis that the UK and Pakistan have a reciprocal arrangement for the enforcement of judgments of the English courts. The applicant, Mr. Jivraj, argued that the political circumstances prevailing in Pakistan, including the suspension of senior members of the judiciary by the government, constituted an obstacle under the Nasser test. This argument was rightly rejected by the court.

In the case of Ali Burak Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm), [2010] All ER (D) 216 (Oct) an application for security for costs was made against a claimant resident in Turkey. Mr. Justice Hamblen concluded that, since enforcement in Turkey takes longer than in the UK, and the costs of enforcement are more than in a Brussels or Lugano State, it would be just to make an order for security for costs. Even in this case, however, the judge made it clear that the amount of security should be limited to the extra burden of enforcement.

Another case in which my firm was involved is the case of Jayesh Shah and another v HSBC Private Bank Limited. In this case Davis J held that difficulty in enforcement can often depend on the nature of the assets available against which the judgment is to be enforced. He held that, even though a claimant is not under an obligation to disclose his assets, if he chooses to do so, the court can take into consideration the obstacles to or burden of enforcement in relation to such assets in a particular foreign country.

Having regard to all the circumstances, it will be just to make an order for security for costs

It is open for the court to consider various factors before reaching a conclusion as to whether or not it would be just to make an order for security for costs. In practice, the court usually gives weight to the following factors:

Stifle the Claim

Article 6 (1) of the European Convention on Human Rights confirms that everyone has a right to a fair trial. The courts therefore are wary of making an order for security for costs in cases where the claimant can prove that such an order will stifle the claim (Al-Koronky v Time Life Entertainment Group Ltd [2005] EWHC 1688 (QB), [2005] All ER (D) 457 (Jul)).

Merits of the Case

Generally the court will not order a claimant to provide security for costs if, at the time of the application, the claim appears highly likely to succeed (Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534; Al- Koronky v Time Life Entertainment Group Ltd [2006] EWCA Civ 1123, [2006] All ER (D) 447 (Jul)). However, the court does not encourage parties to engage in detailed arguments over the merits of the case during an application for security for costs.

Counterclaim by Defendant

A court usually will not make an order for security for costs in respect of a claim where the same issues arise on a counterclaim in the same proceedings (White Book, 2011, para 25.13.1.1). However, the courts have regarded it as just to order security for costs in cases where the claim raises substantial factual enquiries which are not the subject of any counterclaim (Shaw-Lloyd & Co v ASM Shipping Ltd [2006] EWHC 1958 (QB)). In cases where the counterclaim goes beyond the issues pleaded in the claim, it will be difficult for the defendant to obtain an order for security for costs against the claimant because if such an order was made, its affect would be to give the defendant security against the costs incurred on account of his own counterclaim.

Conclusion

Even though the Civil Procedure Rules give a wide discretion to the court in making an order for security for costs, it has become increasingly difficult for the defendant to obtain such orders.

Kartik Mittal is a solicitor at Zaiwalla & Co Solicitors & is a member of the Indian Bar.

Website: www.zaiwalla.co.uk

This article was first published in New Law Journal (http://www.newlawjournal.co.uk), “Why jurisdiction matters”, NLJ 27 January 2012, p 136.

Costs Lawyer

November 2011

Security Guard

Kartik Mittal looks at the issues raised by security for costs applications on the ground that the claimant is resident out of the jurisdiction

An application for security for costs is a popular and effective tool employed by lawyers in litigation and arbitration to protect the defendant.

One of the grounds under which the defendant can request an order for security for costs is that the claimant is resident out of the Jurisdiction of the Courts of England and Wales (CPR r25.13 (2) (a)).

In order to succeed, the defendant has to prove that:

1. 1. The claimant is resident out of jurisdiction but not resident in a Brussels or Lugano Convention state (those countries that are members of the European Community and the European Free Trade Area.

1. 2. There will be obstacles to or a burden of enforcement of a subsequent order for costs in the context of the particular foreign claimant or country concerned (see Nasser –v- United Bank of Kuwait [2002] 1 W.L.R. 1868; [2002] 1 All E.R. 401, CA).

This limb of the test has become known as the Nasser test. In my opinion, the most effective way to prove the existence of this condition is to adduce evidence from a foreign lawyer/firm registered and practicing in the country where the order would have to be enforced. The evidence may touch upon areas such as cost of enforcement, delay, irrecoverable contingency fees or procedural difficulties in the enforcement of foreign judgments.

It may be difficult for a defendant to persuade the court to make an order where the UK has reciprocal arrangements for recognition and enforcement of judgments with the foreign country, or where the foreign country has procedures in place for recognising English judgments.

My firm was involved in Sadruddin Hashwani v Nurdin Jivraj [2010] EWCA Civ 83, in which Lord Justice Mummery dismissed an application for security for costs and held that it would be unjust to make such an order against a claimant resident in Pakistan on the basis that the UK and Pakistan have a reciprocal arrangement for enforcing judgments. The applicant argued that the political circumstances prevailing in Pakistan, including the suspension of senior members of the judiciary by the government, constituted an obstacle under the Nasser test. This argument was rightly rejected by the court.

In Ali Burak Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm), an application for security for costs was made against a claimant resident in Turkey. Mr Justice Hamblen concluded that since enforcement in Turkey takes longer than in the UK, and the costs of enforcement are more than in a Brussels or Lugano State, it would be just to make an order for security for costs. Even in this case, however, the judge made it clear that the amount of security should be limited to the extra burden of enforcement.

Another case in which my firm was involved is the case of Jayesh Shah and another v HSBC Private Bank Limited [2010] EWHC 3440 (QB). Mr. Justice Davis held that difficulty in enforcement can often depend on the nature of the assets available against which the judgment is to be enforced. He held that even though a claimant is not under an obligation to disclose his assets, if he chooses to do so, the court can take into consideration the obstacles to or burden of enforcement in relation to such assets in a particular foreign country.

1. 3. Having regard to all the circumstances, it will be just to make an order for security for costs.

It is open for the Court to consider various factors before reaching a conclusion as to whether or not it would be just to make an order for security for costs. In practice, the Court usually gives weight to the following factors:

• Stifle the claim: article 6 (1) of the European Convention on Human Right confirms that everyone has a right to a fair trial. The courts therefore are wary of making an order for security for costs in cases where the claimant can prove that such an order will stifle the claim (see Al-Koronky – v- Time Life Entertainment Group Ltd [2005] EWHC 1688).

• Merits of the case: generally the court will not order a claimant to provide security for costs if, at the time of the application, the claim appears highly likely to succeed (see Keary Developments Ltd –v- Tarmac Construction Ltd [1995] 3 All E.R. 534, 540,CA ; Al- Koronky – v- Time Life Entertainment Group Ltd [2006] EWCA Civ 1123). However, the court does not encourage parties to engage in detailed arguments over the merits of the case during an application for security for costs.

• Counterclaim by defendant: a court usually will not make an order for security for costs in respect of a claim where the same issues arise on a counterclaim in the same proceedings (see White Book, 2011, Para 25.13.1.1). However the courts have regarded it as just to order security for costs in cases where the claim raises substantial factual enquiries which are not the subject of any counterclaim (see Shaw-Lloyd & Co -v- ASM Shipping Ltd [2006] EWHC 1958 (QB)). Where the counterclaim goes beyond the issues pleaded in the claim, it will be difficult for the defendant to obtain an order for security for costs against the claimant because if such an order was made, its affect would be to give the defendant security against the costs incurred on account of his own counterclaim.

In conclusion, even though the Civil Procedure Rules give a wide discretion to the court in making an order for security for costs, it has become increasingly difficult for defendant to obtain one.

Kartik Mittal is a solicitor at Zaiwalla & Co LLP in London

Civil Costs Newsletter

December 2011

Why jurisdiction matters

An application for security for costs is a popular and effective tool employed by lawyers in litigation and arbitration to protect the defendant against the risk that the claimant, if he or she loses, will not discharge their obligations under a costs order made against them.

One of the grounds under which the defendant can request the court to make an Order for security for costs is that the claimant is resident out of the Jurisdiction of the Courts of England and Wales (CPR r 25.13 (2) (a)).

In order to be successful in an application for security for costs the defendant is required to prove that:

a)       The claimant is resident out of Jurisdiction but not resident in a Brussels or Lugano Convention State.

The countries currently governed by the Brussels and Lugano Conventions are the member states of the European Community (EC) and the European Free Trade Area (EFTA), i.e. Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Iceland, Italy, Luxemburg, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom (White Book, 2011, para 25.13.3).

b)       There will be obstacles to or a burden of enforcement of a subsequent order for costs in the context of the particular foreign claimant or country concerned (Nasser v United Bank of Kuwait [2002] 1 WLR 1868; [2002] 1 All ER 401, CA).

This limb of the test has become known as ‘the Nasser test’. In the writer’s opinion the most effective way to prove the existence of this condition is to adduce evidence from a foreign lawyer/firm registered and practicing in the country where the order would have to be enforced. The evidence may touch upon areas such as cost of enforcement, delay, irrecoverable contingency fees or procedural difficulties in the enforcement of foreign judgments.

It may be difficult for a defendant to persuade the court to make an order for security for costs in cases where the UK has reciprocal arrangements for recognition and enforcement of judgments with the foreign country, or where the foreign country has procedures in place for recognising English judgments. The United Kingdom has such treaties in place with various Commonwealth and Common Law Countries.

