Fine-tuning the English Arbitration Act: reactions to the Law Commission’s consultation paper

Today, the Law Commission published its first consultation paper as part of its review of the Arbitration Act 1996 (the “Act“). The stated aim of the review has been to ensure that the Act remains “best in class”: an approach based upon fine-tuning, rather than root and branch reform. Nonetheless, the consultation paper proposes some notable and very welcome changes and clarifications, which we outline and briefly comment on below. Continue reading

Upcoming Webinar: Attitudes to Compulsory Mediation in Arbitration and Litigation

On Wednesday 19 October 2022 at 12:30 pm (GMT) speakers from Herbert Smith Freehills will join the panel for a live London Chamber of Arbitration and Mediation (LCAM) webinar on compulsory mediation in arbitration and litigation.

The recent LCAM-HSF survey on attitudes to compulsory mediation sought respondents’ views on whether a form of compulsory mediation should be introduced into the litigation and/or arbitration process and, if so, in what form. The webinar will look at these topics and other insights from the survey. Continue reading

INSIDE ARBITRATION ISSUE #14 PERSPECTIVES ON CROSS-BORDER DISPUTES

Welcome to issue 14 of Inside Arbitration.

We are delighted to share with you the latest interactive issue of this publication from Herbert Smith Freehills’ Global Arbitration Practice.

Despite signs of post-Covid recovery, the invasion of Ukraine has had global ramifications, exacerbating the already challenging cost-of-living crisis, with soaring inflation as energy, food and consumer product prices have spiked. Many of our corporate clients have been faced with closing their Ukrainian operations and supporting staff through enormously challenging circumstances. As trusted advisors to our clients, we need to be able to anticipate and respond to the challenges and opportunities on the horizon as political and financial instability have knock-on effects across regions and sectors.

Incorporating articles, interviews and videos from our practitioners around the network, this edition features articles and interview spotlights from across our global team in addition to recent arbitration news and developments including:

  • The war in Ukraine – implications for investments and contracts: Andrew Cannon, Hannah Ambrose, Olga Dementyeva and Jake Saville-Tucker explore some of the principal considerations in relation to terminating Russia-related commercial contracts and how investment treaties may offer an avenue for recourse if investments in Ukraine or Russia are affected by Russian state action.
  • The future of energy disputes: shocks to the system: Craig Tevendale, Louise Barber and Divyanshu Agrawal discuss how battered supply chains and turbulent geopolitics mean the energy sector should brace for a surge in disputes
  • Cyber disputes – are there borders in the blockchain? With the cyber economy fast emerging, courts are struggling with drawing borders in a decentralised world. Simon Chapman QC and Troy Song highlight one recent case that hints at the path ahead
  • Arbitration in Dubai: wa hala’ la wein (where do we go from here?): Following a busy year, Stuart Paterson, Nick Oury and Patrick O’Grady reflect on how the consolidation of two leading Dubai arbitration centres has radically changed the UAE disputes landscape
  • Whether virtual or physical, we can do more to make arbitration hearings sustainable: Amal Bouchenaki, Craig Tevendale, Maguelonne de Brugiere and Olga Dementyeva present the findings of our study comparing the carbon impact and expense of virtual hearings with in-person equivalents.
  • Investor-state dispute resolution series part II: Reform or rebirth?: With concerns from stakeholders growing, Andrew Cannon and Vanessa Naish consider how ongoing reforms could rebalance the ISDS process.
  • Asia-Pacific private equity disputes to rise as deal volumes grow: Following a period of pandemic-enforced turbulence, private equity deals have rebounded strongly, with disputes likely to grow as a result. Chad Catterwell and Guillermo Garcia-Perrote consider the implications of recent developments for disputes in this sector.
  • Spotlight interviews: Our three new arbitration partners Jonathan Ripley-Evans, Dan Waldek and James Allsop feature in our Spotlight articles, shedding light on their specialisms in their regions (and their story so far)

Previous issues can also be viewed here. We hope that you enjoy reading issue #14 of Inside Arbitration and would welcome any feedback you may have.

English High Court confirms that a non-participating party may contest jurisdiction even though an arbitrator has been appointed

In National Investment Bank Ltd v Eland International (Thailand) Co. Ltd and another [2022] EWHC 1168 (Comm), the English High Court considered the interaction between sections 72(1) and 18 of the English Arbitration Act 1996 (the “Act“). Section 72(1) allows a non-participating party to an arbitration to seek a declaration from the English Court as to the lack of jurisdiction of the tribunal, and section 18 of the Act gives the Court the power to appoint a tribunal where there is a failure of the appointment procedure between the parties.

The claimant, which was a non-participating party in an arbitration, sought a declaration from the High Court under section 72(1) that the sole arbitrator did not have jurisdiction. In response, the defendants argued that the effect of the Court having appointed the sole arbitrator pursuant to section 18 was to render the claimant a party to the arbitral proceedings and thus to preclude the claimant from relying on section 72.

