Droit international général

In Bi Xiaoqing v China Medical Technologies [2019] SGCA 50, the Singapore Court of Appeal provided clarity on the extent of the court’s power to grant Mareva relief in support of foreign proceedings.

The first and second respondents were companies incorporated in the Cayman Islands and the British Virgin Islands. The action was pursued by the liquidators of the first respondent against the appellant, a Singapore citizen, who was formerly involved in the management of the respondents and allegedly misappropriated funds from them.

Hong Kong proceedings were commenced first and a worldwide Mareva injunction was granted against, inter alia, the appellant. The terms of the Hong Kong injunction specifically identified assets in Singapore.

Two days after the Hong Kong injunction was obtained, the respondents commenced action in Singapore and applied for a Mareva injunction to prevent the defendants from disposing of assets in Singapore. The action in Singapore covered substantially the same claims and causes of action as those pursued in Hong Kong. After the grant of a Mareva injunction on an ex parte basis, the respondents applied to stay the Singapore proceedings pending the final determination of the Hong Kong proceedings on the basis that Hong Kong was the most appropriate forum for the dispute. The High Court granted the stay and confirmed the Mareva injunction in inter partes proceedings.

The issues before the Court of Appeal were: (1) whether the court had the power to grant a Mareva injunction and (2) whether it should grant the Mareva injunction. In other words, the first question dealt with the existence of the court’s power to grant a Mareva injunction and the second question dealt with the exercise of the power.

The Singapore court’s power to grant an injunction can be traced back to section 4(10) of the Civil Law Act which is in these terms: “A Mandatory Order or an injunction may be granted or a receiver appointed by an interlocutory order of the court, either unconditionally or upon such terms and conditions as the court thinks just, either unconditionally or upon such terms and conditions as the court thinks just, in all cases in which it appears to the court to be just or convenient that such order should be made.” The Court of Appeal clarified that section 4(10) of the Civil Law Act should be read as conferring on the court the power to grant Mareva injunctions, even when sought in support of foreign proceedings. Two conditions had to be satisfied: (1) the court must have in personam jurisdiction over the defendant; and (2) the plaintiff must have a reasonable accrued cause of action against the defendant in Singapore.

Given the stay of the Singapore proceedings, the Court of Appeal had to consider if the Singapore court still retained the power to grant Mareva relief. There had been conflicting first instance decisions on this point: see Petroval SA v Stainsby Overseas Ltd [2008] 3 SLR(R) 856 cf Multi-Code Electronics Industries (M) Bhd v Toh Chun Toh Gordon [2009] 1 SLR(R) 1000. The Court of Appeal preferred the Multi-Code approach, taking the view that the court retains a residual jurisdiction over the underlying cause of action even when the action is stayed. This residual jurisdiction grounds the court’s power to grant a Mareva injunction in aid of foreign proceedings. Further, a party’s intentions on what it would do with the injunction had no bearing on the existence of the court’s power to grant the Mareva injunction.

Party intentions, however, was a consideration under the second question of whether the court should exercise its power to grant the injunction. Traditionally, a Mareva injunction is granted to safeguard the integrity of the Singapore court’s jurisdiction over the defendant so that, if judgment is rendered against the defendant, that jurisdiction is not rendered toothless. The court commented that where it appears that the plaintiff is requesting the court to assume jurisdiction over the defendant for the collateral purpose of securing and safeguarding the exercise of jurisdiction by a foreign court, the court should not exercise its power to grant Mareva relief. On the facts, the court held that it could not be said that the respondents had such a collateral purpose as there was nothing on the facts to dispel the possibility that the respondents may later request for the stay to be lifted. This conclusion suggests that the court would generally take a generous view of litigation strategy and lean towards exercising its power in aid of foreign proceedings.

Given the requirement that the plaintiff must have a reasonable accrued cause of action against the defendant in Singapore, a Mareva injunction is not free-standing relief under Singapore law. The court emphasized that a Mareva injunction in aid of foreign court proceedings is still ultimately premised on, and in support of, Singapore proceedings. This stance means that service in and service out cases may end up being treated differently. If the defendant has been served outside of jurisdiction and successfully sets aside service of the writ, there would no longer be an accrued cause of action in Singapore on which to base the application for a Mareva injunction. See for example, PT Gunung Madu Plantations v Muhammad Jimmy Goh Mashun [2018] SGHC 64, [2018] 4 SLR 1420 (see previous post http://conflictoflaws.net/2018/mareva-injunctions-under-singapore-law/). On the other hand, if the defendant had been served as of right within jurisdiction and the action is stayed (as in the present case), the court retains residual jurisdiction to grant a Mareva injunction.

After a restrictive court ruling in relation to the court’s power to grant free-standing Mareva relief in aid of foreign arbitrations, the legislature amended the International Arbitration Act to confer that power to the courts. It remains to be seen if the legislature would act similarly in relation to the court’s power to grant free-standing Mareva relief in aid of foreign proceedings.

To a certain extent, this lacuna is plugged by the recent amendments to the Reciprocal Enforcement of Foreign Judgments Act (“REFJA”) (see previous post http://conflictoflaws.net/2019/reform-of-singapores-foreign-judgment-rules/). Under the amended REFJA, a judgment includes a non-monetary judgment and an interlocutory judgment need not be “final and conclusive”. In the Parliamentary Debates, the minister in charge made the point that these specific amendments were intended to enable the court to enforce foreign orders such as Mareva injunctions. Only judgments from certain gazetted territories qualify for registration under the REFJA. To date, HK SAR is the sole listed gazetted territory although it is anticipated that the list of gazetted territories will expand in the near future. While the respondents had in hand a Hong Kong worldwide Mareva injunction, the amendments to REFJA only came into force after the case was decided.

The judgment may be found at: https://www.supremecourt.gov.sg/docs/default-source/module-document/judgement/ca-188-2018-j—bi-xiaoqiong-pdf.pdf

https://www.bailii.org/ew/cases/EWCA/Civ/2020/144.pdf

I reviewed [2018] EWHC 3506 (QB) Kalma v African Minerals et al in an earlier post. It essentially entails vicarious liability of UK-incorporated companies (jurisdiction firmly settled therefore) for human rights abuses committed by Sierra Leone police (SLP), who ensured security at the defendants’ mine. All claims were held to have failed and the Court of Appeal in [2020] EWCA Civ 144 has confirmed same on 17 February (a little before the important SCC ruling in Nevsun).

The High Court’s discussion of the factual involvement of the companies with SLP activities, required to establish vicarious liability, as I noted at the time has echoes of the discussion on the level of oversight required for mother companies to be held liable for subsidiaries’ actions (such as e.g, in Apartheid, Shell (in The Netherlands) or of course in Vedanta). (The case otherwise does not raise the kind of jurisdictional or applicable law issues readers often find on this blog).

Of most relevance for the corporate social responsibility (CSR) issues are the grounds of appeal concerning the alleged duty of care owed, discussed at 110 ff: appellants say that the judge wrongly approached this case as a case of “pure omissions” and that, instead, he should have considered the existence of the duty by reference to first principles and, in particular, the three elements identified in Caparo v Dickman, namely foreseeability, proximity and whether or not such a duty was fair, just and reasonable (Ground 3). The appellants also have an alternative case that, if this was a case of pure omissions, the judge should have found that it was one of the recognised exceptions to the rule, namely that it involved the creation of the danger by the respondents themselves (Ground 4). Core factual consideration in all this are the money, vehicles and accommodation provided to the SLP, which the judge had found was common in Sierra Leone.

Coulson LJ reiterated with the judge that the duty of care tenet was one of omission: failure to protect the claimants (the respondents, arguendo, having failed to protect the claimants from the harm caused by the SLP). Extensive analysis of Turner J’s judgment at the High Court found no reason to reach a different conclusion than his.

Geert.

(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 8, Heading 8.3.

 

On 14 of February 2020 a new law undermining the independence of judiciary in Poland (a so-called “muzzle law“) entered into force.

The Act of Law of 20 December 2019 bars judges from, among other things, contesting the status of other judges or the legality of their appointment (an English version of the draft Act, almost identical to the Act as adopted, is available here) .

The act is a reaction to (i) the CJEU judgment of 19 November 2019 in the AK case, by which the Court asked Polish judges to verify the conformity of the new Disciplinary Chamber of the Supreme Court with EU law, and (ii) the subsequent judgment of another chamber of the Polish Supreme Court of 5 December 2019 finding that the Disciplinary Chamber does not comply with EU law (an English version can be found here).

According to the new Act, judgments corresponding with the one laid down by Supreme Court on 5 December 2019 would be prohibited. Defecting judges can be removed from the profession.

The law has provoked strong reactions from the European institutions already at the stage of the legislative process.

The Vice-President of the European Commission, Věra Jourová, wrote on 19 December 2019 a letter to the Polish President, the Prime Minister and the Presidents of both chambers of the Parliament. The letter states that the rules of the new legislation “touch upon matters such as judicial independence, further raising the Commission’s existing concerns in this area”.

In the letter, Ms Jourová also encouraged “the Polish authorities to consult the Council of Europe’s Venice Commission on this draft legislation”, and invited “all State organs not to take forward the proceedings on the new draft legislation before carrying out all the necessary consultations”.

