expert determination navigating the minefield of...international arb-med resolution: in brief 5...

Clash of Jurisdictions:Clash of Jurisdictions:Applicability of Islamic FinanceApplicability of Islamic FinancePrinciples under English LawPrinciples under English Law

The Investment TreatyThe Investment TreatyArbitration Review, The Trans-Arbitration Review, The Trans-

Pacific PartnershipPacific Partnership

Third-Party Funding: a NewThird-Party Funding: a NewChapter in Hong Kong &Chapter in Hong Kong &SingaporeSingapore

Navigating the Minefield ofExpert Determination

ISSUE 11 / NOV 2016

Wishing you all a safe and enjoyable holiday season and asuccessful and prosperous New Year from all of us at NZDRC.Warmest regards, John GreenEditor

FROM THE EDITOR

Welcome to the 11th issue of ReSolution® in which we draw onthe experience and knowledge of leading experts in the field tobring you commentary, articles and reviews on topical mattersrelating to domestic and international dispute resolution.In this issue, we feature the topical issues of ‘third-party funding’and ‘investment treaty arbitration’.We also look at expert determination, child inclusive mediation,whether indemnity costs should be the default position forunsuccessfully attempting to resist enforcement of an arbitralaward, the applicability of Islamic finance principles underEnglish law, the CAS Maria Sharapova decision, proceduralfairness, extension of arbitration agreements to non-signatories;and more.I wish to take this opportunity to thank all our contributors. Weare most grateful for the support we receive from disputeresolution professionals, law firms, and publishers, locally andoverseas, that allows us to share with you papers and articles of aworld-class standard, and to bring you a broad perspective on thelaw and evolving trends in the delivery and practice of domesticand international dispute resolution.Contributions of articles, papers and commentary for futureissues of ReSolution® are always welcome. I do hope you findthis issue interesting and useful. Please feel free to distributeReSolution® to your friends and colleagues – they are mostwelcome to contact us if they wish to receive our publicationsdirectly.Wishing you all a safe and enjoyable holiday season and asuccessful and prosperous New Year from all of us at NZDRC.Warmest regards,

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John Green

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ReSolution Issue No. 11Contents

ReSolution | Nov 2016 2

01 FROM THE EDITOR 03 RESOLUTION® IN BRIEF 06 Navigating the Minefield of ExpertDetermination 11 Child Inclusion Practices 13 Chief Justice Leaves Door Open onIndemnity Costs 17 Third-Party Funding: a New Chapter inHong Kong & Singapore 23 Case in Brief: Sino Channel Asia Ltd vDana Shipping and Trading Pte Singapore

25 English High Court Allows Recovery ofThird-party Funding Costs in ICC ArbitrationProceedings

27 Clash of Jurisdictions: Applicabilityof Islamic Finance Principles under EnglishLaw 32 The Maria Sharapova Decision – aDouble Fault 35 Non-signatories to ArbitrationAgreements 39 The Investment Treaty ArbitrationReview, The Trans-Pacific Partnership -Lexology 51 How Reasonable is a 'ReasonableOpportunity'? The Victorian Supreme CourtConsiders the Scope of Procedural Fairnessin Commercial Arbitrations 55 Letters to the Editor

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Arbitration Amendment Act 2016 On 17 October 2016, the ArbitrationAmendment Act 2016 received Royal Assent.The Act comes into force on 1 March 2017 andamends the Arbitration Act 1996 by:

a. broadening the definition of ‘arbitraltribunal’ in section 2 to include arbitralinstitutions and emergency arbitratorswhich will allow awards rendered byemergency arbitrators to be enforced uponapplication to a court of competentjurisdiction; and b. adding a new section 6A requiring the

Minister of Justice to appoint a suitablyqualified body to appoint arbitrators inaccordance with article 11 of Schedule 1,instead of the High Court (article 1 ofSchedule 1 provides a default appointmentprocedure for the appointment of domesticarbitral tribunals in the absence ofagreement).

It remains to be seen which body will beinstructed to assist with such appointments,but one obvious option would be the NewZealand Dispute Resolution Centre (NZDRC) asthe amendments require the body to be‘suitably qualified’ and NZDRC can certainlyclaim to have appropriate expertise,experience and resources. These amendments are to be welcomed andwill act to increase the attractiveness of NewZealand as an international arbitral seat. Arbitration and the Olympic Games The 2016 Rio Olympics saw two cases heardbefore the Ad Hoc division of the Court ofArbitration for Sport (CAS), regarding disputednomination and team replacement. Sportsrelated conflicts are resolved before CAS, and

in 1996, the Ad Hoc division of CAS wascreated to deal specifically with sportsdisputes related to the Olympic Gamesexpeditiously. The Arbitration Commission ofthe Rio de Janeiro Bar Association assembled agroup of pro bono arbitration lawyers torepresent athletes in any disputes referred tothe Ad Hoc division of CAS during the 2016Olympic Games. Representing athletes fromSouth Sudan and Vanuatu, the pro bono teamacted in two cases. The first dispute wasregarding the nomination of a South Sudanathlete who was replaced by an athlete withallegedly inferior athletic performance, whilethe second dispute concerned a beachvolleyball duo from Vanuatu who believedthey should have replaced an Italian duo whotested positive for doping. While the caseswere ultimately dismissed by CAS, bothexamples demonstrated the efficiency andeffectiveness of the expedited Ad Hoc divisionand the proficiency of the pro bono team, withthe second case submitted to CAS within lessthan seven hours from the first contact fromthe Vanuatu representative, and an awardmade by CAS within 13 hours from firstcontact. UK Courts Reluctant to Intervene inArbitrations A recent UK case demonstrated the reluctanceof UK Courts to intervene in arbitrationsbeyond what is expressly provided for in theAct, regardless of whether the parties haveagreed to court involvement. In EnterpriseInsurance Company Plc v U-Drive Solutions(Gibraltar) Limited [2016] EWHC 1301 thecourt reinforced the finality of arbitral awards,and declined the right to appeal. The courtdistinguished awards from procedural orders,reinforcing that procedural orders carry noright of appeal under sections 68 or 69 of theUK Arbitration Act 1996 (the Act). The initialarbitration between Enterprise and U-Driveconcerned a dispute over breach of a distribution agreement. The arbitral tribunal

ReSolution: In Brief



distribution agreement. The arbitral tribunalissued two procedural orders during thearbitration, which Enterprise applied to thecourt to challenge on grounds alleging seriousirregularity and error of law. The courtdismissed the challenges and held it did nothave jurisdiction on the ground that theparties’ agreement to consent to the challengewas not enough to give the court jurisdictionwhere it otherwise did not exist under the Act. Australian Case Clarifies Applicationof Penalties Doctrine The Australian High Court recently clarified thetest for application of the penalties doctrine inAustralia. In Paciocco v Australia and NewZealand Banking Group Limited [2016] HCA 28,the court considered whether bank fees forlate payment of credit card bills constitutedpenalties. The case was an appeal by Pacioccofrom the Full Federal Court which had heldthat the late fees were not in fact penalties. Ina much anticipated decision, the High Courtdismissed the appeal. In making its decision, the court found thatwhile the late fees were not genuine pre-estimates of damage to ANZ, and weredisproportionate to any actual loss suffered byANZ by the late payment of bills, these factorswere not enough to invoke the penaltiesdoctrine. The High Court’s decisionemphasised a cautious approach to invokingthe penalties doctrine in commercial deals,

where the doctrine will be invoked only if therelevant contract provision is totallydisproportionate to the legitimate interests ofthe party its purpose is to protect. While thedecision provides more certainty for Australia,the implications of the decision remain to beseen, and it remains open what stance NewZealand courts may take. Swiss Court Hears Appeal on RussianBlanket Ban from Rio Paralympics Following the state-sponsored Russian dopingscandal at the 2016 Rio Olympics, many werenot surprised at the decision of the Court ofArbitration for Sport (CAS) that the ParalympicOrganisation was entitled under its Rules toplace a blanket ban excluding all Russians fromparticipation in the Rio Paralympics on thegrounds of collective guilt for representing acountry found to have sponsored andsupported doping of athletes. However, thedecision was distinctly different to the positiontaken by the International Olympic Committee,who left the decision up to individualfederations to decide on participation.Naturally, the Russians were irate, andappealed the decision to the Swiss FederalCourt, somewhat ironically on human rightsgrounds. The appeal to overturn CAS’s decisionwas rejected by Switzerland’s highest courtwhich did not have jurisdiction to rule on thesubstance of the case, only on CAS’s adherenceto appropriate procedures in reaching itsdecision. The effect of the decision on Russia’sOlympic preparation for and participation inthe 2018 South Korea Olympics remains to beseen. SIAC Award Set Aside In the recent decision of JVL Agro Industries Ltdv Agritrade International Pte Ltd [2016] SGHC126, the High Court of Singapore set aside aSingapore International Arbitration Centre(SIAC) arbitral award on the grounds of breachof natural justice causing prejudice to theclaimant, JVL. The parties had entered into 29

