The International Arbitration Review: United Kingdom - England & Wales
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 a tribunal has substantial powers to decide all procedural and evidential matters,16 to give directions in relation to property or the preservation of evidence17 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 confined 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 2020 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).
The year in review
i Developments affecting international arbitration in England and Wales
On 31 January 2020, more than three years after a majority of the British public had voted to leave the European Union (EU), the United Kingdom ceased to be an EU Member State (Brexit). While the United Kingdom's formal departure marked one of the biggest political and legal shifts in the country's modern history, its practical impact was not felt until the end of the transition period on 31 December 2020. Following the provisional application of a trade and cooperation agreement between the United Kingdom and the EU on 1 January 2021 (TCA), the parties' relationship has fundamentally changed – in legal, political and economic terms. But although the long-term consequences of this decision for London as a financial and legal centre remain unknown and are the subject of a great deal of speculation, Brexit has had little immediate impact on the process for arbitration in England and Wales.
The United Kingdom remains 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 remains able to enforce the arbitral award in 167 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 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 introduce a power to strike out unmeritorious claims.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 was a Member State of the EU, a judgment obtained in the English courts was presumptively enforceable in other states within the EU under the Brussels I Regulation (recast), Regulation 1215/2012 (Recast Regulation) (subject only to limited exceptions). However, as discussed further below, now that the United Kingdom has left the EU, the Recast Regulation no longer applies in the United Kingdom.31 It is currently unclear whether the United Kingdom will be able to re-join the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Lugano Convention), a similar regime governing judicial cooperation.32 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 EU 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 has given English courts greater freedom to issue anti-suit injunctions to protect the integrity of an agreement to arbitrate in London. As a result of the United Kingdom's EU membership, the English courts could not issue anti-suit injunctions to restrain parties from court proceedings in other EU Member States.33 Following the Court of Justice of the European Union (CJEU)'s decision in West Tankers,34 the courts of EU Member states can only grant an anti-suit injunction to restrain a party from seeking to proceed with claims in a national court outside the EU in breach of an agreement to arbitrate. Now that the United Kingdom has left the EU, it appears that this limitation no longer applies. English courts can therefore more freely issue anti-suit injunctions for breach of arbitration agreements.
The Hague Convention
The 2005 Hague Convention on Choice of Court Agreements (Hague Convention) provides a common framework of rules relating to exclusive jurisdiction agreements. It governs the mutual recognition and enforcement of judgments given by a court of a contracting state where such court has been designated in an exclusive choice of court agreement. The EU, Denmark (in its own right), Mexico, Montenegro and Singapore have all adopted the Hague Convention, the EU, Montenegro and Singapore by ratification, and Denmark and Mexico by accession.35 Until 31 December 2020, the Hague Convention applied to the United Kingdom by virtue of its EU membership and the subsequent transition period. On 28 September 2020, the United Kingdom deposited an instrument of accession to accede to the Hague Convention in its own right, which accession took effect on 1 January 2021.
The Hague Convention thus ensures that, in some circumstances, English judgments continue to be enforceable in other contracting States, including the EU, although its scope is more limited than the Recast Regulation.36 In particular, the Hague Convention only applies to exclusive jurisdiction agreements and does not extend to interim measures of protection, such as freezing orders and injunctions.
The London Court of International Arbitration
The London Court of International Arbitration (LCIA), which was established in 1892, remains one of the world's pre-eminent international arbitration institutions. In May 2019, Paula Hodges QC took over as President of the LCIA, replacing Judith Gill QC.37 The Vice Presidents are Jean Kalicki, an independent arbitrator based in New York and Washington DC; Christopher Lau SC, an independent arbitrator based in Singapore; James Loftis of Vinson & Elkins in Houston; Karyl Nairn QC of Skadden, Arps, Slate, Meagher & Flom in London; Professor Luca Radicati di Brozolo of Arblit in Milan and Fountain Court Chambers in London; Peter Rees QC of 39 Essex Street Chambers in London; and Nathalie Voser of Rothorn Legal in Zurich. Audley Sheppard QC of Clifford Chance is chair of the LCIA Board.
