Publications
Arbitration Matters: Autumn 2006
13 November 2006
Welcome to the first edition of the Arbitration Matters. This publication is written by arbitration specialists within Osborne Clarke's International Disputes group and contains articles on topical issues as well as a review of recent cases. The group covers the spectrum of specialist skills required in the disputes area including commercial contract litigation, arbitration and mediation.
We have taken this experience and some of the key recent developments in arbitration to build this publication for you providing insight into current hot topics and issues within arbitration, and a prompt on changes within the arbitration environment driven by recent case law. We do hope it is valuable and informative reading. Should you have any feedback please let us know.
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International trade: why choose arbitration?
All businesses need to manage risk. One of the big risks in international trade is that of an international dispute. Shamila Neelakandan considers why arbitration should be the preferred choice of procedure for dispute resolution and how it manages some of the risks.
Increasingly, international contracts include arbitration as the preferred choice of dispute resolution. A survey of 150 companies by Price Waterhouse Coopers in June 2006 showed that 73% opted for arbitration over litigation. English commercial courts have shown a decline in caseload by over 50% in the last 6 years whilst the London Court of International Arbitration has experienced an increase of 25% in international arbitration cases. Arbitration is particularly popular in international contracts where contracting parties are of different nationalities and the project jurisdiction is foreign to either one or both parties.
There are several reasons for this. Arbitration allows for the dispute to be assessed neutrally without either party having a jurisdictional advantage over the other. In some jurisdictions, it is thought that arbitration helps avoid local political influence, where there is concern that the judiciary is not independent. International parties tend to be more confident where the parties have greater control over resolution of the dispute, avoiding any unfamiliar legal and business culture. Arbitration is confidential and comparatively speedy. Technically qualified arbitrators may achieve a quicker and more reliable resolution of the dispute. As parties have control over procedure, there can even be agreement for procedural shortcuts.
But care must be taken. Parties can only have recourse to arbitration upon express written agreement. The arbitral tribunal derives its authority from the terms of the arbitration agreement. The clear and concise drafting of the arbitration clause is therefore essential to ensure that it reflects the parties’ intentions. Many parties devote insufficient attention to drafting and as a result the clause may be invalid. Arbitration clauses should expressly cover disputes both under the contract and in connection with it. The arbitration clause should also incorporate a choice of governing law and set of procedural rules (eg: ICC, LCIA, UNCITRAL, etc).
Choice of "seat" of arbitration is important. It has extensive implications in that it determines the legal regime within which the arbitration should operate. In most instances, the seat of arbitration should complement the choice of governing law of the arbitration agreement, to avoid any conflict of laws. In choosing the seat, it is also necessary to consider whether the jurisdiction is a signatory to reciprocal enforcement regulations or legal conventions. This is essential to ensure an easy enforcement process. One such convention is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has 138 signatories including the UK. The UK gives effect to the Convention through Section 99 of the Arbitration Act.
The choice of seat will also be influenced by other factors, such as the efficiency of arbitration centres or the availability of competent arbitrators. In practice, the obvious choices may be determined by convenience, familiarity of the jurisdiction and commercial connections. Surveys have shown that parties tend to select venues such as London, New York, Paris, Geneva, Stockholm and Hong Kong. However, the emergence of self-contained centres in locations like Singapore, China and even Dublin, may challenge the dominance of more established venues like London, especially on the grounds of cost. The growth of arbitration as a dispute resolution forum is no longer confined to traditional venues with new centres developing rapidly.
The choice and number of arbitrators must be given some serious consideration. As well as competence in the subject matter, arbitrators in international arbitrations should have the ability to deal with international law issues and must understand the dynamics of different legal systems and cultures. Most practising arbitrators are accredited with international arbitration institutions like the ICC and LCIA, who are involved in arbitrations in various jurisdictions. In addition, the Chartered Institute of Arbitrators maintains a list of names of qualified arbitrators with international experience.
The selection of suitable arbitrators are essential to ensure the efficient resolution of the arbitration caseload. Some inexperienced arbitrators tend not to assert enough control over processes such as disclosure, witness evidence and oral submissions, causing proceedings to spiral on longer than necessary.
There are several options regarding representation in arbitration proceedings. Parties need not necessarily engage solicitors or legally qualified persons to present their case. In some instances, parties may prefer to engage the services of claim consultants in preparing their case as consultants will cover legal, technical and jurisdictional expertise at one go. In addition, parties may seek the assistance of forensic services from international accounting houses or other such establishments to assist with quantum or technical issues.