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International Arb-Med

ReSolution: In Brief

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contracts for the sale and purchase of palm oil,which were subsequently altered by a price-averaging arrangement between the partiesafter a fall in the global palm oil price. Adispute arose when JVL accused Agritrade ofbreach of contract.Agritrade raised two defences to the claimbefore the arbitral tribunal, however bothdefences related to what the court consideredwas a further subsidiary issue, which led to thecourt’s consideration of the parol evidencerule. The rule provides that where a contracthas been reduced into documentary form, aparty cannot rely on extrinsic documents orevidence to vary the contract, except in thecase of limited exceptions. The arbitraltribunal held that the price-averagingarrangement constituted a recognisedexception to the parole evidence rule, and was

therefore a valid variation to the contract anddefence to the alleged breach. The tribunal’sdismissal of the claim was based on theapplication of the parol evidence rule to theprice-averaging arrangement, a ground whichwas not raised by Agritrade, and thus notresponded to by JVL.On this basis, JVL applied to the SingaporeHigh Court to set aside the award for breach ofnatural justice. The court allowed the appealand set aside the award, emphasising that thearbitral tribunal had erred in reversing theburden of proof and expecting JVL to disprovethe applicability of the exception to the parolevidence rule, compounded by Agritrade’sfailure to raise it as a defence in the firstinstance.

International CommercialArbitration

The New Zealand International Arbitration Centre (NZIAC)

provides an effective forum for the settlement ofinternational trade, commerce, investment and cross-border

disputes in the Australasian/Pan Pacific region.

[email protected]

International Mediation

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NAVIGATING THE MINEFIELD OFEXPERT DETERMINATION

Nigel Jones QC

Stephen Furst QC's judgment in ZVI Construction Co LLC v University of NotreDame (USA) in England is a recent TCC case that highlights important issues

arising from expert determination clauses.

International CommercialArbitration

Expert determinationWe all know that many UK clients (and foreign-based clients with greater experience of civillaw systems) try to find what they think will becheaper and more efficient ways of disputeresolution than English court proceedings. Thetwo conventional candidates are arbitrationand expert determination. Although expertdetermination is of long-standing, there islittle jurisprudence to guide parties as to whatthey should draft in an expert determinationclause and how they should conduct thedispute when it arises. This relative paucity ofguidance is driven by confidentiality and thefact that there is little scope for courtoversight of the process, with no appeal fromthe expert's decision.The apparent advantages of expertdetermination are clear enough: it isconfidential, (possibly) less adversarial, swift,inexpensive and final. If a client has a dispute,refers it to expert determination and obtains afavourable judgment in a few weeks or monthsat little cost, then that would be judged tohave been a good piece of drafting. But thelosing party will normally judge the last threeof these characteristics a disaster if it has notbeen granted the time to prepare, is unable toobtain disclosure of documents that mighthave won the case, the expert was of poorquality or was perceived to be unfair, or hasdelivered a flawed but unappealable decision.The agreements and the worksTJAC Waterloo LLC agreed to sell a property inLondon to the University of Notre Dame and, in2010, the parties entered into a developmentagreement. Completion was conditional onbuilding works being carried out and TJACengaged ZVI Construction Co LLC to carry out

the works under a JCT Design and BuildContract, Revision 2 2009.In 2011, ZVI entered into a duty of careagreement with the University under which ZVIagreed a duty to the University to comply withthe terms of the JCT contract and to carry outthe works in a good and workmanlike manner.Crucially (as it turned out) ZVI was also made aparty to the development agreement. The workwas carried out and the sale was completed inlate 2011.In 2014, the University alleged against bothTJAC and ZVI that the building works weredefective, that both were liable under thedevelopment agreement and that it intendedto use the development agreement's expertdetermination provision to have the disputedetermined.The dispute resolution provisions were (atleast on the face of the judgment) anuncoordinated mess. The duty of careagreement provided for the jurisdiction of theEnglish court. The judgment does not recordthe dispute provisions of the JCT contract. Thedevelopment agreement had a bifurcatedprovision in which:

• Any dispute between the parties "asto the meaning or construction of thisagreement shall be referred to anindependent solicitor or barrister” whoshall act as arbitrator in accordance withthe Arbitration Act 1996. • Any dispute as to the parties’“respective rights and obligationshereunder or as to any matter arising outof or in connection with the subject matterof this agreement (other than any withregard to the meaning and construction of


• Any dispute as to the parties’ “respectiverights and obligations hereunder or as to anymatter arising out of or in connection withthe subject matter of this agreement (otherthan any with regard to the meaning andconstruction of this agreement) shall bedetermined by an independent dulyexperienced surveyor..."

What happened next? To cut a long story short:

• ZVI responded to and denied theallegations on their merits.• The University requested RICS to appointan expert, who was duly appointed.• The expert issued initial directionsstating that he was not appointed to decidematters embraced by the arbitration clause;and the parties cross-served submissionson the merits of the building worksallegations. No party raised anyjurisdiction issues. The expert asked theparties whether they were content that heshould determine matters falling within thearbitration clause: The University said yes;ZVI said no.• The expert held hearings over three daysand published a draft decision on liability.The parties commented and he issued afinal decision that held ZVI/TJAC liable formany of the alleged defects. Both partiesthen cross-served their respective quantumsubmissions.• At that point ZVI asked for apostponement due to client illness. TheUniversity was prepared to agree but onlyif the respondents undertook not todispose of assets and to confirm that theywere maintaining indemnity insurance. Therespondents declined to so undertake andconfirm.• UND then applied to the court in the USAfor a freezing order. In those proceedings,for the first time, ZVI asserted that theexpert had no jurisdiction to issue anaward. The basic reasons advanced were that on its face the dispute resolutionclause was only designed to cover the

University and TJAC because ZVI was only anominal party to the developmentagreement and that any claim against ZVIshould be under the duty of care agreementin the English court. ZVI then brought thatargument to England and issued anapplication to the expert alleging that hehad had no jurisdiction to make hisdetermination and asking him to make adeclaration to that effect.• UND raised three key answers in England:

- the development agreement didcover ZVI;- if that was wrong, it was too late totake the point; and- in any event, that would be a matterof law to be determined under thearbitration clause not the expertclause. The expert purported todetermine that he did havejurisdiction.

• ZVI issued a Part 8 application essentiallyto ask the court to determine thejurisdiction issue and seeking an injunctionto prevent the University from taking stepsto enforce any part of the expert'sdetermination.

The result Unsurprisingly (on the facts) ZVI lost. ButStephen Furst QC's well-considered judgmentcontains a number of important legal issuesand there are, as a consequence, a number ofkey messages and decisions in the judgment. Firstly, the expert had no right to make adetermination as to whether he hadjurisdiction because that was a matter that fellunder the arbitration clause, not the expertdetermination clause. In Barclays Bank pie vNylon Capital LLP, the Court of Appeal hadheld that the question of jurisdiction of anexpert determinator was always finally amatter for the court. In the developmentagreement, that issue was assigned by thecontract to an arbitrator. Secondly, there was an express clause in thedevelopment agreement providing that no

NAVIGATING THE MINEFIELD OF EXPERT DETERMINATIONC O N T . . .




Secondly, there was an express clause in thedevelopment agreement providing that nomodification, alteration or waiver of thedevelopment agreement's provisions wouldbe effective unless in writing and signed. TheUniversity had asserted that, on the facts,there had been such a modification, alterationor waiver. The judge rejected that contentionand found that there had not. Thirdly, ZVI had impliedly agreed that theexpert would have jurisdiction under theexpert determination clause to decide thepoints in dispute between the parties. Thissection appears under a heading entitled"Submission to Expert Jurisdiction" and thejudge held (after referring to the Court ofAppeal in Rhodia Chirex Ltd v Laker VentEngineering Ltd) that there was no issue ofprinciple that exempts expert determinationclauses from a doctrine of submission to thejurisdiction. It was suggested that as expertdetermination is a matter of contract, it mustfollow that a so-called "submission to thejurisdiction" must also be a matter of contract(or possibly some kind of estoppel). Thejudge made clear in the words of his owndecision that he was applying contractualprinciples: " ... this is a course of conduct from which itmay be inferred that ZVI impliedly agreedthat the expert would have jurisdiction under[the expert determination clause] to decidethe points in dispute between the parties." In effect, therefore, the judge found theexistence of the expert determination clausethe equivalent to an ad hoe arbitrationagreement. Such an ad hoe (new) agreementobviates any complications arising from theclause expressly limiting variation of thedevelopment agreement. Fourthly, the judge also found that if therehad not been an agreement to submit, therewas an estoppel by convention preventingZVI from asserting that the matters in disputefell outside the scope of the original expertdetermination clause.

