Beware Hybrid Arbitration Clauses Or Have Your Card MARCed

The recent case of Flashbird Limited v Compagnie de Sécurité Privée et Industrielle SARL related to an award that had been handed down to Compagnie 2017 by an Arbitrator who had been appointed under the Arbitration and Media Centre otherwise known as the MARC Rules. Flashbird applied to the Privy Council to overturn the award.

What’s It All About?

The contractual arrangement was about a Consultancy Agreement which had been executed in 2013. The parties seemingly had a good relationship and all was working as anticipated until around August 2016 when the parties applied to court:

• to request permission to have the contract set aside by a judge as Compagnie had not performed to the standard it had agreed to under the contractual arrangement.
• for damages; and
• monies which had been expended to be duly refunded.

Under the Arbitration and Media Center Rules and Arbitrator named Dr. Jalal El Ahdab was appointed for the case and just under one year later he decided to grant the application, terminate the contractual arrangement, and awarded 80,000 euros and $15,000, handed down an award of damages of 24,000 euros and arbitration and legal costs.

‘I Object…’

Compagnie de Security objected to the decision of the Arbitrator and felt it had no other conceivable alternative available to it but to submit an appeal to the Supreme Court of Mauritius via a notice of motion. Specifically, Compagnie sought to have the award overturned as it claimed that the process was fundamentally opposed to what the parties had agreed to under the contractual provisions. Moving into the more granular detail of the case Compagnie presented evidence arguing that if the contract had been interpreted correctly, then the point should not have been adjudicated under the rules of the Arbitration and Media Center Rules and should instead have been decided under the International Court of Arbitration of the International Chamber of Commerce (‘ICC’). During the appeal, the Compagnie disputed the appointment of a single arbitrator and submitted that a total of three arbitrators should have been appointed if the ICC Rules had been interpreted correctly.

What Did The Mauritius Supreme Court Decide?

The Mauritian Supreme Court found that this was not the case on the basis that on a closer inspection of said Rules where both parties fail to reach an agreement about the total number of arbitrators, the rules will appoint a single person to act

The decision of the Supreme Court even went so far as to comment that a single arbitrator was assigned in 80% of cases. They elaborated that they would appoint three arbitrators taking into account the following factors the:

• level of monies involved
• difficulties of the issues
• the action’s location; and
• the presence of an emanation of a State.

Privy Council

Flashbird submitted an appeal to the Privy Council. However, the appeal was thrown out because it had not provided persuasive evidence that three arbitrators would have been selected if the ICC Rules would have been used. Due to this, the Privy Council found that Flashbird was not prejudiced to any great extent due to the method used.

What Are We Going To Do Now?

Many lawyers will be familiar with contracts containing a dispute resolution procedure in the event of a disagreement. However, on reading the judgment of the Privy Council decision lawyers should be:

• drafting contracts clearly to avoid uncertainties, especially about hybrid arbitration clauses as shown in the Flashbird case.
• aware of the rules of each arbitration procedure to avoid confusion; and
• considering the potential costs and disagreements over jurisdiction.

ASSESSING FIRMS

#HerbertSmithFreehills #SkaddenArpsSlateMeagher&FlomLLP #ThreeCrownsLLP #White&Case #WilmerHale #Allen&Overy #CliffordChance #Debevoise&Plimpton #FreshfieldBrukhausDeringer #HoganLovells #Latham&Watkins #QuinnEmanuelUrquart&Sullivan #Ashurst #CMS #LinklaterLLP

THE ARTICLE WAS WRITTEN USING THE FOLLOWING SOURCES

[1] Flashbird v Compagnie de Sécurité Privée et Industrielle SARL [2021] UKPC 32 - Flashbird Ltd v Compagnie de Securite Privee et Industrielle SARL (Mauritius) [2021] UKPC 32 (13 December 2021) (bailii.org)

[2] section 39(2)(a)(iv) International Arbitration Act 2008

[3] enigma Technology CoLtd v Alstom Technology Ltd [2009] SGCA 24 (Singapore International Arbitration Centre (“SIAC”)

[4] IM Badprim SRL v The Government of the Russian Federation (Case No T-2454/14)

[5] Top Gains Minerals Macao Commercial Offshore Ltd v TL Resources Pte Ltd (2015) HCMP 1622/2015

[6] Article 12 of the ICC Rules - Handbook of ICC Arbitration - Commentary, Precedents, Materials (3rd ed) -Thomas H Webster and Michael W Buhler including articles 12-17

[7] Article V(1)(d) of the New YorkConvention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention)”

[8] Triulzi Cesare SRL v Xinyi Group (Glass) Co Ltd [2014] SGHC 220

[9] Compagnie des Bauxites de Guinee v Hammermills, Inc 1992 WL 122712 (US District Court, DC, 29 May 1992)

[10] Board in Baker v The Queen[1975] AC 774

[11] Saha too v The Attorney General of Trinidad and Tobago[2019] UKPC 19

[12] Port Authority of Trinidad and Tobago v Daban[2019] UKPC 22; [2020] 1 All ER 373, para 26.

[13] Eastern European Engineering Ltd v Vijay Construction (Proprietary) Ltd [2018] EWHC 2713 (Comm); [2019] 1 Lloyd’s Rep 1

[14] Esteban: Hybrid (institutional) arbitration clauses; party autonomy gone wild” in Arbitration International [2020] vol 36, issue 4, p 475