Author: Herbert Smith Freehills LLP
Arbitrability: Are there any types of disputes that are not Arbitrable?
The Arbitration Act 1996 (the Act). specifies that the parties may submit contractual and non-contractual disputes to arbitration. Section 6(1) gives considerable freedom to the parties to determine how their disputes are resolved, subject only to such safeguards as are necessary in the public interest (section 1(b)). However, the Act does not include any express provisions on what disputes are incapable of being referred to arbitration.
Despite this, under common law, there are certain disputes that are considered non-arbitrable. These include:
- disputes under illegal contracts;
- criminal matters;
- certain family matters;
- certain low-value consumer disputes; and
- claims under the Employment Rights Act 1996 (which renders void any agreement that would prevent an employee from having its case heard before an employment tribunal).
Other disputes that provide a statutory remedy from the courts or require the state to intervene to protect or grant a right may be able to be arbitrated, but the arbitral tribunal many not be able to offer the remedy sought (for example, relating to companies or to IP).
Requirements: What formal and other requirements exist for an arbitration agreement?
The Act applies (subject to very limited exceptions) to arbitration agreements in writing (section 5). There is an agreement in writing if the agreement:
- is made in writing (whether or not it is signed by the parties);
- is made by exchange of communications in writing; or
- is evidenced in writing.
Section 5 also sets out certain circumstances that will constitute such agreement in writing, including reference to standard terms and conditions.
While oral arbitration agreements fall outside the scope of the Act, they may still be recognised and enforced at common law (section 81(1)(b)).
Enforceability: In what circumstances is an Arbitration Agreement no longer enforceable?
The Act enshrines the principle of separability in section 7. Unless the parties agree otherwise, an arbitration agreement that forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective. The arbitration agreement is, therefore, treated as a distinct agreement, which can have its own separate governing law. In the recent case of Kabab-Ji Sal (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48, the English Supreme Court clarified the approach under English law to the determination of the law governing the arbitration agreement.
As a result of this doctrine of separability, if the matrix contract in which the arbitration agreement sits is no longer enforceable, the arbitration agreement will remain enforceable unless there are any circumstances that undermine that arbitration agreement itself (under general contractual principles) (Fiona Trust & Holding Corporation v Yuri Privalov [2007] EWCA Civ 20). Section 7 can only be disapplied by express waiver.
An arbitration agreement is not discharged by the death of a party (section 8). An agreement to arbitrate can be waived if a party takes part in court proceedings commenced in breach of that arbitration agreement.
Separability: Are there any provisions on the Separability of Arbitration Agreements from The Main Agreement?
Section 7 of the Act addresses the separability of arbitration agreements from the main agreement.
Third parties – bound by Arbitration Agreement: In which instances can third parties or non-signatories be bound by an Arbitration Agreement?
Under English law, a party needs to have agreed to arbitrate for that party to be bound by an arbitration agreement or award.
However, various English common law principles might bind a third party to an arbitration agreement. These include:
- where an agent-principal relationship exists;
- where contractual rights or causes of action are assigned or transferred. If those rights or causes of action were subject to an arbitration agreement, it will bind the third party (West Tankers Inc v RAS Riunione Adriatica de Sicurta SpA [2005] EWHC 454 (Comm));
- where a contract is novated, the third party assumes the rights and obligations of one of the original parties to the agreement as if it had been a party from the outset. This will include the arbitration agreement; and
- where rights or claims have been subrogated, subrogated insurers will be bound by the arbitration agreement that applies to the subrogated rights or claims.
Where non-parties to a contract have rights under it pursuant to the Contracts (Rights of Third Parties) Act 1999 and that contract contains an arbitration agreement, the third party may also be able, or be required, to arbitrate to enforce those rights. A third party with a debt claim may have a direct claim against an insurer of the debtor where the debtor is insolvent under the Third Parties (Rights Against Insurers) Act 1930. If the original insurance agreement has an arbitration agreement, it will bind the third party.
The group of companies’ doctrines does not form part of English law and group parties will not be recognised as parties to an arbitration agreement unless expressly agreed (Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121 (Comm)). However, the corporate veil may be pierced to bind a third-party group company to an arbitration agreement where the existence of a separate corporate entity is a façade.
An arbitration award is binding on the parties to the arbitration and on any persons claiming through or under them. Depending on the parties’ agreement, the award may also bind other parties, such as guarantors.
Third Parties – Participation: Does your Domestic Arbitration law make any provisions with respect to Third-Party Participation in Arbitration, such as Joinder or Third-Party Notice?
English law requires agreement between the parties to arbitrate. The Act does not permit the tribunal to consolidate proceedings involving third parties or join third parties to the arbitration without the consent of the parties (section 35). Similarly, the tribunal has no power to compel third parties to join an arbitration without their consent. In practice, such consent to joinder or consolidation is addressed either in the drafting of the arbitration clause or through the adoption of institutional rules that provide for joinder or consolidation.
Groups of companies: Do Courts and Arbitral Tribunals in your jurisdiction extend an Arbitration Agreement to non-signatory parent or subsidiary companies of a signatory company, provided that the non-signatory was somehow involved in the conclusion, performance or termination of the contract in dispute, under the ‘group of companies’ doctrines?
The group of companies’ doctrines does not form part of English law and group parties will not be recognised as parties to an arbitration agreement unless expressly agreed (Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121 (Comm)). However, the corporate veil may be pierced to bind a third-party group company to an arbitration agreement where the existence of a separate corporate entity is a façade.
Multiparty Arbitration Agreements: What are the requirements for a valid Multiparty Arbitration Agreement?
Multiparty agreements to arbitrate are commonplace in contracts governed by English law or with an English seat. While the Act does not deal with the issue of multiparty arbitration agreements directly, these are recognised by the English courts, while provisions of the Act expressly identify situations in which there may be more than two parties to an arbitration agreement (sections 16(7) and 18(2)).
In the absence of an express procedure for the appointment of the tribunal in a multiparty agreement in the arbitration agreement or any arbitration rules chosen by the parties, the Act allows for a party to apply to the court to make the appointments or direct the appointment process (section 18(2)).
Consolidation: Can an Arbitral Tribunal in your jurisdiction consolidate separate Arbitral Proceedings? In which circumstances?
Unless the parties agree to confer such power on the tribunal, it has no power to order consolidation of proceedings or concurrent hearings (section 35).
The parties are free to agree the terms on which any consolidation may take place. This agreement may be given expressly through the arbitration agreement itself or by incorporation of a set of arbitral rules that provide for the consolidation of proceedings in certain circumstances.
