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Arbitration, litigation and the growth of the common law

In the recent BAILII Lecture 2016 the Lord Chief Justice (LCJ) called for a rebalancing of the relationship between arbitration and the courts. The LCJ’S primary concern was that the present turning which the law had taken in 1979 and the Nema Guidelines, largely embedded in the Arbitration Act 1996 (AA 1996), had stunted the common law’s growth. Furthermore, the UK had gone too far in favouring the perceived advantages of arbitration as a means of dispute resolution in London over the development of the common law. Due to its confidential nature and the fact that arbitrators are not vested with a state judicial role, the increased use of arbitration in fields such as construction, engineering, shipping, insurance and commodities means that, together with the restrictive conditions on appeals in section 69 AA 1996, such disputes are less commonly considered by the courts. This gives them less opportunity to clarify and develop the law. The LCJ’s concern has been voiced in other quarters as well. However, the proper approach to remedying this is debatable.

Reform of section 69?

Where they turn purely on factual matters, arbitrations cannot be said to cause a lack of case law development. Where a case turns on a legal point then section 69 provides an appeal route unless excluded either ad hoc (rare) or by any institutional rules agreed (see, for example, International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA) Rules and London Maritime Arbitrators Association (LMAA) Small Claims Procedure). Some have argued that, even as formulated, section 69 allows for too much court interference. Internationally, a right to appeal on law in arbitrations is the exception rather than the rule. It is also inconsistent with the UNCITRAL Model Law, where finality of awards is favoured. Sir Bernard Eder’s “piece of paper”, perhaps already well-known, was a response and a challenge to the international perception that English courts intervene too much in arbitration, even though successful challenges are few. That a response was deemed necessary suggests that, internationally, an increased ability of the English courts to consider legal appeals may be unwelcome. Thus where there are increasingly competent competitors to London as arbitral seats, it must be weighed carefully whether a more flexible section 69 may push parties abroad. This could stunt English common law even further.

Further, what form would reform take? Any return to the previous case stated procedure, when tactical delay was common and it was making England less attractive for arbitration, must be eschewed.  A lower criterion or sliding scale would allow more appeals to get through than the current stringent section 69 criteria. The LCJ was concerned that the section 69 restriction to questions of “general public importance” is a serious impediment to common law growth. However, where there is a genuine dispute on the interpretation of a standard form contract or market practice, it is likely that permission to appeal would currently be given. Moreover, the “general public importance” heading is an alternative. Permission under section 69 (provided other conditions are met) can also be given where the tribunal’s decision is “obviously wrong”. This is usually applied in the paradigm “one off case”. Further, parties can already agree before and after a dispute has arisen that there will be a right to judicial appeal, dispensing with any need for court permission (see section 69(2)(a) and Royal & Sun Alliance v BAE). Yet there is little evidence that parties regularly agree such a dispensation (except in some construction contracts such as the Joint Contracts Tribunal (JCT) form), which may suggest that there is currently little market appetite for more appeals.

In these circumstances, section 69 is probably still seen as holding a reasonable balance between the courts and tribunals, and reforming it to provide more flexibility should only be undertaken if an effective case is made after further empirical research. Interestingly, at the recent London Shipping Law Centre event on the AA 1996 the majority feeling was that section 69 did not require reform.

Many section 69 appeals are from LMAA awards. Arguably reform (if enacted) could apply different leave standards for such industries where there is an appetite for an increased court role, or the LMAA (and other bodies) could consider whether their members currently require clauses providing for an automatic right of appeal as part of their standard arbitral terms (a stronger version perhaps of the limited opt-in agreement in the LMAA Intermediate Claims Procedure).

Section 45

The section 45 procedure for applying to a court to determine a point of law could be used more effectively. If used sensibly this provision could indeed increase London’s attractiveness as an arbitral venue since, in cases which turn on disputed law and on which a section 69 appeal is foreseeable, an early application to a court to determine the legal point(s) would save costs and time. Although a party intent on delay may be unwilling to give permission under section 45(2)(a), tribunals could become more proactive in giving permission under section 45(2)(b). Those who argue for less court interference may not agree with this, but ultimately the saving of time and costs must be an essential consideration.

Encouraging litigation

The recent Commercial Court changes detailed by the LCJ are a strong pointer of how the market may be persuaded to use courts more often. In international commercial disputes, parties essentially have a choice of resolution forum. Ultimately commercial courts around the world must consider how to attract more parties. Part of this process will be to offer a greater array of expertise, choice and flexibility. In this regard, the English Commercial Court’s development of the specialised Financial List, the piloted Shorter and Flexible Trial procedures and the financial markets test case scheme are all important innovations since they help provide quicker, expert, flexible and cost effective dispute resolution.

Courts may also need to look at whether other espoused advantages of arbitration can be matched by them. This is not the place to consider the LCJ’s criticisms of the perceived benefits of arbitration in detail, save to say that some of the points may be up for keen debate. Taking the example of confidentiality, although the LCJ is correct about anecdotal evidence that awards can be acquirable, few lawyers would disclose an award without proper permissions. In any case, any such disclosure is still far from the public forum that is the court. Although on enforcement or appeal confidentiality can be compromised, this is the price for the dispute entering the public arena. Usually it is the losing party who faces potential loss of reputation as a non payer which comes with this (although there may be wider confidentiality concerns). However, even if the criticisms as to arbitration’s perceived benefits are correct, courts will have to find effective ways to fill the gaps in order to encourage parties to choose litigation. Again regarding confidentiality, this may be perhaps by recognising an increased ability to offer privacy. This is not an easy task when considering the open justice principle referred to by the LCJ and the fact that the whole point is to encourage a public development of the law.

Increased ratifications of the Hague Convention of 30 June 2005 on Choice of Court Agreements (which entered into force on 1 October 2015, and is sometimes termed “the New York Convention of Litigation”), which provides for a uniform regime for recognition and enforcement of contracting state judgments, may also eventually help persuade parties to choose litigation. However, since ratifications beyond the EU are limited as yet, this may be a longer term hope rather than an immediate selling point.

Conclusion

An increased ability to appeal arbitral awards has the potential to shift disputes elsewhere and hence further undermine precedential development. It should therefore be undertaken only if there is strong evidence that change will be purpose effective. At the moment, the preferred solution appears to be that the courts continue to evolve to offer innovative solutions to litigants as well as emphasising existing competencies (comprehensive appeal mechanisms, availability of effective interim relief and so forth). In addition, amendments to arbitration agreements to allow the courts to consider appeals without leave or a greater use of section 45 could be encouraged in the market. The concern in the increasingly globalised dispute resolution market is not just philosophical but practical.

Stone Chambers Ishfaq Ahmed

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