Fifthly, the judge found that the same factsthat gave rise to the estoppel by conventiongave rise to a waiver by ZVI of its right toobject. This appears to be based on asubsidiary part of Akenhead J's judgment inAedifice Partnership Ltd v Shah dealing withadjudication. It is suggested that waiver is notreally an appropriate concept: a lack ofjurisdiction by the expert determinator doesnot provide a party with a right to object andthe absence of objection does not somehowwiden the expert determination clause. Heeither has jurisdiction from the original (or adhoe) contract (and a party is estopped fromdenying otherwise by a convention) or he hasno jurisdiction. Finally, the University had tried to argue thatthe decision of the US court purporting toconfirm the expert's jurisdiction created anissue estoppel but that failed on the facts.

Thoughts for the constructionindustry Plainly expert determination has a place andcan be very usefully employed in certainareas where technical and expert mattersrequire a swift decision, or where the partieswant to take their chances on a process thatwill necessarily be less thorough thanlitigation or most arbitrations. But the drafting of such clauses requires careand recommending such a clause to a clientmay benefit from being undertaken inconsultation with dispute resolution lawyers.In particular, the distinction between legalissues and expert issues as well as


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the hiving-off of jurisdiction issues requiresparticular care. Whether it is technically called an impliedagreement, or an estoppel or a waiver, orgenerically referred to as submission to thejurisdiction, a party does not have the luxuryof participating and then challengingjurisdiction later without an expressreservation of its position at the outset. Itmay well be wise to re-iterate thatreservation at important stages of theprocess. This all requires a clear analysis ofthe issues and the scope of the expert

determination clause when the dispute arises. This article is provided free of charge forinformation purposes only; it does notconstitute legal advice and should not berelied on as such. No responsibility for theaccuracy and/or correctness of theinformation and commentary set out in thearticle, or for any consequences of relying onit, is assumed or accepted by any member ofChambers or by Chambers as a whole. This article was first published byPractical Law Construction.

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With more than 100,000 applicants, Catherineand Team Catwalk played their part in this iconicevent and raised over $77,975.00 for the charity. "I thought what a good opportunity to run the NewYork Marathon which I've wanted to do for a longtime, but also support a charity," she says. "It's suchan amazing group of people that do somethingthat's so important but it's not one of the mostobvious charities." Catherine was part of a team led by DavidPretorius whose daughter was left paralysed fromthe waist by a car accident in 2010. Donate and support Catherine To read more click here

ABOUT THE AUTHOR

Nigel Jones QC specialises in commercial litigation,insurance and reinsurance, construction and professionalnegligence. He has extensive experience of complexcontentious and non-contentious work in these areas. To learn more about Nigel, visit the company website.

NZDRC’S EXECUTIVE DIRECTOR RUNSNY MARATHON TO RAISE FUNDS

NZDRC’s Executive Director runs NY Marathon to raise funds for those who can’t

Catherine Green running NY marathon

Nigel Jones QC

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OUR VISION Committed to a world where spinal cord injury does not mean paralysis for life. OUR MISSION The CatWalk spinal cord injury (SCI) research trust raises funds to support the bodyof scientific opinion which says a cure for SCI will be found. Our goal is to enable SCIsufferers to walk again - we want people out of wheelchairs and back on their feet. STARTLING STATISTICS

• The majority of SCI occur in young males between 35-45 who are atthe peak of their productivity• 40% of SCI in New Zealand are a result of motor vehicle accidents• The average cost of care for each high level tetraplegic is NZ$ 212,00per year

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Team CatWalk - Seven runners lined up at the start of the iconic New York City

Marathon.

Running to help those who cannot walk.

You can show your support of the team and their efforts by making a donation athttp://teamcatwalk2016.gofundraise.co.nz/

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CHILD INCLUSION PRACTICES


“When Daddy called me outside to sit on the blanket on the lawn, he cried as he told me heand Mummy were getting a divorce. I wondered, what does this mean? Mummy and Daddy

left me and went to tell Nana and Grandpa. I felt very sad and frightened.

Daddy picks me up after Hebrew School every Sunday. He takes me out for lunch, then we goand do something. Sometimes we go back to his place. I can’t remember how long before I

met the lady Daddy was living with, but I knew her because she worked for us. WhenMummy and Daddy went away, I used to stay with her and always had fun. They married

and I got a half-sister. Whenever Mummy and “step mother” meet, I ALWAYS feel really sickand nervous because I know Mummy hates this lady, but I don’t. I don’t have anyone to talk

to and now I am in a new school with hardly any friends, I am shy and scared. I get lots ofheadaches. I am sad and cry a lot alone in my room.”

I was that seven-year-old and that is my story. Ican’t stress how vital the role of an Inclusion ofthe Child (IOC) specialist is in the life of a childor young person. I would have loved to havebeen asked what I wanted, how I felt, and whatI thought. While this wasn’t part of my story, Iam thrilled to now work as an IOC specialistlistening to the child’s perspective, andworking with children through the unfamiliarterritory that is parents separating. As an IOC specialist, I get to listen to childrenand adolescents whose parents are in theprocess of separating. We talk about theiranxieties, hurts, and what they want to havehappen. Worries about a parent feeling left outand lonely are common. Children are deeplyconcerned about being disloyal to theirparents. If they are seen to choose one overthe other, the child fears one parent will feelhurt. While children are extremely resilientand able to bounce back, they do not have theskills to deal with separation, and may needsome extra support to get through it. Somechildren somatise their symptoms, as I did.Child inclusion practices provide theopportunity to explore, process and instil avariety of coping strategies to give childrenand young people active support. Two to threesessions prior to their parents’ mediation isgenerally sufficient, with one post mediationsession if the dynamics of the separation aremore complex.

As an IOC specialist, I attend the Family DisputeResolution mediation along with the parents, topresent their child’s or children’s thoughts andfeelings throughout the mediation. I can onlypresent what has been agreed to by the child,unless I perceive a degree of risk that parentsneed to be aware of (which would be talkedthrough with the child/young person). In my experience of meeting parents alongwith the mediator, and being the voice of theirchild, parents are deeply moved. Theyexperience a range of emotions, oftendisagreeing as they attempt to work throughtheir conflicts, opinions and desires movingforward. Sometimes they forget that childinclusive practice is about focussing on whattheir child wants, and not what they, as parents,want. As an IOC specialist, we are there toremind parents of their role as parents to theirchild, not partners to one another. The endresult is seen as extremely worthwhile for allinvolved. Eventually, regardless of the strengthof emotion displayed during an IOC specialist’spresence and representation of the child’sfeelings, the parents agree they love, care andwant the best for their child, and can use this asa basis for moving towards a mediatedagreement which has the best interests of theirchild at heart.

- Lisa Cohen

www.fdrc.co.nz

http://www.fdrc.co.nz/

About Lisa Cohen As a highly skilled clinical psychologist, she hasbeen practicing since 1982 in a variety ofsettings, working with individuals, couples,families, adolescents, organisations; and alsoproviding supervision in both private practice,community-based and not-for-profitorganisations and services. This includesworking with youth offenders, at-risk adolescents, prisoner rehabilitation,drug and alcohol abuse, sexual abuse and student counselling. Throughmy general private practice I specialise in trauma and recovery, post-traumatic stress disorder, personality disorders, depression, anxiety, painmanagement and family and couple therapy. To learn more about Lisa, visit her profile in FDR Centre website.

The FDR Centre recognises the importance of promoting child

focussed, child inclusive mediation practice, to ensure thatchildren’s and young people’s voices are heard as an accepted part

of FDR mediation, if the child wishes to be included. Since early 2015, the FDR Centre has been offering child inclusive FDR mediation,where children have the opportunity to share their views with a Child InclusionSpecialist, who attends the mediation in the children's shoes. This process was developed to allow children to talk about what is happening to/intheir family and hear their perspectives, and to provide parents with feedback as tohow their children are coping with their separation in order to help the parents makebetter decisions that are in their children’s best interests.

Call us today for a confidential discussion to see how we can help you.

