Author: Latham & Watkins LLP
UNCITRAL Model Law: Is the arbitration law based on the UNCITRAL Model Law?
The Arbitration Act 1996 (the Arbitration Act) broadly reflects, but does not expressly incorporate, the provisions of the UNCITRAL Model Law, and applies to arbitrations that have their seat in England, Wales or Northern Ireland. The structure and language of the Arbitration Act are similar to those of the UNCITRAL Model Law.
However, the Arbitration Act did not adopt provisions that were considered undesirable or inconsistent with established rules of English arbitration law. Further, the Arbitration Act contains additional provisions, such as the power of the tribunal to award interest. The Arbitration Act also has a broader definition of an arbitration agreement in the sense that it is not confined to agreements in respect of a ‘defined legal relationship’.
The Law Commission announced on 30 November 2021 that it would launch a review of the Arbitration Act in the first quarter of 2022.
Arbitration agreements: What are the formal requirements for an enforceable arbitration agreement?
Under section 5 of the Arbitration Act, consistent with the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), there must be an agreement in writing to submit present or future disputes (whether contractual or not) to arbitration. The term ‘agreement in writing’ has a very wide meaning; for example, the agreement can be found in an exchange of written communications.
An arbitration agreement is generally separable from the contract in which it is found, as it is regarded as an agreement independent from the main contract and will remain operable after the expiry of the contract or where it is alleged that the contract itself is voidable (see National Iranian Oil Company v Crescent Petroleum Company International Ltd [2016] EWHC 510 (Comm)). This includes where the contract itself is alleged to have been obtained by fraud (see Fiona Trust & Holding Corporation v Privalov [2007] EWCA Civ 20).
Brexit did not impact the approach to determining governing law or drafting governing law clauses. The instruments that previously determined governing law, Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I) and Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations (Rome II), have been implemented in UK domestic law in the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/834).
Courts in England and Wales will stay litigation proceedings in favour of arbitration if there is prima facie evidence of an arbitration agreement between the parties.
Prior to Brexit, the English court could grant an anti-suit injunction only to prevent parties from pursuing litigation proceedings in the courts of another country that was not a member state of the European Union or European Free Trade Area in breach of an arbitration agreement. However, following the end of the transition period, in cases brought under English common law rules and in arbitrations, English courts and tribunals can now grant anti-suit (and anti- enforcement) injunctions in support of their proceedings wherever the foreign proceedings are threatened or issued (including EU countries), making London an attractive seat for international arbitration.
Oral arbitration agreements are recognised by English law, but fall outside the scope of the Arbitration Act and the New York Convention.
Brexit had no effect on the membership of the New York Convention and, therefore, courts in the UK and the EU member states continue to enforce arbitral awards rendered in either jurisdiction in the same way.
Choice of Arbitrator
If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?
Under section 15(3) of the Arbitration Act, if there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator. The parties may agree a procedure for the appointment of the sole arbitrator. If they do not, the default procedure is that one party may serve a written request on the other to make a joint appointment. The appointment must be made within 28 days of the service of a request in writing. If the parties fail to jointly appoint an arbitrator in that period, either party may apply for an order of the court to appoint an arbitrator or to give directions. The court will rarely make an appointment without seeking guidance from the parties. Typically, the parties will each submit a list of potential arbitrators or request that the court direct that the president of the Chartered Institute of Arbitrators appoint a suitable arbitrator.
A party may apply to the court to remove an arbitrator on limited grounds, including that:
- circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality;
- the arbitrator does not possess the qualifications required by the arbitration agreement;
- the arbitrator is physically or mentally incapable of conducting the proceedings or there are justifiable doubts as to his or her capacity to do so; and
- the arbitrator has refused or failed properly to conduct the proceedings or to use all reasonable despatch in conducting the proceedings or making an award, and that substantial injustice has been or will be caused to the applicant.
Pending the outcome of a challenge, the tribunal can normally proceed with the arbitration and make an award.
The 2021 International Chamber of Commerce Rules of Arbitration (2021 ICC Rules) entered into force on 1 January 2021. Article 12(9) of these new rules empowers the ICC Court to appoint members of the arbitral tribunal regardless ‘of any agreement by the parties on the method of constitution of the arbitral tribunal’, in exceptional circumstances.
Arbitrator options: What are the options when choosing an arbitrator or arbitrators?
The parties are free to agree on the identity of the arbitrator or arbitrators. They may also specify an appointment authority and particular characteristics or qualifications. There is a deep pool of experienced, expert arbitrators capable of meeting the demands of complex international arbitration. The pool consists of leading practitioners from international law firms, barristers (the most accomplished of which are Queen’s Counsel) and academics. The Chartered Institute of Arbitrators in London and the London Court of International Arbitration (LCIA), among other institutions, each maintain lists of arbitrators.
Arbitral procedure: Does the domestic law contain substantive requirements for the procedure to be followed?
