In recent years the Australian Courts have developed an enviable reputation for adopting a very proactive approach to the enforcement of both Australian and foreign arbitral awards. In particular, the Australian courts have adopted a vigorous approach in seeing off various challenges, many of them unmeritorious, trying to set aside arbitration awards on relatively spurious grounds such as alleged infringing public policy or procedural unfairness. In the process the Australian courts have made it clear that Australian governments both the Commonwealth government in Canberra and the various State governments regard arbitration as a beneficial form of prompt and efficient commercial dispute resolution which is to be encouraged and attempts to stymie arbitrations by unmeritorious challenges are unlikely to succeed in the Australian courts.

This approach has been demonstrated in a variety of cases most of them involving the enforcement of foreign arbitration awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) (NYC). These cases resulted in successful outcomes for the parties seeking to enforce their arbitral award with the enforcement proceedings often being concluded expeditiously and in some cases very expeditiously.

The enforcement of foreign arbitration awards in Australia and the conduct of international arbitration and award enforcement in Australia are governed by the Commonwealth International Arbitration Act 1974 (IAA). Domestic commercial arbitrations and the enforcement of their awards are governed by the Commercial Arbitration Acts of the various States such as the New South Wales Commercial Arbitration Act 2010 (CAA). A domestic award is one where both parties are Australian. An international award is one involving at least one non-Australian party. A foreign arbitral award is one made outside Australia.

Many of these pro arbitration award enforcement judgments have been handed down since 2010 when the IAA was amended and most of the State CAAs were substantially updated.

The IAA and the various State CAAs rely heavily on the UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law). The Model Law applies to international arbitrations conducted in Australia and is also heavily relied on in the CAAs. The IAA and CAAs, as well as the decisions of the courts in recent years especially after amendments to the IAA in 2010, give the Model Law the force of law in Australia and make it clear that the courts will use the Model Law as a template for the conduct of international and domestic commercial arbitrations. Indeed, the Australian courts have made it clear that they will endeavour to achieve harmonisation between the enforcement of domestic arbitral awards and international (including foreign) arbitral awards by utilising the provisions of the Model Law. A very good example of this approach was the decision of the New South Wales Supreme Court in Collin Joss & Co v Qube Furniture in 2015.

There are only a very small number of grounds enabling an award debtor to apply to a court in Australia to set aside an arbitral award. These grounds are largely procedural and are based on the grounds in article V of the NYC and include grounds such as breach of public policy, procedural unfairness, the absence of an actual agreement to arbitrate or the absence of a proper subject matter for arbitration. Interestingly the IAA has narrowed the public policy ground to apply only to awards induced or affected by fraud or corruption or where there is a breach of the rules of natural justice in the making of an award. The grounds for challenging enforcement of foreign awards are set out in section 8 of the IAA. Importantly section 39 of the IAA requires the enforcing court to have regard to the objects of the IAA and the fact that arbitration is an efficient, impartial, enforceful and timely method by which to resolve commercial disputes, and the awards are intended to provide certainty and finality. This legislative requirement has encouraged the Australian courts to adopt a proactive approach to arbitral award enforcement and to adopt a narrow approach to the grounds of setting aside awards where the party challenging the award has a significant evidentiary burden of proof albeit on the balance of probabilities. Amendments to the IAA in October 2015, although largely procedural, are likely to re-enforce these objectives.

As a consequence, the Australian courts are reluctant to intervene in arbitration and are content to leave the conduct of arbitration in the hands of the tribunal. This was demonstrated by the decision of the Federal Court in the 2015 case Sino Dragon v Noble Resources, in which the court declined to usurp the tribunal’s function of ordering disclosure of documents.

Nowhere has the proactive approach of the Australian courts to enforce foreign arbitral awards been better demonstrated than in the high profile enforcement proceedings which emerged during the 2015 Australian Grand Prix Formula One race involving a dispute in the week leading up to the race between one of the racing teams (Sauber Motorsport AG) and one of its drivers Giedo van der Garde. Mr van der Garde had obtained an arbitral award in Switzerland under the Swiss International Arbitration Rules after he had been removed from his position as a test driver for the Sauber team at the end of 2014. He alleged he had been offered a race seat for the 2015 season which Sauber disputed. The arbitral tribunal found for Mr Van der Garde. The award required Sauber to honour its contractual obligation to nominate Mr Van der Garde as one of their two race drivers for the forthcoming season. The award provided that Sauber must refrain from taking any action which would have the effect of depriving Mr Van der Garde his entitlement to participate in the 2015 Formula One racing season as one of Sauber’s two nominated racing drivers.

