Arbitrations seated in England and Wales,2 both international and domestic, are governed by the Arbitration Act 1996 (Act).3 The Act, which is based in many respects on the UNCITRAL Model Law, consolidated and reformed the existing arbitration law, introducing a modern and 'pro-arbitration' legislative regime. Although comprehensive, the Act does not codify all aspects of English arbitration law.4 Practitioners must therefore consult the common law as well as the Act to determine the status of the law on many issues.
i The structure of the Act
The provisions of the Act are set out over four parts:
- Part I contains the key provisions relating to arbitration procedure, including the appointment of the arbitral tribunal, the conduct of the arbitration, and the powers of the tribunal and the court. Section 4 of Part I expressly distinguishes between mandatory provisions (i.e., those that have effect notwithstanding any agreement to the contrary) and non-mandatory provisions (i.e., those that can be opted out of, by agreement). The mandatory provisions are listed in Schedule 1 of the Act;
- Part II contains provisions dealing with 'domestic arbitration agreements' and 'consumer arbitration agreements', and 'small claims arbitration in the county court';
- the provisions of Part III give effect to the United Kingdom's obligations to recognise and enforce awards under Articles III to VI of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention); and
- Part IV comprises provisions concerning the allocation of proceedings between courts, and the commencement of the Act and the extent of its application.
ii The main principles of the Act
The Act is based on three general principles set out in Section 1, which have served as a starting point for judicial reasoning and innovation in the application of the Act. A member of the Departmental Advisory Committee on Arbitration (DAC), who helped draft the Act in consultation with arbitration practitioners and users, recently described these principles as the 'philosophy behind the Act'.5 The principles are:
- fairness ('the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense');6
- party autonomy over the arbitration proceedings ('the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest');7 and
- the restriction of judicial intervention in proceedings ('in matters governed by [Part I] of the Act, the court should not intervene except as provided by [that] Part').8
Section 1 of the Act provides that Part I is 'founded on' these principles and shall be 'construed accordingly', and the English courts continue to refer to the guiding principles in resolving concerns over the interpretation and the application of the Act.9
iii The scheme of the Act
The aforementioned general principles are also reflected throughout the provisions of the Act. For example, the Act supports the general principle of fairness by imposing upon the parties the duty to 'do all things necessary for the proper and expeditious conduct of the arbitral proceedings'; and upon the tribunal, the duty to act 'fairly and impartially',10 and to adopt suitable procedures for 'avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined'.11
As for party autonomy, the Act reinforces this general principle through the non-
mandatory nature of most of the provisions of Part I.12 In contrast to the provisions specified by the Act as mandatory, parties can opt out of non-mandatory provisions by agreement.
The courts in turn have emphasised in a number of judgments the importance of party autonomy to the arbitral process. The Supreme Court in Jivraj v. Hashwani13 upheld an arbitration clause that required arbitrators to be drawn from a particular religious group when the Court of Appeal had found the clause void for offending against European anti-discrimination legislation.14 In that judgment, their Lordships approved the following statement of the International Chamber of Commerce (ICC):
The raison d'être of arbitration is that it provides for final and binding dispute resolution by a tribunal with a procedure that is acceptable to all parties, in circumstances where other fora (in particular national courts) are deemed inappropriate (e.g., because neither party will submit to the courts or their counterpart; or because the available courts are considered insufficiently expert for the particular dispute, or insufficiently sensitive to the parties' positions, culture, or perspectives).15
The Act gives effect to the third principle – limited court intervention – in many of the mandatory provisions of Part I. Whereas the tribunal has substantial powers to decide all procedural and evidential matters,16 to give directions in relation to property or the preservation of evidence,17 and to order relief on a provisional basis,18 the court on the other hand has only limited power to intervene. The court's intervention is limited to only certain circumstances to support arbitration (such as appointing arbitrators where the agreed process fails,19 and summoning witnesses to appear before the tribunal);20 and the court has the same powers for the purposes of and in relation to arbitral proceedings as it has in respect of legal proceedings, such as taking evidence of witnesses, preservation of evidence, granting of an interim injunction or the appointment of a receiver.21 In this respect, the Act mirrors the UNCITRAL Model Law.22
In addition, the Act confers only limited rights of challenge of an award, on grounds that either the tribunal lacked substantive jurisdiction (under Section 67) or there was serious irregularity causing substantial injustice (under Section 68), or that an appeal is warranted on a point of law (under Section 69). As these provisions are designed to support the arbitral process and reduce judicial involvement in arbitral proceedings,23 the courts have tended to place a 'high hurdle' on parties seeking to set aside arbitral awards,24 insisting that such challenges are 'long stop[s] only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected'.25 Although challenges of awards on the grounds of serious irregularity under Section 68 do not require the leave of the court, unlike appeals on points of law under Section 69, there is no evidence that this lesser requirement has encouraged frivolous litigation.26
iv Court relief in support of arbitration
A consistent theme in recent case law, in 2017 as in previous years, has been the English courts' exercise of their power to make orders in support of arbitrations seated in England and Wales. The Supreme Court has noted that the court has jurisdiction to grant an anti-suit injunction under Section 37 of the Senior Courts Act 1981 even where there are no arbitral proceedings in contemplation or there is no statutory basis under the Act for an injunction, in circumstances where the court is seeking to support arbitration by requiring parties to refer their disputes to arbitration.27
v Applications under the Act
Two specialist subdivisions of the High Court in London hear most arbitration-related claims under the Act,28 namely the Commercial Court (for general commercial arbitration), and the Technology and Construction Court (for construction disputes).
II THE YEAR IN REVIEW
i Developments affecting international arbitration in England and Wales
Although the decision of the United Kingdom to commence the process of leaving the European Union (Brexit) by serving notice under Article 50 of the Treaty of Lisbon occurred two years ago, the impact of Brexit is still the prevalent topic of discussion in the London legal market. Assuming that it goes ahead, Brexit will be one of the biggest political and legal shifts felt by a country. Although the long-term consequences of this decision for London as a financial and legal centre remain unknown and the subject of a great deal of speculation, the Brexit decision will have little immediate formal impact on the process for arbitration in England and Wales.
