UNITED KINGDOM

Judith Mulholland, Dogan Gultutan, Anna Storer, Joanna Lees and Teresa Ryan

A. LEGISLATION AND RULES

A.1       Legislation

International arbitration in England and Wales^[1] continues to be governed by the Arbitration Act 1996 (“Arbitration Act”). There have been no amendments to the Arbitration Act since those amendments made to reflect the consequential references to the Consumer Rights Act 2015. Discussions around potential reform of the Arbitration Act continue, however to date no suggested amendments to the Arbitration Act have been issued for public consultation or tabled in Parliament.

On 31 January 2020, the UK left the EU and entered into a post-Brexit “Transition Period”. The Transition Period ended on 31 December 2020.[2] The Arbitration Act has not been impacted by the UK leaving the EU as the legislation is not a matter of EU law. All EU member states are currently party to the New York Convention, which provides for relative ease of enforcement of arbitral awards. As the New York Convention does not depend upon EU membership, Brexit has had no impact on the ability of parties to enforce arbitral awards under its provisions in the EU or elsewhere.

Significantly, however, the UK’s exit from the EU has opened the door to parties who wish to seek an anti-suit injunction[3] (in an appropriate context) from the English courts to prevent proceedings being brought incorrectly in another European jurisdiction in breach of an exclusive jurisdiction clause.   EU law prohibits intra-EU anti-suit injunctions. Given the power of anti-suit injunctions in ensuring compliance with an exclusive jurisdiction clause, due to the weight of the injunction regime and implications on a party for non-compliance, this development may prove to be a useful tool for parties who have submitted to the jurisdiction of the UK courts.

A.2       Institutions, Rules and Infrastructure

The leading arbitral institution in the jurisdiction remains the LCIA. A new version of the LCIA Rules came into force on 1 October 2020, and will apply to any arbitration commenced from this date.[4] The amendments in the 2020 Rules reflect a conscious and careful effort by the LCIA to modernize its rules and accommodate user preferences, including in relation to greater use of technology in arbitration proceedings (which has become increasingly important as a result of the challenges precipitated by the COVID-19 pandemic).

The LCIA has reported that it received 395 arbitration referrals in 2019, 346 of which were under the LCIA Rules. This is the highest number of cases the LCIA has ever received in a single year.^[5] The key industry sectors for arbitration under the LCIA Rules in 2019 remained largely unchanged and were Banking and Finance (32%), Energy and Resources (22%) and Transport and Commodities (15%). Of referrals where the claims were quantified, 43% of referrals were for less than USD 1 million, a significant rise of 15% from 2018. 29% of claims were for sums between USD 1 and 5 million and 4% were for claims over USD 100 million (a decrease of 7% from 2018).

46% of cases were determined by sole arbitrators and 54% of cases by three-member tribunals. In 2019, tribunal secretaries were appointed in 27 arbitrations conducted under the LCIA Rules, of whom 16 were men and 11 were women. 64 applications were made for interim and conservatory measures under Article 25 of the LCIA Rules, of which 36 were successful (approximately 56%). This marks an increase of 22% from 2018. The LCIA reported that the number of challenges to tribunals remained low in 2019; 7 challenges were made, of which 5 were rejected and 2 remained pending as of 31 December 2019.

In relation to gender diversity, the LCIA reported that in 2019, 29% of arbitrator appointments were women (up 6% from 2018). Where women were appointed as arbitrators, they were selected by the parties in 12% of cases; the co-arbitrators in 30% of cases; and the LCIA in 48% of cases.

B. CASES

B.1       Arbitration Agreements

The Supreme Court recently answered the all-important question of which law should govern an arbitration agreement. In its decision in Enka v Chubb^[6], the Supreme Court held, by a 3-2 majority, that the law governing the underlying agreement containing the arbitration agreement will, absent certain very specific indications, also govern the arbitration agreement. The court further held that, absent a governing law choice in respect of the underlying agreement, the validity and scope of the arbitration agreement will be governed by the law of the chosen seat of arbitration, being the law with which the arbitration/dispute resolution clause is most closely connected.