When compared with the prospect of litigation in an unfamiliar legal system, arbitration is attractive. Although international arbitration is thought to be more expensive than litigation, its advantages outweigh the negative concerns. Over time, there has been increased awareness of the benefits of arbitration.
One can only conclude that the future for arbitration as the dispute resolution method of choice for international trade and projects seems secure.
Confidentiality in arbitration
It is often said that one of the advantages of arbitration over litigation is the privacy and confidentiality of arbitration proceedings and awards. In many cases it is the single reason why parties will chose arbitration as a dispute resolution mechanism. Guy Wilkes discusses confidentiality in arbitration.
Litigation is generally conducted in courtrooms open to the public. Matters that are sensitive or embarrassing to a corporate litigant are often aired to attendant journalists to be relayed around the world. Once documents have been referred to in open court, any confidentiality attaching to those documents is lost forever. Similarly, evidence given by witnesses can subsequently be relied on by anyone else in proceedings, anywhere in the world. Judgments given in litigation are generally public and often available from the court to those who request them or made available in law report publications and even on the internet.
In contrast, arbitration is generally considered to offer both privacy and confidentiality. By "privacy", we mean that only the arbitrators, witnesses, the parties and their representatives are entitled to attend the arbitration. Others are not entitled to attend unless both parties consent. By "confidentiality", we mean that the parties and the arbitrator are under a duty not to disclose or use documents and evidence emanating from the arbitration proceedings. This also applies to the arbitration award itself.
The scope of arbitral confidentiality in international arbitration is far from being a settled issue. This is because different jurisdictions have different approaches to confidentiality, as do different arbitral bodies. Whilst most national courts agree that arbitrations are private, they disagree as to whether arbitral proceedings are confidential. Jurisdictions generally fall into one of two camps.
On the one hand, there are jurisdictions, like England, which have determined that arbitration proceedings are both private and confidential. As Mr Justice Leggatt stated in Oxford Shipping Co. Ltd v Nippon Yusen Kaisha ("The Eastern Saga") [1984] 3 All E.R. 835:
"The concept of private arbitrations derives simply from the fact that the parties have agreed to submit to arbitration particular disputes arising between them and only between them. It is implicit in this that strangers shall be excluded from the hearing… "
As regards confidentiality, Mr Justice Colman in Hassneh Insurance Co. of Israel v Mew [1993] 2 Lloyd's Rep 243 stated
"It seems to me that, in holding as a matter of principle that the obligation of confidentiality (whatever its precise limits) arises as an essential corollary of the privacy of arbitration proceedings, the Court is propounding a term which arises "as the nature of the contract itself implicitly requires ".
In contrast, the High Court of Australia in its (infamous) decision in Esso Australia Res. Ltd v Plowman (1995) 128 A.R 391 decided that confidentiality (unlike privacy) is not "an essential attribute" of commercial arbitration.
Similarly in AI Trade Finance Inc. v Bulgarian Foreign Trade Bank Ltd (T 1881-99) the Swedish Supreme Court ruled that:
"A party to arbitration proceedings cannot be deemed to be bound by a duty of confidentiality, unless the parties have concluded an agreement concerning this ".
The various arbitral bodies provide a similarly inconsistent approach to confidentiality. For example, the ICC rules provide that "The Arbitral Tribunal may take measures for protecting trade secrets and confidential information" but are otherwise silent as to any obligations of confidence owed by participants. The UNCITRAL rules provide that hearings shall be held in camera, but do not regulate what the parties may divulge outside the hearing.
The Rules of LCIA arbitrations are, however, consistent with English law and provide that:
"Unless the parties expressly agree in writing to the contrary, the parties undertake as a general principle to keep confidential all awards in their arbitration, together with all materials in the proceedings created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain - save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority ".
In circumstances where the arbitral rules are silent as to confidentiality (which they usually are) the appropriate law will be that of the seat of the arbitration. So, for example, an ICC arbitration conducted in England will be confidential. An ICC arbitration in Australia will not. A party particularly concerned about confidentiality should bear this in mind when choosing a venue.