The United Kingdom will remain a signatory to the New York Convention. The New York Convention is the backbone of international arbitration, as it governs enforcement of both arbitral awards and arbitration agreements. A party obtaining an award in an arbitration seated in England and Wales will presumptively remain able to enforce the arbitral award in the more-than 156 contracting states that are signatories to the New York Convention.
There are also no immediate proposals to amend the Act as a result of Brexit. The Law Commission of England and Wales continues to consider and consult upon potential changes to the Act in order to retain London's competitive edge as a seat for arbitration. For example, the Law Commission considered whether the Act should be amended expressly to permit tribunals to determine preliminary issues of fact or law akin to the summary judgment procedures applicable in English court proceedings and to allow for the arbitration of trust disputes.29 However, these possible changes are not connected to the Brexit decision and are driven by a more general desire to ensure that London maintains its competitive advantage as an arbitration-friendly seat.
There is also no suggestion that Brexit will materially change the substantive content and application of English contract law and commercial law. There is therefore no reason why English law as a governing law should not remain a popular choice for parties in their international contracts and London as a popular arbitration seat.
Brexit may arguably have positive consequences for the London arbitration market in several respects.
First, Brexit may create additional reasons for commercial users in some sectors that have historically been more inclined to resort to the English courts (e.g., in the financial services sector) to use arbitration.30 While the United Kingdom remains a member of the European Union, a judgment obtained in the English courts is presumptively enforceable in other states within the European Union under the Brussels I Regulation (recast), Regulation 1215/2012, (the Recast Regulation) (subject only to limited exceptions). However, as discussed further below, it is unclear whether the Recast Regulation will continue to apply in the United Kingdom after it leaves the European Union.31 This potentially increases the 'enforceability premium' that attaches to an arbitral award as distinct from an English judgment. Whereas there is potential uncertainty surrounding the extent to which an English judgment will continue to be enforceable in other European Union Member States, an arbitral award will continue to benefit from the existing enforcement regime under the New York Convention. Parties entering into long-term contracts, in particular, may see significant advantages in opting for international arbitration over other means of dispute resolution.
Second, Brexit may give English courts greater freedom to issue anti-suit injunctions to protect the integrity of an agreement to arbitrate in London. At present, the English courts cannot issue anti-suit injunctions to restrain parties from court proceedings in other European Union Member States.32 The English courts can only grant an anti-suit injunction to restrain a party from seeking to proceed with claims in a national court outside the European Union in breach of an agreement to arbitrate. Thus, post-Brexit, since the limitation would no longer apply, English courts could more freely issue anti-suit injunctions for breach of arbitration agreements.
The Hague Convention
On 10 December 2015, the EU ratified the Hague Convention on Choice of Court Agreements (Hague Convention) through Council Decision 2014/887/EU.33 The EU (with the exception of Denmark), Singapore and Mexico have all adopted the Hague Convention: the EU and Singapore by ratification and Mexico by accession.34 However, it remains to be seen whether the United Kingdom will independently ratify the Hague Convention once it leaves the EU. Ratification of the Hague Convention may provide one mechanism to ensure that English judgments are enforceable in other EU Member States in some circumstances, although its scope is more limited than the Recast Regulation35 (and, in particular, the Hague Convention only applies to exclusive jurisdiction agreements).
The London Court of International Arbitration (LCIA)
The LCIA, which was established in 1892, remains one of the world's pre-eminent international arbitration institutions. In May 2016, Judith Gill QC took over as president of the LCIA, replacing Professor William Park.36 The vice presidents are Paula Hodges QC of Herbert Smith Freehills in London, Peter Rees QC of 39 Essex Chambers in London, James Loftis of Vinson & Elkins in Houston, James Townsend of Hughes Hubbard & Reed in Washington, Nathalie Voser of Schellenberg Wittmer in Zurich, EY Park of Kim & Chang in Seoul and Jean Kalicki, an independent arbitrator. Audley Sheppard QC of Clifford Chance joined the board of directors as the chair.37
In 2017, 285 arbitrations were referred to the LCIA.38 Of these, 233 were conducted under the LCIA Rules, and the others under the UNCITRAL Rules (with the LCIA acting as appointing authority).39 The types of cases referred continue to be diverse, with healthcare and pharmaceuticals, energy and resources, construction and infrastructure, banking and finance, telecommunication, insurance, real estate, and media and sports disputes all featuring.40
The LCIA continues to be particularly attractive to European parties, with the majority in 2017 being from the United Kingdom (19.3 per cent) and western Europe (19.3 per cent).41 The percentage of parties who are Russian has increased from 5 per cent in 2016 to 6.5 per cent in 2017. However, this figure understates the popularity of LCIA arbitration within Russia, as many Russian companies operate through entities incorporated in other jurisdictions (such as the British Virgin Islands (BVI) and Cyprus). The LCIA is also widely used by parties from Africa (5.2 per cent) and the BVI (4.8 per cent), and is gaining popularity with parties from other nations such as the United Arab Emirates, India and Kazakhstan.42
In 2017, the LCIA appointed 412 arbitrators (down from 496 the previous year).43 Of those, 71 were appointments of sole arbitrators conducting LCIA arbitrations, with 315 being part of three-member LCIA tribunals. Four appointments were under UNCITRAL or other ad hoc arbitrations.44 There seems to be a change of preference in 2017 from sole arbitrators to three-member tribunals. The appointments made in 2017 reflect a slight preference for three-member tribunals as compared to sole arbitrators (60 per cent versus 40 per cent),45 almost unchanged from 2016, during which 62 per cent of appointments were to three-member tribunals and 37 per cent were of sole arbitrators. This is in comparison with 2015 where 57 per cent of cases were referred to sole arbitrators.46
In terms of gender diversity, the percentage of female arbitrators being appointed by the LCIA Court in 2017 was 24 per cent, which represents an encouraging increase from 20.6 per cent in 2016.47
The use of emergency procedures has been the focus of recent attention in international arbitration, and in June 2015 the LCIA issued guidance notes for parties and arbitrators on the use of emergency procedures. This includes guidance on the expedited formation of a tribunal, and the appointment of an emergency arbitrator and replacement arbitrators.48 For instance, the guidance notes explain that a party can request the expedited formation of a tribunal at the same time that it files a request for arbitration by writing to the Register (preferably via electronic means) and by notifying all the other parties.49 They also explain the procedures for applying for an emergency arbitrator and what must be included in the application, such as the specific grounds for requiring an emergency arbitrator; the specific claim, with reasons for emergency relief; and all relevant documentation.50 In addition, the notes clarify what will happen after an application is submitted. This can include giving the responding party the opportunity to comment before a determination is made.51
England and Wales continues to be a popular seat for arbitrations conducted under the rules of other international arbitration institutions, including those of the ICC.
