Electronic copy available at: http://ssrn.com/abstract=1965741

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ARTICLES 34 AND 36 OF THE UNCITRAL MODEL LAW ON

INTERNATIONAL COMMERCIAL ARBITRATION:

THE COURTS DISCRETION

Amokura Kawharu1 Faculty of Law, University of Auckland

I INTRODUCTION

The opening paragraph of art 34(2) Model Law provides that [a]n arbitral award may be

set aside by the court. In art 36(1), an enforcement court is directed that

[r]ecognition or enforcement of an arbitral award may be refused only on proof one

of the enumerated grounds. The use of the permissive word may in these provisions

suggests that a reviewing court in a setting aside proceeding under art 34, and an

enforcement court acting under art 36, has a residual discretion whether to set aside or to

refuse enforcement, despite the proof of a relevant ground. The existence of this

discretion has not been universally accepted. Nor is there guidance in the text of the

Model Law as to the courts exercise of the discretion, assuming, as this paper does, that

the discretion does exist.

The courts discretion in arts 34 and 36 implicates one of the basic issues in modern

arbitration law, namely the extent of the courts role in reviewing awards. The discretion

is a potentially useful mechanism through which a reviewing court may further the

finality objective in respect of arbitration, as it enables the court to refuse to set aside, or

to enforce, despite the presence of a ground for setting aside or refusing enforcement. At

the same time, if a reviewing court endorses an award which is affected by fundamental

failures in the name of party autonomy and arbitral finality, impressions of rough justice

will follow for those involved in the arbitral process. Widely different approaches to the

discretion under art 36 introduces undesirable unpredictability and may encourage forum

1 Email: a.kawharu@auckland.ac.nz. This paper is in draft. Please do not quote without permission.

Electronic copy available at: http://ssrn.com/abstract=1965741

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shopping. With these issues in mind, this paper briefly addresses the existence of the

discretion. It then considers what general principles are relevant to its exercise.

These principles are largely drawn from a survey of cases decided by courts in Model

Law jurisdictions. Reflecting my own experience (and access to materials), these

jurisdictions are mostly within the Asia Pacific region. In particular the paper includes

New Zealand and Australian authorities, which tend to be somewhat under-represented in

the international literature. Article 36 of the Model Law is, of course, a progeny of art V

of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards

(New York Convention or Convention). Recognising this shared genealogy, the paper

includes cases decided under domestic reincarnations of art V, including from non-Model

Law countries. Analogies are also drawn between Model Law practice and other aspects

of the transnational legal environment, including ICSID annulment jurisprudence, and

relevant provisions of institutional rules of arbitration.

II WHAT DISCRETION?

The court may set aside or refuse enforcement

The question as to whether a discretion is imported into arts 34 and 36 through the use of

may has been raised indirectly in the context of controversies surrounding the

enforcement of annulled awards under the New York Convention, and the effect of

different expressions used to describe the courts powers in the different but equally

authentic translations of the Convention. Jan Paulsson attempted to put to rest that debate,

arguing in favour of the discretion based on the unlikelihood that the French text, which

is ambiguous, could properly be understood as denying the discretion which is clearly

provided for in the other versions.2 Many commentators agree with him.3 Nonetheless, a

minority continues to assert that under the Convention, no discretion exists.4

2 J Paulsson May or Must Under the New York Convention: An Exercise in Syntax and Linguistics (1998) 14(2) Arb Intl 227.

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The drafting history of the Model Law supports the existence of the discretion under arts

34 and 36 for two reasons. First, the drafters sought unity between art 36 of the Model

Law and art V of the Convention, and between art 34 and art 36 of the Model Law. If the

discretion exists under the Convention, as most accept, then it should also exist under arts

34 and 36. Secondly, on the whole, the drafters accepted that may should provide the

court a discretion not to set aside, or to enforce, even though a ground for non-

recognition might be present. In particular, a proposal to replace may with shall was

rejected, from which it may be inferred that in addition to the general desire to align

with the New York Convention, it was thought preferable to provide a general power of

flexibility. 5 Under German law, the discretion has been rejected. 6 The more

pragmatic view, which accords with the Model Law drafting history, and with practice in

several Model Law jurisdictions7 including Canada,8 New Zealand,9 Australia,10 and

Hong Kong,11 is that the discretion exists. The more pressing questions relate to the

scope of the discretion and its mode of exercise.

3 E.g. D Di Pietro and M Platte Enforcement of International Arbitration Awards (Cameron May, 2001) at 133; N Blackaby and others Redfern and Hunter on International Arbitration (5th ed, OUP, 2009) at [11.59]; G Born International Commercial Arbitration (Kluwer, 2009) at 2722-23. 4 E.g. P Naciemiento, Article V(1)(a) in H Kronke and others (eds) Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention 205 at 208. 5 H M Holtzmann and J E Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer, 1989) at 1058. See also pp 921-922 and 1057. As noted at p 1057, the shall proposal was for the then-separate provision on recognition and enforcement of domestic awards. C.f. P Binder International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions (Sweet & Maxwell, 2010) at [8-027]-[8.028] (the return to may was in line with the drafters intent to deviate as little as possible from the Convention). 6 Bundesgerichtshof, Decision of 2 November 2000, ZIP 2270 (2000) 2271 cited in J Lew, L Mistelis and S Krll Comparative International Commercial Arbitration (Kluwer, 2003) at [26.69]. 7 H Alvarez, N Kaplan and D Rivkin Model Law Decisions: Cases Applying the UNCITRAL Model Law on International Commercial Arbitration (1985-2001) (Kluwer, 2003) at 229 (courts have repeatedly held that the discretion exists). 8 E.g., Europcar Italia SpA v Alba Tours International Inc [1997] OJ No 133. 9 E.g., Sinke v Remarkable Residential Homes Ltd (HC Wellington, CP274-98, 6 October 2000, Durie J) (NZ) at [21]. A number of New Zealand cases are discussed further below. 10 E.g., Cargill International SA v Peabody Australia Mining Ltd [2010] NSW 887 at [242]. 11 E.g., China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] 3 HKC 375 (the discretion enables the court to achieve a just result in all the circumstances). A number of Hong Kong cases are discussed further below.

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The consistent English view in relation to art V of the New York Convention is that the

discretion is designed to enable the court to take into account a legal principle which

affects the prima facie right to have an award refused enforcement. The examples given

in the English cases of applicable legal principles are limited to estoppel and subsequent

agreement,12 although the cases do not rule out other possibilities. Professor van den

Berg has suggested that, in addition to estoppel, the art V discretion provides the legal

basis on which a court may consider the material impact of a due process violation, since

it would make no sense to refuse enforcement in circumstances where the award would

not have been different had the violation not occurred.13 The scope of the Courts

discretion was the central issue in the British Virgins Islands case Pacific China Holdings

Ltd v Grand Pacific Holdings Ltd, in which the BVI Court of Appeal rejected van den

Bergs suggestion that the discretion may be exercised where a violation is de minimis or

immaterial.14 There are other areas of disagreement and inconsistency. For example, in

some cases, courts have approached the discretion as one which enables enforcement

despite a proven ground for setting aside or refusing enforcement; in others the discretion

has been regarded as one to set aside or refuse enforcement, with the consequence that

the burden of proof remains with the art 34 or 36 applicant for all matters, including the

exercise of the discretion.15 In some cases, materiality, causation and / or waiver are

taken into account in the determination whether a violation is established; in others, these

matters have been considered at the discretion stage, once the court is satisfied that a

violation took place.

