Michael Payton, Clyde & Co.

I      Introduction

The success of arbitration depends on the ability both to seek interim relief and to
enforce awards globally. Without recognition of these mechanisms in local courts,
arbitration will be viewed as a waste of time and money.

With over 140 States signed up to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards one might have anticipated moves towards
standardisation on the granting of interim relief and the enforcement of Awards.
Things are never quite that simple. Despite a degree of standardisation concerning
the rules governing arbitrations, particularly with the adoption of the UNCITRAL
Model Law and the IBA rules of evidence, there remain quite different ends of the
spectrum. For example, at one end we have Dubai with its new DIFC-LCIA
arbitration centre, and Hong Kong with the Hong Kong International Arbitration
Centre, both taking active steps to improve their arbitration institutions. At the other
end of the spectrum, there are jurisdictions, like the Ukraine and Saudi Arabia, which
have proven to be rather less helpful when it comes to the enforcement of foreign
arbitration awards.

Under Ukrainian law a limited number of disputes can be referred to arbitration, and
the courts have no clear mechanism by which to order interim relief. And this is
despite having adopted the UNCITRAL Model Law and being a signatory to the New
York Convention since December 1958. In the Ukraine, many of the problems facing
arbitration arise because arbitration is neither well known nor well-established. There
is, however, some hope that Judges in the Ukraine are beginning to familiarise
themselves with foreign arbitration and international practice.

By contrast, there are three main arbitration institutions in the UAE: the Abu Dhabi
Commercial Conciliation and Arbitration Centre of the Abu Dhabi Chamber of
Commerce and Industry; the Dubai International Arbitration Centre; and the joint
venture initiative between the DIFC and the LCIA. The DIFC-LCIA has been
modelled on the LCIA rules and promises to be a welcome step in the right direction
to uniformity of enforcement of arbitral Awards.

The DIFC is a segregated area of the UAE with its own laws. As regards
interlocutory applications, the UAE court retains its powers to grant interim
measures. Therefore it may be difficult to make attachment orders against assets
held in the UAE where the party seeking the award is not a UAE national or UAE
national company. The UAE courts can also be called upon to adjudicate whether an
arbitration clause is valid. Enforcement of an Award in the UAE requires initial
ratification by a UAE court. Although the courts are not supposed to assess the
merits of the underlying dispute, they often do. There is a concern that the local
UAE courts will refuse to recognise and enforce arbitration Awards on "public policy"

On 19 April 1994, Saudi Arabia ratified the New York Convention. Saudi Arabia has
further enacted the "Laws of Arbitration" to govern arbitrations. Parties are free to
adopt any arbitration rules to govern proceedings. However, if parties adopt
arbitration rules from nations outside the GCC, the courts will not adjudicate on any
disputes arising from the arbitration. This will be a particular concern with regard to
enforcement. Enforcement of a foreign arbitration Award in Saudi Arabia is made
easier if the foreign country is also a signatory to the Riyadh Convention; however,
as with the UAE, the contrary to public policy carve-out is frequently employed. The
difficulties of enforcing a foreign arbitration Award in Saudi Arabia are well known.
Even when Awards are rendered within Saudi Arabia, they are not considered final
and binding, so parties are still likely to face difficulties.

Interim relief in the form of attachment orders and freezing orders is widely available
in other jurisdictions - for instance, Hong Kong, China and generally throughout the
Middle East and Asia. The difficulties in obtaining such relief may differ in practice.
A recent case in Bolivia1 questioned whether an English court had jurisdiction to
grant interim relief in the form of a freezing injunction in support of a foreign
arbitration; it was held that the English courts did not. However, it is thought that if
the arbitration had been subject to ICC rules, or the responding party had assets in
the UK, the case would have been decided differently. Following the decision in
West Tankers,2 it is feared that English courts' jurisdiction with regard to interim relief
in support of arbitration will be given a narrow reading.


By way of further illustration of the importance of local knowledge, let us look at
recent developments in two of the major world economies, USA (on security) and
China (on enforcement).