In 2012 Enka, a Turkish construction and engineering company, was engaged as a subcontractor to provide works relating to the boiler and auxiliary equipment installation in respect of a power plant located in Russia. Disputes under the relevant agreement provided for ICC arbitration seated in London. A fire broke out at the plant in 2016, causing substantial damage. The insurer paid out to the employer and brought a claim against Enka, pursuant to its subrogated rights, before the Russian courts alleging defective workmanship. Enka denied liability, and commenced proceedings in England seeking an injunction to restrain Chubb from continuing the Russian proceedings in breach of the arbitration agreement.

The Supreme Court agreed with the Court of Appeal that the arbitration agreement, which was contained in an underlying agreement, was governed by English law (as the applicable curial law i.e., the law of the seat of the arbitration), and not by Russian law, which Chubb argued was the law applicable to the underlying agreement). However, the Supreme Court disagreed with the Court of Appeal’s judgment that, as a general rule, in the absence of an express choice of law governing the arbitration agreement, the curial law would apply to the arbitration agreement, as a matter of implied choice.

The Supreme Court reasoned that the law applicable to the arbitration agreement will usually be the law applicable to the underlying agreement containing it “for the simple reason that the arbitration clause is part of the contract which the parties have agreed is to be governed by the specified system of law.”

Where the underlying agreement lacks an express or implied choice of law stipulation, however, the Supreme Court accepted that in such circumstances there would be a presumption in favor of the law of the seat of arbitration, on the basis that such would have the closest connection to the arbitration agreement.[7]

The Supreme Court found, on the facts, that Russian law governed the contract absent any express or implied choice, but that English law (as the curial law) applied to the arbitration agreement given the designation of London as the seat of arbitration.

B.2       Challenges to arbitral awards

Challenges against arbitral awards are rarely successful in England, with the English courts repeatedly declaring that the hurdle for such applications is high. This reflects the courts’ pro-arbitration, non-interventionist approach. In the 2019-20 judicial year,[8] there was a reduction in challenges made both under section 69 (appeal on point of law – see, B.2.3 below) and section 68 (serious irregularity challenges, see B.2.2 below), with numbers dropping from 39 to 22 and 16 to 19 respectively.[9] This is the second year running that the Commercial Court has reported a decrease in section 68 applications. Success rates remained very low, with only one successful section 68 challenge in the 2019-20 judicial year. However, there were two successful section 68 challenges in quick succession in the first half of the 2020-21 judicial year. These are discussed further below.

B.2.1    Section 67: tribunal’s substantive jurisdiction

Bringing a successful challenge in the English courts on the basis of lack of substantive jurisdiction[10] of the arbitral tribunal is generally accepted to be difficult to achieve. However, in MVV Environment Devonport Ltd v NTO Shipping GmbH & Co KG & others[11] the English Commercial Court allowed an application under section 67 to set aside an arbitral tribunal’s award for lack of jurisdiction. MVV had entered into a contract with a third party, RockSolid BV, for the disposal of waste bi-product. Under the terms of this contract, RockSolid was responsible for arranging shipments of the bi-product to its plant in the Netherlands. The litigation in this case arose after RockSolid suffered losses following a cargo explosion on board the defendant’s vessel shortly after loading. The defendant commenced an arbitration and brought a claim for damages against MVV, as the named shipper. In order for MVV to have been the shipper under the contract of carriage, RockSolid must have had authority to enter into the contract of carriage as agent for MVV. Despite the fact that MVV had been copied into 33 emails that attached bills of lading naming them as the shipper, HH Judge Pelling QC held that MVVs assent could not be inferred from its silence, without further indication that it had acquiesced to any agency agreement with RockSolid. Accordingly, as there was no contract of carriage to which MVV was a party, there was no arbitration agreement between it and the defendant shipowner and therefore, the tribunal had no jurisdiction.

Other applicants were not as fortunate with their section 67 challenges. Lavender Shipmanagment v Ibrahima Sory Affretement Trading SA, M/V ‘Majesty’ [12] also concerned an arbitration agreement in a shipping context. Mr Justice Calver held that a letter of undertaking (LOU), issued to secure claims over a single cargo shipment carried under five separate bills of lading, amounted to an agreement to consolidate all claims in respect of each of the bills of lading before a single arbitral tribunal. The judge considered that this construction of the LOU made the most commercial sense. It allowed all disputes in relation to the single shipment to be resolved in a single arbitration, avoiding the inconvenience of having to commence five separate arbitrations and the risk of inconsistent awards. Accordingly, the challenge was dismissed.