Sauber in the meantime contracted with two other drivers because they offered more sponsorship opportunity for Sauber. Not wanting to lose the sponsorship Sauber decided to prevent Mr Van der Garde from driving for Sauber.  Mr Van der Garde relied on the award to launch enforcement proceedings in the Victorian Supreme Court in March 2015, just days before the commencement of the race. As Australia and Switzerland are parties to the NYC (along with over 150 other countries) Mr Van der Garde’s award was enforceable as a foreign arbitral award under the IAA. The enforcement hearing took place on Monday, 9 March 2015 with the race scheduled to take place the following Sunday. Sauber put forward four reasons under section 8 of the IAA in support of their argument that the award should be set aside including that the award was outside the scope of the submission to arbitration, that the wording of the award involved too much uncertainty, that the award would jeopardise safety during the race because Mr Van der Garde had not driven a Sauber car during the 2015 season, and because the award adversely affected the rights of the two other drivers who were not parties to the arbitration, although they were granted leave to appear in the court proceedings. The primary judge made an order adopting the same wording as the award to enforce the award as a judgment of the court.

The Sauber team immediately launched an appeal against the order of the primary judge even though the first practice session of the race would begin in three days. In effect the appeal was a repeat of Sauber’s arguments before the primary judge. The appeal was heard very expeditiously by the Victorian Court of Appeal on Thursday, 12 March. The Court of Appeal dismissed Sauber’s appeal comprehensively. The Court of Appeal said that to establish that the enforcement of the award would be contrary to public policy due to a breach of natural justice what must be shown is real unfairness and real practical injustice. The Court of Appeal said that errors of fact or law are not a legitimate basis for intervention in such cases. The Court of Appeal took the view that Sauber’s case to set aside the award was essentially a legal or factual argument “dressed up as a complaint about natural justice” which cannot be the subject to a valid objection to award enforcement. Similar findings and judicial comments have been made by other Australian courts in rejecting challenges seeking to set aside the enforcement of foreign (and Australian) arbitral awards).

The Court of Appeal rejected the alleged unsafe activity arguments mounted by Sauber on the basis that Formula One racing is highly regulated and the race organisers would ensure all safety requirements would be met, especially as nobody from the race organisers gave any independent evidence about the issue of safety. Sauber’s other arguments were also rejected.

As soon as the appeal was handed down in favour of Mr Van der Garde he launched contempt of court proceedings against Sauber. Tactically this was a very important step to take because it entitled him, if successful, to seize Sauber’s assets.

Not surprising this combination of the successful court orders enforcing the award in favour of Mr Van der Garde and the contempt proceedings led to the parties entering into commercial negotiations immediately. Overnight negotiations led to the contempt application being dropped and the team raced with considerable success on the Sunday with the two other drivers as it was apparent that Sauber had not proceeded with Mr Van der Garde’s driving application in time to allow him to race. Mr Van der Garde came out the real winner with his contract with Sauber being cancelled and he being reportedly paid the sum of approximately € 15 million to bring an end to his legal proceedings.

The Sauber case was an unusual application of the NYC and the IAA to bring finality to a bitter commercial dispute albeit in the sporting arena. However, it demonstrates the flexibility which Australian courts will be prepared to adopt to give effect to a foreign arbitral award where the court perceives that the objections to enforcement of the award are spurious and commercially motivated notwithstanding how much money and determination is thrown into the challenge to the enforcement of the award. The expedition with which the enforcement proceedings were conducted and concluded including the related contempt proceedings leading to a negotiated commercial compromise was quite remarkable in the circumstances and whilst this timeframe is atypical, it demonstrates that in the right case the Australian courts will move extremely quickly to enforce an arbitral award.

More typically enforcement of foreign (and for that matter Australian international and domestic) arbitral awards tend to involve more traditional commercial disputes such as those involving shipping, commodities, telecommunications, resources and investment projects. Arbitral awards handed down in Mongolia and Uganda as well as more traditional seats of arbitration such as London, Paris, Singapore and Hong Kong have been enforced by Australian courts despite the “usual” challenges alleging breach of public policy or some form of procedural unfairness. One unsuccessful challenger even alleged that the LMAA arbitrators in a London shipping arbitration were not “commercial” men as they were lawyers and hence the arbitration was invalid as the arbitration agreement called for arbitration by “commercial” men. The Federal Court rejected that challenge.

To support arbitration Australian courts have demonstrated their willingness to provide interim relief in the form of security such as freezing orders over assets held by an award debtor in Australia pending the outcome of award enforcement proceedings and in one case recently pending the determination of court proceedings in Singapore (see the judgment of the High Court in Bayan Resources v BCBC Singapore decided in 2015). The Australian courts emboldened by the clear legislative intent in the IAA, the Model Law, and the CAAs, will not lightly allow award debtors to escape enforcement and pending the conclusion of enforcement proceedings will stay any court proceedings brought in breach of an arbitration agreement, may order security he provided by the award debtor both in Australia and on a worldwide basis and might require an overseas award debtor to provide security for costs for a challenge to enforcement of the foreign arbitral award in Australia. These are some of the remedies available in Australian courts at an interlocutory or final stage to give effect to Australia’s international obligations as enshrined in the IAA.