II         Security      USA

Interim Relief - Rule B Attachment Orders and Post Judgment attachment

Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset
Forfeiture Actions of the Federal Rules of Civil Procedure has raised some important
questions over the past few years, with the recent frenetic Court activity perhaps now
coming to an end with the case of The Shipping Corporation of India Lt. v Jaldhi
Overseas Pte, Ltd, 585 F.3d 58 (2d Cir. 2009), on which the US Court of Appeals for
the Second Circuit, in an unexpected decision, overturned its previous ruling in
Winter Storm Shipping Ltd. v TPI, 310, F.3d 263, 278 (2d Cir 2002), and held that
Rule B does not apply to electronic fund transfers (EFTs).

    ETI Euro Telecom International NV v Republic of Bolivia [2008] EWCA Civ, 89
    Reunione Adriatica di Sicurta SpA RAS v West Tankers Inc C-185/07

The Background to Rule B and the Shipping Corporation of India Decision

Maritime attachments arose because maritime parties are peripatetic and their
assets are often transitory. Thus, the traditional US policy underlying maritime
attachment has been to permit attachments of assets wherever they can be found
and not to require the plaintiff to scour the globe to find a proper forum for suit or
property of the defendant sufficient to satisfy a judgment. Rule B is a prejudgment
remedy that enables a plaintiff with a maritime claim against an absent defendant to
gain jurisdiction over that defendant through the attachment of its property located
within the jurisdiction of the court issuing the attachment order. The attachment also
serves as security which can be used to satisfy the judgment eventually obtained
against the defendant. When faced with the attachment of its property, the absent
defendant has two choices: it can come into the jurisdiction to defend the claim on
the merits, or risk the entry of a default judgment against it although the amount of
the default judgment would be limited to the amount of its property that had been
attached, not the amount of the claim.

Rule B provides for the attachment of the defendant's "tangible or intangible personal
property." For more than 150 years, Rule B was used to attach "traditional" types of
property such as bunkers, cargo, and funds on deposit in bank accounts, and as
such it generated little controversy or notice. In 2002, however, the use of Rule B
expanded significantly when the Second Circuit Court of Appeals in New York, in
Winter Storm Shipping, Ltd. v. TPI, 310 F3d. 263 (2d Cir. 2002), interpreted Rule B's
definition of property to include electronic fund transfers ("EFTs") being processed at
intermediary banks. The lower court determined that the issue of whether an EFT
was property subject to attachment under Rule B was governed by state law as set
forth in the New York Uniform Commercial Code, which prohibits the attachment of
EFTs at intermediary banks. On appeal, however, the Second Circuit rejected the
lower court's application of state law, and instead determined that the issue was
governed by US federal law which it interpreted as allowing the attachment of

The Winter Storm decision resulted in an immediate and significant increase in the
use of Rule B attachments because the majority of international maritime
transactions require payment of funds in US dollars. And, because the intermediary
banks that process these dollar-denominated wire transfers are located almost
exclusively in Manhattan, the vast majority of these Rule B attachment proceedings
were filed in the United States District Court for the Southern District of New York -
the US court which exercises jurisdiction over Manhattan.

In the years following the 2002 Winter Storm decision, the use of Rule B attachments
continued to increase steadily, as did the criticism of the Court's legal reasoning
underlying that decision. In 2006, in Aqua Stoli Shipping Ltd. v. Gardner Smith Pty
Ltd., 460 F.3d 434 92d Cir. 2006), a case involving procedural issues under Rule B,
the Second Circuit acknowledged the growing chorus of complaints over its Winter
Storm decision. In Aqua Stoli, the Court stated that "[t]he correctness of our decision
in Winter Storm seems open to question" because the cases on which it relied
decided only the question of whether an EFT was property that could be attached,
but did not address "the more salient question of whose assets they are while in
transit." Id. 460 F.3d at 445 n 6 (emphasis added). Two years later, this statement

led to another appeal of the Winter Storm rule in a case entitled Consub Delaware
LLC v. Schahin Engenharia Limitada, 543 F3d 104 (2d Cir. 2008). In Consub
Delaware, however, the Court affirmed its earlier decision in Winter Storm, again
rejecting the argument that New York state law should be applied to determine the
issue of whether an EFT at an intermediary bank is the "defendant's property"
subject to attachment under Rule B. Because the EFT involved in the Consub
Delaware case had been sent by the defendant as the originator, the Court
specifically noted in a footnote to its decision that "[w]e do not reach today the
question of whether the funds involved in an EFT en route to a defendant are subject
to a Rule B attachment." Id, 543 F3d at 109 n.