London was the second-most popular seat for ICC arbitrations in 2016 with 65 cases, after Paris with 96.52 Swiss cities featured as the third and sixth most-popular seats, with 54 and 28 arbitrations being seated in Geneva and Zurich respectively (totalling 82 across both).53 Belize is a surprise fourth place but this is purely because of one dispute that had as many as 46 parties.54 Of the disputes referred to the ICC, English law and US law were most commonly chosen, followed by the laws of Switzerland, France and Germany. Among US law, New York law appeared to be the most popular, followed by that of California, Delaware and Texas.55
The United Kingdom also continues to provide the largest number of arbitrators for ICC appointments at 200 (14.17 per cent), followed by 168 from the US (11.91 per cent) and 145 from Switzerland (10.28 per cent).56
The latest version of the ICC Rules of Arbitration were effective from 1 March 2017. Under the new ICC Rules, an expedited procedure will be available for claims for amounts not exceeding US$2 million, or where the parties have otherwise agreed in their arbitration agreement to use the expedited procedure. Furthermore, in October 2017, the ICC published an update to its practice note on the conduct of arbitration, affirming that applications for the 'expeditious determination of manifestly unmeritorious claims or defences' may be dealt with under the tribunal's broad case management powers pursuant to Article 22 of the ICC Rules.57 These changes will allow for more disputes to be resolved quickly and cost-efficiently.
London Maritime Arbitrators Association (LMAA) and other arbitral institutions
England and Wales is also frequently chosen as a seat in arbitrations under rules developed for specific industry sectors, such as those of the LMAA.
In 2017, the LMAA continued to feature as a popular arbitration forum, principally for maritime and shipping disputes despite, or perhaps because of, prevailing poor drybulk market conditions globally.58 It made 2,533 appointments (down from 2,944 in 2016).59 In 2017, 780 awards were rendered, which was an increase on the figures for 2016 at 535.60 The LMAA conducted only 41 mediations (a steep drop from 221 mediations in 2015), of which 31 were successful.61
The LMAA published new terms which came into effect for appointments on or after 1 May 2017. The changes are incremental and maintain the 'light-touch' approach that the LMAA is known for.
Tribunal secretaries are assistants (typically more junior lawyers) employed by arbitral tribunals to assist with the administration of the arbitration and to help improve arbitrator efficiency. However, there have been fears that these secretaries could take on illegitimate roles that extend beyond their remit, becoming, in effect, a 'fourth arbitrator.' Their use was called into question in 2017 in the English High Court case P v. Q, R, S and U. The Court confirmed that, in English-seated arbitrations at least, there is nothing wrong with the appropriate use of a tribunal secretary.62 Following this, many institutions issued guidance on tribunal secretaries. In its 2017 updated Notes for Arbitrators,63 the LCIA put great emphasis on ensuring that the decision-making process remains firmly in the arbitrators' hands. According to the Notes, an arbitral secretary may only be appointed if the parties agree on: (1) the person proposed by the arbitral tribunal; (2) the scope of the tasks to be carried out by the arbitral secretary; (3) the confidentiality requirements and the relevant limitation of liability; (4) the applicable hourly rate (if relevant). The parties can, for instance, agree that the arbitral secretary will only carry out administrative tasks or, on the contrary, that he or she will be allowed to carry out substantive tasks. The ICC also issued guidance that made it clear that parties may object to the appointment of a secretary and that a secretary must under no circumstances be delegated decision-making functions.64
The issues surrounding third-party funders has been the subject of considerable debate in both the litigation and arbitration contexts. Recently, the English courts have given support to third-party funding in arbitration. In Essar Oilfields Services Ltd v. Norscot Rig Management PVT Ltd,65 the English Commercial Court held that third-party funding fell within the ambit of 'other costs' under Section 59(1)(c) of the Act. Thus, the Court held that it was within the power of a tribunal constituted under the ICC Rules to award recovery of the additional costs payable to a third-party funder. Practically, this means that arbitration is more attractive than litigation to parties that may require third-party funding and is likely to attract more third-party funders to the London market.
Additional disputes regarding the obligation to disclose the identity of a third-party funder to the arbitral tribunal, the impact of third-party funding on costs orders under other institutional rules and the availability of security for costs against funders are very likely to arise in the near future. The conversation about best practices in this area will be advanced by the release of the final report of the ICCA and QMUL Task Force on Third-Party Funding, which was released in April 2018.
ii Arbitration developments in the English courts
The English courts continue to witness a significant inflow of arbitration-related cases raising a plethora of issues. These cases illustrate the application of the principles of the Act as described above. In particular, the cases demonstrate the willingness to intervene in support of an arbitration where consistent with the Act, but also an overarching concern that a court should be slow to intervene where the arbitrators are empowered and able to act.
