Big Ben at night and Westminster bridge with red and blue car light trails

UNITED KINGDOM

Kate Corby, Judith Mulholland, Dogan Gultutan, Nastassja Walschot and Katia Contos

A. LEGISLATION AND RULES

A.1      Legislation

International arbitration in England and Wales[1] continues to be governed by the Arbitration Act 1996 (the 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 17 October 2019, the UK and EU approved a revised agreement on the withdrawal of the United Kingdom and Northern Island from the European Union (EU). The revised withdrawal agreement was ratified by the UK and the EU on 31 January 2020, triggering an 11 month implementation period. The Arbitration Act will not be impacted by the UK leaving the EU as the legislation is not a matter of EU law. As discussed in the previous edition of this yearbook, 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 will have no impact on the ability of parties to enforce arbitral awards under its provisions in the EU or elsewhere. It may, however, affect the circumstances in which English courts can grant anti-suit injunctions. Under EU law, courts of EU member states are currently prohibited from granting anti-suit injunctions that seek to restrain court proceedings in other member states. Following the UK’s exit from the EU, it is foreseeable that this prohibition will no longer be applicable to UK courts (although even if a UK court might be able to issue such an injunction, it is questionable whether it would be recognized and enforced by a court in an EU member state).

A.2      Institutions, Rules and Infrastructure

The leading arbitral institution in the jurisdiction remains the LCIA. There have been no changes to the LCIA Rules since the 2014 Rules came into force. The LCIA has reported that it received 317 arbitration referrals in 2018, 271 of which were under the LCIA Rules. This is the highest number of cases the LCIA has recorded in any single year.[2] The key industry sectors for arbitration under the LCIA Rules in 2018 were Banking and Finance (29%), Energy and Resources (19%) and Transport and Commodities (14%). Of referrals where the claims were quantified, 28% of referrals were for less than USD 1 million, 28% were between USD 1 and 5 million and 11% were for claims over USD 100 million. There was a slight increase in the proportion of sole arbitrators as compared to previous years, with 51% of cases being determined by sole arbitrators and 49% of cases being determined by three-member tribunals. In 2018, tribunal secretaries were appointed in 28 arbitrations conducted under the LCIA Rules, of whom 12 were men and 16 were women. 67 applications were made for interim and conservatory measures under Article 25 of the LCIA Rules, of which 23 were successful (approximately 34%). The LCIA reported that the number of challenges to tribunals remained low in 2018; 6 challenges were made, of which 4 were rejected and 2 remained pending as of 31 December 2018. In relation to gender diversity, the LCIA reported that in 2018, 23% of appointments were women (2017 – 24%, 2016 – 21%, 2015 – 16%). Where women were appointed as arbitrators, the parties selected the arbitrator in 13% of cases, the co-arbitrators selected the arbitrator in 17% of cases and the LCIA selected the arbitrator in 71% of cases.

B. CASES

B.1      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 2018-19 judicial year[3], only two out of 39 section 69 applications (appeal on point of law – see, B.1.(iii) below) succeeded. In terms of the number of applications, there was a drop from 87 the year before. A “dramatic fall” was noted in respect of section 68 applications (serious irregularity – see, B.1.(ii) below), from 71 to 19, very few of which succeeded. There was an expression of judicial hope, in light of these numbers, that the “parties were hearing the message that the hurdle for these applications is high.”

B.1.1   Section 67: tribunal’s substantive jurisdiction

Bringing a successful challenge in the English courts on the basis of lack of substantive jurisdiction[4] of the arbitral tribunal is generally accepted to be difficult to achieve.[5] However, in 2019, one such challenge was, indeed, successful. In Ga-Hyun Chung v Silver Dry Bulk,[6] the Commercial Court held that an arbitral tribunal could not be validly appointed and properly constituted, and therefore lacked substantive jurisdiction, in circumstances where the respondent had ceased to exist some eight months prior to the commencement of the arbitration (i.e. it had been finally dissolved and wound up). The court rejected the argument that, as the question of the respondent’s status involved a finding of fact as to the interpretation of Marshall Islands law (where the company had been incorporated), the issue fell outside of the remit of section 67 and was, therefore, one for the arbitrators to consider. Interestingly, the court also noted, in the alternative, that the challenge also would have succeeded for lack of a valid arbitration agreement (section 30(1)(a)); the court reasoned that “there could be no continuing agreement once one of the parties to the agreement ceased to exist.