On 11 January 2020 a “March of 1000 Gowns” demanding “the right to independence, the right to Europe” took place in Warsaw. Polish judges supported by 50 judges from other European countries, together with thousands of citizens, protested against the draft law.

The Venice Commission adopted on 16 of January 2020 an urgent joint opinion on the draft law. The remark is made in the opinion that, by virtue of some of the amendments to the law, “the judges’ freedom of speech and association is seriously curtailed”: Polish courts will be effectively prevented from examining whether other courts within the country are ‘independent and impartial’ under the European rules”.

On 28 January 2020, the Parliamentary Assembly of the Council of Europe (PACE) opened a monitoring procedure for Poland over the functioning of its democratic institutions and the rule of law. In its resolution 2316(2020) it declared that recent reforms in Poland “severely damage the independence of the judiciary and the rule of law”.

The law was adopted anyway. An open question is what impact it will  have on the mutual trust and the mutual recognition of judgments in the European Union. Polish ‘reforms’ resulted already in the rebuttal of the presumption of mutual trust in the context of recognition of judgments in criminal matters (judgment of 25 July 2018 in the LM case, analysed here). But the restriction of the independence of the judiciary has a potential impact on all acts providing for the mutual recognition of judgments, in both criminal and civil matters.

It can be particularly challenging for judges applying norms of EU Private International Law. 

Recognition of civil judgments given by a court or tribunal of a Member State should take into account that the CJEU treats a “court” as an autonomous concept of EU law.

The CJEU elaborated on this notion, among other rulings, in Ibrica Zulfikarpašić (§43) and Pula Parking (§53), where it stated that due to the principle of mutual trust, EU law requires “that judgments the enforcement of which is sought in another Member State have been delivered in court proceedings offering guarantees of independence and impartiality”.

The above-mentioned doubts expressed by the European Commission and PACE appear to challenge that requirement.

Photo: Courtesy of Jakub Włodek / Agencja Gazeta

Dário Moura Vicente (University of Lisbon) has published the second edition of his monograph on international intellectual property (A Tutela Internacional da Propriedade Intelectual).

The books covers the traditional issues of jurisdiction and applicable law. It also discusses the merits and limits of international harmonisation in the field, and extra-judicial remedies.

More details are available here.

The last issue of the Revue critique de droit international privé for 2019 has just been released. It contains numerous casenotes and one article by Poul F. Kjaer (Copenhagen Business school) on the sociological idea of connectivity and private international law (L’idée de “connectivité” et le droit international privé).

The article is a revised translation of a paper by the same author titled Constitutionalizing Connectivity: the Constitutional Grid of World Society.

Global law settings are characterized by a structural pre‐eminence of connectivity norms, a type of norm which differs from coherency or possibility norms. The centrality of connectivity norms emerges from the function of global law, which is to increase the probability of transfers of condensed social components, such as economic capital and products, religious doctrines, and scientific knowledge, from one legally structured context to another within world society. This was the case from colonialism and colonial law to contemporary global supply chains and human rights. Both colonial law and human rights can be understood as serving a constitutionalizing function aimed at stabilizing and facilitating connectivity. This allows for an understanding of colonialism and contemporary global governance as functional, but not as normative, equivalents.

A full table of contents is available here.

Readers of our blog may be pleased to learn (if they have not already noticed) that since the beginning of the year, all our posts are automatically published to our brand-new Twitter account.

Whether you want to share and discuss our content or simply to receive all our latest posts directly in your Twitter feed, feel free to follow @PrIL_Blog!

Readers of our blog may be pleased to learn (if they have not already noticed) that since the beginning of the year, all our posts are automatically published to our brand-new Twitter account.

Whether you want to share and discuss our content or simply to receive all our latest posts directly in your Twitter feed, feel free to follow @PrIL_Blog!

News item by Dr Orsolya Toth, Assistant Professor in Commercial Law, University of Nottingham

The University of Nottingham Commercial Law Centre will hold its inaugural Nottingham Arbitration Talk on Wednesday 18 March at 2 pm.  The Centre is delighted to welcome distinguished speakers to the event drawn from both academia and practice.  The Keynote address will be given by Professor Sir Roy Goode, Emeritus Professor of Law at the University of Oxford.  The speaker panel will host Angeline Welsh (Essex Court Chambers), Timothy Foden (Lalive) and Dr Martins Paparinskis (University College London).  

The theme of the event will be ‘Procedure and Substance in Commercial and Investment Treaty Arbitration’.  It will address current and timeless issues, such as the influence of procedure on the parties’ substantive rights, the recent phenomenon of ‘due process paranoia’ in arbitration and the current state of the system of investment treaty arbitration.  For detailed programme and registration please visit https://unclcpresents.eventbrite.co.uk

News item by Dr Orsolya Toth, Assistant Professor in Commercial Law, University of Nottingham

The University of Nottingham Commercial Law Centre will hold its inaugural Nottingham Arbitration Talk on Wednesday 18 March at 2 pm.  The Centre is delighted to welcome distinguished speakers to the event drawn from both academia and practice.  The Keynote address will be given by Professor Sir Roy Goode, Emeritus Professor of Law at the University of Oxford.  The speaker panel will host Angeline Welsh (Essex Court Chambers), Timothy Foden (Lalive) and Dr Martins Paparinskis (University College London).  

The theme of the event will be ‘Procedure and Substance in Commercial and Investment Treaty Arbitration’.  It will address current and timeless issues, such as the influence of procedure on the parties’ substantive rights, the recent phenomenon of ‘due process paranoia’ in arbitration and the current state of the system of investment treaty arbitration.  For detailed programme and registration please visit https://unclcpresents.eventbrite.co.uk

A short post to flag the French Conseil d’Etat’s final ruling in which on 7 February it held that organisms obtained via in-vitro mutagenesis techniques should be subject to GMO regulation and that consequently as EurActiv summarise the French authorities must update regulation to include such crops within six months, which includes identifying the agricultural plant varieties which have been obtained by these techniques and subjecting them to the assessments applicable to GMOs.

The ruling follows the CJEU’s mutagenesis finding in C-528/16, reviewed at the time on Steve Peers’ blog here and subsequently by KJ Garnett in RECIEL here. The ruling put agro-bio industry narrators in a spin but in essence is an utterly logical consequence of EU law.

Geert.

No hearings on requests for a preliminary ruling concerning private international law are scheduled for March 2020. Conversely, several opinions and one judgment will be delivered.

Case C-249, JE

On March 24, AG Tanchev (Bulgaria) will give his Opinion in JE. The case concerns the interpretation of Article 10 of the Rome III Regulation on the law applicable to divorce and legal separation. The issue is whether the expression ‘the law applicable pursuant to Article 5 or Article 8 makes no provision for divorce’ is to be interpreted as merely referring to a situation where the applicable foreign law makes no provision for any form of divorce, or rather as including a situation where the applicable foreign law permits divorce, but does so in extremely limited circumstances.

The original action was brought in Romania in 2016. The applicant filed a petition for divorce claiming that the parties’ marriage should be dissolved, the applicant should return to using the name borne prior to the marriage, parental responsibility in respect of the minor child should be exercised jointly, the minor child should reside with the mother in Italy, and the defendant should be required to pay maintenance and the costs of proceedings.

After some hesitations regarding the general jurisdiction of the Romanian courts and the specific venue, the point was settled and the discussion moved to the applicable law under the Rome III Regulation. According to the court, the matter was governed by Italian law pursuant to Article 8(a) of the Regulation, since the parties were habitually resident in Italy. The court considered that the criteria laid down in Article 8(a) are framed in a hierarchical manner: if the conditions of the first criterion are satisfied, there is no need to look at the following ones.

The national court considered that that the grounds for divorce raised by the applicant are not available under the Italian legislation on divorce, and that that grounds different to those foreseen by the provision can be applied for only where there has been a legal separation of the spouses, which must be established or ordered by a court, and that the delay prescribed by the said legislation has passed since the legal separation itself. Since no provision is made for legal separation proceedings under Romanian law, the Romanian court concluded that those proceedings must be conducted before the Italian courts and therefore any application to that effect made before the Romanian courts is inadmissible.

The applicant lodged an appeal against that judgment, pointing out that, from her point of view, the criteria provided for in Article 8 of the Rome III Regulation are alternative in nature. She also stated that in the light of Italian legislation, the first sentence of Article 10 of the Rome III Regulation is applicable in the case (in my view, if I understand correctly the arguments of the Romanian court, she could have added that the absence of provisions on separation under Romanian law does not allow the court to declare itself incompetent).

Case C-215/18, Primera Air Scandinavia

The judgment in Primera Air Scandinavia is scheduled for 26 March 2020. The request for a preliminary ruling comes from District Court of Prague. It concerns the interpretation of in Article 5(1) and Articles 15 to 17 of the Brussels I Regulation.

The issue submitted to the CJEU arose in the context of an action for compensation brought under Regulation (EC) No 261/2004 by a passenger domiciled in the Czech Republic against an airline established in Denmark, on account of the long delay of a flight operated by that airline, but sold to that passenger, in conjunction with accommodation, by a Czech travel agency.

The opinion of AG Saugmandsgaard Øe (Denmark), of 7 November 2019, proposes the CJEU to answer that Article 5(1) covers an action for compensation brought by a passenger against the operating air carrier, even though those parties had not entered into a contract between them, and although that flight formed part of a package of services supplied under a contract entered into between the applicant and a third party.

