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ISSUE 14 / AUGUST 2017

HONG KONG HIGH COURTHONG KONG HIGH COURTAPPOINTS RECEIVERS ASAPPOINTS RECEIVERS ASINTERIM MEASURE IN SUPPORTINTERIM MEASURE IN SUPPORTOF ARBITRATION PROCEEDINGSOF ARBITRATION PROCEEDINGSIN MAINLAND CHINAIN MAINLAND CHINA

Apology legislation passed inHong Kong – what does it meanfor you?

Warmest regards,

John GreenEditor

FROM THE EDITOR

Welcome to the 14th issue of ReSolution® in which we draw on theexperience and knowledge of leading experts in the field to bring youcommentary, articles and reviews on topical matters relating to domesticand international dispute resolution.In this issue we feature dispute resolution in Asia including articles on thirdparty funding for international arbitration, new apology legislation in HongKong, and the appointment of receivers by the Hong Court High Court as aninterim measure in support of arbitration in mainland China.We also look at parties being held to their dispute resolution processchoices by the Queensland Supreme Court, abuse of process in relation tolitigating matters decided in an arbitration, waiver of right to arbitrate byelection, the costs consequences of failing/refusing to mediate in the UK(see in ReSolution in Brief for further commentary on the recent UK Court ofAppeal decision in Gore v Naheed and Ahmed), and more.In Case in Brief, Sarah Redding discusses two recent cases in which the NewZealand High Court confirmed its support for arbitration and its reluctanceto interfere in the arbitration process. In Forest Holdings Ltd v MangatuBlocks Incorporation, the court made it clear that there are limited groundsfor appeal from arbitral awards, which do not include challenges based onfactual findings, and in Savvy Vineyards 4334 Ltd v Weta Estate Ltd, the courtconfirmed that arbitration agreements are independent of the other termsof a contract and will survive termination of the primary contract unless itcan be established that the arbitration agreement has been renderedinoperable.I wish to take this opportunity to thank all our contributors. We are mostgrateful for the support we receive from dispute resolution professionals,law firms, and publishers, locally and overseas, that allows us to share withyou papers and articles of a world-class standard, and to bring you a broadperspective on the law and evolving trends in the delivery and practice ofdomestic and international dispute resolution.Contributions of articles, papers and commentary for future issues ofReSolution® are always welcome. I do hope you find this issue interestingand useful. Please feel free to distribute ReSolution® to your friends andcolleagues – they are most welcome to contact us if they wish to receiveour publications directly.

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EXPERT DETERMINATION FORACCOUNTING AND FINANCIAL SERVICES

Model Clause: In the event of any dispute or differencearising out of or in connection with this contract, or the subject

matter of this contract, including any question about itsexistence, validity or termination, the parties must refer that

dispute in the first instance to Expert Determination inaccordance with the Expert Determination Rules of the New

Zealand Dispute Resolution Centre.

ReSolution Issue No. 14Contents

ReSolution | Feb 2016 2

01 FROM THE EDITOR 03 RESOLUTION® IN BRIEF 09 Another instance in which parties areheld to pre-agreed dispute resolutionrequirements 12 Apology legislation passed in HongKong – what does it mean for you 17 Green light for Third Party Funding forInternational Arbitration in Asia 21 Hong Kong High Court AppointsReceivers As Interim Measure In Support OfArbitration Proceedings In Mainland China

24 Proceedings not abuse ofproceedings despite prior adversearbitration decision 27 Case in Brief - Double Edition

Forest Holdings Ltd v MangatuBlocks Incorporation Savvy Vineyards 4334 Limited vWeta Estate Limited

33 To mediate or not: A costlyquestion

37 When does starting a court actionend the right to arbitrate? 39 Letters to the Editor

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ReSolution: In Brief


Failure to advance arbitration feeswaives right to arbitrateIn Roach v. BM Motoring, LLC, 155 A.3d 985 (N.J. 2017) (No. 077125) the New Jersey SupremeCourt ruled that a party's failure to advancearbitration fees in a contract disputeautomatically waives that party's right toenforce an arbitration clause.In a unanimous ruling, and its first on thisquestion, the court said the failure to abide bycontractual language mandating theadvancement of arbitration fees amounts to a"material breach" of the contract, andtherefore invalidates the arbitration clause. "Afailure to advance required fees that results inthe dismissal of an arbitration claim deprives aparty of the benefit of the agreement," saidJustice Lee Solomon writing for the court,"Therefore, the failure to advance fees 'goes tothe essence' of the [dispute resolutionagreement] and amounts to a material breach."To permit a party to fail to advance arbitrationfees would result in allowing that party todelay dispute resolution without fear ofreprisal, Justice Solomon said.Consumer protection fromarbitration in the USMandatory arbitration clauses are found in thefine print of tens of millions of financialproducts, from credit cards to checkingaccounts in the US.Republicans are targeting a rule that would letconsumers band together to sue their banks orcredit card companies in class-action lawsuitsrather than having to use an arbitrator toresolve a dispute.The Consumer Financial Protection Bureaufinalised the rule last month. The rule bansmost types of mandatory arbitration clauses.The agency said people who otherwise have togo it alone in resolving a financial dispute

should be able to join others in a class-actionlawsuit to pursue a remedy to their complaint.The chairman of the House Financial ServicesCommittee is reported to have said thatarbitration brings about quicker resolutions tofinancial disputes saying the average pay-outfor consumers in a successful class-action casecomes to $32.00, while the attorney who filesthe case generally makes nearly $1 million.While they've succeeded in overturning morethan a dozen regulations finalised in the finalmonths of Barack Obama's presidency, this isthe first time Republicans are attempting tooverturn a rule put into effect with PresidentDonald Trump in office. Of course, the Trumpadministration isn't particularly fond of theagency that issued the rule, calling for itsrestructuring.Judge may vacate previous judgmentenforcing foreign arbitral awardA federal judge in New York had discretion tovacate a previously approved confirmation ofa$57 million arbitration award against thegovernment of Laos after the award was setaside by a foreign court at the arbitral seat, anappeals court ruled in Thai-Lao Lignite(Thailand) Co., Ltd. v. Government of the LaoPeople's Democratic Republic, 10-CV-5256. .


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The case, which involves a dispute betweenthe government of Laos and a Thailand-basedcompany (TLL) over mining contracts,presented a novel issue for the U.S. Court ofAppeals for the Second Circuit, namely how acourt should approach a motion to vacate itsown confirmation of an arbitration award afterforeign courts with jurisdiction over thearbitration panel later sets aside the award.In the early 1990s, TLL entered intoagreements with the Laotian government tomine lignite in the Hongsa region of northernLaos near the Thai border. In 1994, TLL andLaos entered into an additional contract underwhich Laos granted TLL the right to build at itsown expense and to manage a plant to belocated near the mines, that would use themine's coal production to generate electricalpower to be sold to Thailand.However, during the Asian Financial Crisis(1997 - 2000), funding negotiations andresources for the project dried up andnegotiations concerning the project fell apart.In 2006, when TLL’s attempts to obtainadditional funding for the project failed, Laosterminated the project developmentagreement that it had previously brokered withthe company regarding the power plant, aswell as the mining contracts.Efforts to settle the matter failed and in June2007, TLL initiated arbitral proceedings inMalaysia.In late 2009, the arbitral panel found Laos inbreach for failing to properly terminate thecontracts and awarded TLL approximately $57million as compensation for losses, interestand costs. After the period for challenging theAward in Malaysia expired, TLL beganenforcement actions against Laos in the UnitedStates, the United Kingdom, and France underNew York Convention.TLL’s enforcement efforts succeeded in theUnited States and the United Kingdom,resulting first in an August 2011 judgment in

the United States District Court for theSouthern District of New York and, later, aNovember 2012 judgment in the High Court ofJustice of England and Wales.In October 2010, almost one year after theAward was issued and nine months after achallenge was due, Laos moved in Malaysia foran extension of time within which to file itsapplication to set aside the award. TheMalaysian courts eventually granted Laos'motion and then, in 2012, set aside the award.Returning to the United States with theMalaysian judgment in hand, Laos moved underFederal Rule of Civil Procedure 60(b)(5) tovacate the District Court's August 2011judgment enforcing the Award.In 2011, Southern District Judge Kimba Woodconfirmed the award and the Second Circuitaffirmed that decision. The District Courtconcluded that the New York Convention left itwith exceedingly limited discretion. In essence,the Court held that it was bound to give effectto the Malaysian annulment unless doing sowould offend basic standards of justice in theUnited States. Finding that neither Laos'conduct nor anything in the Malaysian court’sreasoning so tainted the Malaysian order suchthat vacatur would offend fundamentalstandards of justice, the District Court grantedLaos’ motion. In related rulings, the DistrictCourt also denied TLL's later application toenforce the English judgment, on grounds thatthe English judgment conflicted with thepresumptively dominant Malaysian judgment,and it rejected TLL’s request for security fromLaos to protect its interest in the Award duringthe proceedings and any subsequent appeals.doing so would offend basic standards ofjustice in the United States. Finding that neitherLaos' conduct nor anything in the Malaysiancourt’s reasoning so tainted the Malaysianorder such that vacatur would offendfundamental standards of justice, the DistrictCourt granted Laos’ motion. In related rulings,the District Court also denied TLL's laterapplication to enforce the English judgment, ongrounds that the English judgment conflicted