Australia is clearly a place where arbitration is favoured by the legislature and the judiciary as a desirable form of commercial dispute resolution, a trend which is only likely to increase. Australia’s recent adoption of many Free Trade Agreements with countries particularly in the Asia Pacific region is likely to see an increase in investor/state disputes being resolved in arbitration, including in the recently signed Trans Pacific Partnership where Australia is one of the 12 signatories.

Parties wishing to enforce arbitration agreements or enforce arbitration awards will find a willing ally in the Australia courts, whether the disputes are resolved in Australia or abroad or the awards are made abroad or in Australia. Either way Australia is a very good place to enforce your arbitration agreement or award. Unlike many jurisdictions the successful party to such proceedings in Australia will invariably be awarded its legal costs.

If anyone is wondering why Hong Kong enjoys such a great reputation as Asia’s premier hub for arbitrating international disputes, a simple review of arbitration activities over the past year should provide ample evidence. The courts, the executive arm of government and the members of the arbitration community have had an impressively productive year.

The Background: Good law, good judges, good institutions, good practitioners

 Hong Kong was one of the very first jurisdictions to adopt the UNCITRAL Model Arbitration Law; many seminal arbitration-related judgments have since issued from the Hong Kong courts. In 2011, Hong Kong again in the vanguard — among the first to adopt the amended version of the Model Law in its Arbitration Ordinance. The 2011 law is accessible and easy to navigate even for those unused to dealing with Hong Kong legislation. The Ordinance is self-contained, with all the material provisions contained within in one place. In addition to the classic Model Law provisions, Hong Kong’s law encourages arbitrators to proceed with diligence and without undue expense. It provides for the recognition and enforcement of interim measures ordered by arbitral tribunals sitting both in and outside Hong Kong. The courts are to intervene only when expressly authorised to do so, and in a supportive rather than a restrictive sense. The law recognises the confidentiality of the arbitration proceedings, but also of arbitration-related court proceedings which are generally heard in camera unless the parties agree otherwise. An opt-in system, requested by representatives of the construction industry allows for consolidation of arbitrations by the court and for a limited right of appeal on a point of law.

Hong Kong judges, as will be clear below, complement the legislation with a keen sense of their role in supporting the arbitration process.  Hong Kong is a major hub for trade and finance, so it is no surprise to learn that its courts are crowded and delays can be severe. Judges, far from regarding arbitrators as usurping their work, welcome arbitration as relieving some of the pressure by taking often complex commercial cases out of the court system and resolving them privately. Judges respect the wishes of parties who have chosen this alternative outside the court, and they realise that it is in everyone’s interest to make the arbitration process work efficiently, without interference from the courts.

Hong Kong itself is strategically placed in the centre of Asia, an accessible and comfortable venue for both Asians and western partners. It is home to the award-winning Hong Kong International Arbitration Centre, now celebrating 35 years of scholarship and service to the dispute resolution community and renowned for its first-class arbitrators, personnel and facilities for arbitration administration and hearings.  ICC Asia, the first “branch office” of the International Chamber of Commerce, was established in 1997; since 2007 parties have had the choice of initiating arbitration procedures in the Hong Kong office if it is more convenient for them than sending files to Paris.  In Hong Kong, over 1800 Asia members form the single largest contingent of the 14,000 members of the Chartered Institute of Arbitrators, providing training and qualifications to practitioners around the Asian region. The Hong Kong Institute of Arbitrators also trains practitioners and judges both in Hong Kong and in Mainland China. Arbitration Chambers is China’s first set of chambers dedicated to international arbitration, with tenants from around the world. CIETAC, China’s largest arbitration institution, has recently established a Hong Kong office to administer arbitrations.

All three of Hong Kong’s law schools offer graduate level degrees in arbitration and dispute resolution. The Vis East International Commercial Arbitration Moot[i], now in its 13^th season, hosts over a thousand students, plus coaches and arbitration professionals from around the world each spring. The Vis Moot offers law students a unique opportunity to prepare and argue a realistic case before experienced arbitration lawyers and arbitrators, and to receive valuable feedback and practical advice over a week of hard work and hard partying. Aside from the enormous educational benefits, the Moot also fosters the development of international and intercultural understanding, cooperation and friendship. Mooties (both students and professionals) often return year after year, forging friendships and contacts which can last a lifetime.

The Arbitration News of 2015

The very first milestone of 2015 was the arrival of the newest version of CIETAC’s Arbitration Rules, which entered into force on January 1. In line with other modern rules the largest Chinese arbitration institution now provides for an Emergency Arbitrator procedure, a mechanism for the Secretariat to appoint an arbitrator in disputes involving multiple contracts, a power for CIETAC to consolidate proceedings, and for the joinder of third parties by the tribunal. Special provisions for arbitrations taking place in Hong Kong include the possibility for parties to name an arbitrator who is not on the CIETAC roster, as well as a separate pay scale for arbitrators sitting in Hong Kong. In an Appendix, the new Rules also deal with the fallout of the famous “schism” of the Shanghai and Shenzhen CIETAC offices. And the monetary limit for the summary procedure provided by article 56 of the CIETAC Rules is now increased to RMB 5 million.

