International arbitration

February 2010

Skyline

Editorial

To celebrate the expansion of the Norton Rose group in Asia Pacific and our new offices in Australia there is an antipodean flavour to this issue. Ron Nathans and Ben Allen in our Sydney office highlight forthcoming major changes to arbitration in Australia with a review of the International Arbitration Amendment Bill. Amanda Greenwood (a New Zealand qualified lawyer in our London team) and Ben Allen provide a guide to arbitrating in New Zealand. On the back page, Matthew Croagh, head of our Melbourne office, gives us his take on life. From our Frankfurt office, Axel Kunze and Kevin Quennet’s article highlights special circumstances in German law that can lead to a binding arbitration agreement being concluded without a written contract signed by both parties.

We have also launched our Asia-Pacific Arbitration Manual which provides a practical guide to arbitration and covers 19 key jurisdictions in the region. On our website “arbitration across the regions” brings together the content of all five of our arbitration manuals to provide a guide to arbitration in 50 countries across the world.

Legal update

Legislative amendments in Singapore to assist foreign-seated arbitrations

Legislative amendments effective 1st January 2010 now empower Singapore courts to make orders to assist arbitrations whose seat is outside Singapore. The new section 12A to the Singapore International Arbitration Act grants the Singapore High Court the power to make orders for the giving of evidence by affidavit; the preservation, interim custody or sale of any property which forms part of the subject-matter of the dispute; securing the amount in dispute; and interim injunctions or any other interim measures. The move follows similar legislative changes in other centres for international arbitration such as London and Hong Kong. This has been welcomed by international arbitration practitioners.

CEDR – Rules for the Facilitation of Settlement in International Arbitration

CEDR  published its new Settlement Rules in November 2009 to increase the prospects of settlement between parties involved in international arbitration. Under the rules tribunals may freeze the arbitration to impose a “Mediation Window”, offer settlement terms and/or chair settlement meetings. Tribunals may also take into account a party’s failure to accept a settlement offer equal to or better than the sum ultimately awarded when allocating costs. Joe Tirado was a member of the Commission advising on the new rules.

View Settlement Rules here

2010 SCC Rules

The 2010 SCC  Rules, effective from 1 January 2010, now make provision under Article 32(4) for the appointment of an Emergency Arbitrator. Other amendments include a reduction in the time for parties jointly to appoint an arbitrator from 30 days to 10 days and for confirmations of acceptance of an arbitrator to be sent to the other arbitrators in addition to the parties to the arbitration.

View Arbitration Rules here

Bahrain Chamber for Dispute Resolution Launch

Antony Dutton, Patrick Bourke and Adam Vause (among others) attended the BCDR  launch on 11 January 2010. The BCDR is an initiative between the Bahraini Ministry of Justice and the American Arbitration Association that seeks to revolutionise the way in which disputes are dealt with in the Kingdom.

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Australia’s new arbitration bill

In late November 2009, the International Arbitration Amendment Bill 2009 was introduced into the Commonwealth Parliament of Australia. This is the Australian Government’s attempt to promote Australia as a hub for international arbitration and to provide parties to foreign arbitral proceedings with greater certainty regarding recognition and enforcement in Australia.

The amending legislation (which is currently at the second reading stage and scheduled to be debated in the latter part of 2010) will, if passed in its current form, fundamentally change the way in which international arbitration is regulated in Australia.

Current situation in Australia

The Australian position in relation to international arbitration has always been complicated by its federal system of laws, which allows parties to choose to resolve their dispute under arbitral laws other than in accordance with the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL). This creates confusion and not insignificant legal difficulties. Additionally, the finality sought by parties to an international arbitration is not always certain by virtue of the appeal/review powers contained in the State and Territory Commercial Arbitration Acts (CAAs). This uncertainty is exacerbated by inconsistent decisions rendered by the numerous State and Territory courts which currently have jurisdiction under the International Arbitration Act 1974 (the Act). The Government’s proposed amendments seek to eliminate this uncertainty and provide parties to international arbitral proceedings with greater confidence regarding procedure and finality.

The proposed changes

Model law to cover the field

The most significant proposed amendment is the proposed repeal of Section 21 of the Act, which currently permits parties to an arbitration agreement to agree that the dispute between them is to be settled otherwise than in accordance with the Model Law. As such, the parties can elect to resolve their dispute under applicable State or Territory legislation which does not always achieve the certainty and finality provided for under the Model Law. In the case of “international commercial arbitrations”, the Bill removes the capacity of the parties to nominate an alternative arbitral law, with the Model Law set to “cover the field” for such arbitrations; the State and Territory CAAs will be confined to domestic arbitrations. This is a major development for Australia and will make the complexities associated with the federal system largely irrelevant.

