MoFo APAC Arbitration Update: September 2020

SINGAPORE ANNOUNCES AMENDMENTS TO ITS INTERNATIONAL ARBITRATION ACT

On September 1, 2020, Singapore’s Ministry of Law announced that it is tabling the International Arbitration (Amendment) Bill (the “Bill”) to introduce changes to Singapore’s International Arbitration Act (the “IAA”).[1]

The Bill introduced two changes to the IAA. First, the Bill added a new section 9B, setting out a default mode of appointment of arbitrators in multiparty situations where the parties’ agreement is silent on the procedure. The procedure provides that: (i) the claimant(s) must first jointly appoint an arbitrator on or before sending the request for arbitration and inform the respondent(s) of the appointment; (ii) the respondent(s) must jointly appoint an arbitrator and inform the claimant(s) within 30 days of receipt by the last respondent of the request for arbitration; (iii) the two arbitrators must agree on the nomination of the third and presiding arbitrator within 60 days of receipt by the last respondent of the request for arbitration; (iv) if either side fails to appoint an arbitrator, the appointing authority shall appoint all three arbitrators; and (v) if the two arbitrators fail to nominate a third arbitrator, the appointing authority shall appoint the third and presiding arbitrator.

Second, the Bill added a new section 12(1)(j) expressly empowering tribunals to enforce existing confidentiality obligations, whether such obligations are agreed upon by the parties in writing, exist under any written law or rule of law, or exist under rules of arbitration adopted by the parties. Although Singapore law already recognized a common law duty of confidentiality on the parties to keep the arbitration and related information confidential, this express provision should give tribunals confidence to respond robustly to breaches of confidentiality.

KCAB AND KBIZ ANNOUNCE INNOVATIVE APPROACH TO ARBITRATION FINANCING

On September 3, 2020, the Korean Commercial Arbitration Board (“KCAB”) announced that it had signed a Memorandum of Understanding (“MoU”) with the Korea Federation of Small and Medium Business (“KBIZ”) to help small- and medium-sized businesses in Korea resolve commercial disputes with foreign companies due to the COVID-19 pandemic by having KBIZ partially cover the fees incurred in appointing arbitration counsels.[2]

KCAB noted that, during the COVID-19 pandemic, foreign companies have increasingly cancelled orders and breached contracts with small- and medium-sized businesses in Korea and that some Korean businesses do not utilize arbitration to resolve these disputes due to the cost of counsel. To address this, under the MoU, when a small- or medium-sized business submits a Request for Arbitration to KCAB, the business may receive up to 50% of the counsel fees (up to a cap of KRW 15,000,000) from KBIZ. KCAB also noted that, unlike Korea’s court system, which has a three-trial system and takes at least five years to reach a final judgment, arbitration typically has a single hearing and takes six months on average to reach a final decision, with an award that is legally binding and enforceable.

HONG KONG COURT OF FIRST INSTANCE REFUSES TO GRANT PERMISSION TO APPEAL AGAINST ARBITRAL AWARD, NOTING THAT ARBITRATOR’S DECISION WAS NEITHER “OBVIOUSLY WRONG” NOR “OPEN TO SERIOUS DOUBT”

On September 7, 2020, in MC v. SC [2020] HKCFI 2337, the Court of First Instance rejected an application for permission to appeal against an arbitral award on a question of law under section 5 of Schedule 2 to the Arbitration Ordinance (Cap. 609) and, in so doing, declined to consider the proper construction of the provisions of a standard form construction contract, reasoning that the version of the contract at issue had been significantly amended and therefore differed from the standard form.

The underlying dispute concerned a construction subcontract between a main contractor and a subcontractor. The subcontractor terminated the subcontract for non-payment. The main contractor accepted the subcontractor’s termination as wrongful repudiation. The arbitration agreement in the subcontract expressly provided that Schedule 2 to the Arbitration Ordinance (Cap. 609) would apply. The arbitrator issued an award in favor of the subcontractor, finding that the subcontractor’s termination was not a wrongful repudiation of the subcontract. The main contractor (“applicant”) applied for leave to appeal on the basis that the appeal concerned questions of great general or public importance or at least was open to serious doubt pursuant to section 6(4)(c)(ii) of Schedule 2 of the Arbitration Ordinance (Cap. 609).

The applicant contended that this appeal concerned a question of construction of the provisions of a standard form construction contract and claimed that a decision would provide important clarity on language commonly used in the building industry. The Court of First Instance rejected this argument because significant amendments had been made to the standard form wording. Refusing permission to appeal, the Court of First Instance also noted that the arbitrator had considered the entirety of evidence before him and found that the arbitrator’s decision was neither “obviously wrong” nor “open to serious doubt.”