In March the Hong Kong Court of Appeal decided that there could be no appeal from a decision of the Court of First Instance refusing leave to appeal a decision ordering enforcement of a decision from Mainland China. The court found that there was a deliberate policy to restrict rights of appeal in arbitration-related cases, and confirmed the CFI decision.[ii]

In April, in the case of Ever Judger Holding Co. v Kromen Celik,[iii] the Court of First Instance issued the first anti-suit injunction, enjoining a claim for damaged cargo initiated in the Turkish courts, in breach of an agreement to arbitrate in Hong Kong contained in the relevant bills of lading.

On a different note, in May, when the Shanghai organisers of the 19^th International Congress of Maritime Arbitrators were suddenly unable to complete preparations, the Hong Kong Maritime Arbitration Group and the HKIAC dramatically stepped in at the last minute to host several hundred delegates at a very successful meeting. As one of the busiest ports in Asia – and indeed, in the world — Hong Kong has no shortage of maritime experts.

In a rather unfortunate case in July[iv], Hong Kong Court of First Instance had to deal with competing jurisdiction clauses in a multi-contract dispute. In this case, the arbitration clause included the respondent’s counter-claim, but did not encompass the claimant’s original claim. The judge stayed the counter-claim in favour of arbitration, but found no legal basis to stay the claim. Observing that this solution could produce a potential “forensic nightmare” of parallel proceedings and potentially contradictory decisions, the judge did suggest as a case management solution that it would be “appropriate” for the claimant to delay its action until the arbitration case finished, to avoid duplication of efforts and resources and possibly inconsistent results.

The Court of Appeal spoke out once more in August, to uphold the constitutionality of section 81(4) of the Arbitration Ordinance in the face of a challenge. Section 81(4) provides that a party wishing to appeal from a CFI decision setting aside an award must first obtain leave to appeal from the CFI. The Court of Appeal had to decide who should be the “gatekeeper” controlling access to appeals. Recognising that, by leaving control with the CFI the provision did to some extent restrict the adjudicatory power of the Court of Final Appeal, the Court of Appeal nevertheless decided that the restriction was necessary to achieve legitimate aims (of minimising court intervention in arbitration) and was thus constitutionally valid.[v]

An application in September to set aside an enforcement order provided Justice Mimmie Chan with the opportunity to emphasise Hong Kong’s policy of minimal court intervention. Referring to the Hebei Import & Export v Polytek case of 1999 and the 2012 case of Grand Pacific Holdings v Pacific China Holdings, Justice Chan enunciated ten principles to be applied by Hong Kong courts in dealing with enforcement of awards:

1. The court’s primary aim is to facilitate the arbitration and assist with enforcement.
2. The court should intervene only as expressly provided by statute.
3. Subject to public interest safeguards, parties should be free to settle their disputes as they see fit.
4. Enforcement of awards should be “mechanistic” – almost a matter of administrative procedure.
5. A party opposing enforcement must show a real risk of prejudice, and that its rights have been violated in a material way.
6. The court is concerned with the integrity of the process; complaints must be serious or even egregious.
7. In deciding whether to refuse enforcement the court does not look into the merits of the underlying transaction.
8. Failure to make timely objection may constitute estoppel, waiver or lack of bona fides.
9. Even if grounds are made out to refuse enforcement the court has discretion to enforce.
10. Parties to arbitration have a duty of good faith.

Justice Chan then dismissed the application and ordered costs on an indemnity basis against the unsuccessful applicant, in keeping with Hong Kong’s now established practice.[vi]

On a lighter note

October saw Hong Kong hosting the second annual Hong Kong Arbitration Week, with six days of conferences and social activities organised by local firms and arbitration organisations as well as visitors such as the Spanish Commercial Arbitration Court (CIMA)[vii] of Madrid, and ArbitralWomen[viii], a Paris-based international dispute resolution network. During that week, the fourth annual Hong Kong Arbitration Charity Ball attracted some 600 revellers and raised over HK$1,200,000, mainly for the benefit of “Watchdog”, a local charity providing early educational services to children affected by autism, cerebral palsy or Downs’ Syndrome. Community service is yet another facet of the arbitration community of Hong Kong.

Creative financing for the future?

Also in October, just in time for Arbitration Week, Hong Kong’s Law Reform Commission unveiled a Consultation paper recommending that third party funding be allowed for arbitrations seated in Hong Kong. Hong Kong is not only a busy place for dispute resolution; it can also be prohibitively expensive.   Supporting its proposals as increasing access to justice, the authors of the Consultation paper pointed out that third parties could provide alternate sources of funding to claimants with legitimate claims, but who lacked the cash to pursue them. The paper included a study of current law and practices in England, Australia, Singapore, China and the US.