Amended Model Law

The Bill also adopts the 2006 amended version of the Model Law, which includes additional provisions such as

  • expanding the meaning of an agreement in writing, increasing the scope of the Model Law; and
  • giving arbitral tribunals and the courts the power to grant interim measures and preliminary orders. These powers, combined with other amendments to the Act (see below), will streamline the arbitration process in Australia.

Uniform decision making

In an effort to foster greater uniformity in the decisions rendered by courts having jurisdiction over the Act, the Bill proposes to provide the Federal Court of Australia with jurisdiction under the Act, although the amendments would not provide the Federal Court with exclusive jurisdiction, so the potential for divergent decisions still remains. In an effort to combat this, the Bill sets out guidelines, which adopt a pro-arbitration stance, for courts exercising jurisdiction; they must have regard to:

  • the Act’s objects (including facilitating international trade and commerce by encouraging the use of arbitration); and
  • the fact that arbitration is intended to be an efficient, impartial, enforceable and timely method by which to resolve commercial disputes and awards are intended to provide certainty and finality.

Procedure

A number of other proposed amendments also seek to make conducting international arbitration in Australia more efficient by streamlining many of the procedural aspects. These include:

  • confidentiality: to overcome a presently haphazard regime, the Bill provides a legislative regime for confidentiality applying both to the parties and the tribunal itself;
  • evidence: where one party is seeking to frustrate the arbitration proceedings and disregarding the tribunal’s directions, under the Bill a party may, with the arbitral tribunal’s permission, apply to a court to issue a subpoena requiring a person to give oral evidence or to produce documents. The Bill also includes provisions allowing a party to apply to a court for an order enforcing compliance;
  • default of a party: in the case of default by a party, the Bill provides that the arbitral tribunal will be entitled to proceed in default of appearance or of another act and render an award; and
  • interest and costs: the Bill also provides that the arbitral tribunal will have discretion as to the awarding of interest and costs.

What this means for you

The amendments will mean that parties proposing to hold arbitration proceedings in Australia will benefit from greater certainty regarding the decision making of courts and the procedure to be adopted. For parties seeking to have foreign arbitral awards recognised or enforced in Australia, the proposed amendments should also prove beneficial as the Bill also provides guidelines for courts concerning the recognition of awards which should lead to greater certainty regarding their finality.

Ron Nathans is a partner and Ben Allen is a senior associate in the dispute resolution group in Sydney. More information on arbitration in Australia is available in Arbitration in Asia Pacific, one of our series of arbitration manuals.

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Arbitration in New Zealand

Our Asia-Pacific Arbitration Manual includes, for the first time, a section on Arbitration in Aotearoa, New Zealand. In this edition of our Arbitration Newsletter we summarise the key issues relevant to arbitrating in New Zealand.

International arbitration in New Zealand is governed by the Arbitration Act 1996 (as amended in 2007) (the Act). The Act adopts, with slight modifications, the UNCITRAL  model law. The model law is set out in a Schedule to the Act and applies to both international and domestic arbitration.

The Act governs both domestic and international arbitration and is structured as follows:

  • the principal part of the Act contains general statutory provisions which apply to international and domestic arbitrations
  • the First Schedule applies to domestic and international arbitrations. The model law, with minor amendments, is adopted in the First Schedule the articles of the model law are readily identifiable, as the numbering of the original model law articles has been retained
  • the Second Schedule contains a set of optional rules which apply to domestic arbitrations unless the parties opt out and to international arbitrations only if the parties opt in. The Second Schedule is primarily designed for use in domestic arbitrations and modifies the model law in a number of respects including, significantly, allowing appeals on questions of law arising out of an award
  • the Third Schedule reproduces the text of treaties relating to arbitration including the New York Convention – New Zealand is a party to the New York Convention.

The New Zealand courts are supportive of arbitration and are reluctant to intervene in arbitration proceedings (except in the circumstances provided for in the Act, which are consistent with those set out in the Model Law). Interim measures are available under the Act from the New Zealand courts and the arbitral tribunal and the definition of interim measures under the Act notably includes the power to order security for costs.