Even amongst jurisdictions that recognise confidentiality, some are more attractive than others. For example, an English court can grant world wide injunctive relief against a party that has breached or threatened to breach the confidentiality of the arbitration. Other jurisdictions may not offer such protection even though in theory they recognise the confidentiality of the arbitration. Whilst damages are usually available they are often an inadequate remedy.
Even in circumstances where a legal system or arbitral rules provide for confidentiality, there are exceptions, where a court will allow confidentiality to be lifted (as reflected in the LCIA rules). Under English law, these exceptions were set out in Ali Shipping v Shipyard Trogir [1998] 1 Lloyd's Rep. 643. Briefly, they are:
- where consent of the other party is provided (either in a prior arbitration agreement or subsequently);
- by order or leave of the court where disclosure is reasonably necessary to establish or protect a party's legal rights as against a third party (for example, where the disclosure is necessary in order for a party to pursue a subsequent claim against his insurers in respect of the same loss);
- by order or leave of the court where disclosure is in the interests of justice (e.g. in London & Leeds Estates Ltd v Paribas Ltd (No. 2) 1 E.G.L.R. 102 where disclosure was ordered to demonstrate prior inconsistent views expressed by an expert in arbitration proceedings; or
- where a party wishes to invoke the court's supervisory powers in relation to the arbitration or the court's assistance is sought with regard to enforcement of the award.
The extent and application of these exceptions is beyond the scope of this article. The law in this area is still developing and there is much room for uncertainty.
Without express agreement, it is unsafe to assume that arbitration proceedings will be confidential. Even where there is a confidentiality agreement, parties need to recognise that there will always be circumstances where a court may allow confidentiality to be waived. Where confidentiality is anticipated to be of importance, a party would be advised to:
- select a venue, such as England, which recognises the confidential nature of arbitrations and is prepared to grant injunctive relief to protect it;
- expressly agree that the arbitration should be confidential (by express clause or by specifying appropriate rules such as the LCIA rules); and
- if confidentiality is a real concern, negotiate bespoke confidentiality provisions in the arbitration agreement itself to cover anticipated circumstances.
The difficulty with legal privilege in international arbitration
The principle of legal professional privilege is fundamental in the relationship between a lawyer and his client. Shamila Neelakandan discusses the concept of legal privilege in international arbitration.
Most legal systems recognise and uphold the principle of legal professional privilege. Various terms are used to describe legal privilege ranging from "professional secrecy" or "confidentiality" in civil law jurisdictions to "attorney-client privilege" in the US. Irrespective of what it is called, legal privilege is conceptually derived from an inviolable relationship between a client and his lawyer. Essentially, it confers a right not to disclose documents or information that relate to confidential discussions, advice or representations by lawyers in actual, pending or contemplated litigation proceedings. Another category of legal professional privilege is legal advice privilege, which covers confidential discussions between a client and lawyer for the purposes of giving or seeking legal advice. Legal privilege encourages the client to be candid in discussions with his or her lawyer, which in turn ensures that the client is given the best opportunity to present its case.
Although the maintenance of privilege is essential in the interest of justice, there is a concern that it causes obstruction to justice in that it interferes with the elucidation of matters in dispute. Hence, local rules of law often refine the scope, applicability and effect of privilege to suit the best interest of the case. For example, in the United States, there has been recent evidence of incursions into the "client-attorney privilege", post Enron: in order to obtain more favourable treatment in an investigation, some US authorities have insisted on waiver of legal privilege.
Equally, in England, there has been some recent volatility on the issue of the scope of privilege. In the case of Three Rivers v Bank of England (2004) EWCA Civ 218, the Court of Appeal held that communications between a client and his solicitor with respect to an independent inquiry in the financial services sector were not protected by legal privilege. The Court of Appeal adopted a narrow approach to the scope of legal advice privilege in holding that the privilege was "an aid to litigation" and applied only where the client's legal rights and liabilities were at stake. The House of Lords however, reversed the decision on the basis that the application of legal privilege should be guided by policy considerations. This meant that legal advice privilege would extend to cover communications within a relevant legal context (in this case, an independent inquiry).