On the contrary, Articles 15 to 17 of that regulation must be interpreted as meaning that they are not applicable to such an action. No surprise, considering the previous case law of the Court.

Case C-80/19, EE

The Opinion of AG Campos Sánchez-Bordona regarding the EE case, on the Succession Regulation, will also be issued on 26 March 2020.

The Supreme Court of Lithuania referred six question to the CJEU. Questions number 2 and 3, on the characterization of notaries as “courts” for the purposes of the Regulation, have already been addressed in the case of WB, still pending at the time of the referral.

By the remaining questions, the Lithuanian court conveys to the CJEU doubts related to the cross-border nature of a given succession (linked to that, to the applicability of the regulation when, in the light of the circumstances, its application would not facilitate the assertion of the rights of the heir, but rather the contrary); to the choice of law (implicit, and made during the transitional period), and to the choice of court.

The case concerned the estate of a Lithuanian national, married to a German national, who had moved to live in Germany together with her son (EE, also a Lithuanian national).

While living in Germany, EE’s mother had drawn up a will at a notary office in Kaunas (Lithuania), whereby she designated EE as the heir to her entire estate – an apartment in the same country. After the death of his mother, E.E. moved back to Lithuania, where he contacted the notary office in the City of Kaunas requesting the succession procedure be initiated, and the issuance of a certificate of succession rights. The notary refused to perform the notarial act, for, according to the Succession Regulation, the habitual place of residence of the testatrix was Germany. EE challenged the notary’s refusal before the court of first instance.

The Kaunas district court ruled in favour of EE, annulled the notary’s decision refusing to perform the notarial act, and ordered the notary to open the succession procedure in accordance with the place where the property was registered and to issue a certificate of rights of succession to the estate of the deceased mother.

The court stated that, even though the appellant’s mother had declared her departure to Germany, she was still a Lithuanian national and, on the day of her death, owned immovable property in Lithuania; she had not severed her links with Lithuania, and had visited the country and drawn up her will there.

The Kaunas regional court set aside the ruling of the court of first instance following an appeal lodged by the notary and turned down the appellant’s application. Among other, it stated that the court of first instance had, in annulling the notary’s decision under challenge, unreasonably relied on general principles. The appellant lodged an appeal in cassation against this judgment.

Case C-186/19, Supreme Site Services

AG Saugmandsgaard Øe’s Opinion in this case is scheduled for 26 March 2020, as well.

The Dutch referring court asks about the Brussels I bis Regulation and the meaning of “civil and commercial matters” in a case where an international organisation brings an action to (i) lift an interim garnishee order levied in another Member State by the opposing party, and (ii) prohibit the opposing party from levying, on the same grounds, an interim garnishee order in the future and from basing those actions on immunity of execution.

A public hearing was held in Luxembourg on 12 December 2019, where the CJEU learnt that the Dutch Appellate Court had granted immunity of jurisdiction to Shape and JCFB only two days before. The judges and AG wondered whether a reply to the preliminary reference would still be of any use. The Dutch decision on immunity, the request to the CJEU and the hearing in Luxembourg have been addressed by Geert van Calster in his blog, with a last update on January 2020.

Coronavirus outbreak and force majeure certificate

Due to the outbreak, China has adopted a number of public health measures, including closing schools and workplaces, limiting public gatherings, restricting travel and movement of people, screening , quarantine and isolation. At least 48 cities were locked down by 14 Feb 2020. (here) More than two thirds of China’s migrant workers were unable to return to work, (see here) leaving those firms that have restarted operation running below capacity.  

Coronavirus and the emergency measures significantly affect economic activates in China. The China Council for the Promotion of International Trade (CCPIT), a quasi-governmental entity, issued 3,325 force majeure certificates covering the combined contract value of $38.5bn to exempt Chinese companies from their contractual obligations.

Issuing force majeure certificates is a common practice of trade councils or commercial chambers in the world. These certificates are proof of the existence of relevant events that may constitute force majeure and impinge the company’s capacity to perform the contract. The events recorded in the certificates would include the confirmation of coronavirus outbreak, the nature, extent, date and length of governmental order for lockdown or quarantine, the cancellation of any transportation, etc. These certificate, however, are not legal documents and do not have direct executive or legal effects. They only attest the factual details instead of certifying those events are indeed force majeure in law. They are also called ‘force majeure factual certificate’ by the CCPIT. The CCPIT states in its webpage that:

The force majeure factual certificate is the proof of objective, factual circumstances, not the ‘trump card’ to exempt contractual obligations. The CCPIT issues relevant force majeure factual certificates to Chinese enterprises that are unable to perform contracts due to the impact of the new coronavirus epidemic. The certificate can prove objective facts such as delayed resumption of work, traffic control, and limited dispatch of labour personnel. An enterprise can request for delaying performance or termination of the contract based on this certificate, but whether its obligation can be fully or partially exempt depends on individual cases. The parties should take all the circumstances and the applicable law into consideration to prove the causal link between ‘the epidemic and its prevention and control measures’ and the ‘failure to perform’.

Force Majeure in Different Governing Law

The force certificate is thus mainly used to demonstrate to the other party the existence of certain factual difficulties that hamper performance and seek understanding to privately settle the dispute. If the disputes are brought to the court, the court should consider whether the outbreak and the relevant emergency measure constitute force majeure events pursuant to the governing law, treating the force majeure certificate as evidence of fact. There is no international uniform doctrine of force majeure and different countries adopt different doctrines to allocate contractual risk in unforeseeable change of circumstances. China is a member of the UN Convention on the International Sale of Goods (CISG), which shall apply if the other party has its place of business in another contracting state, or the parties choose CISG by agreement. Article 79 of the CISG provides that a party is exempted from paying damages if the breach is due to an impediment beyond its control, and either the impediment could not have been reasonably foreseen at the time of the conclusion of the contract, or the party could not reasonably avoid or overcome the impediment or its consequences. Although the disease outbreak is unforeseeable, it can only be an impediment if it makes performance impossible. Therefore, if the outbreak only makes production more difficult or expensive, it is not an impediment. There is no consensus as to whether an event that makes performance excessively burdensome can also be counted as an impediment in CISG. In addition, the impediment must uncontrollable. If a Chinese firm could not perform its contractual obligation due to the compulsory lockdown ordered by its local government, this event is out of control. The same applies if a firm manufacturing facial masks cannot deliver on time due to government  requisition. On the other hand, when the Chinese State Council announced the extension of the Chinese New Year holiday to 2 Feb 2020, it was not a compulsory ban and if a firm ‘chose’ not to operate during the extension without additional compulsory order from any  authorities, substantive risk of infection in its place of business, or irreparable labour shortage, the impediment may not be considered as uncontrollable. For the same reason, if a company decided to lock down after a worker tested positive for coronavirus in order to reduce the risk of spreading the disease among its workers, without the high risk and with alternative and less extreme prevention measures available, the impossibility to perform may be considered ‘self-inflicted’ instead of ‘uncontrollable’. Consideration should always be given to the necessity and proportionality of the decision. Furthermore, if the local government imposed compulsory prohibition for work resumption to prevent people gathering, a firm cannot claim uncontrollable impediments if working in distance is feasible and possible for the performance of the contract.

If the other party is not located in a CISG contracting state, whether the coronavirus outbreak can exempt Chinese exporters from their contractual obligations depends on the national law that governs the contracts. Most China’s major trade partners are contracting states of CISG, except India, South Africa, Nigeria, and the UK. Chinese law accepts both the force majeure and hardship doctrines. The party that breaches the contract may be discharged of its obligations fully or partially if an unforeseeable, uncontrollable and insurmountable causes the impossibility to perform. (Art 117 of the Chinese Contract Law 1999) The party can also ask for the alternation of contract if un unforeseeable circumstance that is not force majeure makes performance clearly inequitable. (Art 26 of the SPC Contract Law Interpretation (II) 2009) The ‘force majeure factual certificate’ can also be issued if CCPIT considers a event not force majeure but unforeseeable change of circumstances in Art 26 of the Interpretation (II). For example, in Jiangsu Flying Dragon Food Machinery v Ukraine CF Mercury Ltd, CCPIT issued the certificate even after recognising that the poorly maintained electricity system of the manufacturer that was damaged by the rain was not a force majeure event.  In contrast, other national law may adopt a more restrictive standard to exempt parties their obligations in unforeseeable circumstances. In England, for example, the court will not apply force majeure without a force majeure clause in the contract. A more restricted ‘frustration’ may apply instead.

Jurisdiction and Enforcement

In theory, a Chinese court should apply the same approach as other jurisdictions to apply the governing law and treat the force majeure certificates issued by CCPIT as evidence of fact. in practice, Chinese courts may prefer applying Chinese law if the CISG does not apply and the parties do not choose the law of another country, grant more weight to the CCPIT certificate than other courts, and be more lenient to apply the force majeure criteria to support Chinese companies’ claim in relation to the coronavirus outbreak.