In 2019, a record number of 395 arbitrations were referred to the LCIA.38 Of these, 346 were conducted under the LCIA Rules (the highest number ever recorded in a single year), and most of the others under the UNCITRAL Rules (with the LCIA acting as appointing authority, administrator or fundholder).39 In addition to its arbitration referrals, the LCIA received eight requests for mediation and three requests for adjudication.40 The types of cases referred continue to be diverse, with banking and finance, energy and resources, transport and commodities, construction and infrastructure, professional services, insurance and telecommunications all featuring.41
The LCIA continues to be highly attractive to European parties, with a significant proportion of cases involving parties from western Europe (23.8 per cent) or the United Kingdom (18.6 per cent).42 Russian parties remain particularly frequent users of the LCIA: in 2019, 6.6 per cent of cases involved at least one Russian national – the second-highest number by nationality (after British parties). 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 and Cyprus). The LCIA is also widely used by parties from Africa (10.2 per cent, up from 8 per cent in 2018) and Asia (10 per cent, down from 14.4 per cent in 2018), and is gaining popularity with parties from other nations such as the United Arab Emirates, Mexico and Turkey.43
In 2019, the LCIA appointed 556 arbitrators (up from 449 the previous year).44 The appointments made in 2019 reflect a slight preference for three-member tribunals as compared to sole arbitrators (54 per cent versus 46 per cent), which is broadly consistent with data from recent years.45
In terms of gender diversity, in 2019, 29 per cent of all LCIA appointments were women, a significant increase on the previous year (23 per cent).46 However, whereas the percentage of female arbitrators appointed by the LCIA in 2019 was 48 per cent, only 12 per cent of party-appointed arbitrators were female.47
In August 2020, with the stated aim of clarifying and streamlining its dispute resolution procedures, the LCIA announced changes to its arbitration and mediation rules (2020 Rules).48 The updated rules, which came into force on 1 October 2020, emphasised the tribunal's wide discretion with respect to procedural and evidentiary matters and broadened the scope for the consolidation of disputes.49 The revised rules expressly recognise the tribunal's power to make an 'early determination' order where a claim is manifestly outside the jurisdiction, inadmissible or manifestly without merit.50 Reflecting the change in arbitral practice brought about by the covid-19 pandemic, the modernised rules also make provision for virtual and hybrid hearings and confirm the primacy of electronic communication with the LCIA.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 most popular seat for ICC arbitrations in 2019 with 114 cases, closely followed by Paris with 106.52 Other frequently chosen places of arbitration include Switzerland (84), the United States (49) and Singapore (32).53 English law remains the most commonly chosen substantive law, governing 16 per cent of all ICC disputes. In second place is Swiss law (selected in 12 per cent of cases), followed by the laws of various US states and France. Among US law cases, New York law was by far the most popular, having been stipulated in half of all US law contracts.54
The United Kingdom also continues to provide the largest number of arbitrators for ICC appointments at 258 (17.5 per cent), followed by 147 from Switzerland (10 per cent) and 116 from France (7.9 per cent).55
The latest version of the ICC Rules of Arbitration came into force on 1 January 2021, incorporating various changes designed to promote 'efficiency, flexibility and transparency'.56 Among other amendments, the revised rules impose a positive obligation on the tribunal to adopt 'such procedural measures as it considers appropriate' to ensure effective case management.57 The 2021 update also expands the scope for consolidations and permits the joinder of additional parties even if an existing party objects.58 Furthermore, the new rules specifically provide that hearings may be conducted in person or 'remotely by videoconference, telephone or other appropriate means of communication', recognising the increasing prevalence of virtual hearings.59
London Maritime Arbitrators Association 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 London Maritime Arbitrators Association (LMAA).
In 2020, the LMAA continued to feature as a popular arbitration forum, principally for maritime and shipping disputes.60 It registered 1,775 new cases (a slight increase compared to 1,756 new references over the previous year) and made 3,010 arbitrator appointments (up from 2,952 in 2019).61 The total number of awards published in 2020 was 523, which was similar to the corresponding figure for 2019 (529).62
The latest version of the LMAA's Terms and Procedures was published in 2017. However, as the President of the LMAA indicated in February 2021, revised Terms are expected to be released later in 2021.63 Any changes are likely to be incremental and maintain the light-touch approach that the LMAA is known for. In the meantime, as a preliminary response to the covid-19 pandemic, the LMAA has published guidelines on the conduct of virtual and semi-virtual hearings.64
Tribunal secretaries have long been a feature of arbitration. They 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, the limits of the tribunal secretary role and the transparency of the secretaries' function have been the subject of considerable debate recently.