The Commission invites comments, by January of 2016, on topics including the possible legal framework for TPF, ethical and financial standards for funders, confidentiality and potential conflicts of interest, disclosure of TPF to the tribunal and to other parties, costs, a complaints procedure, and whether regulation should be by the government or self-regulation through an industry code of ethics.

To cap a great year, on November 20 the Hong Kong International Arbitration Centre became the first and only international arbitration centre to establish an office in Mainland China. The new office in Shanghai is the second HKIAC outpost, the first being in Seoul. Speaking at the opening ceremony, Secretary for Justice   Rimsky Yuen said that the move would make Hong Kong’s first class arbitration services more accessible to those in the region.

Clearly, Hong Kong’s is a dynamic community focussed on its professional responsibilities. What sets it apart though, is that Hong Kong’s arbitration community is not content to rest on its laurels, but also possesses the vision to see the broader picture and to imagine the future. Hong Kong is, most definitely, a good place to arbitrate.

[i] See: www.cisgmoot.org

[ii] Guangdong Changshong Electric v Inspur [2015] 2 HKLRD 714

[iii] [2015] 3 HKC 246

[iv] CPC Construction v Harvest Engineering and anor (HCA 2096/2013)

[v] China International Fund Ltd v Dennis Lau (Secretary for Justice intervening) [2015] HKEC 1626

[vi] KB v S (HKCC 13/2015)

[vii] See: www.arbitrajecima.com

[viii] See: www.arbitralwomen.org

Why people resort to arbitration?

Bearing of course in mind that it is not possible to generalize, it is suggested that very frequently one resorts to arbitration because one looks at a dispute resolution mechanism which

• be different from court proceedings (a remark which is more than obvious since otherwise one would stay with court proceedings)
• and be better than it.

The choice of arbitration is then justified only if it provides a service which is better than the one provided by court proceedings.

Is generally arbitration better than court proceedings?

This comparison will be limited to four areas:

• the composition of the arbitral tribunal
• the remedies for a review of the decision
• the taking of evidence
• the duration.

The composition of the arbitral tribunal

Very frequently a panel of three arbitrations is selected, since one sees in this a tribute to symmetry and one may appoint “his” own arbitrator.

However, the result of this is that frequently in practice two arbitrators, out of a panel of three, are not always able to remain indifferent to the psychological pressure of their respective appointor.

Is this practice better than court proceedings?

The remedies for a review of the award

It is widespread that the remedy available against an award is only for procedural errors, excluding any review of the merits.

As a consequence, if the arbitral tribunal has erred in selecting the proper law, or has wrongly applied it, or has made errors as to the facts or wrongly appreciated the evidence, there is no remedy.

In court proceedings a full review of the merits, through a de novo rehearing of the case, is allowed and is generally considered as a fundamental right.

Is this practice then better than court proceedings?

The taking of evidence

In common law jurisdictions each party just calls her witnesses, examines them, then they are cross examined and possibly there is a redirect examination, the judge just supervising that this goes through properly.

In many civil law jurisdictions counsel must seek leave to call each witness, must submit the list of questions which he would like to be put to the witness and cannot examine the witness. The acceptance of his witnesses and of his proposals for questions and the actual examination of the witnesses is exclusively in the hands of the judge/or arbitrator who may, out of mere benevolence, allow counsel to put some but not too much questions.

In international arbitration, when the chairman comes from a civil law jurisdiction, the civil law system is more or less followed.

In any event, the parties are not placed in a position to know the rules of the game before starting it.

Is this practice better than court proceedings?

The duration

Some arbitrations last one year.

Others two years, several other ones three or more years.

In one case, in which I acted as counsel (and which ended up above any expectation by the client and by myself) it took 10 years.

Court proceedings frequently last – depending from the jurisdiction – between one and several years.

Is uncertainty about the duration of arbitral proceedings and signs that the arbitrator is very frequently quite relaxed and not disturbed by his/her duty to decide expeditiously better than court proceedings?

A different arbitration

It is suggested that this is not the arbitration which many parties look for, and that all such practices have to be corrected [1].

The European Court of Arbitration[2] has since 1997 Rules which provide for:

• the appointment by its Nominating Committee of a sole arbitrator,
• a duration of no more than 12-15 months, after which the arbitrator is functus ex officio,
• an intra arbitration appellate proceedings, which provides for a full de novo review being conditional upon the deposit by the loser in the first arbitral proceedings of an amount, which in case of his loss of the proceedings will be paid by the Registrar to the victorious party the same day of the issue of the appellate award, and
• the full right of counsel to examine and cross examine the witnesses[3].