Finally, if the dispute is heard in a non-Chinese court or international arbitral tribunal, the judgment holding the Chinese company liable need to be enforced in China unless the Chinese company has assets abroad. Enforcing foreign judgments in China is generally difficult, though there are signs of relaxation. If judgments can be enforced pursuant to bilateral treaties or reciprocity, they may be rejected based on public policy. The question is whether the coronavirus outbreak and the government controlling measures can be public policy. According to the precedents of the Supreme People’s Court, (eg. Tianrui Hotel Investment Co., Ltd. (Petitioner) v. Hangzhou Yiju Hotel Management Co., Ltd. (Respondent), (2010) Min Si Ta Zi 18) breach of mandatory administrative regulations per se is not violation of public policy. But public policy undoubtedly includes public health. If Chinese courts consider the Chinese company should not resume production to prevent spread of disease event without compulsory government order, the public policy defence may be supported.

Coronavirus outbreak and force majeure certificate

Due to the outbreak, China has adopted a number of public health measures, including closing schools and workplaces, limiting public gatherings, restricting travel and movement of people, screening , quarantine and isolation. At least 48 cities were locked down by 14 Feb 2020. (here) More than two thirds of China’s migrant workers were unable to return to work, (see here) leaving those firms that have restarted operation running below capacity.  

Coronavirus and the emergency measures significantly affect economic activates in China. The China Council for the Promotion of International Trade (CCPIT), a quasi-governmental entity, issued 3,325 force majeure certificates covering the combined contract value of $38.5bn to exempt Chinese companies from their contractual obligations.

Issuing force majeure certificates is a common practice of trade councils or commercial chambers in the world. These certificates are proof of the existence of relevant events that may constitute force majeure and impinge the company’s capacity to perform the contract. The events recorded in the certificates would include the confirmation of coronavirus outbreak, the nature, extent, date and length of governmental order for lockdown or quarantine, the cancellation of any transportation, etc. These certificate, however, are not legal documents and do not have direct executive or legal effects. They only attest the factual details instead of certifying those events are indeed force majeure in law. They are also called ‘force majeure factual certificate’ by the CCPIT. The CCPIT states in its webpage that:

‘The force majeure factual certificate is the proof of objective, factual circumstances, not the ‘trump card’ to exempt contractual obligations. The CCPIT issues relevant force majeure factual certificates to Chinese enterprises that are unable to perform contracts due to the impact of the new coronavirus epidemic. The certificate can prove objective facts such as delayed resumption of work, traffic control, and limited dispatch of labour personnel. An enterprise can request for delaying performance or termination of the contract based on this certificate, but whether its obligation can be fully or partially exempt depends on individual cases. The parties should take all the circumstances and the applicable law into consideration to prove the causal link between ‘the epidemic and its prevention and control measures’ and the failure to perform.’

Force Majeure in Different Governing Law

The force certificate is thus mainly used to demonstrate to the other party the existence of certain factual difficulties that hamper performance and seek understanding to privately settle the dispute. If the disputes are brought to the court, the court should consider whether the outbreak and the relevant emergency measure constitute force majeure events pursuant to the governing law, treating the force certificate as evidence of fact. There is no international uniform doctrine of force majeure and different countries adopt different doctrines to allocate contractual risk in unforeseeable change of circumstances. China is a member of the UN Convention on the International Sale of Goods (CISG), which shall apply if the other party has its place of business in another contracting state, or the parties choose CISG by agreement. Article 79 of the CISG provides that a party is exempted from paying damages if the breach is due to an impediment beyond its control, and either the impediment could not have been reasonably foreseen at the time of the conclusion of the contract, or the party could not reasonably avoid or overcome the impediment or its consequences. Although the disease outbreak is unforeseeable, it can only be an impediment if it makes performance impossible. Therefore, if the outbreak only makes production more difficult or expensive, it is not an impediment. There is no consensus as to whether an event that makes performance excessively burdensome can also be counted as an impediment in CISG. In addition, the impediment must uncontrollable. If a Chinese firm could not perform its contractual obligation due to the compulsory lockdown ordered by its local government, this event is out of control. The same applies if a firm manufacturing facial masks cannot deliver on time due to government  requisition. On the other hand, when the Chinese State Council announced the extension of the Chinese New Year holiday to 2 Feb 2020, it was not a compulsory ban and if a firm ‘chose’ not to operate during the extension without additional compulsory order from any  authorities, substantive risk of infection in its place of business, or irreparable labour shortage, the impediment may not be considered as uncontrollable. For the same reason, if a company decided to lock down after a worker tested positive for coronavirus in order to reduce the risk of spreading the disease among its workers, without the high risk and with alternative and less extreme prevention measures available, the impossibility to perform may be considered ‘self-inflicted’ instead of ‘uncontrollable’. Consideration should always be given to the necessity and proportionality of the decision. Furthermore, if the local government imposed compulsory prohibition for work resumption to prevent people gathering, a firm cannot claim uncontrollable impediments if working in distance is feasible and possible for the performance of the contract.

If the other party is not located in a CISG contracting state, whether the coronavirus outbreak can exempt Chinese exporters from their contractual obligations depends on the national law that governs the contracts. Most China’s major trade partners are contracting states of CISG, except India, South Africa, Nigeria, and the UK. Chinese law accepts both the force majeure and hardship doctrines. The party that breaches the contract may be discharged of its obligations fully or partially if an unforeseeable, uncontrollable and insurmountable causes the impossibility to perform. (Art 117 of the Chinese Contract Law 1999) The party can also ask for the alternation of contract if un unforeseeable circumstance that is not force majeure makes performance clearly inequitable. (Art 26 of the SPC Contract Law Interpretation (II) 2009) The ‘force majeure factual certificate’ can also be issued if CCPIT considers a event not force majeure but unforeseeable change of circumstances in Art 26 of the Interpretation (II). For example, in Jiangsu Flying Dragon Food Machinery v Ukraine CF Mercury Ltd, CCPIT issued the certificate even after recognising that the poorly maintained electricity system of the manufacturer that was damaged by the rain was not a force majeure event.  In contrast, other national law may adopt a more restrictive standard to exempt parties their obligations in unforeseeable circumstances. In England, for example, the court will not apply force majeure without a force majeure clause in the contract. A more restricted ‘frustration’ may apply instead.

Jurisdiction and Enforcement

In theory, a Chinese court should apply the same approach as other jurisdictions to apply the governing law and treat the force majeure certificates issued by CCPIT as evidence of fact. in practice, Chinese courts may prefer applying Chinese law if the CISG does not apply and the parties do not choose the law of another country, grant more weight to the CCPIT certificate than other courts, and be more lenient to apply the force majeure criteria to support Chinese companies’ claim in relation to the coronavirus outbreak.

Finally, if the dispute is heard in a non-Chinese court or international arbitral tribunal, the judgment holding the Chinese company liable need to be enforced in China unless the Chinese company has assets abroad. Enforcing foreign judgments in China is generally difficult, though there are signs of relaxation. If judgments can be enforced pursuant to bilateral treaties or reciprocity, they may be rejected based on public policy. The question is whether the coronavirus outbreak and the government controlling measures can be public policy. According to the precedents of the Supreme People’s Court, (eg. Tianrui Hotel Investment Co., Ltd. (Petitioner) v. Hangzhou Yiju Hotel Management Co., Ltd. (Respondent), (2010) Min Si Ta Zi 18) breach of mandatory administrative regulations per se is not violation of public policy. But public policy undoubtedly includes public health. If Chinese courts consider the Chinese company should not resume production to prevent spread of disease event without compulsory government order, the public policy defence may be supported.

I have reported earlier on the issues which yesterday led to the decision of the Canadian Supreme Court 2020 SCC 5 Nevsun Resources Ltd. v. Araya, in which the Supreme Court was asked whether there should be a new tort of breach of international law, and whether the “act of state” doctrine prevents adjudication in the case at issue. The case does not have jurisdictional issues to consider so I shall leave the substantive public international law analysis (not my core area) to others: Dr Ekaterina Aristova’s Twitter feed referenced below should give readers plenty of pointers, as does (which came out just as I was finalising this post) Stephen Pitel’s analysis here.

The case does raise the kinds of questions upon which the US Supreme Court (Kiobel; Jesner) refused to be drawn, particularly issues of corporate culpability under public international law. Again, this is not my area of core expertise and my thoughts here are merely that.

Three Eritrean workers claim that they were indefinitely conscripted through Eritrea’s military service into a forced labour regime where they were required to work at a mine in Eritrea. They claim they were subjected to violent, cruel, inhuman and degrading treatment. The mine is owned by a Canadian company, Nevsun Resources Ltd. The Eritrean workers started proceedings in British Columbia against Nevsun and sought damages for breaches of customary international law prohibitions against forced labour, slavery, cruel, inhuman or degrading treatment, and crimes against humanity. They also sought damages for breaches of domestic torts including conversion, battery, unlawful confinement, conspiracy and negligence.

Nevsun brought a motion to strike the pleadings on the basis of the ‘act of state’ doctrine, which precludes domestic courts from assessing the sovereign acts of a foreign government. Nevsun also took the position that the claims based on customary international law should be struck because they have no reasonable prospect of success.

The act of state doctrine is “a rule of domestic law which holds the national court incompetent to adjudicate upon the lawfulness of the sovereign acts of a foreign state” (R. v. Bow Street Metropolitan Stipendiary Magistrate, Ex parte Pinochet Ugarte (No. 3), [2000] 1 A.C. 147 (H.L.), at p. 269) (Lord Millett). The doctrine exists in Australian and English common law (with plenty of discussion) but is not part of Canadian common law. At 30 Abella J for the majority explains the connections and differences with the doctrine of state immunity.