Laos to protect its interest in the Award duringthe proceedings and any subsequent appeals.On appeal, the Court observed that the NewYork Convention adopts an approach that doesnot require a party seeking enforcement of anaward in what is known as a “secondaryjurisdiction” (here, the United States) to awaitthe conclusion of all appeals of the award thatmay be pursued in the “primary jurisdiction”(here, Malaysia). While uniquely empoweringcourts in the primary jurisdiction to set asideor annul an arbitral award, the Convention alsoanticipates that an arbitral party that hasprevailed may sue elsewhere to enforce anaward before the award has been reviewed bycourts in the arbitral seat.Citing Corporación Mexicana de MantenimientoIntegral, S. de R.L. de C.V. v. Pemex-Exploracióny Producción (Pemex), the Court observed thatalthough the permissive language used inArticle V(1)(e) of the New York Conventioncould be read to suggest that a district courthas “unfettered discretion” as to whether toenforce such an award, the court's exercise ofthat discretion should rather be treated as“constrained by the prudential concern ofinternational comity” and that Pemex alsocarved out a “public policy” exception to thecomity principle for occasions when enforcingan arbitral award annulled in the primaryjurisdiction is needed “to vindicate‘fundamental notions of what is decent andjust’ in the United States.”The Court held that when conducting a Rule 60(b)(5) analysis as to whether or not to relieve aparty from a final judgment (for certainspecified reasons, including that the judgmentis based on an earlier judgment that has beenreversed or vacated) district courts shouldanalyse the full range of Rule 60(b)considerations, including timeliness and theequities and to assign significant weight toconsiderations of international comity in theabsence of a need to vindicate “ fundamentalnotions of what is decent and just’ in theUnited States.”Writing for the Court, Judge Susan Carney saidLaos' conduct was not "sufficiently dilatory" to

justify continued enforcement of a vacatedarbitration award. To find otherwise, JudgeCarney wrote, would be akin to levying a $57million fine on Laos for misconduct. "A steepfine indeed, and one that the record gives noreason to think the district court would haveimposed," the Judge said.The Appeals Court affirmed the District Court'sorder vacating the judgment. The Courtconcluded that the District Court did notexceed the permissible bounds of itsdiscretion in refusing to order Laos to postsecurity during the pendency of its Rule 60(b)motion and any subsequent appeals, nor did iterr by refusing to enforce the Englishjudgment.Boundary disputes Boundary disputes can be messy. Onceneighbours become embroiled in a disputeover the position of a boundary or the extentof a right of way, or the proximity of aproposed building to a boundary, it seems thatnothing short of court intervention will settlethe matter. There can be a huge financialimpact on the parties concerned which can,and often does, outweigh the intrinsic value ofthe land under consideration. Such disputescan also affect relationships, frustrate the useand optimisation of the utility of land andbuildings, and impede property transactions.In order to prevent boundary disputes goingthrough the courts, the House of Lords hasbeen considering a private members’ billwhich proposes that expert determination ofsuch disputes should be mandatory.The Bill is modelled on the Party Wall Act 1996in that it takes the dispute out of the hands ofthe squabbling neighbours (and arguablylawyers) to be dealt with by appointedsurveyors.



In order to prevent boundary disputes goingthrough the courts, the House of Lords hasbeen considering a private members’ billwhich proposes that expert determination ofsuch disputes should be mandatory.The Bill is modelled on the Party Wall Act1996 in that it takes the dispute out of thehands of the squabbling neighbours (andarguably lawyers) to be dealt with byappointed surveyors.In sum, the Bill would require that where anowner of land wishes to establish the positionof a boundary or private right of way the landowner should serve notice, accompanied by aplan, on the owner of the adjoining land (oruser of a private right of way) establishing theproposed line of the property boundary orprivate right of way. If the adjoining landowner does not specifically consent to what iscontained in the notice then a ‘dispute’ isdeemed to have arisen.Where a ‘dispute’ arises, then both partiesmust either select one “agreed surveyor”, oreach party shall select one surveyor who willthen jointly select a third surveyor. One ormore of the surveyors selected (depending onthe scenario) would then serve on the partiesan award setting out their conclusions as tothe dispute, and also setting out the costs ofthe matter and who should pay them.The surveyors’ findings would be consideredconclusive, and could only be challenged if anappeal was made within 28 days to the HighCourt. Within 28 days after expiry of theappeal period, the owner of the land would berequired to submit the award to the LandRegistry.The bill seemed to be making good progressthrough the House of Lords, surviving a secondreading in December 2016 with a date for theCommittee stage expected in mid-2017.However, the general election thenintervened. On 13 July 2017, the bill wasreintroduced in the House of Lords. The mainamendment to the bill is the introduction of aset procedure for the Royal Institution ofChartered Surveyors (RICS) to issue a Code ofPractice which specifies best practice in the

preparation of plans and documents under thebill. The draft Code must be approved by theSecretary of State and Parliament beforecoming into force.Global Pound Conference The Global Pound Conference series concludedon 6 July 2017, with the final conference heldat the Guildhall in London. This landmarkproject which included a very successful oneday conference in Auckland on 31 May 2017has seen more than 3,000 corporate anddisputes professionals come together inconferences spanning 29 cities across theglobe throughout 2016-17, with many morefollowing and discussing the series online andat other events.Through interactive electronic voting at theindividual conferences on a set of corequestions, the series has gathered data aimedat improving systems for the resolution ofcommercial disputes in the 21st century -spanning court processes, arbitration and ADR.Amongst other things, the data that has beencollected will provide a unique insight intowhat organisations are currently doing to avoidconflict and save money through innovativeuses of the key dispute resolution processes. .




Refusal to mediate will not alwayspreclude costs recovery in the UKThe UK courts have increasingly encouragedparties to mediate specifically (although notexclusively) by applying costs sanctions tothose parties that unreasonably refuse tomediate. The “usual rule” in litigation is that thewinning party will have a proportion of itscosts paid by the losing party. However, theCivil Procedure Rules give the court a widediscretion when it comes to determining bothwho should pay the costs of litigation, and howmuch. One factor that has recently influencedthe judicial exercise of discretion is whether ornot a party has unreasonably refused to takepart in a mediation. The decision in the 2013case of PGF II SA v OMFS Company 1 marked ahigh point for judicial encouragement ofmediation - the winning party was preventedfrom recovering any of its costs as it had failedto respond to an invitation to mediate.Emphasising the need for the courts toencourage parties to participate in ADR, BriggsLJ said in that case that silence in the face ofan invitation to mediate should, as a generalrule, be treated as unreasonable. This isregardless of whether a refusal to mediatemight in the circumstances have been justified.

... a refusal to mediatewill not always be seen asunreasonable and will not

always preclude asuccessful party fromrecovering its costs...

However, the recent Court of Appeal decision

in Gore v Naheed and Ahmed [2017] EWCA Civ369 marks a shift away from the black letterapproach taken in PGF and serves as a timelyreminder that a refusal to mediate will notalways be seen as unreasonable and will notalways preclude a successful party fromrecovering its costs, particularly wherecomplex issues of fact and/or law are involved.In Gore, the court held that a refusal to mediatemay be considered reasonable. Putting thepoint succinctly, Patten LJ said:

“I have some difficulty in accepting thatthe desire of a party to have his rightsdetermined by a court of law in preferenceto mediation can be said to beunreasonable conduct particularly when,as here, those rights are ultimatelyvindicated.”

Instead, Patten LJ noted that a failure toengage in mediation will not always beunreasonable and will not automatically resultin a costs penalty. He emphasised that conductas regards participation in ADR is simply onefactor, usually of many, to be taken intoaccount when a judge exercises his or herdiscretion on costs. Here the case wascomplex, and the claimant’s solicitor suggestedthat the dispute was unlikely to be capable ofsettlement at mediation; both factorsinfluenced the decision of the first instancejudge, with whom Patten LJ agreed. .



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ANOTHER INSTANCE IN WHICHPARTIES ARE HELD TO PRE-AGREED DISPUTE RESOLUTIONBy Jennifer McVeigh and Hazal Gacka

Hooks Enterprises Pty Ltd v Sonnenberg Pty Ltd

SignificanceThe Supreme Court held that parties mustcomply with the dispute resolution provisionand processes in a contract even if complianceis not a condition precedent to commencinglitigation.FactsIn 2012, the plaintiff, Hooks Enterprises Pty Ltd(Hooks Enterprises), and the defendant,Sonnenberg Pty Ltd (Sonnenberg), enteredinto a Development Management Agreement.By mid2016 Sonnenberg had not fulfilled itsobligations and Hooks Enterprises terminatedthe contract.The contract contained a dispute resolutionprovision (Clause 12), which outlined severalprocesses for dispute resolution:

- commencing with giving a notice ofdispute;- the recipient providing a notice ofresponse;- both parties taking reasonable steps toresolve the dispute within 7 days of thenotice of response; and- either party referring the remainingdispute for expert determination.