The Consub Delaware decision was issued on September 28, 2008, just as the
worldwide financial crisis was reaching its peak. This situation led to the "perfect
Rule B storm" as plunging commodity prices and shipping rates left large numbers of
parties to international shipping contracts unable to meet their obligations. These
contract breaches, in turn, led to an explosion in the number of Rule B complaints
being filed in the Southern District of New York. For example, during the four month
period from October 1, 2008 through January 31, 2009, a total of 962 new Rule B
Complaints seeking to attach more than $1.35 billion in assets were filed in the
Southern District. These cases constituted 33% of all lawsuits filed in that Court
during that period. These additional filings also led to renewed complaints from the
banking community about the burdens being imposed on them by the increased use
of Rule B. For example, under the applicable rules, a Rule B attachment order
directing a bank to attach the defendant's property is required to be served on the
bank on a daily basis until the full amount sought has been attached. Accordingly to
statistics supplied to the courts by the banking industry, approximately 700 - 900
attachment orders were being served on the banks each day as a result of this daily
service requirement even before the increased use of Rule B caused by the
financial crisis.

The Shipping Corporation of India Decision

On October 19, 2009, the Second Circuit Court of Appeals issued its decision in
Shipping Corporation of India in which it overruled its holding in Winter Storm, and
held that EFTs are not property subject to attachment under Rule B. This decision
was somewhat surprising to the parties and the New York maritime legal community
in general because the only issue presented on appeal and briefed by the parties
was whether an EFT of which the defendant was the intended beneficiary was the
defendant's property subject to attachment under Rule B. However, the Court went
beyond this limited issue and determined that EFTs being sent by, as well as sent to,
the defendant were immune from attachment under Rule B.

In Shipping Corporation of India, the plaintiff succeeded in attaching several EFTs,
some of which the defendant had originated and on some of which it was the
intended beneficiary. The lower court vacated the attachments of the "beneficiary"
EFTs on the grounds that those EFTs did not become the defendant's property until
the transfer was completed and the funds actually were deposited into the
defendant's account. Accordingly, a beneficiary EFT being processed at an

intermediary bank en route to the defendant's account is not subject to attachment.
Id., 585 F3d at 66.

On appeal, however, the Second Court went beyond this narrow issue, stating that
"[b]efore we can reach the question presented squarely by this appeal whether an
EFT is defendant's property when defendant is the beneficiary of that EFT we must
first consider the threshold issue of whether EFTs are indeed 'defendant's' property
subject at all to attachment under the Admiralty Rules." Id. at 66-67. The Court then
determined that Winter Storm had been decided incorrectly, principally because the
federal court cases on which that decision had been based did not resolve, or even
address, the issue of who owns an EFT while it is being processed at an
intermediary bank. After concluding that federal law did not provide the answer to
this ownership question, the Court followed the general rule that in the absence of
controlling federal law, a court looks to state law to determine property rights. This, in
turn, led the Court back to the New York State Uniform Commercial Code which
provides that an EFT at an intermediary bank is not the property of either the
originator or the beneficiary, and therefore is not subject to attachment under Rule B.
Id. at 71.

Approximately one month later, the Second Circuit issued another Rule B decision
entitled Hawknet, Ltd. v. Overseas Shipping Agencies, F.3d, 2009 WL 4911944 (2d
Cir. 2009), in which the Court specified that its decision in Shipping Corporation of
India applied retroactively to all of the hundreds of Rule B cases then pending in the
Southern District of New York.

Within days of this decision the lower court judges in the Southern District of New
York began issuing orders directing the plaintiffs in all of the pending Rule B cases to
"show cause" why, in view of this new Second Circuit decision, the attachment
orders previously issued by the courts authorizing the attachments of EFTs should
not be vacated, and the EFTs attached pursuant to those orders released. Since
that time, save for a very small number of cases involving specific circumstances
such as an agreement between the parties to continue the attachment, the judges in
the Southern District uniformly have held that the previously authorized attachments
were improper, and have ordered the release of the attached funds.

