Need for Clarity
As a recent case in the English Commercial Court demonstrates, parties should ensure that any arbitration agreements drawn up as part of contract negotiations are phrased explicitly and clearly. In Shagang South Asia (Hong Kong) Trading Co Ltd v Daewoo Logistics, Daewoo chartered a ship from Shagang. The fixture note provided that any arbitration would be held in Hong Kong and, crucially, that English should be applied.
When Daewoo subsequently brought a claim, they began arbitration proceedings against Shagang in London, but Shagang failed to respond to a notification of the proceedings and the appointment of the arbitrators. Shagang then went on to query the arbitration itself, claiming that the seat of the arbitration was Hong Kong and that Hong Kong law should apply, making the arbitration subject to the Hong Kong Arbitration Ordinance.
The arbitrator issued an award, stating that the arbitration was subject to English law. Shagang applied to the English Commercial Court to have the award set aside, and the arbitration proceedings declared not properly constituted.
The key issues for the court to consider were whether the arbitration was subject to English or Hong Kong law, and whether a sole arbitrator was valid.
The arbitration clause had two parts - the location of the arbitration (Hong Kong) and the law to be applied (English). This was an unusual construction. The court concluded, contrary to Daewoo’s argument, that the agreement that the arbitration would be ‘held in Hong Kong’ implied that since Hong Kong was the seat of arbitration, Hong Kong procedural law would apply.
It was therefore also the case that the appointment of the sole arbitrator had been invalid, having been appointed under the standard form scheme, which did not apply (since this would have been the application under English Law).
This case demonstrates the need for clauses to be very clear regarding choice of law. If a particular geographical location is stipulated, that location is likely to be sufficient to imply that it would be the seat of the arbitration, with that jurisdiction’s law being applied.
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