This case confirms the Hong Kong courts’ deference to arbitrators’ findings and makes clear that an applicant seeking to appeal an arbitrator’s decision on the basis of findings of fact must meet the high threshold of showing that the decision was “obviously wrong” or “open to serious doubt.” The courts will not readily interfere with a tribunal’s decision on a mixed question of law and fact. Similar to the deference given to a lower court, arbitral tribunals are considered a primary factfinder and are consequently entitled to consider all evidence before them, including to decide the weight to be attributed thereto.

CHINA TO ALLOW ARBITRATION SERVICES PROVIDED BY FOREIGN ARBITRAL INSTITUTIONS IN BEIJING

On September 7, 2020, the State Council of China announced its approval in principle of the Work Plan for Deepening Comprehensive Pilot and New Round of Opening-Up of Services Sectors in Beijing and Building Comprehensive Demonstrative Area of Opening-Up of State Services Sectors (the “Work Plan”).

The Work Plan proposes, inter alia, that, upon registration with relevant authorities, foreign arbitral institutions will be allowed to set up business organizations in specified zones in Beijing to provide arbitration services for civil and commercial disputes and to support the enforcement of interim measures. The proposals are similar to the policies adopted in Shanghai in 2019. However, as no further details have been provided in the Work Plan, the extent of arbitration services that these business organizations will be permitted to provide is still unclear; it is likely, however, to be limited to foreign-related disputes.

PRC COURT UPHOLDS CLAUSE PROVIDING FOR SIAC ARBITRATION IN SHANGHAI

In Daesung Industrial Gases Co Ltd v. Praxair (China) Investment Co Ltd, the Shanghai No.1 Intermediate People’s Court upheld the validity of a clause providing for arbitration by “Singapore International Arbitration Centre in Shanghai in accordance with its rules.” The applicant applied to the Shanghai No. 1 Intermediate People’s Court to confirm the validity of the arbitration agreement. The respondent challenged the validity of the arbitration agreement, arguing that arbitration in the PRC by a foreign arbitration institution is impermissible under the PRC Arbitration Law. 

In its decision, the court found no law or statutory instrument expressly prohibiting foreign arbitration institutions from administering arbitration proceedings in China. It held that the arbitration clause in the case contained all elements required in Article 16 of the PRC Arbitration Law and, thus, constituted a valid arbitration agreement under PRC law. The question of whether the arbitration market in China was open or not was irrelevant to the determination of the validity of the arbitration agreement.

The Shanghai No. 1 Intermediate People’s Court’s decision follows from a series of decisions in Singapore relating to the same arbitration, addressing the tribunal’s finding that Singapore, not Shanghai, was the seat of arbitration. Singapore’s apex court, the Court of Appeal, ultimately found that the parties had selected Shanghai as the seat of arbitration and, therefore, held that the Singapore courts were not the supervisory courts of arbitration. The Singapore Court of Appeal found that the question of validity of the arbitration clause, therefore, was to be properly decided by the Shanghai courts. We previously covered the Singapore High Court decision and the Singapore Court of Appeal decision.

SUPREME COURT OF INDIA DISMISSES INDIAN GOVERNMENT’S APPLICATION TO RESIST ENFORCEMENT OF MALAYSIAN ARBITRATION AWARD AND CLARIFIES THE TEST FOR A CHALLENGE BASED ON PUBLIC POLICY

On September 16, 2020, the Supreme Court of India in Government of India v. Vedanta Limited (Formerly Cairn India Ltd) et al., Civil Appeal No. 3185 of 2020 dismissed the Indian government’s (the “Government”) application to resist enforcement of an arbitral award made in Kuala Lumpur, Malaysia. The decision clarifies the time limit for parties to enforce foreign awards in India and describes the permissible scope of public policy challenges to arbitral awards under Indian law.

The dispute arose from a Production Sharing Contract (“PSC”) dated 1994 that the Government had entered into with four parties (the “Claimants”) to explore and develop the Ravva Oil and Gas Field offshore in the Bay of Bengal. A dispute arose regarding the Claimants’ right to recover certain development costs in connection with the exploration and exploitation of the Ravva Oil and Gas Field, totaling more than US$264.35 million. The Government raised counterclaims equivalent to the amounts that the Claimants had claimed. These disputes were referred to arbitration seated in Kuala Lumpur. The tribunal in the arbitration awarded the Claimants US$278.9 million in damages and awarded the Government a credit of US$22.3 million.

