Issue 7, Winter 2014
Welcome to this edition of ReSolution in which we bring you commentary, articles and reviews on topical matters relating to domestic and international dispute resolution. In this edition we have contributions from New Zealand, Austalia, Canada, Singapore and the UK.
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An overview of the articles in this edition is as follows:
ReSolution Issue 7 Editorial - John Green
An overview of the articles featured in this edition as well as commentary on recent industry developments and recent court decisions of note.
Topics covered include:
Supreme Court Confirms Power to Grant Declaratory and Anti-Suit Injunctive Relief Even Where No Arbitration is Commenced or Proposed - Sarah Garvey, Manish Aggarwal & Angeline Welsh
In AES Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP  UKSC 35, the UK Supreme Court has confirmed the jurisdiction of the English courts to declare that a claim can only properly be brought in arbitration, and grant anti-suit injunctions restraining court proceedings brought in breach of an arbitration agreement, even in the absence of an actual, intended or proposed arbitration.
The two parties had a concession contract concerning operation of hydroelectric facilities in Kazakhstan. The Concession Agreement was governed by Kazakh law, but contained an ICC arbitration clause with a London seat. While the arbitration clause did not contain an express choice of law, it was common ground that the arbitration agreement was governed by English law.
In 2004, in a proceeding brought by the Republic of Kazakhstan, the Kazakh Supreme Court held that the arbitration clause in the Concession Agreement was void.
In 2009, JSC brought court proceedings against AES in Kazakhstan seeking information about the value of the concession assets. AES applied to stay the proceedings by reference to the arbitration clause, but this application was dismissed by the Kazakh court on the basis that the Kazakh Supreme Court had annulled the arbitration clause by its 2004 decision.
On 31 July 2009, AES issued proceedings before the English Commercial Court, seeking a declaration that the arbitration clause was valid and enforceable, and an anti-suit injunction restraining JSC from continuing with the Kazakh proceedings.
The English Commercial Court granted an interim injunction, but AES remained concerned that JSC would seek to bring further court proceedings in Kazakhstan in breach of the arbitration agreement and sought to maintain the injunction.
At first instance, JSC’s challenge to the English courts’ jurisdiction was dismissed and the Court upheld the anti-suit injunction and granted a declaration that JSC could not bring the claim that was the subject-matter of the Kazakhstan proceedings, or any other claim arising out of the Concession Agreement, other than by way of ICC arbitration proceedings in London.
JSC appealed the decision to the Court of Appeal, which upheld Burton J’s decision. JSC then appealed to the Supreme Court. The Supreme Court dismissed JSC’s appeal.
The judgment helpfully clarifies that the English courts’ jurisdiction to grant anti-suit injunctions to restrain foreign court proceedings brought in breach of an arbitration agreement derives from s37 of the Senior Courts Act 1981 (the SCA 1981) and not from s44, or any other provision of, the Arbitration Act 1996 (the 1996 Act).
The case is analysed in detail in an article by Sarah Garvey, Manish Aggarwal and Angeline Welsh from Allen & Overy titled: ‘Supreme Court Confirms Power to Grant Declaratory and Anti-Suit Injunctive Relief Even Where No Arbitration is Commenced or Proposed’
The Devil is in the Detail: Multi-Tiered Dispute Resolution Clauses Must be Certain and Specific - Buddle Findlay
The English High Court has recently provided guidance as to the extent to which parties are bound to follow the preliminary, 'conciliatory' steps in such clauses, before seeking relief from a court or arbitrator.
In Tang v Grant Thornton International & Ors  EWHC 3198, the Court upheld the tribunal’s finding that it had jurisdiction to determine the claim, despite the preliminary steps having not been taken or enacted correctly.
The Court observed that sufficient certainty and unequivocal commitment and an ability to objectively determine when the clause has been fulfilled is required in order for the court to uphold it.
In the article “The devil is in the detail” by Buddle Findlay, the case is discussed in detail and the authors are left to conclude that if multi-tiered clauses are to have teeth, they must be expressed unequivocally and in sufficient detail to enable a Court to enforce them without having to 'fill in the gaps'. This will mean specifying not only timeframes, but also clear and detailed procedures.
Breach of Fair and Equitable Treatment Standard (ICSID) - Christian Leathley
In a recent ICSID case it was claimed that an FET standard in a BIT between Romania and Sweden was breached when Romania repealed incentives offered for investments in parts of Romania’s deprived regions. Christian Leathley of Herbert Smith Freehills discusses the case in depth in ‘Breach of fair and equitable standard (ICSID)’.