Party autonomy is the overriding objective of the Arbitration Act. It is therefore up to the parties to select the rules of procedure that will govern the arbitration.
However, if no express provision is made in the arbitration agreement, it is for the arbitrator to decide procedural and evidential matters.
The tribunal is at all times bound by the mandatory provisions of due process and duty to act fairly and impartially between the parties.
Court intervention: On what grounds can the court intervene during an arbitration?
Under the Arbitration Act, the court’s role is strictly supportive, and it may only intervene in the arbitral process in very limited circumstances. The court may provide assistance in certain procedural matters and has powers to order interim measures in certain circumstances to support the arbitration.
The court’s powers to intervene extend to arbitrations seated in England and Wales and, in certain limited circumstances, to arbitrations seated elsewhere. For example, in A and B v C, D and E [2020] EWCA Civ 409, the Court of Appeal allowed an application under section 44(2)(a) of the Arbitration Act compelling a non-party to an arbitration agreement to provide evidence in a New York-seated arbitration.
The majority of the court’s powers can be excluded by the parties by agreement. Schedule 1 of the Arbitration Act sets out a list of mandatory provisions that cannot be excluded.
Several of the court’s powers under the Arbitration Act may only be exercised once all arbitral remedies have been exhausted or may only be invoked within a limited time period after an arbitration award has been made.
Examples of the court’s powers in an arbitration include ordering a party to comply with a peremptory order made by the tribunal and requiring attendance of witnesses. Further, the court can order freezing injunctions and other interim mandatory injunctions in support of an arbitration. This was confirmed by the Court of Appeal in Cetelem SA v Roust Holding Ltd [2005] EWCA Civ 618, and was followed in Euroil Ltd v Cameroon Offshore Petroleum Sarl [2014] EWHC 12 (Comm).
Interim relief: Do arbitrators have powers to grant interim relief?
Unless the parties have agreed otherwise, the tribunal has powers to make preliminary orders relating to security for costs, and for the preservation of property and evidence.
If the parties have expressly agreed in writing, under section 39(2) of the Arbitration Act, the tribunal also has the power to order provisional relief, such as payment of money or disposal of property. Most arbitral rules contain an agreement to confer such powers upon the tribunal. Provisional relief is subject to the final decision of the tribunal on the case and may be varied by the tribunal.
Similarly, while the tribunal has no general power to grant interim freezing injunctions under the Arbitration Act, such power may be conferred by express agreement of the parties to the arbitration. Even so, case law has not been conclusive as to whether the parties’ agreement to confer on the tribunal the power to grant a freezing injunction will be effective (see Kastner v Jason [2004] EWCA Civ 1599).
Award: When and in what form must the award be delivered?
The parties are free to agree on the form of the award, in accordance with section 52(1) of the Arbitration Act. If there is no agreement, the award must at a minimum be in writing and signed by all the arbitrators, contain the reasons for the award and state the seat of the arbitration and the date it is made.
Unless otherwise agreed by the parties, under section 54 of the Arbitration Act, the tribunal may decide the date on which the award is to be made and must notify the parties without delay after the award is made.
The court can order an extension of time for an award to be made under section 50(4) of the Arbitration Act (although this is done only after available arbitral processes have been exhausted and when the court is satisfied that a substantial injustice would otherwise be done).
Where a material application is made to correct an arbitration award under section 57 of the Arbitration Act or an agreed process to the same effect (such as article 27 of the LCIA Rules), and the application leads to a correction of the award, then the 28-day period for challenging the award under section 68 of the Arbitration Act runs from the date of the award as corrected. Where an application to correct an award fails, the relevant date for commencement of the 28-day period is the date on which it is decided that the award should stand without further clarification (Xstrata Coal Queensland Pty Ltd v Benxi Iron and Steel (Group) International Economic & Trading Co Ltd [2020] EWHC 324 (Comm)).
Appeal: On what grounds can an award be appealed to the court?
There are limited grounds for an appeal of an award to the court.
A party may challenge an award on the grounds of the tribunal’s lack of jurisdiction or because of a serious irregularity in the proceedings that has caused substantial injustice to the aggrieved party. These provisions are mandatory and cannot be excluded by agreement between the parties.
Section 68(2) of the Arbitration Act lists the forms of serious irregularity that the court will recognise. The test for what constitutes serious irregularity is quite onerous, and an award will only be set aside in rare cases (eg, Terna Bahrain Holding Company v Ali Marzook Al Bin Kamil Al Shamsi and others [2012] EWHC 3283 (Comm), as applied in S v A [2016] EWHC 846 (Comm)). The court in Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] EWHC 1987 (Comm) confirmed and summarised the position succinctly. Once the applicant has demonstrated that there has been a serious irregularity falling within section 68(2), it must also show that the serious irregularity has caused substantial injustice.
Under section 69 of the Arbitration Act, in limited circumstances, a party may also challenge an award on a point of law. Only appeals on English law are permitted.
