A. LEGISLATION AND RULES
A.1 Legislation
Following the Law Commission’s two Consultation Papers in September 2022 and March 2023, the Arbitration Bill (“Bill“) was introduced into Parliament in late 2023. The Bill proposes to amend the Arbitration Act 1996 (“1996 Act“), the principal legislation governing arbitration in England and Wales and in Northern Ireland, to ensure that the 1996 Act remains fit for purpose. The Bill was introduced into the House of Lords under the Law Commission’s special parliamentary procedure for “uncontroversial bills,” meaning that it will undergo an expedited passage through Parliament.
If the Bill is passed without major amendments, it will amend the 1996 Act as follows:
- It will impose a statutory duty on arbitrators to disclose potential conflicts of interest of which they “ought reasonably” to be aware, in addition to those that “might reasonably give rise to justifiable doubts” as to their impartiality.
- It will strengthen arbitrator immunity by protecting arbitrators from liability where they resign, unless their resignation is found to be unreasonable, and from costs where they are removed on successful application by one party unless they have acted in bad faith.
- It will introduce an express power for arbitrators to dispose summarily of issues that have no real prospect of success, including giving the parties the option to “opt out” of this rule or elect an alternative.
- It will bolster the enforcement of orders made by emergency arbitrators by providing that they can make a peremptory order to be enforced by the court or an order granting the parties permission to apply to the court for an order in support of arbitral proceedings.
- It will strengthen court orders in support of arbitral proceedings by clarifying that they can be made against non-parties, including providing full rights of appeal to non-parties against whom an order is made and removing the need for permission of the court that granted the order (permission will still be necessary for parties to the arbitration).
- It will clarify that the applicable law governing international arbitration agreements will be the law of the seat unless the parties expressly agree otherwise.
- It will introduce procedural rules in the case of a challenge to the award under Section 67 on the ground of a lack of substantive jurisdiction, including that the applicant will not be permitted to raise new grounds of objection or adduce new evidence unless they can show that it was not possible with reasonable diligence to put the objection or evidence before the tribunal; and that evidence that was heard by the tribunal must not be reheard by the court unless the court considers it “necessary in the interests of justice.”
Once the Bill has passed through the House of Lords, it will need to pass through the House of Commons before gaining Royal Assent to become law.
A.2 Institutions, rules and infrastructure
The leading arbitral institution in the jurisdiction remains the LCIA. The LCIA’s 2022 annual casework report[1] stated that the LCIA received 333 referrals for its services, which included 293 referrals specifically for LCIA arbitration. After experiencing a reduced caseload following the war in Ukraine, the LCIA has reported an “upward trajectory of cases” in the last quarter of 2022, with the number of LCIA arbitrations exceeding the 2021, 2019 and 2018 numbers. This upward trend is reported to have continued into the first quarter of 2023. This is attributed in part to global events that have affected energy prices, resulting in a rise in the number of commodity disputes referred to the LCIA in 2022, with transport and commodities representing 37% of the LCIA’s caseload. Also in 2022, the LCIA received a General Licence from the UK Office of Financial Sanctions Implementation, permitting the receipt of and payments for arbitration costs, thus allowing the LCIA to continue to assist parties in resolving their disputes after the imposition of additional sanctions, including asset freeze sanctions, following Russia’s invasion of Ukraine in February 2022. Global developments also led to 13% of the LCIA’s caseload involving state parties or state-owned parties (more than double the previous year). 2022 also saw 88% of LCIA arbitrations originating from 90 countries other than the United Kingdom — a testament to the LCIA’s continued international reach (an increase on 2021’s already high figure of 85.2%). Of the 135 cases that were transferred to the LCIA from the Dubai International Arbitration Centre (DIAC) following the enactment of Decree No. (34) of 2021 of the Government of Dubai and an agreement between the LCIA and the DIAC, 70 cases have now been closed, with an additional 21 in their final stages and 41 remaining active or stayed. Despite 85% of LCIA arbitrations in 2022 being governed by English law and 88% of arbitrations being seated in London, the arbitrators selected by the LCIA Court remain diverse, with 63% of appointments being non-British arbitrators. Gender diversity remains a priority, with 45% of the LCIA Court’s appointed arbitrators being women. Remarkably, the LCIA received no arbitrator challenges in 2022, which it reports is a “testament to both an effective and robust disclosure and appointment system as well as robust and transparent challenge procedures.”