Other applicants were not as fortunate with their section 67 challenges. For instance, in Cockett Marine Oil v ING Bank,[7] the Commercial Court dismissed a challenge to arbitrators’ jurisdiction with respect to two separate arbitral awards, holding that (i) the relevant agreements validly incorporated the London arbitration clause contained in the seller’s standard terms and conditions and (ii) the assignment of those agreements (containing the arbitration clauses) was valid and effective. This judgment confirms that the assignment of agreements containing arbitration clauses may raise issues of substantive jurisdiction within the meaning of section 67 and parties should, therefore, take care to ensure that the arbitration clauses are also validly assigned in the process.

Similarly, in J v K,[8] a case concerning “the construction of a very large superyacht,” the Commercial Court dismissed an application founded on section 67 and, alternatively, on section 68 for serious irregularity due to the tribunal exceeding its powers, otherwise than by exceeding its substantive jurisdiction. The court held that the arbitral tribunal had jurisdiction to consider and interfere with the findings of an independent expert’s determination. The case revolved around the interpretation of the relevant clauses of the applicable yacht construction agreement, which stipulated (among others) that “any determination that is still in dispute shall be subject to further arbitration .”

Another unsuccessful section 67 challenge was made in Sonact Group Limited v Premuda SPA.[9] The respondent in the arbitration challenged the tribunal’s jurisdiction on the basis that a settlement agreement (entered into by means of exchange of emails) did not include an arbitration clause. An arbitration clause was, however, contained in the underlying agreement (a charter party) in connection with which the original dispute had arisen and ultimately been settled. The court, in line with its acclaimed pro-arbitration approach, held that it was “obvious that the parties intended that the arbitration clause in the charter party would continue to apply in the event that the agreed sum was not paid,” and that the suggestion to the contrary was “inconceivable .”

Finally, the judgment of the Commercial Court in State A v Party B[10] is a cautionary tale that any recourse against an award (under sections 67-69) must be sought within the timeframes imposed by statute, i.e. within the 28 day period prescribed by section 70(3). The court’s permission is needed to extend the time, and this is unlikely to be given unless the applicant has a valid excuse for any delay. In this case, the applicant sought an extension of time (following a delay of 959 days) on the basis that new “game-changer” evidence had become available. The court was unpersuaded. Dismissing the request for an extension of time to bring the challenge, the court remarked that “[T]he longer — the more ‘colossal’ — the delay or passage of time, the more transformational or seismic must be the fresh evidence sought to be relied upon.” The cost implications of granting the extension and re-opening of the matter after so long a delay seemingly weighed heavily on the court’s consideration.

B.1.2   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. However, somewhat surprisingly, in 2019 two challenges succeeded on this basis.

In K v A,[11] the Commercial Court held that there was serious irregularity in circumstances where the tribunal had found liability on the basis of a contractual provision that had not been relied upon by the claimant in the arbitration, thereby depriving the other party an opportunity to address the point. The court also considered the interaction between sections 68 (serious irregularity) and 69 (appeal on point of law), holding that where an arbitral tribunal’s determination “forms a successful ground of challenge under s. 68, the appropriate course is to remit the question to the parties’ chosen tribunal rather than for the Court to address the merits of the point under s. 69.” This is further confirmation of the clear pro-arbitration stance of the English courts and their unwillingness to interfere with the arbitral process unless absolutely necessary.

In P v D,[12] the Commercial Court allowed a section 68 challenge on the basis that the arbitrators had breached their section 33 duty to act fairly and impartially by failing to cross-examine a witness on a “core issue” in circumstances where the witness’ evidence was disbelieved by the tribunal. The court noted that “fairness to a witness requires that, if his evidence is to be disbelieved, he must be given a fair opportunity to deal with the allegation .” The court also noted that the arbitral tribunal had breached the principles of natural justice by basing its conclusions on points that had not been argued by the parties or considered during the hearing, thereby unfairly denying the relevant party from putting in its defense.

In three other section 68 challenges brought in 2019, the applicants (unsuccessfully) argued that (i) the award did not contain adequate reasons;[13] (ii) in amending the award, the arbitrator had (among others) exceeded his powers, failed to deal with the issues, taken the wrong matters into account and unfairly failed to give the applicant an opportunity to put its case;[14] and (iii) the arbitrators had shown apparent bias or committed a serious procedural irregularity, thereby causing substantial injustice, by refusing to admit, some three months after the hearing had closed, the submission as evidence of a 2,000-page transcript of the final hearing of a parallel ICSID arbitration.[15] With respect to the latter case, the court reasoned that “[I]t was plainly within the discretion of the Tribunal to decide whether to admit additional evidence and re-open the hearing, even in relation to matters which post-dated the hearing.”