In particular, 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 the English High Court case P v. Q, R, S and U.65 The court confirmed that, in English-seated arbitrations at least, there is nothing wrong with the appropriate use of a tribunal secretary. Agreeing with the LCIA, the court held that soliciting the views of the tribunal secretary (as the chair did in P v. Q, R, S and U) did not of itself demonstrate a failure to discharge the personal duty to perform the decision-making function, especially when the chair was an experienced judge who was used to reaching independent decisions.
Following this, many institutions issued guidance or specific rules on tribunal secretaries. In its updated arbitration rules,66 the LCIA introduced a new article dedicated to tribunal secretaries and put great emphasis on ensuring that the decision-making process remains firmly in the arbitrators' hands. According to the 2020 Rules, an arbitral secretary may only be appointed if the parties agree on:
- the person proposed by the arbitral tribunal;
- the scope of the tasks to be carried out by the arbitral secretary;
- the confidentiality requirements and the relevant limitation of liability; and
- 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. However, the 2020 Rules expressly provide that the tribunal may never delegate its decision-making function to an arbitral secretary.67 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.68
The issues surrounding third-party funders have continued to be the subject of considerable debate in both the litigation and arbitration contexts as such funding becomes increasingly mainstream. Recently, the English courts have given support to third-party funding in arbitration. In Essar Oilfields Services Ltd v. Norscot Rig Management PVT Ltd,69 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.
This decision means that arbitration is potentially 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. Practically, it will affect the conduct of arbitrations. We are likely to see applications for disclosure of the other party's funding arrangements if it is suspected to be in receipt of third-party funding. This topic covers a range of legal issues and will continue to generate further discussion. Disputes regarding confidentiality, privilege and the availability of security for costs against funders are expected to arise in the near future.
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.
Arbitrator's duty to disclose
In recent years, clients and lawyers have expressed increasing concern over the repeat appointment by parties of the same arbitrator. At its simplest, this boils down to a fear that a particular arbitrator may, through habitual appointment, have become sufficiently dependent on a particular client for repeat business that he or she may be inclined to favour them. This issue was brought to the fore by the recent Supreme Court decision of Halliburton v. Chubb.70
The dispute between Halliburton and Chubb concerned insurance coverage for Halliburton's liabilities arising out of the Deepwater Horizon catastrophe. The parties could not agree on the identity of the third arbitrator, so a judge of the Commercial Court made an order appointing M. When Halliburton subsequently discovered that Chubb had asked M to act as arbitrator in two other arbitrations concerning overlapping subject matter, Halliburton applied for M's removal under Section 24(1)(a) of the Act. In particular, Halliburton argued that the arbitrator had failed to comply with his duty of disclosure, which justified his removal on grounds of apparent bias. The High Court dismissed the application, finding that (1) the circumstances did not give rise to any justifiable concerns about M's impartiality and (2) there was therefore nothing to be disclosed. Halliburton appealed the first-instance decision, but to no avail: the Court of Appeal held that while disclosure should have been made, mere non-disclosure did not meet the threshold for an inference of apparent bias.
In a wide-ranging judgment that highlighted the importance of impartiality in arbitration, in November 2020, the Supreme Court agreed with the lower courts that M should not be removed, but for different reasons. The court was asked to consider two principal issues: (1) whether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias, and (2) whether and to what extent the arbitrator may do so without disclosure.
On the first issue, the court held that the practice of accepting appointments in multiple proceedings concerning the same subject matter in which there is one common party is not 'inherently problematic', provided that the arbitrator approaches each arbitration objectively and with an open mind.71 The test is whether a fair-minded and informed observer, taking into account the custom and practice in the relevant field and the particular circumstances of the case, would reasonably consider that there is a real possibility of bias. The court thus emphasised the significance of context, noting that in some industries, such as shipping, overlapping appointments are relatively common.