Contrary to this provision, Hooks Enterprisescommenced proceedings seeking damages forbreach of contract, or alternatively, damagespursuant to section 236 of the AustralianConsumer Law for misleading and deceptiveconduct. Sonnenberg issued a notice ofdispute under Clause 12. Hooks Enterprisescontended that the court was the appropriateforum for resolution of the dispute.Sonnenberg filed an application to stay theproceedings on the basis that the disputeshould be referred to expert determination

pursuant to Clause 12. Hooks Enterprisesargued that Clause 12 was not mandatory andtherefore not bar to it commencing litigation.Hooks Enterprises also argued that the disputewas not amenable to expert determinationbecause the process operated withoutsafeguards or the supervision of the court andthe claims raised mixed questions of fact andlaw.DecisionThe court ordered that the proceeding bestayed pending the completion of the expertdetermination procedure under Clause 12.Daubney J found that Clause 12 did notexpressly bar the commencement ofproceedings. However, his Honour found thatonce a party provided a notice under Clause 12,the procedure to resolve the dispute by expertdetermination became compulsory. Althoughthere was no express provision preventing aparty from commencing proceedings pendingthe outcome of expert determination, hisHonour found that parties should be held totheir bargain to resolve their dispute in theagreed manner, and that a party opposing astay must persuade the court that there is goodreason to allow the action to proceed. His Honour held that Hooks Enterprises did notdischarge its heavy onus to persuade the courtthat the stay application should be refused.Daubney J noted that the clause expresslyprovided that the President of the QueenslandLaw Society would appoint a suitably qualifiedexpert in the event of disagreement, and thatthe expert was required to comply withprocedural fairness and natural justice andprovide written reasons for theirdetermination. His Honour observed that a

- Australia -



Jennifer McVeigh, ConsultantJennifer's expertise is in strategic thinking – applied to resolution ofconstruction disputes, infrastructure and mining sector procurementcontracts and project delivery.A qualified mediator and arbitrator, Jennifer has 30 years’ experience inthe construction industry including four years as the full time member ofthe Queensland Building Tribunal.Across her disputes, contract, tender and project practice, she has a well-earned reputation for her holistic strategic thinking and risk identificationexpertise, developing tailored legal and commercial solutions to createvalue and reduce risk.

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APOLOGY LEGISLATIONPASSED IN HONG KONG –

WHAT DOES IT MEAN FOR

Hong Kong is the first jurisdiction in Asia toenact apology legislation and its Apology Lawis the broadest enacted to date worldwide. Thedriver behind it is that apologies may in somecircumstances ‘unlock’ disputes and lead tosettlement without recourse to formal legalaction. Since parties (and their lawyers andinsurers) may be reluctant to do anything thatmay be construed as an admission of liability,apologies have to date been sparse. TheApology Law seeks to incentivise disputingparties to make apologies, whether in thedirect aftermath of an accident or dispute, orfurther down the line, should the disputeescalate.The law has far-reaching consequences foranyone involved in contentious civil disputes,whether before the courts or tribunals in HongKong. The Apology Law has the scopesubstantially to change the way insurance,evidence and settlement are approached incivil proceedings and regulatory anddisciplinary matters. The scope for ‘tactical’apologies by counterparties should be borne inmind as set out below.

BackgroundThe law was formulated on the basis ofrecommendations by the Steering Committeeon Mediation, and was subject to two rounds ofconsultation in 2015 and 2016. Hong Kong

follows in the footsteps of over 50 commonlaw jurisdictions, including the UK, US, Canadaand Australia in enacting apology legislation.Like those jurisdictions, the Apology Law isshort and focuses on defining an “apology” andthe inadmissibility of it, the proceedings towhich the legislation applies, and the effect ofapologies on insurance contracts and limitationperiods.Key aspects of the Apology Law and theirimplications are set out below.

“Apology”The definition of apology (clause 4) is broadand includes so called ‘partial’ apologies (thosesaying sorry or expressing regret) and ‘full’apologies (those admitting fault as part of theapology). This widens significantly the ambit ofinadmissible evidence under the Apology Law.Many jurisdictions, including the UK and themajority of US states, have enacted apologylegislation to cover ‘partial’ apologies only.Hong Kong’s legislature felt it vital for thedefinition to be broad and to includeadmissions of fault. Whether this prejudices apotential claimant, who is left to adduce

by J. Copeman, G. Thomas, D. Geiser & A. Phillips

On 13 July, Hong Kong’s Legislative Council passed a law (the Apology Law) intended tofacilitate the resolution of civil disputes in the territory. The Apology Law, which is

expected to be gazetted and come into force shortly, reforms the legal consequences ofmaking any sort of apology (written, oral or by conduct). An apology will not constitutean admission of fault or liability (even if it includes such an admission), nor may it beadmissible in evidence to the detriment of the apology maker. This is the case unless

the maker of the apology wishes it to be admitted or it falls to be admitted in the usualway through discovery, oral evidence or an equivalent tribunal process.

- China -


APOLOGY LEGISLATION PASSED IN HONG KONG – WHAT DOES IT MEANFOR YOU? - C O N T . . .

evidence of liability in other ways, is open todebate. However, the policy driver, namely toencourage settlement of disputes, wasregarded as the more pressing priority, and theprotection of partial apologies, too limited tohave any tangible and positive effect.

Statements of fact alsoinadmissible in evidenceThe Apology Law goes further than all otherjurisdictions with apology legislation, in thatstatements of fact included in an apology willalso be inadmissible in evidence against theapology maker (clause 8). The intention behindthis is to encourage full and burden-freeapologies to prompt amicable settlement.LegCo was keen to avoid situations whereparts of an apology (eg the surroundingstatements of fact) were admissible, but theaccompanying apology/admission was not. Ofcourse, a claimant may still separately obtainevidence related to a statement of liability orfact by other independent means, for example,during discovery or during cross-examination.But this may impose on a claimant anadditional evidential burden. In response tothis concern, a late amendment to the bill wasintroduced such that, in exceptional cases (theonly example cited is where there is no otherevidence available for determining an issue), astatement of fact contained in an apology maybe admitted as evidence at the discretion ofthe decision maker. It may be admitted only ifhe/she is satisfied that it is “just and equitable”to do so, having regard to “the public interestor interests of administration of justice”.Whilst these are well defined legal terms, thedecision maker burdened with this call may not

have a legal background in the case of certaintribunals/disciplinary boards.The scope for satellite litigation on this point ispossible, which would counter the intention ofthe law to reduce, not increase, recourse to thecourts.

JurisdictionClause 6 states that the Apology Law applies toall civil (not criminal) disputes subject tolitigation, arbitration, and almost alldisciplinary and regulatory proceedings. Onlyproceedings under the Commissions of InquiryOrdinance (Cap 86), the Control of Obscene andIndecent Articles Ordinance (Cap 390) and theCoroners Ordinance (Cap 504) are specificallyexempted further to consultation requests byinterested parties. There is scope for the ChiefExecutive to exempt other proceedings overtime and it will be interesting to see whetherthis happens. Given the wide number ofauthorities and industry organisations,including the Hong Kong Monetary Authorityand the Hong Kong Federation of Insurers, whoparticipated in the consultation process, it isunlikely that a significant number ofproceedings will be added to the exemptionlist.The Apology Law expressly applies toproceedings involving the government (clause13).

Effect of apologies on insurancecoverInsurance policies often contain clausesprohibiting the admission of fault by an insuredwithout the insurer’s consent. In practice, to



Effect of apologies on insurancecoverInsurance policies often contain clausesprohibiting the admission of fault by aninsured without the insurer’s consent. Inpractice, to date, insurers in Hong Kong tend toagree apologies only in limited circumstances(for example where there has been a clearbreach). In complex claims in particular,insurers are likely to counsel against (early)“without prejudice” apologies. The fear thatmaking an apology would adversely affect theapology maker’s insurance cover was identifiedby the Steering Committee as a real andsignificant barrier to apologies in Hong Kong.Clause 10 of the Apology Law removes thisbarrier by providing that an apology will notvoid or affect insurance cover, compensation orother benefit for any person in connection withthe insurance. It matters not if the policy inquestion is governed by another law: if HongKong is the place of the litigation, tribunal orregulatory proceedings, the apology will beprotected and insurance cover will not beaffected. This again highlights the desire of thelegislature to make Hong Kong a popular venuefor dispute resolution. Insurance companies,regardless of the substantive law coveringtheir contracts of insurance/indemnity, shouldtake clause 10 on board.

Effect of apologies on limitationperiodsUnder the Limitation Ordinance (Cap 347),certain rights of action relating to land,personal property, and debts are deemed toaccrue on the date of acknowledgment. Clause9 of the Apology Law states that apologies willnot constitute acknowledgements of rights ofaction for tolling purposes under the LimitationOrdinance (Cap 347).Again, parties and lawyers should be cognisantof this development. In keeping with otherprovisions, it focuses on reducing perceiveddisincentives to offering apologies, byextending time for limitation purposes. InCanada, detailed legislation was required toaddress tolling for the purposes of its apologylaws and it will be interesting to see whetherthis light touch amendment causes any issues

in practice or results in satellite litigation.

