The English Arbitration Act 1996: Strengths and Limitations

Nick Marsh

Russian Arbitration Day, Chamber of Commerce and Industry of the Russian Federation

29 May 2014

Introduction

The English Arbitration Act 1996 (the "Act") marked a radical change of approach to arbitration in England.

This presentation will cover:

The rationale for the Act

An assessment of its strengths and limitations

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The origins of the Act: the history of English arbitration

English arbitration law: the beginning the first English Arbitration Act: 1698

common law: developed through cases over several centuries

The law as it stood pre-Arbitration Act 1996 no comprehensive statutory framework for arbitration: the 1950,

1975 and 1979 Arbitration Acts were not suitable.

large and unclear volume of case law.

no clear statement of principles underlying arbitration law: the law had developed in a piecemeal and reactive manner.

Delays could be caused by frequent appeals or references to the English courts, which had excessive supervisory powers. Coppée-Lavalin SA/NA v Ken-Ren Chemicals and Fertilisers [1994] 2

W.L.R. 631

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The origins of the Act: a global call for change

A global call for change Three major events in the development of international arbitration:

i. New York Convention 1958

ii. UNCITRAL Rules 1976

iii. UNCITRAL Model Law 1985

United Kingdom: Model Law or not? A Departmental Advisory Committee, representing users,

arbitrators, lawyers and the judiciary ("DAC") was established by the UK Department of Trade and Industry to make recommendations to the government.

The DAC compared the established English arbitration law with the Model Law.

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The origins of the Act: Model Law or not?

In its 1989 report the DAC concluded that: the Model Law should not be adopted into English law there should be a new Arbitration Act setting out "in statutory form…the

more important principles of the English law of Arbitration…in logical order, and expressed in language which is sufficiently clear and free from technicalities to be readily comprehensible to the layman".

There were three further DAC reports: an interim report in 1995; a final report in 1996; and a supplementary report in 1997.

The Act came into force on 31 January 1997: a 10 year process.

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The Act: a fresh start

The aim of the Act was "to restate and improve" English Arbitration Law – Pre-amble to the Act

The Act consolidates into one logical and more readily understandable framework rules from the English Arbitration Acts of 1950, 1975 and 1979.

A key purpose of the Act was to increase speed/economy and drastically to reduce the intervention of the courts by:

only giving courts essential powers

only allowing courts to assist where the Tribunal cannot act effectively

only allowing courts to correct very fundamental errors

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Key characteristics of the Act – the four pillars

The "four pillars" of the Act:

i. three general principles – section 1

ii. duties of the tribunal – section 33

iii. duties of the parties – section 40

iv. mandatory and semi-mandatory provisions – section 4

The three general principles upon which the Act is founded are:

i. Fair, speedy and cost effective dispute resolution by impartial tribunals;

ii. Party autonomy; and

iii. Support for the arbitral process and limited intervention by the courts.

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The Act vs the Model Law

Whilst the Act conforms generally to the principles of the Model Law, it nevertheless differs in a number of respects, including (for example) the following:

i. it is markedly longer, more specific and less generalised

ii. it sets out three general principles (fairness, party autonomy and limited court intervention) through which to interpret the Act

iii. it includes a duty on the parties to promote expeditious conduct and obey the tribunal's orders

iv. it has provisions specific to English arbitration law (appeals on points of law, immunity of arbitrators, security for costs)

v. it has more specific provisions on certain matters such as disclosure, evidence, consolidation, interest and costs

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The Act vs the Model Law

vi. the Act contains provisions which are expressly mandatory (i.e. cannot be excluded by agreement) or semi-mandatory (i.e. will apply unless the parties agree otherwise)

vii. the Model Law allows the parties to choose the procedure for the arbitration, with the arbitrators having default powers in the absence of agreement. Under the Act, the arbitrators have powers subject only to contrary agreement by the parties.

viii. the default number of arbitrators under the Act is 1 not 3.

ix. where each party is required to appoint an arbitrator, the Act retains the power of a party to treat his arbitrator as the sole arbitrator where the other fails to appoint.

x. the Model Law does not contain any mechanism for summary enforcement of awards.