The plaintiff in Shipping Corporation of India has filed a Petition for Writ of Certiorari
seeking permission to appeal the decision to the United States Supreme Court.
However, given the extremely limited number of cases selected for review each year
by the Supreme Court, and the insufficient "national importance" of the point, it
appears unlikely that the case will be accepted for appeal by the Supreme Court.

Accordingly, while Rule B continues to exist and still can be used to attach more
traditional types of property such as funds in a bank account in New York, it no
longer poses a threat of attachment of EFTs being wire transferred through
intermediary banks located in New York or elsewhere.

Post-Judgment Attachment Proceedings post Koehler v Bank of Bermuda

Although Rule B has effectively been eliminated as a method of satisfying maritime
arbitration Awards, a recent decision issued by the New York State Court of Appeals

provides a new weapon to plaintiffs for the post-judgment enforcement of Awards in
New York.

On June 4, 2009, the New York Court of Appeals issued its decision in Koehler v.
Bank of Bermuda, 12 N.Y.3d 533 (2009), which expands significantly the power of a
New York court to satisfy judgments using a defendant's property located outside
New York State or even outside the United States.

Under New York State law (Article 52 of the New York Civil Practice Law and Rules),
a plaintiff may enforce a judgment against the judgment debtor directly by filing a
motion to compel the judgment debtor to turn over its assets to satisfy the judgment.
The law also allows the judgment creditor to commence a similar proceeding against
a third-party garnishee who has possession or control over the judgment debtor's
assets, such as a bank holding funds belonging to the judgment debtor. In this
special proceeding, the judgment creditor obtains from the court a "turn over order'
directing the garnishee to turn over the assets to the judgment creditor.

In the Koehler case, the Bank of Bermuda had possession in Bermuda of stock
certificates owned by the judgment debtor. A federal court in New York (Southern
District) ordered the Bank of Bermuda, which operated in New York and therefore
was subject to the Court's jurisdiction, to bring those stock certificates from Bermuda
into New York so they could be used to satisfy the outstanding judgment. After 10
years of litigation over the issue of whether the Bank was subject to the jurisdiction of
the Court, it was revealed that the Bank no longer had possession of the stock
certificates. Thereafter, the federal court dismissed the petition for the turn over
order, holding that a New York court cannot attach property that is not physically
located within New York State.

Because this issue involved a question of New York State law, the federal court
invoked a procedural device that enabled it to refer the question to the New York
State Court of Appeals for decision. The Court of Appeals held that so long as the
New York court is able to exercise personal jurisdiction over the third-party
garnishee, it has the power to order that garnishee to bring the judgment debtor's
assets under its control but located outside New York, into New York, so that they
can be turned over to the judgment creditor to satisfy the judgment.

Accordingly, this newly expanded power of the New York Courts to enforce
judgments against a defendant's assets located around the world may to some
degree come to replace the judgment satisfaction procedures no longer available
under Rule B.

III       Enforcement of Foreign Arbitration Awards                    General

Enforcement of arbitration awards is mandatory in all New York Convention
signatory states. If a party wishes to contest the award, it bears the burden of proof.3
Enforcement may be contested on the following grounds, as set out in Article V (1) of
the Convention:

    Corporation Transnacional de Inversiones SA de CV v STET International SpA (2000) 49 OR 414

    (a) The parties to the agreement referred to in Article II were, under the law
    applicable to them, under some incapacity, or the said agreement is not valid
    under the law to which the parties have subjected it or, failing any indication
    thereon, under the law of the country where the award was made; or

    (b) The party against whom the award is invoked was not given proper notice of
    the appointment of the arbitrator or of the arbitration proceedings or was
    otherwise unable to present his case; or

    (c) The award deals with a difference not contemplated by or not falling within the
    terms        of the submission to arbitration, or it contains decisions on matters
    beyond the scope of the submission to arbitration, provided that, if the decisions
    on matters submitted to arbitration can be separated from those not so submitted,
    that part of the award which contains decisions on matters submitted to
    arbitration may be recognized and enforced; or

    (d) The composition of the arbitral authority or the arbitral procedure was not in
    accordance with the agreement of the parties, or, failing such agreement, was not
    in accordance with the law of the country where the arbitration took place; or

    (e) The award has not yet become binding on the parties, or has been set aside
    or suspended by a competent authority of the country in which, or under the law
    of which, that award was made.