This different arbitration has been described as a “fourth generation” arbitration.

[1] RUBINO-SAMMARTANO, International Arbitration – Law and Practice, Juris 2014.

[2] See www.cour-europe-arbitrage.org

[3] The Main Points of the Rules of the European Court of Arbitration.

It isn’t a secret that over the past 10 – 15 years, the LCIA and other major arbitral institutions in Europe including ICC, SCC and Swiss Chamber of Commerce have been hearing and continue to hear an increasing number of disputes originating in Russia and other CIS countries. Now over a year passed since the US and the European sanctions hit the Russian economy. In this article we are going to consider an impact which the sanctions are having already and are likely to have in the future on the resolution of international disputes involving the Russian parties. We are going to try and take into account as many factors as possible, including some of the recent changes in Russian law.

Some of the economic sanctions imposed on Russia by the EU and the United States apply to listed individuals, while the others concern certain sectors of the economy. The scope of the sanctions is quite wide. The sector sanctions cover arms and military equipment, energy and finance, putting a pressure on the Russian corporate entities operating in these sectors in different ways. For example, some of the biggest Russian companies, such as Gazprombank, Gazpromneft, Rosneft and many others don’t have access to the European and the US capital markets, cannot arrange for loans, etc. Sanctions concerning individuals are aimed at restricting their ability to travel and at freezing their assets. The sanctions are being under a constant review with new measures being added and more individuals being included into the sanctions lists[1].

The sanctions are obviously having an impact on the individuals and the corporate entities which they were aimed at targeting. However they are also having some less obvious effects on other individuals and companies, including those in the legal services. The law firms based in Europe and in the US need to make sure that in rendering legal support in contentious and non-contentious matters they are not facilitating any transactions prohibited by the sanctions. Many law firms in Europe and in the US have now developed internal control systems in relation to the sanctions. These systems are used whenever it comes to instructions from the Russian clients. It is not uncommon these days for an English or a US law firm to refuse representing a Russian client in a potential dispute or in connection with a non-contentious matter. There is a concern that the arbitrators may be refusing to act in a similar way. Even if this will not be the case it is believed there is a danger that the arbitrators’ impartiality and independence might get affected. Apart from this there are other issues arising out of sanctions in the context of international arbitration and the use of the European arbitral institutions:

• if a party to the proceedings is one of the listed individuals or entities, then before proceeding with filing a request for arbitration, such party would have to apply for a permission to transfer funds to the relevant arbitration institution;

• it might be difficult for the witnesses involved to travel to the venue, i.e. the place of a hearing; the witnesses may also experience difficulties in meeting their legal advisers in their office based in Europe;

• it might be difficult to enforce an award in Russia because it might be seen as contravening the public policy. Generally it is not very uncommon for the Russian courts to refuse enforcement based on the public policy argument. For example, in the case of Oil & Natural Gas Corporation v OJSC Amur (case no. A73-1288/2009) the Supreme Commercial Court held that the damages exceeding 60% of the contract price were disproportionately high and as the result the award was refused enforcement. It might be the case that with sanctions related arbitral awards the public policy ground will be invoked more often, making it impossible to enforce the awards.

• It might also be difficult to enforce it in other jurisdictions covered by the sanctions, as the enforcement itself might trigger one of the restrictions imposed by sanctions.

The above listed issues are just some examples of possible difficulties which are being experienced or considered by the Russian and international legal community involved in resolution of the Russia related disputes.

As the result, a number of commentators both in Russia and in Europe suggested that it might be a shift towards arbitral institutions based outside of Europe for resolution of the disputes involving the Russian parties. These alternative institutions may include Singapore International Arbitration Centre (SIAC) and Hong Kong International Arbitration Centre (HKIAC).

Whilst the alternatives are out there, it is unlikely that the Russian disputes will all move from the LCIA and other European institutions to SIAC, HIAC or other Asian institutions. Over the past twenty years or so, the Russian parties have been heavily relying on English law in quite a lot of transactions, including M&A, finance, general commercial agreements for sale of goods and services, distribution agreements, etc. As for the dispute resolution methods, international arbitration under the Rules of major European arbitral institutions was a popular choice. The disputes arising out of the contracts which had already been entered into in the past will obviously continue to be heard as per a relevant arbitration agreement between the parties.

As for the current transactions, it would probably be fair to say that the Russian in-house lawyers do think twice before inserting the LCIA, the ICC, the SCC arbitration clauses or the arbitration clauses of other arbitral institutions based in Europe. However the substantive law often stays English. Therefore even if the chosen seat is in Hong Kong or in Singapore and even if the chosen arbitral rules are those of SIAC or the HKIAC, the legal representatives will still have to include the English lawyers as well. Also for a client based in Moscow or in St Petersburgh or in other cities within the European part of Russia having to travel to Hong Kong or Singapore might not be convenient and cost effective. Last but not least there is simply a custom. A lot of lawyers in Russia have long established relationships with the partners of the law firms in London and other European cities. They had been working together for decades now. Whether all these factors will actually outweigh the difficulties associated with the sanctions remains to be seen.