Having established that legal privilege is recognised as a legal right, there is the debate as to whether it forms a procedural or substantive right. In the case of Three Rivers, Lord Scott opined that the debate was sterile as it is in all instances an acceptable legal principle. However, that view should be construed in the context of court litigation where legal privilege exists in English law. Under international arbitration proceedings, procedural requirements are discretionary and need not be strictly adhered to, unlike substantive requirements. This may render arbitration a process that would allow parties to secure access to information that would usually be covered by legal privilege. In those circumstances, it would be unethical for a client whose dispute is to be determined by arbitration be accorded lesser protection compared to court litigation in respect of the disclosure of confidential communication. Therefore, to ensure regularity, fairness and an equal opportunity for litigants to put forward their case, arbitration proceedings in practice have taken the view that legal privilege is a substantive right. This way, parties in arbitration can assume that their legitimate expectation to be afforded the same level of protection as in litigation would be met.
However, there is no general rule that says legal privilege is to apply in arbitration proceedings. This is especially of concern when the issue of privilege gives rise to argument and consideration, for example, if disclosure of privileged document will equate to a waiver or where documents prepared by in house counsel may not be protected by privilege in certain jurisdictions. So, how should legal privilege be dealt with? Does it depend on the governing law of the contract (lex causae) or the law of the seat of arbitration (lex fori) or the law of the place where the confidential documentation was created (lex loci regit causae )? It does not help that in international arbitration the parties, clients and arbitrators are from different countries and there is likely to be a certain amount of confusion as to applicable rules of privilege.
As guidance however, the applicable procedural law as agreed in the arbitration clause may dictate the scope of protection under legal privilege. With the exception of the International Arbitration Rules of the American Arbitration Association and the International Centre of Dispute Resolution Rules, no other major arbitral rules make specific reference to legal privilege. The International Bar Association Rules on taking of Evidence in International Commercial Arbitration (IBA) Rules, if adopted by parties, provide for exclusion of evidence based on legal privilege (Article 9.2) subject to the legal or ethical rules as determined by the Tribunal. Similarly, under the Arbitration Act 1996, Section 34 gives the tribunal wide discretion in relation to disclosure or production of documents.
So what factors should the tribunal take into account when dealing with privilege? At the risk of interfering with production of documents that are otherwise disclosable, the arbitral tribunal has to perform a balancing act in dealing with issues on privilege. The tribunal should weigh the circumstances and order disclosure in the broadest terms if just and reasonable. This may include considerations as to the lex fori, lex causae and lex loci regit actum, as discussed above. The tribunal is under the duty to act fairly and impartially to ensure each party has reasonable opportunity to present its case (ICC Rules) and that should be an underlying consideration when deciding on issues relating to privilege. In addition, the tribunal should also be guided by principles of relevance and weight of material in relation to the dispute in deciding whether to apply strict rules of evidence (LCIA Rules). Especially in international arbitration where parties are from different legal systems and practices, the tribunal should apply procedures that are common to both parties or adopt certain features of each party's legal system, wherever possible.
The tribunal must make sure that the chosen approach to privilege issues is such that the decision would not be challenged either on the ground of irregularity or that the tribunal had not acted impartially. In deciding issues on privilege, there should not be any breach of public policy to avoid a disgruntled party resisting enforcement of the arbitral award.
The uncertainty relating to the application of privilege in arbitration could be remedied if more care were taken by parties to agree set principles on privilege as early as possible. That earliest stage would likely be at the moment of drafting the arbitration clause.
Alternatively, parties should agree on issues relating to privilege at the first preliminary meeting before the tribunal and for such agreement to be formally endorsed in writing. This serves best in ad hoc arbitrations where the pleadings and documents are only submitted after the first preliminary meeting. By contrast, under an ICC arbitration, the agreed principles on privilege may be incorporated in the Terms of Reference, if parties so wished. However, that agreement would not affect the disclosure of documents prior to the Terms of Reference.
Court intervention in arbitration proceedings
Peter O'Brien looks at the court intervention in arbitration proceedings under the English Arbitration Act 1996.
The Arbitration Act 1996 (the "Act") has been in force for over 10 years. It was intended to enhance party autonomy and provide for the finality of arbitral decisions as well as to limit the extent to which the courts could intervene in the arbitral process.
Prior to its enactment there were concerns expressed that parties, who had consented to have the disputes resolved by a panel of arbitral experts, had had awards overturned by the courts. This was a major interference with the consensual agreements between the parties. There was a feeling that this uncertainty was preventing London from realising its potential as the leading centre for international dispute resolution.
