A. LEGISLATION AND RULES
A.1 Legislation
In September 2022, the Law Commission published its long awaited Consultation Paper containing provisional law reform proposals aimed at ensuring the Arbitration Act 1996 (“Act”) remains “state of the art.” The Consultation Paper reports that the view from stakeholders is that the Act “works well” and that “root and branch reform is not needed or wanted.”[1] However, it proposes a number of amendments to the Act, the most noteworthy of which include:
- Providing that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality
- Prohibiting challenges to arbitrators based on protected characteristics (as defined in the Equality Act 2010) and making unenforceable any agreement between the parties in relation to arbitrators’ protected characteristics
- Strengthening provisions with respect to the immunity of arbitrators, to preclude liability for court costs
- Introducing nonmandatory provisions to provide explicitly that an arbitral tribunal may adopt a summary procedure to dispose of a claim with no real prospects of success
- Providing that, where a party has participated in arbitral proceedings and has objected to the jurisdiction of the arbitral tribunal, which has ruled on its jurisdiction in an award, any subsequent challenge under section 67 should be by way of an appeal and not a rehearing and that section 67(3) should be amended to include the further remedy that the court may declare the award to be of no effect and that an arbitral tribunal should be able to make an award of costs in consequence of an award ruling that it has no substantive jurisdiction.
The next stage will involve an analysis of responses to the Consultation Paper, after which the Law Commission will likely set out final recommendations for law reform.
A.2 Institutions, rules and infrastructure
The leading arbitral institution in the jurisdiction remains the LCIA. The LCIA’s 2021 annual casework report[2] emphasised the “seismic consequences” of external developments, including the ongoing war in Ukraine, the upheaval to people’s lives, industry and commerce around the world, directly and as a result of sanctions, observing that “[a]t this stage predicting the effects on the LCIA, its staff, its operations, and its caseload, is impossible,” but it did observe an already declining caseload from Russia (from 6.8% of parties in 2020 to 2.1% in 2021). In 2021, the LCIA received 387 referrals in total, 322 of which were arbitrations pursuant to the LCIA Rules. The LCIA commented that referrals for the LCIA’s other services, notably fundholding, have increased. The top three industry sectors remain banking and finance, energy and resources, and transport and commodities, together making up 65% of all cases. The LCIA’s 2021 caseload remained international, with 85.2% of parties in arbitrations administered pursuant to the LCIA Rules coming from countries other than the United Kingdom (similar to 2020 when it was 86.6%). The LCIA caseload continued to see a variety of international seats and laws. The number of challenges remained low, at less than 2.5% as a percentage of the number of new arbitrations. Regarding gender diversity in tribunals, the LCIA reported parties and co-arbitrators contributing to 32% female arbitrator appointments in LCIA arbitrations. 47% of arbitrators appointed by the LCIA Court were female, but there was a decrease in the percentage of women selected by parties from 22% to 16%.
B. CASES
B.1 Arbitration Agreements
In NDK Ltd v. HUO Holding Ltd and another,[3] the court’s rejection of challenges to two awards illustrate the pro-arbitration approach of the English courts when interpreting the scope of arbitration agreements. The dispute arose out of a joint venture for the operation of a Russian coalmine entered into by three groups of investors, which was structured such that the Russian company was owned by a Cypriot registered company, with Cypriot law governed articles of association and an English law governed shareholders’ agreement containing an LCIA arbitration agreement. The facts are complex, but in summary, the joint venture partners fell out which gave rise to a number of disputes between the parties, which were first referred to LCIA arbitration. The claimant commenced proceedings in Cyprus against the defendants who were alleged to have sold their shares as part of a fraudulent conspiracy in breach of the pre-emption rights, relying on the articles of association. The defendants then brought LCIA proceedings, alleging that the claims made against them in the Cyprus proceedings were in breach of the arbitration agreement and sought an anti-suit injunction against the claimant in respect of the proceedings in Cyprus. The tribunal rendered a partial final award granting final anti-suit relief restraining the claimant from advancing claims against the defendants in Cyprus, which the claimant challenged before the English courts. There were a number of grounds for the claimant’s challenges, including that the claims brought under the statutory contract in the articles of association did not fall within the LCIA arbitration agreement in the shareholders’ agreement for two reasons: (i) as a matter of construction, claims brought under or in respect of the statutory contract constituted by the articles of association do not fall within the arbitration agreement in the shareholders’ agreement (the Construction Question); and (ii) the matters raised in the Cyprus Proceedings are not, as a matter of English law, arbitrable (the Arbitrability Question). The court rejected both reasons and dismissed the challenges. In respect of (i), citing the extended Fiona Trust principle, the court concluded that any rational businessperson could only have intended that the LCIA arbitration agreement would apply to any disputes between the parties to the shareholders’ agreement which were related to or arose in connection with the subject-matter of the shareholders’ agreement, even if formulated solely by reference to the provisions of the articles. In respect of (ii) the court noted that it is clear that English courts will not lightly conclude that a dispute between commercial parties is incapable as a matter of public policy of being submitted to arbitration.