No discretion to set aside or refuse enforcement on non-specified grounds

12 Yukos Oil Co v Dardana Ltd [2002] 1 All ER (Comm) 819; [2002] 2 Lloyds Rep 326 (CA) at [8] and [18]; affirmed Dallah Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46. See also Kanoria v Guinness [2006] 1 Lloyds Rep 701 (CA). 13 A J van den Berg The New York Arbitration Convention of 1958 (Kluwer, 1981) at 265 and 302-303 (relying on a decision of a Hamburg court). 14 Pacific China Holdings Ltd v Grand Pacific Holdings Ltd (British Virgin Islands Court of Appeal, 2010) at [47] (Georges-Creque JA). 15 Compare Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd (Hong Kong Court of First Instance, 10 February 2009) at [68] (burden on the respondent to demonstrate for the purpose of the discretion that the award would have been the same but for the tribunals slip in procedure); Pacific China Holdings Ltd v Grand Pacific Holdings Ltd (Hong Kong Court of First Instance, 29 June 2011) at [88]-[89] (burden of proof remains with the losing party applying to set aside the award).

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Articles 34 and 36 of the Model Law and art V of the New York Convention prescribe

the grounds on which an award may be set aside or refused enforcement. None of the

grounds permit a review of the merits of the decision in the award. In a series of cases

beginning with Resort Condominiums v Bolwell, 16 Australian courts recognised an

additional general discretion to refuse enforcement on grounds other than those spelt out

in art V of the Convention / art 36 of the Model Law. In this regard Australian law was

out of step with the internationally agreed understanding that the art V / art 36 grounds

are exclusive and that may does not introduce a general administrative law review or

discretion. In 2010, Australia passed amendments to the International Arbitration Act

1974 (Cth) (IIA) to rectify the situation and make clear that no such general discretion

now exists under the IIA.17

III THE EXERCISE OF THE DISCRETION

Restrictive standard of review or discretion?

A restrictive standard of review is generally applied across jurisdictions to art 34 and art

36 applications concerning awards made within the jurisdiction (local awards). Under

this approach, unmeritorious claims are excluded before any question of a residual

discretion arises. For example, in a leading New Zealand decision under art 34, Downer-

Hill Joint Venture v Government of Fiji, the applicant argued that enforcement of the

award would be in conflict with public policy, since factual findings were alleged to be

unsupported by evidence. The High Court held that to warrant setting aside for conflict

with procedural public policy, the irregularity, if proven, must also result in a substantial

miscarriage of justice.18 That said, a lesser threshold is evident in some recent New

Zealand cases, particularly when the public policy ground is not invoked. In a recent

Canadian decision, the Ontario Court of Appeal described the general standard in terms

of deference, and affirmed that courts acting under art 34 should accord international

tribunals a high degree of deference and interfere with their decisions only sparingly or

16 Resort Condominiums v Bolwell (1993) 118 ALR 655. 17 See IIA, s8(3A); Uganda Telecom Ltd v Hi Tech Telecom Pty Ltd [2011] FCA 131 at [132]. 18 Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554 (HC).

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in extraordinary cases.19 In AJU v AJT the Singapore Court of Appeal applied a minimal

standard of review permitting the Court to take its own view of the law, but not of the

facts, in a case concerning the public policy consequences of an alleged illegality.20

The exercise of the courts powers under arts 34 and 36 in relation to local awards helps

to maintain minimum standards for arbitrations conducted within the jurisdiction. Article

36 also applies to awards made outside of the jurisdiction, to give effect to the states

enforcement obligations with respect to awards covered by the New York Convention

(referred to generally as Convention awards). A court asked to enforce a Convention

award does not have a supervisory role, and its focus is narrower. Often, in relation to

Convention awards, courts adopt a more restrictive standard of review, applying

considerations of international comity.21 When such a standard is applied, there is even

less scope for the exercise of any discretion to enforce, because the court has accepted

that the irregularity has already passed a very high threshold of defectiveness. This is

reflected in a passage from Rix LJs decision in Dallah Estate v Pakistan (upheld on

appeal), concerning the courts role once a ground for refusing to enforce a Convention

award has been established:22

In sum, I see no reason arising out of the interesting arguments put before the court in this appeal

to doubt, that any discretion to enforce despite the establishment of a Convention defence

recognised in our 1996 Act is a narrow one. Indeed, it seems to me that in context the expression

"may be refusedonly if" (article V), especially against the background of the French text ("ne

seront refuses"), and the expressions of the English statute "shall not be refused except" and "may

be refused if" (section 103(1) and (2)), are really concerned to express a limitation on the power to

refuse enforcement rather than to grant a discretion to enforce despite the existence of a proven

defence. What one is left with therefore is a general requirement to enforce, subject to certain

limited defences. There is no express provision however as to what is to happen if a defence is

proven, but the strong inference is that a proven defence is a defence. (emphasis added) 19 In The United Mexican States v Cargill Inc [2011] ONCA 622 (in relation to a challenge to the scope of jurisdiction assumed by a NAFTA tribunal in making its award). 20 AJU v AJT [2011] SGCA 41. 21 Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKCFA 40 at 27 (Litton PJ); c.f. Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd (Hong Kong Court of First Instance, 10 February 2009) at [36]; AJU v AJT [2011] SGCA 41. 22 Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] 1 All ER 592 at [89] (EWCA).

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In Australia, the Model Law is enacted in relation to international arbitrations in the IIA.

The IIA also gives effect, in separate provisions, to Australias obligations under the New

York Convention. In addition, the Model Law was approved in 2010 as the basis for

uniform legislation for Australian States and Territories in relation to domestic

arbitrations. There has been limited judicial consideration of the courts discretion under

the IIA. No relevant cases appear to have been decided under ss 34 or 36 of the Model

Law-based legislation for domestic arbitrations.23 Under the previous legislation for

domestic arbitrations, an award could be set aside for misconduct,24 but the court retained

a discretion not to set aside in appropriate cases. The exercise of the discretion turned on

whether the misconduct may (not must) have been productive of a substantial miscarriage

of justice.25 For example, in D&M (Australia) Pty Ltd v Crouch Developments Pty Ltd,

the tribunal made a finding adverse to D&M, without having first afforded the parties an

opportunity to present submissions on the issue. The tribunals failure to respect the

parties response rights was misconduct, but since the finding was correct, it was

pointless to set aside the award and the Court exercised its discretion not to do so.26

It is unclear whether the general approach applied in the misconduct cases will be carried

forward and applied to the new Model Law-based legislation in Australia. In effect, the

current approach means that to avoid setting aside, it needs to be shown that the

misconduct could not have affected the outcome of the arbitration. 27 A leading

Australian commentator has said that this sets the bar too low for courts to intervene, and

argues that the English approach should instead be applied to art 34 applications (and

23 At the time of writing, the legislation has only been passed in New South Wales and Tasmania. Bills to enact the Model Law in other States and Territories have been drawn up and are expected to pass in the near future. 24 Commercial Arbitration Act, s42. Misconduct includes corruption, fraud, partiality, bias, and a breach of the rules of natural justice, and the making of an award in respect of a matter not referred to arbitration (ss2 and 42(2)). 25 Gas & Fuel Corporation of Victoria v Wood Hall Ltd [1978] VR 382; applied e.g. in Oil Basins Ltd v BHB Billiton Ltd [2007] VSCA 255. 26 D&M (Australia) Pty Ltd v Crouch Developments Pty Ltd [2010] WASC 130. The Court set aside the award as to costs, and remitted the matter of costs to the arbitrator for reconsideration in light of its findings on misconduct. 27 See M Mustill & S Boyd Commercial Arbitration (2001 Supplement) (Butterworths, 2001) at 353.