B.2.2    Section 68: serious irregularity

Challenges to arbitral awards “on the ground of serious irregularity affecting the tribunal, the proceedings or the award” are also seldom successful. Extraordinarily, three challenges have succeeded on this basis in recent months. Interestingly, two of these challenges related to the arbitral tribunal’s decision on quantum.

In Republic of Kazakhstan v WWM,[13] Kazakhstan challenged an award rendered in an UNCITRAL arbitration brought under a BIT between Canada and the USSR and a management agreement between WWM and Kazakhstan regarding the exploitation of uranium resources. The tribunal partially upheld Kazakhstan’s liability under the BIT and management agreement, but rejected a number of significant allegations made by WWM. As a result, Kazahkstan averred that WWM’s claim for damages should fail entirely. In particular, Kazahkstan relied on the fact that WWM had not established what damages were caused by any individual breach. WWM’s position requested the tribunal to make a partial award on liability and “come back to the parties on damages for the part that the Tribunal finds liability on”. The tribunal took neither course. Instead, it rendered an award ordering Kazahkstan to pay WWM USD 13.7 million in damages plus interest (reflecting only the amounts invested by WWM to date, referred to by the Tribunal as “sunk costs”, which were substantially lower than the total sum claimed). Kazakhstan proceeded to file a section 68 challenge. His Honour Judge Pelling QC considered that the tribunal’s decision to award damages in this manner amounted to a serious irregularity giving rise to a substantial injustice, noting that “the tribunal decided the case on the basis of a point that [Kazahkstan] has not had a fair opportunity to deal with”. As there was no alternative claim for damages pleaded by WWM, Kazakhstan could not have been expected to make alternative submissions on this point. As such, he set aside the award in respect of quantum, and remitted the question of causation and quantification of loss to the tribunal.

In Doglemor Trade Ltd & others v Caledor Consulting Ltd & another,[14] an LCIA arbitral tribunal declined an application to correct a computational error in its calculation of damages resulting in the claimants being awarded USD 58 million as opposed to USD 4 million. In declining the application under article 27(1) of the LCIA Rules, the tribunal acknowledged the computational error but nevertheless considered that a correction was not necessary as the awarded quantum still fell within the range which the tribunal considered appropriate. Sir Ross Cranston (sitting as a High Court Judge in the Commercial Court) determined that the tribunal’s admitted mistake constituted a serious irregularity that had caused substantial injustice to the claimant. In doing so, he remitted the award back to the tribunal to correct the computational error.

Outside of the sphere of quantum, only one other section 68 challenge was successful. In Xstrata Coal v Benxi Iron & Steel[15], the underlying dispute related to a contract for the sale of coal to the defendant by a consortium of four sellers (“Claimants”). There was, however, some confusion as to the proper identity of the fourth seller in the consortium – while the sale contract identified the fourth seller as ICRA NCA Pty, a separate joint venture agreement between the consortium members identified it as ICRA OC Pty. An LCIA tribunal ultimately found in favor of the Claimants and issued an award in their favor, ordering payment of some USD 27.8 million (plus interest) to be made by Benxi to the Claimants i.e. including ICRA OC Pty (not ICRA NCA Pty). When the consortium subsequently sought to enforce the award against Benxi in China, they encountered difficulties. Benxi resisted recognition and enforcement before the Shenyang Intermediate People’s Court, which ultimately found that, in light of the fact that ICRA NCA Pty was the entity named in the sale contract, there was no contractual relationship between ICRA OC Pty and Benxi and thus the arbitration agreement did not exist. The Claimants brought the challenge before the High Court on the basis that there was uncertainty to the award’s effect that had, in light of the Chinese court’s refusal to enforce, caused them substantial injustice. The court was satisfied that there was real uncertainty and ambiguity as to the effect of the tribunal’s award, both as to whether ICRA OC Pty was a proper party to the contract  (and thus entitled to enforce the award in its favor) and as to whether Benxi had waived its right to object to ICRA OC Pty’s claim. The court was not persuaded by the defendant’s argument that because the effect of the award could be easily ascertained as a matter of English law, this meant that there was no uncertainty or ambiguity as alleged. It found that the uncertainty was clearly evidenced by the Chinese court’s refusal to enforce the award.