Courts refusing to interfere in arbitral process
English courts are very supportive of the arbitral process and regularly provide relief, such as anti-suit injunctions, to aid tribunals. But the courts will not go too far and interfere in the process itself and they are very conscious of leaving the appropriate issues to the tribunal. This was demonstrated by the recent case of HC Trading Malta Ltd v. Tradeland Commodities SL.66
This case concerned an alleged agreement under which the defendant would purchase clinker from the claimant. It was the claimant's case that such an agreement was concluded as a result of various exchanges of emails and other documents and that the contract contained a London arbitration clause. The defendant denied this. Instead of commencing an arbitration, the claimant issued a claim in the High Court seeking a declaration that there was a binding arbitration agreement, subject to English law, which covered its claims. The defendant responded by making an application to strike out the claim. This was on the basis that the court had no jurisdiction and to grant the relief sought would be wrong in principle.
HHJ Waksman QC held that the court should not grant the declaration. The appropriate course in a case such as this was for the claimant to commence the arbitration and then comply with the scheme laid down by the Act. It would be wrong in principle for the court to entertain any such application by a claimant where there are at least the following three factors: (1) the claimant asserts that there is a binding arbitration agreement; (2) the claimant has a claim that it wishes to assert and that therefore (on the claimant's own case) can only be litigated by way of arbitration; and (3) the claimant is clearly able to commence an arbitration in pursuance of that agreement whether or not he has yet done so, and whether or not it is imminent. Also, there was a very real risk that in deciding the issue as to the existence of the arbitration agreement, the court will probably be deciding the central issue between the parties, which is whether there was a binding contract of sale at all and that is, on any view, the province of the arbitrators.
This case provides a useful reminder for how the court will be extremely slow to intervene where an arbitration is concerned. It is only in circumstances where the court is required to 'fill a gap,' such as with anti-suit injunctions, that it will rule on the jurisdiction of an arbitral tribunal.
Anti-suit injunctions and the Fiona Trust 'one-stop shop' presumption
The Fiona Trust litigation reinforced, inter alia, the presumption that parties to an arbitration agreement are likely to have intended any dispute arising out of their relationship to be decided by the same tribunal (Fiona Trust presumption). In the recent Michael Wilson & Partners Ltd v. Emmott67 case, the question for determination was whether proceedings in Australia fell within the scope of an arbitration agreement between the parties.
In 2001, Mr Emmott and Michael Wilson & Partners (MWP) entered into an agreement to establish a 'quasi partnership'. In 2005, Mr Wilson entered into a cooperation agreement with two of MWP's employees for the establishment of a consultancy business called Temujin. Shortly afterwards, the employees left MWP to work for the consultancy. Lengthy arbitral proceedings followed, with MWP having a net liability to Mr Emmott. In 2006, MWP obtained judgment in Australia against the former employees. MWP then procured assignments from the liquidator of Temujin and the trustees in bankruptcy of the employees of their rights to contribution from Mr Emmott in respect of their joint and several liability in the Australian proceedings. MWP then commenced proceedings in Australia against Mr Emmott on behalf of and in the name of each assignor. Mr Emmott responded by applying to the English High Court to restrain MWP from pursuing the new Australian proceedings on the grounds that they were brought in breach of the arbitration agreement in the partnership agreement.
The Court of Appeal held that the rights MWP was seeking to enforce were not the rights of the parties to the partnership agreement, but were rights that had been assigned to MWP by the defendants in the earlier Australian proceedings. If those defendants had brought contribution proceedings against Mr Emmott in their own names, the arbitration clause of the partnership agreement would have been no bar, and MWP, as assignee of their rights, could be in no worse position absent provision to that effect in the partnership agreement. Further, the Court interpreted the 'disputes' with which the arbitration agreement was concerned were, on the face of it, 'disputes between MWP and Mr Emmott in their capacity as quasi-partners', not 'disputes between third parties and one or other of MWP and Mr Emmott'. It was 'highly unlikely' that MWP and Mr Emmott 'had any intention to include such claims within [the arbitration agreement].' The Court issued a limited injunction restraining MWP from advancing claims which it had lost in the arbitration; matters contrary to findings in the arbitration which were adverse to MWP; and claims for fraud or conspiracy. This left MWP free to pursue the assigned claims in the Australian proceedings.
Arguably, this case is inconsistent with the Fiona Trust one-stop shop presumption. The Court of Appeal took a textual, technical and legalistic approach to the interpretation of the arbitration agreement in a way that goes against the guidance in Fiona Trust. The case is a reminder that the presumption in the Fiona Trust should be carefully applied to the facts of each case.
The role of tribunal secretaries and the confidentiality of arbitral deliberations
Tribunal secretaries have long been a feature of arbitration, helping to improve arbitrator efficiency and reduce overall costs. However, the limits of a tribunal secretary's role and the transparency over their function has been the subject of considerable debate recently, as highlighted by the case of P v. Q, R, S and U.68
During arbitral proceedings, the chairman accidentally sent an email, intended for the secretary, to P's legal team asking, 'Your reaction to this latest from [P]?' P filed a challenge with the LCIA, seeking to remove all three arbitrators based on breach by the tribunal of its mandate; breach of its duty not to delegate; and justifiable doubts about the chairman's independence and impartiality. To justify these allegations, P relied on the misdirected email and an analysis of the time spent by the arbitrators and the secretary in relation to certain procedural decisions. The LCIA dismissed the challenges based on the use of the secretary but revoked the appointment of the chairman, on the basis of comments made by him at a conference. After appointment of a new chairman, the reconstituted tribunal reconsidered the procedural decisions and decided that they should stand.
P then filed: (1) an application under Section 24 of the Act in the English High Court to remove the co-arbitrators, on the basis that they had failed properly to conduct the proceedings and that substantial injustice had been, or would be, caused to P; and (2) an ancillary application for disclosure of a wide range of communications between the co-arbitrators and the secretary relating to the secretary's role or any tasks allocated to him.
Popplewell J dismissed the disclosure application,69 applying by analogy the principle established in the Locabail case,70 which shields judges and judicial decision-makers from disclosure related to the decision-making process.