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presumably art 36) under the new legislation.28 Questions of injustice must be addressed

under the English Arbitration Act 1996 in order to establish a ground for setting aside and

the breach must have contributed materially to an unjust outcome.29 Adopting this course

would bring Australia more into line with New Zealand and other Model Law

jurisdictions where a similarly restrictive standard of review is applied to the art 34 and

36 grounds.

Nonetheless it is debateable whether the additional requirement under the 1996 English

Act for the applicant to prove substantial injustice should be applied, as a rule, under the

Model Law equivalents. In some respects there is a strong affinity between the English

Act and the Model Law.30 The structure of the Model Law with respect to setting aside

however is different to the English Act, in that there is no express requirement for an

irregularity to be either serious or cause substantial injustice, and this appears to have

been deliberate. In the Model Law negotiations, the UKs attempts to graft a substantial

injustice requirement into the art 34 grounds were rejected.31 The result of the alignment

with the New York Convention is that the arts 34 and 36 grounds are not in their terms

qualified. Notably, the UNCITRAL Commissions report on the draft Model Law

states:32

It was understood that an award might be set aside on any of the grounds listed in paragraph (2)

irrespective of whether such ground had materially affected the awards.

In other words, the Model Law emphasises the courts discretion in a way which the

English Act does not. Differences between Model Law jurisdictions on the standard of

review probably stem, in part, both from the lack of express textual guidance (unlike the

English Act) and lingering uncertainty about the existence and scope of the courts

discretion. In an Australian decision under art 34, the Court suggested that it ought to

28 D Jones Commercial Arbitration in Australia (Thomson Reuters, 2011) at 452 and 455. 29 Arbitration Act 1996, s68 (Engl). 30 See Patel v Patel [2000] 1 QB 551 at 556 (EWCA). 31 H M Holtzmann and J E Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer, 1989) at 981-982 and 1003. 32 UNCITRAL Commission Report A/40/17 (21 August 1985) at [303].

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approach its discretion cognisant of the weight placed by the Model Law on the exercise

of judicial restraint in arbitral decisions which would otherwise be final and binding.33

This can be somewhat repetitive to the extent that the same principle is applied to

determine whether or not a ground for setting aside or refusing enforcement has been

made out in the first place.

It may be also questioned whether the distinction between the restrictive (local awards)

and more restrictive (Convention awards) standards of review is all that meaningful. A

deferential standard of review is also not all that helpful in cases where the court must in

a technical sense accept that something has gone awry in terms of an art 34 or art 36

ground. For example, non-compliance with an agreed timetable is sufficient to satisfy art

34(2)(a)(iv)/art 36(1)(a)(iv), although it may not be sufficient to warrant non-recognition

of an award. On the other hand, the discretion is useful because it makes available to the

court an additional and reasoned basis for allowing an award to stand.

Materiality and causation

Whether materiality and causation are relevant to arts 34 and 36

During the Model Law negotiations, the drafters endorsed the principle that awards

should not have to be set aside or refused enforcement for minor, immaterial violations,

and that a court may exercise its direction to refuse an application under art 34 or 36

when such grounds for setting aside or refusing enforcement are present.34 Immateriality

for these purposes must be intended to relate to the outcome of the proceedings, which

requires a degree of causation analysis.

The materiality and causation principles are reflected, to varying extents, in non-Model

Law rules. Under the 1996 English Act, as noted, an applicant for setting aside must

33 Cargill International SA v Peabody Australia Mining Ltd [2010] NSW 887 at [242]. 34 H M Holtzmann and J E Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer, 1989) at 921-922 and 1057-1058.

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establish that a serious irregularity affecting the tribunal, the proceedings, or the award

has caused or will cause substantial injustice to the applicant.35 The clear purpose of

these thresholds in the English Act is to curtail judicial intervention.36 Under art 52(1)(d)

of the ICSID Convention,37 an ad hoc annulment committee has the authority, but not the

duty,38 to annul an award if there has been a serious departure from a fundamental rule of

procedure.39 In Wena Hotels Limited v Arab Republic of Egypt, the Ad Hoc Committee

said that for there to be a serious departure from a fundamental rule of procedure, the

violation of such rule must have caused the Tribunal to reach a result substantially

different from what it would have awarded had such rule been observed (emphasis

added).40 The trends in ICSID annulments have been described in terms of generations,

reflecting the different levels of judicial activism of annulment committees over the

years.41 The third generation42 has showed restraint, but at the same time has emphasised

the discretionary nature of the committees role. When deciding whether to annul, this

has meant weighing the significance of the error against the consequences of annulment.

In Vivendi v Argentina I, the Committee said that it had a certain measure of discretion

as to whether to annul an award, even if an annullable error is found; and, it is

necessary for an ad hoc committee to consider the significance of the error relative to the

35 Arbitration Act 1996 (Engl). 36 Lord Justice Saville (chairman) Departmental Advisory Committee Report on the Arbitration Bill (1996) at [280]. 37 The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), Washington, 18 March 1965; NZTS 1980 No 17. 38 Schreuer, The ICSID Convention: A Commentary (2nd ed 2009, Cambridge, Cambridge University Press) p 1-35. 39 The Commentary to the International Law Commissions (ILC) Model Rules on Arbitral Procedure, on which art 52(1)(d) of the ICSID Convention is based, affirms that the provision is not intended to address minor departures from fundamental procedural rules (ILC, Commentary on the Draft Convention on Arbitral Procedure adopted by the ILC at its Fifth Session (A/CN.4/92) at 105. 40 Wena Hotels Limited v Arab Republic of Egypt ICSID Case No ARB/98/4, Decision on Annulment, 5 February 2002, (2002) 41 ILM 933 at [58] (Wena Hotels v Egypt). 41 C Schreuer Three Generations of ICSID Annulment Proceedings, in Gaillard & Banifatemi eds, Annulment of ICSID Awards (2004, Juris Publishing) at 17. 42 Wena Hotels v Egypt at [81]-[82]; Compaa de Aquas del Aconquija SA and Vivendi Universal v Argentine Republic (ICSID Case No ARB/97/3), Decision on Annulment, 3 July 2002 (2002) 41 ILM 1135 (Vivendi v Argentina I); and CMS Gas Transmission Co v Republic of Argentina (ICSID Case No ARB/01/8), Decision on Annulment, 25 September 2007 at [48]-[49].

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legal rights of the parties.43 The current fourth generation, controversially, has shown

less restraint.44

Materiality has been rejected in a recent Hong Kong decision concerning art 34 of the

Model Law, Pacific China Holdings Ltd v Grand Pacific Holdings Ltd,45 and by the BVI

Court of Appeal in a case (involving the same dispute and of the same name) concerning

an application under art 36 to refuse enforcement of a Convention award.46 However it is

suggested that given both the drafting of the Model Law47 and international arbitration

practice generally, materiality and causation can and should be taken into account in

appropriate cases. In a number of cases, some of which are reviewed in depth below,

these factors have been considered at the discretion stage once it has been accepted that a

ground for setting aside or refusing enforcement has been established. In other cases,

materiality and causation have been applied at the initial stage of the proceedings, to

determine whether a ground for setting aside or refusing enforcement has been

established or not;48 similar considerations to those discussed below apply when the court

takes this course.