This list of grounds is exhaustive.4 Recognition of an arbitration award can also be
refused if the local court finds that:

        (a) The subject matter of the difference is not capable of settlement by
        arbitration under the law of that country; or

        (b) The recognition or enforcement of the award would be contrary to the
        public policy of that country. (Article V (2)) (emphasis added)

Enforcement of Awards in China

China has been a party to the New York Convention since 22 April 1987.5
Theoretically, any Award made in another New York Convention signatory state
should be recognised and enforceable in China. Despite this, enforcement rarely
happens in practice, primarily because the "public policy" exception is relied on in
order to deny the enforcement of foreign arbitration Awards.

A party seeking to enforce a foreign arbitration Award in China must first apply to the
People's Republic of China Court where the Respondent's assets are located. The
party seeking enforcement has two years from the date of the Award to make this
application. Previously this limitation was six months, so this extension could be
viewed as an encouragement to enforcement of foreign Awards in China.

 Karaha Bodas LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negra [2003] 380 HKCU 1
 China ratified the New York Convention subject to the reservations of reciprocity and that the dispute is of a
commercial nature.

The China International Economic and Trade Arbitration Commission (CIETAC) is
the oldest and most popular arbitration institute in China. In 2008, CIETAC held
1,230 cases whereas the Hong International Arbitration Centre (HKIAC) held only
602. CIETAC has, however, been criticised in some quarters for the lack of
impartiality of its Awards and lack of internal co-ordination. There are various new
arbitral bodies emerging, such as the Beijing Arbitration Commission (BAC) as well
as the HKIAC, but there remains a question mark over how effective these bodies
are in comparison to CIETAC. At present, BAC handles 10 per cent of the
international cases that CIETAC does. Furthermore, BAC is not as well established
or recognised.

Traditionally, it has been thought that the courts in the PRC were reluctant to enforce
an arbitration Award made outside China. Our own Shanghai office has had a mixed
experience with regard to enforcement of foreign arbitration Awards. They have had
instances where enforcement has been blocked, but also cases where enforcement
has been allowed. Factors such as the strength and the status of the enforcing party,
and commercial pressures influence local courts.

China has not implemented domestic laws or regulations to determine the grounds
for refusing to enforce foreign arbitration Awards. Therefore, the New York
Convention applies. Nevertheless, although PRC courts should not review the merits
of the underlying arbitration, they often do, of their own volition. This has resulted in
a regime which is fraught with uncertainty.

The recent case of Duferco v Ningbo Arts and Craft Import and Export Co,6 however,
may show a new willingness among PRC courts to enforce international arbitration
Awards in mainland China.

A Swiss steel company Dufreco brought a claim against a Chinese company, Ningbo
Arts and Crafts Import and Export Co. The contract between the parties provided
that disputes should be determined by arbitration at the "Arbitration Committee of the
International Chamber of Commerce in China". Under this clause, the Claimant
brought a claim against the Respondent at the ICC in Beijing. The Respondent
challenged the jurisdiction of the ICC, arguing that the contract had in effect provided
for arbitration by CIETAC. This challenge was rejected, and having accepted
jurisdiction of the case, the ICC made an award in favour of Dufreco on 21
September 2007.

On 4 December 2007, Dufreco took their Award to the Ningbo Court in the PRC and
applied for recognition and enforcement. The Respondent challenged the ICC's
award on the grounds that enforcement of the Award would result in a violation of
domestic law, because the ICC did not have jurisdiction over the case. The Ningbo
court refused to allow the Respondent to challenge the validity of the arbitration
because the Respondent failed to raise its objection prior to the first hearing. Relying
on Article I (1) of the New York Convention,7 the Ningbo court held that the Award
constituted a non-domestic Award and was therefore enforceable.

 concerning the ICC award 14006/MS/JB/JEM
 "This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a
State other than the State where the recognition and enforcement of such awards are sought, and arising out of

