Lord Thomas: Rebalancing the relationship between the courts and arbitration
Lord Thomas’s Bailii Lecture on 9 March 2016 has been the subject of much comment, and controversy, in London’s arbitration community. The speech is an eloquent and articulate analysis of how the Lord Chief Justice of England and Wales considers arbitration has affected litigation. Concluding with the view that the Arbitration Act 1979 and 1996 went “too far” in supporting arbitration as a means of dispute resolution, at the expense of the development of the common law, Lord Thomas suggests that “the time is right to look again at the balance.”
In his Bailii Lecture, Lord Thomas claims that a wrong turn was taken by the introduction of the Arbitration Act 1979 and by Lord Denning and Diplock (through interpretation of the statute), inhibiting the ability of the court to intervene in arbitrations to correct errors of law, thereby also inhibiting the development of the common law. The consequence is that there is now only very limited scope for the court to interfere, by way of section 69 of the Arbitration Act 1996 (“s.69“), which provides an appeal route for an arbitral award.
In Lord Thomas’s view, the “wrong turn” must be addressed. One method suggested would be to reform s.69 to create a more flexible test for permission to appeal. This would allow more appeals to go through and enable the courts to more readily develop the law (though often many arbitrations do not reach the courts in the first instance as the parties have agreed to exclude any appeal).
To support his case that s.69 has led to a reduction in the number of arbitration cases coming before the courts, Lord Thomas provided some revealing statistics. He stated that in the years before 1979 the number of arbitration appeals to the courts had been 300 whereas in 2015 there were only 58 applications for leave to appeal from an arbitration decision made; only 19 of which were granted.
Lord Thomas concluded that in order to foster a legal culture that saw more arbitration appeals being heard in Court he was in “no doubt that change to the s.69 test is one of the options that must be considered. The restriction in relation to appeals where the question is one of general importance is, I have little doubt, a serious impediment to the growth of the common law.”
Lord Saville and Sir Bernard Eder: Should s.69 be revitalised?
Lord Saville, former Supreme Court Justice, and Sir Bernard Eder, former Commercial Court judge, have recently offered their views on Lord Thomas’s lecture. Having chaired the Departmental Advisory Committee that prepared the bill that became the Arbitration Act 1979, Lord Saville’s response explains that, at the time, one of the international criticisms of English arbitration was that it offered too wide a scope for taking arbitration awards to the courts. As such, the aim of the Committee was to combat this criticism and to encourage the use of English arbitration. Lord Saville concludes that expansion of the right of appeal “would be a wholly retrograde step“.
On 28 April 2016 Sir Bernard Eder responded in a speech at the CIArb AGM, with equal panache and lucidity. Whilst acknowledging that he was “prepared to agree that the development of the law may possibly have been hindered by the reduction in the number of cases reaching the Courts on appeal” he was comfortable that regardless of this, the “common law continues to develop at a pace with a constant stream – indeed flood – of cases over a wide area of jurisprudence.”
Sir Bernard refuted Lord Thomas’s suggestion that s.69 should be reformed on the following grounds:
- The reason why many arbitrations do not get to the courts is because parties have excluded their right to appeal, as they are entitled to do. As such, however well meaning the changes to s.69 may be, they are unlikely to change this market practice as s.69 would be a “a complete irrelevance“.
- Sir Bernard disagreed with the criticism from around the world that the English courts intervene too much in arbitration, though noted that any reforms aimed to increase the number of appeals would clash with the international consensus that does not permit such appeals (as per the UNCITRAL Model Law and standard arbitration rules e.g. LCIA and ICC rules). To do so would be “to the great detriment of international arbitration in this country“.
- When considering whether s.69 should be widened to permit more appeals, Sir Bernard considered whether that may lead to parties increasingly deciding to arbitrate in other jurisdictions or more parties excluding the right of appeal; the consequence being even fewer appeals.
- Sir Bernard considered that the answer to any lethargy in the development of English common law should not be to compel private litigants, especially foreign litigants, to “finance the development of the common law” by way of myriad appeals at their own time and expense.
- One of the key benefits of arbitration is that matters are, ordinarily, resolved quicker than through the court process. Widening the scope to appeal arbitrations to the courts will invariably increase arbitration time; undermining a key facet of the process and postponing the time for finality.
- Sir Bernard noted that s.69 was a “pragmatic compromise” and there is strong support from the arbitration community to not change s.69, except for some “isolated voices in the wind“.
- It is unclear what workable reforms of s.69 could be made: automatic appeals for the matter, automatic appeals for all questions of law, an extension of the right to appeal on questions of law to questions of fact? Sir Bernard argued that any loosening of the language of s.69 to expand the right to appeal from pure questions of law to a mixed question of law and fact “would be setting the clock back almost 40 years and would, in my view, be totally unacceptable“.
- According to Sir Bernard, any lowering of the threshold for granting leave to appeal would disregard a key reason why parties select arbitration over litigation, give insufficient weight to the tribunal’s decision and open the gates too wide. Sir Bernard considers that the current “open to serious doubt” test (s.69(3)(c)(2)) achieves the right balance: respecting the parties decision to opt for arbitration over litigation, whilst giving the Court the ability to assert their jurisdiction in appropriate cases.
In response to the controversy caused by his Bailii Lecture, Lord Thomas has since stated, in a speech at the launch of the TheCityUK Legal Services 2016 report on 20 July 2016, that his comments at the Bailii Lecture were not meant to be “an attack on arbitration“. Lord Thomas explained that they were in fact an attempt to explore how arbitration decisions can enter the public domain, ensure the continued attractiveness of the English jurisdiction to the international community and to ensure English common law keeps up-to-date. Lord Thomas maintained that the best route to do this is by loosening the restrictions on appeal in the Arbitration Act. He also commented that it is “very, very undesirable that we are entering into a stage where great legal minds [who] have retired from the bench are giving awards and setting out principles which are known only to the cognoscenti.”
The future of s.69
Whilst the idea of making appeals easier to initiate may sound attractive in terms of ensuring the evolution of commercial jurisprudence in this jurisdiction, the consequences may have the possible opposite effect. It is easily forseeable that any such changes would likely be used by losing parties to frustrate the enforceability of an award and also considerably delay the conclusion of the matter. Consequentially, in order to avoid these pitfalls, parties would select another jurisdiction in which to arbitrate their disputes (damaging the legal industry and development of jurisprudence in this jurisdicion) or more often restrict their rights to appeal in the first instance.
Does s.69 already hold a reasonable balance between the courts and tribunals? The relative states of arbitration and litigation in the UK should not be seen as a zero sum game: each needs a strong other.