The Honourable Mr Justice Foxton rejected this argument, finding that the section 72 application remained available notwithstanding the section 18 appointment and upheld the merits of the application. This decision will give comfort to non-participating parties to arbitration proceedings that the important protection for non-participants to an arbitration under section 72 remains firmly intact.

Background

This case arose from the commencement of conflicting court and arbitration proceedings in respect of the same matter. The claimant, NIB, entered into a series of agreements with the defendants, Eland Thailand and Eland Ghana (together, “Eland“) which provided that disputes “may be referred to an Arbitrator under the Laws of the United Kingdom in London”.

Eland Thailand commenced proceedings against NIB under these agreements before the courts in Accra, Ghana (the “Accra Proceedings“). Both NIB and Eland formally participated in the preliminary stages of the Accra Proceedings, with NIB seeking to join Eland Ghana as a party to its counterclaim.

However, Eland Ghana then applied to stay the Accra Proceedings in order to commence arbitration. The application was granted and Eland served a Notice of Arbitration on NIB. When NIB did not engage with the arbitration, Eland applied to the English High Court to appoint an arbitrator under section 18, with Mr Justice Baker ordering the appointment of a sole arbitrator.

In parallel, NIB successfully applied to set aside the stay of proceedings in the Accra Proceedings. NIB then applied to the High Court under section 72(1) for a declaration that the arbitrator who had been appointed in the arbitration did not have jurisdiction to decide the claims which were the subject of the Accra Proceedings.

Decision

In its application, NIB argued that by electing to pursue the claims through the Accra Proceedings, Eland had irrevocably waived its right to pursue the same claims in arbitration. Eland argued that no such waiver had taken place, but that in any event the Court’s appointment of the arbitrator pursuant to section 18 prevented NIB’s reliance on section 72.

The effect of the Court’s appointment under section 18

Section 18(4) of the Act provides that “[a]n appointment made by the court under this section has effect as if made with the agreement of the parties“. Eland argued that the appointment of an arbitrator by the Court under section 18 therefore meant that the non-participating party could be treated as having participated in the appointment process, thereby becoming a party to the arbitral proceedings. As section 72(1) limits the availability of section 72 to a person “who takes no part in the proceedings“, NIB would not be able to rely on section 72 – either because the effect of section 18(4) and the Court’s appointment means that NIB was a party to the proceedings or was deemed to have participated in the appointment process.

Foxton J was unable to accept this argument. He first confirmed that in order to exercise its powers under section 18, it is not necessary for the Court to reach a final decision on whether there is an arbitration agreement between the parties, or whether the dispute in question falls within the scope of that arbitration agreement. It is sufficient that the applicant can show a good arguable case to that effect. Consequently, it is possible to satisfy the pre-conditions for an appointment by the Court under section 18, yet for there to be either no valid arbitration agreement or for the matter in question not to fall within the scope of the arbitration agreement for the purposes of sections 72(1)(a) and (c).

Citing the Department Advisory Committee on Arbitration Law (“DAC“) Report on the Arbitration Bill (February 1996), Foxton J emphasised the important protection provided by section 72 to those who dispute the arbitral tribunal’s jurisdiction and take no part in the arbitral process. On Eland’s construction, that “vital” protection would be lost. There is nothing in the DAC Reports of February 1996 or January 1997 to suggest that section 18(4) was intended to preclude reliance on section 72.

Moreover, the erosion of the section 72 protection would operate in a “haphazard way”. For instance, reliance on section 72 would not be precluded where a contractually-designated body (rather than the court) appointed an arbitrator, or where a sole arbitrator is appointed by the participating party under section 17. Furthermore, section 17(2) is intended to address the same issue as section 18(4), namely, non-participation in the appointment process. However, section 17(2) uses different language which is not susceptible to the same purported preclusion of section 72 (“whose award shall be binding on both parties as if he had been so appointed by agreement”). Eland’s argument would therefore involve a “stark and unexplained distinction” between sections 17(2) and 18(4).

Foxton J considered the statutory language of sections 18(4) and 72(1) to be “clearly aimed at different issues”. Section 18(4) clarifies that an arbitrator’s powers and the effect of an award do not differ where the arbitrator in question is court-appointed rather than party-appointed. In short, section 18(4) is intended to apply to the outcome or effect of the appointment, but it does not apply to the participation of the non-participating party in the appointment process for any other purpose. Section 72(1), by contrast, refers to a person “alleged” to be a party to arbitral proceedings, and thus operates in circumstances where this is the issue in dispute which section 72 is intended to resolve.

Eland’s waiver of its right to arbitration

Foxton J also accepted that both of the Eland entities had, on the facts, elected to pursue the claims in the Accra Proceedings, and that they had therefore waived the right to refer those claims to arbitration – emphasising that this decision was based on the specific circumstances of this case and the status of Eland Ghana as a “sister company” to Eland Thailand. He therefore granted the declaration which NIB sought pursuant to section 72. He also relieved NIB of liability for the costs of Eland’s section 18 application.

