A. LEGISLATION AND RULES

A.1       Legislation

On 30 November 2021, the Law Commission announced that it will be conducting a review of the Arbitration Act 1996 (“Act”), which governs international arbitration in England and Wales.[1] The purpose of the Law Commission’s review is to ensure that the Act is “as clear, modern and efficient as possible,” in order to preserve the long-standing attractiveness of England and Wales as a forum for dispute resolution and the prominence of English Law as a choice of law.

It is envisaged that the specific matters to be addressed by the review will be determined as part of the Law Commission’s preliminary consultation with stakeholders. However, based on the responses it received regarding the Act as part of its consultation on the 14th Programme of Law Reform,[2] the Law Commission anticipates that it is likely to consider the following issues:

  • The courts’ powers exercisable in support of arbitration proceedings.
  • The availability of appeals on points of law.
  • The law concerning confidentiality and privacy in arbitration proceedings.
  • The procedure for challenging a jurisdiction award.
  • Electronic service of documents, electronic arbitration awards, and virtual hearings.

It is planned that the review will be launched during the first quarter of 2022 and a consultation paper will be published in late 2022.

Another significant development affecting the Act is the revisions, published on 3 February 2022, to Section O of the English Commercial Court Guide concerning English Commercial Court claims under the Act.[3] The amendments reinforce the English courts’ willingness to uphold the finality of arbitral awards and seek to discourage challenges under section 67[4] and section 68[5] of the Act. Relevant amendments include:

  • Clarification that a section 68 challenge is appropriate only in cases where there are “serious” grounds for thinking that an irregularity has occurred that has caused or will cause substantial injustice to the party making the challenge (O8.3).
  • A new provision confirming that a challenge under section 67 is only appropriate “in cases where there are serious grounds for a contention that the matters relied on do affect the substantive jurisdiction of the tribunal as referred to in section 30 of the 1996 Act rather than being matters to be raised (if at all) under section 68 or section 69 of the Act” (O8.4).

There is also a new requirement that a section 67 challenge “must be supported by evidence of the facts said to give rise to the absence of substantive jurisdiction”, which should be included in the claim form (O8.5). The amendments also include confirmation that the court has the power to dismiss any claim under sections 67 or 68 without a hearing and provide that it is “astute” for the court to do so where the claim has “no real prospect of success” (O8.6).

Additionally, the court can now award indemnity costs to the respondent party in circumstances where a section 67 or section 68 challenge is first dismissed on the papers, the applicant subsequently requests a hearing of its claim and the claim is then dismissed (O8.7). The court now also has the powers under section 70 to order a party challenging an award to provide security for costs or security for the award as a condition to being able to pursue the challenge (O8.11).

Finally, a new provision sets out the procedure to be adopted by the court in the case where part of an award is subject to challenge and a party applies to enforce the unchallenged parts of the award (O11.5), and some small revisions have been made to address the practical formalities on certifying finality for enforcement abroad (O11.6 and 7).

Taken together, it is evident from these recent amendments that there remains a high bar for the successful challenge of arbitral awards before the English courts.

A.2       Institutions, rules and infrastructure

The leading arbitral institution in the jurisdiction remains the LCIA. The LCIA has reported an “exceptional” year in 2020,[6] having received 444 referrals in total, 407 of which were arbitrations pursuant to the LCIA Rules. This represents a 10% increase in the total number of referrals from 2019 figures and an 18% increase in the number of LCIA arbitrations. The top three industry sectors remain energy and resources, transport and commodities, and banking and finance, together making up 68% of all arbitrations pursuant to the LCIA Rules. The LCIA’s 2020 caseload remained markedly international, with 86% of parties to LCIA arbitrations being from countries other than the United Kingdom. The increasing trend toward more non-UK seats and choices of law in arbitrations pursuant to the LCIA Rules continued, with a greater link between choice of seat and law. The number of challenges remained low, at less than 1.5% as a proportion of arbitrations commenced pursuant to the LCIA Rules in 2020.

Regarding gender diversity in tribunals, the LCIA reported parties and co-arbitrators contributing to a high of 33% female arbitrator appointments in LCIA arbitrations (representing an increase of 4% from 2019). 45% of arbitrators appointed by the LCIA Court were female.