On the second issue, the court clarified that, unless the parties otherwise agree, arbitrators have a legal duty to disclose facts and circumstances which might reasonably give rise to the appearance of bias. Depending on the custom and practice in the relevant field, the fact that an arbitrator has accepted multiple appointments concerning the same subject matter with only one common party may be a matter requiring disclosure.72 The court held that a failure to disclose overlapping appointments may give rise to the appearance of bias, but that the relevant assessment is made at the date of the hearing to remove the arbitrator. Based on the facts and circumstances known at that time, the court concluded that a fair-minded and informed observer would not have found that there were justifiable doubts about M's impartiality in the case at hand.
Halliburton is the first English arbitration case to grapple seriously with a duty of disclosure as a separate obligation, distinct from the duty to be impartial. The Supreme Court's decision provides welcome clarity on when such a duty might arise, recognising both a general requirement for transparency and the importance of specific industry practice. Notably, several leading arbitral institutions were granted permission to intervene, with the LCIA, the ICC, the LMAA and the Chartered Institute of Arbitrators all having made written submissions.
The proper law of the arbitration agreement
English courts are frequently asked to determine the law governing an arbitration agreement. This presents a particular challenge where the substantive law of the contract differs from the law of the seat of the arbitration. Because the arbitration agreement itself rarely specifies the applicable law, the courts have had to make a difficult choice: does the law of the contract extend to the arbitration agreement, or does the law of the seat also cover the arbitration clause? In the recent case of Enka v. Chubb,73 the Supreme Court considered conflicting Court of Appeal authorities and provided a definitive answer to this question.
The dispute arose out of a contract which provided for London-seated arbitration but did not contain an express choice of law governing the substantive agreement. The respondent commenced proceedings in the Russian courts, prompting the claimant to seek an anti-suit injunction from the English High Court. There, the crucial question was which law applied to the arbitration agreement. The claimant argued that it was governed by English law; the respondent contended for Russian law. Baker J dismissed the claimant's application, holding that the scope of the arbitration agreement was to be determined by the Russian courts. The Court of Appeal overturned the High Court's decision on the grounds that, absent an express choice, there is a strong presumption that the law of the seat also governs the arbitration agreement 'as a matter of implied choice'.74
In a split decision, the Supreme Court disagreed with the Court of Appeal's reasoning and approach. The majority held that the arbitration agreement will be governed by (1) the law expressly or impliedly chosen by the parties; or (2) in the absence of such choice, the law with which the contract is most closely connected. Where the parties have not specified the law applicable to the arbitration agreement but have chosen the law to govern the substantive contract, there is a presumption that the parties intended for the same law to apply to the arbitration agreement. The choice of a different seat alone is not sufficient to negate such an inference. However, the court identified two factors that may overcome the presumption it identified and imply that the arbitration agreement was intended to be governed by the law of the seat: (1) if there is a serious risk that, if governed by the same law as the main contract, the arbitration agreement would be ineffective; or (2) if the law of the seat specifically provides that, where the parties have chosen that country as the seat of the arbitration, the arbitration agreement will also be treated as governed by that country's law.75
Applying this approach to the facts of Enka, the majority held that the parties had not made an express or implied choice of law for the substantive contract. On that basis, the law governing the arbitration agreement depended on the law with which the contract was most closely connected. Because the parties had selected London as the seat of the arbitration, the majority concluded that English law applied to the arbitration agreement. The court therefore issued an anti-suit injunction to restrain the Russian proceedings, but the majority noted that it could have done so irrespective of the law of the arbitration agreement. The Supreme Court's decision in Enka settled a long-running debate that had vexed the courts for many years, bringing legal certainty to a complex area of law.
Enforcement of awards despite illegality allegations
The English judiciary has repeatedly acknowledged the public interest in recognising and enforcing arbitral awards. Consistent with this pro-enforcement approach, the courts will not easily set aside awards, even in the face of alleged illegality. In the recent cases of Alexander Brothers v. Alstom76 and Tatneft v. Ukraine,77 the High Court enforced arbitral awards despite allegations of corruption, holding that objections raised at the enforcement stage constituted an abuse of process.