0508 FDR CENTRE (0508 337 23 687)

www.fdrc.co.nz [email protected]

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Whether there should be a default rule inAustralia that an award debtor whounsuccessfully seeks to set aside, or resistenforcement of, an arbitration award shouldpay costs of the court proceedings on anindemnity basis, is a vexed question This is the position in Hong Kong.1 In AltainKhuder LLC v IMC Mining Inc (No 2) Croft Jawarded indemnity costs against an awarddebtor who unsuccessfully sought to resistenforcement of a foreign award.2 His Honour’sdecision enforcing the foreign award wasreversed on appeal.3 Whilst it was notnecessary for the Court of Appeal to do so, itdisagreed with Croft J on the indemnity costsissue. The Victorian Court of Appeal found thathis Honour acted on a wrong principle inembracing the Hong Kong approach.4

In a recent decision, Allsop CJ (sitting at firstinstance) has left the door open as to whetherthe Federal Court of Australia will depart fromthe (obiter) views of the Victorian Court ofAppeal and instead follow the Hong Kongapproach.5

Facts The Applicant lent money to the FirstRespondent. The loan was guaranteed by theother Respondents. All of the Respondentswere domiciled, or carried on business, in thePeople’s Republic of China (PRC). The loan/guarantee agreement contained a disputeresolution clause referring disputes to

arbitration before the Xiamen ArbitrationCommission in the PRC.6 The Respondentsfailed to repay the loan. The dispute wasreferred to arbitration. The Commission handeddown an award in the sum of RMB 37 million(about $A 11 million) in favour of the Applicant,representing outstanding principal and accruedinterest. The Applicant sought to enforce the foreignaward in the Federal Court of Australia,pursuant to s 8 of the International ArbitrationAct 1974 (Cth) (‘IAA’). Meanwhile, theRespondents applied to the XiamenIntermediate People’s Court to set aside theaward, principally on the ground of lack ofprocedural fairness in the arbitration. In earlier related judgments, the Federal Courtstayed the enforcement application pendingthe hearing and determination of the settingaside application. It also made freezing ordersin respect of several properties in Australiaregistered in the names of the Respondents.7

Decision Following the dismissal of the setting asideapplication by the PRC Court, the Federal Courtproceeded to enforce the award. Allsop CJ then turned his attention to thequestion of costs and, in particular, whetherthey should be awarded against theRespondents on an indemnity basis.

- ALBERT MONICHINO

Chief Justice leaves dooropen on indemnity costs

In a recent decision of the Federal Court of Australia, Allsop CJ (sitting at firstinstance) has left the door open as to whether the Federal Court of Australia will

depart from the (obiter) views of the Victorian Court of Appeal and instead adopt adefault indemnity costs rule in arbitration related court proceedings, as is the case

in Hong Kong.



His Honour held that the Applicant wasentitled to indemnity costs, applyingconventional authority, because:

• no coherent challenge was made by theRespondents in seeking to resistenforcement; • notwithstanding that they were given theopportunity to do so, the Respondentsfailed to adduce any evidence in support ofthe lack of procedural fairness ground; • the Respondents advanced otheruntenable grounds;

• in sum, the inescapable conclusion wasthat enforcement of the award was resistedin circumstances where the Respondents,properly advised, should have known thatthere were no reasonable prospects ofresisting enforcement.

So far the above is relatively unremarkable.What is of particular interest is Allsop CJ’sclosing remarks (at 23]): ‘It is both unnecessary, and, sitting at firstinstance, inappropriate, to decidetheobiterquestion whether the Hong Kongapproach should be preferred and adopted inAustralia. There can be seen to be powerfulconsiderations to that effect. See generally thediscussion, though without the benefit ofargument, in “Public Policy in the New YorkConvention and the Model Law”, Enforcement ofInternational Arbitration Awards and PublicPolicy: Part III(Paper presented to the AMTACand Holding Redlich Seminar, Sydney, 10November 2014) at [56]-[77]. The parties havehad their dispute resolved under contract by thetribunal of their choice. The NYC and the [IAA]have limited and constrained bases forresistance to paying an award sum that is the

contractually provided outcome of a dispute. Itis not merely a debt, it is the resolution of adispute by a chosen contractual mechanism.Courts should be astute to distinguish betweenconduct that reflects no more than an attempt todelay or impede payment and the reasonableinvocation of the proper protections built intothe NYC and the [IAA]. Comment In the earlier address referred to by Allsop CJ,his Honour argued that the approach of theVictorian Court of Appeal in Altain Khuder operates on the (mistaken) assumption thatenforcement proceedings are substantially thesame as other proceedings brought inAustralian courts. Allsop CJ stated: ‘Commencing litigation to resist enforcement (ifwithout foundation) may be viewed first andforemost as an abandonment of thatcontractual bargain. The United Kingdom isexplicit in referring to this as a breach ofcontractual obligations. It may be said thatthere is a public policy interest in discouragingparties from abandoning promises made by wayof contract. Distinguishing it from other kinds ofproceedings, the very act of commencing(unsuccessful) litigation to resist enforcement isitself an attempt to subvert a dispute resolutionagreed upon by the parties, a repudiation of acontractual undertaking that causes further,unnecessary damage to the innocent party.’8

In contrast, in Sino Dragon Trading Ltd v NobleResources International Pte Ltd (No. 2),9 Edelman J doubted the legitimacy of a defaultindemnity costs rule in arbitration-relatedcourt proceedings. In John Holland Pty Ltd v Kellogg Brown & RootPty Ltd (No 2),10 Hammerschlag J noted, in thecontext of an arbitration under the CommercialArbitration Act 2010 (NSW), that one of thereasons for not following the Hong Kongapproach is the fact that ‘…the Legislaturecould have, but did not, create or recognise anysuch categories for an award of indemnitycosts in the Act’.11


The principle of comity requires thatintermediate appellate courts and trial judgesin Australia should not depart from decisionsof other intermediate appellate courts inrespect of the interpretation of federallegislation or uniform national legislation,unless they are convinced that the earlierinterpretation is plainly wrong.12 Whether ornot comity requires that intermediateappellate courts follow seriously considereddicta, as opposed to the ratio decidendi, ofother intermediate appellate courts, is notentirely clear.13 It is submitted that comitydoes not so require. The Victorian Court ofAppeal’s observations constituted seriouslyconsidered dicta (expressed after hearing fullargument), even though they were notrequired to decide any live issue before the

Court. It is difficult (if not impossible) tocharacterise the observations as “plainlywrong”. Nevertheless, it is submitted that thecomity principle is not engaged and the FullCourt of the Federal Court is free to departfrom the view of the majority of the VictorianCourt of Appeal in Altain Khuder. This is an important debate, which is notclosed. Since this article was first published, Beach J inSino Dragon Trading Ltd v Noble ResourcesInternational Pte Ltd (No 2) [2016] FCA 1169has lent his voice to the chorus that is opposedto the adoption of the Hong Kong default indemnity cost rule.

C H I E F J U S T I C E L E A V E S D O O R O P E N O NI N D E M I N T Y C O S T S C O N T . . .

Endnotes

[1] See, eg, A v R [2009] HKCFI 342. The Hong Kong Court of Appeal confirmed this approach in Gao Haiyan vKeeneye Holdings Ltd (No 2) [2012] HKCA 43, and also in Pacific China Holdings Ltd (in liq) v Grand PacificHoldings Ltd [2012] HKCA 200. Recently, Hong Kong courts have applied the default indemnity costs rule toapplications to stay court proceedings where a party unsuccessfully challenges the existence or validity of anarbitration agreement: Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd [2016]1 HKLRD 582[2] [2011] VSC 12[3] IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248[4] At [335] per Hansen JA and Kyrou AJA (as he then was). Warren CJ observed (at [55]-[58]) that while it wasunnecessary to express a view on whether the Hong Kong approach should be followed in Victoria, the factthat an award debtor had been unsuccessful in resisting enforcement of a foreign award did not in itselfestablish “special circumstances” justifying a costs order other than on the ordinary party-party basis. Rather,in her Honour’s view, costs should be assessed in the light of the particular facts of each case, bearing in mindthe objects of the International Arbitration Act. The Hong Kong Court of Appeal in Pacific China Holdings wasreferred to the Victorian Court of Appeal decision in Altain Khuder. Notwithstanding, it adhered to the viewthat it should give effect to the practice of awarding indemnity costs in arbitration-related court proceedingsagainst unsuccessful award debtors.[5] Ye v Zeng (No 5) [2016] FCA 850[6] The PRC is a New York Convention (‘NYC’) country.[7] Ye v Zeng [2015] FCA 1192; Ye v Zeng (No 2) [2015] FCA 1243; Ye v Zeng (No 3) [2015] FCA 1279; Ye vZeng (No 4) [2016] FCA 386[8] At [74][9] [2015] FCA 1046[10] [2015] NSWSC 564[11] At [38] [12] This principle was reaffirmed by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007)230 CLR 89, 151 – 152. The High Court said that intermediate appellate courts (and trial judges) should followdecisions of other intermediate appellate courts, and the seriously considered dicta of the High Court.[13] Director of Public Prosecutions (Vic) v Patrick Stevedores Holdings Pty Ltd [2012] VSCA 300 at [127] andWaller v Waller [2009] WASCA 61 at [41] suggest that the relevant “decision” of earlier intermediate



[12] This principle was reaffirmed by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007)230 CLR 89, 151 – 152. The High Court said that intermediate appellate courts (and trial judges) shouldfollow decisions of other intermediate appellate courts, and the seriously considered dicta of the High Court.[13] Director of Public Prosecutions (Vic) v Patrick Stevedores Holdings Pty Ltd [2012] VSCA 300 at [127] andWaller v Waller [2009] WASCA 61 at [41] suggest that the relevant “decision” of earlier intermediateappellate courts that is required to be followed by later intermediate appellate courts means the ratiodecidendi, not merely dicta. But contrast McKern v Minister Administering The Mining Act 1978 (WA) [2010]VSCA 140, [6] and [114].