Recently my firm was involved in the case of Sadruddin Hashwani v Nurdin Jivraj [2010] EWCA Civ 83, in which Lord Justice Mummery dismissed an application for security for costs and held that it would be unjust to make such an order against a claimant resident in Pakistan. He concluded this on the basis that the UK and Pakistan have a reciprocal arrangement for the enforcement of judgments of the English courts. The applicant, Mr. Jivraj, argued that the political circumstances prevailing in Pakistan, including the suspension of senior members of the Judiciary by the Government, constituted an obstacle under the Nasser test. This argument was rightly rejected by the court.

In the case of Ali Burak Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm) an application for security for costs was made against a claimant resident in Turkey. Mr. Justice Hamblen concluded that since enforcement in Turkey takes longer than in the UK, and the costs of enforcement are more than in a Brussels or Lugano State, it would be just to make an order for security for costs. Even in this case, however, the judge made it clear that the amount of security should be limited to the extra burden of enforcement.

Another case in which my firm was involved is the case of Jayesh Shah and another v HSBC Private Bank Limited. In this case Mr. Justice Davis held that difficulty in enforcement can often depend on the nature of the assets available against which the judgment is to be enforced. He held that even though a claimant is not under an obligation to disclose his assets, if he chooses to do so, the court can take into consideration the obstacles to or burden of enforcement in relation to such assets in a particular foreign country.

c)       Having regard to all the circumstances, it will be just to make an order for Security for costs.

It is open for the court to consider various factors before reaching a conclusion as to whether or not it would be just to make an order for security for costs. In practice, the court usually gives weight to the following factors:

• Stifle the Claim

Article 6 (1) of the European Convention on Human Right (‘ECHR’) confirms that everyone has a right to a fair trial. The courts therefore are wary of making an order for security for costs in cases where the claimant can prove that such an order will stifle the claim (Al-Koronky v Time Life Entertainment Group Ltd [2005] EWHC 1688).

• Merits of the Case

Generally the court will not order a claimant to provide security for costs if, at the time of the application, the claim appears highly likely to succeed (Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534, 540,CA; Al- Koronky v Time Life Entertainment Group Ltd [2006] EWCA Civ 1123). However, the court does not encourage parties to engage in detailed arguments over the merits of the case during an application for security for costs.

• Counterclaim by Defendant

A court usually will not make an order for security for costs in respect of a claim where the same issues arise on a counterclaim in the same proceedings (White Book, 2011, para 25.13.1.1). However, the courts have regarded it as just to order security for costs in cases where the Claim raises substantial factual enquiries which are not the subject of any counterclaim (Shaw-Lloyd & Co v ASM Shipping Ltd [2006] EWHC 1958 (QB)). In cases where the counterclaim goes beyond the issues pleaded in the claim, it will be difficult for the defendant to obtain an order for security for costs against the claimant because if such an order was made, its affect would be to give the defendant security against the costs incurred on account of his own counterclaim.

Conclusion

Even though the Civil Procedure Rules give a wide discretion to the court in making an order for security for costs, it has become increasingly difficult for the defendant to obtain such orders.

Kartik Mittal is a Solicitor at Zaiwalla & Co. LLP and a member of the Indian Bar.

Website: www.zaiwalla.co.uk

Tuesday 11 October 2011

Calls for UN naval task force to combat piracy

Lack of co-ordination from individual states makes Indian Ocean soft target for pirates

THE CAMPAIGN for a UN naval task force to patrol the coast of Somalia due to the perceived lack of co-ordination from individual states has increased momentum.

Sarosh Zaiwalla, permanent member of the International Maritime Organization representing the island nation of Comoros, said it was his intention to force this issue with the UN Security Council at the IMO’s general meeting in November.

He said that he would also like to see one of the countries with a permanent seat on the UN Security Council, most notably the UK, to move a resolution to establish the task force.

According to Mr Zaiwalla, who was also a guest speaker at the India Shipping Summit held today in Mumbai, such a task force would monitor all small vessels leaving Somalia’s coastline to ensure they were genuine fishing vessels.

“The individual navy vessels from different countries countering piracy are few in number and grossly inadequate in the task of patrolling the whole vast area of the Indian Ocean. There is at present no co-ordinated approach within the naval vessels of the different countries performing this task. Pirates have been taken prisoners only to be fed and then freed to go back to their old tasks of piracy.

“Piracy is a crime and in my view the acts of the pirates equates to the acts of any international terrorists,” he argued.

Mr Zaiwalla said that piracy had not only become an industry in Somalia but had now become part of the maritime industry in certain Western countries because of the “cropping up” of security companies and specialist piracy cover.

“It would be possible for ships to obtain adequate insurance cover but that cannot be the solution because it would effectively mean the world shipping community is accepting that piracy is going to be part of the maritime world from now on,” Mr Zaiwalla said.

“For the ships to bypass the area presently covered by pirates cannot be an answer either because not only that would make the freight more expensive, which ultimately consumers all over the world will need to pay, but the pirates are likely to extend their activity to other new areas.”

Mr Zaiwalla’s plea follows similar calls from the Asian Shipowners’ Forum Safe Navigation & Environment Committee which vented its frustration at the ongoing spate of pirate attacks late last month.

The ASF said it endorsed the formation of a UN anti–piracy military task force consisting of armed military guards that could be deployed in small detachments onboard merchant ships to protect them during their transits through the Indian Ocean.

In May this year IMO secretary-general Efthimios Mitropoulos also made it clear he intended to use any means necessary to gather support for his long-held plan to co-ordinate all international anti-piracy operations under a single UN command and increase the number of warships being used off Somalia.

October 2011

Asian arbitration redefined

Courts throughout the world differ in their approach to an issue of law depending on the laws applicable in that court’s jurisdiction. In general, courts have been perceived as inflexible because of their need to observe procedural rules. The court system was initially developed to penalise a party at default, rather than to settle disputes in a mutually acceptable way. As international trade globalised, the importance of settling disputes by alternative methods grew. The concept of an alternative dispute resolution (ADR) system was developed in order to make court procedures less rigid. The ADR system includes arbitration, mediation and conciliation.

In the absence of ADR systems, international parties would have remained reluctant to approach local civil courts in order to resolve business disputes, as an international party would not have been familiar with the local laws, language and rules in relation to the procedures and conduct of a trial in an unfamiliar jurisdiction. Further, the knowledge and expertise of local judges in less developed nations was always open to questioning by a disputing party. With the ADR system, a party can choose a member of the tribunal with experience and expertise to adjudicate a matter effectively.

In order to facilitate the development of international arbitration, rules such as the UNCITRAL Model Law on International Commercial Arbitration and the ICC Rules of Arbitration were drafted by the United Nations and the International Chamber of Commerce.

Over the last three decades, Asian countries such as China, India and Singapore have emerged as some of the fastest growing economies in the world. The rise of these countries’ economies brought with it the need for a locally organised dispute referral system that could offer international parties the same services and comfort as had historically been provided to them by legal systems in Western Europe and North America, and included dispute resolution mechanisms.

Arbitral institutions such as the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC) are now highly regarded leading centres for international commercial arbitration in Asia. They are preferred by international business people over its European and North American counterparts due to developments and systematic progressive measures put in place by the government in each of these jurisdictions.

Arbitration in Hong Kong

On 1 July 1997, Hong Kong became a part of the People’s Republic of China as a special administrative region. Despite this change, China has allowed Hong Kong to maintain its English-based common law system.

The Arbitration Ordinance (Cap 341) (‘the old Ordinance’) was the primary legislation governing arbitration in Hong Kong. The old Ordinance used to govern both domestic and international arbitration, each with its own set of applicable rules. This caused great difficulties for legal practitioners who had to first identify the nature of the dispute and then work out the set of rules that should be applied.

In order to ensure that Hong Kong remains an attractive and user-friendly international arbitration centre, the Legislative Council passed the Arbitration Ordinance (Cap 609) (‘the new Ordinance’) in November 2010, which came into force on 1 June 2011. The new Ordinance is largely based on the UNCITRAL Model Law and has completely replaced the old Ordinance. For a detailed discussion about the new Ordinance, see Robin Peard, ‘Hong Kong’s new Arbitration Ordinance’ Hong Kong Lawyer (April 2011) p 12. A synopsis of some of the main provisions and changes introduced by the new Ordinance follows.

The new ordinance

Unitary system
The most significant change introduced by the new Ordinance was the abolition of the dual system for international and domestic arbitration. It created a unitary system which now applies to all arbitrations, whether domestic or international, where the seat of arbitration is in Hong Kong. Further, under s 99 of the new Ordinance, parties to the arbitration have the discretion to choose to apply some of the provisions of Sch 2 (opt-in provisions), which under the old Ordinance were only applicable to domestic arbitration. These provisions include:

(a) a default number of arbitrators;
(b) the consolidation of arbitrations;
(c) court decisions on a preliminary point of law; and
(d) appeals on the grounds of serious irregularities and, for example, on points of law.

Further, under s 100 of the new Ordinance, all the provisions of Sch 2 will apply to domestic arbitration agreements so long as they were entered into before or within six years from the commencement of the new Ordinance, unless the parties agreed to exclude any of the provisions by way of an express agreement under s 102 of the new Ordinance.

Construction contracts
The rationale for including these opt-in provisions in Sch 2 was mainly to address major concerns raised by the construction industry, especially those raised by the Hong Kong Construction Association (HKCA). The HKCA believed that construction contracts were largely based on standard form contracts, and any contract entered into before, or a short time after, the commencement of the new Ordinance would continue to use the term ‘domestic arbitration’ even after the consolidation of domestic and international arbitration practices.

Furthermore, s 101 provides that if the opt-in provisions under Sch 2 are applicable to an arbitration agreement under s 100, and the subject matter of the contract is sub-contracted to another party, then all of the provisions in Sch 2 will also apply to the arbitration agreement in the sub-contract. However, this section is only applicable to construction sub-contracts and only in cases where any part of the contract is sub-contracted to another party in Hong Kong, or a substantial part of the sub-contract is being performed in Hong Kong.