The motion was dismissed by the Court of Appeal and the Supreme Court in majority has now agreed, arguing  (ia at 44-45)

The act of state doctrine and its underlying principles as developed in Canadian jurisprudence are not a bar to the Eritrean workers’ claims. The act of state doctrine has played no role in Canadian law and is not part of Canadian common law. Whereas English jurisprudence has reaffirmed and reconstructed the act of state doctrine, Canadian law has developed its own approach to addressing the twin principles underlying the doctrine: conflict of laws and judicial restraint. Both principles have developed separately in Canadian jurisprudence rather than as elements of an all‑encompassing act of state doctrine. As such, in Canada, the principles underlying the act of state doctrine have been completely subsumed within this jurisprudence. Canadian courts determine questions dealing with the enforcement of foreign laws according to ordinary private international law principles which generally call for deference, but allow for judicial discretion to decline to enforce foreign laws where such laws are contrary to public policy, including respect for public international law.

Nor has Nevsun satisfied the test for striking the pleadings dealing with customary international law. Namely it has not established that it is “plain and obvious” that the customary international law claims have no reasonable likelihood of success.

Of note is at 50 the insistence with reference to authority that ‘deference accorded by comity to foreign legal systems “ends where clear violations of international law and fundamental human rights begin” ‘, and the majority’s opinion’s references to the stale nature of the established concept that public international law exists for and between States only.

Clearly the case is not home and dry for the lower courts will now have to address the substantive issues and may still hold for Nevsun. Moreover claimant’s case is based on parts of international law traditionally considered ius cogens – of less use in other corporate social responsibility cases involving environmental issues or more ‘modern’ social rights other than the hard core ius cogens category. Hence in my initial view the precedent value of the case may not be as wide as one might hope. However the clear rejection of the act of state attempt is significant.

Of interest finally is also the judgment at 75 and at 109 citing Philippe Sands’ (KU Leuven doctor honoris causa) formidable East West Street in support.

Geert.

(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 8, Heading 8.3.

WOW! Supreme Court of Canada released decision in Nevsun case, the case will move forward, victory for claimants! Majority opinion: it is arguable that the breaches of customary international law, or jus cogens, relied on by the victims may apply to corporations https://t.co/L527vA7tEq

— Ekaterina Aristova (@EkatAristova) February 28, 2020

 

 

By Stephen G.A. Pitel, Faculty of Law, Western University

In 2013 two Innu First Nations sued, in the Superior Court of Quebec, two mining companies responsible for a mega-project consisting of multiple open-pit mines near Schefferville, Quebec and Labrador City, Newfoundland and Labrador. The Innu asserted a right to the exclusive use and occupation of the lands affected by the mega-project. They claimed to have occupied, since time immemorial, a traditional territory that straddles the border between the provinces of Quebec and Newfoundland and Labrador.  They claimed a constitutional right to the land under s. 35 of the Constitution Act, 1982.

The mining companies and the Attorney General of Newfoundland and Labrador each moved to strike from the Innu’s pleading portions of the claim which, in their view, concerned real rights over property situated in Newfoundland and Labrador and, therefore, fell under the jurisdiction of the courts of that province.

In Newfoundland and Labrador (Attorney General) v Uashaunnuat (Innu of Uashat and of Mani-Utenam), 2020 SCC 4, the Supreme Court of Canada held (by 5-4 majority) that the motion to strike failed and that the Quebec court had jurisdiction over the entire claim advanced by the Innu.

Quebec’s private international law is contained in Book Ten of the Civil Code of Quebec. Jurisdiction over the mining companies was based on their being domiciled in Quebec. However, as a special rule of jurisdiction, Division III governs what are called real and mixed actions (para. 18). The general rule is that Quebec has jurisdiction to hear a real action only if the property in dispute is situated in Quebec (art. 3152). In the case of a mixed action, Quebec must have jurisdiction over both the personal and real aspects of the matter: see CGAO v Groupe Anderson Inc., 2017 QCCA 923 at para. 10 (para. 57). These rules required the court to properly characterize the Innu’s action.

The majority held that the claim was a mixed action (para. 56). This was because the Innu sought both the recognition of a sui generis right (a declaration of Aboriginal title) and the performance of various obligations related to failures to respect that right. However, the claim was not a “classical” mixed action, which would require the court to have jurisdiction over both the personal and real aspects of the matter. Rather, this was a “non-classical” mixed action that involved the recognition of sui generis rights and the performance of obligations (para. 57).  Put another way, the nature of the indigenous land claims made them different from traditional claims to land. Accordingly, the claim did not fall within the special jurisdiction provisions in Division III and jurisdiction could simply be based on the defendants’ Quebec domicile.

The majority was influenced by access to justice considerations, being concerned about requiring the Innu to litigate in both Quebec and Newfoundland and Labrador. It noted that “[t]he Innu have argued that separating their claim along provincial borders will result in higher — perhaps prohibitive — costs caused by “piecemeal” advocacy, and inconsistent holdings that will require further resolution in the courts. … These are compelling access to justice considerations, especially when they are coupled with the pre-existing nature of Aboriginal rights” (paras. 46-47).

The dissenting reasons are lengthy (quite a bit longer than those of the majority). Critically, it held that “Aboriginal title and other Aboriginal or treaty rights are “real rights” for the purposes of private international law, which is to say that they resemble or are at least analogous to the domestic institution of real rights” (emphasis in original) (para. 140). Labeling them as sui generis was not sufficient to avoid the jurisdictional requirement for a mixed action that the land had to be in Quebec: “the fact that Aboriginal title is sui generis in nature does not mean that it cannot be a proprietary interest or a real right strictly for the purposes of private international law” (para. 155).

In the view of the dissent, ” if Quebec authorities were to rule directly on the title that the Innu believe they hold to the parts of Nitassinan that are situated outside Quebec, the declarations would be binding on no one, not even on the defendants … , precisely because Quebec authorities lack jurisdiction in this regard” (emphasis in original) (para. 189).

On the issue of access to justice, the dissent stated that “access to justice must be furnished within the confines of our constitutional order. Delivery of efficient, timely and cost-effective resolution of transboundary Aboriginal rights claims must occur within the structure of the Canadian legal system as a whole. But this is not to suggest that principles of federalism and provincial sovereignty preclude development by superior courts, in the exercise of their inherent jurisdiction, of innovative yet constitutionally sound solutions that promote access to justice” (emphasis in original) (para. 217). It went on to proffer the interesting procedural option that both a Quebec judge and a Newfoundland and Labrador judge could sit in the same courtroom at the same time, so that the proceedings were heard by both courts without duplication (para. 222).

There are many other issues in the tension between the majority and the dissent, including the role of Newfoundland and Labrador as a party to the dispute. It was not sued by the Innu and became involved as a voluntary intervenor (para. 9).

The decision is very much rooted in the private international law of Quebec but it has implications for any Indigenous claims affecting land in any legal system. Those systems would also need to determine whether their courts had jurisdiction to hear such claims in respect of land outside their territory. Indeed, the decision offers a basis to speculate as to how the courts would handle an Indigenous land claim brought in British Columbia in respect of land that straddled the border with the state of Washington. Is the court’s decision limited to cases that cross only internal federation borders or does it extend to the international realm? And does there have to be a straddling of the border at all, or could a court hear such a claim entirely in respect of land in another jurisdiction? The court’s decision leaves much open to interesting debate.

By Stephen G.A. Pitel, Faculty of Law, Western University

In 2013 two Innu First Nations sued, in the Superior Court of Quebec, two mining companies responsible for a mega-project consisting of multiple open-pit mines near Schefferville, Quebec and Labrador City, Newfoundland and Labrador. The Innu asserted a right to the exclusive use and occupation of the lands affected by the mega-project. They claimed to have occupied, since time immemorial, a traditional territory that straddles the border between the provinces of Quebec and Newfoundland and Labrador.  They claimed a constitutional right to the land under s. 35 of the Constitution Act, 1982.

The mining companies and the Attorney General of Newfoundland and Labrador each moved to strike from the Innu’s pleading portions of the claim which, in their view, concerned real rights over property situated in Newfoundland and Labrador and, therefore, fell under the jurisdiction of the courts of that province.

In Newfoundland and Labrador (Attorney General) v Uashaunnuat (Innu of Uashat and of Mani-Utenam), 2020 SCC 4, the Supreme Court of Canada held (by 5-4 majority) that the motion to strike failed and that the Quebec court had jurisdiction over the entire claim advanced by the Innu.

Quebec’s private international law is contained in Book Ten of the Civil Code of Quebec. Jurisdiction over the mining companies was based on their being domiciled in Quebec. However, as a special rule of jurisdiction, Division III governs what are called real and mixed actions (para. 18). The general rule is that Quebec has jurisdiction to hear a real action only if the property in dispute is situated in Quebec (art. 3152). In the case of a mixed action, Quebec must have jurisdiction over both the personal and real aspects of the matter: see CGAO v Groupe Anderson Inc., 2017 QCCA 923 at para. 10 (para. 57). These rules required the court to properly characterize the Innu’s action.