In regard to the Section 24 application, Popplewell J found that for the purposes of Section 24, the use of a secretary must not involve any arbitrator 'abrogating or impairing his non-delegable and personal decision-making function'. In this case, the parties had agreed on the use and identity of the secretary and conferred on the tribunal by way of Article 14.2 of the LCIA Rules (now Article 14.5 of the 2014 LCIA Rules) 'the widest possible discretion as to how to go about discharging their core decision-making responsibilities with the assistance of a tribunal secretary'.
The Court found that, to avoid the risk of a secretary becoming a 'fourth arbitrator', the decision-making process should be that of the tribunal alone and the secretary should not to be tasked with expressing a view on the substance of an application or issue. However, failure to follow this best practice is not synonymous with failing properly to conduct proceedings within the meaning of Section 24 of the Act. Soliciting the views of others (as the Chairman did in the misdirected email), did not of itself demonstrate a failure to discharge the personal duty to perform the decision-making function, especially when the Chairman was an experienced judge who was used to reaching independent decisions. The Court also noted that it should be slow to differ from the LCIA's view on the matter.
The decision presents a welcome clarification that the long-established principle of confidentiality of judges' deliberations also applies to arbitrators. Furthermore, the case is a useful reminder of the court's reluctance to interfere in the arbitral process and its deference to the arbitral institutions.
Requests for arbitration in multi-contract disputes
Many claims in international commercial arbitration will involve multiple parties and multiple contracts and marshalling these facts is an important practical matter. The recent case of A v. B71 highlights the care that must be taken when commencing proceedings in these circumstances. The case also provides useful guidance for the time limit for bringing a jurisdictional objection of an LCIA tribunal.
In the case, A purchased crude oil from B under two separate contracts. The contracts provided for arbitration under LCIA Rules and for the seat to be London. B purported to commence arbitration under both contracts with a single request for arbitration and claiming the price under both contracts. A served its response, denying liability. A stated that its response should not be construed as a submission to the tribunal's jurisdiction and it reserved its right to challenge the jurisdiction of the LCIA. On 24 May 2017, A challenged the jurisdiction of the tribunal contesting the validity of B's request on the grounds that it purported to refer claims to a single arbitration under separate contracts. A served its statement of defence on 2 June 2017, without prejudice to its jurisdictional challenge. On 7 July 2017, the tribunal held that the challenge was too late as Article 23.3 of the LCIA Rules meant that the objection should have been made no later than the date of A's response. On 4 August 2017, A challenged the tribunal's award under Section 67 of the Act arguing that B's request was invalid and that A's objection was within time.
Phillips J held that the LCIA Rules treat a single request as giving rise to a single arbitration; the payment of fees for one arbitration; and the formation of a single arbitral tribunal. This conclusion was made even clearer by Article 22.1(ix), which gives an arbitral tribunal (once formed) the power to consolidate the arbitration with one or more other arbitrations into a single arbitration, but only where all parties agree. The request was an ineffective attempt to refer separate disputes to a single arbitration and therefore invalid.
Phillips J also concluded that A had not lost the right to object to the tribunal's jurisdiction by only raising its objections shortly before its defence was due. When interpreting the time frame for objecting, Section 31 and Section 73 of the Act must be taken into account as these provisions are mandatory and, in any event, it is highly unlikely that the LCIA Rules were intended to have an effect that materially diverges from such provisions. Phillips J held that the only requirement of Section 31 is that the objection is raised by no later than the submission of the statement of defence. Article 23.3 of the LCIA Rules follows this structure and effect but only adds the words, 'as soon as possible'. These additional words cannot and should not be read as introducing a far stricter requirement than that imposed by the mandatory provisions. The additional words only exclude 'untimely objections'. While the Article stipulates that objections shall be raised as soon as possible, it does not state a sanction for non-compliance, and had the intention in 2014 been to introduce a new and much stricter requirement, complete with a heavy sanction, it would surely have been done with far clearer words.
The case underlines the need to consider carefully at the outset of proceedings what is required by the applicable institutional rules to commence an arbitration, particularly in the case of multi-contract or multiparty proceedings. Furthermore, the case demonstrates that, when losing the right to object to jurisdiction, the position under the LCIA Rules may contrast with the ICC Rules where parties may lose the right to object after providing an Answer.72 The sensible course of action will always be to raise any jurisdictional objections as soon as possible.
Security and the enforcement of awards under the New York Convention
It is well known that the New York Convention is one of the main advantages of using international arbitration. It has been said that the New York Convention 'perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law'.73 A question on the relationship between the Act and the New York Convention was recently considered by the Supreme Court in IPCO (Nigeria) Ltd v. Nigerian National Petroleum Corp.74
In 2004, IPCO obtained an arbitral award for US$150 million. NNPC sought to challenge the award in the courts of Nigeria on numerous grounds, including fraud. NNPC also challenged enforcement proceedings in the United Kingdom and made an application under Section 103(5) of the Act to adjourn the proceedings pending resolution of a challenge to the award brought before the courts of Nigeria. This application was granted in 2005 subject to the payment of US$50 million by way of security (which was increased to US$80 million in 2008). After long delays in the Nigerian courts IPCO brought a new application to enforce the award in 2012, which was dismissed by the English High Court. However, on appeal, the Court of Appeal ruled that prolonged delays in the Nigerian proceedings constituted sufficient grounds to recommence the enforcement proceedings. The Court of Appeal remitted the case to the High Court to determine whether or not allegations of fraud provided a public policy ground to refuse enforcement under Section 103(3) of the Act; and ordered NNPC to provide an additional US$100 million in security.
The Supreme Court held that the Court of Appeal had erred. The Court of Appeal had not in fact adjourned the enforcement proceedings within the meaning of Section 103(5) of the Act. It had ordered that the underlying public policy challenge arising from the fraud allegations should be resolved in the English courts and should no longer await the outcome of the Nigerian proceedings. This challenge was therefore brought under Section 103(3) of the Act, and did not constitute an adjournment within the meaning of Section 103(5). Sections 103(2) and (3), setting out grounds for challenging the enforcement of awards, crucially do not contain such a reference to security. Only Section 103(5) allows for security to be ordered. The Supreme Court held that Articles V (the basis for Sections 103(2) and (3) of the Act) and VI (the basis for Section 103(5)) of the New York Convention 'constitute a code' and that they must have been 'intended to establish a common international approach'. Therefore, English courts do no enjoy a general discretion under their ordinary procedural powers contained in the Civil Procedural Rules, to order security in these circumstances either. Security can only be ordered in the strict circumstances envisaged by Section 103(5) of the Act.