In the first draft of the new Ordinance, s 101 was made applicable to all sub-contracts. However, during the consultation phase, this section was criticised by the majority of respondents, including the insurance and shipping industries, on the basis that:

(a) it was against parties’ autonomy;
(b) it was unnecessary because s 100 already covered most sub-contract situations; and
(c) it would give rise to unintended implications.

Although the HKCA wanted to retain s 101, it was deleted by the law draftsmen in September 2009.

The HKCA resubmitted its concerns, stating that under the draft Ordinance an affected party could only file an application to set aside an award on the grounds of non-recognition and non-enforcement of an award under Art V of the New York Convention. This would therefore deprive parties to the domestic arbitration of certain rights under Sch 2, such as the right to appeal against an arbitral award on a point of law or for serious irregularities. Section 101 was later revised to apply only to sub-contracts in relation to a construction contract. The approach has been regarded as favourable and has provided a practical solution to address the concerns of the construction industry.

Interim injunctions
Under the new Ordinance there is minimal court interference. Tribunals have additional powers to grant interim injunctions and to make both preliminary and interlocutory orders. Under s 35 of the new Ordinance, tribunals have the power to make orders for the preservation of assets; under s 53 they have the power to make peremptory orders to ensure that the parties comply with the tribunal’s orders and directions. Significantly, under s 45 of the new Ordinance, Hong Kong courts also have the power to grant interim injunctions even when the seat of arbitration is not Hong Kong, so long as the arbitration proceedings relate to an arbitration whose arbitral award is likely to be enforced in Hong Kong or whose interim measures could
be granted in Hong Kong.

Confidentiality
The main advantage of arbitration is the confidentiality of the proceedings. Under s 18 of the new Ordinance, parties are prohibited from disclosing any information relating to the arbitration proceedings and award to any third party. This protects the interests of disputing parties in that sensitive information relating to business deals remains undisclosed. Section 16 also provides that any court proceedings commenced under an arbitration agreement are to be conducted in a closed court unless the court is satisfied that those proceedings ought to be heard in an open court.

Mediation
Another important provision in the new Ordinance, which seems somewhat unusual in nature, actually resembles common sense for contesting commercial parties. If agreed by the parties in writing, the appointed arbitrator can, under s 33, act as a mediator during the course of the arbitration proceedings. If the matter does not settle by mediation, the arbitrator must, before resuming the arbitral proceedings, disclose to all other parties any information he/she has accessed while acting as a mediator and which is material to the arbitral proceedings. No objections may be raised against the arbitrator solely on the grounds that he/she previously acted as a mediator in accordance with s 33.

Enforcement
A large part of the UNCITRAL Model Law is adopted in the new Ordinance. However, Arts 35 and 36, which deal with recognition and enforcement of an arbitral award, have not been adopted. Further, the new Ordinance sets out separate provisions for the enforcement of:

(a) New York Convention awards and mainland China awards; and
(b) awards which are not covered under (a).

Under the new Ordinance, an arbitral award is enforceable in the same manner as a court judgement. However, leave of the court for the enforcement of an arbitral award is required. The grounds under which enforcement may be refused are similar to those listed in the New York Convention. A striking difference is the grant of discretionary powers to the court to refuse to enforce a non-convention award, which has been granted under s 86 of the new Ordinance.

The landmark judgment of the Hong Kong Court of Final Appeal (CFA) in Democratic Republic of Congo v FG Hemisphere Associated LLC [2011] 4 HKC 151; [2011] HKCU 1055 provides clarity on the subject of enforcement of arbitral awards against foreign states in Hong Kong. For a comprehensive discussion about the Congo
case, see: T Carty and O Jones, ‘The Congo Case’ Hong Kong Lawyer (March, 2011) p 43.

The main issue in this particular case was whether an arbitral award made against a foreign state under a business contract could be enforced in Hong Kong courts. The CFA, by a majority, decided that such awards were unenforceable. The court held that the Congolese government had not waived its state immunity by entering into a
commercial contract because Hong Kong cannot have a doctrine of state immunity which is inconsistent with the laws of China. The dissenting judges considered that, under the Basic Law, a state has restrictive immunity and this has not been modified or changed by any Chinese legislation and therefore restrictive state immunity continues to apply. However, on 26 August 2011, the Standing Committee of the National People’s Congress (NPCSC) adopted an interpretation of Arts 13 and 19 of the Basic Law, stipulating that Hong Kong’s laws must ‘be consistent with the rules or policies on state immunity that the central government has adopted’: see ‘China’s legislature reviews draft interpretation of articles of HK’s constitution’; available at: www.npc.gov.cn. On 8 September 2011, the CFA upheld the decision that the Democratic Republic of Congo has state immunity, following the NPCSC’s interpretation. This means that Hong Kong’s position on sovereign immunity is now at odds with most other developed nations, which generally waive sovereign immunity in cases involving commercial transactions under the doctrine of restricted immunity.

Since reunification, Hong Kong has maintained an independent judiciary and a separate legal system under the principles of the Basic Law. Hong Kong was ranked 15th out of 133 countries by the World Economic Forum in its Global Competitiveness Report 2010-11 for its judicial independence from the influences of members of government, citizens, or firms. In the same Report, Singapore was ranked 21st. However, the NPCSC’s interpretation of this issue might give an edge to Singapore and other jurisdictions, such as the United States and Australia, which allow foreign states to be sued under commercial contracts and to enforce arbitration awards in those countries.

Arbitration in Singapore

Commercial arbitration in Singapore is divided into domestic and international regimes. The international regime is governed by the International Arbitration Act (IAA), while domestic arbitration is governed by the Arbitration Act 1953. The Singapore International Arbitration Centre (SIAC) commenced operations in 1991, and its rules are based on the UNCITRAL Model Law and the rules of the London Court of International Arbitration (LCIA).

On 1 July 2010, SIAC published its 4th Edition Rules, making some significant changes to the previous rules. Many of the following changes were introduced to streamline existing procedures and make the arbitration proceedings swifter and more cost effective. Under rule 5 of the new expedited procedures, the tribunal is required to pass an award within six months of the date of its constitution (if the  parties so agree) for any reference with a value of below S$5 million (US$4.04 million). Under rule 26, SIAC can appoint an emergency arbitrator to assist any party who requires any emergency or an interim relief. In accordance with rule 18, the tribunal has been granted the power to determine the seat of arbitration if the parties fail to agree and under rule 35.4, the tribunal can order sanctions or costs should a party breach the confidentiality rules.

Further, on 12 April 2011, the Singapore Law Reform Committee (SLRC) issued a report suggesting amendments to the IAA so as to grant a party the right to judicial review of negative jurisdictional rulings made by a tribunal in an arbitration proceeding which is governed by the IAA. A further amendment deals with the situation in which an arbitral tribunal finds that it has no jurisdiction and makes a costs award against an unsuccessful party to pay the other side’s wasted costs. At present, if the tribunal has no jurisdiction to adjudicate the matter, any orders or awards made by the tribunal are not binding on the parties. Lastly, the SLRC suggested that Singaporean courts should have the power to make an order for costs if the court reverses a ruling of the tribunal. Under current laws, the court can make an order for costs only in respect of the proceedings before itself.

Although significant changes have been introduced in Singapore including the recent suggestions by the SLRC, Singapore still operates a dual system which is not favoured by international business people who prefer to have simpler procedural rules. By introducing the new Ordinance, Hong Kong has certainly proceeded in the right direction towards presenting itself as the preferred venue for arbitration in Asia. However, businesses tend to opt for Singapore as the seat of arbitration when doing business with a Chinese party because Singapore is considered to be a more politically neutral place than Hong Kong. Incidentally, Indian businesses refer more disputes by arbitration to dispute resolution centres in Singapore than in Hong Kong. This is because India shares better economic relations with Singapore and the latter is more convenient for Indian businesses as regards to geographical distance and time zones.

Arbitration in India

The Arbitration and Conciliation Act of 1996 (ACA) governs arbitration in India. The ACA provides for both domestic and international arbitration. The ACA is based on the UNCITRAL Model law for international arbitration and the UNCITRAL Conciliation Rules 1980 to conduct conciliation proceedings between disputing parties. The Indian Council of Arbitration (ICA) is the primary arbitration institution in India; it has its own rules and maintains a panel of arbitrators.

The ACA is divided into two parts: Pt I deals with the conduct and enforcement of domestic arbitration; Pt II provides for the enforcement of foreign awards. In the case of Venture Global Engineering v Satyam Computer Services Ltd (Civil Appeal No 309 of 2008, Supreme Court of India, 10 January 2008), the court held that Pt I does apply to international arbitration. The ACA provides power to the court to grant interim measures (s 9), to appoint arbitrators (s 11(4)), to assist the tribunal in taking evidence (s 27) and to hear appeals against the orders of the tribunal (s 37). There is an implied duty to keep the arbitration proceedings confidential and parties are not allowed to disclose any documents relating to the arbitration proceedings. However, the arbitration award may be disclosed.

A foreign award may be enforced in India under the New York Convention. Also an award can be challenged under s 34 of the ACA and set aside on the grounds set out in the same section. The Code of Civil Procedure of India empowers local courts to enforce an arbitral award as a court decree.