Application of materiality and causation as part of the courts discretion

(a) Scope of review for materiality and causation

Different approaches have been adopted by courts to their assessment of the effect of

violations when exercising their discretion in arts 34 and 36. Applying an intensive

review risks the court becoming entangled in the merits when assessing any causative

effect. This happened in Asian Foods West City Ltd v West City Shopping Centre Ltd, 43 Vivendi v Argentina I at [66]. 44 E.g., P Nair and C Ludwig ICSID Annulment Awards: Time for Reform (2011) 5 Glob Arb Rev 18. 45 Pacific China Holdings Ltd v Grand Pacific Holdings Ltd (Hong Kong Court of First Instance, 29 June 2011). 46 Pacific China Holdings Ltd v Grand Pacific Holdings Ltd (British Virgin Islands Court of Appeal, 2010) at [47] (Georges-Creque JA). 47 The requirement for a causal link between a defect and the award was raised for discussion during the drafting of art 34 of the Model Law but was ultimately not included in the final text. 48 E.g. Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554 (HC) (in order to establish a breach of natural justice principles (procedural public policy), the irregularity must cause a substantial miscarriage of justice, which entails that the affected finding was fundamental to the outcome in the award).

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where the Court effectively reheard the substantive claim. The following excerpts

illustrate the scope of the Courts intervention:49

For the purposes of determining the application I am prepared to proceed on the premise that the

award is set aside. In adopting this approach, I mean no criticism of the arbitrator, nor any implied

endorsement of the grounds of challenge. To the contrary, I am not satisfied that either ground is

sustainable. But, even if it was, the question is: would the award have been any different?

I propose to determine this application on the premise that for the purposes of argument the

award may be set aside. The inquiry then is to determine the result of what is said to be the

substantive or underlying dispute between the parties.

In light of two recent cases, the position in Hong Kong with respect to the scope of

review at the discretion stage appears to be unsettled. Under one approach, if the

inconsequential effect of the violation in terms of the award is clear, then the exercise of

the courts discretion may follow. Under a second approach, the discretion is narrower,

exercisable only where it cannot be said that if the violation had not occurred the result could not have been different. Under this second test, materiality considerations are excluded; the court only examines the nature of the violation. In practical terms, the difference between the two approaches is significant.

Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd involved an

application to the Hong Kong Court of First Instance for an award to be set aside on the

basis of several alleged instances in which the tribunal had denied the applicants right to

be heard. Having found that the tribunal breached its procedural obligations to the parties,

the Court then turned to consider its discretion, remarking that, despite the diligence of

counsel no decided case on how the discretion under Article 34 should be exercised has

been found.50 Referring to the Hong Kong jurisprudence in respect of Convention

49 Asian Foods West City Ltd v West City Shopping Centre Ltd (HC Auckland, CIV-2007-404-001215, 11 September 2007, Harrison J) (NZ) at [2] and [18]. 50 Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd (Hong Kong Court of First Instance, 10 February 2009) at [29].

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awards,51 the Court determined that the tribunals ruling should not be set aside, if the

tribunals slip in procedure had no real impact on the result. Justice Lam explained his

role as follows:52

It would obviously be wrong to allow arguments pertaining to the exercise of the residual

discretion to develop into full-blown investigation over the claim. The residual discretion to

uphold an award despite a ground is established under Article 34(2)(a) should only be exercised

when the result is plain and obvious based on what has been set out in the reasons for the award

or other indisputable materials already placed before the arbitral tribunal. (emphasis added)

On one issue, the Court concluded that there was no basis for it to decide that the same

result would have been reached, but for the tribunals mistake, and set aside the affected

part of the award. On another issue, the Court determined that the tribunals ruling

should not be set aside, because the tribunals slip was immaterial to the result. Justice

Lam explained that the tribunal gave several reasons for a particular ruling, and the

parties had been denied the opportunity to address only one of them. As the other

reasons were a sufficient basis for the tribunals decision, there was no purpose in setting

aside. Finally, Lam J suggested, by way of illustration, that where a tribunal includes

obiter in its award, and denies the parties the chance to address the issue raised in the

obiter, again no purpose would be served by setting aside.53

The Hong Kong proceedings in Pacific China Holdings Ltd v Grand Pacific Holdings

Ltd also involved an application to the Court of First Instance to set aside an award based

on allegations that the tribunal had denied the applicants right to be heard. The case

represents the other extreme to Asian Foods, in that the Court permitted itself no

reference to the award at all. The Court accepted inter alia that the tribunal in an ICC

arbitration had breached due process through changes it made to the agreed procedural

51 Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKLR 39; Apex Tech Investment Ltd v Chuangs Development (China) Ltd [1996] 2 HKLR 155. 52 Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd (Hong Kong Court of First Instance, 10 February 2009) at [69]. 53 Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd (Hong Kong Court of First Instance, 10 February 2009) at [39]-[45]; see also [68].

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timetable, and through its refusal to accept further authorities. The Court then stated the

test for the exercise of its discretion in the following way:54

Is the court able to say that it can exclude the possibility that if the violation established had not

occurred, the outcome would not be different?

Justice Saunders stressed that the difference between a court being satisfied that there

was clearly no impact on the award, and excluding the possibility of a different outcome

in terms of the above test, was not semantic; rather, the expression of the test in the

double negative served to underscore the narrowly negative control of the courts

residual discretion.55 The Court concluded:

Whether or not the result could have been different, is a determination which must be made, not

by examining the merits of the award, but by examining the nature of the violation and the

potential consequences that flow from the violation.

[T]here is no suggestion in any of the authorities that materiality to the result in the award is itself

a proper basis on which to exercise the discretion not to set aside an award where an Article 34

violation has been established.

Saunders J claimed that these conclusions were consistent with the existing Hong Kong

authorities, but this claim is not supported by decisions such as Brunswick Bowling. The

factual settings of these two cases are quite different, making the actual findings difficult

to compare. That said, the Court in Brunswick Bowling clearly adopted a less restrictive

approach to its role and took into account materiality considerations with reference to the

award result. It is suggested that the test in Pacific China is cast too narrowly and

awkwardly, and it diminishes the potential usefulness of the courts discretion. For

instance, the arbitral tribunal in Pacific China refused a request to submit three further

authorities on Taiwanese law, as the request was made late in the proceedings. In a

54 Pacific China Holdings Ltd v Grand Pacific Holdings Ltd (Hong Kong Court of First Instance, 29 June 2011) at [90]. The approach is similar to that taken by Australian courts in misconduct cases, discussed above. 55 Pacific China Holdings Ltd v Grand Pacific Holdings Ltd (Hong Kong Court of First Instance, 29 June 2011) at [97].