The case is of most interest for the Supreme Court's comments on the relationship between the Act and the Convention. The consistency and congruence between the Act and the New York Convention can be welcomed for bringing further certainty in the context of enforcement of arbitral awards.
Enforcing an award that has been set aside at the seat of arbitration
A party will have to meet a very high bar when seeking to enforce an award in the English courts that has been set aside by a court at the seat of the arbitration. These difficulties were recently shown by the decision in Maximov v. Open Joint Stock Company.75
The award arose out of a dispute between the defendant, one of Russia's largest steel companies, and the claimant, a prominent Russian businessman, concerning the calculation of the purchase price of shares. The award was set aside by the Moscow Arbitrazh Court, a decision that was upheld on appeal. The claimant nevertheless sought to enforce the annulled award abroad, in France, the Netherlands and England. The French court concluded that the award was enforceable. The Dutch court refused to enforce the award.
In the English proceedings, the claimant asked the court to infer that the Russian court's decisions were procured by bias and should not be recognised by the English court. In dismissing the application to enforce the award, the court held that it was not enough to show that the Russian court's decisions were manifestly wrong, or even perverse. In the absence of actual evidence of bias, it must be shown that the decision was so extreme and incorrect that no court acting in good faith could have arrived at it other than by bias. The Court held that on the facts of the case, the claimant had failed to discharge this burden. This was so even though Sir Michael Burton felt that the Russian judge 'ducked' a decision and 'fell back on an unsupportable conclusion'.
The case provides another reminder that parties should choose their seat of arbitration carefully and pay close regard to the judicial processes of that jurisdiction.
Serious irregularity by refusing to allow pleadings on costs
The High Court has recently clarified that a refusal to allow pleadings on costs will count as a serious irregularity for the purposes of a Section 68 application. In Oldham v. QBE Insurance,76 an arbitrator held that Mr Oldham was liable to repay funds he had received from his insurers, QBE. The arbitrator also ordered Mr Oldham to pay the costs of the arbitration: both the tribunal's costs and QBE's costs. Mr Oldham argued he was not given a reasonable opportunity to address the argument as to why this order should not have been made.
Popplewell J held that the duty of the arbitrator under Section 33 of the Act included giving each party the possibility to address the issue of costs. There was therefore a breach of the arbitrator's duty under Section 33 of the Act. This breach amounted to a serious irregularity, especially in the context of Mr Oldham acting as a litigant in person who faced financial difficulties.
When the English courts will issue anti-suit injunctions
In the recent case of ADM Asia-Pacific Trading PTE Ltd v. PT Budi Semesta Satria,77 the commercial court rejected an application for an injunction restraining proceedings in Indonesia. The case is the latest of a growing trend that places a premium on applicants acting with speed when seeking anti-suit injunctions.
The parties entered a stock financing agreement that contained an Indonesian jurisdiction clause. However, the individual sales contracts were subject to English law and contained a London arbitration clause. In 2013, the defendant commenced proceedings in the Indonesian courts. Later, the claimant commenced an arbitration. The two sets of proceedings then continued in parallel for a substantial period of time. In 2015, the claimant commenced proceedings before the English High Court, seeking an anti-suit injunction to restrain the defendant from continuing the proceedings in Indonesia on the grounds that those proceedings were in breach of the arbitration agreement.
Phillips J held that it was clear that the claimant had not applied for an anti-suit injunction either promptly or before the Indonesian proceedings were too far advanced. It appeared that the claimant had been content to participate in the Indonesian proceedings until the Indonesian court made a decision contrary to its interests. Anti-suit injunction applications had to be brought promptly once the applicant knew of the breach of the arbitration agreement. The case suggests that the more quickly the anti-suit application is made, the greater the prospect of its success.
Correcting mistakes in an arbitral award
In international commercial contracts, multiple parties and multiple agreements are involved. Affiliates and subsidiaries, memorably referred to as 'friends and relations' in Donohue v. Armco Inc,78 can bring inevitable complexity to disputes. The recent case of Xstrata Coal Queensland Pty Ltd v. Benxi Iron & Steel (Group) International Economic & Trading Co Ltd79 demonstrates some of the issues that may arise.
The defendant had agreed to buy coking coal in a contract with four sellers that provided for arbitration under LCIA Rules in London. In the contract, there was an ambiguity over whether one of the sellers was 'ICRA NCA Pty Ltd' or 'ICRA OC Pty Limited'. In its arbitral award, the tribunal only referred to 'ICRA OC Pty Limited' and did not explain how it dealt with this ambiguity over the correct party. In enforcement proceedings in China, the defendant successfully argued that enforcement should be refused because there had been a 'critical flaw in the arbitral process'. The four claimant companies applied to the English High Court under Section 79(1) of the Act for an extension of the 30-day time limit imposed by Article 27 of the LCIA Rules to apply to the arbitral tribunal for a clarification as to the basis of the decision on the question of the fourth claimant's name.
