English court sets aside London-seated tribunal's award where arbitration was "to be held in Hong Kong"

The English Commercial Court has set aside an award under section 67 of the Arbitration Act 1996 (the "English Act"), and declared that the tribunal was not properly constituted, in Shagang South -Asia (Hong Kong) Trading Co Ltd v Daewoo Logistics [2015] EWHC 194 (Comm).

In his judgment dated 5 February 2015, Hamblen J found that the procedural law of the arbitration agreement (the curial law) was Hong Kong law, on the basis that the arbitration clause provided for arbitration "to be held in" Hong Kong and there was not clear wording or other contrary indicia sufficient to displace the prima facie conclusion that this carried with it an implied choice of Hong Kong law as the curial law.

This decision demonstrates that parties should ensure, if they wish to designate in their arbitration agreement a convenient geographical location for hearings to take place, that they are content for the procedural law applicable at that location to apply to their arbitration agreement. If they do not wish that location to be the seat of the arbitration (the lex arbitri), it will be necessary to make that clear in the drafting of the arbitration agreement.

The facts

The underlying dispute arose under a Fixture Note dated 17 April 2008 pursuant to which the Defendant ("Daewoo") agreed to charter a vessel to the Claimant ("Shagang"). The Fixture Note provided, inter alia, as follows:

"23. Arbitration: Arbitration to be held in Hong Kong. English law to be applied.

24. Other terms/conditions and charter party details base on Gencon 1994 Charter Party."

Part I of the Gencon 1994 form (the "Gencon form") consists of numbered boxes to be filled in. Box 25 is to be filled in according to the following instructions:

"Law and Arbitration (state 19(a), 19(b) or 19(c) of Cl.19; if 19(c) agreed also state Place of Arbitration)(if not filled in 19(a) shall apply (Cl 19)."

Clause 19(a) provides, inter alia, for arbitration in London in accordance with English law.

Daewoo commenced arbitration proceedings against Shagang in London. Daewoo purportedly gave notice of appointment of a sole arbitrator (the "Arbitrator"), then purportedly appointed the Arbitrator as sole arbitrator after Shagang failed to respond. Shagang subsequently queried the Arbitrator's appointment and his jurisdiction, but the Arbitrator determined in an award dated 8 July 2014 (the "Award") that the arbitration was subject to the English Act, that Gencon clause 19(a) was applicable, and that he had accordingly been properly appointed as sole arbitrator.

Shagang then made an application in the English Commercial Court under section 67 of the English Act (1) to set aside the Award and (2) for a declaration that the Tribunal was not properly constituted. Shagang's case was that clause 23 provided for arbitration in Hong Kong subject to the curial law there, being the Hong Kong Ordinance. If clause 23 did make the arbitration subject to the English Act, then Shagang's alternative case was that the Arbitrator's appointment was not valid since it was made on the basis of clause 19 rather than by reference to the applicable requirements of the English Act.

Daewoo's case was that clause 23, when read together with clause 19, provided for Hong Kong to be the geographical location for the arbitration but for the arbitration to be subject to English curial law. Alternatively, Daewoo submitted that the same conclusion followed on the proper construction of clause 23.

 The decision

Hamblen J found for Shagang on both issues. He held that:

• Issue (1): the arbitration was subject to Hong Kong not English curial law.
• Issue (2): if the arbitration was subject to English curial law, the Arbitrator was still invalidly appointed as sole arbitrator.

Issue (1): whether arbitration under the Fixture Note was subject to English or Hong Kong curial law

(i) The wording of clause 23

Hamblen J noted that Clause 23 was clearly a dispute resolution clause. The most natural and obvious meaning of its two limbs was that it intended to address (1) where and how disputes were to be determined (arbitration in Hong Kong) and (2) the law governing determination of such disputes (English law). Agreeing that an arbitration is "to be held" in a particular country suggests that all aspects of the arbitration process are to take place there, which would include any supervisory court proceedings. As for the provision "English law to be applied", parties frequently make express in their dispute resolution clause their choice of substantive law to govern disputes between them, and the expression "is to be applied" is a common means of expressing such choice.

Hamblen J noted that, by contrast, it is far less usual to express a choice of curial law. That is often simply left to be inferred from the chosen place of arbitration. When a choice of curial law is made express, it is usually done by referring to the governing arbitration statute.

(ii) The commercial background

Daewoo argued that it made good commercial sense for the same country's law to govern both substance and procedure, given in particular the potential need to employ two sets of lawyers and to prove foreign law as a matter of fact, and that a bifurcation between the two was unlikely to be intended. Hamblen J, however, noted that such a bifurcation is by no means uncommon, and that a bifurcation between the place of arbitration and the curial law is in fact far more uncommon.

The judge noted that the latter type of bifurcation invites jurisdictional complications and issues as to the relative roles of the local court and the chosen foreign court in relation to the arbitration. In this case, for example, there was evidence that if the matter was before the Hong Kong court it would apply the Hong Kong Ordinance because its application to arbitrations taking place in Hong Kong is mandatory.