The ACA empowers local courts to play a vital role in the overall conduct of domestic arbitration as well as in the enforcement of foreign awards. This may result in parties making frivolous applications to the court in the hope of delaying or halting arbitration proceedings. With a backlog of over 30 million cases in Indian courts, ADR systems such as arbitration and mediation are seen as a better choice than litigation. As institutionalised arbitration is relatively new in India, ad hoc arbitration still plays a major role. It is correct to say that ad hoc arbitration comes with disadvantages: the arbitrators are often appointed by the court and are mostly retired justices of the High Courts or the Supreme Court. As a result of this, hearings risk being run dangerously similarly to litigation and the tribunals may lack the specialised knowledge that a dispute may at times demand.

The establishment of the London Court of International Arbitration in India is a breakthrough in institutionalised arbitration in India and is developing India to become a venue for institutionalised international arbitrations: see Sarosh Zaiwalla, ‘LCIA India: Will it change the International Arbitration Scene in India?’ (2010) Vol 27 Iss 6 Journal of International Arbitration 657.

Arbitration competition in Asia

Both HKIAC and SIAC are now regarded as highly specialised and reputable arbitration institutions. In terms of costs, HKIAC is the first choice for many commercial businesses. HKIAC offers an unmanaged option (where the role of the institute is limited) which is cheaper than the managed option where the institutes assist the parties in the case and financial management of the arbitration. HKIAC aims to keep interference by the institution to a minimum. It does not charge a separate fee relating to counterclaims and under its unmanaged option, parties are free to negotiate the fees of an arbitrator. This is not possible under SIAC, which only offers a managed option. In April 2010, the Indian Ministry of Law and Justice released a consultation paper on the proposed amendments to the ACA to minimise court interference, restrict the applicability of Pt I of the ACA to domestic arbitrations only and provide for a restrictive definition and scope for the term ‘public policy of India’.

The competition amongst Asian countries for recognition as a jurisdiction with a refined arbitral system has become palpable. This not only includes larger economies like India and China; Bangladesh and Thailand are now trying to reduce the asymmetry that has hitherto existed in international arbitration. The Bangladesh International Arbitration Centre (BIAC) was established in April 2011 to accomplish this purpose.

At the same time, established arbitration centres like the Australian Centre for International Commercial Arbitration (ACICA) in Sydney and the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing are also eager to develop their rules and procedures to match international standards for conducting commercial arbitrations.

The recent changes introduced in Hong Kong and Singapore are not intended to revolutionise arbitration, but rather to reinforce the concepts on which arbitration is based: to make it userfriendly, adaptive and to allow maximum liberty to the parties to mould practices and procedures within the given framework of the arbitration institution. At the time of making these amendments to their respective rules and procedures, legislators in Hong Kong and Singapore were mindful that, in their mission to modernise their arbitration laws, they should not throw out the baby with the bathwater by interfering with their current systems, which has gained satisfactory credibility and reliability among the domestic and international business community.

Saurabh Bhagotra
Lawyer
Zaiwalla & Co Solicitors, London

26 Sep 2011

Iranian banks plead against EU sanctions

TEHRAN — Two Iranian banks – Europaeisch-Iranische Handelsbank AG (EIH) and Bank Mellat – have separately filed suit against the EU illegal sanctions.

German trading bank Europaeisch-Iranische Handelsbank AG (EIH) confirmed on Friday it had filed a suit at the European Court of Justice challenging the EU’s decision to freeze its assets after it processed Indian payments for Iranian oil.

Sanctions were imposed on the bank in May by the Council of the European Union under 2010 regulations restricting trade and investment in Iran.

“We believe that EIHB has at all times acted in accordance with applicable EU legislation,” an official from the Hamburg-based bank said.

“All transactions were either authorized by Deutsche Bundesbank or fell within exceptions to the applicable EU legislation or conformed to the rulings and guidance of Deutsche Bundesbank and the German government.”

The bank filed the suit on Aug. 3 in a bid to get the sanctions removed and its assets unfrozen, but did not announce the legal move at the time. The ECJ does not normally announce when suits are filed.

The official said EIH’s core business was the facilitation of commercial relations between European and other countries, and Iran. She said the Indian payments for Iranian oil had only been a minor aspect of its activities.

When the EU imposed sanctions on EIH, the bank had been under close observation by the German government and was on a U.S. blacklist.

It came under scrutiny earlier this year when it emerged Berlin had allowed India to pay for oil purchases from Iran via the bank, after India restricted its own direct payments to Iran in order to placate Washington.

Indian entity to represent Bank Mellat in UK court

Simultaneously, a leading Indian legal firm based in the UK has been hired by the largest Iranian private bank to represent it in its appeal to the Supreme Court of London as well as before the European Court on sanctions against it.

Bank Mellat, the largest private Iranian bank, had previously instructed Stephenson Harwood, a large English firm but have now substituted Indian legal firm Zaiwalla & Co.

The bank has brought proceedings against the British Government and the European Council in respect of the effect of sanctions which the Council has imposed against Iran as consequence of the Iranian civil nuclear program.

In 2009, the bank was subjected to sanctions enacted by the Financial Restrictions (Iran) Order 2009 (Order), made pursuant to the Counter Terrorism Act 2008.

The effect of the ”Order” is to prevent the bank from operating in the financial sector in the United Kingdom on the basis that it has been involved in financing entities that are involved in nuclear proliferation programs.

The bank argues that Treasury failed to give it notice of its intention to make the Order nor did it offer it a chance to make representations.

The bank denies all involvement in any nuclear proliferation and argues these sanctions breach its rights under the European Convention of Human Rights.

Specifically the bank argues that the Treasury’s Order was irrational, unlawful, procedurally unfair, disproportionate and the Treasury failed to give adequate reasons.

The bank filed an application to the English High Court that the Order be set aside and requested damages under the Human Rights Act 1998. The High Court did not dismiss the Order and found that it was procedurally and substantively lawful, however, permission was given to the bank to appeal to the Court of Appeal.

The Court of Appeal dismissed the bank’s appeal but stated that an appeal to the Supreme Court could be made on the basis that the procedural grounds of the bank’s application merits serious consideration.
The Supreme Court trial is expected to be listed for 2012.

The bank has also brought separate proceedings against the European Council in respect of EU Regulations imposing sanctions on the Bank. The European Council has admitted it made a mistake of fact in deeming the bank to be state owned when it is in fact privately owned.

The bank is unable to understand why the Council has designated it. It argues that the Council has failed to give specific reasons for the bank’s designation. The trial date has yet to be set but it also thought to be in 2012. The outcome of these cases is internationally awaited.

MSN News

22nd September 2011

Iranian bank hires Zaiwalla to represent it in UK court

London, Sep 22 (PTI) A leading Indian legal firm based in the UK has been hired by the largest Iranian private bank to represent it in its appeal to the Supreme Court here as well as before the European Court on sanctions against it over the Islamic Republic’’s controversial nuclear programme.

Bank Mellat, the largest private Iranian bank,
had previously instructed Stephenson Harwood, a large English firm but have now substituted Indian legal firm Zaiwalla & Co.

The bank has brought proceedings against the British Government and the European Council in respect of the effect of sanctions which the Council has imposed against Iran as consequence of the Iranian nuclear programme.

In 2009, the bank was subjected to sanctions enacted by the Financial Restrictions (Iran) Order 2009 (Order), made pursuant to the Counter Terrorism Act 2008.

The effect of the ”Order” is to prevent the bank from operating in the financial sector in the United Kingdom on the basis that it has been involved in financing entities that are involved in nuclear proliferation programmes.

The bank argues that Treasury failed to give it notice of its intention to make the Order nor did it offer it a chance to make representations.

The bank denies all involvement in any nuclear proliferation and argues these sanctions breach its rights under the European Convention of Human Rights.

Specifically the bank argues that the Treasury’’s Order was irrational, unlawful, procedurally unfair, disproportionate and the Treasury failed to give adequate reasons.

The bank filed an application to the English High Court that the Order be set aside and requested damages under the Human Rights Act 1998. The High Court did not dismiss the Order and found that it was procedurally and substantively lawful, however, permission was given to the bank to appeal to the Court of Appeal.

The Court of Appeal dismissed the bank’’s appeal but stated that an appeal to the Supreme Court could be made on the basis that the procedural grounds of the bank’’s application merits serious consideration.

The Supreme Court trial is expected to be listed for 2012.

The bank has also brought separate proceedings against the European Council in respect of EU Regulations imposing sanctions on the Bank. The European Council has admitted it made a mistake of fact in deeming the bank to be state owned when it is in fact privately owned.

The bank is unable to understand why the Council has designated it. It argues that the Council has failed to give specific reasons for the bank’’s designation. The trial date has yet to be set but it also thought to be in 2012. The outcome of these cases is internationally awaited.

September 2011

The rise of Asian arbitration institutions

Hong Kong takes the lead to “one system” for arbitration as Singapore continues to operate a dual system

Arbitral institutions such as the Hong Kong International Arbitration Centre (“HKIAC”) and the Singapore International Arbitration Centre (“SIAC”) are now highly regarded as  leading centres for international commercial arbitrations in Asia. They are even preferred by international businessmen over European and North American arbitration institutions. These developments have been systematically encouraged by progressive measures put in place by countries like Hong Kong and Singapore, and there are new rules that have come into force in Hong Kong that warrant attention.

The New Ordinance

On 1 June 2011 a new arbitration Ordinance (Cap. 609) (“the new Ordinance”) based on the UNICITRAL Model Law of International Commercial Arbitration was passed by the Hong Kong Legislative Council.

The most significant change introduced by this new Ordinance was the abolition of the dual system for international and domestic arbitration. It created a unitary system which now applies to all arbitrations, whether domestic or international, which have the seat of arbitration in Hong Kong. Parties to international arbitrations have discretion to choose some of the provisions (opt-in provisions) which under the old Ordinance were only applicable to domestic arbitrations. Examples are the provision regarding a default number of arbitrators, and provisions regarding the determination of preliminary questions of law.