The court held that clarifying or removing any ambiguity would fall within the words 'correct… any errors' in Article 27.1 of the LCIA Rules. Knowles J noted that realistically, the time limit under Article 27 of the LCIA Rules would almost always expire before the outcome was known of a contested attempt to obtain recognition and enforcement of an award in another country. The requirements of Section 79(3), which set out the requirements which the court must take into account when considering whether to extend time, were satisfied. Substantial injustice would be done if the court did not extend time. Neither the parties to the arbitration nor the Chinese court had the benefit of an explanation from the tribunal of how it dealt with the fact that the contract contained an ambiguity over the correct parties. The absence of an explanation from the tribunal left uncertainty about the award that impeded the arbitral process. This case demonstrates the pragmatic and pro-arbitration support that the English courts give to ensure the effectiveness of the arbitral process.
iii Investor–state disputes
The Convention on the Settlement of Disputes between States and Nationals of Other States 1965 came into force in the United Kingdom on 18 January 1967.80 The United Kingdom also ratified the Energy Charter Treaty 1994 on 16 December 1997.81 In addition, the United Kingdom is currently party to 106 bilateral investment treaties (BITs).82
Under the Treaty of Lisbon, which took effect on 1 December 2009, the EU's competence was extended to cover foreign direct investment, which includes BITs concluded between EU Member States and third countries (extra-EU BITs). The EU subsequently enacted Regulation No. 1219/2012, which came into force on 9 January 2013, to clarify the status of the more-than 1,200 extra-EU BITs entered into before Lisbon came into force, as well as the ability of Member States to negotiate new extra-EU BITs.
Regulation 1219/2012 confirmed that extra-EU BITs signed prior to December 2009 will remain in force until they are replaced by new treaties between the EU and the relevant third countries.83 The Regulation required Member States to notify the Commission of any extra-EU BITs they wished to remain in force by 8 February 2013, and requires new Member States to provide notification within 30 days of their accession.84 On 8 May 2013, the Commission published a list of the 1,311 extra-EU BITs of which it had been notified by that time, of which 94 were between the United Kingdom and non-EU countries.
The Commission intends to update the list every 12 months.85 In the event, however, that the Commission considers an existing extra-EU BIT to represent a serious obstacle to the EU's negotiation of a replacement BIT, the Commission will consult with the relevant Member State to resolve the matter, which may result in the revision or termination of the relevant extra-EU BIT.86 The Regulation is silent about the 'sunset provisions' in many extra-EU BITs, which guarantee protection for existing investments for 10 to 15 years after termination, and these provisions would appear to be unaffected by the Regulation.
The Commission will authorise the entry into force of those extra-EU BITs signed between 1 December 2009 and 9 January 2013 unless it determines that a BIT conflicts with EU law or provisions, or would constitute a serious obstacle to the EU's negotiation of a replacement BIT.87 Member States may negotiate to enter into new extra-EU BITs, or to amend existing extra-EU BITs.88 However, they must notify the Commission with drafts of the provisions to be negotiated at least five months in advance,89 and the Commission may require them to include or remove provisions to ensure their compatibility with EU law or investment policy.90
III OUTLOOK AND CONCLUSIONS
Notwithstanding the Brexit decision and the ongoing negotiations between the United Kingdom and the European Union, England and Wales remains one of the most frequently selected seats for international arbitration. The practical attractions of England and Wales as a seat are built not just on the firm foundation of the Act but also on judicial willingness to apply the guiding principles that underpin the Act. Brexit will have little impact on the highly competent and independent English judiciary that has ample experience in complex arbitral disputes. Nor is Brexit likely to have a material effect on the depth of talented arbitration specialists practising in London. England and Wales as a seat is distinctly arbitration-friendly, with a keen understanding of the benefits arbitration aims to confer on parties, and the policy considerations such benefits entail. Recent case law generally reinforces the fact that the English courts are strongly supportive of international arbitration. This is consistent with the principles of party autonomy and judicial non-intervention enshrined in the Act.
With the coming into force of the 2014 LCIA Rules, and its guidance on emergency procedures subsequently issued in 2015, the LCIA has one of the most innovative and up-to-date sets of institutional rules. The 2014 LCIA Rules contain a range of innovative mechanisms such as emergency arbitration and consolidation that can be used to support the arbitral process.
International arbitration in England and Wales will no doubt continue to evolve as it seeks to preserve its competitive edge as an arbitral seat. Although it has little impact on the formal framework applicable to international arbitration, in terms of perceptions, the Brexit decision will create both challenges and opportunities for England and Wales as an arbitral seat in future years.
1 Duncan Speller is a partner and Tim Benham-Mirando is a graduate lawyer at Wilmer Cutler Pickering Hale and Dorr LLP.
2 There are three distinct jurisdictions in the United Kingdom, each of which has its own court system and laws. England and Wales together comprise a single jurisdiction; the other two are Scotland and Northern Ireland.
3 English Arbitration Act 1996, Section 2(1).
4 For example, the Act contains no provisions as to the confidentiality of arbitrations, but the courts have continued to develop and refine the law on this issue: Ali Shipping Corp v. Shipyard Trogir  1 WLR 314; Glidepath BV v. Thompson  EWHC 818 (Comm); Michael Wilson & Partners Ltd v. Emmott  EWCA Civ 184.
5 The DAC produced two reports that provide a useful commentary on many of the Act's provisions: the Departmental Advisory Committee on Arbitration Law: Report on the Arbitration Bill (February 1996); and The Supplementary Report on the Arbitration Act 1996 (January 1997), chaired by the Rt Hon Lord Justice Saville. The reports continue to be referred to by the courts (see, e.g., Ust-Kamenogorsk Hydropower Plant JSC v. AES Ust-Kamenogorsk Hydropower Plant LLP  UKSC 35 at Paragraph 31 et seq.; and The London Steam Ship Owners Mutual Insurance Association Ltd v. The Kingdom of Spain  EWHC 2840 (Comm) at Paragraphs 25 and 49).
6 Section 1(a) of the Act.
7 Section 1(b) of the Act.
8 Section 1(c) of the Act.
9 AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC  EWCA Civ 647, per Lord Justice Rix at Paragraphs 100, 105; Itochu Corporation v. Johann MK Blumenthal GMBH & Co KG & Anr  EWCA Civ 996 at Paragraph 17ff; Bitumex (HK) Co Ltd v. IRPC Public Co Ltd  EWHC 1065 (Comm) at Paragraph 22; Lombard North Central Plc v. GATX Corp  EWHC 1067 (Comm) at Paragraph 15; Nomihold Securities Inc v. Mobile Telesystems Finance SA (No. 2)  EWHC 130 (Comm) at Paragraphs 26, 58; Turville Heath Inc v. Chartis Insurance UK Limited  EWHC 3019 at Paragraph 53; Jivraj v. Hashwani  UKSC 40 at Paragraph 61ff; and Gujarat NRE Coke Limited, Shri Arun Kumar Jagatramka v. Coeclerici Asia (PTE) Limited  EWHC 1987 (Comm) at Paragraph 23.