B. CASES

B.1       Arbitration Agreements

In an important follow-up to the seminal decision in Enka v Chubb,[7] the Supreme Court recently reiterated critical principles relating to the law governing arbitration agreements and their scope. In Kabab-Ji v Kout Food Group,[8] the Supreme Court unanimously upheld the Court of Appeal’s earlier decision to refuse recognition and enforcement of an award. The case concerned an ICC award rendered by a Paris-seated tribunal, which was obtained by the appellant (Kabab-Ji, a Lebanese Company) against the respondent (KFG, a Kuwaiti company). The ICC tribunal rendered the relevant award pursuant to an arbitration agreement contained in a Franchise Development Agreement (FDA) entered into between Kabab-Ji and KFG’s subsidiary, Al Homaizi. Importantly, Kabab-Ji brought a claim only against KFG and not Al Homaizi, and KFG was not a party to the FDA. The ICC tribunal applied French law to the arbitration agreement (as the law of the seat) and held that KFG had become a party to the arbitration agreement. In dismissing the appeal, the Supreme Court held that (i) contrary to the ICC tribunal’s decision, the arbitration agreement was governed by English law as the law of the underlying contract, and (ii) there was no real prospect under English law of a court finding that KFG had become a party to the arbitration agreement.

On the first issue, the Supreme Court strictly followed the principles set out in its recent judgment in Enka v Chubb, holding that the general choice of law to govern an agreement containing an arbitration clause will normally also apply to the arbitration agreement itself. Turning to the provisions of the FDA, the court noted that the choice of law clause extended the application of English law to “this Agreement” without exception, and therefore English law also governed the application of the arbitration clause therein. This default position was unaffected by the fact that the ICC tribunal had already rendered its award.

As to whether KFG had become a party to the arbitration, the court applied a provision in the FDA requiring all amendments to the agreement to be made in writing (also known as a “No Oral Modifications” clause). Applying its 2018 decision in MWB v Rock Advertising,[9] the Supreme Court held this provision was legally effective. Kabab-Ji was not able to point to any agreement in writing with Al Homaizi and KFG evidencing that KFG would become a party to the arbitration clause in the FDA. As a result, the Supreme Court concluded that there was “there was no real prospect that a court might find at a further hearing that KFG became a party to the arbitration agreement.”

In reaffirming the principles in Enka and Rock Advertising, the Supreme Court came to a very different conclusion than the Paris Court of Appeal, which refused to annul the relevant ICC award on the same grounds. While the position under English law is clear, there is still no consistent approach internationally to the questions of (i) the law governing the arbitration agreement and (ii) the extension of arbitration agreements to non-parties.

In the past year, the English courts have grappled with numerous complex issues relating to the scope and effect of arbitration agreements with respect to non-contractual claims. As an example, in Republic of Mozambique v Credit Suisse,[10] the Court of Appeal decided that claims relating to bribery raised by the state in English court proceedings against Credit Suisse were sufficiently connected to arbitration agreements contained in certain supply contracts entered into between the parties. The claims, therefore, had to proceed by way of arbitration.

A number of recent decisions have reaffirmed the strong presumption in favor of arbitration applied by the English courts. In Melford Capital v Digby,[11] the High Court considered a contract containing two conflicting choice of forum provisions – one providing for arbitration and the other providing for the exclusive jurisdiction of the English courts. In the circumstances, the court construed the exclusive jurisdiction clause as referring only to the supervisory jurisdiction of the English courts over any arbitration proceedings arising from the contract. The court, therefore, granted a stay of the proceedings launched in the English courts. In another such case, the court in Markel Bermuda v Ceasars Entertainment[12] affirmed in the context of an insurance claim that parties may agree and become bound by an arbitration clause before agreement is reached on the remaining terms of the contract.

B.2       Challenges to arbitral awards

The English courts continue to pursue a “policy of striving to uphold arbitration awards”[13] and, consequently, the prospects for a party looking to bring a successful challenge are limited. In addition to the revisions to the English Commercial Court Guide explained above, a number of decisions this year reiterate the court’s wish to respect arbitration agreements and discourage challenges. Interestingly, however, 2021 has seen some notable successes which are discussed below. The number of challenges brought before the Commercial Court in 2021 was broadly comparable with 2020, with 34 applications made under section 69[14] (the same as in 2020) and 25 applications made under section 68 (three fewer than in 2020).[15]

B.2.1    Section 67: tribunal’s substantive jurisdiction

In useful guidance to parties seeking to navigate their pre-arbitral steps, the English High Court in NWA and another v NVF and others[16] considered whether non-compliance with an obligation on the parties to pursue mediation prior to referring a dispute to arbitration is a matter affecting the tribunal’s jurisdiction, which would fall to the court to consider, or a question of admissibility, which would fall solely to the tribunal to consider (and accordingly not be open to a section 67 challenge). The court held that such non-compliance was a matter of admissibility, and so the challenge failed. Interestingly, the Court noted that even were it to find that the requirement to mediate did affect the tribunal’s jurisdiction, it would, in any event, have held that the tribunal had jurisdiction to resolve the point under section 30 of the Act (which provides that a tribunal may rule on its own substantive jurisdiction). The court stated “it is not necessary, or indeed appropriate, for the court to second-guess the arbitrator’s ruling” as to whether the obligation to mediate was sufficiently certain, capable of enforcement, or created a condition precedent to arbitration.