Under the new Ordinance there will be minimal court interference. Tribunals will have additional powers to grant interim injunctions and to make both preliminary and interlocutory orders. Significantly, under the new Ordinance, the Hong Kong Courts also have powers to grant interim injunctions even where the seat of arbitration is not Hong Kong, so long as the arbitration proceedings relate to an arbitration whose arbitral award is likely to be enforced in Hong Kong. Further, parties are prohibited from disclosing any information in relation to the arbitration proceedings to any third party. This is the standard of confidentiality that parties want in international arbitration. For this same purpose the new arbitration Ordinance provides that any court proceedings commenced under an arbitration agreement are to be conducted in closed court. There is also another important provision in the new Ordinance which, while being of a somewhat unusual nature, will appear to be common sense to the contesting parties. The appointed arbitrator can act as a mediator during the course of the arbitration proceedings, and if the matter does not settle by mediation, no objections may be raised if the same person continues to act as an arbitrator.

Arbitration in Singapore

Commercial arbitration in Singapore is divided into domestic and international regimes. The international regime is governed by the International Arbitration Act, while domestic arbitration is governed by the Arbitration Act 1953. Singapore International Arbitration Centre (“SIAC”) commenced operation in 1991, and its rules are based on UNICITRAL Model law and the rules of the London Court of International Arbitration (LCIA). On 1 July 2010 SIAC published its 4th Edition Rules, making some significant changes to the previous rules The new expedited procedure requires the Tribunal to make an award within six months of the date of its constitution (if parties so agree) for any reference the value of which is below SGD 5,000,000 (US$4,049,445). SIAC can appoint an emergency arbitrator to assist any party which requires any emergency/interim relief.

Conclusion

Both HKIAC and SIAC are today regarded as highly professional and reputable arbitration institutions. In terms of cost HKIAC is the first choice for many commercial business houses. HKIAC offers an unmanaged option (where the role of the institute is limited) which is cheaper than the managed option. HKIAC aims to keep interference of the institution to the minimum. HKIAC does not charge a separate fee relating to counterclaims and under its unmanaged option, parties are free to negotiate the fees of an arbitrator. This is not possible under SIAC, which only offers a managed option.

The changes introduced by the new Ordinance in Hong Kong are not intended to revolutionise arbitrations but rather to reinforce the concepts on which arbitration is based i.e. to make it a more user friendly and adaptive process, and to allow maximum liberty to the parties to mould practices and procedures to suit them, within the given framework of the institution. Especially now that a unified code has been introduced in Hong Kong, doing away with the dual system, it will become easier and more practical for foreign lawyers and arbitrators to understand and apply the rules.

Saurabh Bhagotra is a Lawyer at leading arbitration law firm Zaiwalla & Co., London

This article was also published in Singapore Business Review

August 2011

Going West

The Ukrainian Government is keen to sign the agreement on the country’s accession to the Free Trade Zone with the UK, says Zoya Burbeza

Ukrainian Way to Europe

To observers in the West,Ukraine sometimes resembles the backyardof Europe,a nation plagued by bad leadership and corruption. This was not always so. When it formed part of the Soviet Union, this former Soviet republic was one of the most economically developed of that power. Back in 1991 when Ukraine proclaimed independence, it was the second largest country in Europe,with 50 million-strong population and the third largest nuclear arsenal in the World. Economists admitted that, among all Soviet republics, Ukraine had the best starting position for successful economic development.

However, almost twenty years have passed, and Ukraine is still undergoing its period of transition from Soviet style communism to the Western capitalism. It is often said that Ukraine has inheritedthe worst features of both those systems (as far as they were depicted by Soviet propaganda, of course). Ukraine is situated between Europe and Russia and lives a life of dual identity, suffering a kind of schizophrenia. It has a strong leaning towards the West’s style and standard of living, but the huge majority of population is still mentally accustomed to remaininghomo sovieticus – a model ofnarrow-minded and totally state-dependentso-called common people.

Steps to European Integration

Ukraine has always been seen as an important but uneasy political partner of the European Union. According to observers, this is due to such factors as the unwillingness of the EU to expand into post-Soviet space, the poor performance of Ukrainian economy anda lack of democracy (during the 1990s) or internal instability (following the Orange Revolution). Also, some experts notice the importance of the Russian factor in Ukraine-EU relations.

Ukraine’s desire to join the European institutions dates back to 1994, when the government declared that integration to the EU was the main foreign policy objective.  This was reaffirmed several times after every major political changing of the guard, following general and presidential elections.Little was done in reality, since Kiev still had to take Russia into account, who remained its major trade partner and natural gas and energy supplier.

Political dialogue between the EU and Ukraine started in 1994 when the Partnership and Cooperation agreement (PCA) was signed:it came into force in 1998 (expiring in 2008). None of the top-level meetings that followed this agreement brought any major change to the approach of an avowedly reserved EU. Leaders focused on economic transition and human rights records, as well as issues connected to the Chernobyl nuclear power plant and its containment.

In 2002, EU Enlargement Commissioner Günter Verheugen said that “a European perspective” for Ukraine does not necessarily mean membership within 10 to 20 years, however, it is a possibility.

The Orange Revolution of late 2004 improved Ukraine’s European prospects; the opposition leader Viktor Yushchenko hinted that he would press the EU for deeper ties and described a four-point plan: acknowledgment of Ukraine as a market economy, entry into the World Trade Organization, associate membership in the European Union, and, finally, full membership.

On 13 January 2005, the European Parliament almost unanimously passed a motion(467 votes to 19 in favor) stating the wish of the European Parliament to establish closer ties with Ukraine in view of the possibility of EU membership.

In May 2010,freshly installed as the new Ukrainian President,Viktor Yanukovych promised to adopt the legislation necessary for creating a free trade zone between Ukraine and the European Unionin June 2010. Yanukovych expected the visa regime between Ukraine and EU member states to be abolished, and a free trade zoneto be created.

The current Azarov Government continues to pursue EU-integration. During May and June 2010 both Prime MinisterMykola Azarov and Ukrainian Foreign MinisterKostyantyn Hryshchenko stated that integration into Europe has been and remains the priority of Ukraine’s domestic and foreign policy of Ukraine.

Shipping

Post independence, the shipbuilding industry in Ukraine has reached great heights. The industry has acquired eight very well equipped shipbuilding factories which amounts to almost 30% of what used to be the total production of erstwhile USSR. A whopping 65% of the total production by these factories is attributed to military vessels and defence ships which are financed by the government in Ukraine.

Shipbuilding factories in Ukraine are concentrated in the region around Black Sea and in the capital city of Kiev. Shipbuilding yards in Ukraine build various types of ships. The make of vessels varies from  dry cargo to tankers, whalers, timber carriers, semi-submersible, passenger liners and even fishing trawlers. As mentioned earlier, Ukrainian shipbuilding also focuses on manufacturing military ships.

In the 1990s, the shipbuilding industry had to survive a very serious crisis as during that decade majority of enterprises had become unprofitable. Attempts to salvage the sick industries by various mechanisms including privatization did not prove to be successful. The crisis became worse as the State could not  manage to attract foreign strategic investors as they were wary of the economic and political risks in Ukraine and hence reluctant to invest. Consequently, the ownership of majority of the enterprises in the industry passed into the hands of local investors who lacked financial muscle to invest in the industry for its growth and development.

The new millennium brought some hope with it and the industry gradually began to recuperate. A series of new legislation incorporating provisions to support the shipbuilding industry were introduced. As of today, there are 11 large shipbuilding plants, more than 25 scientific and research enterprises and a number of small-scale factories engaged in manufacturing small ships and boats in Ukraine. About 60% of these enterprises are based in Mykolayiv, a city in Southern Ukraine. 90% of production by these manufacturing units is exported which provides a great boost to the Ukrainian economy.

The following are major factors which have prompted investors to take an interest in the Ukrainian shipbuilding industry:

a)    Ukraine has an inexpensive and highly qualified work force and relatively low-priced raw-materials such as metals;

b)    The Black Sea provides a favorable geographical location;  and

c)    Costs of entering the market are low and of the purchase costs of assets of shipbuilding enterprises are low.

Notwithstanding the above factors investors can face the following potential difficulties:

a)    The political risks that still exist;

b)    Lack of development of the financial sector to work with shipbuilding enterprises;

c)    Low purchasing capability of the local market evidenced by the large quotient of export.

d)    Risks connected with legal protection of investment.

Ukrainian shipbuilders are subject to customs limitations and if Ukraine gets accession to the free Trade Zone with the European Union, then this hurdle will be overcome significantly; and with the relaxation of customs regulations coupled with strong local investment and government support, the Ukrainian shipbuilding industry is predicted to reach the seventh place amongst the major shipbuilding countries in the world.

Ukraine keen to join European Free Trade Zone by September

It will remain very interesting to watch how the Ukrainian Government of President Yanukovych, considered by many at home and in the West to be pro-Russian and not truly independent, makes great efforts to strengthen the European economic integration of Ukraine. The Government’s recent actionsshow that Ukraine is firmly seeking accession to the European Economic Community. In particular, Ukraine’s parliament last year approved a law on foreign policy which clearly reaffirmed the course of European integration.

The Ukrainian government is particularly keen to sign the agreement on Ukraine’s accession to the Free Trade Zone with the EU. Russia’sreaction to this is telling: in recent months it has made many efforts to prevent Ukraine from joining the European Free Trade Zone, offering alternative integration to the East, namely the Customs Union between Russia, Belarus and Kazakhstan.