In Alexander Brothers, Alstom owed the claimant sums due under a consultancy agreement. When the Serious Fraud Office began investigating Alstom for bribery, the company froze its payments under the contract, contending that it had grounds to suspect corruption on the claimant's part. The tribunal rejected Alstom's defence and issued an award in the claimant's favour. The claimant subsequently sought to have the award enforced in England. Alstom claimed that recognition and enforcement of the award would be contrary to public policy and applied to have the enforcement order set aside.
The High Court dismissed Alstom's application, holding that Alstom was barred from raising the issue of bribery at the enforcement stage because it had not advanced a positive case alleging corruption in the arbitration. In her judgment, Cockerill J noted that there would need to be exceptional reasons for allowing Alstom 'two bites of the cherry'.78
The dispute in Tatneft arose from an indirect investment made by the Russian oil and gas producer Tatneft in Ukraine's largest oil refinery. An arbitral tribunal had found that, by seizing the refinery and depriving Tatneft of its shares in the underlying joint venture, Ukraine had violated its obligations under a bilateral investment treaty.
Ukraine sought to prevent enforcement of the award in England by bringing three separate challenges. The first challenge was dismissed in 2018, the High Court having rejected an argument based on state immunity.79 In 2019, Cockerill J dismissed another challenge on the grounds that the arbitral tribunal had not been properly constituted.80 Finally, in 2020, Ukraine brought a third application to set aside the enforcement order, contending that Tatneft's investment had been tainted by illegality. In his judgment, Sir Andrew Smith accepted that the award was indeed based on illegal investments. However, he held that Ukraine could no longer raise an illegality defence because it had failed to do so as part of its state immunity application. Ukraine's subsequent reliance on illegality constituted an abuse of process and was barred by issue estoppel. Accordingly, the judge upheld the enforcement order.
These two cases demonstrate the courts' reluctance to entertain illegality defences at the enforcement stage. The abuse of process test set out by the court in Johnson v. Gore Wood,81 which asks whether the complaining party 'could and should' have raised the issue at an earlier time, remains good law.
Power to order non-party witnesses to give evidence
Section 44 of the Act grants English judges wide-ranging powers to make orders in aid of arbitral proceedings. In the recent decision of A and B v. C, D and E,82 the Court of Appeal confirmed that the courts may compel evidence from a witness who is not a party to the arbitration.
The underlying arbitral proceedings were seated in New York and concerned an offshore oil field in a Central Asian State. The respondents had sold their interests in the oil field to the state and agreed to transfer a percentage of the sale proceeds to the claimants. The claimants argued that certain payments which the respondents had made to the state constituted bribes and therefore could not be deducted from the amounts owed to the claimants. Against this background, the claimants sought evidence from E, the individual who negotiated the sale with the state on behalf of the respondents. Because E was resident in England, only English courts could order him to give evidence in the arbitration. With the tribunal's permission, the claimants therefore applied to the English courts for an order to compel E's testimony under Section 44 of the Act.
The Court of Appeal, casting doubt on previous case law concerning other court orders,83 decided that English courts have the power to make orders for the taking of evidence from a non-party in aid of a foreign arbitration. The judges relied on the wording of the Act, which does not restrict the meaning of 'witnesses' to parties to the arbitration. The court also noted that Section 44(1) of the Act provides for the same judicial powers in relation to arbitrations as for legal proceedings. Because courts have the power to compel witnesses to give evidence in domestic proceedings, there was no reason to deny the claimants' application.
The judgment is limited to Section 44(2)(a) of the Act, which concerns the taking of witness evidence, and does not necessarily apply to other powers listed in the same sub-section, such as the granting of interim injunctions or orders for the preservation of evidence. Nevertheless, the decision in A and B v. C, D and E demonstrates the supportive approach taken by the English courts towards arbitral proceedings, even when they are seated abroad.