In brief summary, the claimants had made investments in Romania on the basis that incentives would be available for 10 years according to the BIT, however Romania repealed the incentives on the grounds of accession to membership in the EU.
The arguments before the tribunal concerned the interaction of the provisions of the Accession Treaty and the BIT, and which should prevail.
The European Commission backed Romania’s argument concerning the prominence of EU law, the Europe Agreement and the Vienna Convention on the Law of Treaties over the BIT. These authorities supported the requirement of phasing out the Incentives.
The Tribunal determined that as Romania was not a member of the EU at the time of signing the BIT there was no conflict of treaties, but EU law was necessary for the interpretation of the BIT due to the intent of the parties when ntering into the BIT.
The Tribunal held that the repeal of the incentives was not a definite breach of the FET standard due to the impetus for repealing being for accession to the EU. However, it found the actions of Romania upholding some of the claimant’s obligations under the BIT while removing the incentives resulted in a breach of the standard.
The Tribunal found that Romania had made specific promises to the claimants in terms of the incentives and their duration and, combined with the element of inducement for the BIT the incentives had, Romania was in breach of the FET standard. The Tribunal held there was no bad faith, but observed that the lack of transparency in informing the claimants of the changes was a contributing factor.
The claimants sought RON2,655.23 million (EUR597 million as stated in the award) in damages. The majority of the amounts were sought in respect of lost profits. In the event, the tribunal awarded the claimants RON376 million (around EUR83 million), plus interest. It has been reported that if interest is considered, total damages will reach USD 250 million (around EUR 184 million).
The award touches on a number of issues that are not settled in the field of international investment treaty arbitration. The fact that, in some respects, the arbitrators in this case were unable to make a unanimous decision, coupled with the shifting majority/minority, is a testament to the number of unsettled issues with which the tribunal had to deal.
Getting to “Yes” too soon: When Negotiations Create Obligations - Andrew Cunnigham
Lawyers who conduct negotiations conduct them as agents of their clients. As the recent British Columbia Court of Appeal decision in Hartsfield v Terra Nova Royalty Corp 2013 BCCA 417 Hartslief v. Terra Nova Royalty Corp., 2013 BCCA 417 shows, this seemingly academic point can have important real-world consequences.
In ‘Getting to “yes” too soon: when negotiations create obligations’ Andrew Cunningham of Stikeman Elliott, one of Canada's leading business law firms discusses a case that concerned the negotiation of a settlement package for a terminated executive. Neither party was present at negotiations. Draft settlement terms were exchanged between counsel for the two sides over a period of several weeks until finally the two solicitors agreed over the phone that the most recent draft terms were acceptable.
The problem was that the solicitor who was acting for the company intended that the deal would be final and binding only after his client had satisfied itself, by means of an exit interview, that certain representations made by its ex-employee in the agreement were accuratebut the lawyer for the ex-employer had not clearly indicated to the other side the intention of his client to postpone final settlement until certain actions had been completed.Unfortunately for him and his client the Supreme Court of British Columbia held that failure to communicate the clients wish for further requirements did not prevent the negotiations being final and binding.
The Court applied the usual test concerning legal obligations – they arise when the essential provisions of the contract have been agreed upon. According to the law of agency, the lawyers’ representation of the parties bound the parties to the concluded contract.
On appeal to the Court of Appeal, the Court upheld the decision, rejecting the argument that one party’s understanding that the agreement was a ‘sign and close’ agreement prevented the contract from being binding. The Court observed that both parties must have this intention and understanding in order for this to be the case.
Technology Contracts, limitations of Liability and Interim Injunctions: AB v CD - Angela Fouracre
Where a party to a contract attempts to wrongfully terminate that contract, the ‘innocent’ party can apply for an interim prohibitory injunction to restrain such action in order to protect its business pending a full determination of the matter.
In the article ‘Technology Contracts, Limitations of Liability and Interim Injunctions: AB v CD’, Angela Fouracre of Bristows LLP discuss the recent UK Court of Appeal case of AB v CD  EWHC 1 (QB) where the Court looked at whether a party applying for an injunction to restrain the other from terminating a licence (allegedly in breach of contract) was able to rely, in its favour, upon the fact that damages would not be an adequate remedy as the contract contained a provision limiting the recoverable damages to below what might otherwise have been awarded as a matter of general law.
In this case, an injunction claim against termination of a contract was decided by discussing whether a clause in the contract that limited damages recoverable in a future action for wrongful termination could weigh against the determination of the injunction. The determination of the injunction was to be based on whether damages are an adequate remedy if the proposed termination occurred and was later deemed unlawful.