The Government applied to set aside the award before the Malaysian High Court on the grounds that: (i) the award dealt with a dispute not contemplated by, or not falling within, the terms of the submission to arbitration; (ii) the award contained decisions on matters beyond the scope of the submission to arbitration; and (iii) the award was in conflict with public policy. The Malaysian High Court rejected the Government’s challenge to the award and, in particular, held that the award was not contrary to Malaysian public policy. The Government appealed to the Malaysian Court of Appeal. The Malaysian Court of Appeal also dismissed the Government’s appeal. The Government’s application for leave to appeal to the Malaysian Federal Court was also rejected.

While the application for leave to appeal was pending, the Claimants applied to the Delhi High Court to enforce the award under sections 47 and 49 of the Indian Arbitration and Conciliation Act (the “Indian Arbitration Act”). The Government applied under section 48 of the Indian Arbitration Act to resist enforcement on the grounds that: (i) the enforcement petition was filed outside the limitation period, (ii) enforcement of the award was contrary to the public policy of India, and (iii) the award contained decisions on matters beyond the scope of the submission to arbitration. The Delhi High Court dismissed the Government’s section 48 application. The Government appealed to the Supreme Court of India.

The Supreme Court rejected the Government’s arguments on appeal and held the following:

• Noting that neither the Indian Arbitration Act nor the Indian Limitation Act 1963 specifies any limitation period for filing an application for enforcement or execution of a foreign award, the Supreme Court held that the residual provision in Article 137 of the Limitation Act (providing for a period of three years from when the right accrued) would apply. On the facts, the Supreme Court found that, although the award was issued in 2011, facts subsequent to the issuance of the award meant that the Claimant’s cause of action for enforcement only arose on July 10, 2014. The Claimants filed their enforcement petition only three months after this date, and, as such, the enforcement petition was made within the limitation period.
• Foreign awards are not enforceable in and of themselves (i.e., are not directly enforceable). In order for foreign awards to be enforceable, the Indian courts must first adjudicate on the enforceability of the foreign award under section 47 of the Indian Arbitration Act and adjudicate on any objections raised under section 48 of the Indian Arbitration Act resisting enforcement. If and when the courts have completed this process and are satisfied that the foreign award is enforceable, the foreign award will then become enforceable as a deemed decree of the Indian courts, as provided for in section 49 of the Indian Arbitration Act.
• The Supreme Court rejected the Government’s argument that the Malaysian courts should have considered the issue of public policy in the context of Indian law (the governing law of the PSC) rather than Malaysian law, the curial law at the seat of arbitration. However, the Supreme Court held that the Indian courts, being the lex fori in connection with an enforcement application, were not bound by the seat courts’ approach and ought to consider the award in the context of Indian public policy.
• On the issue of Indian public policy, the Supreme Court found that it was the Indian Arbitration Act in force prior to 2016 amendments was the act that applied. The 2016 amendments significantly reduced the scope of “public policy” in sections 47 and 48 of the Indian Arbitration Act, removed references to “interests of India,” and clarified that awards can be set aside or refused enforcement only if they are opposed to the “fundamental policy of Indian law.” However, even applying the broader pre‑2016 public policy ground, the Supreme Court held that the Government had failed to show that the award conflicted with the public policy of India or was contrary to basic notions of justice. The Supreme Court found that the Government’s complaint was that the tribunal had misinterpreted the PSC, thus fundamentally changing the nature of the agreement. The Supreme Court held that this was an issue firmly within the tribunal’s domain, and it was not open to the Government to challenge the award on what was effectively the merits. The Supreme Court also found that there was no violation of basic notions of justice: there had been no due process violation, and the award did not violate India’s basic principles of morality and justice. The Supreme Court also noted that the PSC had been extended for a further period of 10 years between the parties, which would indicate the performance of the obligations in the PSC was not contrary to the “interests of India.”

The Supreme Court’s ruling provides useful guidance with respect to the enforcement of foreign arbitral awards in India, including the time limit for making enforcement petitions and the scope of public policy challenges.

[1] The full text of the Bill is available at: https://sso.agc.gov.sg/Bills-Supp/29-2020/Published/20200901?DocDate=20200901. The first reading of the Bill by Singapore’s Parliament took place on September 1, 2020. The Bill was read for a second time and passed by Singapore’s Parliament on October 5, 2020.

[2] Press Release, “KCAB and KBIZ sign MoU,” September 3, 2020, available at: http://www.kcabinternational.or.kr/user/Board/comm_notice.do?BD_NO=169&CURRENT_MENU_CODE=MENU0025&TOP_MENU_CODE=MENU0024.