In Ukraine however, Yanukovych appears to have already decided to go West. This is one of the few issues which unites not only the government and opposition in the country, but most of the people. According to a survey conducted in April this year by German media centre DeutscheWelle, 74% of Ukrainian respondents are in favour of Ukrainian membership of their country in the EU, and 57% of them want to join the EU soon.

According to recent reports, the European Commission, whose delegation visited Ukraine, expressed readiness to sign a Free Trade Agreement between EU and Ukraine earlier than planned – not at the end of 2011, but in September 2011.

By Zoya Burbeza

Zoya Burbeza is a Solicitor at Zaiwalla & Co.  The CIS Department at Zaiwalla & Co provides a range of commercial legal services for clients from CIS countries, in particular from Russia, the Ukraine and Belarus. The London office team is headed up by Zoya Burbeza, who is Ukrainian and we also work closely with a network of overseas consultants who similarly speak fluent Russian and Ukrainian

27th July 2011

Arbitrators are not bound by equality laws, Supreme Court rules

In a keenly awaited judgment, the Supreme Court reaffirmed London as the arbitration capital of the world, overturning a Court of Appeal ruling that would have seen arbitrators fall within the scope of the regulations.

The original case focused on a £1.5m dispute over a joint venture agreement for investment in real estate projects worldwide.

An arbitration agreement between the parties stipulated that arbitrators overseeing any dispute between them were to be “respected members of the Ismaili community and holders of high office within the community”. Ismailism is a branch of the Shia denomination of Islam.

When Sadruddin Hashwani launched his claim against former business partner Nurdin Jivraj, he applied to the Commercial Court to have Sir Anthony Colman appointed as an arbitrator. Zaiwalla & Co name partner Sarosh Zaiwalla instructed Fountain Court Chambers’ Michael Brindle QC for Hashwani.

In response, Jivraj applied to the Commercial Court for a declaration that the appointment was invalid as Colman was not a member of the Ismaili community.

The case attracted such controversy that it snowballed and attracted a trio of intervenors: the London Court of International Arbitration; the International Chambers of Commerce; and His Highness Prince Aga Khan Shia Ismami Ismaili, International Conciliation and Arbitration Board.

The court ruled that in this instance it was justified for the arbitration to be heard before three Ismailis.

Delivering the substantive judgment Supreme Court justice Lord Clarke stated: “The question is whether, in all the circumstances, the provision that all the arbitrators should be respected members of the Ismaili community was legitimate and justified. In my opinion it was. The approach of the Court of Appeal seems to me to be too legalistic and technical.”

The legal line up:

Hill Dickinson partner Jonathan Berkson instructed One Essex Court’s Rhodri Davis QC to lead Schona Jolly of Cloisters for Jivraj.

Zaiwalla  & Co name partner Sarosh Zaiwalla instructed Fountain Court Chambers’ Michael Brindle QC to lead Essex Court Chambers’ Brian Dye for Hashwani.

Interveners:

Linklaters partner Christopher Style QC instructed One Essex Court’s Laurence Rabinowitz QC to lead Blackstone Chambers’ Christopher McCrudden for the London Court of International Arbitration.

Allen & Overy partner Richard Smith instructed Matrix Chambers’ Thomas Linden QC, Essex Court Chambers’ Toby Landau QC, Paul Key and David Craig also of Essex Court Chambers for the International Chamber of Commerce.

Clifford Chance instructed Matrix Chambers’ Rabinder Singh QC and Aileen McColgan also of Matrix Chambers for His Highness Prince Aga Khan Shia Imami Ismaili, International Conciliation and Arbitration Board.

The Law Society Gazette

27th July 2011

Supreme Court rules on arbitration

The Supreme Court has ruled that arbitrators are not employees for the purposes of employment equality legislation.

Handing down judgment in the case of Hashwani v Jivraj, the court reversed the Court of Appeal’s landmark decision, which held that an arbitration agreement that required all arbitrators to be members of a specific religious community was void because it breached EU anti-discrimination law.

In a unanimous judgment the Supreme Court said an arbitrator is not a person employed under a contract to do work within the meaning of the Employment Equality (Religion or Belief) Regulations 2003, that came into force on 2 December 2003.

Lord Clarke said an arbitrator fell outside the definition of a worker laid down by the case law of the European Court of Justice and was instead an ‘independent provider of services who was not in a relationship of subordination with the person who received the services’.

‘An arbitrator was a quasi-judicial adjudicator whose duty was not to act in the particular interests of either party,’ he said, and their dominant purpose was the impartial resolution of the dispute.

Clarke said: ‘Arbitration was more than the application of a given national law to a dispute and a stipulation that an arbitrator be of a particular religion or belief can be relevant to the manner in which disputes are resolved.’

This case concerned a dispute between two Pakistani businessmen who had included an arbitration clause in a joint venture agreement, which stipulated that a dispute should be resolved by the arbitrators, all of whom were required to be respected members of the Ismaili community.

A dispute arose after the termination of the joint venture. Mr Hashwani sort to appoint Sir Anthony Coleman, a retired commercial court judge, as an arbitrator.

Coleman was not a member of the Ismaili community, and Mr Jivraj objected to his appointment and commenced proceedings for a declaration that his appointment was void as it breached the requirements of the arbitration agreement.

The High Court held that the appointment of arbitrators fell outside the scope of the EU regulations as they were not ‘employed’.

However, the Court of Appeal reversed the decision, ruling that arbitrators were employed and that there had been unlawful religious discrimination.

The impact of the Court of Appeal’s judgment, which could have nullified many existing arbitration agreements that specified the nationality, religion, age, race or sex or arbitrators, caused alarm.

It prompted arbitration bodies, including the International Chamber of Commerce and the London Court of International Arbitration, to intervene in the appeal to the Supreme Court.

In this case, the Supreme Court found that the freedom of choice for parties to decide who should arbitrate their dispute is important for their confidence in the procedure.

It said the ‘breadth of discretion left to the parties’ sets arbitration aside from court proceedings.

Clarke said: ‘The Ismaili community had demonstrated an ethos, based on religion, for dispute resolution contained within that community.’

‘The parties could properly regard arbitration before three Ismailis as likely to involve a procedure in which parties could have confidence and as likely to lead to conclusions of fact in which they could have particular confidence,’ he said.

Lawyers have welcomed the judgment, saying it provides clarity and ensures London remains a leading centre for international arbitration.

International arbitration partner at City firm Mayer Brown Philippa Charles said: ‘London lost out on a number of arbitrations following the Court of Appeal’s decision in this case as a result of nervousness about the validity of a London arbitration incorporating restrictions on arbitrator nationality.’

She said that if the Court of Appeal’s decision had been upheld it would have had a ‘chilling effect’ on the world’s view of London as an arbitration centre.

‘The fact that the Supreme Court has found a way for equality legislation to co-exist with a common sense approach to commercial practice means that London remains on an equal footing with its global competitors such as Paris, New York, Geneva and Singapore as a leading centre for international arbitration,’ said Charles.

Greg Reid, a partner in Linklaters’ litigation and arbitration practice, said: ‘The decision is a positive recognition of the importance of party autonomy in international arbitration.

‘It removes any uncertainty which had been generated by the Court of Appeal’s decision as to the validity of arbitration agreements incorporating institutional rules relating to the nationality of arbitrators, and confirms the pro-arbitration approach of the English courts to arbitration as a dispute resolution mechanism.’

Head of international arbitration and ADR at City firm Norton Rose, Joe Tirado said: ‘The English courts have lived up to their reputation for robustly supporting international arbitration.’

However, senior partner at London firm Zaiwalla & Co Sarosh Zaiwalla, who represented Hashwani, said: ‘It is disappointing that in today’s age the Supreme Court did not take a more enlightened approach to ensure that it would discourage any form of discrimination on grounds of race, religion or sex in the appointment of arbitrators.’

Legal Week

27th July 2011

Jivraj v Hashwani ruling confirms arbitrators are not subject to equality laws

The Supreme Court has handed down a landmark judgment today (27 July) confirming that arbitrators are not employees and therefore fall outside of UK equality laws.

The judgment, which overturns a Court of Appeal decision that arbitrators were employees for the purposes of the Employment Equality Regulations, confirms London’s position as a leading centre for international arbitration.

It means that nationality restrictions, such as that specified in today’s Jivraj v Hashwani ruling, can continue to be used in arbitration proceedings held in the UK because arbitrators are not subject to equality laws.

The case concerned a joint venture agreement signed in 1981, which included an arbitration clause requiring any dispute to be resolved before three arbitrators, each of which must be “a respected member of the [Muslim] Ismaili community”.

Hashwani subsequently tried to appoint Sir Anthony Colman, a retired judge of the Commercial Court, as an arbitrator, with Jivraj arguing that this breached the terms of the agreement

The High Court found in favour of Jivraj on the grounds arbitrators fell outside the scope of the regulations as they were not employed, but the Court of Appeal reversed this decision.

Today’s ruling upholds the original High Court judgment stating: “The Supreme Court unanimously allows the appeal on the ground that an arbitrator is not a person employed under a contract personally to do work within the meaning of the regulations, which do not therefore apply.”

It continued: “In this case, the judge had correctly found that the Ismaili community had demonstrated an ethos, based on religion, for dispute resolution contained within that community.”

Hill Dickinson commercial litigation partner Jonathan Berkson acted for Jivraj alongside One Essex Court’s Rhodri Davies and Cloisters Chambers’ Schona Jolly.

Zaiwalla & Co acted for Hashwani alongside Fountain Court’s Michael Brindle QC and Essex Court Chambers’ Brian Dye.