Section 1 of the Act sets out the general principles applicable to arbitration. It is worth repeating them here:
- "The object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;
- The parties should be free to agree how their disputes are resolved subject only to such safe guards as are necessary in the public interest;
- In matters governed by this Part the court should not intervene except as provided by this Part".
How far has the Act 1996 achieved these goals?
Since the Act came into force, the courts have shown a marked reluctance to become involved in arbitrations and the House of Lords decision in Lesotho Highlands Development Authority v Impregilo SpA [2005 UKHL 43] reinforces this position. (A more detailed report of this case can be found in the case review later in this publication). The House of Lords' judgment underlined the principle enshrined in Section 1 of the Act that intervention should be kept to a minimum. It overturned the Court of Appeal decision in which Lesotho successfully challenged the validity of an arbitration award. The House of Lords' agreed, albeit in a majority decision, that the arbitration award was to be upheld.
The facts of the case were unusual but the wider implications are that it provides evidence of the court's reluctance to interfere with the consent of the parties. The parties had consented to having matters resolved in arbitration by an independent tribunal and unless there was something manifestly unjust in the decision, the parties would be bound by that award.
This goes to the root of the intention of the Act. Providing no automatic route to appeal on a point of law is consistent with the principle of consensual party autonomy. Intervention by the courts, on points of law, merely increases the costs of commerce that is contrary to the principle enshrined in Section 1 of the Act that arbitration should be carried out with minimum expense and delay. Furthermore, there is no substantive body of evidence or case law to suggest that the right to appeal on a point of law had enhanced the administration of justice prior to 1996.
Those who lobbied to have limited court intervention must be delighted by the Act and the subsequent minimal intervention policy of the courts. They claim that the Act has had a large part in the renaissance of London as a seat for arbitration. Perhaps the most important indicator to the success of the Act and the fact that it provides a policy of minimum interference by the courts comes from statistics. Statistics published by the arbitral institutions confirm the sustained popularity of London as both a seat for international arbitration and as a source for high quality international arbitrators. England and Wales now has sophisticated arbitration laws and the courts, which have shown their willingness to enforce the process of arbitration (whilst allowing it to proceed with minimal intervention).
Confidence in London has been restored and those in business and commerce are voting with their feet.
We should be pleased.
Whether law and jurisdiction clauses are compatible with arbitration agreement
Simon Maughan considers this question by reference to a recent case in the English High Court.
AXA Re v Ace Global Markets [2006] EWHC 216 (Comm)
Ace Global Markets ("AGM") had commenced arbitral proceedings to claim an indemnity from the reinsurer, AXA Re, under an excess-of-loss reinsurance contract. The contract contained an English choice of law and jurisdiction clause. In addition, the contract made reference to (but did not set out the wording of) a standard form industry term sheet known as the "Joint Excess Loss Committee excess loss clauses" (EXEL), of which clause 15 was an arbitration clause.
AXA Re applied for a declaration under s. 72(1)(a) of the Arbitration Act 1996 that the contract did not, on its true construction, include an arbitration agreement. They argued that the parties to the contract had expressly agreed to incorporate the English choice of law and jurisdiction clause, whereas cl 15 was simply one of a number of clauses in a document incorporated by reference. AXA Re sought an injunction to prevent AGM from continuing arbitral proceedings.
By contrast, AGM contended that the jurisdiction clause was not inconsistent with the parallel existence of an arbitration agreement, and that both clauses remained part of the contract.
The court held that the contract, properly construed, demonstrated that the parties did not view arbitration and the courts as mutually exclusive. The effect of the reference to English law and jurisdiction was simply to fix the governing law and the supervisory court of the arbitration (as well as to fix the appropriate forum for any proceedings after arbitration) and not to oust the jurisdiction of the arbitrator. Accordingly, the two provisions could exist side-by-side and AXA Re's application to stay the arbitral proceedings was dismissed.
The arbitration agreement survived in this case, but things could have been very different had the EXEL standard terms specified a conflicting seat of arbitration. This case serves to highlight the importance of both specifically agreeing a method and place of dispute resolution at the outset of commercial negotiations and, more generally, checking for consistency where standard terms are used.
An agreement to arbitrate must be in writing
For there to be a valid arbitration agreement that might prevent enforcement of an English consent order, the parties planning to arbitrate need to have reached an agreement that is evidenced in writing. Eric Livingston looks at the importance of a written agreement to arbitrate.