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procedural order, the tribunal had spelt out that leave would be required in order for

either party to submit new material, and that leave would not be granted unless the new

material was sensational. The Court noted that the tribunal had not considered the

content or subject matter of the authorities the applicant wished to rely on, and as a result,

there was no basis on which the tribunal could say whether or not the authorities met the

sensational standard. It is not clear from the judgment however to what extent the

applicant had argued in its leave application that the authorities were indeed sensational,

and whether in this respect the tribunals refusal to grant leave violated the applicants

right to be heard. As to the Courts discretion, the respondent pointed to a ruling in the

award to contend that Taiwanese law was not in any event relevant. The Court refused to

consider what the tribunal said in its award on this matter. The Court simply said that it

could not exclude the possibility that had the tribunal considered the additional

authorities the result could not have been different, and set aside the award.56

Returning south to New Zealand, a more nuanced approach was adopted by the High

Court in Todd Petroleum Mining Co Ltd v Shell (Petroleum Mining) Co Ltd, in which the

Court considered the tenability of wrongly excluded submissions. One of the issues was

whether a party was denied the opportunity to present arguments on fiduciary obligations.

The Court was cautious not to make a final determination about the actual correctness of

any proposed submission. Rather, Justice Dobson said that [w]here it can be

demonstrated that an argument, although tenable, is very unlikely to produce any

materially different outcome on re-argument, then that is a legitimate factor against

granting relief .57 This approach made sense in the context of the proceedings. The

award at issue was an interim award in a large and complex dispute, and parts of it had

already been set aside on the application of both parties on other grounds. Dobson J

accepted that at a superficial level, the excluded arguments had a realistic prospect of

influencing the outcome. Because the arbitration was ongoing, those arguments were

56 As an aside, some of the Courts reasoning with respect to the alleged breaches of due process seems premised on standards of procedural fairness normally expected in litigation. Those standards do not necessarily apply in arbitrations. 57 Todd Petroleum Mining Co Ltd v Shell (Petroleum Mining) Co Ltd (HC Wellington, CIV 2008-485-2816, 17 July 2009, Dobson J) (NZ) at [80].

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able to be submitted to the tribunal when the arbitral proceedings resumed. The judge

concluded: I am readily satisfied that the respective arguments not addressed raise

tenable grounds in favour of a different outcome. Once I am persuaded of that point, I

consider it inappropriate to undertake any evaluation of the relative strength of the

arguments to alter the outcome in light of the numerous alternative courses for the future

of this dispute.58 The approach in Todd is similar to the middle-ground reached in

Brunswick Bowling, except that in Todd the Court attempted to explain in more detail

how it would assess the impact of the tribunals failure to respect the parties right to be

heard.

In a final New Zealand example, Redcliff Estates Ltd v Enberg, it was argued that a

breach of art 24(3) was immaterial to the tribunals findings in the award. The Court read

the award and concluded that the evidence which had not been provided to the art 34

applicant was highly material to certain findings. The Court regarded the non-disclosure

as breach of natural justice at a basic level, and set aside the award.59

(b) Examples

Immateriality has often been argued in support of the exercise of the courts discretion

not to set aside or refuse enforcement but the argument has succeeded infrequently. The

following are examples of violations held to be immaterial:

use of wrong procedure, where the cost implications were minimal;60

use of own evidence by tribunal without disclosure to the parties;61

denial of opportunity to respond to tribunal reasoning.62

58 Idem. 59 Redcliff Estates Ltd v Enberg Redcliff Estates Ltd v Enberg (HC Christchurch, M150/99, 22 July 1999, Panckhurst J) (NZ) at 12-13 noted [2003] NZLJ 106. 60 China Agribusiness Development Corp v Balli Trading [1998] 2 Lloyds Rep 76 (the effect of a change in rules from those initially agreed to was only an extra 1,500 in fees). 61 Caudwell & Ors v Gosling (HC Auckland, CIV2005-404-84, 9 May 2005, Williams J) (NZ) at [68] (the violation either did not infringe art 24(4) or infringed only to an inconsequential degree). 62 Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd (Hong Kong Court of First Instance, 10 February 2009) at [45].

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Waiver and estoppel

Recognition of waiver and estoppel principles

In Yukos Oil Co v Dardana Ltd, the English Court of Appeal remarked that the provision

in the English Arbitration Act giving effect to art V of the New York Convention cannot

introduce an open discretion. Instead:63

The use of the word may must have been intended to cater for the possibility that, despite the

original existence of one or more of the listed circumstances, the right to rely on them had been lost,

by for example another agreement or estoppel.

Estoppel as it has developed in English law as a principle of equity is widely recognised

in common law legal systems, but the precise requirements of equitable estoppel do not

have universal currency and the equitable principle does not merit as one of general

application in the context of arts 34 and 36 of the Model Law.64 The general principle of

waiver on the other hand, is universal. Although often termed estoppel, there is no

need to show detrimental reliance as is sometimes required by the equitable rules. The

ICSID Arbitration Rules provide that a party which fails to state its objection promptly

shall be deemed to have waived its right to object, subject only to the provisions of the

ICSID Convention regarding a partys failure to appear or to present its case.65 The ICC

and LCIA rules provide for deemed waivers on an unqualified basis.66 The UNCITRAL

rules deem that the right to object be waived unless the failure to object promptly can be

justified.67 The waiver principle is given statutory recognition in non-Model Law

legislation, such as the 1996 English Act.68 In the Model Law itself, art 4 provides:

A party who knows that any provision of this Law from which the parties may derogate or any

requirement under the arbitration agreement has not been complied with and yet proceeds with the

63 Yukos Oil Co v Dardana Ltd [2002] 1 All ER (Comm) 819; [2002] 2 Lloyds Rep 326 (EWCA) at [8] and [18]; affirmed Dallah Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46. See also Kanoria v Guinness [2006] 1 Lloyds Rep 701 (EWCA). 64 See Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKCFA 40 at [17] (Litton PJ). 65 ICSID Arbitration Rules, r 27. 66 ICC Rules of Arbitration (2012), art 39; LCIA Arbitration Rules (1998), art 32.1. 67 UNCITRAL Arbitration Rules (2010), art 32. 68 Arbitration Act 1996 (Engl), s73.

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arbitration without stating his objection to such non-compliance without undue delay or, if a time-

limit is provided therefor, within such period of time, shall be deemed to have waived his right to

object.

The waiver principle backs-up the duty of good faith which binds parties to an

international commercial arbitration,69 since it requires a party which is aware of an issue

to put forward its arguments at an early stage and not keep them up its sleeve pending the

outcome in the award. From a practical perspective, waiver supports the validity of the

arbitral process, in the sense that the process stands unless a party objects.70 Waiver is

particularly justified in the context of arbitration, since arbitration is premised on the

agreement of the parties, and waiver operates as a form of deemed agreement based on

conduct and knowledge.

Application of the waiver principle under arts 34 and 36

(a) Distinction between local and Convention awards

Article 4 of the Model Law applies to local awards, but not to Convention awards.71 The

general waiver principle applies to Convention awards.72 Therefore:

the limitation in art 4 with respect to non-derogable or mandatory

requirements applies to local awards only (and in any event, the mandatory

requirements of the Model Law do not apply to Convention awards); and

in relation to local awards, art 4 waiver may preclude reliance on arts 34

and 36, independently of the courts discretion under arts 34 and 36.73

69 G Born International Commercial Arbitration (Kluwer, 2009) at 1008-09. 70 Fraport AG Frankfurt Airport Services Worldwide v Republic of Philippines ICSID Case No ARB/03/25 Decision on Annulment (23 December 2010) at [205]. 71 Model Law, art 1(2). 72 See e.g., China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] 3 HKC 375. 73 During the Model Law negotiations, drafters did not refer to the courts discretion under arts 34 and 36 to give effect to art 4. See generally H M Holtzmann and J E Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer, 1989) at 921-922 and 1058.