Linklaters, Allen & Overy (A&O) and Clifford Chance provided advice to the interveners, advising the London Court of International Arbitration, the International Chamber of Commerce and His Highness Prince Aga Khan Shia Imami Ismaili, International Conciliation and Arbitration Board, respectively.

A&O arbitration partner Richard Smith said: “The Court of Appeal decision in Jivraj v Hashwani created considerable concern. Arbitration agreements commonly contain restrictions on the nationality of arbitrators which are designed to ensure the neutrality of the process.

“By treating arbitrators as employees, such restrictions would have been discriminatory and the relevant arbitration agreements could have been struck down in their entirety. The Supreme Court’s finding that arbitrators are not employees is very welcome and lays to rest the problems created by the earlier decision.”

Joe Tirado, head of international arbitration at Norton Rose, commented: “Nationality restrictions have been used in international arbitration for many years. They are extremely popular with the parties and we are delighted that they will remain part of arbitrations in England.”

Freshfields Bruckhaus Deringer dispute resolution partner Nigel Rawding said: “The decision brings the UK back into line with what we understand the likely position to be in other EU jurisdictions. In fact, the reaction to the judgment among the arbitration community, both in London and elsewhere, was that there was something incorrect or ill-fitting about characterising an arbitrator as an ‘employee’, given the necessary independence of the arbitrator from the parties.

“In that way, the decision helps to cement London’s position as a centre of excellence for the resolution of international business disputes.”

New Law Journal

5th August 2011

Clause for concern?

Date: 04 August 2011
Issue: Vol 161, Issue 7477
Categories: News

Arbitrators are not employees for the purpose of anti-discrimination legislation, the Supreme Court has unanimously ruled.

In Jivraj v Hashwani [2011] UKSC 40, the justices found that an arbitration clause specifying that arbitrators be of a particular religion, was neither discriminatory nor void. The clause, in a business agreement between Mr Hashwani and Mr Jivraj, provided that each of three arbitrators must be a respected member of the Ismaili Muslim community.

Hashwani nominated Sir Anthony Colman, a former High Court judge, as arbitrator. Jivraj objected, on the grounds Sir Anthony is Jewish. Hashwani argued that the clause had become unlawful because it discriminated on grounds of religion under the Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660).

Overturning the Court of Appeal decision, the justices held that an arbitrator is not an employee but an independent provider of services with a duty of impartiality to both sides of a dispute, and therefore the regulations did not apply.

Sarosh Zaiwalla, senior partner at Zaiwalla & Co, who is acting for Hashwani, said: “It is disappointing that in today’s age the Supreme Court did not take a more enlightened approach to ensure that it would discourage any form of discrimination on grounds of race, religion or sex in the appointment of arbitrators.”

Other lawyers, and arbitrators, have expressed relief at the decision. Following the Court of Appeal’s decision last year, thousands of international businesses made sure their arbitration clauses did not stipulate the religion or nationality of the arbitrator.

Tony Marks, director of legal services at the Chartered Institute of Arbitrators, said: “This will come as a relief to the arbitration profession.”

Adrian Lifely, head of international arbitration at Osborne Clarke, said: “It resolves the uncertainty caused by last year’s surprising judgment.

“As an arbitration centre, London is worth millions of pounds to the UK economy. What makes it attractive to users of arbitration is the ability to arbitrate with minimal interference from the UK courts and for users to freely select the tribunal that will determine their disputes.”

Global Arbitration Review

15th August 2011

A cloud lifts over London

Alison Ross

A UK Supreme Court decision that arbitrators are not employees protected by anti-discrimination legislation will put to rest concerns over the validity of standard arbitration clauses and London’s future as a centre for international disputes. Alison Ross reports

In Jivraj v Hashwani, the court unanimously reversed a Court of Appeal ruling that arbitrators were employees, and that imposing requirements on their religion fell foul of the 2003 Employment Equality (Religion or Belief) Regulations, which give effect to a European directive.

In addition, the majority of the court (Lord Phillips, Lord Walker, Lord Clarke and Lord Dyson) held that the parties’ requirement that their dispute be resolved by an Ismaili arbitrator would have fallen within an exception to the regulations, had they applied. This exception allows employers to specify an employee’s religion or belief if it is a ‘genuine occupational requirement’.

In light of its findings on these two points, the court declined to rule on a third issue before it – whether discriminatory provisions can be severed from an otherwise valid arbitration agreement. It said it would not refer any of the questions considered in the appeal to the European Court of Justice.

Potential implications

Jivraj v Hashwani concerned a 30-year-old agreement entered into by two Pakistani businessmen that any disputes arising from their joint venture should be heard by respected members of the Ismaili community – a Shia Muslim sect. However, the implications of the Court of Appeal’s ruling went far beyond the specific case. An extension of the court’s reasoning meant that arbitration agreements containing requirements as to arbitrators’ nationality could be held to violate other UK anti-discrimination legislation, in particular the UK Equality Act 2010, which includes discrimination as to nationality within its definition of racial discrimination.

Requirements regarding the nationality of sole arbitrators or tribunal Chairs are popular with arbitration users and are incorporated into the LCIA and ICC rules and standard arbitration clauses. If the Supreme Court held such requirements to be illegal, it was feared that existing arbitration agreements would be rendered void and parties would opt to arbitrate away from the UK.

Reflecting the level of concern about the decision, both the LCIA and the ICC opted to intervene in the Supreme Court proceedings as amici curiae. In a packed court hearing in April, counsel to the LCIA, Laurence Rabinowitz QC, warned of the ‘chilling effect of the Court of the Appeal’s decision on international arbitration under English law’, while counsel to the ICC, Toby Landau QC, revealed that the institution had ceased to select London as an arbitral seat in any cases where it had the discretion to choose, pending resolution of the controversy.

Back to the status quo

Responding to the judgment, LCIA director general Adrian Winstanley says that the Supreme Court has restored the pre-existing status quo and ‘lifted the cloud that has been sitting over London as a seat of arbitration since the decision of the Court of Appeal.’ He says that the judgment ‘removes any doubt about the legality of article 6 of the LCIA Rules, and of parallel provisions in other institutional rules, providing that sole arbitrators and presiding arbitrators be of a nationality other than that of any party absent the express written consent of the parties otherwise.’

ICC secretary general Jason Fry says the judgment ‘puts to rest the problems which the Court of Appeal created for those who choose to arbitrate.’ He tells GAR: ‘The decision to intervene in the appeal before the Supreme Court was not taken lightly. However, the implications of the Court of Appeal’s decision were potentially far-reaching, putting in doubt the validity of many arbitration agreements having a connection with the UK, including those incorporating the ICC Rules of Arbitration. We are very pleased with the outcome of the appeal and especially with the justices’ finding that the relationship between the parties and an arbitrator is not one of employment.’

In the Supreme Court proceedings, the LCIA offered submissions on whether arbitrators are employees, while the ICC dealt with the exception in the legislation. Fry says: ‘Given its preliminary finding, we are glad that the justices went on to consider the genuine occupational requirement and expressly adopted the ICC’s arguments as to why people choose to arbitrate over the narrower view taken by the Court of Appeal.’

Richard Smith, the ICC’s lead counsel at Allen & Overy, echoes this view. In finding that the Ismaili arbitrator requirement was ‘legitimate and justified’, he says the court recognised that parties who opt for arbitration are looking not only for straightforward application of the law of the jurisdiction by the tribunal but ’something more that you don’t necessarily get in domestic courts, including insights into the parties’ culture and perspective.’

In a commentary on the LCIA’s website, its lead counsel, Christopher Style QC of Linklaters, notes the court’s ‘positive comments’ regarding the ‘breadth of discretion’ left to parties and arbitrators to structure the arbitral process for themselves. He says the decision ‘affirms the supportive approach of the English courts to arbitration, recognises that party autonomy is a cornerstone of international arbitration and acknowledges the importance to parties of having their disputes decided by a tribunal in whose composition they have confidence.’

A third intervener in the proceedings was an Ismaili arbitration board run by the Aga Khan. It argued before the court that regarding arbitrators as employers was incompatible with the Ismaili approach to dispute resolution, where elders often provide their services free of charge.

‘The best possible outcome’

Arbitration practitioners in London say that the judgment represents ‘the best possible outcome’, following speculation that the court would resolve the appeal on the basis of the ‘genuine occupational requirement’ alone, bypassing the wider question of whether arbitrators are employees. Barrister Julian Lew QC gives the most succinct reaction: ‘Common sense prevails,’ he says.

Nicholas Fletcher, head of international arbitration at Berwin Leighton Paisner, says: ‘The Court of Appeal’s analysis, if upheld, would have had serious ramifications in the case of arbitrations seated in the UK where the arbitration clause or applicable institutional rules specified nationality or other qualification requirements for the selection of the arbitrators. The Supreme Court’s decision that arbitrators, by virtue of their sui generis relationship with the parties are not employees, is undoubtedly correct.’

His colleague, Amir Ghaffari, says that parties negotiating arbitration clauses will also be relieved. ‘They can now be spared the trouble of excluding provisions, or institutional rules, which concern nationality or other ‘legitimate and justified’ requirements for the selection of arbitrators in the knowledge that these provisions do not offend UK anti-discrimination legislation.’

For Craig Tevendale, a partner in the London office of Herbert Smith, the Supreme Court ruling brings an end to ‘a strange period of uncertainty’ in English arbitration law. He says: ‘Lawyers will look back on this judgment in the future and say ‘how could it have been otherwise’ because the central premise of the Court of Appeal judgment – that arbitrators are employees of the parties – was always deeply unsatisfactory.’