Interplay with mediation andwithout prejudice negotiationThe Apology Law forms part of thegovernment’s policy to encourage the wideruse of mediation to resolve disputes. The lawdoes not directly impact mediation, whereapologies, admissions and all other statementsare already protected from admissibility inother proceedings by confidentiality provisionsunder the Mediation Ordinance (Cap 620). Thisis reinforced by the common law doctrine ofwithout prejudice privilege, which protectsmediation and without prejudice negotiations.The Apology Law is really of most relevanceoutside of the mediation/without prejudicenegotiation context in that it makes otherwiseopen and admissible statements automaticallyinadmissible. It is possible that, in making suchan apology, the parties proceed on a moreconciliatory footing rendering them amenableto mediation. It will certainly be interesting tosee whether there is an uptick in mediation inlight of the Apology Law.

ConclusionIn becoming the first jurisdiction in Asia toenact apology legislation, the law may help tofurther enhance Hong Kong’s position as acentre for international dispute resolution inthe Asia Pacific region. Apologies certainly canenhance the chances of settlement, when madein the right circumstances and at an appropriatetime.Research showing the efficacy of apologies inreducing subsequent legal suits is mostprevalent in healthcare and personal injurydisputes. The challenge for Hong Kong will beto ensure that this potentially powerful law(particularly for defendants) is adequatelypromoted and understood by all stakeholdersto the dispute resolution community. Thegovernment is planning certain educationactivities in this regard. At worst, the legislation could lead to ‘hollow’or tactical apologies that seek to pressurisecomplainants to settle on less advantageousterms. A (potential) defendant is safe in theknowledge that there will be no legaldownsides in admitting fault. A complainant/



At worst, the legislation could lead to ‘hollow’or tactical apologies that seek to pressurisecomplainants to settle on less advantageousterms. A (potential) defendant is safe in theknowledge that there will be no legaldownsides in admitting fault. A complainant/plaintiff, on the other hand, armed with anopen admission of fault by his or hercounterparty, cannot use this to theiradvantage should the dispute not settle. Thisissue highlights the complexities of apologylegislation and the potential scope for misuse.

It is hoped that the drafting of the Apology Law,which has been subject to thorough scrutinyand careful drafting, strikes the right balanceand prompts genuine apologies and attemptsto settle. If you would like to discuss the implications of theApology Law to your organisation and its disputesportfolio, please contact the authors.

Julian CopemanGreater China managing partner

Hong Kong

Dominic GeiserPartner

Hong Kong

Gareth ThomasPartner, Head of commercial litigation

Hong Kong

Anita PhillipsProfessional support consultant

Hong Kong

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1717 ReSolutionReSolution | Aug 2017 | Aug 2017

On 14 June 2017 hot on the heels of Singapore, Hong Kong became the secondjurisdiction in Asia to provide an express framework for third party funding in

international arbitration.In bringing these changes Singapore and Hong Kong have ensured that they cancontinue to compete with other leading arbitration jurisdictions such as the US

and UK where third-party funding arrangements were already allowed.

SingaporeThe Civil Law (Amendment) Act 2017 (the Act)and Civil Law (Third Party Funding) Regulations2017 (the Regulations) came into force on 1March 2017, together with the insertion of newrules into Singapore's Legal Profession Act (theLPA) and Legal Profession (ProfessionalConduct) Rules 2015 (the LPCR). Thesedevelopments follow the Civil Law(Amendment) Bill which was passed on 10January 2017.Summary of legislative amendmentsIn summary, the Act provides that third partyfunding agreements with qualifying third-partyfunders will no longer be illegal andunenforceable under Singapore law as long asthey relate to one of the specified categoriesof dispute resolution proceedings.The Regulations set out detailed provisionsregarding:

- The classes of "Prescribed disputeresolution proceedings" for which third partyfunding is permitted. At present, only third-party funding contracts in relation tointernational arbitration and related courtor mediation proceedings are enforceable.This would include applications for stay ofcourt proceedings in respect of matterswhich are the subject of arbitrationagreements, as well as the enforcement ofarbitration awards.

- It is clear from the Regulations that onlyprofessional funders are permitted to enterinto third-party funding arrangements inSingapore. Regulation 4 provides that a"qualifying Third-Party Funder" must (a)carry on the "principal business" of fundingdispute resolution proceedings in Singaporeor elsewhere, and (b) have a paid-up sharecapital of not less than SGD 5 million (or theequivalent amount in foreign currency)

Lawyers and Third-Party FundingNew rules applicable to third-party fundinghave also been inserted into the LPA and LPCR:

- Section 107(3A) of the LPA provides thatlawyers may introduce or refer a third-partyfunder to their clients, as long as the lawyerdoes not receive a direct financial benefitfrom the introduction or referral. Lawyersmay also advise on or draft a third-partyfunding contract for their clients and act fortheir clients in any dispute arising out of thethird-party funding agreement.- The amendments to the LPCR concern twokey areas: Disclosure: Rule 49A imposes a duty onlawyers to disclose to the tribunal or courtand every other party the existence of anythird party funding their client is receiving,including the identity and address of the


J. Harrison, A. Chung & S. Cheung

Green light for Third-PartyGreen light for Third-PartyFunding for InternationalFunding for InternationalArbitration in AsiaArbitration in Asia

- China -

GREEN LIGHT FOR THIRD-PARTY FUNDING FOR INTERNATIONAL ARBITRATION IN ASIA CONT . . .

- Disclosure: Rule 49A imposes a duty onlawyers to disclose to the tribunal or courtand every other party the existence of anythird party funding their client is receiving,including the identity and address of thethird-party funder.

This disclosure must be made at the date ofcommencement of dispute resolutionproceedings (where the third-party fundingcontract was entered into beforecommencement of those proceedings) or assoon as practicable after the third-partyfunding contract is entered into (where thethird party funding contract is entered into onor after the commencement of proceedings).

- Prohibition against financial interests: Rule49B prohibits lawyers and law firms fromholding directly or indirectly any shares orother interest in the Third-Party Funder (i)which the lawyer or law firm has introducedor referred to their clients; or (ii) which hasa third-party funding contract with a clientof the lawyer or law firm.

Hong KongOn 14 June 2017, the long awaited Arbitrationand Mediation Legislation (Third Party Funding)(Amendment) Bill 2016 (the 2016 Bill) wasfinally passed in Hong Kong.Whist a Code of Practice for funders is beingdrawn up, it is expected that the 2016 Bill willtake effect later this year.Summary of LegislativeAmendmentsThe 2016 Bill will amend the ArbitrationOrdinance (Cap. 609, The Laws of Hong Kong)and the Mediation Ordinance (Cap. 620, TheLaws of Hong Kong).Under the new law:

- The doctrines of maintenance andchamperty are expressly stated not to applyto third-party funding in arbitrationproceedings and mediation, includingproceedings before emergency arbitratorsand ancillary court proceedings.- The funded party must give notice inwriting to each other party to the arbitrationand the relevant arbitration body in relationto (i) the fact there is a funding agreement inplace; (ii) the name of the third-party funder;and (iii) a stipulated end point of the funding

agreement.- The term ‘third-party funder’ has a broadmeaning and unlike in Singapore it is notsolely limited to professional funders. Anyone who does not have an interest in thearbitration proceedings can potentially be athird-party funder. As such, law firms andlawyers providing legal services in HongKong or elsewhere are allowed to providethird party funding provided that they are notinvolved in the same arbitration.- Third-party funders will need to complywith a Code of Practice. An advisory bodyappointed by the Hong Kong Secretary forJustice will draw up such a code. The code isexpected to cover provisions in areas such asconfidentiality, conflicts of interest andinternal procedures of third-party fundersetc. and funders will be required to reportannually on their compliance with the code.

CommentsThese new third-party funding regimes aresignificant steps forward for Singapore andHong Kong as leading international arbitrationhubs, and the change is welcome news for thearbitration community.Since the new third-party funding legislationdoes not generally apply to court litigation inHong Kong or Singapore, some people believethat it will encourage parties with a Hong Kongor Singapore connection to opt for arbitrationover litigation.However Singapore's Senior Minister of Statefor Law has said that the current legislativeamendments "…will serve as a testbed for thirdparty funding. The categories may be broadedafter a period of assessment". No time frame hasbeen set for such further reform it is possiblethat third party funding may be that third party funding may be extended toSingapore's International Commercial Court inthe not so distant future. This would be anotherstep towards cementing Singapore's positionnot just as a leading international arbitrationhub, but also as a prime destination forinternational commercial dispute resolution.

In Hong Kong the new Bill is also timely giventhat Hong Kong is the "super conductor" inthe PRC's rapidly developing Belt and Road

ReSolution | Aug 2017 18

GREEN L IGHT FOR TH I RD -PARTY FUND ING FOR INTERNAT IONALARB ITRAT ION IN AS I A - CONT . . .


ABOUT THE AUTHORS

extended to Singapore's InternationalCommercial Court in the not so distant future.This would be another step towards cementingSingapore's position not just as a leadinginternational arbitration hub, but also as aprime destination for international commercialdispute resolution. In Hong Kong the new Bill is also timely given

that Hong Kong is the "super conductor" in thePRC's rapidly developing Belt and Roadinitiative, which many are anticipating willgenerate more investments and trade which inturn is likely to lead to an increase in activity inthe dispute resolution market in Hong Kong.