Black Sea Commodities Ltd v Lemarc Agromond Ltd[17] is a notable, rare successful challenge pursuant to section 67. The High Court held that a tribunal did not have jurisdiction as there was no arbitration agreement between the parties. The court rejected the argument that the parties had agreed to the adoption of a GAFTA arbitration clause by conduct or, alternatively, by trade custom. It was not disputed that a set of key terms (not including the GAFTA arbitration clause) for the sale of 50,000 metric tonnes of Ukrainian corn had been agreed and that the underlying contract had come into existence. Instead, in subsequent exchanges, the parties negotiated their position on other terms including the proposed adoption of the GAFTA arbitration clause. In these exchanges, the GAFTA clause remained un-objected to but was not acknowledged or agreed upon.

The defendant ran two arguments in the alternative. First, it was argued, relying on section 7 of the Act which confirms the separability of arbitration agreements under English law, that a lack of any objection to it, while other terms had been settled, meant the arbitration agreement had come into being by conduct. The defendant drew attention to obiter comments of Lord Hoffman in Fiona Trust v Privalov[18] that the law should not place “conceptual obstacles” in the way of those that wish to resolve matters of validity of their contracts via arbitration. The defendant contended that this meant the court should adopt a strict interpretation of offer and acceptance of the arbitration agreement. Second, the defendant argued that the GAFTA arbitration clause had been implied by trade custom. Both of these contentions were rejected. In relation to the first argument, it was held that in order to take the benefit of section 7 of the Act, it must be demonstrated that the arbitration agreement was the subject of consensus between the parties or that it had been agreed by virtue of its inclusion in the draft conditions, but this was not the case here. In relation to the second argument, the custom relied upon must be essentially “invariable, binding in the market, in the sense that all trades…invariably contain such a provision” (original emphasis).

B.2.2    Section 68: serious irregularity

In PBO v (1) DONPRO and others,[19] the High Court upheld three challenges made under section 68, agreeing that there was serious irregularity that had caused the claimant substantial injustice. It was argued that a serious irregularity had resulted from the tribunal’s refusal to allow the claimant to amend its statement of case, thereby preventing it from advancing a full defense to a counterclaim. In addition, in two instances the tribunal had “departed from the way in which the case was presented by the parties” without warning such that the claimant was not able to address certain matters before the award was made. In one of these instances, the tribunal had found that it did not have jurisdiction to deal with certain of the claimant’s claims, despite no jurisdictional challenge having been presented by the respondent. Neither party was given an opportunity to address the tribunal on the question of its jurisdiction. The claimant succeeded in showing serious irregularity in relation to all three section 68 challenges. However, the court found it unnecessary to set aside the award in its entirety, on the basis that it “would be inconsistent with the policy of striving to uphold arbitration awards” and risked inflating the parties’ costs and rearguing some matters that had already been satisfactorily determined.

Although bringing a successful challenge under section 68 remains difficult, in Minister of Finance (Incorporated) v International Investment Company,[20] the court effectively facilitated a challenge by granting the claimant an extension to the 28 day time period under section 70(3) of the Act within which a challenge must be brought. In “an exceptional decision to meet the justice of an exceptional case,” the court allowed a challenge to be brought 511 days late and reiterated the extension of time guidelines given in Aoot Kalmneft v Glencore International AG.[21]

