By Dorothy Murray ▪ King & Wood Mallesons
Nine months on from a controversial speech on international arbitration by Lord Thomas, the Lord Chief Justice,DorothyMurray,a partner at King & Wood Mallesons, London, considers its impact going forward.
It has been nine months since Lord Thomas, the Lord Chief Justice of England & Wales, argued that the relationship between the courts and arbitration needed rebalancing because restrictions on appeals from arbitrations were stifling the development of English commercial law, a subject discussed at CDR’s Summer Arbitration Symposium.
Has his idea has gained traction and taken root, or does it have little chance of legislative life?
LORD THOMAS’S VIEW: A WRONG TURN
Lord Thomas argued, in his BAILII lecture, that English arbitration law had taken a wrong turn when it drastically restricted the circumstances in which a court could intervene in an arbitration to correct an error of law. The first step down this path was taken by the 1979 Arbitration Act, cemented by the House of Lords in The Nema (1981), and codified in section 69 of the 1996 Arbitration Act (“AA 1996”).
Section 69 (s 69) permits an appeal to the court on a question of English law arising from an arbitral award made by an English-seated tribunal only with the agreement of the parties or with the court’s permission. It may be excluded altogether by the parties’ agreement.
Where it applies, the court can grant permission only where all of a cumulative and stringent list of conditions has been met: (i) the determination of the legal issue will substantially affect the rights of one or more parties, (ii) the question is one the tribunal was asked to answer, (iii) on the basis of the findings of fact in the award, the arbitral award is obviously wrong or the decision is open to serious doubt and raises a question of public importance and (iv) it is just and proper for the court to rule on the issue despite the parties having agreed to arbitration.
Once this threshold has been met, a court may confirm, vary or set aside an award, or remit all or part of it back to the tribunal for reconsideration. The provision is unusual, if not unique, among national arbitral laws.
Lord Thomas pointed to the significant reduction in appeals from arbitral awards to the courts since the current test was introduced, arguing that the effective development of commercial law to keep up to date with modern trade and business benefits all stakeholders and requires a steady diet of cases in which to refine, explain and develop the law.
Reserving important points to the private forum of arbitration denies the courts (and everyone) the opportunity to achieve this desired end. His solution was to introduce more flexible tests for permission to appeal on a point of law (s69 AA 1996) and to obtain a determination from the court on a preliminary issue of law (s46 AA 1996).
THE RESPONSE TO LORD THOMAS
While Lord Thomas is undoubtedly right on the importance of good and relevant commercial law, does his solution create more damage than the problem and is the problem as significant as he presents? Many distinguished voices responded. Lord Saville commented in The Times that expanding the reach of s69 would be a “retrograde step” that disregarded the parties’ bargain and would drive international commercial arbitration away from London.
Sir Bernard Eder at the Chartered Institute of Arbitration’s annual lecture said that the balance currently struck was the right one – the proposed changes would drive disputes away from England and result in even fewer referrals to the courts. Further, Eder disagreed as a matter of principle that parties to arbitrations should be forced to finance the development of the common law.
Much of the focus of the rebuttals has been on the need to maintain England as a competitive forum for international disputes and on matters of principle and policy from the point of view of the legal and arbitral establishment but what about the business client.
What do most businesses want from commercial law, commercial contracts and dispute resolution processes (namely certainty and efficiency), and does the current system and structure adequately address those needs?
CERTAIN AND RELEVANT COMMERCIAL LAW
English common law, developed by centuries of precedent, forms the basis for much of the world’s business and trade because it offers settled and pragmatic principles.
The flow of appeal points from arbitral awards may have slowed since 1996, but do fewer cases by this route mean not enough overall to keep the law moving? Sir Bernard Eder did not think so considering that common law continues to develop “at a pace”.
The Commercial Court remains well managed but busy – booked up for example for one-week trials until late summer 2017, with publically available statistics showing a steady increase in caseload year-on-year. Cases become ever more complex in the number of issues raised and the legal submissions presented by counsel, providing ample opportunity to refine and develop the common law.
Many commercial parties, both domestic and international, expressly choose to have their disputes settled by the English courts – for example a number of banks this author advises have English law and courts as their standard preferred options in contracts. As the Commercial Court innovates, for example by way of the Financial List, it will continue to attract cases in which to develop the law; matters which parties have chosen to refer to arbitration are not, and should not be, its only source of additional jurisprudence.
Finally, appeals on points of law from awards are rare but still happen – the May 2016 decision of the United Kingdom Supreme Court in NYK Bulkship (Atlantic) NV v Cargill International (2016) considered a contractual interpretation question with (in the words of Lord Sumption) “wider implications of some importance”.
Not only was the point appealed from the award, it continued up to the very top of the English appellate system. The key point here was that the parties initiated each stage of the appeal because it was critical to them. Each appeal was permitted because of the wider importance of the question – a true alignment of interests between private interest and public policy. The Supreme Court confirmed the tribunal’s original award.
FREEDOM OF CONTRACT
Commercial parties choose English law to govern their contracts so they have freedom and certainty as to their negotiated rights and obligations. Using market standard forms, or expressly negotiating one-off provisions, the parties themselves can adapt and flex to account for new technology and standards better than any appeal court could.
Many parties use this freedom expressly to opt out of section 69, often by adopting one of the most popular sets of procedural arbitral rules that expressly and irrevocably exclude the right of appeal to the fullest extent permitted by law (for example, see the International Chamber of Commerce’s International Court of Arbitration 2012 Rules, at article 34.6 and London Court of International Arbitration 2014 Rules, at article 26.8).
EXPEDITIOUS AND FINAL DISPUTE RESOLUTION
For those parties choosing arbitration, the Queen Mary University/White & Case 2015 International Arbitration Survey reported that “ease of enforcement” and “avoiding specific legal systems” were seen as two of arbitration’s most valuable characteristics.
90% of respondents to the survey explained that international arbitration was their preferred dispute resolution mechanism for cross border disputes. These parties do not choose an international and “neutral” method simply to be returned back to national courts.
Indeed, while not all countries go as far as some French decisions in considering international arbitral awards to belong to a transnational legal order, countries seeking to enhance their reputation as business and investment friendly limit the involvement of courts in arbitrations save to support and uphold arbitral agreement. Singapore, for example has adopted a legislative framework which preserves party autonomy in arbitration and establishes a supporting, but non-interventionist role for its courts.
While finality was a lower ranking criteria in the 2015 QMU survey, this is belayed by the proportion of parties who elect to use institutional rules that entirely preclude appeals on points of law. The value placed on “enforcement” also hides within the concept of efficient enforcement the need to have in good time a final and enforceable award.
Increasing the possibility of legal appeals inevitably prolongs the process, giving parties further opportunity for delay and procedural mischief, somewhat contrary to the expressed object of arbitration to fairly resolve disputes “without unnecessary delay or expense” (see section 1(a) AA 1996).
Does effective commercial dispute resolution require perfect law? In many cases, a robust final answer from a commercially-minded arbitrator is more valuable to disputing parties than the guarantee that such answer is 100% legally correct. Parties in ongoing relationships want to move past their dispute, and are willing to risk an adverse decision in return for an effective process that does not hoover up too much of their management time and budget.
The answer to the question posed at the beginning of this article then is that we do not expect to see significant amendments to section 69; the current balance of the Act is working because it fulfils the needs of those who use commercial dispute resolution: freedom of contract, free choice of forum and limiting, on this point at least, undue delay or expense in getting to an enforceable award.