Jamie HarrisonHead of Singapore Office, International Arbitration

SingaporeAdeline Chung

Managing Associate,Dispute Resolution

Singapore

Secy CheungAssociate,

Dispute ResolutionHong Kong

Addleshaw Goddard offers a full range of legal servicesin all major jurisdictions and economic centresworldwide.This is delivered through a combination of their ownoffices, strategic alliances and a comprehensivePreferred Firm network of tried-and-testedcorrespondent law firms all working to the samestandards of excellence, innovation, insight andintelligence.

This article was originally published by Addleshaw Goddard and recently updated in Lexology


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A recent judgment from the Hong Kong High Court (Chen Hongqing v MiJingtian) illustrates the manner in which parties may seek interim relief inHong Kong to support arbitral proceedings being conducted elsewhere – in

this case, the appointment of receivers in connection with a CIETACarbitration in Mainland China. The decision illustrates the wide-rangingpower of the Hong Kong courts to grant measures to preserve assets or

evidence (or simply to preserve the status quo between parties) in supportof foreign arbitral proceedings, which will be of particular interest to

parties arbitrating in Mainland China given the relatively limited powers ofthe PRC Courts to grant equivalent interim relief.

BackgroundThe dispute concerned shares held in ChinaShanshui Investment Company Limited ("CSI")by an individual named Mr Zhang. Proceedingshad been commenced against Mr Zhang in theHong Kong courts by certain individuals whoclaimed that his shares were merely held ontrust and that he had sought to deprive themof an alleged beneficial interest. Thatlitigation resulted in the appointment ofreceivers over 45.63% of the shares in CSI.CIETAC arbitration proceedings werecommenced in respect of a remaining portionof the shares held by the Defendants.The CIETAC arbitration had been filed under ashare pledge and guarantee agreement thathad been signed in 2015. In support of thoseproceedings, the Claimant filed an applicationto the Hong Kong Court requesting theappointment of receivers in respect of the

Defendants' shares in CSI; and an orderrestraining the Defendants from taking anysteps to cause or procure the transfer, chargeor assignment of their shares, or fromotherwise encumbering or dealing with theshares, save for complying with the requests ofthe receivers to be appointed.In response, the Defendants argued (amongstother things) that receivership was a drasticand draconian form of interim relief whichshould not be granted lightly, and that in anyevent the Hong Kong court was not the properforum for the Claimant to seek such relief,which should instead have been sought fromthe CIETAC tribunal or from a PRC court.

HONG KONG HIGH COURTAPPOINTS RECEIVERSAS INTERIM MEASURE INSUPPORT OF ARBITRATIONPROCEEDINGS IN MAINLAND

S.CHAPMAN, S.HU & J. ESCHMENT



Hong Kong High Court Appoints Receivers As Interim Measure In Support OfArbitration Proceedings In Mainland China - Cont.

DecisionOn 27 June 2017, Justice Mimmie Chan ruledthat, "[h]aving considered the entirecircumstances of this case, I am satisfied thatthe appointment of receivers to exercise thevoting and other rights in the [pledged] Sharesis an interim order that may be granted by thecourt in Hong Kong in relation to arbitralproceedings. Bearing in mind that the [pledged]Shares are of a company in Hong Kong, theinterim appointment of receivers of such [pledged] Shares will facilitate the process ofthe arbitral tribunal or the Mainland court thathas primary jurisdiction over the Arbitration,and it is just for the court to grant such aninterim order to maintain and preserve thestatus quo."In relation to the argument that the reliefshould have been sought from the arbitraltribunal or the PRC Court, Justice Mimmie Chancited s.45 of the Arbitration Ordinance, whichshe said made clear that the Hong Kong courtshad both the jurisdiction and the power togrant interim measures in relation to "anyarbitral proceedings which have been, or are tobe, commenced outside Hong Kong". Shespecifically addressed the Defendants'argument that the Hong Kong court might"[usurp] the jurisdiction of the Mainland court"by recognising that the CIETAC tribunal hadprimary jurisdiction over the substantivedispute (and that the Mainland court hadsupervisory jurisdiction over thoseproceedings), but that the powers of the HongKong court existed "ancillary to the arbitralproceedings outside Hong Kong, and… for thepurpose of facilitating the process". In thepresent case, the fact that CSI was a Hong Kongcompany made Hong Kong the appropriateforum in which to seek the intended interimrelief.With regard to the argument that receivershipis a drastic and draconian form of relief, thecourt concluded that putting the shares in the

hands of receivers would be the best mannerof preserving the value of the shares and, assuch, would be in the interests of the beneficialowners. Amongst other things, Justice MimmieChan considered that CSI was an investmentholding company, whose sole function was tohold shares in other entities, such that anyadverse impact would be far less than in thecase of a company with active businessinterests.Under the circumstances, the court trusted thatthe receivers, acting independently and underthe supervision of the court, would be in thebest position to preserve the value of theshares. In making this order, Justice MimmieChan also nullified documents executed by theDefendants which purported to transfer theshares to a third party. In doing so, she reliedupon article 17 of the Model Law (incorporatedas s.35 of the Arbitration Ordinance) whichempowers the court to grant an order to"maintain or restore the status quo pendingdetermination of the dispute." In thecircumstance of the present case, JusticeMimmie Chan concluded that the positionexisting immediately before thecommencement of the arbitration reflected thestatus quo, such that any share transferdocuments signed after that date would ceaseto have effect pending the resolution of thedispute.

CommentThe power of the Hong Kong court to grantinterim relief in support of foreign arbitralproceedings is well established. As thepresent case illustrates, this can be apowerful tool for parties seeking to preserveassets, evidence or the status quo pendingthe outcome of arbitral proceedings. It isparticularly noteworthy in the context ofChina-related disputes, given the relativelylimited preservation measures available fromthe Mainland courts.

Read about the authors on next page.



Herbert Smith Freehills isone of the world’s leading

professional servicesbusinesses, bringing

together the best peopleacross 26 offices, to meet

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Simon ChapmanPartner

Stella HuSenior Associate

Joern EschmentRegistered Foreign

Lawyer

About the authors

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PROCEEDINGS NOT ABUSEOF PROCEEDINGSDESPITE PRIOR ADVERSEARBITRATION DECIS ION

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The appellant company, Michael Wilson &Partners Ltd (MWP), sought to recover assets,which, it said, a former partner (Mr Emmott)acquired in breach of his contractual andfiduciary obligations in the names of therespondents (Sinclair). There had been anarbitration hearing between MWP and MrEmmott, which MWP had lost.In the High Court, the Judge noted that Sinclair,who was seeking to take a benefit of thearbitration award by claiming abuse of process,had not been a party to the earlier arbitration,and so would not have been bound by anydetriment had the arbitration been decideddifferently. Nonetheless, the High Court foundthat it was an abuse of process for MWP topursue Sinclair now, due to a number of'special circumstances', which included:

The intent for the arbitration to haveeffect between the parties involved,including Sinclair MWP being estopped from being able tomake out its central allegation andnecessary pre-condition of the claim (that

Mr Emmott had received the shares inbreach of his fiduciary duty) The "unusual unfairness" in permittingMWP to have a second opportunity to makethe same allegations against Mr Emmott,who had successfully defended himself inthe arbitration.

On appeal, the Court considered there wasindeed a jurisdiction for a court to take accountof an earlier arbitration (as opposed to a court)award, when considering whether proceedingswere an abuse.In particular, the Court noted that under the'special circumstances' test, the Judge placedtoo much weight on:

The intent of arbitration and award, towhich Sinclair was not a partyHis view that, because MWP was invitingthe Court to come to a different view to thearbitrators in relation to the nature anddischarge of Mr Emmott's obligations, MWPwas mounting an illegitimate collateralattack on the awardThe position of Mr Emmott in the Court

Graeme Hall & Hugo Snell


In Michael Wilson & Partners Ltd vSinclair and Another [2017] EWCA

Civ 3, the Court of Appeal forEngland and Wales considered

whether it was an abuse of processto bring proceedings in relation to

issues that had previously beendecided in an arbitration involving

the plaintiff (but not the defendant).

- United Kingdom -


PROCEEDINGS NOT ABUSE OF PROCEEDINGS DESPITEPRIOR ADVERSE ARBITRATION DECISION CONT...

His view that, because MWP was invitingthe Court to come to a different view to thearbitrators in relation to the nature anddischarge of Mr Emmott's obligations, MWPwas mounting an illegitimate collateralattack on the award The position of Mr Emmott in the Courtproceedings. It would not be manifestlyunfair for Mr Emmott to face MWP'sallegations for a second time, as MWP wasnot seeking any relief against Mr Emmottand he would be treated no more than apotential witness.

The Court also noted that the party making anapplication of abuse had the burden of proof in

establishing that an order should be made.Consequently, the Court of Appeal overturnedthe decision to strike out the action.(The same parties are also litigating issues inNew Zealand: see Michael Wilson & Partners Ltdv Thomas Ian Sinclair [2016] NZCA 376.) See the Court's decision here: http://www.bailii.org/ew/cases/EWCA/Civ/2017/3.html

Hugo SnellSolicitor

Hugo is a solicitor in the litigationteam at Buddle Findlay in Auckland.

