Arbitration reform – the judiciary divide

August 10, 2016

On 9 March 2016 the Lord Chief Justice, Lord Thomas, delivered the annual Bailii lecture[1] entitled “Developing commercial law through the courts: rebalancing the relationship between the courts and arbitration.” The lecture received considerable press coverage and comment – much of it hostile. Lord Thomas argued that a “wrong turn” had been taken in the 1979 Arbitration Act, in the interpretation of, what is now, s.69 of the 1996 Act in the case of The Nema[2] and in the 1996 Act. He argued that the (very) limited rights of appeal aimed at prioritising London as a global arbitration centre prevented the proper development of the common law. He called for a more flexible test for permission to appeal so as to ensure that the courts were fed with a “healthy diet” of appeals on legal issues of public importance[3].

Two of the more prominent and vociferous critics have been Lord Saville (sometime chair of the departmental advisory committee that drafted the 1996 Act) and Sir Bernard Eder (a recently retired judge and now commercial arbitrator).

Lord Saville’s criticisms can be summarised as:

  • There is no basis not to hold parties to their bargain
  • It would increase costs
  • Why should parties finance the development of the law?
  • It would drive arbitration away from London with the attendant financial consequences.

Sir Bernard agreed and added that:

  • Widening s.69 would have the unintended consequence of parties agreeing (a) greater exclusion of the limited rights of appeal[4] and (b) to chose other seats[5]
  • It is entirely contrary to the principle of party autonomy
  • Why should, especially foreign parties, pay to develop the law

As Lord Saville said: “The parties have expressly agreed to use arbitration as their method of dispute resolution … [and] to accept the decision of their tribunal instead of that of the court. … What the English court would have decided is irrelevant.”

Sir Bernard highlighted that pre-1979 there had been roughly 300 reported arbitration appeals per year. Thereafter there were, on average, 70 applications for permission per year, 20 cases where permission was granted and 6 appeals allowed. He agreed that the effect of s.69 was to reduce the potential for development and explanation of the law but he did not consider that this stifled the development of the law.

The main reason that arbitral awards do not reach the courts is, of course, that the parties agree to exclude the right of appeal and there is no evidence that that would change. Quoting Sir Michael Kerr: “Remember, when parties agree arbitration they buy the right to get the wrong answer.”

Joining the debate J. William Rowley QC (Chairman of the LCIA Board) has echoed the criticism of Lord Saville and Sir Bernard. Essentially he adds that there is no empirical evidence that the courts are being starved of cases (or international cases): the court system and the development of the law is in rude health.

There was, however, agreement among commentators that it might well be time for a review of the 1996 Act. That would be sensible – not to repeal it and start again but to reflect changes in practice since the Act was introduced and to address the greater competition between seats for arbitration business evidenced by the emergence of state backed arbitration centres and institutions.

Areas for possible reform include:

  • Whether the mandatory provisions of the 1996 Act are consistent with party autonomy
  • The interplay between the new vogue for the emergency arbitrator and s.44 of the Act: (a) the Act permits the court to act only when speedy relief cannot be obtained under the arbitration agreement and there have certainly been decisions to the effect that the court should not grant an injunction where there is an emergency arbitrator provision, and (b) as the decision of an emergency arbitrator is not an award it cannot be enforced and hence has only coercive authority – a problem addressed by the Singaporean legislation.
  • Confidentiality: a concept more observed in the breach than the adherence
  • Costs: (a) addressing the enormous sums involved and whether and how to control them, (b) the ability to control behaviours by greater use of interim and final costs orders and awards, and (c) the introduction of litigation funding and its impact on conflicts.

The decision to arbitrate (rather than litigate) is a conscious one taken in light of the benefits (and detriments) of doing so, including the finality of the award. That aspect of party autonomy, like many others, should be respected.

[1] Available at judiciary.gov.uk
[2] Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (No. 2)[2] [1982] AC 724.
[3] The logical extension of Lord Thomas’s argument might be a prohibition on settlement of cases that raise a point of law that it is the public interest to resolve. Plainly that would be nonsense.
[4] All of the major institutional rules exclude such right of appeal as there may be.
[5] Other popular arbitration jurisdictions (adopting the Model Law) have no right of appeal on the merits at all.


Related pages:

Arbitration: Our experience more

International Arbitration more

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