B.1.3   Section 69: appeal on point of law

Of particular note in 2019 were two appeals against awards on points of law, one of which succeeded. In Martin v Harris,[16] the court allowed the appeal and set aside the award (refusing to remit the award to the tribunal for reconsideration) on the ground that the arbitrator had failed correctly to interpret the terms of the agreement in light of the applicable (English) law. The court held that while “[arbitrators] should be given a certain amount of latitude in determining what the reasonable person would understand the contract to mean if the [arbitrator] does not actually apply [the well-established legal principles of contractual interpretation] properly then it is open to the Court to conclude that his interpretation was wrong in law .” However, as the other (unsuccessful) appeal shows,[17] the applicant must show that the award, is “obviously wrong” on its face, which is usually a difficult test to satisfy.

B.2      Refusal to enforce an arbitral award

English courts are generally reluctant to refuse the enforcement of unchallenged arbitral awards. However, in David Sterling v. Miriam Rand and Morris Rand,[18] the High Court denied the enforcement of an arbitral award of the London Beth Din[19] which required the transfer of title in a disputed property. After confirming that Beth Din had jurisdiction to order the transfer and that section 48(5)(b) did not apply, the court decided that, based on new evidence to which it had had access, enforcement of the award would be inequitable and against the interests of justice and could even damage the integrity of the Beth Din system.

In some other recent enforcement related cases, the English courts have emphasized the importance of clearly determining the seat of the arbitration as well as the law applicable to the arbitral proceedings. One such case is Process and Industrial Developments Ltd v Federal Republic of Nigeria [2019] EWHC 2241 (Comm), in which a dispute arose under a Gas Supply and Processing Agreement (GSP), governed by Nigerian law, for the construction and operation of a gas processing facility by the claimant (PID) to supply gas to the respondent. The relevant arbitration agreement provided that “the venue of the arbitration shall be London, England or otherwise as agreed by the Parties .” In an interim award, the tribunal confirmed that the seat of the arbitration was London. The tribunal then issued an award on liability, granting PID over US$ 6 billion in damages. Nigeria challenged this award before the Nigerian courts, primarily on the basis that the seat of arbitration should have been Nigeria. In the meantime, the tribunal issued an order to confirm that the seat of the arbitration was London and PID applied to the courts in England to enforce the award on liability against Nigeria. The key question before the English court was whether the “venue of arbitration” referred to a choice of seat or merely a geographic location for hearings. The court started by confirming that the arbitral tribunal was entitled to determine any issue regarding the seat of arbitration. It then highlighted that the tribunal’s order to confirm the arbitral seat had created an issue estoppel, which precluded any further argument in that respect. The court further held that, in any case, the tribunal’s decision was a correct interpretation of the arbitration agreement pursuant to the applicable Nigerian principles of construction. The Court also dismissed Nigeria’s argument that it should deny enforcement as contrary to public policy, considering that the awarded damages did not (as had been submitted) amount to punitive damages and that, in any event, Nigeria had failed to challenge the relevant award in due time.

In Kabab-Ji S.A.L. (Lebanon) v Kout Food Group (Kuwait) [2020] EWCA Civ 6, a dispute arose regarding an English law governed franchise development agreement (FDA) between the claimant (as principal) and Al Homaizi Foodstuff Company (AHFC), which in 2005 had become a subsidiary of the respondent (KFG). Kabab-Ji commenced an ICC arbitration in Paris in accordance with the arbitration clause in the FDA, but against KFG, not AHFC. Kabab-Ji argued that KFG had become the main franchisee and a party to the FDA, bound by the arbitration agreement. The tribunal decided that under English law and taking into account the UNIDROIT principles, a novation had been inferred by the conduct of the parties and KFG was, therefore, a party to, and in breach of, the FDA. In December 2017, KFG filed an annulment application before the French Court challenging the tribunal’s decision although that case was not expected to be heard until February 2020. In the meantime, Kabab-Ji successfully applied, without notice, to the English Commercial Court to enforce the tribunal’s award. In March 2018, KFG then applied under section 103(2)(a) and (b) requesting that the Commercial Court deny enforcement. The Commercial Court decided to adjourn the enforcement application, pending the outcome of the French annulment application; it noted that as a matter of English law, the behavior of KFG alone was not sufficient to support the claim that it had become the main franchisee under the FDA. The Court invited Kabab-Ji to provide any document showing that there “had been anything approximating to consent in writing .” Kabab-Ji filed an appeal before the Court of Appeal, which ultimately found that the parties had expressly chosen English law as applicable to the FDA and that, properly construed, the arbitration agreement was also governed by English law. The Court further decided that according to English law, the formal requirements of the ‘No oral modification’ clause had not been met in this case, with the consequence that KFG could not be considered a party to the FDA nor to the arbitration agreement. The Court lastly decided that, by adjourning its decision, the Commercial Court had erred in principle and in law since (i) the decision of the French court was not relevant to the application of English law and (ii) it did not consider whether or not Kabab-Ji met the summary judgment test and was therefore likely successfully to enforce the award at a further hearing[20].