B.3       Challenges to Arbitrators

Despite limited commentary this year on challenges to arbitrators, the case of Newcastle United Football Company Ltd (NUFC) v Football Association Premier League Ltd (FAPL) and Others[22] is notable in that it is the first case in England to apply the principles of Halliburton. The court dismissed an application by NUFC under section 24 of the Act to remove Mr. Beloff QC, the chair of the tribunal, in an arbitration under the rules of the FAPL. Mr. Beloff QC, who had been appointed by his co-arbitrators, had certified prior to appointment that there were no circumstances that existed to give rise to justifiable doubts as to his impartiality in the role of chair. It subsequently transpired that in the past three years, FAPL’s lawyers had been involved in 12 arbitral proceedings in which Mr. Beloff QC had been an arbitrator. In three of these, he had been appointed by the lawyers (although two of these appointments were made after the arbitrator had accepted his appointment in the arbitration) and had advised the lawyers on four separate occasions prior to his appointment. Mr. Beloff QC was invited by NUFC to recuse himself but declined. This was followed by correspondence between Mr. Beloff QC and the lawyers for the FAPL (to which the lawyers for NUFC were not copied), asking for access to an earlier piece of advice and then for consent to disclose information on its content and asking whether they were happy for him to continue acting as arbitrator. Applying the principles in Halliburton, the court considered the cumulative effect of all the grounds and found that a fair-minded and informed observer would not conclude there was any real risk of bias. The court referred to the International Bar Association Guidelines on Conflicts of Interest when considering whether disclosures should have been made, finding that none of the instructions and other appointments were disclosable and finding on the correspondence the fair-minded and informed observer would not consider it material from which a risk of bias was to be inferred in all the circumstances.

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

B.5.1 State Immunity

It has been an interesting year on issues of state immunity, as the courts have grappled with balancing the general immunity afforded to states from the jurisdiction of the UK courts with the arbitral process and commercial dealings between private parties and states.

The Supreme Court gave judgment in General Dynamics UK Ltd v Libya,[23] on the rules applicable to service of enforcement proceedings on states, and overturned the Court of Appeal’s 2019 decision. The case concerned recognition and enforcement of an award issued in favor of General Dynamics UK Ltd against the State of Libya, awarding the company over £16 million for money owed under a contract for the supply of communications systems. General Dynamics UK Ltd was granted permission to enforce the award in the same manner as a judgment or order of the English courts and judgment was entered against Libya. General Dynamics UK Ltd was also granted permission to dispense with service of the arbitration claim form and any order or associated documents on the ground that exceptional circumstances existed in Libya justifying this. Libya sought to set aside the order granting permission to dispense with service, which although successful in the Commercial Court was overturned on appeal. The Court of Appeal was willing to take a more pragmatic and flexible approach to the requirements for service on states. The key issues were (i) what is required by way of service by section 12 of the State Immunity Act 1978 (SIA)[24] in order to enforce an arbitral award against a foreign state and (ii) whether the court was able in exceptional circumstances to dispense with service in the way that had been done.

The Supreme Court overturned the Court of Appeal’s decision, finding that the procedure for service in accordance with section 12 must be followed in all cases where proceedings are commenced against a state defendant and, in particular, in proceedings to enforce an arbitral award under the New York Convention pursuant to the Act. The court noted that the procedure established for service on a state through the FCDO is “mandatory and exclusive”, and it is subject only to the possibility of service in accordance with section 12(6) in a manner agreed by the defendant state.[25] This decision is likely to make it more difficult for award creditors seeking to enforce against states in the UK, since unless another method of service has been agreed by the defendant state under section 12(6), award creditors will have to serve (depending on the court’s directions) either the arbitration claim form or enforcement order on the state via the FCDO. This process is generally time-consuming and often not straightforward, particularly where a state is seeking to avoid service and evade enforcement.

In London Steam-Ship Owners’ Mutual Insurance Association Ltd v Spain and London Steam-Ship Owners’ Mutual Insurance Association Ltd v France M/T “Prestige” (Nos 3 and 4),[26]the Court of Appeal found that state immunity had been lost by Spain and France in circumstances where the states had commenced proceedings in Spain under an insurance contract seeking compensation for losses caused by the pollution of their coastlines in Spain. The claims were advanced against the shipowner’s liability insurer, the London Steam-Ship Owners’ Mutual Insurance Association Ltd (“Club”). Spain and France contended they were entitled to state immunity in respect of a number of proceedings brought by the Club in the English courts, including to restrain the Spanish proceedings and seek damages/compensation in relation to such proceedings, which had been brought after the Club was granted permission to enforce awards finding that the states were bound by the arbitration clause in the insurance contract[27] and that the Club was under no liability to the States by virtue of a “pay to be paid” clause. The court found that the states did not have immunity in respect of any of the proceedings brought by Club, on the basis that the commencement and pursuit of the proceedings by the states in Spain related to a “commercial transaction”.[28] The court also decided that the Club’s application to the court for the appointment of an arbitrator for its arbitration claim would also fall within the arbitration exception to state immunity under section 9 of the SIA. [29]

The last case relevant to issues of state immunity is Hulley Enterprises Limited and others v The Russian Federation,[30] a case arising out of the much-publicized Yukos arbitration awards. An application was made to lift a stay of proceedings for the recognition and enforcement of awards made against Russia or to adjourn the proceedings under section 103(5) of the Act and make such adjournment conditional on Russia paying security of USD 7 billion. Russia had challenged the English court’s jurisdiction, including on the grounds of state immunity. The stay had been ordered pending Russia’s pending challenge to the awards in the Netherlands. The court declined to lift the stay of the proceedings for various reasons and clarified that any exercise of the court’s powers under section 103 would constitute the assertion of adjudicative jurisdiction over Russia where the court has not yet held such jurisdiction to exist. The question of state immunity had to be decided first before the court’s powers under section 103(5) could be exercised.