Maccaba v Lichtenstein (2006) EWHC 1901 (QB)
The curious facts surrounding what Mr Justice Davis described as "an extraordinary piece of litigation" underline the basic point that an agreement to arbitrate has to be evidenced in writing. Bear in mind that the judge thought that the tactics and strategy that the claimant adopted were concerning and that Mr Maccaba might be "pursuing some kind of vendetta against the defendant."
Mr Maccaba and Mr Lichtenstein are orthodox Jews. Both were based in London when Lichtenstein defeated Maccaba's claims for slander and harassment in what was apparently the longest running slander trial in the English High Court at that time. Maccaba was ordered to pay 90% of the costs of that battle. After a fierce contest and protracted negotiations, a consent order was made in the High Court. It concluded the issues between the parties and included a paragraph by which Maccaba was to pay £100,000 in interest to Lichtenstein.
Just 4 days later, Maccaba wrote querying the order he had entered into by consent in proceedings he had initiated. Although he had not raised it before, he thought he would argue that under Jewish law, orthodox Jews could not be required to pay interest to another orthodox Jew. Further, he said, this scuppered the whole consent order, which should be vitiated in its entirety for illegality.
The Beth Din (rabbinical) court in London and other European cities refused to countenance Maccaba's claim, the matter having been dealt with properly by an English court. Maccaba, who had relocated to Israel, found the Beth Din there a little more receptive. He persuaded the Beth Din to injunct Lichtenstein to prevent the enforcement of the English consent order, at least in the eyes of the Israeli court. Mr Justice Davis expressed surprise at such an order but adjourned considering its effect pending comments due from the Beth Din. For the present purposes, Maccaba's arguments in the English court were really about what he said was effectively agreed during submissions.
During a second hearing at the Isreali Beth Din, at which Lichtenstein was represented, there were oral exchanges that Maccaba then used in the English High Court to claim that an agreement to arbitrate had been reached. In this case, agreeing to arbitrate meant remitting all the issues to the Beth Din. However, on the evidence that Mr Justice Davis was able ascertain from an obscure, incomplete translated transcript, it was plain that Lichtenstein's representative objected continuously to the Beth Din having any authority in the matter. Although there was a suggestion that a "bill of arbitration" was to be signed before issues were referred to the Beth Din to arbitrate, no such bill was signed.
The judge found against Maccaba's argument that an agreement to arbitrate had been reached on the basis that such agreement was not evidenced in writing. The oral exchanges in the Beth Din were not conclusive of any agreement, let alone one to arbitrate. Maccaba was not entitled to use this to avoid the English consent order being enforced.
Arbitrator competent to rule on his own jurisdiction
Emily Drake reviews the "kompetenz kompetenz" rule in arbitration proceedings
Weissfisch v Julius and Others [2006] All ER (D) 123 (Mar)
Amir and Rami Weissfisch were wealthy brothers whose business was primarily metal trading. Anthony Julius was a lawyer who acted for the Weissfisch's businesses. When disputes arose between the two brothers, Mr Julius attempted to mediate a settlement between them. However, when that failed, the two brothers entered into an arbitration agreement appointing Mr Julius as arbitrator. The parties expressly waived any rights they might have to challenge the appointment of the arbitrator on any ground, including that Mr Julius had been legal adviser over many years to Amir and Rami and their companies. The agreement was governed by Swiss law and the seat of the arbitration was Geneva.
Following a further dispute over the refusal by Amir to release certain documents which Mr Julius had ordered him to release, Amir brought proceedings in the High Court in London seeking an order that Mr Julius be prohibited from acting as an arbitrator on the grounds that, as a solicitor, he owed Amir fiduciary duties which could not be waived and furthermore was under a duty to observe the rules of professional conduct as a solicitor. When it became clear that Mr Julius intended to hold a hearing before the matter was due to come before the English courts, Amir sought an injunction restraining Mr Julius from taking any further steps in the arbitration until the outcome of the court hearing.
The application for an injunction was refused on the following grounds:
The parties, acting with independent legal advice, had determined that the curial and governing law of the contract was Swiss law. Under Swiss law the arbitrator was obliged to determine his own jurisdiction.
Under English law, it was recognised that the courts of the seat of arbirtation should have supervisory jurisdiction. Accordingly, there was no basis for interference by the English courts.
In view of the specific waiver in the arbitration agreement, the allegations of bias made by Amir against Mr Julius were all matters to be considered by Mr Julius at the determination of his own jurisdiction.