Graeme Hall Partner

Graeme specialises in litigation and disputeresolution. He has broad experience incommercial litigation including Court action,arbitration, mediation, contractual disputes andprofessional indemnity actions.

Buddle Findlay is one of New Zealand'sleading commercial and public law firms,with offices in Auckland, Wellington andChristchurch, and a global reach of

contacts and experience.

Learn more at www.buddlefindlay.com


http://www.buddlefindlay.com


http://www.nzdrc.co.nz/EXPERT+DETERMINATION/EXPERT+DETERMINATION+FINANCIAL.html


-by Sarah Redding

The High Court recently considered an appeal against an arbitral awardincluding the ability to adduce further evidence on appeal. In his

decision to dismiss the application for leave to appeal, Heath Jconfirmed the Court’s reluctance to interfere in the arbitration process

where parties have contractually agreed to arbitrate.

Background Mangatu Blocks Incorporation (Mangatu) owns indigenous forestry land in the Gisborne area. In2003, Mangatu and Forest Holdings Limited (Forest Holdings) entered into a contract underwhich Mangatu granted Forest Holdings a registered Forestry Right to manage, protect, harvestand carry away and otherwise utilise trees, timber and logs growing or to be grown on the forestland[1]. The Forestry Right was granted for a maximum duration of 50 years, provided ForestHoldings continued to comply with the agreed terms of contract.Forest Holdings began operating in accordance with the Forestry Right and continued operationsfor approximately 10 years. In July 2013, Mangatu sent a letter to Forest Holdings purporting tocancel the Forestry Right “with immediate effect” alleging breaches of contract. Forest Holdingsinitially opposed the termination questioning its validity, however in August 2013 ForestHoldings accepted the repudiation and elected to cancel the Forestry Right.[2].Forest Holdings sought relief for cancellation of the Forestry Right, claiming damages in the sumof what they purported the market value of the Forestry Right was at the date of repudiation –some $10.75 million dollars. Mangatu denied its termination was unlawful or in the alternative,that Forest Holdings was only entitled to nominal damages. The parties entered arbitration toresolve the dispute.The arbitrator concluded that Mangatu had wrongfully terminated the Forestry Right. Thearbitrator considered Mangatu’s cancellation was premature and that Forest Holdings shouldinstead have been granted 120 days to remedy the alleged breaches before termination couldbecome effective. However, the arbitrator confirmed that Mangatu’s lack of notice did not affectForest Holding’s ability to claim minimal damages only. In reaching this conclusion, thearbitrator determined Forest Holdings would not have been able to remedy the breaches within120 days. The arbitrator’s approach to assessing Forest Holding’s damages claim for capital losscentered on two issues: first, that it would be necessary to determine what was a real possibilityto happen at the date of repudiation, and second, quantum.Forest Holdings appealed against the arbitrator’s damages decision, and was successful in theHigh Court. The High Court allowed the appeal against the arbitrator’s damages award, holdingthat the arbitrator was wrong to say that Forest Holdings was unlikely to recover other thannominal damages on its claim for capital loss[3]. Heath J remitted all questions of damages backto the arbitrator. Mangatu then sought leave to appeal to the Court of Appeal against that judgment, on groundsincluding that the judgment failed to identify any error of law in the damages award, andwrongfully concluded that the arbitrator had pre-determined damages. Mangatu also sought

CASE IN BRIEF Forest Holdings Ltd v Mangatu

Blocks Incorporation



Mangatu then sought leave to appeal to the Court of Appeal against that judgment, on groundsincluding that the judgment failed to identify any error of law in the damages award, andwrongfully concluded that the arbitrator had pre-determined damages. Mangatu also soughtpermission to adduce further evidence relating to the arbitrator’s actions following the previousdamages appeal decision, in support of its application for leave to appeal.

DecisionIn reaching his decision to dismiss the application for appeal, Heath J considered the legalprinciples in relation to granting leave to appeal. Given arbitration is a consensual processdesigned to enable parties to obtain a binding decision on a dispute[4], Heath J observeded thatgenerally speaking, no challenge may be made to an arbitrator’s factual findings, and that thereare limited circumstances in which arbitral awards may be challenged in the High Court.His Honour went on to reiterate that Forest Holdings’ first appeal was heard following the grantof leave to appeal on a question of law under clause 5(1)(c) of the Second Schedule to theArbitration Act 1996 (Act). Further, that Clause 5(5) of the Second Schedule of the Act confersjurisdiction on the High Court to determine whether leave should be granted to appeal to theCourt of Appeal.Heath J considered the Court of Appeal’s approach to the application of clause 5(5) in Cooper vSymes (No 2).[5] citing Randerson J’s summary at para [12]:

“(a) The appeal must raise some question of law . . . capable of bona fide and seriousargument in a case involving some interest, public or private, of sufficient importance tooutweigh the cost and delay of the further appeal.(b) Upon a second appeal, the Court of Appeal is not engaged in the generalcorrection of error. Its primary function is then to clarify the law and to determine whether ithas been properly construed and applied by the Court below.(c) Not every alleged error of law is of such importance either generally or to theparties as to justify further pursuit of litigation that has been twice considered and ruledupon by a Court.”

In determining whether there was any need for him to consider the additional evidenceproposed by Mangatu to determine whether there was a qualifying question of law fit forsubmission to the Court of Appeal for decision[6], His Honour referred to Wylie J’s discussion ofjurisdiction to admit further evidence in Fresh Direct Ltd v JM Batten & Associates in whichWylie J admitted some evidence relevant to the importance of the question arising on theapplication for leave to appeal, but ruled other evidence inadmissible: [11] Supporting affidavits should, however, be confined to the application which isbefore the Court. They may be necessary to explain why leave should be given. They should not,however, seek to introduce fresh evidence which could and should have been before theAssociate Judge at the first hearing and this Court on the review.

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www.nzdrc.co.nzwww.nzdrc.co.nz2929 ReSolutionReSolution |Aug 2017 |Aug 2017

[11] Supporting affidavits should, however, be confined to the application which isbefore the Court. They may be necessary to explain why leave should be given. They should not,however, seek to introduce fresh evidence which could and should have been before theAssociate Judge at the first hearing and this Court on the review.

Heath J ultimately dismissed Mangatu’s application to adduce further evidence. His Honourconcluded that there was no additional evidence proposed by Mangatu relevant to his decisionwhich fell within the scope of the circumstances envisaged by Wylie J in Fresh Direct Ltd.Heath J dismissed the appeal as he was not satisfied it met the required threshold. His Honouracknowledged the preliminary determination by the arbitrator as to methodology used indetermining damages, but found there was a factual vacuum which meant important factsremain to be determined, and that the appropriate forum for determination was by thearbitrator. Remaining facts for determination included whether Mangatu would have issued anotice to terminate at the same time, if it had proceeded on the footing that immediatetermination was impossible, and what steps might have been taken in the period between anynotice being given and its expiry, to determine whether, and if so, to what extent, ForestHoldings has suffered loss.

CommentThe outcome of the consequent arbitral decision remains to be seen, and may only becomepublic if either party appeals the arbitrator’s award. However, Heath J’s referral of the damagesquantum back to the arbitrator is to be welcomed as it demonstrates the Court’s support forarbitration and its reluctance to interfere in the arbitration process where parties havecontractually agreed to pursue arbitration in the event of a dispute arising.

References [1] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448 at [5]. [2] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448 at [10]. [3] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448, at para [51]. [4] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 1174 at [5]. [5] Cooper v Symes (No 2) (2001) 15 PRNZ 166 (HC). [6] Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 1174 at [11]. [7] Fresh Direct Ltd v JM Batten & Associates HC Auckland CIV-2008-404-4757, 3 December2009, at [11].

FOREST HOLDINGS LTD V MANGATU BLOCKSINCORPORATION CONT...


Recent High Court decision confirms effect of clause 8(1), of the First Schedule ofthe Arbitration Act 1996: arbitration agreements will remain operative andbinding following cancellation of main contract unless proved otherwise.

BackgroundSavvy Vineyards 4334 Limited and Savvy Vineyards 3552 Limited (together, the Plaintiffs) hadentered into contracts with Weta Estate Limited and Tirosh Estate Limited (together, theDefendants).Litigation between the Plaintiffs and Defendants over the contracts, specifically vineyardmanagement agreements (VMAs) and grape supply agreements (GSAs), has been ongoing forsome eight years. Earlier litigation determined that the Defendants had invalidly terminated theVMAs and GSAs and their notices of termination were of no effect. The Defendants wererequired to continue to perform their obligations pursuant to those agreements.The present proceeding relates to the Plaintiffs’ claims for damages under the GSAs for variousharvest years, and claims for management fees and operations charges under the VMAs forbreach of agreement and in quantum meruit.