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The Act vs the Model Law

The Act has certain similarities to the Model Law: it has a similar, logical, structure and covers:

the making and enforcement of the arbitration agreement the formation of the tribunal the conduct of the proceedings powers and duties of the tribunal and parties court intervention to support proceedings making of awards court powers to remedy errors recognition and enforcement of awards

like the Model Law, the Act does not expressly cover: confidentiality and privacy arbitrability of disputes

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The Act: a success?

A 2006 report commissioned by the English Commercial Court Users' Committee consulted users and practitioners on a number of perceived weaknesses in the Act. The report concluded that no changes were necessary.

However, weaknesses may include the following: Appeals to courts on questions of law

Court challenges: alleged procedural unfairness

Court challenges: Tribunal's jurisdiction

Arbitrability of disputes

Privacy/confidentiality

Consolidation of related disputes

Aggressive court intervention to prevent foreign proceedings

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Reduced court intervention

Appeals on a point of law (s69 of the Act)

It is questionable whether this provision was necessary: part of its purpose was to allow English case law to develop, at the expense of the finality of arbitration (and potentially its privacy).

The parties can exclude the right to bring such appeals by agreement. The leading arbitration rules do precisely that.

Challenges based on serious irregularity (s68 of the Act)

Court's permission is required: security will often need to be provided and the threshold for successful challenges is high.

Lesotho Highlands Development Authority v Impreglio SpA [2005] UKHL 43: the incorrect exercise of a power available to a Tribunal cannot, of itself, amount to a serious irregularity.

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Reduced court intervention

Challenges to the Tribunal's jurisdiction (s67 of the Act) The Act and related English court practice have been criticised for

(i) requiring an extensive review of the same facts and the law by both the Tribunal and then the Court (leading to increased costs and delay) and (ii) not giving sufficient importance to the Tribunal's award on its own jurisdiction.

Premium Nafta Products Limited and others v Fili Shipping Company Limited and others [2007] UKHL 40 ("Fiona Trust") – the House of Lords construed an arbitration agreement broadly – arbitration is a "one stop shop". The court also confirmed the separability of an arbitration agreement from the main agreement, where the main agreement had allegedly been procured through a bribe.

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Arbitrability and privacy/confidentiality

Arbitrability: not defined in the Act (see sections 66 and 81).

The English courts have generally taken a pro-arbitration approach. Even unfair prejudice claims by minority shareholders under s994 of the Companies Act 2006 are arbitrable; winding-up petitions under the Insolvency Act 1986 may also be: Fulham Football Club (1987) v Richards and anor [2011] EWCA Civ 855.

Privacy/confidentiality: also not defined in the Act, as the exceptions were evolving and

were too difficult to codify.

The English courts support the privacy and confidentiality of the arbitral process: see Michael Wilson & Partners Limited v John Forster Emmott [2008] EWCA Civ 184. Not all legal systems do.

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Aggressive court intervention - interference or pro-arbitration?

The English courts have not only reduced their intervention into English arbitration but have also promoted English arbitration through "anti-suit injunctions": AES UST-Kamenogorsk Hydropower Plant LLP v UST-

Kamenogorsk Hydropower Plant JSC [2013] UKSC 35: anti-suit injunction issued by English court to prevent the continuation of Kazakh proceedings but without any obligation to start London arbitration.

BNP Paribas SA v Open Joint Stock Company Russian Machines and another [2011] EWHC 308 (Comm) ("Russian Machines"): the English court arguably overstepped the mark in applying section 44 of the Act. An anti-suit injunction was issued by the English court against a non-party to the arbitration agreement (but which was related to the Respondent) restraining the continuation of Russian shareholder proceedings.

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