10 Section 40 of the Act.
11 Section 33(1) of the Act.
12 See Section 4 of the Act.
13  UKSC 40.
14 Employment Equality (Religion or Belief) Regulations 2003.
15 Jivraj v. Hashwani  UKSC 40 at Paragraph 61.
16 Section 34 of the Act.
17 Section 38(4) and (6) of the Act.
18 Section 39 of the Act.
19 Section 18 of the Act.
20 Section 43 of the Act.
21 Section 44 of the Act.
22 Section 17 J of the UNCITRAL Model Law.
23 See, e.g., Itochu Corporation v. Johann MK Blumenthal GMBH & Co KG & Anr  EWCA Civ 996 ('The policy of thus restricting appeals, found in Section 18 and a variety of other sections in the Act, is deliberate. It reflects the underlying general principles, as to party autonomy and protection of the parties from unnecessary delay and expense, enshrined in Section 1(a) and Section 1(b) of the Act').
24 In Bandwidth Shipping Corporation Intaari (the 'Magdalena Oldendorff')  EWCA Civ 998,  1 All ER (Comm) 1015,  1 Lloyd's Rep 7, Waller LJ stated, at Paragraph 38: 'In my view the authorities have been right to place a high hurdle in the way of a party to an arbitration seeking to set aside an Award or its remission by reference to section 68 and in particular by reference to section 33 [...] It would be a retrograde step to allow appeals on fact or law from the decisions of arbitrators to come in by the side door of an application under section 33 and section 68.'
25 The DAC Report. See also Lesotho Highlands Development Authority v. Impregilo SpA and Others  UKHL 43 and more recently La Société pour la Recherche La Production Le Transport La Transformation et la Commercialisation des Hydrocarbures SPA v. Statoil Natural Gas LLC (Statoil)  EWHC 875.
26 A recent survey has shown that in 2009, 12 applications were made under Section 68, and 62 under Section 69; and in 2012, challenges under Section 68 were fewer than those under 69, being seven and 11 respectively: www.olswang.com/articles/2013/03/do-the-2012-stats-reveal-an-abuse-of-the-right-to-
27 AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC  UKSC 35. As described below, these injunctions can only be issued to support of arbitration when court proceedings have been brought in countries other than European Union Member States.
28 See the High Court and County Courts (Allocation of Arbitration Proceedings) Order 1996, SI 1996/3215, as amended.
31 The Recast Regulation is multilateral in its operation and a directly effective instrument of European Union Law – the United Kingdom cannot single-handedly legislate that the Recast Regulation will continue to apply or its judgments will be entitled to recognition and enforcement in the rest of Europe. After the United Kingdom leaves the European Union, the Recast Regulation will not be able to apply unless a new regime is negotiated and agreed with other signatory states. By contrast, when it comes to the rules which determine the applicable law for obligations (the Rome I and Rome II Regulations) the United Kingdom can simply, if it wants to, copy the text of the Regulations into its own private international law. As the United Kingdom helped draft these rules and they operate much better than the old common law principles that they replaced, Rome I and Rome II are likely to continue to be a part of English law after Brexit.
32 Allianz SpA and Others v. West Tankers Inc  EUECJ C-185/07. However, if an arbitral tribunal issues an anti-suit injunction to restrain parties from court proceedings in other European Union Member States, an English court can enforce this award. See, Gazprom OAO (C-536/13) EU:C:2015:316.
35 The exclusion of the carriage of goods and passengers (Art 2(2)(f)) and antitrust matters (Art 2(2)(h)) would mean that many choice of court agreements concluded in favour of the English courts would not be covered.
38 2017, LCIA: Casework Report, p. 4.
39 Ibid., p. 4.
40 Ibid., p. 5.
41 Ibid., p. 6.
42 Ibid., p. 6.
43 Ibid., p. 13.
44 Ibid., p. 13.
45 Ibid., p. 13.
46 2016, LCIA: A Robust Caseload, p. 12.
47 2017, LCIA: Casework Report, p. 15.
49 Ibid., at 3.2.
50 Ibid., at 4.2.
51 Ibid., at 4.3.
52 ICC Dispute Resolution Statistics 2016, p. 6.
53 Ibid., p. 6.
55 Ibid., p. 17.
56 Ibid., p. 5.
60 Ibid. These figures do not reflect figures from supporting members of the LMAA accepting arbitration appointments, so may slightly understate the full figures.
62 Discussed further below.
65  EWHC 2361 (Comm). Discussed in detail in the previous edition.
66  EWHC 1279 (Comm).
67  EWHCA Civ 51.
68  EWHC 194 (Comm).
69 Heard separately:  EWHC 148 (Comm).
70 Locabail (UK) Limited v. Bayfield Properties Limited  QB 451.
71  EWHC 3417 (Comm).
72 A point left open in The Republic of Serbia v. Imagesat International NV  EWHC 2853 (Comm).
73 Lord Mustill, Arbitration: History and Background (1989) 6 J Intl Arb 43.
74  UKSC 16.
75  EWHC 1911 (Comm).
76  EWHC 3045 (Comm).
77  EWHC 1427 (Comm).
78  1 Lloyd's Rep 579, 590-1.
79  EWHC 2022 (Comm).
82 See investmentpolicyhub.unctad.org/IIA/CountryBits/221 for information about the United Kingdom in the UNCTAD database.
83 Article 3 of the Regulation.
84 Articles 2, 3 and 5 of the Regulation.
85 Article 8 of the Regulation.
86 Articles 5 and 6(2)–(3) of the Regulation.
87 Article 12(1) of the Regulation.
88 Article 7 of the Regulation.
89 Article 8 of the Regulation.
90 Article 9(1) and (2) of the Regulation.