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In relation to local awards, the terms of art 4 exclude waiver of mandatory Model Law

requirements. This is sometimes overlooked.74 New Zealand case law has identified the

core natural justice rights to be heard by an impartial tribunal reflected in arts 12,75 18

and 2476 as mandatory.77 The NZ approach is generally in accordance with the Model

Law travaux prparatoires which indicate that arts 16, 27, 30(2) and 31(1), (3) and (4) are

mandatory, in addition to arts 18 and 24(2) and (3).78 Subject to the limitation in respect

of mandatory requirements, the effect of waiver is that a party which fails to object

promptly to a matter arising in an arbitration will forfeit its right to subsequently

complain about the matter in art 34 or art 36 proceedings. The application of those

grounds relating to incapacity of a party, the validity of the arbitration agreement,

observance of the agreement of the parties and the non-mandatory provisions of the

Model Law in relation to composition of the tribunal and arbitral procedure, and the

scope of matters dealt with by the award, may thus be limited by virtue of a deemed

waiver.79 Post-award, and in relation to Convention awards, the UK Supreme Court

recently affirmed in Dallah that there is no obligation on an award debtor to actively

challenge an award by way of an action to set aside the award, so that a decision not to

challenge the award is not by itself a waiver of the right to resist its enforcement

elsewhere.80

74 Alexander Property Developments v Clarke (HC New Plymouth, CIV 2004-443-89, 10 June 2004, Baragwanath J) (NZ) at [33] (art 4 was held to apply to a waiver of art 24(3) rights in an art 34 application). 75 Banks v Grey District Council [2004] 2 NZLR 19 (CA) (describing the right to an impartial arbitrator as a fundamental norm under the Arbitration Act 1996 (New Zealand)). 76 Redcliff Estates Ltd v Enberg Redcliff Estates Ltd v Enberg (HC Christchurch, M150/99, 22 July 1999, Panckhurst J) (NZ) noted [2003] NZLJ 106. 77 See generally Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95 (HC) at [44] (upheld on appeal [2004] 3 NZLR 454 (CA) at [116]). 78 H M Holtzmann and J E Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer, 1989) at 198, 480, 538, 1119 and 1120. See also Bayview Irrigation District #11 v United Mexican States [2008] OJ No 1858 (SC); Dreyfus v Holding Tusculum (QSC, QCCS 5903, 8 December 2008). 79 Model Law, art 34(2)(a)(i), (iii), and (iv) and art 36(1)(a)(i), (iii), and (iv); Analytical Commentary on the Draft Text of a Model Law on International Commercial Arbitration: Report of the Secretary General, A/CN.9/264 at 17 and 73. 80 Dallah Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 at [23] and [28] (Lord Mance) and [103] (Lord Collins).

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At first, waiver under art 4 of the Model Law appears to have narrow application as

compared to other national laws. Under the English Act, for example, there is no express

limitation to the statutory recognition of waiver relating to any mandatory requirements

of an arbitration.81 That said, a ground for setting aside or refusing enforcement in art

34(2)(a) or art 36(1)(a) may also raise questions of non-arbitrability or public policy

under art 34(2)(b) or art 36(1)(b). As explained below, as a general matter, the extent to

which the non-arbitrability and public policy grounds may be waived is qualified. This

qualification applies regardless whether the award is a local or Convention award (and

regardless whether the waiver is asserted in a Model Law jurisdiction or elsewhere).

(b) Application of waiver as part of the courts discretion

The waiver principle has been applied widely by courts to justify enforcement of an

award, despite the presence of what would otherwise suffice as a ground for setting aside

or refusing enforcement. In most of the cases reviewed, waiver has been applied in the

exercise of the courts discretion under arts 34 and 36 some examples are given below.

These cases include cases relating to local awards, even though the discretion is

unnecessary in the sense that by virtue of art 4, a party is precluded from relying on art 34

and art 36 in respect of violations of non-mandatory rules. This preclusive effect has

been recognised in relation to some Convention awards: i.e., in some cases the court has

applied the waiver principle in its determination whether a ground for refusing

enforcement has been established, rather than in the exercise of the discretion in art 36(1).

In these cases the court has recognised a waiver rule under the law applicable to the

arbitration, precluding reliance on any defect in the arbitral proceedings for the purposes

of establishing a ground for refusing enforcement under art 36.82

(c) Examples

Waiver has been raised successfully in support of the exercise of the courts discretion

not to set aside or refuse enforcement including, for example, in relation to the following: 81 Arbitration Act 1996 (Engl), s73. 82 E.g., Swisher Hygiene Franchise Corp v Hi-Gene Ltd (2009) PRNZ 292 (HC) (NZ) (upheld on appeal).

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incapacity of a party;83

failure by tribunal to give notice as to inspections by its experts;84

refusal by tribunal to order further discovery of documents;85

use of own evidence by tribunal where party fails to present its case;86

non-party status of a party in respect of the arbitration agreement;87

excess of jurisdiction by the tribunal;88

consolidation of disputes into a single arbitration;89

irregular appointment of the tribunal;90

non-compliance with the parties agreement as to expedited procedures;91

non-compliance with institutional rules on tribunal appointments;92

application of wrong version of institutional rules;93

insufficiency of reasons in the award.94

83 Shantou Zheng Ping Xu Yueli Shu Kuao Trading Co Ltd v Wesco Polymers Ltd [2001] HKCU 1367 at [20](c) (irresistible grounds for exercising the courts discretion; PRC award enforced). 84 Hebei Import & Export Corporation v Polytek Engineering [1999] 1 HKLRD 665 at [96] and [104] (Convention award enforced). 85 Karaha Bodas Co LLC v Persusahaan Pertambangan Minyak Dan Gas Bumi Negara (No 2) [2003] 4 HKC 488 (application was belated; Convention award enforced). 86 Nanjing Cereals, Oils and Foodstuffs Import & Export Corp v Luckmate Commodities Trading Ltd (Supreme Court of Hong Kong, MP 1167/1994, 16 December 1994, Kaplan J) (the lack of prejudice to the defendant was reinforced by the fact that the tribunals calculation resulted in a lower award than that claimed by the plaintiff). 87 Altain Khuder LLC v IMC Mining Inc [2011] VSC 1 at [98]. 88 Attorney General v Tozer (No 3) (HC Auckland, M1528-IM02 CP607/97, 2 September 2003, Heath J) (NZ) at [46] and Cooper v Symes (HC New Plymouth, AP10/00, AP 23/00, 20 December 2000, Randerson J) (NZ) at [57] (no objection under art 16; local awards not set aside). 89 Karaha Bodas Co LLC v Persusahaan Pertambangan Minyak Dan Gas Bumi Negara (No 2) [2003] 4 HKC 488 (parties proceeded to the consolidated hearing without objection; Convention award enforced). 90 Karaha Bodas Co LLC v Persusahaan Pertambangan Minyak Dan Gas Bumi Negara (No 2) [2003] 4 HKC 488 (no irregularity and even if there was one the right to object was waived by failure to promptly challenge the award; Convention award enforced). 91 Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd (Hong Kong Court of First Instance, 10 February 2009) at [90] (local award not set aside). 92 China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] 3 HKC 375 (no formal objection made to the wrong procedure for appointing a CIETAC tribunal; waiver and materiality principles supported enforcement of a Convention award). 93 Wuzhou Port Foreign Trade Development Corp v New Chemic Ltd (Hong Kong Court of First Instance, HCCT 44/2000, 8 December 2000, Burrell J) (application of correct rules could have deprived the tribunal of jurisdiction; CIETAC award enforced in Hong Kong). 94 Thoroughvision Pty Ltd v Sky Channel Pty Ltd [2010] VSC 139 at [62] (obiter; even if there was misconduct, given the Courts discretion the award would not have been set aside, including because the parties agreed to cost effective and proportionate arbitral proceedings).