Amendments to the Act made in 2007 confirmed the general principle that arbitration proceedings are private and confidential. Whilst court proceedings conducted under the Act, such as an appeal on a question of law, are generally public, the Act sets out certain exceptions to this general rule and provides parties with a process through which they can apply to keep court proceedings under the Act private. The court has a wide discretion to determine whether confidentiality afforded in the arbitration process should be sustained in any related court proceeding.

The Act also specifically addresses disclosure of confidential information. The arbitrator and the parties are generally prohibited from disclosing confidential information (as that term is defined in the Act) save in a limited set of circumstances prescribed by the Act.

“the New Zealand courts are supportive of arbitration”

There are a number of professional bodies which provide arbitration services in New Zealand. One of the leading bodies is AMINZ: the Arbitrators’ and Mediators’ Institute of New Zealand, Inc. The Institute is a not-for-profit organisation dedicated to promoting dispute resolution services. It acts as an appointing authority and assists in the administration of domestic and international arbitration. AMINZ publishes an arbitration protocol, which provides a general set of terms for the conduct of arbitration.

Whilst a party to a domestic arbitration in New Zealand may appeal an arbitration award on a question of law with the consent of the parties or with leave of the High Court, for an international arbitration award, such rights of appeal are not available unless the parties have specifically opted into the relevant provisions in the Act.

There are, however, limited grounds to apply to set aside any arbitration award on grounds of procedural impropriety, or because the subject matter of the dispute was not capable of settlement by arbitration under the law of New Zealand, or if the award is in conflict with the public policy of New Zealand.

There is a three-month time limit for any appeal on a question of law or to set aside the award. The time runs from the date the person seeking to appeal or set aside the award received the award, unless the award was induced or affected by fraud or corruption.

“As a rule, New Zealand courts will recognise and enforce arbitration awards.”

To enforce an international arbitration award in New Zealand, the award, the arbitration agreement and a duly certified translation into English of both documents must be submitted to either the High Court or the District Court (depending on the scale of damages/quantum).

As a rule, New Zealand courts will recognise and enforce arbitration awards. The court’s jurisdiction to set aside an award is generally construed quite narrowly.

In domestic arbitrations, the arbitral tribunal has the power to make an award as to costs and expenses and to take into account settlement offers when making any award as to costs. Such powers will only apply to international arbitrations where the parties have expressly agreed to adopt the relevant provisions of the Act.

When determining what, if any, costs will be awarded, an arbitrator will be guided by the same principles as the court; it is customary for costs to follow the event. The parties may, however, in addition wish to specify in their arbitration agreement that costs will be awarded to the successful party.

Amanda Greenwood is a New Zealand qualified senior associate in the dispute resolution group in London and Ben Allen is a senior associate in the dispute resolution group in Sydney. More information on arbitration in New Zealand is available in Arbitration in Asia Pacific, one of our series of arbitration manuals.

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Oral agreements to arbitrate

On 25 January 2008, the Higher Regional Court of Hamburg (OLG Hamburg) rendered a decision (Hanseatic Court of Appeal, decision of 25 January 2008 – file no 6 Sch 07/07, SchiedsVZ 2009, page 71 et seq) on the conclusion of an implicit agreement to arbitrate. Whereas arbitral agreements usually form part of written contracts or are at least written down in some way and signed by the parties, this case shows that even without such agreements in writing, an arbitral agreement can be concluded effectively due to commercial usages.

Facts of the case

The dispute between the parties was about whether an arbitral agreement contained in a charterparty on the transport of sewage sludge from Greece to Hamburg which contained an arbitral agreement had become effective.

The respondent had sued the petitioner for payment of damages before the arbitral court of the German Maritime Arbitration Association (GMAA). The petitioner challenged the arbitration action by arguing that no arbitral agreement existed which would give the GMAA jurisdiction. The arbitral court, after hearing evidence from two witnesses, concluded that a binding arbitral agreement came into force by way of a confirmation of order with contractual effect (in German Kaufmännisches Bestätigungsschreiben – COO). Thus, the arbitral court decided by way of an interlocutory decision that it had jurisdiction in this case. Thereupon, the petitioner filed an applicationfor a declaratory court judgment, pursuant to the German Code of Civil Procedure (ZPO), against this interlocutory decision.

The OLG Hamburg confirmed the arbitral court’s decision as, in its view, it was correct to assume that an arbitral agreement with binding effect had been entered into by the parties by way of a COO.