In NWA & FSA v. NVF & others[4] the court dismissed a challenge to an award brought on the basis that the parties had not complied with a requirement to seek to mediate a dispute before referring it to arbitration. The court explained that the failure was a potential breach of a procedural requirement going to the admissibility of the dispute for arbitration which was for the arbitrator to decide, and not a failure which goes to the jurisdiction of the tribunal. As such, it was not a basis for challenge under section 67 of the Act. In Aiteo Eastern E&P Company Ltd v. Shell Western Supply and Trading Ltd,[5] the court confirmed that a party may exercise a contractual option to arbitrate without actually commencing an arbitration; all that is required is an unequivocal statement at which point the arbitration agreement comes into existence.
B.2 Challenges to arbitral awards — section 67 (Substantive Jurisdiction) and section 68 (Serious Irregularity)
The position remains that parties who seek to challenge arbitral awards before the English courts are rarely successful.
In Livian GmbH v. Elektra,[6] the primary complaint was that a tribunal had failed to give due regard to key evidence as it did not refer to it in its reasoning. The court found that this was not a credible basis for bringing a challenge under section 68 of the Act. The tribunal was entitled to reach the conclusion it did (which was not inconsistent with the evidence referred to) and the court was not prepared to comment on its reasoning. The case is also a reminder of the high threshold necessary to bring a section 68 challenge. Even if the tribunal’s failure to reference the evidence were regarded as breach of its duty of fairness, the court stated obiter that it had not been demonstrated that this failure gave rise to any serious procedural irregularity, or substantial injustice if it had. On the latter requirement, it is necessary to show that the tribunal would likely have reached a different conclusion with a significantly different outcome, which the claimant was unable to do in this case.
EGF v. HVF[7] provides a useful explanation of the boundaries between a challenge to an award based on an arbitrator’s substantive jurisdiction[8] and one based on serious irregularity affecting the tribunal.[9] Here, the claimant applied to have an Interim Payment Order (IPO) given by way of partial award set aside, because pursuant to articles 26 and 34 of the UNCITRAL Rules, a tribunal does not have the power to order a provisional payment on account of a money claim, or to issue an award for an interim remedy. The judge dismissed the challenge, stating that where the Act allows a tribunal to address matters of its own jurisdiction,[10] it is not open to a claimant to challenge the partial award on this basis. In this case there was no question that: (i) the tribunal was properly constituted; (ii) there was a valid arbitration agreement; and (iii) the matter submitted was in accordance with that agreement. The judge rejected the claimant’s “false argument” that because the UNCITRAL Rules did not grant the arbitrators the power they exercised, the IPO application itself could not be submitted to the tribunal in line with the arbitration agreement,[11] as this would essentially “mean that section 68(2)(b) had no content.”[12] Additionally, articles 26 and 34 do not purport to limit the matters which can be referred to the tribunal for decision, so any challenge would be properly made under section 68 rather than 67. However, the claimant had failed to plead that the IPO had created a substantial injustice, so the section 68 challenge failed. Baker J stated obiter that if it had, the court would have found that the tribunal exceeded its powers, as although article 26 does contain the power to grant an IPO and section 39 of the Act envisages that interim relief canbe provided by way of an award, article 34 requires all awards to be “final and binding,” which precluded the tribunal from doing so. The tribunal had expressed the partial award as its final view on IPO, but interim relief is, by definition, something the “arbitrators’ jurisdiction was and is reserved to revisit…, at any time, [and] upon any basis that they might be persuaded.”[13]
The Commercial Court did uphold one section 68 challenge in the case of Royal & Sun Alliance Insurance Ltd and others v. Tughans (a firm).[14] This related to the arbitrator’s failure to give the claimant adequate opportunity to deal with the defendant’s reformulated case, which the judgment held was a serious irregularity creating substantial injustice justifying remission to the arbitrator.