B.3      Removal of arbitrators

To assess allegations of apparent bias of arbitrators, the English courts generally apply an objective test, asking whether a fair-minded and impartial observer would having considered the facts, conclude that there is a real possibility the tribunal was biased.[21] Halliburton Company v Chubb Bermuda Insurance Ltd & others,[22] which we reported on in the previous edition of this yearbook, involved an application to have the chairman of an arbitral tribunal removed on the grounds that his appointment had given rise to an appearance of bias. The final appeal was heard by the Supreme Court in November 2019. The discussions before the Supreme Court focused on the circumstances in which an arbitrator can accept multiple appointments in cases involving overlapping issues with only one common party, without giving rise to justifiable doubts as to his/her impartiality. The Court notably heard oral submissions from the LCIA and the ICC in favor of the ‘gold standard’ according to which an arbitrator should never accept appointments in cases involving overlapping issues with only one common party without giving proper disclosure. Judgment is expected in February/March 2020.

In The Chartered Institute of Arbitrators v B, C and D,[23] the Chartered Institute of Arbitrators (CIArb) appointed B as arbitrator in a dispute that had arisen between C and D. Due to a potential conflict of interest between B and D, C successfully applied to have B removed as arbitrator, pursuant to section 24(1)(a). Subsequently, the CIArb brought charges against B for his conduct in the arbitration, and the matter was referred to a disciplinary tribunal. In the context of those proceedings, the CIArb filed a request before the Commercial Court, under CPR 5.4C(2), to obtain and use copies of documents from the section 24 application. The Commercial Court partly granted the application, concluding that the CIArb was entitled to obtain and use copies of the statements of case. Whether documents that were considered “records of the court” or which had been read out and/or read by the judge in open court should be provided for use in the disciplinary proceedings was at the discretion of the court based on the principle of open justice and the applicant’s “legitimate interest” in inspecting the documents. On the basis of the public interest in maintaining the quality of standards of arbitrators, the court gave access to the witness statements (including exhibits) and the written submissions. Access to skeleton arguments was, however, denied as the disciplinary proceedings were not based on the judge’s findings in the section 24 application. In addition, the Court denied the request to anonymize certain references in the judgment because they could lead to the identification of B since this was not sufficient to outweigh the public interest in its publication.

B.4      Supervisory function of the English Courts – how far does it go?

There have been a number of cases this year that have illustrated the extent to which English courts are willing to intervene in the exercise of the powers under the Arbitration Act 1996.

For example, in Enka Insaat ve Sanayi AS v OOO “Insurance Company Chubb” and others[24] the High Court declined to grant declaratory relief and an anti-suit injunction in respect of an alleged breach of an agreement to refer disputes to ICC arbitration with a London seat. Enka alleged that proceedings commenced by Chubb in the Russian courts seeking damages in relation to a fire at a power plant in Russia were in breach of the arbitration agreement contained within the contract for the design and construction of the plant. Chubb argued that the contract was governed by Russian law and, as such, whether the arbitration agreement extended to the claim being brought against Enka in Russia was a question of Russian law to be considered by the Russian court. The High Court ultimately refused to order the relief. It held that while the English court has an important role by virtue of being the court of the seat, that “does not give the English court any exclusive or primary jurisdiction as regards the enforcement at this stage of the parties’ obligation to arbitrate and corresponding negative obligation not to litigate anywhere in the world” a dispute falling within the contract. The Judge listed a number of factors that pointed against it being appropriate for the English court to take over from the Russian courts in deciding the question of the scope of the arbitration agreement. These included that Chubb had behaved reasonably in bringing the Russian claim, acting on its bona fide view as to the scope of the arbitration agreement. Further, the choice of law rules in the Russian court did not appear to be materially less favorable to Enka than those applicable in the English courts. He also placed reliance on the fact that Enka could have commenced arbitration if it was not content to litigate the issue of the scope of the obligation to arbitrate, however, it had done nothing for over 18 months after first being on notice of at least the real possibility that it might face a claim in respect of the fire.

