Question
1. Steel-Co (a steel-producing company based in Germany) and Trans Altyapi (a Turkey-
owned construction company with commercial bank accounts opened in Sweden) enter into a
contract for the supply of steel. Three years after, Trans Altyapi fails to make payment for
three consecutive supplies of steel. When Steel-Co threatens to stop the delivery of steel if the
payments are not received within the specified period of time, Trans Altyapi terminates the
contract without making due payment, arguing that the quality of delivered steel significantly
deteriorated over the past year. After unsuccessfully attempting to reach a consensus with
Trans Altyapi and save the business relationship, Steel-Co decides to initiate arbitration based
on the clause contained in the contract, which reads as follows:
’The Arbitral Tribunal shall consist of three arbitrators, appointed by the British Chamber of
Commerce. The arbitration proceedings shall be conducted in English. Law governing the
contract is the law of Switzerland. Any claim or dispute or breach of terms of the Contract
shall be settled amicably between the parties by mutual consultation. If no amicable
settlement is reached through discussions, at the election of Steel-Co, the dispute may be
referred to and settled by means of arbitration proceedings, which will have a seat in London
and will be administered by the London Court of International Arbitration.‘
1.A Upon receiving a request for arbitration, Trans Altyapi applies to the English court,
requesting the stay of arbitration proceedings on the ground that the arbitration agreement is
invalid since it is optional and bestows the right to initiate arbitration on only one of the
parties.
Explain the relevant legal issue(s) and how they are likely to be resolved.
1.B Assume that the arbitration agreement is confirmed as valid and the arbitral process
proceeds as follows:
The British Chamber of Commerce appoints three arbitrators: Esma (a dual citizen of the UK
and Turkey) as a presiding arbitrator, and two co-arbitrators: Adebajo (a dual citizen of the
UK and Nigeria) and Bart (a citizen of the Netherlands).
Adebajo is a partner in the law firm Johnson & Primm but practices almost exclusively as an
arbitrator and takes no active part in the law firm’s decision making. Johnson & Primm
derives substantial remuneration from providing legal advice to company Solaris which had
been acquired by a company Trust- Co in 2008. Trust-Co also owns 55% of shares in Steel-
Co. Johnson & Primm’s conflict check system did not alert Adebajo to the possible
relationship between Solaris and Steel-Co, thus he did not disclose it upon his appointment.
Bart, a first-time arbitrator, is an avid user of social media and has amassed considerable
following on his twitter account. In the course of the arbitral proceedings, Bart retweets an
article in The Guardian criticizing Turkey’s record on human rights.
Before the hearings, Esma discloses that she is in the process of purchasing a holiday house
in Antalya from one of the fact witnesses presented by Trans Altyapi.
What course of action is available to the parties with respect to potential conflicts of interest?
What will be the likely outcome?
1.C Assume that the issues raised in the preceding sub-questions have been resolved
successfully and the tribunal has issued a final award in which it found that Trans Altyapi
violated the terms of the contract and ordered it to pay £1,258,000 to Steel-Co.
Trans Altyapi decides to challenge the award in English courts on the grounds that: (i) the
tribunal has administered the oath of the expert and fact witnesses, which is a power reserved
, for public authorities only; (ii) the tribunal based the final decision on a novel legal argument,
without giving parties a chance to express their views on it; and (iii) the tribunal has made a
significant error in the application of substantive law.
Having been informed by Trans Altyapi that it will not comply with the arbitral award
regardless of the outcome of the challenge, Steel-Co starts planning the legal action to
enforce the award against the Trans Altyapi’s assets.
How are Trans Altyapi’s challenges of the arbitral award likely to be decided? Explain what
Steel-Co’s chances for enforcement of the arbitral award are.
