Developments In Cross-Border Arbitration Proceedings And The Cayman Islands

Recently, there have been several noteworthy cases relating to interim measures and arbitration award enforcement in the Cayman Islands. The first, Gol Linhas Aereas SA (formerly VRG Linhas Aereas SA) (Respondent) v MatlinPatterson Global Opportunities Partners (Cayman) II LP and others (Appellants) (Cayman Islands) [2022] UKPC 21 should inspire confidence in the finality and enforceability of international arbitration awards. ArcelorMittal North American Holdings LLC v Essar Global Fund Ltd and In the matter of the Kuwait Ports Authority further emphasised the Cayman courts’ willingness to aid foreign arbitration proceedings through interim relief and enforcement.

Gol Linhas And The New York Convention

The much-awaited Privy Council decision in Gol Linhas upheld the Cayman Islands Court of Appeal judgment and confirmed that the ICC arbitration award obtained in favor of Gol was enforceable in the Cayman Islands.

The dispute arose out of a Share Purchase and Sale Agreement between Gol and MP Funds, which contained an arbitration agreement that set out that the arbitration would take place in São Paolo, in Portuguese, and that the arbitration agreement was governed by the laws of Brazil. In September 2010, the tribunal issued its final Award, and found MP Funds liable on the basis of the tort of third-party malice, pursuant to Article 148 of the Brazilian Civil Code, despite the fact that third party malice was not mentioned by neither the parties nor the tribunal. The tribunal’s finding was based on the civil law doctrine of “iura novit curia,” the Latin legal maxim expressing, “the court knows the law” which has been broadly interpreted in civil law jurisdictions to allow the court to base decisions on legal theories that have not been advanced by parties, unlike common law systems, which typically reject the maxim. The application of iura novit curia has not been uniform and, in the context of arbitration, it has been widely debated.

There have been other court decisions in a number of jurisdictions relating to the doctrine. The national legislation of a few states, as well as arbitration soft law, have also previously addressed the principle. Article 7 of the Prague Rules, for example, establishes arbitrator’s right to “rely on legal authorities even if not submitted by the parties if they relate to legal provisions pleaded by the parties,” although the tribunal may only exercise this power “provided that the parties have been given an opportunity to express their views” in relation to the legal authorities in question. Article 24(2)(g) of the English Arbitration Act 1996 provides that the tribunal should decide “whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law” which does recognise a tribunal’s power to establish applicable legal provisions of its own volition, although it does not broadly clarify the limits of iura novit curia.

Here, MP Funds challenged the Award in Brazil and argued a number of grounds, including that there was a lack of due process as a result of the tribunal’s reliance on Article 148 of the Brazilian Civil Code, which the Privy Council later observed was equivalent to Article V of the New York Convention, which was subsequently used.

MP Funds were unsuccessful both at first instance and in their appeal to the São Paolo Court of Appeals and ultimately, Gol sought and obtained, on an ex-parte basis, leave to enforce the Award in the Cayman Islands. Initially, Mantagal J set the order aside, however the Cayman Court of Appeal (CICA) allowed Gol’s appeal on all grounds and ultimately found, among other things, that MP Funds could not resist enforcement of the award in the Cayman Islands when the Brazilian courts had already dismissed earlier objections.

MP Funds filed an appeal to the Privy Council and there were three central issues considered: (i) whether the CICA was in error when it found that the MP Funds were estopped from resisting enforcement pursuant to Article V(1)(a) of the New York Convention on the ground that there was no arbitration agreement; (ii) whether or not the CIAC erred when it rejected the natural justice argument under Article V(1)(b) and/or Article V(2)(b); (iii) whether the CICA was incorrect when it found that the award was not outside the terms of reference under Article V(1)(c) of the New York Convention. MP Funds’ case turned on the argument that (i) it was not a party to the arbitration agreement; (ii) there had been procedural defects in the arbitration hearing that afforded a right to resist enforcement; and (iii) that the ultimate award had been outside the scope of the submission to arbitration.