B. CASES
B.1 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.
Marking one such rare occasion, in the case of The Federal Republic of Nigeria v. Process & Industrial Developments Limited,[2] Mr. Justice Robin Knowles set aside an award under Section 68 of the 1996 Act, having found the USD 11 billion award (including interest) in favor of Process & Industrial Development Limited (“P&ID“) to have been issued through fraud and contrary to public policy. This case was “highly unusual.” It concerned P&ID obtaining a gas supply and processing contract to process billions of dollars’ worth of natural gas in Nigeria in 2010, despite neither the company nor its owners having any prior experience with this. Soon after obtaining the contract, P&ID commenced arbitration against Nigeria for failing to provide the appropriate infrastructure, and in 2017, it was awarded USD 6.6 billion in damages. Nigeria applied to set aside the award, claiming (among other allegations) that the contract was procured by corruption. The case highlighted several instances of corruption, with P&ID bribing a Nigerian government official to obtain the relevant contract with bribery continuing thereafter. P&ID was also found to have had in its possession copies of Nigeria’s privileged legal documents, which set out Nigeria’s legal advice on the dispute and settlement strategy and to which P&ID was privy during the arbitration. Mr. Justice Knowles noted that “[w]hat happened in this case is very serious indeed, and it is important that [S]ection 68 has been available to maintain the rule of law.” Far from taking away from the general position on the high threshold needed for an award to be set aside under Section 68, the case highlights the utility of Section 68 for the courts to ensure that the arbitral process is not abused.
The case of Buheiry v. Vistajet[3] concerned (i) the alleged invalid assignment of claims to the defendant by an entity within the defendant’s group (“VJLU“) and (ii) an alleged failure to give proper notice of the arbitration to the defendant, giving rise to challenges under both Sections 67 and 68 of the 1996 Act. The challenges were unsuccessful. Though the relevant agreement pursuant to which the claim arose was only between VJLU and the claimant, the three parties had entered into a subsequent agreement confirming that any dispute between the parties would be resolved by an LCIA arbitration before VJLU assigned its claims to the defendant. The English High Court confirmed that the challenge to jurisdiction under Section 67 of the 1996 Act must relate to matters affecting the substantive jurisdiction of the tribunal (as set out in Section 30 of the 1996 Act), which it held was not satisfied in this case. Additionally, the court found that the service provisions under the LCIA Rules (on which the parties had agreed) would apply and may override the notice provisions in the relevant agreements, meaning that proper notice of the arbitration had been given to the defendant.
In Aiteo Eastern E&P Company Limited v. Shell Western Supply and Trading Limited,[4] the English High Court provided helpful guidance on Section 67 of the 1996 Act and clarified the low threshold a party would need to satisfy to elect to arbitrate under an asymmetric option clause. The court found that submitting a notice of arbitration that would evidence an “unequivocal statement by [the lenders] requiring Aiteo to arbitrate the dispute” was not necessary, and the defendant’s application before the Nigerian court for it to decline jurisdiction in favor of arbitration was sufficient.
Similarly, National Iranian Oil Company v. Crescent Petroleum Company International Ltd & anor[5] concerned the unsuccessful challenge by the National Iranian Oil Company (NIOC) of a USD 2.4 billion award in favor of Crescent Petroleum Company International Ltd (“Crescent“). In the High Court, NIOC alleged that certain claims for damages fell outside the scope of the arbitration agreement based on Iranian law (being the governing law of the contract and, therefore, the arbitration agreement). NIOC submitted Iranian law expert evidence on this point. Its Section 67 challenge was summarily dismissed by the High Court, whose decision was upheld by the Court of Appeal. Contrary to NIOC’s allegation, the Court of Appeal found that the High Court had not engaged in a mini-trial and instead assumed that all of those propositions would be established at trial and then assessed whether such propositions would assist NIOC.