C H I E F J U S T I C E L E A V E S D O O R O P E N O NI N D E M I N T Y C O S T S C O N T . . .

ABOUT THE AUTHOR B.Ec, LLB (Hons), LLM, Grad Dip Intell Prop Albert practises as a barrister, arbitrator and mediatorpracticing in Australia. He has over 20 years experience.He is a Grade 1 arbitrator and is accredited as anadvanced mediator. He was appointed Senior Counselin 2010. Albert is a principal arbitrator and mediator with NZDRC.For more on Albert Monichino, click here.

- ALBERT MONICHINO QC

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THIRD-PARTY FUNDING: A NEW CHAPTER INHONG KONG & SINGAPORE

- Matthew Secomb, Melody Chan, Thomas Wingfield, Philip Tan

www.nzdrc.comwww.nzdrc.com1717 ReSolution ReSolution / Aug 2016 / Aug 2016

Hong Kong, Singapore July 29 2016 The legal landscape is changing in South EastAsia for third-party funding of internationalarbitration. Third-party funding – by which acommercial fund finances a case in exchangefor a share of the damages – has historicallybeen confronted by suspicion or silence in theregion. Now, the future looks very different. InSingapore, the consultation period closestoday for draft legislation legalizing third-partyfunding for international arbitration. In HongKong, the Law Reform Commission has alsorecommended legislative reform to developthis market. Although not unforeseen, theseare important developments for disputeresolution in Asia. Parties, funds and lawyersalike should prepare for changes to come. What is third-party funding? Third-party funding, also known as 'litigationfinance', represents an alternative means tofund your claim. In simple terms, a commercialfund with no prior connection to the case – the'third party' – finances the costs of theproceedings in return for a share of anydamages awarded. By contrast, the traditionalway for a party to fund its claim is simply forthat party, or a related company, to pay for itscosts. Over the last decade, however, third-partyfunding has become increasingly prevalent inmany jurisdictions in Europe, Australia and theUnited States. At its best, third-party fundingprovides access to justice by enabling a partyto enforce its rights that would otherwise beunaffordable. Even for solvent parties, there isthe further question of how best to accessjustice: third-party funding opens upcommercial choices to allocate risk,

collateralise the claim, and apply capitalprofitably that might otherwise be tied up inthe dispute. The past – fear of third party fundingin Hong Kong & Singapore For centuries in common law jurisdictions,funding another party's claim was a crime. Thepublic policy fear was that the third partyfunder "might be tempted, for his own personalgain, to inflame the damages, to suppressevidence or even to suborn witnesses."1 Inother words, "an agreement to share in thespoils of litigation may encourage theperversion of justice and endanger theintegrity of judicial processes", not leastbecause "it involves a stranger to the litigationin 'trafficking' or 'gambling' in the outcome ofthe litigation."2

England abolished the common law crime in1967. However, in Singapore and Hong Kong –heirs in many ways to England's legaltradition – funding another party's claimgenerally remains unlawful and a crime (withcertain exceptions as we explain below). Reform – a long-time coming? In recent years, reform has often been a subjectof discussion, but also a source of controversyin Hong King and Singapore. Yet, in many otherjurisdictions, a consensus has developed thatthe public policy for outlawing third-partyfunding has turned "full circle": "Originally their prohibition was justifiable as ameans to help secure the development of aninclusive, pluralist society governed by the ruleof law. Now, it might be said, the exact reverse

THIRD-PARTY FUNDING: A NEW CHAPTER INHONG KONG & SINGAPORE

- Matthew Secomb, Melody Chan, Thomas Wingfield, Philip Tan

ReSolution / Aug 2016 18www.nzdrc.comwww.nzdrc.com

of law. Now, it might be said, the exact reverseof the prohibition is justified for the samereason."3

By contrast, in 2012, Hong Kong's Law ReformCommission found that "the community atlarge does not accept the idea of fundinglitigation for profit."4 Likewise, in Singapore,the old adage remains that "he who pays thepiper often calls the tune"5, and, despitespeculation, the 2012 amendments toSingapore's arbitration acts left the issueuntouched. Nevertheless, the judiciary in both jurisdictionshas started to chip away at the old commonlaw prohibition. In Hong Kong, for instance,third party funding may be used by liquidatorsto pursue claims on behalf of insolventcompanies,6 and the Court of Final Appeal hasexpressly left open the question of whether itis permitted for arbitrations.7 Conversely, inSingapore, the Court of Appeal has decidedthat the ban applies to arbitration.8 However, ithas been recently suggested that third partyfunding might be possible in certainsituations – for example, where the funder hasa legitimate interest in the outcome of thelitigation, or where it is clear that theadministration of justice would not beperverted.9

Keeping up with the West Our 2015 International Arbitration Survey,conducted with Queen Mary University London(QMUL), revealed that Hong Kong andSingapore are now the third and fourth mostpreferred venues for international arbitrationbehind the traditional domination of Londonand Paris.10 Both Asian jurisdictions are alive tothe need to keep that momentum if they are

not to lose the ground they have worked hardto gain.11 As early as 2013, Secretary forJustice, Rimsky Yuen, spoke of third partyfunding as an area of possible reform as part ofHong Kong's commitment to "spare no effort" to remain "an arbitration friendly jurisdiction".12

Hence, while Singapore still recognises thetraditional concern "to protect vulnerablelitigants, prevent the judicial system frombecoming a site for speculative businessventures and to guard against potential abuseof court processes", it is also keenly aware thatthird party funding is flowing into other majorarbitration centres around the world: "Singapore is cognisant of the practices andbusiness requirements of commercial parties,many of whom choose to arbitrate in Singaporedespite their dispute having no connection tothe jurisdiction."13

Likewise, it is no coincidence that the HongKong's Law Reform Commission listed "[p]reserving and promoting Hong Kong'scompetitiveness as an arbitration centre" as thefirst benefit of third-party funding.14 Ultimately,the desire to stay ahead may trump all else. Now – a cautious race to reform? For Singapore, this reform would be achievedby two main amendments. The first provisionwould abolish the common law restrictions onthird party funding.15 The second provisionwould apply specifically to third party fundingin international arbitration proceedings andrelated court and mediation proceedings,including enforcement of awards.16 It wouldexpressly provide that third-party fundingcontracts in these situations would not be "contrary to public policy or otherwise illegal

contracts in these situations would not be"contrary to public policy or otherwiseillegal".17Lawyers will be able to recommendthird party funders and negotiate fundingagreements provided they themselves do notreceive any direct financial benefit. The legal significance of such reform shouldnot be under-estimated. Funded parties wouldnormally face certain risks if they were toarbitrate at a seat where third party funding isillegal. As well as potential criminal sanctions,the funded party may be sued in tort. Thefunded party may also be denied theassistance of the courts. Even if the fundedparty is successful in obtaining an award, theaward may be set aside at the seat ofarbitration, on the ground that it is offensive topublic policy. In practice, the risk of anunenforceable funding agreement is sufficientto stall the development of the market forwould-be funders. By publishing its draft legislation, Singaporemay appear to have leap frogged ahead ofHong Kong for now, but not for long. HongKong's Law Reform Commission issued itsconsultation paper on third party funding forarbitration in October last year and theconsultation period ended in February. Draft

Hong Kong legislation is expected at the end ofthis year. The future – the devil in the details These are welcome, albeit long anticipated,developments for international arbitration inAsia. Nothing, however, has changed for now.Change is coming, but the nature of thatchange is not yet clear. Last year saw majorfunds launch pioneer offices in Hong Kong. Wecan expect the same in Singapore. However, wedo not yet know how third party funding will beregulated in either jurisdiction. For example,Singapore is expected to impose a duty todisclose the existence and identity of a thirdparty funder, which is in line with thepreference of the majority of respondents toWhite & Case and QMUL's 2015 survey.18 Onthe other hand, while Singapore is alive to the"light touch" approach to regulation adoptedelsewhere, it remains to be seen how light itstouch will be. Currently, the law is holding the market back.When this barrier is released, we will see howfast the market gains momentum. However,this much is certain: neither jurisdiction isgoing to permit a flood.

T H I R D - P A R T Y F U N D I N G : A N E W C H A P T E R I NH O N G K O N G & S I N G A P O R E C O N T . . .