iii Investor–state disputes
The Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (ICSID Convention) came into force in the United Kingdom on 18 January 1967.84 The United Kingdom also ratified the Energy Charter Treaty 1994 (ECT) on 13 December 1996.85 In addition, the United Kingdom is currently party to 110 bilateral investment treaties (BITs).86
Extra- and intra-EU BITs
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.87
In March 2018, the CJEU ruled in Achmea v. Slovak Republic88 that investor–state arbitration provisions in intra-EU BITs were incompatible with EU law. In July 2018, the European Commission announced that all investor-state arbitration clauses in intra-EU BITs are inapplicable and that any tribunal established under them 'lacks jurisdiction due to the absence of a valid arbitration agreement'.89 Following the decision, all EU Member States (including, at that time, the United Kingdom) pledged to terminate intra-EU BITs. However, on 5 May 2020, only 23 of the EU's 27 Member States signed the Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union (Termination Treaty), thereby committing to terminating all intra-EU BITs to which they were a party.90 The United Kingdom, Austria, Finland and Ireland did not sign the Termination Treaty, the latter because it had already terminated its only intra-EU BIT. During the Brexit transition period, the Commission commenced infringement proceedings against the United Kingdom and Finland, alleging that their failure to sign the Termination Treaty violated EU law (which continued to apply to the United Kingdom).91 The Commission may yet ask the CJEU to rule on the issue. While the United Kingdom could not be compelled to terminate its BITs with EU Member States, an adverse CJEU judgment could limit the enforceability of intra-EU awards in Member State courts.
Moreover, it is presently unclear what impact, if any, the Achmea decision has on multilateral investment treaties, the most prominent being the ECT. The European Commission has said that the ECT cannot be used as a basis for dispute settlement between EU investors and EU Member States.92 On 15 January 2019, 22 Member States (including the United Kingdom) issued a declaration that accepted that the Achmea decision applied to the ECT with regard to intra-EU matters.93 However, in December 2020, following recent EU proposals to modernise the ECT,94 Belgium requested an opinion from the CJEU on the revised draft's compatibility with EU law.95 On 3 March 2021, the CJEU's Advocate General issued a non-binding opinion that Achmea applies equally to the ECT and that intra-EU arbitrations under the ECT are therefore incompatible with EU law.96 However, it remains to be seen whether the CJEU agrees with the Advocate General's position.
Practically, the Achmea decision may incentivise EU investors to structure their investments through non-EU companies to maintain investment treaty protections. In addition, the uncertainty of the scope of the decision may make non-EU arbitral seats more popular. In light of Brexit, Achmea may therefore have a positive effect for the United Kingdom and arbitrations seated in London.
Enforcement of ICSID award despite EU law objection
The English courts' desire to give effect to arbitral awards also extends to investor–state proceedings. The recent decision of the Supreme Court in Micula v. Romania97 illustrates that courts strive to enforce ICSID awards even when doing so might be incompatible with EU law.
The dispute arose out of the Micula brothers' investments in Romania. In 2013, an ICSID tribunal found that Romania had breached the Sweden–Romania BIT by withdrawing certain tax benefits, rendering an award in the claimants' favour. The investors began enforcement proceedings in several jurisdictions, but the European Commission issued a decision declaring that payment of the award would constitute illegal state aid. Romania would therefore be in breach of EU law if it complied with the award. The Commission's decision was subsequently annulled by the General Court of the EU (GCEU). An appeal against the GCEU's judgment is currently pending before the CJEU.
In England, the Micula award was registered in 2014, but its enforcement was stayed pending the GCEU's decision. The Court of Appeal subsequently ordered Romania to provide £150 million in security. The state appealed the order for security to the Supreme Court, and the claimants cross-appealed the stay.
In a unanimous judgment, the Supreme Court lifted the stay of enforcement of the award, allowing the Micula brothers to claim Romanian assets located in the UK to obtain payment of the award. While the judges agreed that English courts may stay the execution of ICSID awards, they highlighted that this should only be done in exceptional circumstances, for a limited time and solely on procedural grounds. In the present case, staying enforcement of the award based on its potential incompatibility with EU law was a substantive objection which exceeded the powers of the English courts. The court agreed with Romania and the Commission that the EU law duty of sincere cooperation, under which Member States must ensure compliance with EU law, was relevant for English courts.98 However, the court found that the UK had a pre-existing obligation to enforce awards under the ICSID Convention, and that this obligation precluded the application of the duty of sincere cooperation. The stay was therefore held to be unlawful in both international and domestic law.
The decision demonstrates the courts' commitment to the ICSID Convention and reinforces the position of England and Wales as a favourable place for the enforcement of arbitral awards, even in an investor–state context.