The reason why choice of place generally carries with it an implied choice of governing procedure is the close link which exists between the place of arbitration and the procedure governing the arbitration.

(iii) The authorities

Hamblen J considered there to be no doubt in light of the relevant authorities that clear words are necessary for the parties to choose a seat of arbitration which differs from the place of arbitration. In his judgment, it was appropriate in this case to adopt the approach of Cooke J in Shashoua v Sharma [2009] 2 Lloyd's Rep 376, which was agreed and followed in U&M Mining Zambia Ltd. V Konkola [2013] 2 Lloyd's Rep 2018 and in Enercon GmbH v Enercon (India) Ltd [2012] 1 Lloyds Rep 519.

In Shashoua v Sharma, the parties agreed that "the venue of the arbitration shall be London, United Kingdom" whilst providing that the arbitration proceedings should be conducted in English in accordance with the ICC Rules and that the governing law of the agreement would be Indian law. Cooke J held that London had been chosen as the seat and English law as the curial law.

The Enercon case concerned an arbitration clause which provided that "the venue of the arbitration proceedings shall be London" and that "the provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply". Eder J held the seat to be London. He identified the issue as being whether the provision referring to the India Act was to be regarded as "significant contrary indicia" (using the language of Cooke J in Shashou v Sharma) so as to place the seat of the arbitration in India. He concluded that it was not.

Daewoo sought to distinguish these cases on the grounds that clause 23 did not refer to "venue" or "place" or other word which might be regarded as referring to the "seat". It also argued that, unlike London in those cases, Hong Kong was a convenient place for the arbitration given the parties were based in the Far East, and therefore may well have been chosen simply as a convenient geographical location for hearings.

Hamblen J found there was no meaningful distinction to be drawn between (a) choosing a place as a "venue" or "place" for the arbitration and (b) choosing it as the place where the arbitration was "to be held". He did not consider that the inconvenience of London as a geographical location was a determining factor in either Shashou v Sharma or Enercon, and noted that, whilst Hong Kong was no doubt geographically convenient to the parties in this case, it was also a well-known and respected arbitration forum.

Daewoo's central submission was that clause 19(a) of the Gencon form constituted clear contrary agreement to an implied choice of Hong Kong law as the curial law. Hamblen J rejected this argument on the basis that clause 23 was inconsistent with clause 19. The three options offered in clause 19 were all "one shop" options, each providing for the law of the place of the arbitration to be the curial and substantive law. Hamblen J concluded that the parties had not intended to incorporate clause 19 of the Gencon form. He noted that a similar conclusion had been reached in the broadly comparable case of Swiss Bank Corp v Novorissiysk Shipping Co. (the 'Petr Shmidt') [1995] 1 Lloyd's Rep 202.

The case of Braes of Doune Wind Farm v. Alfred McAlpine Business Services [2008] 1 Lloyd's Rep 608 was the only reported example of a clause choosing a curial law different to that of the place of arbitration. In that case, although the seat of the arbitration was in Glasgow, the arbitration agreement was expressly made subject to English law and it was agreed that any reference to arbitration was to be deemed one within the English Act. Hamblen J noted that this decision was considered and distinguished in both Shashou v Sharma and the Enercon case.

Hamblen J concluded that he did not consider that any of the arguments or cases relied on by Daewoo showed that there was in this case clear wording or other contrary indicia sufficient to displace the prima facie conclusion that the agreement that the arbitration was "to be held in Hong Kong" carried with it an implied choice of Hong Kong as the seat of the arbitration and of the application of Hong Kong law as the curial law.

Issue (2): if the arbitration was subject to English curial law, whether the Arbitrator's appointment was valid

Daewoo had appointed the Arbitrator pursuant to clause 19(a) of the Gencom form. If, as Hamblen J had found, that clause was inapplicable, then the Arbitrator could not have been validly appointed thereunder. In the absence of party agreement in clause 23 as to the number of arbitrators, under section 15(3) the English Act the tribunal was to be a sole arbitrator appointed in accordance with the procedure in section 16(3) of the English Act. There had been no attempt to follow that procedure, or to invoke the court's powers to appoint an arbitrator under section 18 of the English Act.

Hamblen J accordingly found that, even if he was wrong on Issue (1), the Arbitrator had not been validly appointed as a sole arbitrator under the English Act.

Comment

This case makes clear that, where an arbitration clause provides for arbitration "to be held" in a certain location, that location will be deemed to be the seat of the arbitration unless there are clear words or other contrary indicia indicating that this was not the parties' intention. Parties wishing to include in their arbitration clause an agreed location for arbitration hearings to take place without making that location the seat of the arbitration are advised to seek specialist advice.

Although the Court found for Shagang on both issues, Daewoo questioned the Court's powers in those circumstances and the Court heard the parties further on the appropriate consequential orders at a hearing on 10 February 2015. At that hearing the Court ordered that Shagang's application under Section 67 of the English Act succeeded. The Court declared that the Tribunal was not properly constituted and had no jurisdiction and the Award was set aside.

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