Other allegations of procedural irregularity were not successful. In ASA v TL[16], the claimant alleged that serious procedural irregularities had resulted from the arbitrator deciding two issues on the basis of points which it was not given a fair opportunity to address, as these departed from factual common ground and were not put forward by either party or their experts. Sir Ross Cranston denied the application, and criticized it for “seeking to attack an arbitrator’s findings of fact and her evaluation of the evidence on the basis of procedural unfairness when there was none.” As such, notwithstanding the successful section 68 challenges outlined above, it is clear that the bar for serious procedural irregularity remains a high one.

B.2.3    Section 69: appeal on point of law

Three section 69 challenges were successful in the 2019-2020 judicial year. In Tricon v MTM Trading,[17] the court disagreed with a tribunal’s interpretation of a contractual provision imposing a contractual time bar on a particular claim. In another decision, the court disagreed with a tribunal’s decision that a failure to provide a shipment schedule amounted to a repudiatory breach of a sale of goods contract.[18]

The third decision provides a cautionary tale in relation to the proper procedure for appealing decisions on section 69 challenges. In Kirby v Baker & Metson Ltd,[19] Mr Justice Meade allowed a section 69 appeal relating to a discrete point of law as regards the interpretation of an English agricultural holdings statute. The defendant submitted a retrospective application for permission to appeal this decision. Applying section 69(8) of the Arbitration Act, Meade J refused the application noting that the defendant had failed to apply for permission to appeal within the requisite 21-day time limit.[20] In particular, he decided that this time limit begins running from the date of the decision to be appealed. As such, it is important to remember that a party seeking permission to appeal a section 69 decision should do so at the same time the decision is formally handed down. Moreover, an extension of the 21-day time limit can only be granted by the lower court which handed down the decision.

B.3 Refusal to enforce an arbitral award

English courts are generally reluctant to refuse the enforcement of unchallenged arbitral awards. A number of interesting enforcement-related cases have come before the courts over the course of the past year, which are helpful to understand the courts’ generally pro-arbitration approach.

In Micula and others v Romania,[21]the Supreme Court handed down a significant judgment in the long-running dispute between the Micula brothers (together with their relevant companies) and Romania.  It reversed the High Court’s decision^[22] to stay the enforcement of an ICSID award pending resolution of proceedings before the Court of Justice to the European Union (CJEU) relating to the annulment of a decision by the European Commission that payment by Romania of the sums ordered in the ICSID award was prohibited as it would constitute unlawful state aid. The Supreme Court refused any further stay of enforcement of the ICSID award calling it “an unlawful measure in international law and unjustified and unlawful in domestic law“. The judgment confirms the position under English law that, whilst the courts have the power to stay the enforcement of ICSID awards, it exists in very limited circumstances only and should not be exercised in situations where it would be inconsistent with the duty on national courts to recognize and enforce such awards.

A v B[23] involved interesting arguments relating to the enforcement of an arbitration award issued by consent following the settlement of two LCIA arbitrations (“Consent Award“). The claimant had applied for and been granted leave to enforce the Consent Award pursuant to section 101(2) and section 66 of the Arbitration Act, on the basis that certain payments required to be made by the defendant had not been made. However, the enforcement order was subsequently set aside by the court on grounds that the award debtor had demonstrated a realistic prospect of establishing a defense to enforcement on the basis that there has been an oral modification to the payment terms contained in the Consent Award and/or an estoppel resulting from discussions between the parties.^[24] The court held that a further hearing was required in order to determine the facts in dispute between the parties in this regard. The matter came before Foxton J who was required to consider whether it was indeed open to the court to determine, in the context of the section 66 application, the factual issues raised by the defendant, or whether those matters had to be determined by the tribunal. Relying on Sovarex S.A v Romero Alvarez S.A,^[25] the court found that it had the requisite jurisdiction to determine factual issues in dispute that were relevant to issues on enforcement and (being satisfied that there has been no variation of the payment terms) ruled that the claimant was entitled to enforce the award for the principal sum and accrued interest. Practically speaking, the case confirms that where factual issues arise at the point of enforcement of a final award and the arbitral tribunal is functus officio, the court dealing with the enforcement will have jurisdiction to determine those issues of fact. Of course, parties should carefully consider the drafting of any settlement agreement and whether express retention of jurisdiction by the tribunal is desirable in the particular case.

