Arbitration Report Issue 02 - 2015 This Issue Includes
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Arbitration Report Issue 02 - 2015 This issue includes: Award Enforcement Abroad After Annulment at Seat When is Referral to a Dispute Adjudication Board a Precondition to Court or Arbitration Proceedings? Binding a Non-Signatory: Example of the Application of Equitable Estoppel in the U.S. Determining Market Value for Lawful Expropriation: The Tidewater Case and more. NOTE FROM THE EDITOR Dear Readers, In this issue of the Baker Botts Arbitration Report, we highlight topics of current interest for arbitration parties and practitioners, including recent efforts to increase transparency and offer faster options for arbitration. The Report offers up-to-date insight on wide-ranging topics, from drafting arbitration agreements, to enforcing arbitral awards, to valuing expropriated assets. Transparency remains a key theme for reform of arbitration procedures. The Report discusses the 2014 U.N. Convention on Transparency in Treaty-based Arbitration, which will expand the application of the UNCITRAL Rules on Transparency in investor-State arbitrations. We also highlight updates to the International Bar Association Guidelines on Conflicts of Interest in International Arbitration, which are a resource for arbitrators and parties on disclosure of potential conflicts. Transparency provisions have also been a point of discussion in negotiations between the U.S. and E.U. on the Transatlantic Trade and Investment Partnership (TTIP). The Report examines the latest discussions of the TTIP arbitration regime. The availability and use of expedited procedures has been another focus for arbitral institutions. The Report reviews the newly-introduced Financial Services Expedited Arbitration Procedure, which is intended to provide a faster, finance-tailored arbitration alternative. We also consider a Singapore court’s ruling that the Expedited Procedure Rules contained in the 2010 SIAC Arbitration Rules could override the arbitration provisions in a contract pre-dating those rules. Regarding the interpretation and enforcement of arbitration agreements, the Report highlights certain recent national court decisions. It includes discussion of a Swedish decision enforcing an arbitration agreement providing for one arbitral institution’s rules to be administered by a different arbitral institution; a U.S. court determination that, in some cases, an agreement to arbitrate with one corporate entity can imply an agreement to arbitrate with another, related entity; and a pair of English and Swiss cases considering whether provisions for referral to a Dispute Adjudication Board serve as precondition to court or arbitration proceedings. With respect to the enforcement of arbitral awards, the Report notes the impact of the E.U.’s Recast Brussels Regulation on jurisdiction and enforcement of judgments in civil and commercial matters. Changes to the Brussels Regulation help clarify the boundaries between Member State courts’ jurisdiction to act thereunder and their jurisdiction to act in support of arbitration under the 1958 New York Convention and national laws. In the Report, we also consider a U.S. decision confirming that even arbitration awards that are incorrect as a matter of law are enforceable, and a series of U.S. and English decisions regarding whether an award that has been annulled at the arbitration seat may be enforced elsewhere. Finally, the Report touches on an important issue in investor-State arbitrations, namely determining the market value for lawfully expropriated assets. We hope that this cross-section of recent developments in international arbitration provides an insightful sampling of current trends and future directions. Jonathan Sutcliffe Editor September 2015 Award Enforcement Abroad After Annulment at Seat — 6 When is Referral to a Dispute Adjudication Board a Precondition to Court or Arbitration Proceedings? — 8 Updated 2014 IBA Guidelines on Conflicts of Interest in International Arbitration — 11 The Recast Brussels Regulation and Arbitration — 13 Update on the Adoption of the UN Convention on Transparency in Treaty-based Arbitration — 15 Binding a Non-signatory: Example of the Application of Equitable Estoppel in the U.S. — 16 Determining Market Value for Lawful Expropriation: The Tidewater Case — 18 Arbitration Clause Pointing To Two Different Institutions Held Enforceable, Not Pathological — 21 Do the SIAC Rules Permit Appointment of a Sole Arbitrator Where the Arbitration Agreement Provides for Three? Singapore High Court Says Yes — 22 Arbitration Under the Transatlantic Trade and Investment Partnership — 24 U.S. Appeals Court Confirms That Even Arbitration Awards Incorrect as Matter of Law are Enforceable — 26 New Financial Services Expedited Arbitration Procedure