Endnotes 1. Lord Denning in Re Trepca Mines Ltd (No.2) [1963] Ch. 199 at [220].2. Ribeiro PJ in Unruh v Seeberger [2007] 2 HKLRD 414 at [101].3. Lord Neuberger, 'From Barretry, Maintenance and Champerty to Litigation Funding', 2013, para. 48.4. The Law Reform Commission of Hong Kong, 'Class Actions', 2012.5. Menon CJ, 'Some Cautionary Notes for an Age of Opportunity', 2013.6. See, e.g., Re Co A [2015] HKEC 2089 (approving a funding agreement between liquidators in a compulsoryliquidation and a Cayman incorporated closed-end fund, where the funding agreement was solely aninvestment for the funder). Hong Kong's permitted exceptions also include where third parties have alegitimate interest in the outcome of the case or where "access to justice considerations" apply, but both onlywith the court's approval.7. Unruh v Seeberger [2007] 2 HKLRD 414.8. Otech Pakistan Pvt Ltd v Clough Engineering Ltd and another [2006] SGCA 26.9. Re Vanguard Energy Pte Ltd [2015] SGHC 156.10. 2015 International Arbitration Survey: Improvements and Innovations in International Arbitrationconducted by Queen Mary University of London in partnership with White & Case.11. See also White & Case partner Matthew Secomb's Insight, 'The Ascent of Asia: How the East is gaining onthe West in international arbitration'.12 — Rimsky Yuen, 'Keynote speech by Secretary for Justice at Arbitration Week', 2013.13 — Singapore's Public Consultation on the Draft Civil Law (Amendment) Bill 2016 and Civil Law (Third PartyFunding) Regulations 2016.14 — The Law Reform Commission of Hong Kong, Third Party Funding for Arbitration Sub-Committee,



T H I R D - P A R T Y F U N D I N G : A N E W C H A P T E R I NH O N G K O N G & S I N G A P O R E C O N T . . .

Endnotes cont...

12. Rimsky Yuen, 'Keynote speech by Secretary for Justice at Arbitration Week', 2013.13. Singapore's Public Consultation on the Draft Civil Law (Amendment) Bill 2016 and Civil Law (Third PartyFunding) Regulations 2016.14. The Law Reform Commission of Hong Kong, Third Party Funding for Arbitration Sub-Committee,Consultation Paper, 2015.15. Draft Civil Law (Amendment) Bill 2016, cl. 2 (insertion of section 5A in the Civil Law Act).16. Draft Civil Law (Amendment) Bill 2016, cl. 2 (insertion of section 5B in the Civil Law Act); Draft Civil Law(Third Party Funding) Regulations 2016, cl. 3.17. Draft Civil Law (Amendment) Bill 2016, cl. 2 (insertion of section 5B(2) in the Civil Law Act).18. 2015 International Arbitration Survey: Improvements and Innovations in International Arbitrationconducted by Queen Mary University of London in partnership with White & Case.

Thomas Wingfield Associate

London

Melody Chan Local Partner

Hong Kong

Matthew SecombPartner

Singapore

Philip Tan AssociateSingapore

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Background and Facts Dana Shipping and Trading Pte Singapore (“Dana Shipping”) and Sino Channel Asia Ltd (“Sino”)entered into a contract of affreightment (“COA”) as owner and charterer respectively. Under theCOA, Sino was chartered to carry iron ore from Venezuela to China, but Sino anticipated that theoperational side of the charter would actually be performed by a third-party affiliate, BeijingXCty Trading Limited (“Beijing XCty”).In the lead up to the COA and following its formation, Mr Daniel Cai, an employee of Beijing XCty,was the main point of contact between Dana Shipping and Sino, and presented himself to Danaas ‘Daniel of Sino Channel Asia’. A dispute arose when no shipments were arranged or performedby Beijing XCty, and Dana referred the dispute to arbitration in accordance with the COA. Underthe COA, disputes between the parties were to be referred to arbitration, initiated when oneparty received a “notification in writing of the appointment of the other party’s arbitrator” [21].The recipient would then have 14 days to appoint its arbitrator, “failing which the decision of thesingle arbitrator appointed shall apply” [21].In accordance with the COA, Dana Shipping appointed their arbitrator and served their notice ofarbitration on Mr Cai by email, calling upon Sino to appoint their arbitrator. On receipt of thenotice, Mr Cai requested an extension of time, but took no further action and did not alert Sino tothe notice of arbitration. Consequently, Sino never received the notice and was unaware of thearbitration entirely. Given Sino did not respond, Dana Shipping’s arbitrator became solearbitrator in accordance with the COA, and made an award of US $1.68 million in Dana Shipping’sfavour. A hard copy of the award was sent to and received by Sino’s registered office in HongKong, which was the first Sino had ever heard of the arbitration.It was not until Dana Shipping began enforcement proceedings that Sino took action themselves.When Dana Shipping attempted to enforce the award, Sino applied for a declaration and orderpursuant to s72(1)(b) or (c) of the Arbitration Act 1996, that the award was made withoutjurisdiction and was of no effect, given Sino had not received the notice of arbitration and hadtaken no part in the arbitration.

DecisionIn support of their application for a declaration setting aside the award, it was Sino’s case that MrCai had no authority to accept service of the notice of arbitration on behalf of Sino; that suchpurported service was therefore ineffective; and that consequently, Sino’s lack of response wasbecause they were unaware of the arbitration and did not and could not participate in it. DanaShipping asserted that service of the notice of arbitration was effective on the grounds that MrCai had implied actual authority and/or ostensible authority to receive it on Sino’s behalf, and/orthat such authority was ratified by Sino.

CASE IN BRIEF Sino Channel Asia Ltd v Dana Shipping and Trading

Pte Singapore [2016] EWHC 1118 (Comm)

A recent UK case demonstrating the importance of correct service of anotice to commence arbitration. Incorrect service led to a US $1.68

million arbitral award being set aside as being neither valid or binding.



In making their decision to set aside the award as neither valid nor binding due to incorrectservice of the notice of arbitration, the court considered the three grounds put forward by DanaShipping:

- Implied Actual AuthorityIn determining the extent of Beijing XCty’s implied authority, the court examined the actualcircumstances of the relationship between the agent, Beijing XCty, and the principal, Sino. TheCourt found that while Beijing XCty had a general authority to act on behalf of Sino in connectionwith the COA, given the importance of commencing arbitration and significant legalconsequences of such action (beyond performance of ordinary contractual obligations), BeijingXCty did not have any implied actual authority to accept the notice of arbitration on Sino’sbehalf. Even where an agent has a wide general authority to act on behalf of his principal, theCourt found that such authority “does not (without more) generally include an authority to acceptservice of a notice of arbitration” [47].

- Ostensible AuthorityAs a form of estoppel arising from a representation by the principal to a third party that the agenthas authority to act in that matter on the principal’s behalf, ostensible authority is generallyfounded in representations made by the principal and cannot unilaterally be asserted by anemployee/agent. However, in certain circumstances, ostensible authority may arise where theprincipal places the agent in a position to hold themselves out to such effect, and that theprincipal acquiesced in such activity. The Court found that no such representation could beimplied in the present circumstances. The court considered there was nothing which constitutedan express representation by Sino that Beijing XCty or Mr Cai had any authority to accept thenotice of arbitration, nor that Sino had put Beijing XCty or Mr Cai in a position where they couldhold themselves out to such effect and that Sino had acquiesced such activity.

- RatificationGiven Sino had waited until Dana Shipping attempted to enforce the award to take action, it wasDana Shipping’s argument that Sino’s inaction had ratified the award. However, in consideringratification and Sino’s subsequent conduct following becoming aware of the arbitration, theCourt found that a party who has not participated in arbitration proceedings cannot be taken toratify an award by mere silence and inaction.Ultimately, the Court concluded that none of the above grounds validated Dana Shipping’s claim.The court granted the section 72 application and set aside the award, holding that the ArbitralTribunal was not properly constituted and the award was made without jurisdiction.

CommentThis decision comes as a timely reminder to parties of the importance of correct service. Dealingand communicating with agents is common in commercial contracts, and parties should takeextra care to ensure that if a dispute arises, service of any documents is made to the contractparties and not to an agent. An agent for commercial purposes, does not necessarily haveauthority to accept service of documents on a contract counterparty’s behalf.

Case in Brief (Cont..)

Brief prepared by Sarah Redding, Kensington Swan Lawyers.