Amir appealed against the decision but his appeal was refused. The Court of Appeal held that the principle of competence-competence sometimes requires arbitrators to consider submissions that they are not competent to act by reason of bias. In such circumstances the decision of the arbitrator would not be final, at least where the seat of the arbitration was in a country such as Switzerland where the courts exercised an appropriate supervisory jurisdiction over arbitration (similar to section 32 of the English Arbitration Act 1996). Accordingly, there was no reason for preventing Mr Julius for reaching his own determination at this stage.
This case is typical of the approach of the English courts to arbitration agreements. However unusual the provision, the courts will generally respect the parties' decision to submit their disputes to arbitration and allow the arbitrator(s) to rule on his/her/their own jurisdiction.
Is there a right to bring court proceedings when arbitration is the agreed forum
Emily Lake reviews a case that looks at whether a party has a right to bring an action in a court outside the jurisdiction when there is a valid arbitration clause in existence.
Goshawk Dedicated Limited v ROP Inc [2006] EWHC 1730 (Comm)
Goshawk was a sole member of a Lloyds syndicate. It made an application for anti-suit injunction against ROP Inc to restrain ROP from:
- Intervening in a US action in Atlanta between Goshawk and ROP's parent company and the original policy holder and;
- Pursuing, an application to restrain Goshawk from pursing its arbitration application in England.
The facts of the case are that Goshawk issued a contingent cost insurance policy in January 1999 through a Lloyds broker. The original policyholder was PSCI, a company based in Georgia. The policy contained a provision that disputes were to be referred to arbitration in London with English law as the governing law. PSCI novated the policy to ROP on 23 April 1999. ROP is also a company incorporated in Georgia.
Goshawk's claim was that ROP was responsible for any breaches of the policy by PSCI. As with all the insurance policies, there is a duty of utmost good faith and disclosure of all material facts by the insured when the policy is taken out. An independent investigation into the policy was undertaken by an agent for Goshawk, who concluded there had been material non-disclosure and misrepresentation at the time the policy was taken out. This meant that Goshawk had a basis for avoiding the policy.
Following this, Goshawk commenced arbitration proceedings in London and served a notice of arbitration on both ROP and PSCI. Simultaneously, Goshawk commenced two sets of proceedings in the district court in Atlanta - the first against ROP's parent company and the second against PSCI. The reason for bringing court proceedings against PSCI was to ensure that PSCI became involved in the arbitration in London, as it was not clear if they were still bound by the arbitration agreement following novation of the policy. The claim against ROP's parent company was brought in tort as there was no contractual relationship between the parties.
ROP made an application for leave to intervene in the US court proceedings. Goshawk in response issued an anti-suit injunction restraining ROP from doing so, given that there was an arbitration clause in the contract. ROP tried to argue that as there had been a novation of the policy, and so the arbitration provisions no longer applied. In addition, ROP claimed that it was more sensible for the entire case to be pursued in one forum, being that of the US courts in Georgia.
In England, the Commercial Court found that Goshawk had a good reason for bringing an anti-suit injunction. An injunction was granted restraining ROP from pursuing their case any further in the US courts.
The court stated that ROP was attempting to hijack the jurisdiction issue by issuing an application to join in the proceedings in the US, whereas the parties had agreed that the forum should be arbitration and that English law applied to the policy.
This is yet another example of the courts upholding the parties original commercial agreement that arbitration should be the forum for resolving disputes.
Court intervention in arbitration proceedings
(1) Taylor Woodrow Holdings Ltd (2) George Wimpey Southern Counties Ltd v Barnes & Elliott Limited [2006] EWHC 1693 (TCC)
Laurenz Maurer looks at one of the limited situations in which UK courts may be permitted to intervene in an arbitration proceeding. This case concerns a construction dispute.
A recent Technology & Construction Court decision has provided guidance on the application and scope of Section 45 of the Arbitration Act 1996 - the provision entitling parties to seek a quick decision from a court on questions of law arising in the course of arbitral proceedings. This is of course one of the few situations in which the UK courts may be permitted to intervene.
Taylor Woodrow Holdings and George Wimpey Southern Counties (the "Developers") were the respondents in an arbitration commenced by Barnes & Elliott (the "Contractor") in relation to the incurrence of costs relating to unforeseen works during the development of Longrove Hospital in Epsom.