Answer
Preliminary issues
Whilst LCIA rules stipulate that the LCIA Court alone has power to appoint arbitrators, as
Steel-Co and Trans Altyapi have agreed in writing to appointment by the British Chamber of
Commerce, the LCIA will take this into account, but appointment is ultimately at the LCIA
Court’s discretion. Whilst the substantive law of the contract is Swiss law, separability means
that the arbitration clause is independent from the other terms of the contract. Therefore, it
does not always follow that the substantive law of the contract will govern the arbitration.
Sulamerica established that the governing law is: (i) expressly chosen; (ii) impliedly chosen;
(iii) if neither, the law of which the dispute has the closest and most real connection. As there
is no explicit or implicit choice of law, the seat of arbitration is London, and the proceedings
are in English, it is likely that English law will suffice the close and real connection test.
Moreover, LCIA rules stipulate that the law applicable to the arbitration agreement is that of
the lex arbitri, and so the law governing the arbitration will be English law. The clause is
multi-tier, however, the requirement to engage in mutual consultation will likely be
unenforceable as it does not provide for a sufficiently certain and definable minimum duty.
1A)
Optional agreement
Although the use of the word ‘may’ in the arbitration agreement between Trans Altyapi and
Steel-Co does not indicate an unequivocal commitment to arbitration, courts interpret
arbitration clauses liberally to give them effect wherever possible. This was exemplified in
Anzen where ‘may’ was interpreted broadly to give effect to arbitration and grant a stay of
litigation proceedings. This decision is praised for underpinning commercial parties’
preference for arbitration, and for making ‘commercial sense’. Therefore, the clause being
optional will not justify a stay in arbitration proceedings.
Unilateral clause
Unilateral clauses are where one party has a choice of forums in which to bring a claim, but
the other party is restricted to one option. Usually litigation is default, with arbitration being
available to only one party, in this case Steel-Co. In England, unilateral clauses are
permissible as recognised in Law Debenture Trust and reinforced in Barclays Bank. Other
jurisdictions have taken alternative approaches, with the French Cour de Cassation being
criticised for its decision in Rothschild to void an arbitration agreement where only one party
had the option to decide the jurisdiction of arbitration. As the law of the arbitration agreement
1. Steel-Co (a steel-producing company based in Germany) and Trans Altyapi (a Turkey-
owned construction company with commercial bank accounts opened in Sweden) enter into a
contract for the supply of steel. Three years after, Trans Altyapi fails to make payment for
three consecutive supplies of steel. When Steel-Co threatens to stop the delivery of steel if the
payments are not received within the specified period of time, Trans Altyapi terminates the
contract without making due payment, arguing that the quality of delivered steel significantly
deteriorated over the past year. After unsuccessfully attempting to reach a consensus with
Trans Altyapi and save the business relationship, Steel-Co decides to initiate arbitration based
on the clause contained in the contract, which reads as follows:
’The Arbitral Tribunal shall consist of three arbitrators, appointed by the British Chamber of
Commerce. The arbitration proceedings shall be conducted in English. Law governing the
contract is the law of Switzerland. Any claim or dispute or breach of terms of the Contract
shall be settled amicably between the parties by mutual consultation. If no amicable
settlement is reached through discussions, at the election of Steel-Co, the dispute may be
referred to and settled by means of arbitration proceedings, which will have a seat in London
and will be administered by the London Court of International Arbitration.‘
1.A Upon receiving a request for arbitration, Trans Altyapi applies to the English court,
requesting the stay of arbitration proceedings on the ground that the arbitration agreement is
invalid since it is optional and bestows the right to initiate arbitration on only one of the
parties.
Explain the relevant legal issue(s) and how they are likely to be resolved.
1.B Assume that the arbitration agreement is confirmed as valid and the arbitral process
proceeds as follows:
The British Chamber of Commerce appoints three arbitrators: Esma (a dual citizen of the UK
and Turkey) as a presiding arbitrator, and two co-arbitrators: Adebajo (a dual citizen of the
UK and Nigeria) and Bart (a citizen of the Netherlands).
