The starting point is Article 16 of the PRC Arbitration Law, which provides that one of the requirements for a valid arbitration clause is a designated arbitration commission. It is accepted that this provision prohibits ad hoc arbitration in China. But the Arbitration Law does not expressly state whether the designated commission must be Chinese. One pointer towards such a restrictive interpretation is the fact that another part of the Arbitration Law deals with the requirements for establishing an arbitration commission, which must be set up by the relevant department of the People’s Government at municipal level and registered at the applicable administrative department for justice. As a result, it is often accepted that the arbitration commission required under Article 16 must be Chinese.

It should be noted that Article 16 only applies to arbitrations taking place in China, and so Chinese courts will of course enforce ad hoc awards and awards rendered under the auspices of non-Chinese institutions where the place of arbitration is elsewhere.

However, in a court order dated 22 April 2009, the Ningbo Intermediate People’s Court of Zhejiang Province ordered recognition and enforcement of an ICC award issued following an arbitration sited in Beijing. The award was in favour of Duferco S.A., a Swiss company, and against a Chinese company domiciled in Ningbo.

Unfortunately, the Court’s reasoning did not involve an analysis of Article 16. The question of the validity of the arbitration agreement was raised in the enforcement proceedings, but this argument was dismissed on the procedural ground that no objection to the arbitration agreement had been raised prior to the first hearing before the arbitral tribunal (as is required by Chinese law).

The Court found that the award was a “non-domestic award” under Article I.1 of the New York Convention, and that the New York Convention was therefore applicable to the recognition and enforcement of the award, notwithstanding that it was rendered in China. Since the Court found no grounds for refusal under the Convention, it held that the award should be recognized and enforced.

The Supreme Court of China considered similar issues in its review of the earlier decision of the Wuxi Intermediate Court of Jiangsu Province dated 19 July 2006 (Züblin International GmbH vs. Wuxi Woke General Engineering Rubber Co., Ltd). The Züblin case concerned the enforcement of an ICC award under an arbitration clause which provided for arbitration under “ICC Rules, Shanghai,. The Supreme Court in Züblin similarly held that the ICC Shanghai award was a “non-domestic” award under the New York Convention, but in that case it went on to hold that recognition and enforcement should be refused on the basis that the ICC Shanghai clause was an invalid arbitration agreement under the law of the seat, i.e. the Arbitration Law of China, which requires a designated arbitration institution as a mandatory element of an arbitration agreement.

The characterisation of the Züblin and Duferco awards as “non-domestic” has been the source of some debate in China and elsewhere. The Court’s reasoning was that the award was “non-domestic” because it was made under the auspices of the ICC, a foreign arbitral institution. A problem with this finding is that “non-domestic” arbitrations are not regulated by the Arbitration Law, and so the Chinese courts would not have authority to decide on important matters such as the validity of the arbitration clause or applications for setting aside, despite China being the seat, while other national courts would consider such arbitrations to be Chinese for enforcement purposes under the New York Convention, and no other court will have the right to consider applications to set aside the award.

It should be noted that the recent Duferco case is a lower court decision and the Supreme Court was not consulted on the matter since the Supreme Court’s approval is only required for non-enforcement of foreign awards, and not where awards are to be enforced. In Duferco the non-validity point was essentially dismissed on procedural grounds, and so the previous decision in Züblin to the effect that a clause providing for ICC Shanghai was invalid is probably the more reliable statement of Chinese law. In practice, however, the situation will remain somewhat uncertain unless or until the legislature amends the Arbitration Law of China or the Supreme Court clarifies the position. In the meantime, the sensible approach remains for parties to provide either for arbitration in China under the auspices of a Chinese institution or arbitration outside China administered by a foreign institution.

In the case of Insigma Technology Co Ltd v Alstom Technology Ltd [2009] SGCA 24, Insigma failed in its application to set aside an award rendered by an eminent three-member tribunal in an arbitration that was administered by the SIAC applying the ICC Arbitration Rules.

The decision is to some extent explained by Insigma’s conduct in the matter. When Alstom initially commenced an ICC arbitration, Insigma objected to the ICC’s jurisdiction, arguing that the SIAC could administer the arbitration under the ICC Rules. This caused Alstom to enquire of the SIAC whether they would in fact administer such an arbitration, and then to withdraw the ICC arbitration and commence arbitration at SIAC, which agreed to apply the ICC Rules. Notwithstanding this background, Insigma then argued before the arbitral tribunal and the Singapore High Court and Court of Appeal that the “hybrid” arbitration clause was invalid and void for uncertainty.

While this important factual background was a significant factor in the outcome of this case, the Singapore Court of Appeal set out a number of general principles to be applied in such cases, including the following: (i) where the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to that intention even if certain aspects of the agreement are ambiguous, inconsistent or incomplete; (ii) where a clause can be interpreted in two different ways, the interpretation enabling the clause to be effective should be adopted in preference to that which prevents the clause from being effective; (iii) as far as possible, a commercially logical and sensible construction is to be preferred over another that is commercially illogical; (iv) there was no reason why a clause providing for the rules of one arbitral institution to be applied by a similar institution should be too uncertain to be given effect to; (v) a defect in an arbitration clause does not necessarily render it unworkable, since it may often be cured by the assistance of state courts, arbitral institutions and arbitrators, and in this case the clause was rendered workable by the SIAC agreeing to administer the arbitration in accordance with the ICC Rules; and (vi) no policy considerations would bar the SIAC from agreeing to administer an arbitration under the ICC Rules.