[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] This consultation concluded on 31 July 2021.

[3] See https://www.judiciary.uk/announcements/new-editions-of-the-commercial-court-guide-and-circuit-commercial-court-guide-published/

[4] A challenge to the arbitral tribunal’s substantive jurisdiction.

[5] A challenge to the award on the basis of serious irregularity.

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

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

[8] Kabab-Ji SAL v Kout Food Group [2021] UKSC 48

[9] MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24

[10] Republic of Mozambique v Credit Suisse International and others [2021] EWCA Civ 329

[11] Melford Capital Holdings LLP and others v Digby [2021] EWHC 872 (Ch)

[12] Markel Bermuda Limited v Ceasars Entertainment Inc [2021] EWHC 1931 (Comm)

[13] Mr Justice Bryan in PBO v (1) DONPRO and others [2021] EWHC 1951 (Comm) at [129].

[14] An appeal on a point of law, unless this has been disapplied by the parties.

[15] Commercial Court Users Group Meeting Report of November 2021: Commercial Court User Committee Meeting Minutes 24Nov21 (judiciary.uk)

[16] NW and another v NVF and others[16] [2021] EWHC 2666 (Comm)

[17]Black Sea Commodities Ltd v Lemarc Agromond Ltd [2021] EWHC 284 (Comm)

[18] Fiona Trust v Privalov [2007] Bus LR 1719

[19] PBO v (1) DONPRO and others [2021] EWHC 1951 (Comm)

[20] Minister of Finance (Incorporated) v International Investment Company [2021] EWHC 2949 (Comm)

[21] Aoot Kalmneft v Glencore International AG [2002] 1 Lloyd’s Rep 128. The Kalmneft Factors include: (i) the length of the delay; (ii) whether the party who permitted the time limit to expire and subsequently delayed was acting reasonably; (iii) whether the respondent or arbitrator caused or contributed to the delay; (iv) whether the extension would cause the respondent to suffer irremediable prejudice in addition to the mere loss of time; (v) how the extension would impact the progress and costs of the arbitration, if it is still ongoing; (vi) the strength of the application; and (vii) whether it would be unfair on the applicant to deny them the opportunity to have the application determined.

[22] Newcastle United Football Company Ltd v Football Association Premier League Ltd and Others [2021] EWHC 349 (Comm).

[23] General Dynamics UK Ltd v Libya [2021] UKSC 22.

[24] Section 12(1) of the SIA provides that any writ or other document required to be served for instituting proceedings against a state shall be served by being transmitted through the Foreign, Commonwealth and Development Office (“FCDO“) to the Ministry of Foreign Affairs of the state and service shall be deemed to have been effected when the writ or document is received at the Ministry.

[25] The court rejected arguments made by General Dynamics UK Ltd that section 12 should be construed in accordance with section 3 of the Human Rights Act 1998 or the common law principle of legality as allowing alternative directions as to service in exceptional circumstances where rights of access to the court would otherwise be infringed, finding section 12 to be proportionate.

[26] London Steam-Ship Owners’ Mutual Insurance Association Ltd v Spain and London Steam-Ship Owners’ Mutual Insurance Association Ltd v France M/T Prestige [2021] EWCA Civ 1589.

[27] In accordance with the well-established principle that a third party to a contract containing an arbitration clause who claims a right under that contract takes that right subject to the arbitration clause.

[28] Section 3 set out an exception to state immunity where proceedings relate to a commercial transaction entered into by the state. A commercial transaction includes any contract for the supply of goods or services, any loan/other financial transaction or obligation and “any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a state enters or in which it engages otherwise than in the exercise of sovereign authority”.

[29] Section 9 sets out an exception to state immunity where proceedings relate to the arbitration of a dispute which a state has agreed in writing to submit to arbitration.

[30] Hulley Enterprises Limited and others v The Russian Federation [2021] EWHC 894 (Comm).

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