In LMH v. EGK,[6] the English Commercial Court dismissed a challenge to an ICC award under Section 68 of the 1996 Act for allegedly failing to act fairly and give each party a reasonable opportunity to present its case and address the opponent’s case (Section 33). LMH claimed, among other allegations, that the tribunal determined the damages claim using its own discounted cashflow methodology without permitting the other side to comment on its methodology. The court found that when confronted with a proposed calculation of damages by one side and criticisms of the approach by the other, “the general position is that arbitral tribunals can and frequently do calculate their own measure of loss, lying somewhere between the extremes presented to them.”
B.2 Supervisory jurisdiction of the English courts and state immunity
English courts continue to show a commitment to striking a careful balance between respecting the principle of state immunity and upholding the arbitral process in relation to commercial dealings between sovereign states and private parties.
The English Commercial Court in Infrastructure Services Luxembourg SARL and another v. Spain[7] refused Spain’s application to set aside an order for the registration of an ICSID award, which was predicated on the intra-EU objection of the European Court of Justice (ECJ). The claimants brought arbitration proceedings against Spain under the ECT as a result of Spain removing tariff advantages that had been available for solar energy at the time of the claimants’ initial investment. ICSID found that Spain had breached its fair and equitable treatment obligations and ordered it to pay approximately EUR 120 million to the claimants in compensation. The claimants then successfully applied without notice to the English court for the award to be registered under the Arbitration (International Investment Disputes) Act 1966 (“1966 Act“). Spain applied to have the order set aside, attempting to argue that the ECJ’s rulings in Slovakia v. Achmea BV [8] and Moldova v. Komstroy LLC,[9] which found that intra-investment arbitration was incompatible with the primacy of EU law, meant that there was no valid arbitration agreement, such that the English court lacked jurisdiction to register the award owing to the provisions of the UK State Immunity Act 1978 (“SIA 1978“). The court rejected this argument based on the express terms of the 1966 Act and the SIA 1978 and noted that there was no wording in the ECT to justify the “extraordinary effect” of states offering to arbitrate with some investors but not others. It found that Spain’s submissions misunderstood the effect of treaty obligations in international law, observing that EU treaties do not trump “pre-existing” obligations and that the ECJ is “not the ultimate arbiter” under either the ECT or the ICSID Convention. Likewise, Spain had elected to join the ICSID Convention, which constituted an express “written agreement to arbitrate” incorporated into the ECT. In rejecting Spain’s set-aside application, the English Commercial Court drew on the UK Supreme Court’s binding decision in Micula v. Romania[10] and recent Australian and US cases.
State immunity was also considered in Hulley Enterprises Limited (a company incorporated in Cyprus), Yukos Universal Limited (a company incorporated in the Isle of Man), and Veteran Petroleum Limited (a company incorporated in Cyprus) v. The Russian Federation,[11] with the English court finding that the Dutch Supreme Court’s prior decision that Russia had agreed in writing to submit to arbitration gave rise to an issue estoppel, meaning that Section 9 of the SIA 1978 applied to curtail immunity. Under the Civil Jurisdiction and Judgments Act 1982 (“1982 Act“), the test for recognition of a foreign judgment against a state is that (a) the judgment would be recognized as such and enforced if it were not against a state and (b) the foreign court would have had jurisdiction in the matter if it had applied rules corresponding to those in the SIA 1978. Russia had submitted to Dutch jurisdiction by challenging the awards in the Dutch courts and would not have been immune if the Dutch courts had applied rules corresponding to Section 9 of the SIA 1978. As such, the test was met, and the English court found that there were no special circumstances that made it unjust to apply the principle, so Russia was precluded from rearguing the issue of whether it had submitted to arbitration in writing.