Apart from the arbitral institutions in Asia, one should not forget about the Russian arbitration institutions. The oldest and probably the best-known one is the International Commercial Arbitration Court for Russian Chamber of Commerce, however it is not the only one. In April 2013 members of the Russian and international legal community dealing with the Russian related disputes founded a Russian Arbitration Association (the “RAA”). The association acts as an appointing authority and/or administers the disputes under the UNCTIRAL Rules 2010. The association’s members include some of the World’s top legal professionals in the area of international arbitration. Although the association is very young, it is very active and is becoming more and more popular quite quickly. There is a common understanding that in part, a success of the Russian arbitration institutions, including the RAA will depend on how often Russian law is used in international transactions.

Recently several attempts have been undertaken to make Russian law more attractive in international context. In particular, the Federal Law No. 42-FZ dated 8 March 2015 (‘Law No. 42-FZ’) introduced a number of important changes into Russian corporate law, which became effective as of 1 June 2015. Most importantly for the M&A transactions, where English law is often used, the new provisions were introduced in connection with warranties and indemnities. New section 431.2 of the Civil Code now provides a basis for claiming damages for misrepresentations. Before the claimant was most likely to rely on section 179 of the Civil Code, which allowed to claim damages for misrepresentation but only in conjunction with a claim to declare the whole transaction void. For obvious reasons, the claimant is not necessarily interested in setting the transaction aside. Instead, the claimant may wish to simply recover the losses sustained as the result of a misrepresentation. Before 1 June 2015 this could be very difficult or even impossible to achieve under the Russian. Now it is possible. It would be fair to say that the change introduced by section 431.2 is quite a significant development.

New section 406.1 of the Civil Code, which also became effective as of 1 June 2015, is very similar to what is understood as “indemnity” under the English law. Such term was not recognized before under the Russian law, the closest concept was that of an “insurance” which is very different. This change may also be regarded as a significant improvement in the context of Russian M&A law.

Needless to say, these are the new provisions and there are arguments amongst the Russian practitioners about possible interpretation of some aspects of these provisions. For example, some concerns have been expressed in connection with a wording of a new s. 406.1, which seems to suggest that parties may need to include at least a maximum amount of the indemnity into their agreement, which might be a difficult thing to do in reality. In time the courts’ practice in connection with these new provisions will develop giving the business parties concerned more certainty and more confidence.

The new sections in the Civil Code are just some examples of changes in the Russian Civil Code, which have been reformed significantly. The changes were made also in the areas concerning Russian insolvency law, general contract law and guarantees. Apart from this, other changes are being considered in the Russian judicial system including in relation to international arbitration. It is too early to say how successful the implemented and the anticipated changes are going to be. However it is clear that that while the English law will continue to be used the Russian legislators and the Russian business community do feel under more pressure now to continue developing a national law so that it is easier to use in international context. The more successful the changes are the more significant will be the shift to Russian law and the Russian arbitral institutions. Right at this moment, the Asian institutions are definitely a good alternative but with its own practical limitations in place.

[1] – For further information on European sanctions please see Counsel Regulations 833/2014, 960/2014, 208/2014, 269/2014, 692/2014, 825/2014. For further information on the US Sanctions please see Executive Order 13662.

Firstly, what is meant by an expert determination?

It is the process where the parties agree that a third party (the “Expert”) is appointed to answer particular questions / determine particular disputed items identified by the parties. It generally works best when there is a narrow set of clearly defined technical questions.

An expert determination is not the same as providing expert testimony to a court or a tribunal. Under English law, it is a process under contract that is intended to give the parties finality, save for fraud or manifest error, on disputed issues that are capable of being addressed by an expert.

It is not a process whereby the Expert becomes part of the dispute between the parties, even if one or both parties are disappointed in the outcome of the determination. It is important to remember that the Expert engaged is not an arbitrator, adjudicator, or an expert witness. He or she is not giving opinion evidence under court or tribunal processes.

What do the parties get from the expert determination?

• A confidential, binding decision.
• It allows the parties to appoint an expert who is familiar with the technical issues.
• It generally results in a quicker decision when compared to the court / arbitration route. Note that even if the parties went to court, they may still need to engage an Expert, but in the capacity of an expert witness.
• It can be flexible with the initial timetable agreed between the parties and the Expert.
• It is a transparent process as both parties see all the information / correspondence provided to the Expert.
• It can be less adversarial and may help the parties maintain a business relationship post dispute.
• The Expert arrives at his / her decision, based upon his / her own knowledge, expertise and experience, taking into account the submissions made by the parties. This can be a great advantage, particularly when the issue is a technical one and the Expert has been carefully chosen due to their particular area of expertise.
• Only in limited circumstances can the expert determination be challenged (e.g. fraud or manifest error).