Decision The Defendants sought an order staying the Plaintiffs’ causes of action relating to the VMAs andreferring those claims to arbitration. In particular, the Defendants relied on clause 8(1) ofSchedule 1 of the Arbitration Act 1996 (Act) and Article 16(1) of Schedule 1(1) of the Act, whichprovide as follows:

8 Arbitration agreement and substantive claim before court(1) A court before which proceedings are brought in a matter which is the subject ofan arbitration agreement shall, if a party so requests not later than when submitting thatparty’s first statement on the substance of the dispute, stay those proceedings and referthe parties to arbitration unless it finds that the agreement is null and void, inoperative, orincapable of being performed, or that there is not in fact any dispute between the partieswith regard to the matters agreed to be referred.16 Competence of arbitral tribunal to rule on its jurisdiction(1) The arbitral tribunal may rule on its own jurisdiction, including any objectionswith respect to the existence or validity of the arbitration agreement. For that purpose, anarbitration clause which forms part of a contract shall be treated as an agreementindependent of the other terms of the contract. A decision by the arbitral tribunal that thecontract is null and void shall not entail ipso jure (necessarily) the invalidity of thearbitration clause.(emphasis added)

The Defendants argued that clause 8(1) made a stay of Court proceedings and referral toarbitration mandatory and that pursuant to Article 16(1) of Schedule 1(1) of the Act, thearbitration agreement survived the termination of the VMAs. The Plaintiffs agreed that in light ofArticle 16(1), the arbitration clause in the contract was to be considered as a separate contractwhich remained operative. However, the Plaintiffs argued that while the arbitration agreementwww.nzdrc.co.nzwww.nzdrc.co.nz ReSolution | Aug 2017 30

CASE IN BRIEF Savvy Vineyards 4334 Limited v Weta EstateLimited -by Sarah Redding


Photo by Amos Bar-Zeev

The Defendants argued that clause 8(1) made a stay of Court proceedings and referral toarbitration mandatory and that pursuant to Article 16(1) of Schedule 1(1) of the Act, thearbitration agreement survived the termination of the VMAs. The Plaintiffs agreed that in light ofArticle 16(1), the arbitration clause in the contract was to be considered as a separate contractwhich remained operative. However, the Plaintiffs argued that while the arbitration agreementmight have survived, it did not encompass disputes being dealt with after the principal contracthad come to an end and was therefore inoperative.[11] The Plaintiff’s relied on clause 25 of the VMAs which related to disputes and dispute resolution.Clause 25 included provision for cancellation specifically under clause 25.5. The Plaintiffscontended that their cancellation letter complied with clause 25.5 and therefore effected validtermination of the VMAs. However, the Defendants argued instead that the prerequisites ofclause 25.5 had not occurred, and that the Plaintiffs were mistakenly relying on clause 25.5when they were in fact relying on an alleged substantial breach under the Contractual RemediesAct 1979, meaning the VMAs remained operative.In his decision to grant the stay, Associate Judge Osborne held that unless the Plaintiffs couldestablish the arbitration had in fact become inoperative, Article 8(1) of the Act meant that theDefendants were entitled to a stay of the Plaintiffs’ claims and to have the disputes referred toarbitration.[12] Pursuant to Article 16(1), Schedule 1 of the Act, the arbitral tribunal has the powerto rule on its own jurisdiction, including as to the existence or validity of an arbitrationagreement.[13] The Plaintiffs failed to shift the burden of the proof. Associate Judge Osborneheld that the Defendants had established prima facie that the arbitration agreement remainedoperative in this case as the evidence indicates that the event which would have rendered thearbitration agreement inoperative…cancellation…did not occur [14].In reaching his decision to grant the stay to allow the arbitral tribunal to determine whether ithas jurisdiction in relation to the dispute, Associate Judge Osborne relied on the approachapplied in three recent cases,[15] as summarised by Simon France J in Tamihere v Media WorksRadio Ltd[:[16]

The authorities were recently reviewed in Ursem v Chung. It seems there is support for threeapproaches, being immediate referral, a prima facie assessment of whether the arbitrationagreement is valid or applies, or a full consideration of the issue. Associate Judge Abbottadopted the prima facie test, an approach I am content to follow for the reasons he gives. Itseems to best reflect the right of the arbitration tribunal to determine its own jurisdiction.(footnotes omitted).

Associate Judge Osborne also ordered security for costs of $12,800 (representing 80 percent ofa 2B award) after balancing the respective interests of the parties, on the grounds that therewere no considerations strongly weighing against requiring the Plaintiffs to provide security andthere was a high degree of likelihood that the Plaintiffs will be without funds at the end of thelitigation if it proves to be unsuccessful. He also dismissed the Defendants’ application to strike


Sarah graduated from the Universityof Otago with a Bachelor of Laws. Shethen worked as a graduate law clerk atthe New Zealand Dispute ResolutionCentre, and now is a solicitor atKensington Swan.

Associate Judge Osborne also ordered security for costs of $12,800 (representing 80 percent ofa 2B award) after balancing the respective interests of the parties, on the grounds that therewere no considerations strongly weighing against requiring the Plaintiffs to provide securityand there was a high degree of likelihood that the Plaintiffs will be without funds at the end ofthe litigation if it proves to be unsuccessful. He also dismissed the Defendants’ application tostrike out a number of the Plaintiffs’ claims.

CommentAssociate Judge Osborne’s decision confirms the operation of clause 8(1), Schedule 1 of the Act,namely that arbitration agreements are independent of the other terms of a contract and willsurvive termination of the primary contract unless it can be established that the arbitrationagreement has been rendered inoperative, with the upshot being that parties who includeprovision for arbitration in their agreements will likely be bound by such a clause followingtermination or cancellation of the main agreement.

References [8] Savvy Vineyards 4334 Limited v Weta Estate Limited [2017] NZHC 1111 at [2]. [9] Savvy Vineyards 4334 Limited v Weta Estate Limited [2017] NZHC 1111 at [4]. [10] Savvy Vineyards 4334 Limited v Weta Estate Limited [2017] NZHC 1111 at [16]. [11] Savvy Vineyards 4334 Limited v Weta Estate Limited [2017] NZHC 1111 at [26]-[27]. [12] Savvy Vineyards 4334 Limited v Weta Estate Limited [2017] NZHC 1111 at [39]. [13] Savvy Vineyards 4334 Limited v Weta Estate Limited [2017] NZHC 1111 at [39]. [14] Savvy Vineyards 4334 Limited v Weta Estate Limited [2017] NZHC 1111 at [39]. [15] Ursem v Chung [2014] NZHC 436, [2014] NZAR 1123, especially at [47]. See also, Tamiherev Media Works Radio Ltd [2014] NZHC 2082, [2014] NZAR 1113 at [20]; Donaldson v Donaldson [2015] NZHC 3093, [2016] NZAR 199 at [19]. [16] Tamihere v Media Works Radio Ltd [2014] NZHC 2082.


SAVVY VINEYARDS 4334 LIMITED V WETA ESTATE LIMITED CONT...

Sarah Redding

- United Kingdom -


FactsThe Claimants leased a building to theDefendants and it was used as a school.Thieves stole lead from the roof. It rained. Theschool was unusable from the water damage.The Claimants sought £210,000 fordilapidations and the Defendants soughtcompensation of £41,875 for rent during theperiod that the school was unfit for habitationas a result of the water damage. Initially theparties seemed to want to settle. In July 2011,the Defendants offered £30,000 plus costswith a drop hands on the counterclaim whichthe Claimants did not accept but made a Part36 offer to accept £86,400 in August 2011. TheDefendants then withdrew their offer and thecase was stayed to enable alternative disputeresolution.Both parties expressed a willingness tomediate. The Claimants were proactive and theDefendants were slow to respond to lettersand raised difficulties. Nearly a year later noprogress had been made on a mediation dateand by October 2012, directions were given toprogress matters for a trial in October 2013.The Trial was part heard and the Claimantsmade a Part 36 offer to accept £40,000 inFebruary 2014. The Defendants rejected thisand the Trial resumed with a net award (takingaccount of the counterclaim) of £28,183.52due from the Defendants together with asubsequent award of interest.The Trial Judge noted that the Defendant'soriginal offer of £30,000 was "well judged" butthat it could not have the usual costsconsequences of a Part 36 Offer as it had beenwithdrawn. The offer remained relevant to

costs (under CPR Part 44.2(4)(c)) if it shouldhave been accepted within 21 days, but on thefacts the Claimant did not have sufficientinformation to assess the offer at that time.The Trial Judge then considered the failedmediation. Although the Claimants called offthe process, the Defendant was"unenthusiastic" and "less keen to participate".There would have been a real prospect ofsettlement if a mediation had taken place andthe Trial Judge ordered the Defendants to pay75% of the costs with the Claimants paying thecosts of the counterclaim.

Court of AppealThe Court of Appeal agreed with the Trial Judgethat both parties were in a similar positionconcerning their knowledge of the Claimants'claim but only the Defendants had knowledgeof their counterclaim and were better placed toassess litigation risk. The Court of Appealaffirmed the Claimants were reasonable.The Court of Appeal then addressed mediationand agreed that the Claimants "took proactivesteps", whereas the Defendants had "draggedtheir feet and delayed for so long that theclaimants lost confidence in the process". TheCourt of Appeal gave five reasons why amediation would have had a real chance ofsettlement: 1. It was a purely commercial dispute. 2. The monetary gap between the parties'respective positions was not that large.

In Thakkar v Patel (2017), the Claimants failed to beat the Defendants'settlement offer, yet recovered 75% of their costs. Is this fair? The

Defendants thought not and appealed. The Court of Appeal confirmedthis ruling.