The majority held that the claim was a mixed action (para. 56). This was because the Innu sought both the recognition of a sui generis right (a declaration of Aboriginal title) and the performance of various obligations related to failures to respect that right. However, the claim was not a “classical” mixed action, which would require the court to have jurisdiction over both the personal and real aspects of the matter. Rather, this was a “non-classical” mixed action that involved the recognition of sui generis rights and the performance of obligations (para. 57).  Put another way, the nature of the indigenous land claims made them different from traditional claims to land. Accordingly, the claim did not fall within the special jurisdiction provisions in Division III and jurisdiction could simply be based on the defendants’ Quebec domicile.

The majority was influenced by access to justice considerations, being concerned about requiring the Innu to litigate in both Quebec and Newfoundland and Labrador. It noted that “[t]he Innu have argued that separating their claim along provincial borders will result in higher — perhaps prohibitive — costs caused by “piecemeal” advocacy, and inconsistent holdings that will require further resolution in the courts. … These are compelling access to justice considerations, especially when they are coupled with the pre-existing nature of Aboriginal rights” (paras. 46-47).

The dissenting reasons are lengthy (quite a bit longer than those of the majority). Critically, it held that “Aboriginal title and other Aboriginal or treaty rights are “real rights” for the purposes of private international law, which is to say that they resemble or are at least analogous to the domestic institution of real rights” (emphasis in original) (para. 140). Labeling them as sui generis was not sufficient to avoid the jurisdictional requirement for a mixed action that the land had to be in Quebec: “the fact that Aboriginal title is sui generis in nature does not mean that it cannot be a proprietary interest or a real right strictly for the purposes of private international law” (para. 155).

In the view of the dissent, ” if Quebec authorities were to rule directly on the title that the Innu believe they hold to the parts of Nitassinan that are situated outside Quebec, the declarations would be binding on no one, not even on the defendants … , precisely because Quebec authorities lack jurisdiction in this regard” (emphasis in original) (para. 189).

On the issue of access to justice, the dissent stated that “access to justice must be furnished within the confines of our constitutional order. Delivery of efficient, timely and cost-effective resolution of transboundary Aboriginal rights claims must occur within the structure of the Canadian legal system as a whole. But this is not to suggest that principles of federalism and provincial sovereignty preclude development by superior courts, in the exercise of their inherent jurisdiction, of innovative yet constitutionally sound solutions that promote access to justice” (emphasis in original) (para. 217). It went on to proffer the interesting procedural option that both a Quebec judge and a Newfoundland and Labrador judge could sit in the same courtroom at the same time, so that the proceedings were heard by both courts without duplication (para. 222).

There are many other issues in the tension between the majority and the dissent, including the role of Newfoundland and Labrador as a party to the dispute. It was not sued by the Innu and became involved as a voluntary intervenor (para. 9).

The decision is very much rooted in the private international law of Quebec but it has implications for any Indigenous claims affecting land in any legal system. Those systems would also need to determine whether their courts had jurisdiction to hear such claims in respect of land outside their territory. Indeed, the decision offers a basis to speculate as to how the courts would handle an Indigenous land claim brought in British Columbia in respect of land that straddled the border with the state of Washington. Is the court’s decision limited to cases that cross only internal federation borders or does it extend to the international realm? And does there have to be a straddling of the border at all, or could a court hear such a claim entirely in respect of land in another jurisdiction? The court’s decision leaves much open to interesting debate.

By Gaurav Chaliya and Nishtha Ojha. The authors are third year students at the National Law University, Jodhpur, India.

Introduction

In 2018, around 47 entities forming the part of corporate groups were reported to be in debt which reflects the necessity of having an effective cross-border legal framework. The flexibility in the framework of cross border insolvency helps in overcoming the hurdles encountered in cross border disputes. This framework essentially girdles around the principle of coordination and cooperation and in consonance with these principles the National Company Law Appellate Tribunal [“NCLAT”] in Jet Airways case has extended these principles by providing sufficient rights to Dutch trustee and observed that–

 “as per law, he (Dutch Trustee) has a right to attend the meeting of the Committee of Creditors”

However, despite effective coordination and cooperation, the proceedings against one entity is questioned to be extended to others as first, the elemental issue concerned is that each entity is managed by its own interests and such extension may be prejudicial to the interest of other entities and second, the legal conundrum associated in determining the Centre of Main Interest [“COMI”] of an entity. With regards to the first question, it is imperative that extension of insolvency proceeding is not prejudicial to the interests of the other entities as it is only extended in case of existence of reasonable nexus between entities in terms of financial and commercial relationship which makes them interdependent on each other. The authors would elaborate upon the second question in the subsequent section.´

Deficient Regulatory Framework

Section 234 and 235 of the Insolvency and Bankruptcy Code, 2016 [“IBC”] governs the cross border disputes in India. Section 234 empowers the government to enter into bilateral agreements with another country and Section 235 provides that Adjudicating Authority can issue a letter of request, to a country with which bilateral agreement has been entered into, to deal with assets situated thereto.

As is evident, the impediments associated with this regulatory framework are: first, it does not provide for a legal framework for foreign representatives to apply to the Indian courts and most importantly these sections are not notified yet and second, the current legal framework under IBC provides for entering into bilateral treaties which is uncertain and in addition is a long term negotiation process. For instance, in Australia the regulatory framework therein was not sufficient to deal with the complexities associated with cross-border insolvencies as bilateral treaties can provide some solution but they are not easy to negotiate and have intrinsic intricacies. Consequently, it passed the Cross Border Insolvency Act, 2008 which provides adoption and enactment of the United Nations Commission on International Trade Law [“Model law”]. In light of same, India should also consider the enactment of the Model law though with modifications, one of which is suggested and dealt in the next section.

Resolving the Complications

Complications in the field of International Insolvency are never-ending primarily due to the lack of a comprehensive legal framework. The Model Law seeks to alleviate these complications by providing a pragmatic legal framework. As asserted earlier, Jet Airways case acknowledges and applies the principles enshrined under the Model Law. The Model Law, unlike any treaty or convention, is a model form of legislation which is adopted by 46 nations till date.

The Model Law sets out the principle of Centre of Main Interest [“COMI”] for determining the jurisdiction of the proceedings. Interestingly, it does not define the COMI and therefore, determining COMI possesses the greatest challenge. Also, the principal concern that remains is that the debtor can escape its liability by changing its COMI according to its favourable outcome. However, the Model law safeguards the rights of the creditor by providing that first, as per Article 16 of the Model Law, COMI corresponds to the place where debtor has its registered office and second, COMI is dependent on many other factors viz. seat of an entity having major stake in terms of control over assets and its significant operations, which is basically dependent upon the transparent assessment by the third parties. Consequently, the debtor cannot escape its liability by changing COMI as determination of the same is dependent upon assessment by third parties. Hence, the Model Law addresses the prime issues which are present in the current regulatory framework. 

In India, the Report of Insolvency Law Committee [“ILC”] was constituted to examine the issues related to IBC, which recommended the impending need to adopt the Model Law. However, the proposed draft disregards the objective of coordination and cooperation among all nations by mandating the requirement of reciprocity. The authors subscribe to the view, that, until the Model Law has been adopted to a significant extent by other counties, the absolute requirement of reciprocity as postulated under the draft should be done away with and courts should be given the discretion on case to case basis. As such an absolute requirement of reciprocity i.e. entering into a treaty with other countries take us back to the present legal framework in India by limiting adjudicating authority’s power to only 46 countries. For instance, in case the corporate debtor has COMI in country A, which has adopted the Model Law, whereas his assets are located in country B, which has not adopted the Model Law. In such a situation, if the requirement of reciprocity is imposed then the administration of assets in country B would become difficult, as an entity in country B would always be reluctant to become a part of the insolvency proceedings relying on probable defences such as of lex situs and absence of bilateral agreements.

In essence, this whole process would be detrimental to the interest of the creditor as it would hamper the maximization of the value of assets. Moreover, in Rubin v. Eurofinance, the Supreme Court of U.K. has observed that the court is allowed to use the discretion provided to it by the system. Hence, by this approach courts are allowed to cooperate and coordinate with those countries that are acquiescent to return the favour. It is pertinent to clarify that by granting discretion to court, the authors do not concede to the practice of Gibb’s principle. Rather the said principle is inherently flawed as it does not recognise the foreign insolvency process preceding over English law per contra courts generally expects other jurisdictions to accept their judgements.

Concluding Remarks

After a careful analysis of present cross border legal framework in India, it can be ascertained that current system is highly ineffective and in light of instances provided, the adoption of the Model Law with modifications seems to be a better alternative. The Model Law provides an orderly mechanism as it recognises the interest of the enforcing country by taking into account its public policy and national interest. The Appellate Tribunal in Jet Airways case has attempted to extend the principles of the Model Law into domestic case laws therefore it is optimal time that India adopts such legislation. Though with regards to the problem of reciprocity as pointed earlier, the absolute requirement or non-requirement of the reciprocity would not solve the problem and according to Rubin’s case, discretion should be given to the courts which would widen the scope of the application of the law, thereby, being in consonance with the objectives of the principles i.e. of effective cooperation and coordination among all nations. Hence, the Model law contains enough of the measures to prevent any misuse of the process and adopting it with modifications would resolve the problem associated.

By Gaurav Chaliya and Nishtha Ojha. The authors are third year students at the National Law University, Jodhpur, India.