B.4       Challenges to Arbitrators

The long-awaited UK Supreme Court judgment in Halliburton Company v Chubb Bermuda Insurance Ltd[26] was handed down in November 2020 and is arguably one of the most significant decisions on English arbitration law in almost a decade. The Supreme Court unanimously dismissed an appeal by Halliburton against an order dismissing a challenge to an arbitrator on grounds of failure to disclose appointments in arbitrations relating to similar issues of fact and involving a common party.

When considering an allegation of apparent bias against an arbitrator, the applicable test under English law is whether a fair-minded and informed observer would conclude that there is a real possibility of bias. The courts will apply this objective test, having regard to the particular characteristics of international arbitration, including the private nature of most arbitrations. The Supreme Court noted that an arbitrator’s duty of disclosure is to disclose matters which might reasonably give rise to justifiable doubts as to his or her impartiality. A failure to disclose relevant matters is a factor for the fair-minded and informed observer to take into account in assessing whether there is a real possibility of bias.

Dismissing the appeal on its facts, the Supreme Court confirmed that, although the arbitrator concerned had a legal duty to disclose his subsequent appointment and had breached that duty by failing to do so, it could not be said that a fair-minded and informed observer would infer from his failure to make such disclosure that there was a real possibility of bias. The Supreme Court acknowledged that there may be circumstances where the acceptance of multiple appointments involving a common party and the same or overlapping subject matter gives rise to an appearance of bias. However, whether it does so will depend on the facts of the case and, in particular, the customs and practice in the relevant field of arbitration. Significantly, the Supreme Court did not purport to issue a blanket ban in respect of repeat appointments.

Finally, as regards the interaction between the duties of disclosure and confidentiality, the Supreme Court held that the duty of disclosure does not override the arbitrator’s duty of privacy and confidentiality. The Court explained that where information which needs to be disclosed is subject to a duty of confidentiality, disclosure can only be made if the parties to whom the confidentiality obligations are owed give their consent. Such consent may be express but may also be inferred from the arbitration agreement itself in the context of the custom and practice in the relevant field of arbitration.

B.5       Supervisory function of the English Courts – how far does it go?

In keeping with both the wording and spirit of the Arbitration Act, English courts usually adopt a light-touch approach to their supervisory role in connection with arbitration proceedings. A number of cases this year have illustrated the extent to which English courts are willing to intervene in the exercise of their supervisory powers.

B.5.1    Compelling third party witness evidence

In the anonymized case A and B v. C, D and E,[27] the Court of Appeal has confirmed that English courts have jurisdiction to compel the evidence of third party witnesses in connection with arbitration proceedings, pursuant to section 44(2)(a) of the 1996 Act. The judgment exemplifies the English courts’ arbitration-friendly approach, and clarifies “a long-standing controversy, on which there [were] conflicting statements by a number of judges”; namely whether section 44 relief was available against non-parties to the arbitration. This does not mean, however, that all forms of relief available under section 44(2) will be available in relation to non-parties. In endorsing an incremental (“subsection by subsection”) approach, the Court of Appeal contemplated a situation where orders under certain subsections of section 44(2) might apply to non-parties whilst others may not. The true scope of section 44 therefore remains ripe for further judicial development.

B.5.2    Identifying the “real” parties to the arbitration agreement

The Commercial Court’s recent judgment in MVV Environment[28] (discussed above) demonstrates a rare occurrence of English judges interfering with a final arbitral award. In this case the court set aside a final award on jurisdiction (pursuant to section 67 of the 1996 Act), holding that the tribunal had erred in ruling that a party to the arbitration agreement had the requisite authority to enter into the said agreement as agent for another.

This case demonstrates the importance of adhering to the basic principle that arbitration is purely contractual and will operate only in respect of parties that have agreed to it. The judgment is also a useful reminder of the essential principles of English law relating to express, implied and ostensible authority of agents to enter into (arbitration and other) contracts on behalf of another.