Aiteo v. Shell[15] considered a challenge to a tribunal’s substantive jurisdiction regarding an asymmetric arbitration agreement in a set of finance documents, but again the challenge failed. Clauses providing that one or both parties “may” refer a matter to arbitration are not in themselves fully-formed arbitration agreements, and only become so the option is exercised. Where court proceedings are already afoot, a party with the benefit of such an option can generally elect to arbitrate by making an unequivocal statement to that effect, by for instance applying for a stay or by submitting a request for arbitration. The judge found on the facts that the option was validly exercised and the tribunal had substantive jurisdiction.
In National Iranian Oil Company v. Crescent Petroleum International and another[16] the court refused a challenge on a point of law. The defendants’ argument was that because the arbitration agreement incorporated the ICC Arbitration Rules 1998 (“ICC Rules”), the claimant’s right to appeal was excluded under article 28.6. The court agreed that parties may exclude the right of appeal through incorporation by reference, but here the agreement provided that, to the extent there was “disagreement or gap in such procedural rules of arbitration,” it was to be resolved or filled by the position in the ICC Rules. As such, the ICC Rules were only incorporated insofar as procedural matters were concerned. The default position is that a right of appeal exists unless waived and it is “wholly unnecessary and unrealistic” to expect parties to expressly reserve such a right.[17] It was also re-emphasized that the use of the words “final and binding” in an arbitration agreement do not exclude a right of challenge to the award. Rather it means “final and binding, subject to the provisions of the [Act]” by which such rights of appeal are afforded.
Union of India v. Reliance Industries Limited and another[18] also deals with a challenge brought under section 69 in which a claimant contended that a tribunal had incorrectly applied English law to an issue of res judicatarather than Indian law as the substantive law of the dispute. An ancillary challenge was made by the claimant under section 68 to the effect that the tribunal’s failure to apply the relevant Indian constitutional law principles was a serious irregularity which caused it substantial injustice. The Commercial Court found that the principle was a procedural power and the tribunal had been correct to apply English law. As a result, the section 68 challenge fell away as well.
B.3 Challenges to arbitrators
A case of particular note this year concerning challenges to arbitrators is ARI v. WXJ.[19] The arbitration agreement required the parties to nominate their chosen arbitrator within a specified time limit. A dispute arose regarding whether the defendant had validly nominated its arbitrator within the 14 day limit, as the arbitrator’s remuneration remained unagreed. The claimant argued an appointment could only be successful where there was a quasi-contractual relationship between the party and the arbitrator. The court rejected this approach, determining that a pragmatic assessment “should readily offer a clear answer without the need for extensive analysis of enquiry.”[20] Where there is: (i) an unconditional acceptance of nomination by the arbitrator; and (ii) notification to the other party, an appointment will be valid.
B.4 Supervisory function of the English courts – how far does it go?
B.4.1 State Immunity
This year’s cases demonstrate the English courts’ continued attempts to strike a balance between respecting the principle of state immunity and upholding the arbitral process in relation to commercial dealings between sovereign states and private parties.