TO MEDIATE OR NOT: A COSTLYQUESTION

By Stephen Turner & Ilana Gilbert



TO MEDIATE OR NOT: A COSTLY QUESTION CONT...

1. It was a purely commercial dispute.2. The monetary gap between theparties' respective positions was not thatlarge.3. The costs were greater than the sumin dispute.4. Bilateral negotiations had beenunsuccessful.5. Any mediator would have let theparties have their say and point out the gapwas narrow whilst costs would escalate.

The Court of Appeal found that the vastmajority of the litigation costs would havebeen saved if there had been a settlement inAugust 2012.The Court of Appeal then went on to considerthe case of PGF II SA, v OMES Company 1Limited (2013). In PGF II the Court of Appealheld that silence in the face of an offer tomediate was unreasonable conduct meriting acosts sanction. The Court of Appeal in Thakkarwent further and explained its reasoning asfollows:“The message which this court sent out in PGF IIwas that to remain silent in the face of an offerto mediate is, absent exceptional circumstances,unreasonable conduct meriting a costs sanction,

even in cases where mediation is unlikely tosucceed. The message which the court sends outin this case is that in a case where bilateralnegotiations fail but mediation is obviouslyappropriate, it behoves both parties to get onwith it. If one party frustrates the process bydelaying and dragging its feet for no goodreason, that will merit a costs sanction. In thepresent case, the costs sanction was severe, butnot so severe that this court should intervene.”

SummaryThe clear message is that prevarication willlead to cost sanctions. Parties should be slow toreject attempts at mediation, particularly wherethe cost to the parties of pursuing a matter totrial is high when compared against the sums atstake, and even if the parties might otherwisebe more reluctant to mediate because of therecent case of Savings Advice Limited v EDFEnergy Customers PLC (2016) in relation tocosts. Whilst not directly relevant to thedecision in Thakkar, it raises an interestingquestion in relation to the extent to whichstatements made in mediation can bedisclosed.We often think of mediation and thedocumentation produced during the mediation

Photo by Tim Gouw



TO MEDIATE OR NOT: A COSTLY QUESTIONCONT...

the decision in Thakkar, it raises an interestingquestion in relation to the extent to whichstatements made in mediation can bedisclosed.We often think of mediation and thedocumentation produced during the mediationprocess as entirely cloaked by "withoutprejudice privilege" which must remainconfidential absent an agreement by theparties to waive that privilege. This principle(as well as the fact that all discussions mustremain confidential) is usually expressly statedin the mediation agreement itself. In SavingsAdvice, the defendant had made statements ofthe costs that would be incurred in pursuing acase to trial in mediation correspondence. Theclaimant subsequently accepted an offer ofsettlement but there was a dispute over thecosts that it could claim, including thepremium for After the Event insurance, whichwas calculated by reference to the defendant'scosts. The insurer had used that estimate incalculating its premium. However, thedefendant subsequently stated that its costswould have been at a level lower than it hadindicated in the mediation. In assessing thedefendant's liability for the insurancepremiums, the Court held that "withoutprejudice privilege" protects a party from thedisclosure of admissions or concessions madein negotiations – but not the costs informationcontained in correspondence as that waspurely factual information relating to After theEvent insurance. The court further held thatwhilst the discussions were confidential, thecourt was at liberty to order disclosure wherethat was necessary in the interests of justice.The court held that the confidentiality clausein question allowed disclosure of the costsinformation and the use of the term "w.p.save as to costs" on the defendant'scorrespondence only served to highlight theintention of the parties. The rationale forunravelling the "cloak of mediation" was setout as follows:"In my judgment it is imperative that when

parties enter into a formal mediation or informalnegotiations for settlement of a claim that theydo so in the full knowledge of their opponent'scosts. The amount of the costs of litigationcondition any subsequent negotiations ormediation that may follow."Whilst this decision very much turned on itsparticular facts, the circumstances in which aparty to a mediation may seek to challenge thescope of the privilege and confidentiality ofthe communications may be increase and giverise to greater uncertainties when advisingclients.Nevertheless, mediation remains a useful andefficient mechanism for dispute resolution andfunctions when each party accepts they arefacing risk, but do bear in mind the following:

1. Confidentiality of the mediation – inthe post Savings Advice Limited world, it ispreferable to carefully limit the exceptionsto the duty of confidentiality and avoidwriting correspondence that is "withoutprejudice save as to costs".2. If there is a genuine reason not tomediate, then that can be defensible.Otherwise be cautious about refusing toengage in the process.3. Silence in the face of an invitation toparticipate in ADR is unreasonable and canattract a costs penalty (PGF II SA v OMFS CO1 Ltd (2013))4. Time sensitivity: an early mediationcan be successful before the partiesbecome entrenched in their positions.


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THE AUTHORS

TO MEDIATE OR NOT: A COSTLY QUESTIONCONT...

Stephen TurnerLegal Director

Ilana GilbertAssociate

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Waiver by electionThe plaintiff’s first contention was that thedefendant, by electing to litigate rather thanarbitrate, had taken a position inconsistentwith its right to arbitrate. This constituted a“waiver by election” of its right to arbitrateand rendered the Agreement inoperative.As the Court explained, however, a waiver byelection could only arise as a response by oneparty to the conduct of the other – typicallywhen an innocent party elected between twoinconsistent rights in response to acounterparty's wrongful conduct. In thepresent case, the party breaching thearbitration agreement by initiating litigationwas the same party re-asserting the right toarbitrate. There was therefore no conduct bythe plaintiff that the defendant wasresponding to, and no election that could giverise to a waiver.

Contractual repudiationThe plaintiff’s second contention was that thedefendant’s commencement of litigationamounted to a repudiatory breach of theAgreement, which the plaintiff had accepted byparticipating in the litigation proceedings, thusbringing the arbitration agreement to an end.The Court noted that there were two

requirements for repudiation to be established,neither of which was satisfied:

First, it had to be shown that the defendantno longer intended to be bound by theAgreement. However, the Court acceptedthat the defendant's actions in filing thecourt proceedings did not point to such anintention, as the defendant was not awareof the Agreement when litigationcommenced.

Second, even if the defendant intended torepudiate the Agreement, it had to bedemonstrated that the plaintiff acceptedthe repudiation. On this point, the Courtfound that the actions taken by the plaintiffin the litigation were not "steps in theproceedings" (i.e. acts that advance thehearing of the matter in court), andtherefore did not constitute unequivocalacceptance of a repudiatory breach.

WHEN DOES STARTING ACOURT ACTION END THERIGHT TO ARBITRATE

Parties are sometimes advised that the choice between arbitration and litigation is final, and thattaking one path permanently excludes the other. In BMO v BMP [2017] SGHC 127 (“BMO”),

however, the Singapore High Court (“Court”) clarified that this is not always the case.The defendant in BMO had initially filed court proceedings against the plaintiff in breach of anarbitration agreement (“Agreement”), but later abandoned them in favour of arbitration. At thearbitration and subsequently in Court, the plaintiff argued unsuccessfully that the tribunal didnot have the jurisdiction to hear the matter, as the defendant’s prior pursuit of litigation now

barred it from arbitrating the dispute.

Lukas Lim

- Singapore -


WHEN DOES STARTING A COURT ACTION END THE RIGHT TO ARBITRATE - CONT...


Promissory estoppelThe plaintiff’s final contention was that thedefendant was precluded by promissoryestoppel (i.e. a promise not to enforce a legalright) from pursuing arbitration, as its actionsin litigating the matter constituted arepresentation that it would not enforce itsright to arbitrate the dispute.This argument was also unsuccessful, as theCourt did not agree that the defendant’scommencement of litigation could becharacterised as a forbearance of any legalright. Further – as with waiver by election –promissory estoppel could only be raisedagainst a party seeking to enforce its rights inresponse to another party’s breach. In thiscase, it was being raised by the party seekingto enforce its rights.

CommentsAs illustrated in the BMO decision, a party’scommencement of litigation may not, in itself,bar a subsequent switch to arbitration,provided the following is satisfied:

First, the party seeking to switch toarbitration must not have previouslyelected litigation over arbitration inresponse to the wrongful conduct of theother party. Second, the arbitration agreement must

give both parties the right to arbitrate, asthe initiation of litigation may otherwiseconstitute a unilateral waiver of that right. Third, the prior commencement oflitigation must not have been done withthe intention of rejecting or repudiating thearbitration agreement. Fourth, if the party had in fact initiatedlitigation with repudiatory intent, therepudiation must not have been accepted;i.e. the other party must not have taken anysteps in the proceedings.

Even if this change of forum is possible, as a lotof time and money will likely have to be spentin front of the tribunal and the courts before itcan be effected. It is therefore crucial that thedecision to litigate or arbitrate a dispute is onlymade after a careful review of the documentsand a thorough review of the available options. * This article first appeared in CMS Law Now.

ABOUT THE AUTHOR

Lukas Lim is an associate solicitor at CMS CameronMcKenna Singapore, and is specialised in InternationalArbitration.

CMS provides clients with specialist, business-focusedadvice in law and tax matters. With 3,000 legalprofessionals across the world, working in sector-basedteams and trained in project management, our focus is onour clients and fulfilling their objectives.

Click here to contact Lukas.


https://cms.law/en/INT/

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