B.5.3    Trial of a stay application

Finally, in Republic of Mozambique v Credit Suisse,[29] Swiss arbitration proceedings were commenced pursuant to certain supply contracts relating to ships, aircrafts and a large fishing fleet. The arbitration proceedings were expected to conclude in 2022. Mozambique also commenced proceedings in the English court against the shipping companies and other defendants, on the basis of alleged fraud and conspiracy. The shipping companies applied, under section 9 of the Arbitration Act, to stay the proceedings. Section 9 provides that where legal proceedings are brought in breach of an arbitration agreement, the relevant party may apply to the court in which the proceedings have been brought to stay those proceedings. The shipping companies argued that determination of the section 9 application should be deferred until after the conclusion of the Swiss arbitration proceedings and a determination made on the question of jurisdiction.

The Judge refused the requested deferral and gave directions for the section 9 application to proceed to a hearing.  The court considered that an order to defer the application would cause significant delay to the English proceedings, and adversely affect the defendants who were not party to the Swiss arbitration proceedings. The case demonstrates the English courts’ pragmatism in connection with complex issues involving arbitration.

[1] England and Wales are two of the four countries that make up the United Kingdom. They have a common legal system, whereas the other two countries in the United Kingdom (Scotland and Northern Ireland) have separate systems. For the purposes of the current publication we intend only to refer to the laws of England and Wales. Any reference to “England” or “English” in this section should also be taken to include “Wales” or “Welsh.”

[2] Governed by the European Union (Withdrawal) Act 2018, as amended by the European Union (Withdrawal Agreement) Act 2020.

[3] An anti-suit injunction is an order of the English court that restrains a party to an exclusive English jurisdiction clause from continuing proceedings brought in another jurisdiction in breach of that clause.

[4] See https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx

[5] See https://www.lcia.org/lcia/reports.aspx

[6] Enka Insaat ve Sanayi AS (Respondent) v OOO Insurance Company Chubb (Appellant) [2020] UKSC 38.

[7] Ibid. [118]-[120].

[8] Commercial Court Users Group Meeting Report of November 2020: see https://www.judiciary.uk/wp-content/uploads/2020/12/CCUG-Minutes-November-2020-0112.pdf

[9] References to section numbers are to the Arbitration Act

[10] Substantive jurisdiction, in this context, refers to (a) the validity of the arbitration agreement, (b) the proper constitution of the arbitral tribunal and (c) the matters submitted for arbitration being in accordance with the arbitration agreement.

[11] MVV Environment Devonport Ltd v NTO Shipping GmbH & Co KG & others [2020] EWHC 1371 (Comm)

[12] Lavender Shipmanagment v Ibrahima Sory Affretement Trading SA, M/V ‘Majesty’ [2020] EWHC 3462 (Comm).

[13] Republic of Kazakhstan v World Wide Minerals [2020] EWHC 3068 (Comm)

[14] [2020] EWHC 3342 (Comm)

[15] [2020] EWHC 324 (Comm)

[16] [2020] EWHC 2270 (Comm)

[17] [2020] EWHC 700 (Comm)

[18] Alegrow S.A. v Yayla Agro Gida San Ve Nak A.S [2020] EWHC 1845 (Comm)

[19] [2020] EWHC 2640 (Ch)

[20] [2020] EWHC 3181 (Ch)

[21] [2020] UKSC 5

[22] Viorel Micula and others v Romania and European Commission (Intervener) [2019] EWHC 2401 (Comm)

[23] [2020] EWHC 2790 (Comm)

[24]  A v B [2020] EWHC 952 (Comm).

[25] Sovarex S.A v Romero Alvarez S.A [2011] EWHC 1661 (Comm) at 46-49, “enforcement of the award is essentially a matter for national courts rather than arbitral tribunals, so much so that, at least under English law, the award itself gives rise to a cause of action enforceable in court, and the award can be turned into a judgment of the court or enforced as if it were“.

[26] Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48

[27] A and B v. C, D and E [2020] EWCA Civ 409 (see here).

[28] MVV Environment Devonport Ltd v NTO Shipping GMBH & CO KG (MV Nortrader) [2020] EWHC 1371 (Comm) (see here).

[29] Republic of Mozambique v Credit Suisse International and others [2020] EWHC 1709 (Comm) (see here).