By contrast, the English Court of Appeal upheld the principle of state immunity in UK P&I Club & Anor v. Republica Bolivariana de Venezuela[12] by refusing the claimants’ appeal against the High Court’s refusal to grant them a final anti-suit injunction (ASI), which would have prevented Venezuela from continuing foreign proceedings against them. The respondent had brought claims for damages in Venezuela and Curaçao against the protection and indemnity (P&I) insurer of a cruise liner that had collided with a Venezuelan naval vessel, causing it to sink. UK P&I Club was able to obtain an interim ASI in England on the basis that Venezuela was bound by the London arbitration and English law provisions in the insurance contract and, therefore, only able to pursue its claims in England. However, the English High Court refused to grant the claimants a final injunction based on Venezuela’s privilege against injunctive relief as enshrined in Section 13 of the SIA 1978. Likewise, the English Court of Appeal found that the interference of this principle with the claimants’ right of access to the court under Article 6 of the European Convention on Human Rights (ECHR) was justified, as it fell “within the range of possible rules consistent with current international standards,” as per Benkharbouche v. Secretary of State for Foreign and Commonwealth Affairs[13] and Fogarty v. United Kingdom.[14]
In another case involving a state and the English courts’ supervisory powers, the Republic of Mozambique v. Privinvest Shipbuilding SAL and others, the Supreme Court had to consider, for the first time, the interpretation and application of Section 9 of the 1996 Act, which concerns the power to stay litigation in favor of arbitration. The Supreme Court held that the claims Mozambique had brought in the English courts, which encompassed bribery, conspiracy, dishonest assistance and fraud arising from loans and guarantees connected to supply contracts, did not fall within the scope of the arbitration clauses in the relevant contracts and therefore could not be stayed pursuant to Section 9. The Supreme Court considered Section 9 carefully and summarized the position regarding the determination of matters that must be referred to arbitration, including that if the matter is not an essential element of the claim or is peripheral to the subject matter of the legal proceedings, then it is not a matter in respect of which the legal proceedings are brought and does not require a stay. This is a question of judgment and common sense. Mozambique’s claim was centered on its failure to get value for money from the guarantees. The Supreme Court found that it was not necessary to examine the validity or genuineness of the supply contracts to assess this, nor was this an essential part of the defense. As such, these were not matters with respect to which the legal proceedings were brought and, therefore, were not matters that were to be referred to arbitration, so no stay should be ordered. The defendants had also attempted to argue that the quantification of Mozambique’s claims was a matter in the legal proceedings. While the Supreme Court found that the extent of the loss allegedly suffered by the claimant may be a significant part of the commercial dispute between the parties, it was not necessary to decide whether this was sufficient to make it a matter because of the Supreme Court’s narrow interpretation of each of the three arbitration agreements, which meant that the defendants’ partial defense on quantum arose in the context of legal proceedings where the claims advanced were outside of the scope of the arbitration agreement.
B.3 Enforcement
Recent cases emphasize the high bar required for alleging a party’s failure to make full and frank disclosure of a material fact. In Eurafric Power Limited v. The Bureau of Public Enterprises of the Federal Republic of Nigeria, The Ministry of Finance Incorporated and the Federal Government of Nigeria,[15] Nigeria applied to set aside an order for the recognition of an award based on the claimant’s alleged failure to make full and frank disclosure. The dispute concerned which party rightly owned the land on which a power plant was located, with Nigeria claiming that the land formed part of the assets of an energy company that several Nigerian state bodies had purchased from Eurafric Power Limited (“Eurafric“). The tribunal found in Eurafric’s favor, following which Eurafric applied for and was granted recognition of the award under Section 66 of the 1966 Act. Nigeria argued that when applying for the award, Eurafric had failed to provide full and frank disclosure regarding challenges to the award brought in the Nigerian courts. The English Commercial Court refused to set aside the order, finding that Eurafric had not failed to make full and frank disclosure of a material fact. The seat of arbitration was London, and as such, the Nigerian court challenges (one of which was made by a body not party to the arbitration agreement) were brought in clear breach of the arbitration agreement. The English court took this opportunity to clarify the applicable legal principles for deciding whether facts are sufficiently material to require disclosure. There is a high standard to be met, and the test is whether the fact would have influenced the court when deciding whether to make the order or deciding the terms upon which the order should be made.[16]
B.4 Costs
B.4.1 Security for costs
A case of particular note in 2023 concerning the utility of a security for costs order is GE Energy Austria GmbH v. Arabian Bemco Contracting Co Ltd and another.[17] During the arbitral proceedings, the first defendant was ordered to provide security for costs, which was deposited into an escrow account and held under an escrow agreement that required the first defendant to execute a transfer notice before funds would be transferred out. As the first defendant did not respond to any attempts by the claimant to authorize the transfer of funds in partial payment of an award against it, the claimant sought an order from the court (i) declaring that the first defendant was obliged to execute the transfer notice and failure to do so was a breach; (ii) for specific performance to execute the transfer notice; and (iii) pursuant to Section 39 of the Senior Courts Act 1981 that, if the first defendant failed to perform (ii), the claimant’s solicitor be authorized to do so. The court granted the three orders in the same judgment, finding that the first defendant complied with the terms of Section 39 because the order required specific performance, and it was only upon failure of this that authorization would be given to the claimant’s solicitor. The court opined that the facts of this case gave it good reason to believe the first defendant would not comply with the order for specific performance and that, therefore, made it appropriate to make the third order at the same time.
