Worldwide: Litigation v Arbitration: Where Are We Now?

Cross-border litigation has seen a boost with the ratification of the Hague Convention on Choice of Court Agreements ("Hague Convention") by Singapore in June this year, following the establishment of the Singapore International Commercial Court ("SICC") in 2015. In arbitration, we have seen a number of pro-arbitration decisions around the world this year (please see our October 2016 Japan Dispute Avoidance newsletter). Additionally, Hong Kong has recently published a proposed amendment to its arbitration ordinance, clarifying that IP disputes are arbitrable and enforcement of IP-related awards do not breach public policy.

Hague Convention

The Hague Convention entered into force on 1 October 2015, following the ratification by Mexico and 27 European Union member states (excluding Denmark). The aim of the Hague Convention is to increase the effectiveness of jurisdiction or choice of court agreements in contracts and to facilitate the enforcement of foreign judgments, much like the purpose of the New York Convention in the recognition and enforcement of arbitration agreements and arbitral awards.

With the ratification by Singapore, there is growing momentum for further state parties ratifying the Hague Convention. For example, in October 2016, the Department of Justice in Hong Kong released a Consultation Paper on the 2016 Preliminary Draft Convention on the Recognition and Enforcement of Foreign Judgments (the "Draft Convention"). The Draft Convention is part of the Hague Conference's work on private international law, and will supplement the Hague Convention by increasing access to justice and to facilitate cross-border trade and investment through reducing risks and costs of cross-border trade, and to increase certainty and predictability for stakeholders. For further details, please see our October Hong Kong Dispute Resolution e-bulletin.

International Courts

Last year, the two main International Courts, the Courts of the Dubai International Finance Centre ("DIFC") and the SICC signed two memoranda of guidance and understanding, paving the way for mutual recognition and enforcement within the two jurisdictions.

The DIFC have also recently entered into agreements with various countries, including the United Kingdom, United States, Australia, New Zealand and Kenya, facilitating the mutual enforcement of judgments. The DIFC also recently signed a Memorandum of Understanding with the Dubai International Arbitration Centre ("DIAC"), to facilitate the expedited recognition, ratification and enforcement of DIAC arbitral awards by the DIFC Courts.

In relation to Singapore, the island state is a party to several treaties for mutual recognition and enforcement (such as with India), and in any event judgments are enforceable in Commonwealth countries, such as the UK, Australia, New Zealand and Canada.

IP disputes arbitrable in Hong Kong

Hong Kong has published a bill proposing an amendment to its arbitration ordinance, to clarify that IP disputes are arbitrable, and enforcement of IP-related awards do not breach public policy. In November, the Hong Kong Department of Justice had noted that the arbitration ordinance lacks an express provision dealing with the arbitrability of IP disputes, and Hong Kong courts have not delivered an authoritative judgment on the issue. This amendment follows the launch of the Hong Kong International Arbitration Centre's new Panel of Arbitrators for Intellectual Property Disputes earlier this year.

Costs awards in arbitration

There have been recent developments in relation to costs awards in arbitration, which increases the attractiveness of arbitration as a method of dispute resolution. A recent decision in England refused a challenge to an arbitral award that allowed recovery of costs of third party funding, while the Hong Kong Court of First Instance extended indemnity costs to actions that delay enforcement of arbitral awards.

In England, an award was challenged on the basis that the sole arbitrator's powers did not include awarding costs of third party funding.1 In coming to its decision, the court held that the "other costs" specified in s59(1)(c) of the English Arbitration Act "can include the costs of obtaining litigation funding", and that awarding the costs of litigation funding falls within the arbitrator's general cost discretion.

In Hong Kong, indemnity costs were awarded after a court held that reviving court proceedings, which were stayed in favour of arbitration, was "clearly an attempt to delay the enforcement of an arbitral award".2 In this case, an arbitral award had been rendered in favour of the claimant. The respondent then suggested the matter should be dealt with by the Hong Kong court proceedings that had been stayed. The claimant therefore restored the Hong Kong court proceedings, and the respondent employed various delaying tactics, including not filing evidence or filing late evidence, and applying to consolidate various proceedings, which ultimately failed. The Court of First Instance held that the respondent's actions were simply to delay enforcement of an arbitral award, despite not being proceedings to challenge an award, and awarded indemnity costs to deter such behaviour.

Litigation or Arbitration

With these positive developments in both cross-border litigation and arbitration, the question remains - which is more effective? It will depend on the nature of each transaction, the parties, and the dispute resolution mechanism available in the jurisdictions of the parties, as well as any confidentiality concerns, and most importantly the enforceability of any award or judgment. If parties are leaning towards arbitration, it is important to select a seat with a modern arbitration law, which allows parties to be represented by lawyers of their choice, as well as a jurisdiction that readily recognises and enforces arbitration agreements and awards. If such a seat is not available to parties, litigation may be the better choice.

Footnotes

1. Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm), for further details, please see our Arbitration Notes blog post here.

2. Peter Cheung & Co v. Perfect Direct Limited & Yu Guolin (HCMP 2493/2012) and New Heaven Investments Limited & Rondo Development Limited v. Yu Guolin (HCA 115/2013), for further details, please see our Arbitration Notes blog post here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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