This apparent move towards recognition of an international arbitration Award in
mainland China has been heralded as a welcome shift towards easing enforceability
within the jurisdiction. However, celebrations may be premature. In the 2004 case of
Zueblin,8 for example, the PRC Court delved more deeply into the Respondent's
objections to the ICC's jurisdiction, and held that the reference to the ICC Rules in
the contract did not satisfy the requirements for the arbitration to be decided by the

It remains to be seen whether the Ningbo decision will be followed: it was a unique
set of facts, and decided on a procedural point. Furthermore, because China is a civil
law country, the PRC courts are under no obligation to follow precedent. As
discussed, China often relies on the "contrary to public policy" exception under
Article V 2(b) of the New York Convention, in order to refuse enforcement of a
foreign award. PRC courts are known to be obstructive with regard to enforcement,
and other factors such as commercial and political pressure typically influence their
decisions. On a positive note, the Ningbo court did cite the New York Convention in
their decision, which in itself represents a move towards recognition. It will be
interesting to see which way the PRC courts will lean, going forwards.

Another point to note is that Chinese law does not recognise arbitration where the
seat is in mainland China, but the arbitral institution is not an approved mainland
arbitration body. In the Ningbo case, there were discrepancies between the English
version and the Chinese version of the arbitration clause. The Chinese version of
the contract provided that:

"any dispute relating to the performance of this contract or in connection with this
contract should be submitted to the arbitration committee of the International
Chamber of Commerce situated in Beijing, China and be arbitrated under the United
Nations Convention on Contracts of International Sales of Goods".

The English version provided that disputes "             should be submitted to the
International Chamber of Commerce International Arbitration Court with the arbitral
seat in China, and be arbitrated under the United Nations Convention on Contracts
of International Sales of Goods." It is unclear to what extent this influenced the
court's decision; it therefore remains advisable for parties where one of them is PRC-
domiciled, or who intend to arbitrate in the PRC, to arbitrate under CIETAC, or
another PRC-approved arbitration body.

The position in mainland China contrasts with the position in Hong Kong.

Hong Kong, as part of the PRC, is a signatory to the New York Convention. In Hong
Kong, both enforcement of foreign arbitration Awards, and the granting of interim
relief are more readily available compared to mainland China. The HKIAC has taken
steps to ensure that it is seen as a being friendly to arbitration (both domestic and
foreign), adopting, for instance, the UNCITRAL model law.

differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as
domestic awards in the State where their recognition and enforcement are sought."
  In this a local court (the Wuxi Intermediate Court) decided that an arbitration clause stating that ICC rules would
be applied was invalid under Chinese law.

In 2009, HKIAC adopted the new HKIAC Administered Arbitration Rules. The HKIAC
has also introduced a new Arbitrator Appointment Committee, which will be charged
with nominating arbitrators. With the 25th anniversary of the HKIAC in 2010, it is
expected that its success and reputation as an international arbitration centre will be

IV     General Conclusions

Are we seeing a shift towards global standardisation of arbitration? The Hong Kong
HKIAC and the DIFC in Dubai have taken steps to model their arbitration institutions
on those of the LCIA and other internationally recognised bodies, such as the ICC, in
a move to make these pro-arbitration centres.

Despite this, arbitration remains an unwelcome guest to many local courts.
Domestic courts have the last say when it comes to enforcement of Awards or the
granting of interim relief within their jurisdiction. Policy considerations and political
factors often influence local courts decisions. The Rule B development in Shipping
Corporation of India is an indicator that, although the decision was arguably legally
correct, there were also influential local commercial decisions.

The case of Ningbo gives us a glimmer of hope, with regard to China, in
demonstrating that the local courts can be persuaded to enforce foreign arbitration
Awards and apply the New York Convention. Ultimately, however, the enforceability
of arbitral Awards in domestic courts remains, in a number of jurisdictions,
unpredictable. Therefore, factors such as where the other parties assets are located,
and what forms of interim relief are available, remain an important consideration
before deciding to arbitrate.

The ability to obtain security for foreign arbitration Awards is essential in order for
arbitration to operate as an effective alternative to litigation. Considerations such as
where assets are located, and the degree of connection to the jurisdiction in which
the relief is being sought, will be highly relevant to the likelihood of success of the


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