An appeal on a point of law must concern an issue of English law, and requires the agreement of all the other parties to the proceedings or the leave of the court. For leave to appeal, the appellant must satisfy four conditions:
- the determination of the appeal will substantially affect the rights of one or more parties;
- the question of law was put to the tribunal;
- the decision of the tribunal was obviously wrong or is a point of general public importance and is at least open to serious doubt; and
- the court is satisfied it is just and proper in all the circumstances to hear the appeal.
Following the hearing of the appeal, the court may confirm, vary or set aside the award, or remit the award to the tribunal for reconsideration.
If the application for leave to appeal is dismissed, the general rule is that only the judge who made the decision can grant leave to appeal to the Court of Appeal.
The parties may – and often do – exclude the right to appeal to the court on any question of law arising out of the award. An agreement to exclude the right to appeal on a question of law is contained in most arbitral rules.
Where the agreement to this effect is included in the arbitration clause, sufficiently clear wording is required: see Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd (formerly Centurion Petroleum Corp) [2009] EWHC 2097 (Comm).
An agreement that the arbitrator need not give reasons for his or her decision is treated as an agreement to exclude the right of appeal. Further, there is no right to appeal to the court on a question of fact: see Guangzhou Dockyards Co Ltd v ENE Aegiali I [2010] EWHC 2826 (Comm). The leading case on what amounts to a question of law is Vinava Shipping Co Ltd v Finelvet AG (The Chrysalis) [1983] 1 QB 503. In that case, the court distinguished between the ascertainment of the facts in dispute and the ascertainment of the law, which includes the identification of all material rules of statute and common law, of the relevant parts of the contract, and of the facts that must be considered when the decision is reached. It is only the second category that may be appealed as a question of law. Such an appeal may arise from the arbitrator’s statement of the law, or an incorrect application of the law to the facts (Dyfrig Elvet Davies v AHP Land Ltd and another [2014] EWHC 1000 (Ch)). An application for permission to appeal an award can be rejected on the basis that the application was made out of time: the time for appealing an award runs from the date of the award, not the date of corrections (Daewoo Shipbuilding & Marine Engineering Company Ltd v Songa Offshore Equinox Ltd and another [2018] EWHC 538 (Comm)).
Enforcement: What procedures exist for enforcement of foreign and domestic awards?
Awards made in a contracting state to the New York Convention will be recognised and enforced in England and Wales following an application by the debtor for an order under section 66(1) of the Arbitration Act to give permission to enforce and subject to the limited exceptions set out in the New York Convention as implemented by section 103 of the Arbitration Act. Similarly, awards issued under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention) will be recognised and enforced in England and Wales pursuant to the Arbitration (International Investment Disputes) Act 1966, which implements the Washington Convention.
In relation to arbitral awards against a state, the Court of Appeal has held that it is not mandatory for an order permitting the enforcement of an arbitration award to be served in accordance with the provisions of section 12 of the State Immunity Act 1978. While orders permitting the enforcement of an arbitration award are required to be served pursuant to CPR 62.18(8)(b) and 6.44, the court has jurisdiction in an appropriate case to dispense with service in accordance with CPR 6.16 or 6.28 (General Dynamics United Kingdom v State of Libya [2019] EWCA Civ 1110).
A defendant has the right to apply to set aside the enforcement order. However, case law (for example, Honeywell International Middle East Ltd v Meydan Group LLC [2014] EWHC 1344) has re-emphasised that refusals to enforce will only take place in clear cases where the grounds of section 103(2) of the Arbitration Act are met.
Commercial arbitration awards made in countries that have not acceded to the New York Convention may also be recognised and enforced in England and Wales at common law.
Partial awards disposing of part but not all of the issues are enforceable in the same way as final awards.
The enforcement of arbitral awards in England and Wales as well as the enforcement of awards issued by tribunals seated in England and Wales is not impacted by Brexit, as the United Kingdom remains a party to the New York Convention.
Costs: Can a successful party recover its costs?
Unless the parties agree otherwise, the tribunal can order one party to pay the costs of the arbitration. The general principle is that the loser pays the costs, which include the arbitrator’s fees and expenses, the fees and expenses of the arbitral institution concerned and the legal costs or other costs of the parties. However, this is at the discretion of the tribunal, which will consider all the circumstances of the case, including the conduct of the parties during the arbitration.
Any agreement that one party should pay the costs of an arbitration is only valid if made after the dispute has arisen.
The High Court decision of Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) held that third-party funding costs may under certain circumstances be recoverable in arbitration on the basis that they fall under ‘other costs’ of the parties under section 59(1)(c) of the Arbitration Act. In that case, the successful claimant was allowed to recover all of its third-party funding costs, which included a 300 per cent uplift, though it was emphasised by the court that the costs incurred must be reasonable to qualify for recovery.
Additionally, the court in Essar clarified that the question of the recoverability of costs in arbitration should not be construed by reference to what a court would allow by way of costs in litigation under the CPR.