Introduction

In 2018, around 47 entities forming the part of corporate groups were reported to be in debt which reflects the necessity of having an effective cross-border legal framework. The flexibility in the framework of cross border insolvency helps in overcoming the hurdles encountered in cross border disputes. This framework essentially girdles around the principle of coordination and cooperation and in consonance with these principles the National Company Law Appellate Tribunal [“NCLAT”] in Jet Airways case has extended these principles by providing sufficient rights to Dutch trustee and observed that–

 “as per law, he (Dutch Trustee) has a right to attend the meeting of the Committee of Creditors”

However, despite effective coordination and cooperation, the proceedings against one entity is questioned to be extended to others as first, the elemental issue concerned is that each entity is managed by its own interests and such extension may be prejudicial to the interest of other entities and second, the legal conundrum associated in determining the Centre of Main Interest [“COMI”] of an entity. With regards to the first question, it is imperative that extension of insolvency proceeding is not prejudicial to the interests of the other entities as it is only extended in case of existence of reasonable nexus between entities in terms of financial and commercial relationship which makes them interdependent on each other. The authors would elaborate upon the second question in the subsequent section.´

Deficient Regulatory Framework

Section 234 and 235 of the Insolvency and Bankruptcy Code, 2016 [“IBC”] governs the cross border disputes in India. Section 234 empowers the government to enter into bilateral agreements with another country and Section 235 provides that Adjudicating Authority can issue a letter of request, to a country with which bilateral agreement has been entered into, to deal with assets situated thereto.

As is evident, the impediments associated with this regulatory framework are: first, it does not provide for a legal framework for foreign representatives to apply to the Indian courts and most importantly these sections are not notified yet and second, the current legal framework under IBC provides for entering into bilateral treaties which is uncertain and in addition is a long term negotiation process. For instance, in Australia the regulatory framework therein was not sufficient to deal with the complexities associated with cross-border insolvencies as bilateral treaties can provide some solution but they are not easy to negotiate and have intrinsic intricacies. Consequently, it passed the Cross Border Insolvency Act, 2008 which provides adoption and enactment of the United Nations Commission on International Trade Law [“Model law”]. In light of same, India should also consider the enactment of the Model law though with modifications, one of which is suggested and dealt in the next section.

Resolving the Complications

Complications in the field of International Insolvency are never-ending primarily due to the lack of a comprehensive legal framework. The Model Law seeks to alleviate these complications by providing a pragmatic legal framework. As asserted earlier, Jet Airways case acknowledges and applies the principles enshrined under the Model Law. The Model Law, unlike any treaty or convention, is a model form of legislation which is adopted by 46 nations till date.

The Model Law sets out the principle of Centre of Main Interest [“COMI”] for determining the jurisdiction of the proceedings. Interestingly, it does not define the COMI and therefore, determining COMI possesses the greatest challenge. Also, the principal concern that remains is that the debtor can escape its liability by changing its COMI according to its favourable outcome. However, the Model law safeguards the rights of the creditor by providing that first, as per Article 16 of the Model Law, COMI corresponds to the place where debtor has its registered office and second, COMI is dependent on many other factors viz. seat of an entity having major stake in terms of control over assets and its significant operations, which is basically dependent upon the transparent assessment by the third parties. Consequently, the debtor cannot escape its liability by changing COMI as determination of the same is dependent upon assessment by third parties. Hence, the Model Law addresses the prime issues which are present in the current regulatory framework. 

In India, the Report of Insolvency Law Committee [“ILC”] was constituted to examine the issues related to IBC, which recommended the impending need to adopt the Model Law. However, the proposed draft disregards the objective of coordination and cooperation among all nations by mandating the requirement of reciprocity. The authors subscribe to the view, that, until the Model Law has been adopted to a significant extent by other counties, the absolute requirement of reciprocity as postulated under the draft should be done away with and courts should be given the discretion on case to case basis. As such an absolute requirement of reciprocity i.e. entering into a treaty with other countries take us back to the present legal framework in India by limiting adjudicating authority’s power to only 46 countries. For instance, in case the corporate debtor has COMI in country A, which has adopted the Model Law, whereas his assets are located in country B, which has not adopted the Model Law. In such a situation, if the requirement of reciprocity is imposed then the administration of assets in country B would become difficult, as an entity in country B would always be reluctant to become a part of the insolvency proceedings relying on probable defences such as of lex situs and absence of bilateral agreements.

In essence, this whole process would be detrimental to the interest of the creditor as it would hamper the maximization of the value of assets. Moreover, in Rubin v. Eurofinance, the Supreme Court of U.K. has observed that the court is allowed to use the discretion provided to it by the system. Hence, by this approach courts are allowed to cooperate and coordinate with those countries that are acquiescent to return the favour. It is pertinent to clarify that by granting discretion to court, the authors do not concede to the practice of Gibb’s principle. Rather the said principle is inherently flawed as it does not recognise the foreign insolvency process preceding over English law per contra courts generally expects other jurisdictions to accept their judgements.

Concluding Remarks

After a careful analysis of present cross border legal framework in India, it can be ascertained that current system is highly ineffective and in light of instances provided, the adoption of the Model Law with modifications seems to be a better alternative. The Model Law provides an orderly mechanism as it recognises the interest of the enforcing country by taking into account its public policy and national interest. The Appellate Tribunal in Jet Airways case has attempted to extend the principles of the Model Law into domestic case laws therefore it is optimal time that India adopts such legislation. Though with regards to the problem of reciprocity as pointed earlier, the absolute requirement or non-requirement of the reciprocity would not solve the problem and according to Rubin’s case, discretion should be given to the courts which would widen the scope of the application of the law, thereby, being in consonance with the objectives of the principles i.e. of effective cooperation and coordination among all nations. Hence, the Model law contains enough of the measures to prevent any misuse of the process and adopting it with modifications would resolve the problem associated.

In February, the Federal Court of Australia delivered its judgment on the first contested enforcement of International Centre for Settlement of Investment Disputes (ICSID) awards in Australia. In Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157, the Court enforced two ICSID awards—award of 4 May 2017 in Case No. ARB/13/36, and award of 15 June 2018 as rectified by the award dated 29 January 2019 in Case No. ARB/13/31—against the Kingdom of Spain. The two cases were brought by different applicants but were heard and decided together.

The judgment concerns the interaction of two instruments at the intersection of public and private international law. Firstly, it concerns the Foreign States Immunities Act 1985 (Cth), which gives effect to a restrictive theory of state immunity. Secondly, the judgment concerns the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (entered into force 14 October 1966) (Investment Convention), which is given the force of law in Australia by s 32 of the International Arbitration Act 1974 (Cth).

Stewart J framed the issue for consideration as follows (at [2]):

[I]s a foreign state immune from the recognition and enforcement of an arbitral award made under the Investment Convention notwithstanding that the Investment Convention inherently envisages arbitration awards being made against foreign states and it provides that such awards “shall” be recognised and enforced by Australian courts?

The judgment also contains useful consideration of the distinctions between recognition, enforcement and execution in the context of a common law system.

Background

The underlying dispute was triggered by a change in Spain’s position on subsidies and regulation concerning renewable energy, and the applicant companies’ investments in renewable energy projects in Spain before that change. The changes caused substantial harm to the value of the investments of the applicants, which are incorporated in England & Wales, Luxembourg and the Netherlands.

Before ICSID tribunals the applicants argued that Spain failed to accord fair and equitable treatment to their investments in breach of Art 10(1) of The Energy Charter Treaty (ECT), opened for signature 17 December 1994, 2080 UNTS 95 (entered into force 16 April 1998). They were successful. Spain was ordered to pay hundreds of millions of Euros across two awards.

Spain then made applications for the annulment of the awards, which included stays of enforcement. For a time, each award was stayed. (In Australia, this resulted in a temporary stay of enforcement proceedings: see Infrastructure Services Luxembourg S.A.R.L v Kingdom of Spain [2019] FCA 1220). The stays were then discontinued, allowing enforcement action to proceed in Australia. At the time of writing, Spain had not complied with the awards in whole or in part.

Enforcement of the ICSID awards in Australia

The Commonwealth of Australia is a generally arbitration-friendly jurisdiction. Part IV of the International Arbitration Act 1974 (Cth) deals with the Investment Convention. Section 33(1) provides the basic proposition ‘that [a]n award is binding on a party to the investment dispute to which the award relates’, while s 35 provides that awards may be enforced through the Federal Court of Australia.

How, then, could Spain challenge enforcement of the ICSID awards? It asserted immunity under s 9 of the Foreign States Immunities Act 1985 (Cth), which provides foreign States with general immunity from the jurisdiction of Australian courts. An exception to the general position is provided in s 10(1) for proceedings in respect of which a foreign State has submitted.

The applicant companies argued that the Investment Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award. The Court was thus asked to consider whether, ‘by being a Contracting Party to the ECT and a Contracting State to the Investment Convention, Spain submitted to the arbitrations under the Investment Convention which produced the awards they seek to enforce’: [179]. The Court held that Spain had submitted. There was no inconsistency between the Foreign States Immunities Act 1985 (Cth) and the enforcement of the Investment Convention via the International Arbitration Act 1974 (Cth).

The Court thus recognised each of the awards. Spain was ordered to pay the applicant companies hundreds of millions of Euros, plus interest, and costs—the scope of which are still to be determined.