Comment

This decision serves as a strong message to litigants that the “important protection” provided by section 72 to those parties who dispute a tribunal’s jurisdiction and take no part in the arbitral process is not eroded by section 18. An arbitral tribunal is competent to decide whether it has jurisdiction over the dispute submitted to it, and in most cases, parties challenging an arbitrator’s jurisdiction will make their case directly to the tribunal itself. However, Section 72 provides an alternative route to those parties who wish to challenge the tribunal’s jurisdiction, but prefer to have nothing to do with the arbitration and apply directly to the Court instead.

Foxton J’s comments on “the unattractive prospect of claims by companies in the same corporate group raising the same claims relating to the same contracts in court and arbitration” also serve as a reminder to be cautious about pursuing parallel proceedings in respect of the same matters via affiliate companies.

For more information, please contact Craig Tevendale, Partner, Louise Barber, Senior Associate, or your usual Herbert Smith Freehills contact.

The authors would like to thank Jordan Robinson for his assistance with this article.

Craig Tevendale
Craig Tevendale
Partner, London
+44 20 7466 2445
Louise Barber
Louise Barber
Senior Associate, London
+44 20 7466 2140

TURKMENISTAN BECOMES PARTY TO NEW YORK CONVENTION

Turkmenistan has become the 170th state party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), having acceded on 4 May 2022. The Convention will come into force for Turkmenistan on 2 August 2022.

Turkmenistan has made a number of reservations and declarations, meaning that it will only apply the Convention with respect to:

  • recognition and enforcement of awards made in the territory of another party to the Convention (the so-called “reciprocity reservation”);
  • disputes which are considered commercial disputes under its national law (the so-called “commercial reservation”); and
  • awards which are rendered after the convention enters into force for Turkmenistan (i.e. 2 August 2022).

Turkmenistan is the first state so far to become a party to the Convention in 2022. Last year saw Belize, Malawi and Iraq become parties to the Convention.

For more information, please contact Craig Tevendale, Partner, Liz Kantor, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Elizabeth Kantor
Elizabeth Kantor
Professional Support Lawyer
+44 20 7466 2406

‘Obvious accounting mistake’ sinks LMAA arbitrator’s award in rare successful s.68 challenge by charterer

In Ducat Maritime Ltd v Lavender Shipmanagement Inc [2022] EWHC 766 (Comm), the English High Court set aside part of an award under section 68(2)(a) of the Arbitration Act 1996 on the grounds that an ‘obvious accounting mistake’ by an arbitrator had breached the duty of fairness under section 33 of the Arbitration Act 1996. Contrary to common ground between the parties and without giving them an opportunity to comment on a departure from that common ground, the arbitrator had mistakenly included the value of an unsuccessful counterclaim in the award, thereby inflating the amount awarded by approximately 33%.

This High Court authority will give comfort to parties whose arbitration award contains obvious errors but which the arbitrator fails to correct.

Continue reading

WHICH COVID-19 COMMERCIAL RENT DISPUTE BODY SHOULD I USE? KEY TERMS COMPARED

The UK Government has introduced a new statutory scheme under the Commercial Rent (Coronavirus) Act 2022 (the 2022 Act) for the resolution of disputes between landlords and tenants in relation to rent arrears accrued during the pandemic. The background to the scheme and when it may be used is discussed in our earlier blog here.

Arbitration bodies must be approved by the Government in order to administer arbitrations under the scheme. The Department for Business, Energy and Industrial Strategy (BEIS) has now published a list of arbitration bodies (the Approved Bodies) that have been approved to do so. In this post, we consider the procedural requirements of the statutory scheme, the offerings of each of the Approved Bodies and how the scheme differs to the standard process adopted for arbitrations under the Arbitration Act 1996 (the Arbitration Act).

Continue reading

HERBERT SMITH FREEHILLS LAUNCHES THE 3RD EDITION OF ITS GUIDE TO DISPUTE RESOLUTION IN AFRICA

We are delighted to present an updated version of our Guide to Dispute Resolution in Africa. This unique Guide presents the latest perspectives on dispute resolution procedures and trends in all of Africa’s 54 jurisdictions.

Drawing on the extensive knowledge of our Africa practice lawyers as well as experienced local counsel in each of the jurisdictions, the Guide answers some of the key questions asked by those facing disputes in Africa and by potential investors interested in the continent’s legal systems. With the expected increase in investment across an array of sectors and across the continent, the scope for formal dispute resolution in Africa has significantly increased and will likely continue to do so.

Continue reading

The English court retains its robust approach to challenges to arbitral awards: Commercial Court releases its statistics

The Judiciary of England and Wales has published the Commercial Court Report 2020-2021 (The Report). These reports are released annually to give an overview of the courts’ work and decision-making. For arbitration practitioners, they also provide insight into the number of applications made before the English court to challenge arbitral awards and how these applications are resolved. This year’s Report continues to show the English courts’ non-interventionist approach to arbitration and the high threshold for a successful challenge within the jurisdiction.

Continue reading