Tevendale continues that parties ‘will be more interested in the statement of their autonomy to choose the tribunal they want – and Lord Clarke’s comments regarding the need for arbitration to deliver a procedure in which they can have confidence.’

Joe Tirado, a partner at Norton Rose, adds that the decision will chime with arbitrators’ own perception of their role as independent service providers, not employees. He says that he is delighted that nationality requirements will continue to be part of arbitration in London: ‘In the same way that in a World Cup football match you would not expect the referee to be from the same country as one of the teams, you would not expect the chair of your arbitral tribunal to be from the same country as one of the parties’.

CMS Cameron McKenna partner Robert Choat, meanwhile, stresses the judgment’s positive impact on ‘that chunk of UK plc’s £23 billion per annum legal services industry that comes from arbitrations.’

‘The worst case scenario,’ says Choat, ‘would have been no decision from the Supreme Court while the case was referred to the European Court of Justice, which would have left the UK arbitration industry in a damaging limbo while parties and institutions went elsewhere. Hopefully the rot has been cut out before it had a chance to set in.’

A hot potato

The director of legal services at the Chartered Institution of Arbitrators, Tony Marks, speaks for many when he says the decision ‘comes as a huge relief to the arbitration profession.’ But lawyers should spare a thought for the respondent to the appeal who began this saga when he sought to appoint Sir Anthony Colman QC – a non Ismaili – as arbitrator in his dispute with Jivraj.

In a statement, Hashwani’s counsel, Sarosh Zaiwalla, a partner at Zaiwalla & Co in London, says it is questionable whether any holders of high office in the Ismaili community will accept an appointment to arbitrate the US$4.4 million dispute over joint venture assets, explaining that the community considers this matter ‘a hot potato’.

‘It is disappointing that, in today’s age, the Supreme Court did not take a more enlightened approach to discourage any form of discrimination in the appointment of arbitrators, on grounds of race, religion or sex,’ Zaiwalla says.

Jivraj: the judgment

It may not have been as headline-grabbing as another UK Supreme Court judgment handed down on the same day – over a prop designer’s battle with George Lucas for the rights to produce Star Wars replicas – but it was certainly important to arbitrators.

Thirty years ago two Ismaili businessmen – Nurdin Jivraj and Sadruddin Hashwani – signed an arbitration agreement governed by English law specifying that arbitrators should be drawn from the Ismaili community. ‘It came as a shock to be told by the Court of Appeal last year that their arbitration agreement – which was perfectly lawful when they signed it in 1984 – became unlawful on 2 December 2003, with the enactment of the UK’s Employment Equality (Religion and Belief) Regulations,’ said Rhodri Davies QC, opening the appeal in the Supreme Court on behalf of Jivraj in April.

That ruling was just one step in a lengthy legal battle that, in the words of Davies, raised ‘fundamental importance as to the relevance of discrimination law in the employment field and the effects, if any on arbitration agreements.’ Conflicting judgments of the High Court and the Court of Appeal resulted in cross-appeals to the Supreme Court, which on 27 July issued a 34-page ruling in Jivraj’s favour.

The judgment deals with two main issues that were argued before the Supreme Court: whether arbitrators count as employees under the 2003 regulations (and by extension, other UK anti-discrimination legislation); and whether a genuine occupational requirement in the regulations applies. The first question especially required extensive analysis of European case law, but the court declined to refer it to the European Court of Justice, holding that the directive that gave rise to the regulations had already been interpreted in the 2004 case of Allonby v Accrington and Rossendale College.

Are arbitators employees?

In a leading judgment written by Lord Clarke, the Supreme Court said that Mr Justice Steel, sitting in the High Court, had rightly concluded that an arbitrator was not an employee for the purpose of the 2003 regulations, and that the Court of Appeal’s opposing view was wrong.

Lord Clarke said that it was ‘common ground’ that there is a contract of personal work between arbitrators and the parties that appoint them and that the arbitrator’s services are rendered ‘pursuant to that contract’. The question was whether arbitrators are ‘employed under’ the contract.

After considering case law of the European Court of Justice, Lord Clarke accepted that there is a clear distinction between those who are ‘employed’ and those who are ‘independent providers of services who are not in a relationship of subordination with the person providing the services’ – and that arbitrators fall within the second category.

‘Although an arbitrator may be providing services for the purposes of VAT and of course receives fees for his work, and although he renders personal services which he cannot delegate, he does not perform those services or earn his fees for and under the direction of the parties,’ he noted.

Clarke continued: ‘The arbitrator is in critical respects independent of the parties’. He is required ‘to rise above the partisan interests of the parties’ and to balance their competing positions – making him ‘in effect a ‘quasi-judicial adjudicator”. The judge supported his view with references to the 1996 English Arbitration Act, which spells out the arbitrator’s role to act fairly and impartially and determine procedural matters with which the parties shall comply, and said he had been referred to other laws and international codes with a similar effect, including the UNCITRAL Model Law and the ICC and LCIA rules. ‘Once an arbitrator has been appointed [...] the parties effectively have no control over them,’ he observed – noting that removal of arbitrators is only possible ‘in exceptional circumstances’ if there is not a party agreement permitting it.

Clarke declined to speculate on how the ruling relates to other professions – although he remarked that it would be surprising if ’someone who engages a person on a one-off contract as say, a plumber, would be subject to the whole gamut of anti-discrimination legislation’.

In an additional judgment, Lord Mance agreed with Lord Clarke that arbitrators are not employees, quoting a judgment of the German Reichsgericht (imperial court) from 1904 and Gary Born’s 2009 book on international commercial arbitration. He said both citations ‘catch and support the essence of Lord Clarke’s distinction between persons under the direction of another and arbitrators who perform an independent role, free of such control.’

A genuine occupational requirement?

The other main issue considered by the Supreme Court was whether an exception in the 2003 regulations applied that allows an employer to make specifications regarding an employee’s religion or belief if they are a ‘genuine occupational requirement’. Steel LJ in the High Court had ruled that the exception did apply; the Court of Appeal took the opposite view.

In light of the Supreme Court’s ruling that arbitrators are not employees, the question was a moot one. However, the majority of the court (minus Lord Mance) held that the occupational requirement would have applied in this case in any event.

In finding that it was ‘genuine, legitimate and justified’ that the parties should require their dispute to be resolved by arbitrators drawn from the Ismaili community, Lord Clarke considered how arbitration is distinct from proceedings in national courts. He said that the argument that an English law dispute in London under English curial law does not require an Ismaili arbitrator took a ‘narrow view of the function of arbitration proceedings’ and reduced them to ‘no more than the application of a given national law to a dispute’.

‘One of the distinguishing features of arbitration that sets it apart from proceedings in national courts is the breadth of discretion left to the parties and the arbitrator to structure the process for resolution of the dispute,’ Lord Clarke said. This is reflected in section 1 of the 1996 act, which provides that: ‘The parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest.’

Lord Clarke also cited the ICC’s written argument that: ‘The raison d’être of arbitration is that it provides for final and binding dispute resolution by a tribunal with a procedure that is acceptable to all parties, in circumstances where other fora (in particular national courts) are deemed inappropriate.’ One reason this might be was because the courts were ‘insufficiently sensitive to the parties’ positions culture or perspective’, the ICC suggested.

The approach of the Court of Appeal, which considered simply whether an Ismaili arbitrator was ‘necessary’ – was ‘too legalistic and technical’, Lord Clarke said. ‘The parties could properly regard arbitration before three Ismailis as likely to involve a procedure in which the parties could have confidence and as likely to lead to conclusions of fact in which they have particular confidence.’

JIVRAJ: THE CAST LIST

In the Supreme Court

• Lord Phillips
• Lord Walker
• Lord Mance
• Lord Clarke
• Lord Dyson

Counsel to Nurdin Jivraj

• Rhodri Davies QC of One Essex Court and Schona Jolly of Cloisters Chambers in London
• Hill DickinsonPartner Jonathan Berkson in London

Counsel to Sadruddin Hashwani

• Michael Brindle QC of Fountain Court Chambers and Brian Dye of Essex Court Chambers in London
• Zaiwalla & CoPartner Sarosh Zaiwalla in London

Counsel to the LCIA

• Laurence Rabinowitz QC of One Essex Court and Christopher McCrudden of Blackstone Chambers in London
• LinklatersPartner Christopher Style QC and associate Philomena McFadden in London

Counsel to the ICC

• Toby Landau QC, Paul Key and David Craig of Essex Court Chambers and Tom Linden QC of Matrix Chambers in London
• Allen & OveryPartner Richard Smith and senior associate Angeline Welsh in London

Counsel to His Highness Prince Aga Khan Shia Imami Ismaili International Conciliation and Arbitration Board (ICAB)

• Rabinder Singh QC and Aileen McColgan of Matrix Chambers in London
• Clifford Chance LLPPartner Audley Sheppard and associate Jo Delaney in London

In the Court of Appeal

Tribunal

•Lord Justice Moore-Bick

•Lord Justice Aikens

•Sir Richard Buxton

Counsel to Sadruddin Hashwani

•Zaiwalla & Co

Partner Sarosh Zaiwalla in London

Counsel to Nurdin Jivraj

• Rhodri Davies QC of One Essex Court and Schona Jolly of Cloisters Chambers in London

• Hill Dickinson

Partner Jonathan Berkson in London

In the Court of First Instance

High Court tribunal

• Mr Justice David Steel

Counsel to Nurdin Jivraj

• Rhodri Davies QC of One Essex Court and Schona Jolly of Cloisters Chambers in London
• Hill DickinsonPartner Jonathan Berkson in London

Counsel to Sadruddin Hashwani

• Zaiwalla & CoPartner Sarosh Zaiwalla in London