Adebajo is a partner in the law firm Johnson & Primm but practices almost exclusively as an
arbitrator and takes no active part in the law firm’s decision making. Johnson & Primm
derives substantial remuneration from providing legal advice to company Solaris which had
been acquired by a company Trust- Co in 2008. Trust-Co also owns 55% of shares in Steel-
Co. Johnson & Primm’s conflict check system did not alert Adebajo to the possible
relationship between Solaris and Steel-Co, thus he did not disclose it upon his appointment.
Bart, a first-time arbitrator, is an avid user of social media and has amassed considerable
following on his twitter account. In the course of the arbitral proceedings, Bart retweets an
article in The Guardian criticizing Turkey’s record on human rights.
Before the hearings, Esma discloses that she is in the process of purchasing a holiday house
in Antalya from one of the fact witnesses presented by Trans Altyapi.
What course of action is available to the parties with respect to potential conflicts of interest?
What will be the likely outcome?
1.C Assume that the issues raised in the preceding sub-questions have been resolved
successfully and the tribunal has issued a final award in which it found that Trans Altyapi
violated the terms of the contract and ordered it to pay £1,258,000 to Steel-Co.
Trans Altyapi decides to challenge the award in English courts on the grounds that: (i) the
tribunal has administered the oath of the expert and fact witnesses, which is a power reserved
, for public authorities only; (ii) the tribunal based the final decision on a novel legal argument,
without giving parties a chance to express their views on it; and (iii) the tribunal has made a
significant error in the application of substantive law.
Having been informed by Trans Altyapi that it will not comply with the arbitral award
regardless of the outcome of the challenge, Steel-Co starts planning the legal action to
enforce the award against the Trans Altyapi’s assets.
How are Trans Altyapi’s challenges of the arbitral award likely to be decided? Explain what
Steel-Co’s chances for enforcement of the arbitral award are.
Answer
Preliminary issues
Whilst LCIA rules stipulate that the LCIA Court alone has power to appoint arbitrators, as
Steel-Co and Trans Altyapi have agreed in writing to appointment by the British Chamber of
Commerce, the LCIA will take this into account, but appointment is ultimately at the LCIA
Court’s discretion. Whilst the substantive law of the contract is Swiss law, separability means
that the arbitration clause is independent from the other terms of the contract. Therefore, it
does not always follow that the substantive law of the contract will govern the arbitration.
Sulamerica established that the governing law is: (i) expressly chosen; (ii) impliedly chosen;
(iii) if neither, the law of which the dispute has the closest and most real connection. As there
is no explicit or implicit choice of law, the seat of arbitration is London, and the proceedings
are in English, it is likely that English law will suffice the close and real connection test.
Moreover, LCIA rules stipulate that the law applicable to the arbitration agreement is that of
the lex arbitri, and so the law governing the arbitration will be English law. The clause is
multi-tier, however, the requirement to engage in mutual consultation will likely be
unenforceable as it does not provide for a sufficiently certain and definable minimum duty.
1A)
Optional agreement
Although the use of the word ‘may’ in the arbitration agreement between Trans Altyapi and
Steel-Co does not indicate an unequivocal commitment to arbitration, courts interpret
arbitration clauses liberally to give them effect wherever possible. This was exemplified in
Anzen where ‘may’ was interpreted broadly to give effect to arbitration and grant a stay of
litigation proceedings. This decision is praised for underpinning commercial parties’
preference for arbitration, and for making ‘commercial sense’. Therefore, the clause being
optional will not justify a stay in arbitration proceedings.
Unilateral clause
Unilateral clauses are where one party has a choice of forums in which to bring a claim, but
the other party is restricted to one option. Usually litigation is default, with arbitration being
available to only one party, in this case Steel-Co. In England, unilateral clauses are
permissible as recognised in Law Debenture Trust and reinforced in Barclays Bank. Other
jurisdictions have taken alternative approaches, with the French Cour de Cassation being
criticised for its decision in Rothschild to void an arbitration agreement where only one party
had the option to decide the jurisdiction of arbitration. As the law of the arbitration agreement