Sarah Redding


Third-party funders typically offer to fund aclaimant's legal fees and disbursements ona litigation or arbitration matter (or,increasingly, on a portfolio of matters) inreturn for either a multiple of the fundsadvanced or a percentage of the damagesawarded. If the claim is unsuccessful, thefunder will make no recovery and has norecourse against the claimant. If the claim issuccessful, the claimant will pay the funderout of the damages recovered from thedefendant. A decision handed down by the English HighCourt this week has the potentialsignificantly to alter the landscape for thirdparty funding in arbitration. In the currentlyunreported case of Essar Oilfield ServicesLimited v Norscot Rig Management PvtLimited the Court upheld the decision ofthe arbitrator in an ICC arbitration to allowthe recovery of the costs of third partyfunding in addition to the award of costsand damages as "other costs" as providedfor under the Arbitration Act 1996 (the Act)and the applicable ICC Arbitration Rules. The ICC arbitration was seated in Englandand, thereby, subject to the Act. Uponsucceeding in the arbitration, the Claimant(Norscot) sought its costs from theRespondent (Essar). It included within theclaim for costs, the costs of the third-partyfunding which it had been forced to incur inorder to advance the proceedings. Thefunding was for £647,086.49 with thefunder entitled to recover, in the event of

success, either 300% of the fundingadvanced (being £1,941,259.47), or 35% ofthe damages recovered, whichever was thegreater. The third-party funding costs payable onsuccess were found to be recoverable inaddition to the legal costs as "other costs"by the sole arbitrator, Sir Philip Otton (aformer Lord Justice of the Court of Appeal).The Respondent disputed the arbitrator'sjurisdiction to make such an award andappealed the decision to the High Court. In dismissing the appeal, the High Courtheld that the third-party costs incurred bythe Claimant were recoverable pursuant tosection 59(1)(c) of the Act and Article 31(1)of the ICC Rules. These provisions set outthe types of costs which can be recovered inarbitration and prescribe the power of anarbitrator to make an award. The Courtaccepted that the terms of section 59(1)(c),including reference to “legal and othercosts”, was wide enough to permit therecovery of third party funding costs. Inparticular, it was held that there was nobasis for construing "legal and other costs"narrowly in the context of the Act, and that

The use of third-party funding in arbitration has grown significantly inrecent years, with many funders now reporting that their portfolio of

funded cases is evenly split between litigation and arbitration matters.

ENGLISH HIGH COURT ALLOWS RECOVERY OFTHIRD-PARTY FUNDING COSTS IN ICCARBITRATION PROCEEDINGS

- Mark Hilton, Jamie Curle and James Carter



basis for construing "legal and other costs"narrowly in the context of the Act, and thatthe correct test involved considering whatother costs were incurred in bringing ordefending a claim, as the case may be. It is relevant to note that the arbitrator wascritical of the Respondent's conduct, bothas regards its repudiatory breach of thecontract in issue in the proceedings and inrespect of the arbitration proceedingsthemselves, finding that the Respondenthad deliberately put the Claimant in theposition where it was unable to fund thearbitration out of its own resources.Thecosts of the proceedings were ordered tobe paid on the indemnity basis. We are not aware of any previous English

seated arbitration where a tribunal hasawarded third party funding costs inaddition to legal costs as "other costs".Traditionally, compensation due to a third-party funder has not been held to be arecoverable cost. Permission to appeal was refused by theHigh Court and we will await with interestany application for permission to appeal tothe Court of Appeal. Regardless of whetherthere is an appeal, this case will triggerfurther interest in third party funding forarbitration, albeit that the facts of this caseand, in particular the arbitrator's criticism ofthe Respondent's conduct, may mean thatEssar is not an authority which arbitraltribunals will easily be persuaded to follow.

English High Court allows recovery of third-party funding...Cont.

Mark is an experienced litigator and international arbitration lawyer and has actedfor contractors, sub-contractors, employers, owners and financiers in significantdisputes whether by litigation, arbitration, adjudication, mediation or other types ofdispute resolution both in the UK and internationally. He has been advising onconstruction issues for over 30 years, primarily in relation to contentious mattersbut also in relation to complex contractual negotiations.

James has experience in complex commercial litigation and arbitration. He acts forclients across a broad spectrum of sectors including energy, banking and financialservices, construction, insurance, media and IT. He began his career as a barrister,where he gained significant advocacy and advisory experience.

Mark Hilton -

James Carter - Partner

Jamie has extensive knowledge of cross-border disputes, particularly in the banking,funds and financial services sectors (including structured products disputes), fraud

and asset tracing matters and natural resources disputes. He has been involved in alarge number of complex and high profile cases in recent years before domestic and

international courts as well as arbitral tribunals.

Jamie Curle - Partner

About the Authors

http:// https://www.dlapiper.com/en/uk/people/h/hilton-mark/ http://www.nzdrc.co.nz/https://www.dlapiper.com/en/uk/people/c/carter-james/ https://www.dlapiper.com/en/uk/people/c/curle-jamie/https://www.dlapiper.com/https://www.dlapiper.com/en/uk/people/c/curle-jamie/https://www.dlapiper.com/en/uk/people/c/carter-james/ https://www.dlapiper.com/en/uk/people/h/hilton-mark/


Previously published: Court Uncourt –Volume III, Issue VI, STA Law Firm - 2016 As in any religion, one may argue, there exists aspectrum of devout belief spanning from thosewho strictly follow the teachings of the Qur’an,to those that rarely feel the impact of theirfaith on a daily basis. In countries where thereare both conventional and Sharia complaintbanks, there are options for every investor,devout or not, Muslim or secular. The lastdecade has witnessed the rapid growth ofIslamic finance on both an international anddomestic platform. Accompanying that growthis a rise in the number of disputes thatimplicate Islamic law. This fact remainsconstant even when the primary law of thecontract is that of a common law or civil lawcountry. If judges and law makers fail tocomprehend the reasoning of Islamic financeprofessionals in incorporating Sharia law, theresult could be precedents and codes that mayhamper the growth of a multi-trillion dollarindustry! Lord Asquith had refused to apply theprovisions of the Sharia Law in the case ofPetroleum Development (Trucial Coasts) Ltd. v.Sheikh of Abu Dhabi[1]. He further quoted, “itwould be fanciful to suggest that in this veryprimitive region there is any settled body of legalprinciples applicable to the construction ofmodern commercial instruments”. However, ifLord Asquith could foresee the future, hewould have chosen his words wisely beforedelivering the far reaching judgment about theinadequacies of ShariaLaw. Little did he knowthat, years later, the United Kingdom wouldrank ninth in the world in holdings of Sharia-compliant assets and would become the first

western country to issue sovereign sukuk.Islamic Finance is gaining a foothold in theglobal financial market as a commercially viablealternative to conventional financing.Remarkably, transactions undertaken in theIslamic financial sector are no longer confinedto countries whose legal systems are based onSharia principles. However, the Sharia compliant structures of theIslamic finance instruments face a seriousimpediment when it has to be implemented in anon-Islamic legal framework. Most of thecountries do not have a legal mechanism tograsp and implement Sharia law in financialstructures. Moreover, the western courts do nothave the necessary expertise or resources inorder to interpret and enforce the Islamicfinance transactions and the documents whichare based on principles of Sharia law. In the first 500 years or so after the Hijrah,Islamic law developed rapidly to accommodatethe legal needs of an Islamic Empire and itsincreasingly complex commercial transactions.However with the passage of time, moreemphasis was given to jurists and less scopewas left for original thinking based on directreference to the Quran. This is referred to as theclosure of the gate of Ijtihad. The resultantoutcome was a stagnation of legal thinking bythe leading intellectual Muslim scholars. Thuswe find that cross border Islamic Financecontracts are usually written under English law.The prime reason proved that English lawprovides a greater level of certainty to thecontracting parties than attempting to write acontract under the rules of Islamic Law. TheGlobal Islamic Finance Magazine recently heldan interview allowing people to explain