In Minister of Finance (Incorporated) and another v International Petroleum Investment Company and another,[25] the Court of Appeal allowed an appeal against a Commercial Court decision, removing a stay on the claimants’ applications under sections 67 and 68 and granting an injunction to restrain pursuit of a second arbitration, until those applications had been finally determined. The facts in the case were complex but, in summary, the respondents brought arbitration proceedings seeking to enforce the appellants’ obligations under a binding term sheet. The issues in that arbitration were compromised by settlement deeds which provided for the issue of a consent award by the tribunal. The claimants challenged the consent award under sections 67 and 68 on the grounds that the arbitral tribunal did not have substantive jurisdiction to make it or it was procured by fraud or in a way that was contrary to public policy. The respondents denied the allegations and commenced the second arbitration proceedings under the settlement deeds. At first instance, the court granted a stay of the appellants’ court applications and refused their request for an injunction. The Court of Appeal allowed the appeal, lifting the stay and granting the injunction to restrain arbitration proceedings. The judgment discussed the jurisdiction of the English Courts under sections 67 and 68, noting that the 1996 Act “strikes a balance” in that court intervention in arbitration proceedings is carefully limited but, on the other hand, contains mandatory provisions (including sections 67 and 68) which are necessary to safeguard the public interest. Accordingly, the court stated that the claimants had a right to challenge the consent award and that for a stay to be granted for such an application there must be “compelling grounds,” which it found did not exist on the facts. The court also found that it was appropriate for it to exercise its discretion to grant an injunction to restrain the pursuit of the second arbitrations which would “bring the defendants’ vexatious conduct to an end.”

English courts are also not afraid to grant relief in order to aid enforcement of foreign arbitral awards where it is appropriate to do so. In Arcelormittal USA LLC (AMUSA) v Essar Steel Ltd and others,[26] the High Court upheld a worldwide freezing injunction (WFO) and other orders made in connection with the enforcement of an arbitral award in the applicant’s favor following a Minnesota seated arbitration under the ICC Rules. Notwithstanding the fact that it had not been shown that Essar Steel had any significant assets in England, the court found that the case did warrant a WFO against Essar Steel. There was a risk that assets would be dissipated on a large scale and the other orders could be made to support and make effective the WFO. The Judge stated that if there is a strong case of serious wrongdoing comprising conduct on a large or repeated scale there is no reason why the English court should not be willing to intervene rather than to stand by and allow the conduct to continue.

 

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

[3] Commercial Court Users Group Meeting Report of November 2019: see https://www.judiciary.uk/wp-content/uploads/2020/02/Minutes-of-Comm-Ct-Users-Group-20.11.19.pdf.

[4] 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.

[5] Arbitration Act 1996, sections 82(1) and 30(1). Section references in the remainder of this chapter are references to the Arbitration Act 1996.

[6] Ga-Hyun Chung (as the former statutory trustee of Homer Hulbert Maritime Co Ltd) (a dissolved Marshall Islands company) v Silver Dry Bulk Co Ltd [2019] EWHC 1147 (Comm).

[7] Cockett Marine Oil DMCC v ING Bank N.V. and others [2019] EWHC 1533 (Comm).

[8] J v K [2019] EWHC 273 (Comm).

[9] Sonact Group Limited v Premuda SPA [2018] EWHC 3820 (Comm).

[10] State A v Party B and another [2019] EWHC 799 (Comm).

[11] K v A [2019] EWHC 1118 (Comm).

[12] P (a company incorporated in Country A) v D (a company incorporated in country B) and others [2019] EWHC 1277 (Comm).

[13] The Islamic Republic of Pakistan and another v Broadsheet LLC [2019] EWHC 1832 (Comm). The court held that ““inadequate” reasons (as such term is advanced by the claimants) cannot amount to a serious irregularity under section 68(2)(c) or (h) ,” though the court did move on to explain that, in any event, “it is clear that the award [did] contain reasons to show why the arbitrator reached his decision on the “essential issue” [and that] there was no failure in this case to provide “adequate” or “sufficient” reasons.

[14] H v W [2019] EWHC 1897 (Fam).

[15] BSG Resources Ltd v Vale SA and others [2019] EWHC 3347 (Comm).

[16] Martin and others v Harris [2019] EWHC 1962 (Ch).

[17] Merthyr (South Wales) Ltd v Cwmbargoed Estates Ltd and another [2019] EWHC 704 (Ch).

[18] [2019] EWHC 2560 (Ch).

[19] The Court of the Chief Rabbi.

[20] Honeywell International Middle East LTD v Meydan Group LLC [2014] EWHC 1344 (TCC).

[21] Porter v Magill [2002] AC 357.

[22] 14 [2018] EWCA Civ 817.

[23] [2019] EWHC 460 (Comm).

[24] [2019] EWHC 3568 (Comm).

[25] [2019] EWCA Civ 2080.

[26] [2019] EWHC 724 (Comm).

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