In UK P&I Club v. Republica Boliveriana de Venezuela,[21] the English Commercial Court refused to grant P&I’s application for a final anti-suit injunction sought on the basis that the claims Venezuela had brought elsewhere were contractual in substance and so governed by the contract’s arbitration agreement. The court found Venezuela was immune to injunction under section 13(2) of the State Immunity Act 1978 (SIA). P&I attempted to argue that this was incompatible with its right to a fair trial, but the judge held that section 13(2) was consistent with current international standards, and proportionate due to the alternative remedies available. In attempting to “read down” section 13(2) on the basis of the Human Rights Act 1998, P&I had effectively been seeking to rewrite the legislation, which was outside of the court’s powers.
In General Dynamics United Kingdom v. The State of Libya[22] the Supreme Court refused Libya’s application to set aside enforcement orders made under section 101 of the Act. Libya claimed General Dynamics had breached its duty of full and frank disclosure by not informing the court that Libya was immune from enforcement and adjudication under the SIA. However, the court held that the section 9 SIA arbitration exception applied, meaning Libya had no adjudication immunity; nor did General Dynamics’ section 101 application need to refer to enforcement immunity, as: (i) recognizing awards should be practically straightforward; and (ii) arguing whether state immunity applies to certain assets should happen under domestic law at the execution stage (to stop the award debtor taking steps to frustrate execution).[23]
Following the Dutch Supreme Court’s dismissal of Russia’s jurisdictional grounds for appeal against enforcement of the Yukos awards, the claimants in Hulley Enterprises Limited and others v. The Russian Federation[24] applied again to lift the stay of enforcement proceedings in England. The court had previously declined to lift the stay pending determination in the Netherlands,[25] but it now agreed for the stay to be partially lifted to determine Russia’s claim to state immunity. Now that the jurisdictional grounds had been dismissed in the Dutch courts, any English decision on state immunity would not interfere. Additionally, the court considered that the sanctions put in place after Russia’s invasion of Ukraine could lead Russia to try remove assets from the jurisdiction, increasing the risk of prejudice to the claimants should the stay be continued.
B.4.2 Cryptocurrency and NFTs
The English courts have recently dealt with several cases regarding the interplay between UK consumer rights law and jurisdiction. This is highly relevant to disputes involving digital assets, due to most platforms’ use of standard terms and conditions and the CJJA’s[26] establishment of a consumer-specific jurisdictional gateway.
In Soleymani v. Nifty Gateway LLC,[27] the English Court of Appeal lifted a stay granted under section 9 of the Act to allow a US arbitrator to rule on whether an arbitration agreement was valid. The applicant, Mr S, had successfully bid on a non-fungible token in an online auction hosted on Nifty’s website, whose terms included New York arbitration and governing law clauses. When he failed to pay, Nifty commenced arbitration. Mr S challenged these clauses in the English courts, arguing that the clauses were: (i) incompatible with section 15B of the CJJA, whereby UK-domiciled consumers may only be sued in the English courts; and (ii) unfair under the Consumer Rights Act 2015, which applies to arbitration agreements regardless of their governing law under section 89 of the Act. As such the agreement was null, void and inoperable as per section 9(4) of the Act. The court at first instance granted a stay and found that it had no jurisdiction as the CJJA expressly excludes arbitration, in line with the Recast Brussels Regulation. The Court of Appeal partially reversed this decision, finding that two of the appellant’s claims did not fall squarely within the arbitration exception and so were at least capable of coming within the 15B CJJA jurisdictional gateway. Its judgment highlighted the importance of decisions regarding consumer rights being decided by the courts in public, where possible.
Checketkin v. Payward Ltd[28] also concerned an arbitration agreement included in an online platform’s standard terms. The defendant argued that the English court had no jurisdiction, as the claimant had agreed to arbitration in San Francisco under the JAMS rules. The court decided in favour of the claimant, again ruling that because Checketkin was a consumer, the case fell within section 15B CJJA. Arbitration clauses and awards cannot deprive the court of jurisdiction over existing proceedings, even if they do give the parties the right to apply for a stay.