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Principles of justice and fairness

Annulled awards

The ground for refusing enforcement in art 36(1)(a)(v) refers to an award which is not yet

binding on the parties, or has been set aside or suspended by a court of the country in

which, or under the law of which, the award was made. It replicates art V(1)(e) of the

New York Convention. This provision of art 36, and its New York Convention parent,

pose the discrete question of when a court may, in its discretion, enforce an annulled

Convention award. As is well known, there has been extensive debate as to the

relationship between an award and the legal system of the seat of the arbitral proceedings.

It is not the purpose of this paper to wade into that debate. Instead, what is offered here

is a brief assessment of the likely stance a New Zealand court would take, if the issue

arose before a New Zealand court. That stance would, in all likelihood, be a middle-

ground.95

First, it is conceivable that a New Zealand court could be persuaded to exercise the art

36(1) discretion to enforce an annulled foreign award where the annulment is tainted by

discrimination or arbitrariness, and offends against the courts sense of justice.96 It seems

doubtful however that a New Zealand court would enforce an annulled award on the

wider doctrinal basis, evident in French law (for example), that an award is not integrated

into any legal system until given effect by an enforcement order.97 In CBI NZ Ltd v

Badger Chiyoda, the New Zealand Court of Appeal approved the statement of Kerr LJ in

Bank Mellat v Helliniki Techniki SA98 that our jurisprudence does not recognise the

concept of arbitral procedures floating in the transnational firmament, unconnected with

95 This is the view given in a text co-written by the author, Williams & Kawharu on Arbitration (LexisNexis, forthcoming 2011/2012). 96 See TermoRio SA ESP v Electranta SP 487 F3d 928 (DC Cir, 2007) (no evidence that the setting aside proceedings in the seat were tainted; enforcement of annulled award was refused). TermoRio is criticised in G Born International Commercial Arbitration (Wolters Kluwer, 2009) at 2685-2687 for giving effect to an annulment decision which itself was inconsistent with New York Convention principles. 97 See e.g. the French decision PT Putrabili Adyamulia v Socit Rena Holding et Socit Mnogutia Est Epices (2007) 32 Yb Comm Arb 299. 98 Bank Mellat v Helliniki Techniki SA [1984] QB 291 at 301.

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any municipal system of law.99 The CBI case was decided in a different context

(concerning the right to appeal), and before enactment of the current 1996 NZ Act.

Nonetheless it is reflective of the general respect for the role of the law of the seat (and

the parties choice of that seat) which is well established in New Zealand. Finally, the

NZ Act refers courts to the Model Law drafting history for guidance on interpretation

issues,100 and the drafting history on point would likely be influential. That drafting

history records a proposal to exclude from art 36(1)(a)(v) awards which had been set

aside on grounds other than those in arts 36(1)(a)(i)-(iv). The proposal was rejected by

the drafters for being too ambitious and difficult to apply.101

Invalidity of arbitration agreement under a foreign law

Applying similar reasoning, for the purpose of art 34(2)(a)(i) and art 36(1)(a)(i), where an

arbitration agreement is invalid under a foreign law, the discretion could be used to

enforce an award if that law was contrary to the courts sense of justice. This possibility

was recognised in the Dallah case, by Lord Collins for the Supreme Court.102 Again, it is

highly unlikely a New Zealand court would rely on its discretion to refuse to apply a

foreign law on the wider basis of its irrelevance. At the same time, there is a ready

alternative to reliance on the discretion in such cases provided by art 34(2)(b)(ii) and art

36(1)(b)(ii) in the form of the familiar public policy ground for setting aside and refusing

enforcement.103 Characterising issues concerning the application of a foreign law as

raising issues of justice and fairness, in aid of the exercise of the discretion, does not

seem to add much to a reviewing courts armoury.

99 CBI NZ Ltd v Badger Chiyoda [1989] 2 NZLR 669 (CA) at 694 (Barker J). 100 Arbitration Act 1996 (New Zealand), s3. 101 H M Holtzmann and J E Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer, 1989) at 1061. Compare J Paulsson The case for disregarding local standard annulments under the New York Convention (1996) 7 Am Rev Intl Arb 99. 102 Dallah Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 at [128]. 103 See TermoRio SA ESP v Electranta SP 487 F3d 928 (DC Cir, 2007) (accepting a public policy gloss to art V(1)(e) of the New York Convention).

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Limitations on the exercise of the discretion

Procedural irregularities including procedural public policy issues

Most procedural irregularities may be waived although, as noted, in the case of local

awards, art 4 excludes waiver in respect of mandatory Model Law requirements. Most

procedural irregularities will also be amenable to the exercise of the discretion on

materiality and causation grounds. However, the rights to receive notice and to be heard

by an unbiased tribunal are irreducible minimums of natural justice for all arbitrations. In

some Model Law jurisdictions, an award is expressly deemed to be in conflict with public

policy if a breach of natural justice occurred during the proceedings or in connection with

the making of the award.104 Thus while the mode of exercise of procedural rights can be

measured in degrees, there is still a minimum requirement below which an enforcing

court, taking heed of its own principles of fairness and due process, cannot be expected to

approve.105

(a) Materiality and causation

For example, a failure to give proper notice, which results in the respondent having no

opportunity to present its case at all, is an irregularity which cannot be rescued by the

courts discretion on materiality grounds. In Asian Foods, the Court did not accept the

applicants contention that proper notice had not been given, but proceeded to decide the

application on the basis that the award was in any event correct on the merits.106 The

application was misconceived but, with respect, the Courts approach was as well.107 In

an English case, ASM Shipping Ltd of India v TTMI Ltd, it was argued that the apparent

partiality of the tribunal was immaterial. The Court, expressing profound disagreement

with earlier conflicting authority on point, insisted that [i]t is contrary to fundamental

principles to hold that an arbitral award made by a tribunal which is not impartial is to be

104 Including New Zealand, Australia, Singapore, and Scotland. 105 Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKLR 39 at [76]. 106 Asian Foods West City Ltd v West City Shopping Centre Ltd (HC Auckland, CIV-2007-404-001215, 11 September 2007, Harrison J) (NZ) 107 As to the fundamental right to notice, see John v Rees [1970] 1 Ch 345.

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enforced unless it can be shown that the bias has caused prejudice.108 The sentiment

applies equally to the courts discretion under the Model Law, arts 34 and 36. This paper

does not attempt to draw further any line between what is permissible and what is not

beyond these generalities, since much will depend on the circumstances of each case.