Comment

The potential controversy inherent in the Singapore Court’s decision is whether or not the SIAC can truly administer an arbitration “under the ICC Rules” given that the ICC Rules specify steps to be taken by “the Court” which is a reference to the ICC’s International Court of Arbitration. The Court’s role under the ICC Rules includes scrutiny of the draft award under Article 27. In this case, the role of the International Court of Arbitration was performed by the SIAC Board of Directors. The Singapore Court of Appeal’s decision however upheld the clause on this modified basis since it considered that to do so achieved a result that was closer to the intention of the parties than the alternative outcome of declaring the arbitration agreement unworkable. But while the Court of Appeal held that the clause “was rendered certain and workable in the present case by the SIAC agreeing to administer the arbitration in accordance with the ICC Rules” can the uncertainty as to what the parties actually agreed by this clause really be solved by the SIAC unilaterally electing to play a role of its choice? That uncertainly is perhaps demonstrated by the SIAC first having interpreted the clause as providing for arbitration in accordance with the SIAC rules but with the essential features of ICC arbitration that the parties would like to see, such as terms of reference and scrutiny of the award, only for the tribunal later to invite the SIAC to conduct the arbitration “in accordance with the ICC Rules to the exclusion of the SIAC Rules” which the SIAC then agreed to do.

Also controversial is the Court of Appeal’s finding that “The substitution by the SIAC of the various actors … designated under the ICC Rules … was within the degree of flexibility allowed by the ICC Rules.” It is perhaps questionable whether the ICC would agree with this analysis. In practice, of course, the Singapore Court of Appeal was very substantially influenced by Insigma’s own previous assertion to the ICC that the SIAC could administer the arbitration under the ICC Rules.

While in this case the Singapore Court focused on the question of whether an arbitral institution could administer arbitrations under the rules of another institution, arbitral institutions are likely to consider whether they should do so, and what this may lead to. The SIAC’s agreement to administer the arbitration in accordance with ICC Rules potentially raises issues of comity as between arbitral institutions. A possible concern is that the Singapore Court of Appeal’s decision has endorsed this practice, which could conceivably prompt parties to write in such clauses in order to obtain “cut price” ICC (or LCIA) arbitration administered by various other institutions around the world. Parties would be ill-advised to do this however. Although in this case the arbitration clause, and the resulting award, were ultimately upheld, the complexity of this hybrid clause caused the parties to incur costs in appearing before the ICC, the SIAC, the Singapore High Court and the Singapore Court of Appeal. Moreover, it should not be assumed that other courts or arbitral institutions would follow the SIAC’s approach in this case. Hybrid institutional clauses should therefore be avoided.

Richard Hill

The claimants, London market insurers, and the defendants, French market insurers, both subscribed to the insurance programme of a French group of companies. The wording of the London insurers’ policy was expressed largely to follow that of the French insurers. The policies were governed by French law. The French insurers’ policy contained an arbitration clause and there was evidence suggesting that French law would regard that clause as incorporated into the London insurers’ policy.

The French insurers settled a claim to which the London insurers refused to contribute, contending that the settlement had been reached without their authority or involvement. The French insurers commenced an arbitration in Paris against the London insurers. The London insurers disputed the existence of an arbitration agreement between the parties and issued proceedings in the English courts seeking a declaration of non-liability. The English insurers relied on Article 5(1)(a) of the Brussels Regulation as the basis for the English court’s jurisdiction. Article 5(1)(a) allows proceedings to be brought in the courts of the place of performance of the relevant contractual obligations (in this case the alleged obligation to pay the French insurers in England). The French insurers made an application to the English court for a finding that it had no jurisdiction to hear the claim, arguing that the claim fell within the arbitration exception under Article 1(2)(d) of the Brussels Regulation.

The Commercial Court found that the mere fact that the contract contained an arbitration clause did not mean that the claim fell within the arbitration exclusion. The Commercial Court rejected the challenge to its jurisdiction and held that the London insurer was entitled to rely on Article 5(1) of the Brussels Regulation because the place of performance of the alleged contractual obligation to pay was England.

The Court of Appeal agreed with the Commercial Court’s finding. Applying West Tankers, the Court of Appeal held that the nature of the claim before the Court was critical. The subject matter of the London insurers’ claim was that it was not liable under an alleged contract. It did not matter that the French insurer sought to establish that liability in an arbitration. The fact that a contract contains an arbitration clause does not mean that all claims on that contract are excluded from the scope of the Brussels Regulation by the arbitration exclusion. It is the nature of the claim that is crucial, meaning the substance of the claim itself. In this case, the nature of the London insurers’ claim in the English courts related to a contract. The claim was therefore within the scope of the provisions of the Brussels Regulation relating to jurisdiction in contractual and insurance disputes and was not excluded by the arbitration exclusion. Claims that might be captured by the exclusion would therefore only be those concerned with arbitration itself in a very narrow sense.

The Court of Appeal noted that, notwithstanding the inapplicability of the arbitration exclusion, a party may still apply under section 9 of the Arbitration Act 1996 for a stay of proceedings in the event that proceedings have been brought in breach of an arbitration agreement. Such an application for a stay under the relevant legislation implementing Article II.3 of the New York Convention is the proper remedy within the EU for parties served with court proceedings in breach of an arbitration agreement.

A green paper reviewing the Brussels Regulation was published by the European Commission in late April 2009 with comments invited by 30 June 2009.

In the fact of the English proceedings, the French market had several options. The first and obvious option was to seek a stay under section 9 of the Arbitration Act 1996. The second was to defend the case on the merits. The third was to ignore the proceedings. Each of those options presented it with tactical problems. Instead, it sought to claim that the English court had no jurisdiction. That led to an interesting discussion about the scope of the arbitration exclusion in the judgment of the Court prepared by Collins LJ (the editor of Dicey on Conflicts of Laws). All this however could have been avoided if a straightforward application to stay the English proceedings had been made under section 9.