B.5 Enforcement
The recent case of Gol Linhas Aereas SA v. Matlin Patterson Global Opportunities Partners (Cayman) II LP and others[29] provides useful guidance on the governing principles for enforcement of foreign arbitral awards, particularly common law jurisdictions’ enforcement of awards obtained in civil law jurisdictions. Here the award was obtained in Brazil, and the appellants resisted enforcement in the Cayman Islands on the basis that: (i) they were not parties to the arbitration agreement; (ii) the tribunal had breached due process in selecting a legal basis for the award that had not been raised by either party; and (iii) the award was outside the scope of submission to arbitration. The UK Privy Council (UKPC) found that the Cayman Court of Appeal had been right to find the award was conclusive on the grounds of issue estoppel. Where the common law requirements for recognition are met, the domestic court’s opinion of the foreign court’s judgement is irrelevant. Most significantly, the UKPC outlined an international standard of due process to be applied in any jurisdiction, and concluded that it could not be contrary to English or Cayman public policy to enforce an award upheld by the courts responsible for ensuring the integrity of the arbitral process. Finally, they found a liberal construction should be applied to the scope of the arbitration’s terms of reference to provide an effective and flexible means of dispute resolution.
In Consilient Health Ltd v. Richter plc,[30] it was confirmed that the court’s “wide and unfettered discretion” to adjourn arbitration enforcement proceedings under section 103(5) of the Act applies regardless of whether the award is for money (here it required the transfer of trademarks and associated rights and documents). Richter contested enforcement on the basis of the ongoing challenge in the Dutch court (which had supervisory jurisdiction). He also argued that the award was too vague to be enforced, and that the English court should not grant the relief requested by Consilient because it sought to modify its terms. The court agreed to the adjournment, while requiring Richter to provide security to protect Consilient against any financial losses caused by the delay. The court also considered the factors to be taken into account when considering an adjournment application, including the strength of the challenge, and whether delay will make enforcement more difficult/increase the risk of prejudice to the enforcing party.
[1] https://www.lawcom.gov.uk/project/review-of-the-arbitration-act-1996/.
[2] https://www.lcia.org/lcia/reports.aspx.
[3] NDK Ltd v. HUO Holding Ltd and another [2022] EWHC 1682 (Comm).
[4] NWA & FSA v. NVF & others [2021] EWHC 2666 (Comm).
[5] Aiteo Eastern E&P Company Ltd v. Shell Western Supply and Trading Ltd [2022] EWHC 2912 (Comm).
[6] [2022] EWHC 757 (Comm).
[7] [2022] EWHC 2470 (Comm).
[8] Under section 67 of the AA 1996.
[9] Under section 68 of the AA 1996.
[10] Pursuant to section 30(1) of the AA 1996.
[11] See section 30(3) of the AA 1996: “Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to -… (c) what matters have been submitted to arbitration in accordance with the arbitration agreement.”
[12] Para 99.
[13] Para 123.
[14] [2022] EWHC 2589 (Comm) (14 October 2022)
[15] Aiteo Eastern E&P Company Limited v. Shell Western Supply and Trading Limited [2022] EWHC 2912 (Comm).
[16] [2022] EWHC 1645 (Comm).
[17] Para 29.
[18] [2022] EWHC 1407 (Comm).
[19] [2022] EWHC 1543 (Comm).
[20] Para 15.
[21] UK P&I Club v. Republica Boliveriana de Venezuela [2022] EWHC 1655 (Comm).
[22] General Dynamics United Kingdom v. The State of Libya [2022]EWHC 501 (Comm).
[23] Sodexo Pass International SAS v. Hungary [2021] NZHC 371.
[24] Hulley Enterprises Limited and others v. The Russian Federation [2022] EWHC 2690 (Comm).
[25] Hulley Enterprises Limited and others v. The Russian Federation [2021] EWHC 894 (Comm).
[26] Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 (SI 2019/479) (2019 Exit Regulations).
[27] Soleymani v. Nifty Gateway LLC [2022] EWCA Civ 1297.
[28] Checketkin v. Payward Ltd [2022] EWHC 3057 (Ch).
[29] Gol Linhas Aereas SA v. Matlin Patterson Global Opportunities Partners (Cayman) II LP and others [2022] UKPC 21.
[30] Consilient Health Ltd v. Richter plc [2022] EWHC 1744 (Ch).
