Shagang South-East Asia Trading v Daewoo Logistics
Shagang South-Asia Trading Co Ltd v Daewoo Logistics
English High Court: Queen’s Bench Division (Commercial Court); Mr Justice Hamblen;  EWHC 194 (Comm); 5 February 2015
Mr Robert Bright QC, instructed by Reed Smith LLP, for the claimant, Shagang
Mr Nigel Jacobs QC, instructed by Lax & Co LLP, for the defendant, Daewoo
ARBITRATION: WHETHER THERE WERE CLEAR INDICATORS THAT THE CURIAL LAW WAS NOT THE LAW OF THE VENUE OF THE ARBITRATION: WHETHER THE ARBITRATOR WAS VALIDLY APPOINTED
Where the parties had agreed on the venue of an arbitration, there had to be clear words to displace the presumption that the curial law (the law governing the procedure of the arbitration) was the law of the place of arbitration. A provision saying “English law to be applied” did not suffice, as it was most likely referring to the choice of substantive law, that is, the law governing the claim made in the arbitration reference.
This note has been contributed by Pak Hei Li, LLB(Hons), PCLL (University of Hong Kong).
The claimant (“Shangang") and the respondent (“Daewoo”) entered into a charterparty by way of a fixture note (“Fixture Note”). Clause 23 of the Fixture Note provided that “ARBITRATION TO BE HELD IN HONGKONG. ENGLISH LAW TO BE APPLIED” and Clause 24 stated that “OTHER TERMS/CONDITIONS AND CHARTER PARTY DETAILS BASE ON GENCON 1994 CHARTER PARTY”.
A dispute later arose under the charterparty and Daewoo purported to commence arbitration proceedings against Shangang. An arbitral award was made but Shangang applied to the English court to set it aside on the basis that the arbitrator had no jurisdiction to adjudicate the dispute.
There were two issues before the court: whether the arbitration under the charterparty was subject to English or Hong Kong curial law; and, if the arbitration were subject to English curial law, whether the arbitrator had been validly appointed.
To resolve the first issue, Hamblen J took into account three matters: 1) the wording of Clause 23; 2) the commercial background, and 3) the relevant authorities.
Regarding the first matter, Hamblen J held that the logical and sensible way of construing Clause 23 was to treat it as a dispute resolution clause addressing: 1) where and how disputes were to be determined; and 2) the law governing determination of such disputes. The provision for “arbitration to be held in Hongkong” suggested that all aspects of arbitration, including any supervisory court proceedings, were to take place in Hong Kong. Without an express choice of curial law, the procedural law was to inferred from the chosen place of arbitration.
For the second matter, the court rejected Daewoo’s argument that good commercial sense required the same country’s law to govern both the substance of the dispute and the procedure of the arbitration. Hamblen J was of the view that a differentiation between the place of arbitration and the procedural law was far more uncommon. Since a close link existed between the place of arbitration and the procedural law which governed the arbitration, such a bifurcation might produce “a highly complex and possibly unworkable result”.
Finally, where a place is named as a venue of arbitration, clear words would be necessary to establish that some other curial law was agreed between the parties. In this case, “English law to be applied” did not suffice, as it should be read as referring to the choice of substantive law.
The court also rejected Daewoo’s reliance on the Gencon 1994 Charterparty (“Gencon Form”). Clause 19 of the Gencon Form offered three choices regarding the choice of law and arbitration. Parties might choose between London, New York or another place to be named by them. However, these options were “one shop” options, that is. if a place were chosen as the place of arbitration, both the curial law and the substantive law would be the law of the place of arbitration. Since Clause 23 provided that arbitration would be held in Hong Kong while English law would be applied, it ran contrary to the unitary approach adopted by the Gencon Form. As such, the parties must have chosen to depart from clause 19 of the Gencon Form. Hamblen J therefore held that Clause 19 of the Gencon Form was not incorporated by Clause 24 and could not be an indication that English law was the curial law.
The court then considered the second issue but, in the light of its decision on the first point, its comments were ‘obiter dicta’, that is, not legally binding. If English law were the governing law, Hamblen J agreed that the procedure for the appointment of a sole arbitrator, set out in section 16(3) of the English Arbitration Act 1996, had not been properly followed. Hence, the arbitrator had not been validly appointed.
Commercial parties should take note of two points. First, since there is a very strong presumption that the curial law is the law of the place of arbitration, one should consider the legislative regime and the supervisory powers of the courts in the intended place of arbitration. Second, when one intends to choose a curial law that is different from the law of the place of arbitration, one should expressly refer to the governing arbitration statute (for example, the English Arbitration Act 1996, if English law is intended to be the curial law).