Aims to Promote Arbitration Among Providers — 28 Editor Jonathan Sutcliffe, Partner, Dubai The following contributed articles to this issue of the Arbitration Report: Jay Alexander, Partner, London; Andrew Behrman, Partner, New York; Ryan Bull, Partner, Washington; Chris Caulfield, Partner, London; Derek Craig, Senior Associate, New York; Alejandro Escobar, Partner, London; Dorine Farah, Senior Associate, London; Dr. Ernesto Féliz De Jesús, Associate, London; Laurie Frey, Associate, London; Dr. Johannes Koepp, Partner, London; Noah Mink, Associate, Washington; Joshua Packman, Associate, Washington; Juliana Pechincha, Associate, New York; Fernando Rodriguez, Visiting Intern, London; Izabella Sarkisyan, Senior Associate, Moscow; Edward Schorr, Partner, New York; Cameron Sim, Associate, London; Kiran Unni, Barrister, London; Natasha Zahid, Associate, Dubai. AWARD ENFORCEMENT ABROAD AFTER ANNULMENT AT SEAT The enforcement of an award that has been annulled at the arbitration seat continues to be a controversial issue in international arbitration. Should the enforcement court follow the decision of the seat court? Can the enforcement court reach a different outcome? The “territorial” or “traditional” position gives primary weight to courts of the seat of the arbitration. In most cases, therefore, pursuant to Article V(1)(e) of the New York Convention, arbitration awards that have been set aside at the seat of the arbitration are not enforced in other countries unless the party seeking enforcement can show serious impropriety by the seat court. Courts in the United States have, almost without exception, adopted this approach, holding that an annulment decision of the court in the primary jurisdiction will generally be respected, and the annulled award will not be enforced in U.S. courts. TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3 928 (D.C. Cir. 2007); Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd., 191 F.3d 194 (2d Cir. 1999). The party seeking enforcement of an annulled award must show “adequate reason” for refusing to recognize the judgment (Baker Marine (Nig.) Ltd., 191 F.3d at 197) and “extraordinary circumstances” (TermoRio S.A. E.S.P., 487 F.3d at 938) must be present. United States courts therefore impose an extremely high burden on the party seeking enforcement of an annulled award, requiring the party to show that the annulment decision “violate[s] ... basic notions of justice.” (Id. at 939.) The exception is the Chromalloy case, which did not appear to apply the territorial approach and analyze the propriety of the annulment decision. Instead, the court enforced an arbitration award, despite the fact that the Egyptian court had annulled it, on the basis that refusing to enforce the award would violate the clear U.S. public policy in favor of final and binding arbitration of Issue 02 - 2015 — 6 commercial disputes. Chromalloy Aeroservices, a Div. of decision. The New York court acknowledged that, under Chromalloy Gas Turbine Corp. v. Arab Republic of Egypt, the New York Convention, it had discretion to continue 939 F.Supp. 907, 913 (D.D.C. 1996). to enforce the award, notwithstanding the Malaysian decision, but held that the circumstances did not “rise In two recent cases, courts in the Southern District of to the level of violating basic notions of justice” as set forth New York applied the territorial approach but reached in TermoRio, and so vacated its original enforcement opposite conclusions. As explained below, the different decision. By contrast with the situation in Pemex, the outcomes are not a result of any difference in the nullification decision was rendered in a neutral country standard applied, but rather flow from the very different (Malaysia), and there was no retroactive application of a sets of facts. prohibition on arbitration. Rather, the Malaysian court applied an “excess of jurisdiction” standard, common to In Corporación Mexicana de Mantenimiento Integral most, if not all, enforcement regimes. (“COMMISA”) v. Pemex-Exploración y Producción, the underlying arbitration between two Mexican companies The decisions in Pemex and Thai-Lao, therefore, occurred in Mexico, under Mexican arbitration law, affirmed the application of the territorial standard and applying Mexican substantive law. The tribunal’s reiterated the high burden that standard imposes on a award was annulled in the Mexican courts on the party seeking enforcement of an award that has been ground that it violated Mexican public policy. Despite nullified at the seat. that nullification, the judge in New York enforced the award because he found that the Mexican annulment A similar approach was recently applied by an English decision violated U.S. public policy. The court found court in Malicorp Ltd v. Government of the Arab Republic that the Mexican decision was tainted