The Developers took the position that a preliminary question of law arose as to whether, under the terms of the contract, the Developer or the Contractor was responsible for the risk of unforeseen works. They referred this legal issue to the Technology & Construction Court for a determination pursuant to Section 45 of the Arbitration Act.
The court considered that it had a discretion to consider the question because:
- The parties had expressly agreed to such applications under their contract thereby satisfying S.45(2)(a);
The Developer's preliminary question of law arose out of the arbitral proceedings between the parties - satisfying S.45(1)); and
The question of law substantially affected the rights of the parties - satisfying (S.45(1)).
Having decided that it could exercise discretion, the court reflected upon how it should exercise it. Having heard all of the arguments from both parties, the court concluded that this was a proper case for it to determine the question of law referred by the Developers. The key factors influencing the court's decision were as follows:
The parties had agreed that any question of law might, at the option of either party, be referred to the court. Party autonomy was one of the founding principles of modern arbitration law. It did not matter that the tribunal was very experienced in construction law or that the parties chose it.
The parties had put before the court all of the factual evidence they considered to be relevant and none of this was disputed. The court was in just as good a position as the Arbitrator to consider the factual background and its effect on the terms of the contract.
The question of law identified by the Developers went to the heart of the dispute between the parties. It was highly desirable to establish the legal basis of the Contractor's claim before the parties spent substantial sums of money on the arbitration hearing.
The court went on to find in favour of the Developers on the basis that factual evidence showed that the Contractor had retained the risk of unforeseen works to the existing structure of the building under the terms of the contract.
This case confirms that the English courts remain keen to give effect to S.45 where possible. As Judge Donaldson put it in the Babanaft International Co SA v AVant Petroleum Inc (1982) 1MR 871, the provision allows:
"the arbitrator or parties to nip down the road to pick the brains of one of Her Majesty's judges and, thus enlightened, resume the arbitration".
Error of law by arbitrators not a reason to intervene where S.69 of the Arbitration Act is excluded
Anna Johnson looks at the level of intervention by the English courts where one party applies for the arbitration award to be reviewed but both parties have agreed to exclude the right to appeal on a point of law under Section 69 of the Arbitration Act 1996.
Lesotho Highlands Development Authority v Impreglio SpA [2005] 2 All ER (Comm) 265
The claimant was an employer who engaged a consortium of seven companies (the contractors) from several countries to construct the Katse Dam in Lesotho. The contract contained an arbitration clause, which applied the rules of the ICC and specified London as the seat of arbitration. The arbitration agreement provided that there would be no right of appeal on a point of law. This excluded s.69 of the Arbitration Act 1996. The applicable law under the contract was Lesotho law and the currency of account was the Lesotho currency, maloti.
The contractors made several claims for reimbursements in relation to increased costs and for upwards adjustments to prices and rates. These claims were rejected by the employer and were eventually referred to arbitration. The issues included the currency of any award and whether interest should be paid on sums found due. The tribunal issued a partial award finding that sums were due and held that those sums should be converted into European currencies at the exchange rate applicable when the payments should have been made. It also awarded interest on these sums. In dong this, the tribunal was relying on 48(4) the Arbitration Act 1996, which provides that a tribunal might order the payment of a sum of money in any currency and 49(3), which sets out that a tribunal may award interest at a rate it considers meets the justice of the case.
The employer challenged the decisions, arguing excess of power under section 68(2)(b) of the 1996 Act. Under the Act, a challenge may be made on the ground of serious irregularity affecting the tribunal, the proceedings or the award. The definition of serious irregularity is that it had caused or would cause substantial injustice to the applicant and can include, under section 68(2)(b), where the tribunal exceeds its powers.
The case went all the way to the House of Lords, which held that the arbitrators had not exceeded their powers and that, even if an error of law had been made, that was not a ground to review the award. The tribunal was therefore entitled to make the error of law (if, in fact there was an error of law) and in doing so, was not exceeding its power.
The unambiguous ruling of the House of Lords that the courts should not intervene to review the arbitrators' powers or decisions on questions of law where s.69 is excluded is important, as it will go some way to repairing the reputation of the English courts (which at least until recently have been regarded as overly interventionist in arbitral matters). This shift in attitude could have positive implications for England as a venue for arbitration and encourage the use of the arbitration more generally.
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