Comments on recognition, enforcement and execution

According to Stewart J, ‘[t]he distinction between recognition and enforcement, on the one hand, and execution on the other, is central to [the] reasons’: [6]. The judgment contains dicta that will be useful for teaching private international law in Australia. There is a helpful passage at [89] ff:

Recognition is a distinct and necessarily prior step to enforcement, but recognition and enforcement are closely linked: Briggs A, The Conflict of Laws (3rd ed, Oxford University Press, Clarendon Series, 2013) 140-141; Clarke v Fennoscandia Ltd [2007] UKHL 56; 2008 SC (HL) 122 at [18]-[23].  An award may be recognised without being “enforced” by a court: TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 at [23].  Examples would be where an award is recognised as giving rise to res judicata, issue estoppel, cause of action estoppel or set-off, or as a claim in an insolvent estate.  See Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich [2003] UKPC 11; [2003] 1 WLR 1041 at [15] as an example of recognition by estoppel.

An arbitral award is enforced through the means of the entering of a judgment on the award, either in the form of a money judgment for the amount of an award or for damages for failing to honour an award.  That form of enforcement by a court is an exercise of judicial power: TCL at [32].  There is some debate in the authorities as to whether an award can be enforced by means of a court making a declaration.  See Tridon Australia Pty Ltd v ACD Tridon Inc [2004] NSWCA 146 and AED Oil Ltd v Puffin FPSO Ltd [2010] VSCA 37; 27 VR 22 at [18]-[20].  It is not necessary to enter upon that debate for present purposes because Art 54(3) of the Investment Convention requires the enforcement of only the pecuniary obligations of an award.  That would seem to exclude declaratory awards, injunctions and orders for specific performance.

An award cannot, however, be executed, in the sense of executed against the property of an award debtor, without first being converted into a judgment of a court: Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd (No 2) [2011] FCA 206; 277 ALR 441 at [12]-[13].  Nevertheless, it is not a strain of language to refer to an award being enforced by way of execution.

Thus, depending on the context, reference to the enforcement of an arbitral award can be used to mean the entering of a judgment on the award to the exclusion of execution or it can mean execution, or it can encompass both.

Recognition and enforcement by judgment on the award is equivalent to what is referred to in civilian jurisdictions as exequatur (see Firebird at [47]-[48] and Briggs A, The Conflict of Laws (3rd ed, Oxford University Press, Clarendon Series, 2013), 139).

Comment

Eiser Infrastructure Ltd v Kingdom of Spain provides plenty to think about for those interested in private international law, public international law, and international arbitration. It confirms the intuition that ICSID awards should be easily enforced in Australia.

However, it begs the question, why Australia? Stewart J speculated that the CJEU’s decision in Slovak Republic v Achmea BV [2018] 4 WLR 87, [60] may have made Australia a more attractive forum for enforcement proceedings in these cases. However, should Spain have any assets in Australia, it may be difficult for the successful companies to get access to them. The High Court of Australia takes a foreign-State-friendly approach to immunity of execution over foreign States’ property. It will be interesting to see what happens next in this dispute.

In February, the Federal Court of Australia delivered its judgment on the first contested enforcement of International Centre for Settlement of Investment Disputes (ICSID) awards in Australia. In Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157, the Court enforced two ICSID awards—award of 4 May 2017 in Case No. ARB/13/36, and award of 15 June 2018 as rectified by the award dated 29 January 2019 in Case No. ARB/13/31—against the Kingdom of Spain. The two cases were brought by different applicants but were heard and decided together.

The judgment concerns the interaction of two instruments at the intersection of public and private international law. Firstly, it concerns the Foreign States Immunities Act 1985 (Cth), which gives effect to a restrictive theory of state immunity. Secondly, the judgment concerns the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (entered into force 14 October 1966) (Investment Convention), which is given the force of law in Australia by s 32 of the International Arbitration Act 1974 (Cth).

Stewart J framed the issue for consideration as follows (at [2]):

[I]s a foreign state immune from the recognition and enforcement of an arbitral award made under the Investment Convention notwithstanding that the Investment Convention inherently envisages arbitration awards being made against foreign states and it provides that such awards “shall” be recognised and enforced by Australian courts?

The judgment also contains useful consideration of the distinctions between recognition, enforcement and execution in the context of a common law system.

Background

The underlying dispute was triggered by a change in Spain’s position on subsidies and regulation concerning renewable energy, and the applicant companies’ investments in renewable energy projects in Spain before that change. The changes caused substantial harm to the value of the investments of the applicants, which are incorporated in England & Wales, Luxembourg and the Netherlands.

Before ICSID tribunals the applicants argued that Spain failed to accord fair and equitable treatment to their investments in breach of Art 10(1) of The Energy Charter Treaty (ECT), opened for signature 17 December 1994, 2080 UNTS 95 (entered into force 16 April 1998). They were successful. Spain was ordered to pay hundreds of millions of Euros across two awards.

Spain then made applications for the annulment of the awards, which included stays of enforcement. For a time, each award was stayed. (In Australia, this resulted in a temporary stay of enforcement proceedings: see Infrastructure Services Luxembourg S.A.R.L v Kingdom of Spain [2019] FCA 1220). The stays were then discontinued, allowing enforcement action to proceed in Australia. At the time of writing, Spain had not complied with the awards in whole or in part.

Enforcement of the ICSID awards in Australia

The Commonwealth of Australia is a generally arbitration-friendly jurisdiction. Part IV of the International Arbitration Act 1974 (Cth) deals with the Investment Convention. Section 33(1) provides the basic proposition ‘that [a]n award is binding on a party to the investment dispute to which the award relates’, while s 35 provides that awards may be enforced through the Federal Court of Australia.

How, then, could Spain challenge enforcement of the ICSID awards? It asserted immunity under s 9 of the Foreign States Immunities Act 1985 (Cth), which provides foreign States with general immunity from the jurisdiction of Australian courts. An exception to the general position is provided in s 10(1) for proceedings in respect of which a foreign State has submitted.

The applicant companies argued that the Investment Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award. The Court was thus asked to consider whether, ‘by being a Contracting Party to the ECT and a Contracting State to the Investment Convention, Spain submitted to the arbitrations under the Investment Convention which produced the awards they seek to enforce’: [179]. The Court held that Spain had submitted. There was no inconsistency between the Foreign States Immunities Act 1985 (Cth) and the enforcement of the Investment Convention via the International Arbitration Act 1974 (Cth).

The Court thus recognised each of the awards. Spain was ordered to pay the applicant companies hundreds of millions of Euros, plus interest, and costs—the scope of which are still to be determined.

Comments on recognition, enforcement and execution

According to Stewart J, ‘[t]he distinction between recognition and enforcement, on the one hand, and execution on the other, is central to [the] reasons’: [6]. The judgment contains dicta that will be useful for teaching private international law in Australia. There is a helpful passage at [89] ff:

Recognition is a distinct and necessarily prior step to enforcement, but recognition and enforcement are closely linked: Briggs A, The Conflict of Laws (3rd ed, Oxford University Press, Clarendon Series, 2013) 140-141; Clarke v Fennoscandia Ltd [2007] UKHL 56; 2008 SC (HL) 122 at [18]-[23].  An award may be recognised without being “enforced” by a court: TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 at [23].  Examples would be where an award is recognised as giving rise to res judicata, issue estoppel, cause of action estoppel or set-off, or as a claim in an insolvent estate.  See Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich [2003] UKPC 11; [2003] 1 WLR 1041 at [15] as an example of recognition by estoppel.

An arbitral award is enforced through the means of the entering of a judgment on the award, either in the form of a money judgment for the amount of an award or for damages for failing to honour an award.  That form of enforcement by a court is an exercise of judicial power: TCL at [32].  There is some debate in the authorities as to whether an award can be enforced by means of a court making a declaration.  See Tridon Australia Pty Ltd v ACD Tridon Inc [2004] NSWCA 146 and AED Oil Ltd v Puffin FPSO Ltd [2010] VSCA 37; 27 VR 22 at [18]-[20].  It is not necessary to enter upon that debate for present purposes because Art 54(3) of the Investment Convention requires the enforcement of only the pecuniary obligations of an award.  That would seem to exclude declaratory awards, injunctions and orders for specific performance.

An award cannot, however, be executed, in the sense of executed against the property of an award debtor, without first being converted into a judgment of a court: Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd (No 2) [2011] FCA 206; 277 ALR 441 at [12]-[13].  Nevertheless, it is not a strain of language to refer to an award being enforced by way of execution.

Thus, depending on the context, reference to the enforcement of an arbitral award can be used to mean the entering of a judgment on the award to the exclusion of execution or it can mean execution, or it can encompass both.

Recognition and enforcement by judgment on the award is equivalent to what is referred to in civilian jurisdictions as exequatur (see Firebird at [47]-[48] and Briggs A, The Conflict of Laws (3rd ed, Oxford University Press, Clarendon Series, 2013), 139).

Comment

Eiser Infrastructure Ltd v Kingdom of Spain provides plenty to think about for those interested in private international law, public international law, and international arbitration. It confirms the intuition that ICSID awards should be easily enforced in Australia.

However, it begs the question, why Australia? Stewart J speculated that the CJEU’s decision in Slovak Republic v Achmea BV [2018] 4 WLR 87, [60] may have made Australia a more attractive forum for enforcement proceedings in these cases. However, should Spain have any assets in Australia, it may be difficult for the successful companies to get access to them. The High Court of Australia takes a foreign-State-friendly approach to immunity of execution over foreign States’ property. It will be interesting to see what happens next in this dispute.