(b) Waiver

It was argued in Paklito that the Courts discretion could not be relied on to give effect to

a waiver in respect of a public policy matter, but it was unnecessary for the Court to

decide the point.109 As noted, certain minimum procedural requirements must be adhered

to in order for a process to retain its character as an arbitral one. For example, in the

IBAs Guidelines on Conflicts of Interest in International Arbitration, there is a class of

non-waiveable arbitrator conflicts. In considering the effect of a purported agreement

to contract out of art 34 altogether, the New Zealand High Court in Methanex Motunui v

Spellman said:110

If the parties say that they want arbitration, but in the same breath say that they do not want

enforceable natural justice, their two statements are incompatible. Arbitration is a process by

which a dispute is determined according to enforceable standards of natural justice. The scope of

the particular natural justice to be applied in a given case may be modified by agreement. But

enforceable natural justice cannot be excluded altogether if the process is to remain arbitration.

Along these lines, a question for the court will be whether the defect is so serious, that

any purported waiver effectively excludes respect for natural justice principles and

deprives the process of its arbitral character. Subject to this qualification, the possibility

that waiver may apply to procedural public policy is illustrated by the Hebei case, where

108 ASM Shipping Ltd of India v TTMI Ltd [2005] EWHC 2238 (Comm) at [33]. 109 Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKLR 39 at [73]. 110 Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95 at [50] (HC) (upheld on appeal). C.f. Food Services of America, Inc v Pan Pacific Specialities Ltd (1997) BCLR (3d) 225 in which the Court upheld an express clause waiving art 36 in its entirety. However, the issue was only whether the respondent had waived art 36(1)(a)(iv) in relation to alleged non-compliance with the agreed arbitral procedure.

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Sir Anthony Mason NPJ said, in relation to whether a court would refuse to enforce an award affected by a serious procedural failure founding a conflict with public policy:111

Whether a court would so act in such a case would depend in very large measure on the particular

circumstances. It is difficult to imagine that a court would do so, if enforcement were contrary to

public policy, but there is no reason why a court could not do so where, as here, the factual

foundation for the public policy ground arises from an alleged non-compliance with the rules

governing the arbitration to which the party complaining failed to make a prompt objection,

keeping the point up its sleeve, at least when the irregularity might be cured.

In another example, an ICSID annulment decision, Fraport v Philippines, the ad hoc

Annulment Committee viewed fundamental rules of procedure in jurisdictional terms,

that an award is binding when a tribunal acts under a valid submission, and faithfully

adheres to the fundamental principles of law governing its proceedings. 112 The

Committee accepted the possibility of a waiver of a fundamental procedural right (in this

case, an aspect of the right to be heard), but none was established on the facts. This fits

with the reasoning earlier that waiver is a form of deemed agreement, that jurisdiction is a

matter of agreement between the parties, and that therefore jurisdiction matters

including with respect to procedural matters may be waived.

Non-arbitrability and non-procedural public policy

Relatively little has been said about the extent to which a party may waive objections

based on the non-arbitrability and non-procedural public policy grounds for setting aside

and refusing enforcement. Gary Born suggests that a party is capable of waiving almost

all non-arbitrability objections, and also that considerations similar to waiver must be

relevant to public policy objections to recognition of an award (emphasis added).113 He

concedes that it is difficult in principle to conclude that public policies may be waived, in

111 Hebei Import & Export Corporation v Polytek Engineering [1999] 1 HKLRD 665 at 690. 112 Fraport AG Frankfurt Airport Services Worldwide v Republic of Philippines ICSID Case No ARB/03/25 Decision on Annulment (23 December 2010) at [182], citing the International Law Commissions Commentary to its Draft Convention on Arbitral Procedure. 113 G Born International Commercial Arbitration (Kluwer, 2009) at 2620 and 2862.

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the strict sense, given that both the non-arbitrability and public policy grounds may be

raised ex officio by the court.114

The courts ability to raise these grounds ex officio and the necessarily qualified effect of

any waiver in respect of them, reflect that a private arbitration may affect the interests of

third parties and / or the public interest more generally. These grounds represent a policy

limitation on the kinds of disputes which may be arbitrated and in this sense have nothing

to do with the parties agreement to arbitrate and are not therefore amenable to waiver by

them. The extent to which third party interests including the integrity of the court being

asked to enforce the award are affected, as opposed to the personal rights of the party

making the complaint, should thus guide the court in determining whether to recognise a

waiver of a non-arbitrability or public policy complaint. Non-procedural public policy

issues, because they are more likely to affect third party interests than procedural ones,

are less likely to be able to be waived. As with limitations to the materiality and

causation principles, this paper does no more than describe the limitations to waiver in

these general terms; much will depend on the individual circumstances of each case.

Jurisdiction

It makes no sense to speak of materiality or causation in relation to an award made

without jurisdiction, where the tribunal had no basis to adjudicate.115 If the claim is that

the award included a decision on a matter beyond the scope of the submission, the same

principle applies: a tribunal cannot act beyond its jurisdiction. In Schreter v Gasmac Inc,

Feldman J contemplated exercising the discretion to enforce an award for approximately

US$90,000, when only an insubstantial part of the award, of around US$750, was

attributable to a possible excess of jurisdiction by the tribunal. The more important

reason for enforcing the award, according to the Ontario Court, was that the issue to 114 G Born International Commercial Arbitration (Kluwer, 2009) at 2632. See Model Law, arts 34(2)(b) and 36(1)(b). 115 See Dallah Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2011] 1 All ER 383 at [69] (Lord Mance) and [127] (Lord Collins) (whether the applicant was a party to the arbitration agreement); The United Mexican States v Cargill Inc [2011] ONCA 622 (whether the tribunal had exceeded the terms of the submission must be determined by a correctness standard).

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which the smaller amounted related was, under the applicable law, within the submission

to arbitration.116 Some twenty years later, in Mexico v Cargill Inc, Feldman JA (as he

now is) affirmed the normal rule, that when the issue is whether the award complies with

the submission, the tribunal cannot act beyond its jurisdiction.117 It is expressly provided,

in art 34(2)(a)(iii) and art 36(1)(a)(iii), for the court to set aside part of an award affected

by an excess of jurisdiction.

A defect in the arbitration agreement is clearly a matter which may be waived, subject to

considerations of non-arbitrability and public policy. Examples of jurisdiction waivers

are given above.

IV CONCLUSIONS

The outcomes in most of the cases surveyed for this paper are not all that surprising and

are of a consistently high standard, although the outcomes have been reached through

different analytical approaches. In most cases, the existence of the discretion is simply

assumed on the basis of the word may, without discussion. Cross-fertilisation of

principles from non-Model Law jurisprudence is uncommon, apart from references in

some cases to English authorities concerning the enforcement of Convention awards.

Materiality, causation and waiver principles, together with the courts overall sense of

justice, are all factors which have been recognised by courts as having relevance to the

exercise of the discretion in arts 34 and 36 of the Model Law, or in art V of the New

York Convention. Whether these factors are applied to determine if a ground for setting

aside or refusing enforcement has been established, or in the exercise of the courts

discretion, is unlikely to produce different results. Fidelity to the Model Law text

suggests that materiality and causation are factors for the discretion, while waiver may be

applied independently of it with respect to local awards. The waiver concept is

universally recognised and applied. Acceptance of materiality and causation on the other

116 Schreter v Gasmac Inc (1992) 89 DLR (4th) 365 at [43]-[44]. 117 The United Mexican States v Cargill Inc [2011] ONCA 622 at [40].

DRAFT

29

hand has been uneven. In addition, limitations on the exercise of the discretion are not

always fully recognised.