Confirmation of order doctrine

In Germany, there exist commercial usages (or customs) which are considered binding rules between businessmen as a consequence of a consistent and unitary commercial practice. Pursuant to section 346 of the German Commercial Code (HGB), such commercial usages have to be taken into account in the commercial relationship between businessmen. One example of these commercial usages is the principle of a COO: one businessman writes down the content of an oral agreement already made (at least from his point of view) with the other businessman and sends it to his counterparty; if the counterparty does not immediately object to the “confirmed” agreement or contract, his silence is interpreted as an implicit consent and therefore an agreement is deemed to be concluded between them under the terms specified in the confirmation of order. Hence, this interpretation of silence in response to a COO is an exception to the general principle under German law that mere silence may not be interpreted as a declaration of intent and has no legal significance.

“Under the German confirmation of order doctrine, silence on receipt of a document confirming an oral agreement can contractually bind the recipient”

A contract under the terms of the COO becomes effective if the following conditions are fulfilled:

  • both parties are merchants or take part in business activities on a regular basis
  • contractual negotiations have taken place between the merchants and both parties must have firmly believed that the existing (oral) agreement between them covered all terms and conditions in a conclusive and final way. A simple confirmation which can only be used to achieve a conclusion of a contract is not sufficient. The COO should clearly repeat and finalise the existing (oral) agreement and it should be sent immediately after the contractual negotiations, so that the recipient is prepared for it
  • the sender must act in good faith. Thus, he must be entitled to rely on the fact that the silence of the recipient can be understood by him as an implicit agreement to the COO . Modifications and amendments to the previous (oral) agreement contained in the COO will only become part of a contract if the sender can honestly expect the recipient’s approval. This, however, will not apply in the case of essential modifications or amendments and depends on the circumstances; and
  • the other party must have received the COO and must not have immediately (without undue delay) objected to it. Furthermore, it does not matter whether the COO is named as such. It is the content of the letter which is decisive.

“Great care should be taken in responding to a confirmation letter from a German party”

If the COO is only a summary of the content actually agreed upon in the previous (oral) negotiations, the COO only has declaratory effect. If, on the other hand, an agreement has not yet been reached from the point of view of the issuing party, the COO has a constituent effect, ie, the contract is concluded by this COO if there has been no objection to it.

In the present case the arbitral court, after taking evidence, came to the conclusion that the parties had conducted contractual negotiations on a shipment of 3,000 tonnes of sewage sludge. After several telephone conversations, in which the freight rate was negotiated, the petitioner sent a “fixture confirmation”, stating a freight rate of €33.00 per tonne to the respondent. This fixture confirmation contained a reference to the “Pro Forma Charter Party”. Box 25 of this
Pro Forma Charter Party stated, inter alia, the following wording: “German Law, Arbitration Hamburg according to GMAA rules”. By his “fixture confirmation” dated 17 May 2006, the respondent confirmed the conclusion of a charter party on the shipment of 3,000 tonnes of sewage sludge on the terms and conditions specified in the Pro Forma Charter Party.

This confirmation qualified as a COO. Both parties were merchants and the fixture confirmation referred to contractual negotiations previously conducted by them. Therefore, the petitioner would have needed to object immediately to the fixture confirmation in order not to be bound by its content. As this was not the case, the contract including the arbitral agreement was validly concluded between the parties in accordance with the principles of a COO.

Conclusion

The case demonstrates that in an appropriate situation and based on silence in response to a COO, a contract can be validly concluded which, in turn, triggers the jurisdiction of an arbitral court. This can lead to unanticipated results, in particular, if the parties do not wish disputes to be resolved before an arbitral court or neither party wants to accept the other party’s terms and conditions.

Even in international business relationships it is important to bear in mind that although the principles of a COO are unknown in most foreign jurisdictions, they may apply in certain cases, depending on the counterparty. The legal significance of silence does not depend on the agreed choice of law but on the ordinary residence of the silent party.

This, however, does not apply to business transactions being performed in the country in which the counterparty to the silent party resides. In this case, the agreed choice of law will apply, as the silent party will not be entitled to rely on his actions being judged by the law of his country of residence.

Therefore, caution is highly recommended in cases where a COO, a confirmation letter or a similar kind of communication is received from a party which has its residence in Germany and where such a letter refers to a business transaction to be performed outside Germany.

Axel Kunze is a partner and Kevin Quennet is an associate in Frankfurt.