Step 1: Identifying the Expert

The identification of the Expert may already be set down in the commercial agreement between the parties that contains the expert determination clause, but if this is not the case, there are a number of options for selecting an appropriate Expert.

The first option open to the parties may be to simply agree between them who might be suitably qualified. If the dispute is financial in nature, it may be that the company’s auditor can make the determination. In this situation, no further research is required on finding an appropriate expert. This may not, however, be acceptable to the parties if, for example, they are concerned about independence, in which case they will need to research an alternative expert.

Organisations exist that can provide recognised experts; e.g. if the parties wish to appoint an expert accountant they can approach the Institute of Chartered Accountants in England and Wales (“ICAEW”) President’s Appointment Scheme to nominate one for them.

Be mindful, though, that if the parties allow an external body to nominate the Expert, such as the President’s Appointment Scheme, they lose control over the choice of Expert.

Alternatively, the parties can independently research and agree upon a person to act as the Expert, thereby retaining control over the selection process. There are organisations which maintain lists of experts who have had to go through an accreditation process. In the case of Experts in the accounting field these include:

• The Academy of Experts;
• The Expert Witness Institute; or
• The ICAEW’s Register of Accredited Accountant Expert Witnesses.

In selecting an Expert from one of these or similar sources it will be important for the parties to understand the following:

• Whether the external body nominates experts, as in the case of the ICAEW’s President’s Appointment Scheme; and
• The selection process under which these experts become members of these organisations.

Once the parties have clarification on these issues, they can then consider whether a particular external body’s list contains a broad selection of highly qualified experts from which a suitable candidate may be selected.

It is also important to establish that the Expert does not have any vested interest in the outcome of the dispute, and is not in any way biased towards or against either party.

Step 2: Terms of Appointment

Once the Expert has been identified, the next step is to set the terms of the appointment. The main considerations specific to an expert determination are:

• There should be a set of clear instructions, setting out the questions to be answered / disputed items to be determined.
• Will the Expert provide an unreasoned or reasoned expert determination? The advantage of the former is that it will be quicker and cost less. The disadvantage is that the parties will not be privy to the reasons as to why the Expert arrived at his / her determination.
• How the Expert’s fees will be split between the parties. Typically the Expert’s fees are shared equally between the parties.
• Agreeing the timetable as part of the engagement terms, although there may also be provision for both parties to make requests to the Expert for the timetable to be altered subsequently.

The terms of engagement will make it clear that the Expert is required to make the decision / determination on the basis of material provided to him / her by the parties.

Step 3: The Process

There are no set rules, but the Academy of Experts has, for example, produced its “Rules for Expert Determination”, and these include guidelines on the timetable and process.

In all cases the agreed instructions should be followed. This has been the subject of a recent England & Wales Court of Appeal decision in Begum –v- Hossain [2015] EWCA Civ 717.

All correspondence with the Expert should be in writing. The process will normally be that each party submits their evidence in writing to the Expert by a prescribed date and the Expert then arranges for the evidence from one party to be exchanged with the other party.

The initial set of documentation is provided within an agreed number of days (as set out in the engagement terms) after the Expert’s engagement letter is signed. This initial documentation should summarise the nature of the dispute, the issues involved, the parties’ submissions in relation to those issues and, in financial disputes, the effect on the quantum of the amount or amounts claimed, together with appropriate supporting documentation.

The parties are then given an agreed number of days to provide a written response to the other’s submissions, indicating whether or not they agree with the other party, and if not in agreement, why this is the case.

In addition to the above, the Expert will have discretion to request written clarification or ask further questions of the parties on any matters contained in the written material received from them. Further queries are sent in writing to both parties simultaneously. It may also be the case that issues outside the Expert’s area of expertise get raised; for example, legal issues. In such instances, the Expert’s terms will normally allow him to seek advice from appropriately qualified third parties, the cost of which is generally borne by the parties.

Step 4: The Determination

Once the Expert has considered the submissions made by the parties and applied his / her expertise and experience, the determination is given. This is either with or without reasons.

Conclusion

In summary, if you consider that an expert determination is right for you, here are some tips for ensuring the process runs smoothly:

• Choose the Expert carefully;
• Ensure the instructions are clear;
• Decide whether it is to be an unreasoned or reasoned determination; and finally
• Ensure you comply with all the agreed procedures; remember the Expert makes a decision based upon his / her knowledge, expertise and experience, taking into account the submissions made by the parties.

Expert determination clauses are often written into agreements between parties where there may be scope for disagreement over technical issues. Under English law, exercising such clauses presents a pathway to achieve finality by way of a private process under contract, rather than have the disagreement examined in the public arena of the courts. It can also be a useful way to resolve disputes where the parties either choose or need to maintain an ongoing relationship once the dispute resolution process is over.