B.4.2 Funding agreements
In the decision in R (on the application of PACCAR Inc and others) v. Competition Appeal Tribunal and others,[18] the UK Supreme Court ruled that litigation funding agreements that allow the funder to obtain payment based on the amount of damages awarded are damages-based agreements (DBAs) and are unlawful and unenforceable unless they comply with the regulatory requirements for DBAs. The decision is likely to have an impact on the appetite of litigation funders in the future and the structure of litigation funding. It is also likely to impact many funding arrangements already in place and should be a consideration for any funded arbitration that is seated in England. However, it is worth noting that the UK government has recently announced (following comments made about the utility of litigation funding in the high-profile lawsuit against the Post Office) that it intends to use amendments to the UK’s draft Digital Markets, Competition and Consumers Bill to reverse the effects of the PACCAR decision to support access to justice via litigation funding.
B.5 Use of anti-suit injunctions to enforce arbitration agreements
In a tranche of cases brought by three banks against RusChemAlliance, the English courts have considered whether it is suitable to grant an ASI where a party has initiated proceedings outside of an agreement to arbitrate, but the seat of the arbitration under the agreement is not England (in this case, Paris). In two of the three cases, the law of the arbitration agreement was English law, which governed the bonds and guarantees issued by the banks to RusChemAlliance, and therefore, it was appropriate to issue an ASI. In the final case, the court found that the law of the arbitration agreement was French law and that an ASI should not be granted on the basis that substantial justice could still be obtained in France. A key factor was the expert evidence which explained that the French courts do not have the power to grant ASIs but will recognize an ASI granted by another competent authority (unless it impedes international public policy). The court, therefore, considered England the appropriate (and only) forum to issue an ASI, and there were no circumstances that made the granting of it inappropriate where the law of the arbitration agreement was English law. Conversely, where the court found that French law governed the arbitration agreement, it concluded that England was not the proper forum for the interests of all the parties and the ends of justice (in line with the Spiliada test) because the claimant could still seek damages for breach of the arbitration agreement in France. It is clear that the question of the proper forum in meeting the ends of justice remains a key factor in whether the English courts will be willing to grant an ASI and that an ambiguity or difference between the law governing an arbitration agreement and its seat will impact the court in its consideration.
[1] https://www.lcia.org/lcia/reports.aspx.
[2] [2023] EWHC 2638 (Comm).
[3] [2022] EWHC 2998 (Comm).
[4] [2022] EWHC 2912 (Comm).
[5] [2023] EWCA Civ 826.
[6] [2023] EWHC 1832 (Comm).
[7] [2023] EWHC 1226 (Comm).
[8] (C-284/16) EU:C:2018:158.
[9] (C-741/19) EU:C:2021:655.
[10] [2020] UKSC 5.
[11] [2023] EWHC 2704 (Comm).
[12] [2023] EWCA Civ 1497.
[13] [2017] UKSC 62.
[14] (37112/97) [2002] I.R.L.R. 148.
[15] [2022] EWHC 3548 (Comm).
[16] Alliance Bank JSC v. Baglan Abdullayevich Zhunus (formerly Baglan Abdullayevich Zhunusov) [2015] EWHC 714 (Comm).
[17] [2023] EWHC 1375 (Comm).
[18] (UKSC 2021/0078).