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Noticeboard

Appointments

Joe Tirado has been appointed to the Host Committee of the IBA  Arbitration Day to be held in London on 5 March 2010. Joe has also been invited to join the Madrid Court of Arbitration’s panel of arbitrators.

KC Lye and John Sharkey have been appointed to the panel of SIAC arbitrators.

Henry Quinlan has been appointed to the Tehran Regional Arbitration Centre and the Dubai International Arbitration Centre panels of arbitrators.

Chambers UK 2010

Our international arbitration practice has been given an extremely positive write-up in the 2010 edition of Chambers UK. We have also moved up a tier in the arbitration category rankings.

The directory states that our practice is “acclaimed for its ability to make headway in even the most complex of disputes”. Joe Tirado is singled out for “his exposure to a range of disputes on an international platform” and for his pragmatism in offering “practical guidance that is always vested in the client’s best interests.”

Arbitration Club – Oil and Gas Branch

On 10 November 2009 we hosted the 50th meeting of the Arbitration Club – Oil and Gas Branch. Speakers included Lord Woolf, and partners Neil Q Miller and Joe Tirado.

SIAC Conferences

KC Lye gave a presentation at the Oil and Gas Conference organised by the Singapore International Arbitration Centre on 26 October 2009.

Anti-corruption

Henry Quinlan recently spoke on the issue of "International Business Corruption in the context of Arbitration" at the Lawyer's Dispute Resolution Conference in Dubai. In partnership with UCL , the Institute of Business Ethics, Ernst & Young and a range of corporate supporters we have established the Centre for Ethics & Law to provide a forum for leading academic and corporate partners to consider issues surrounding the ethical conduct of business. We publish a monthly Business ethics and anti-corruption update.

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Contacts

UK

Joe Tirado, Partner,  Norton Rose LLP
Head of international arbitration and ADR

Australia

Ron Nathans, Partner, Norton Rose Australia

Bahrain

Adam Vause, Senior associate, Norton Rose (Middle East) LLP

Belgium

Michael Jürgen Werner, Partner, Norton Rose LLP

China

Jim James, Partner, Norton Rose LLP

Czech Republic

Pavlína Beránková, Senior associate, Norton Rose v.o.s., advokátni kancelá

Germany

Jamie Nowak, Partner, Norton Rose LLP

Greece

Marie Kelly, Partner, Norton Rose LLP

Hong Kong

Ruth Cowley, Partner,  Norton Rose Hong Kong

Italy

Cecilia Buresti, Partner, Norton Rose Studio Legale

Netherlands

Yke Lennartz, Partner, Norton Rose LLP

Poland

Malgorzata Patocka-Zbikowska, Norton Rose Piotr Strawa and Partners LLP

Russia

Valentina Gluhovskaya, Partner, Norton Rose (Central Europe) LLP

Singapore

Guy Spooner, Partner, Norton Rose (Asia) LLP

Thailand

Somboon Kitiyansub, Partner, Norton Rose (Thailand) Limited

UAE

Patrick Bourke, Partner, Norton Rose (Middle East) LLP

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Focus on Australia: Matthew Croagh

Matthew Croagh, head of our Melbourne office, specialises in construction and engineering disputes arising out of major projects. He has a particular interest in the oil and gas industry.

I am a lawyer because…
I love the challenge and being involved in projects our clients deliver. Every project is different which means every dispute is different. Every day is different.

What gives you greatest satisfaction, professionally?
Building long term relationships with quality clients and being part of a cohesive and effective team which delivers a quality service.

And personally?
Spending time with my wife and four young children.

How do you spend your weekends?
Hopefully on the Mornington Peninsula in Victoria and if the weather is good on the beach. But wherever I am, it invariably involves running around after the four young children.

If you weren’t a lawyer, what would you be?
A teacher.

Who is your hero?
Sir Douglas Mawson. My father read This Accursed Land (the story of his Antarctic expedition) to us when we were young. Wonderful tales of courage and leadership in the face of adversity.

What’s on your iPod?
Recently I added “Dark was the Night”, a compilation CD which is just fantastic. The rest ranges from Sly and the Family Stone to John Coltrane to Cecilia Bartoli.

What future do you see for Melbourne as an arbitration centre?
Melbourne and Sydney are competing to be regarded as the centre for international arbitration in Australia. International arbitration is relatively rare in Australia. I think both cities will find it challenging to convince the business community that disputes that have no connection with Australia should be heard there. But it’s early days yet and the federal government is supportive.

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