The case concerns conflicting authority and Stuart-Smith J determined that there is a distinction to be made between a liquidated damages provision, the purpose of which is compensation of the claimant’s full loss, and limitation provisions that remove certain categories of damage from the scope of loss.
In the result damages were found to be an adequate remedy even though they were likely to fall below the losses actually suffered and the application for an injunction was rejected. Leave to appeal has been granted and the Court of Appeal will no doubt confirm the authority on this issue.
Disclosure of Partial Settlements In Multi-Party Litigation - Gordon Buck & Scott Harcus
Many disputes such as our own home grown leaky building disputes are complex, and may involve a large number of defendants with greatly varying degrees of exposure. In this circumstance, "smaller players" with minimal exposure or parties who simply want the certainty of a negotiated settlement may wish to settle with the plaintiff, however other defendants may not want to do so.
In Canada, “B.C. Ferry Agreements”, also known as “Pierringer Agreements”, are arrangements the courts have approved of allowing a plaintiff to settle claims with different defendants in multi-party disputes. The resultant settlement will mean the defendant is insulated from third party claims by the remaining defendants for contribution to the plaintiff’s loss, and the plaintiff maintains its ability to sue the defendants who have not been settled with.
The article by Gordon Buck and Scott Harcus from Alexander Holburn Beaudin + Lang LLP titled “Canada: Disclosure of Partial Settlements in Multi-Party Litigation” discusses these agreements and the issues of whether they must be disclosed to the other defendants of the proceeding and whether the amounts of settlement must also be disclosed.
While the answer to the first query is a definitive yes, that the agreements must be disclosed, the courts have now determined that there is no requirement to disclose the amounts of the settlement between the parties.
The case has interesting parallels with leaky home litigation in New Zealand where partial settlements with one or more defendants are commonplace.
Arbitration in Singapore 2013: A Year in Review - Jonathan Choo
In the article ‘Arbitration in Singapore 2013: A year in review’ Jonathan Choo, a Partner & Head of Arbitration & Dispute Resolution at Olswang Asia LLP discusses the prominent arbitration cases from Singapore in 2013. The cases cover a range of issues including remedies that are ‘active’ versus ‘passive’, multi-tier arbitration clauses, pathological clauses and the standard of review. The cases indicate the direction Singapore has taken in its interpretation of arbitration law at present.
Of note is the case of PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others  SGCA 57, where it was decided that the debtor of an arbitration award can resist enforcement despite not actively challenging the tribunal’s jurisdiction ruling at an earlier stage of the arbitration. The tribunal had no jurisdiction over the relevant third parties involved.
The grounds of the decision were based on art 16(3) of the Model Law (which is incorporated into the Singapore International Arbitration Act (Cap 143A)) and the choice of remedies that it allows.
At first instance in the High Court, the court determined that failure to challenge the tribunal’s award decision within the prescribed time precludes resistance of enforcement of the award at a later stage.
The Court of Appeal overturned this decision in deciding that parties have the option to choose active remedies at the seat, or passive remedies at the place of enforcement.
Is it an Arbitration Agreement? - John Green
In Carr & Anor v Gallaway Cook Allan  NZSC 75 (20 June 2014) the Supreme Court recently reversed the Court of Appeal holding that an arbitration agreement, expressed to be subject to the right of appeal to the High Court on any “questions of fact” was invalid and, in exercise of the discretion available under article 34, set the resulting award aside.
The decision highlights the importance of drafting arbitration clauses with care and in the article “Is it an arbitration agreement?” I discuss the case and the lessons to be learnt.
NZDRC provided recommended dispute resolution clauses for contracts.
For recommended Arbitration Clauses CLICK HERE
For recommended Mediation Clauses CLICK HERE
For recommended Early Neutral Evaluation Clauses CLICK HERE
For recommended Expert Determination Clauses CLICK HERE
Please note: that particular care should be taken when drafting contracts providing for multi-tiered dispute resolution processes. Generally, the intent of such provisions is to have a dispute move progressively from one dispute resolution process to another if resolution is not achieved (usually from least formal to most formal viz negotiation to arbitration), and participation in each process is to be a binding and enforceable condition precedent to moving onto the next step. A simple example set out below is where mediation is made a condition precedent to arbitration.
Contracts that merely provide multiple options for various alternative dispute resolution processes are often problematic leaving parties uncertain as to their strict (and enforceable) rights and obligations (if any) imposed under the contract.
NZDRC would be pleased to advise and assist you in the preparation of any dispute resolution provisions in commercial contracts. Contact John Green on 0508 DISPUTE / (09) 486 7153 for more information.