Simplified enforcement of awards against states
When seeking to enforce arbitration awards against states in England and Wales, claimants must comply with the service requirements set out in the State Immunity Act 1978 and the Civil Procedure Rules. In recent years, however, the courts have gradually simplified the process of enforcing arbitral awards against states,99 as demonstrated by the High Court case of Unión Fenosa Gas S.A. v. Arab Republic of Egypt.100
The arbitration concerned a liquefied natural gas plant in Egypt, in which the claimant (UFG) held a majority interest. In 2012, an Egyptian state entity cut off the plant's natural gas supply, effectively rendering it inoperative. The claimant commenced arbitral proceedings against the state, resulting in an ICSID tribunal ordering Egypt to pay US$2 billion in damages.
UFG sought enforcement of the award in England. In 2018, the claimant obtained an ex parte order in the High Court for registration of the award. With the assistance of the UK Foreign & Commonwealth Office, the claimant proceeded to serve the order on Egypt in the usual way. However, the claimant never received the certificate of service which the British Embassy in Cairo had been expected to provide. The claimant therefore applied for and obtained a further ex parte order allowing it to dispense with service of the registration order, as well as an order permitting alternative service on the state's law firm. Egypt sought to set aside both orders, arguing that the claimant had not complied with the procedural requirements for enforcement of the award.
Jacobs J found that, on the facts, there was good reason to dispense with service; he accordingly upheld the two ex parte orders. He noted that the Civil Procedure Rules did not expressly require service of the claim form and that, under the ICSID regime, the state would have already received advance notice of an application to register the award. Further, the judge noted that the grounds on which a respondent may resist enforcement are more limited under the ICSID Convention than under the New York Convention. Against this background, he concluded that the procedure for enforcing ICSID awards could not be intended to be more cumbersome than the equivalent process under the New York Convention.
Outlook and conclusions
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 a 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 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 2020 LCIA Rules, and its guidance on emergency procedures issued in 2015, the LCIA has one of the most innovative and up-to-date sets of institutional rules. The 2020 LCIA Rules contain a range of innovative mechanisms such as emergency arbitration, consolidation and 'early determination' orders 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, Brexit will create both challenges and opportunities for England and Wales as an arbitral seat in future years.
1 Duncan Speller is a partner and Mark Feldner is an associate 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 (as he then was). 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.; The London Steam Ship owners Mutual Insurance Association Ltd v. The Kingdom of Spain  EWHC 2840 (Comm) at paragraphs 25 and 49; and The Republic of Sierra Leone v SL Mining Limited  EWHC 286 (Comm) at paragraph 17).
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; Gujarat NRE Coke Limited, Shri Arun Kumar Jagatramka v. Coeclerici Asia (PTE) Limited  EWHC 1987 (Comm) at paragraph 23; and VTB Commodities Trading DAC v. JSC Antipinsky Refinery v. Petraco Oil Co SA  EWHC 72 (Comm) at paragraph 38.
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 The minutes of the Commercial Court User Group Meeting in November 2020 provide some recent statistics: www.judiciary.uk/wp-content/uploads/2020/12/CCUG-Minutes-November-2020-0112.pdf. In the most recent legal year, only one out of 16 applications under Section 68 succeeded. As for Section 69, in 2018–2019, there were 51 applications, of which three were successful. In the previous year's minutes, which revealed similarly low success rates for applications under both Sections, Teare J was recorded as expressing 'hope that parties were hearing the message that the hurdle for these applications is high'.
27 AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC  UKSC 35.
28 See Rule 62.1(3) of the Civil Procedure Rules.
31 The Recast Regulation is multilateral in its operation and a directly effective instrument of EU Law – the United Kingdom cannot single-handedly legislate that the Recast Regulation will continue to apply or that its judgments will be entitled to recognition and enforcement in the rest of Europe. While the withdrawal agreement between the United Kingdom and the EU provides for the continued application of the Recast Regulation to proceedings which began before the end of the transition period (i.e., on or before 31 December 2020), no such agreement was included in the TCA.