Ultimately, the Privy Council determined that the arbitration clause should be construed liberally in keeping with arbitration’s purpose – to provide “a flexible and effective means of resolving disputes and providing redress” and that any artificial attempts to narrowly construe the scope of the arbitration clause should be resisted. It found that the award could be enforced in the Cayman Islands because the tribunal was found to have made its decision on a factual basis which was well understood by the parties and fully argued. The Privy Council drew a distinction between a situation that was “fundamentally unfair” in which a party was denied the opportunity to answer a significant factual allegation and situations that merely involved legal reasoning and stated, “… it is expected that the judge will bring his or her own knowledge of the law to bear in deciding a case, independently and in addition to the legal arguments and materials adduced by the parties.”

The case explored what the appropriate standard of due process is to be applied when considering challenges to enforcement of arbitration awards under the New York Convention and will be of particular interest to practitioners in common law jurisdictions that are signatories to the Convention.

ArcelorMittal North American Holdings LLC v Essar Global Fund Ltd

In ArcelorMittal North American Holdings LLC v Essar Global Fund Ltd, Kawaley J declined to set aside a Norwich Pharmacal order (“NPO”, which is a court order for the disclosure of documents or information) that had previously been granted in aid of the enforcement of an ICC arbitral award and which had been upheld by the Cayman Islands Court of Appeal.[i] The case arose from a 2012 agreement between Essar and ArcelorMittal Group to supply ArcelorMittal with iron ore pellets. Essar breached and, in December 2017, ArcelorMittal obtained an arbitral award against Essar for US$1.3bn plus interest. Proceedings in Cayman began in January 2019 when ArcelorMittal sought an order requiring the principal holding company of Essar, Essar Global Fund Limited (EGFL), and Essar Capital Limited (ECL), the investment manager of EGFL, to provide information and documents to explain the disposal of assets, as EGFL and ECL were both registered in Cayman.

The judgment provided guidance on the legal test for actionable wrongdoing and confirmed that disclosure under the NPO can be obtained in Cayman in support of proceedings in foreign jurisdictions.

On 11 May 2022, the Privy Council refused permission to appeal the CICA decision and cited the reasoning that an arguable point of law had not been raised and that the CICA was correct in the reasons that they gave.

In The Matter Of The Kuwait Ports Authority

In the matter of the Kuwait Ports Authority (FSD 118 of 2021, unreported 8 March 2022, Parker J), the Cayman Grand Court authorised the disclosure of confidential documents to a related third party for use in foreign arbitral proceedings, after considering the scope of the Confidential Information Disclosure Act, 2016 (CIDA).

The disclosure related to confidential documents that the Kuwait Ports Authority (KPA) had obtained in its capacity as a limited partner in The Port Fund L.P. (TPF). The State of Kuwait had requested the documents as part of an ICSID arbitration under a Bilateral Investment Treaty brought by Maria Lazareva, a former director of TPF, where Kuwait is the defendant. KPA applied to the Grand Court under section 4 of the CIDA, an application which was supported by Kuwait and opposed by Port Link and Ms. Lazareva.

This decision provides guidance on the scope of disclosure that the court will permit relating to the CIDA and confidential information to third parties. What made this case particularly noteworthy was the fact that the applicant, KPA, was not a party to the arbitration and was not the entity intending to give evidence. Parker J noted that KPA “is not under any legal obligation or compulsion to share the documents with Kuwait.”

The Grand Court ultimately granted the relief sought and Parker J held that section 4(2) “provides an in-built discretionary filter for the Court to balance competing rights and interests in the exercise of its discretion.” The court also found that KPA had a legitimate interest in the confidential documents being as, if the confidential documents were not provided, Kuwait and KPA would both suffer prejudice.

Additionally, the court examined section 3(2) of the CIDA and determined that KPA was permitted to disclose “confidential information on wrongdoing” because the two threshold requirements were satisfied: (i) acting in good faith and (ii) reasonable belief that the information was substantially true and disclosed evidence of wrongdoing.

Although this was a unique fact-pattern, it is foreseeable that there will be other parties in the future who may wish to disclose confidential documents and information to third parties for use in arbitrations, even if the party that is disclosing the information is not involved, and who will find the court’s broad interpretation of section 4 here of the CIDA to be of particular significance.

Conclusion

These cases have underlined the Cayman courts’ willingness to grant interim relief in support of foreign arbitrations and to assist with the enforcement and recognition of foreign arbitration awards in Cayman, within the parameters of domestic and international law.

 

Footnotes:

[i]   CICA Civil Appeal No 16 of 2019