CLASH OF JURISDICTIONS:APPLICABIL ITY OF ISLAMIC F INANCEPRINCIPLES UNDER ENGLISH LAW

- Minal Kaul and Margarida Narciso



CLASH OF JURISDICTIONS:APPLICABIL ITY OF ISLAMIC F INANCEPRINCIPLES UNDER ENGLISH LAW

- Minal Kaul and Margarida Narcisoconcisely why English law is the commonlypreferred law for cross border financial Islamictransactions. Enforcement The Medjella is considered the first attempt tocodify Islamic law and represents theendeavour of the Ottoman Empire. TheMedjella dedicated an entire chapter toarbitration, stating within it that ‘a decisionvalidly given by the arbitrators in accordancewith the rules of law is binding on all parties’.Decisions by arbitrators were not enforceableexcept upon confirmation by the judge, andthen only if made in accordance with law. Inthe world of Sharia compliant finance, therehas never been more of an openness to settledisputes through arbitration. In previous times,and to some extent today, scholars of Islamiclaw considered the enforcement of the awardof an arbitrator to be purely discretionary bythe judge. At the outset, however, it is paramount tounderstand why excessive focus has been puton examining enforceability issues. Generally,parties to a transaction scrutinize the lawgoverning the same in order to determinewhether their rights and obligations would beenforced in a consistent and transparentmanner. A primary function of law in anycommercial and financial transaction is toprovide a considerable degree of certainty andto enforce the determinations of the parties inrespect to their obligations. The choice of lawin regard to Islamic finance transactions ismore delicate as the parties would naturallywant to opt for Islamic law as the governinglaw of the finance documents. However, parties

cannot merely adopt Islamic law as thegoverning law without reference to the law of aparticular jurisdiction since Sharia law is not astandard codified law. Therefore, a codifiedlegal system which exercises the principles ofSharia law is often used as the governing law inan instrument in order to provide morecertainty on the rights and obligations of thetransacting parties. This embedded in the landmark case of ShamilBank of Bahrain EC v. Beximco PharmaceuticalsLtd (theShamil Bank Case)[2], which discussedthe scope and interpretation of Sharia law inrelation to the English law. In this case,defendants failed to make payments under themurabaha agreement (the Agreement) enteredinto with plaintiff and consecutively, the latterclaimed the amount outstanding under theprovisions of the Agreement. The governingclause in the Agreement stated that “subject tothe principles of the glorious Sharia, theagreement would be governed by and construedin accordance with the laws of England”. Thedefendants argued that the Agreementcontained a hidden form of riba which wascontrary to the principles of Sharia and washence, unenforceable. Therefore, the foremostissue of debate at the appellate court waswhether the governing law clause in theAgreement required the consideration of theSharia law. The Shamil Bank has been positively acceptedby commentators in its two main propositionsconcerning Shariah as a choice of law, namely:i) the Rome Convention which requires that thelaw of a contract be that of a country; and ii)there can be only one law which governs acontract. The probability of this conclusion



being the same for other common lawjurisdictions is very likely in addition. When thetopic regarding governing the law of theAgreement arises the court held that theprovisions of a contract could only be governedby a single law. Therefore, in the present case,the Agreement could not be subject to both, theEnglish law and the Sharia law. Further, thecourt held that the parties were permitted tochoose the governing law of a contract inaccordance with the Rome Convention[3].However, the latter convention has providedthat the parties were only entitled to choosethe law of a country. Further, the judge heldthat the general reference to the Sharia law inthe Agreement did not explicitly relate to theintention of the parties to incorporate the sameas the exclusive governing law. In the light ofthis judgment, it is implied the moral burden ofstructuring Sharia compliant contracts has beenplaced on the contracting parties due to thereluctance of English courts to permit Sharialaw to be chosen as the governing law ofcontracts. Structuring an Instrument inCompliance with Sharia Apparent from the Islamic economics literature,is that interest-free instruments must guide theraising and mobilization of financial resourcesin an Islamic economy. This is a requirementthat stems from the moral injunctions wellrooted in the Qur’an and the Sunna, which formthe epistemological sources of the Sharia. TheSharia invokes an extensively participatoryform of profit-sharing system that can replaceinterest-based financial instruments. Suchinstruments are traditionally termed profitsharing, or mudāraba, and an Islamic term for asale where the buyer and seller agree on themark-up for the item(s) being sold betterknown as murabaha. The modern muraba a isconsidered as a crucial instrument forfacilitating short-term finance for consumerand business requirements. It is used to financehousehold items, cars or business equipmentand/or supplies. It is often used to replicate aconventional trade financing agreement. With

the rise of Islamic banking since 1975,murabahah has become "the most prevalent"Islamic financing mechanism. This contractillustrates several methods that are used widelyin the formulation of Islamic financialtransactions. This includes the conglomerationof nominate contracts, the binding promise andthe application of takhayyur which initially wasput to systematic use in the compilation of theMajalla, completed in 1876. The principle oftakhayyur has expanded extensively in itsscope, and has proven to be the majorexpedient in the modernising legislativereforms throughout the Muslim world. Thesetools and legal stratagems are pivotal to theindustry’s gamut of financial structures.However, some of the indemnities comprised inmuraba a transactions may fall foul under theEnglish statutory law, in particular the Sale ofGoods Act, 1979 and the Unfair Contract TermsAct, 1977. These laws prevent the contracting parties fromincorporating such indemnities into theircontracts depending on the circumstances ofthe particular transaction. Further, the Englishdomestic industry has faced several regulatorydifficulties due to the hybrid legal structure ofthe Islamic financial contracts. However, theShamil Bank Case infers that the choice ofgoverning law which would apply to financialdocuments and the extent of the applicabilityof Sharia law principles are bound to arise incases where an Islamic finance transaction isconcluded between parties from multiplejurisdictions (both secular and Shariajurisdictions).

C L A S H O F J U R I S D I C T I O N S : A P P L I C A B I L I T Y O F I S L A M I C

F I N A N C E P R I N C I P L E S U N D E R E N G L I S H L A W C O N T . . .


Consonance between Jurisdictions Currently, English law is the most commonchoice of law for the governing of disputesarising under agreements purporting to adhereto Islamic principles. Some of these contractscontain no references to Islamic law and mayeven include a waiver of Shariah defense,implying that in case of a dispute the partiesagree to waive any argument that theagreement is invalid under Shariah law. Suchstipulations attempt to rectify the Sharia risk,which is a term that became known in theindustry as the term associated with the riskthat one party will fail under its contactobligations and then state the entireagreement is void for being invalid underIslamic law. This risk exists despite the factthat multinational law firms have createdentire divisions dedicated to Shariah-compliant financial transactions. However, thecurrent culture of Islamic finance is liberal,with parties beginning with the assumptionthat a deal is Shariah-compliant, andcontracting parties are not necessarilyknowledgeable of Islamic law. Hence, the principles of Islamic finance have tobe synchronized within the macro-structure ofthe English Law in order to maintain concordbetween the jurisdictions. Further, it can beperceived that financial services environmentof the United Kingdom does not prevent theIslamic financial industry from simultaneouslydeveloping an alternative financial market. Forinstance, the government’s abolition of doublestamp duty in 2003 had ushered in a range ofnew Islamic financial activity like permittingfinancial institutions to offer home ownershipplans based on a muraba a contract. Earlier,these transactions had incurred double stampduty; first when the property was purchased bythe bank and then when the property wassubsequently sold to the client with a profit. The English government also facilitated theoperation of mudāraba partnerships and profit& loss investment partnerships. An importantfeature for the Mudaraba contract lies in thefact that it places equal importance on both

financial and knowledge-based investment. Inthese partnerships, the parties providing theideas and ongoing training for the businessventure are viewed as equally important to theventure. The profit share arising from thesetransactions would normally not be taxdeductible by the Islamic Financial Institutionsas the dividends were subject to adisadvantageous tax treatment. Thegovernment resolved this issue by authorizingmudāraba dividends to be treated as interestpaid on loans by validating tax-deductibility onthese dividends through an amendment of theFinance Act of 2005.[4]

Further, the legal systems can be reconciled bystandardizing the Islamic financial contracts.However, the issue of standardization is closelyrelated to the controversial debate concerningthe codification of the Sharia in any nationstate. A partial solution to this problem can beachieved by encouraging the industry toincorporate specific provisions, such as theAuditing and Accounting Organization forIslamic Financial Institutions (AAOIFI) shariastandards into Islamic finance contracts. Aslong as these provisions are sufficientlyspecific, they can be construed to operate as aset of contractual terms agreed upon betweenthe parties. Further, the English courts will referto incorporated standards in theirinterpretation of English law contracts so thatthe legal substance of contracting parties’objectives is achieved. Therefore, thedeterminacy of such norms and standardswould permit for a serene judicialinterpretation.

C L A S H O F J U R I S D I C T I O N S : A P P L I C A B I L I T Y O F I S L A M I C

F I N A N C E P R I N C I P L E S U N D E R E N G L I S H L A W C O N T . . .




Conclusion The Sharia is a mechanism which governsevery aspect of a Muslim's life. A practisingMuslim is required to lead a just and pure lifeto achieve piety. In this endeavour, his/herincome and expenditure must remain free ofimpurities (such as the receipt or payment ofinterest). To do otherwise would be to commita sin. The need for Islamic finance cantherefore be seen as a spiritual necessityrather than an economic convenience. As it is apparent from the above, many cross-border Islamic finance transactions, contractsare often governed by English law with theEnglish courts expressly having the jurisdiction

to decide on the necessary disputes. Thestagnating fact that an Islamic finance contract,although governed by English law, must stillcomply with the regulations and reformationsof the principles of the Sharia in order to berightfully enforced in order to provide for thejust equilibrium of balance and correlationexisting between the two systems alike.Sharia Law must develop a distinctivecorporate culture, the main purpose of which isto create a collective morality and spiritualitywhich, when combined with the production ofgoods and services sustains the growth andadvancement of the Islamic

expert determination navigating the minefield of...international arb-med resolution: in brief 5...

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