32 The United Kingdom deposited its instrument of accession on 8 April 2020. To re-join, the United Kingdom requires the unanimous consent of all other contracting States (the EU, Denmark, Iceland, Norway and Switzerland). At the time of writing, only Switzerland has formally consented to the United Kingdom's application.
33 Allianz SpA and Others v. West Tankers Inc  EUECJ C-185/07. However, if an arbitral tribunal issued an anti-suit injunction to restrain parties from court proceedings in other EU Member States, an English court could enforce this award. See Gazprom OAO (C-536/13) EU:C:2015:316.
36 The exclusion of the carriage of goods and passengers (Art 2(2)(f)) and antitrust matters (Art 2(2)(h)) means that many choice-of-court agreements concluded in favour of the English courts are not covered by the Hague Convention.
38 2019, LCIA: Casework Report, p. 5.
39 id., p. 5.
40 id., p. 5.
41 id., p. 7.
42 id., pp. 10–11.
43 id., pp. 10–11.
44 id., p. 14.
45 id., p. 14.
46 id., p. 16.
47 id., p. 16.
49 LCIA Rules 2020, Articles 22A and 14.2
50 LCIA Rules 2020, Article 22.1(viii).
51 See, e.g., LCIA Rules 2020, Articles 1.3, 1.4, 2.3, 4 and 19.2.
52 ICC Dispute Resolution Statistics 2019.
53 id., p. 14.
54 id., p. 15.
55 id., p. 13.
56 Statement by ICC Court President Alexis Mourre: https://iccwbo.org/media-wall/news-speeches/icc-unveils-revised-rules-of-arbitration.
57 ICC Rules of Arbitration 2021, Article 22(2).
58 id., Articles 7(5) and 10(c).
59 id., Article 26(1).
65  EWHC 194 (Comm). Discussed in detail in the 2017 edition.
67 LCIA Rules 2020, Article 14.8.
68 https://iccwbo.org/content/uploads/sites/3/2020/12/icc-note-to-parties-and-arbitral-tribunals-on-the-conduct-of-arbitration-english-2021.pdf, Section XX (Administrative Secretaries).
69 Essar Oilfields Services Ltd v. Norscot Rig Management PVT Ltd  EWHC 2361 (Comm).
70 Halliburton v. Chubb  EWCA Civ 817.
71 Halliburton Company (Appellant) v. Chubb Bermuda Insurance Ltd  UKSC 48, at paragraph 128.
72 id., at para. 136.
73 Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb  UKSC 38.
74 Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb & Ors (Rev 1)  EWCA Civ 574, at para. 91.
75 The majority noted that this is the case under Section 48 of the Swedish Arbitration Act and Section 6 of the Arbitration (Scotland) Act 2010. See paragraphs 70–72 of the judgment.
76 Alexander Brothers Limited v. Alstom Transport S.A & Alstom Network UK Limited  EWHC 1584 (Comm).
77 PAO Tatneft v. Ukraine  EWHC 3161.
78 Alexander Brothers Limited v. Alstom Transport S.A & Alstom Network UK Limited  EWHC 1584 (Comm), at para. 150.
79 PAO Tatneft v. Ukraine  EWHC 1797 (Comm).
80 PAO Tatneft v. Ukraine  EWHC 3740 (Ch).
81 Johnson v. Gore Wood & Co  2 AC 1.
82 A and B v. C, D and E  EWCA Civ 409.
83 Cruz City Mauritius Holdings v. Unitech Limited  EWHC 3704 (Comm); DTEK Trading SA v. Morozov  EWHC 94 (Comm).
86 See https://investmentpolicy.unctad.org/international-investment-agreements/countries/221/united-kingdom for information about the United Kingdom in the UNCTAD database.
87 Article 3 of the Regulation.
88 Slowakische Republik v. Achmea BV  (case C-284/16).
97 Micula and others v. Romania  UKSC 5.
98 When the Supreme Court issued its judgment in February 2020, the United Kingdom was still bound by EU law. The court did not decide whether the duty of sincere cooperation would continue to apply after the end of the transition period provided for by the EU–UK withdrawal agreement.
99 See also General Dynamics United Kingdom Limited v. State of Libya  EWHC 64 (Comm).
100 Unión Fenosa Gas SA v. Arab Republic of Egypt  EWHC 1723 (Comm).