(First published in In House Lawyer, February 1997)
Lawyers and businessmen are frequently critical of judicial interference in arbitrations. There are many horror stories of arbitrations being delayed for years by parties fighting through the courts in an attempt to delay an inevitable result. It is therefore natural that one should hear calls for a quick fix solution - keep Judges out of arbitration. Here we consider whether this is desirable and whether, in English law, it is possible.
The history of English arbitration over the last 20 years is one of decreasing judicial interference. When the Arbitration Act 1996 comes into force at the end of January 1997 this process will have been taken a step further. This trend has been generally welcomed but the fact remains that it is extremely important that there should be some recourse to the courts if an arbitration clause is not to result in serious injustice or delay. The Act permits a degree of judicial involvement at each stage which is designed to make England an attractive venue for international arbitration.
Suppose parties to a contract set up an arrangement which effectively excludes all court interference. Some time later, one party wishes to start an arbitration. What happens if the mechanism for appointing the tribunal breaks down? Most sophisticated legal systems provide a procedure by which the court will assist in the appointment of arbitrators. Take another example. What happens if a vital piece of evidence is in the hands of a third party or the subject matter of the dispute is in third party hands and is about to be destroyed? The arbitrator has no jurisdiction over strangers to the contract and is therefore powerless. Only the court could intervene. Suppose the arbitrator accepts a bribe or is found to have a significant financial interest in the outcome but he refuses to withdraw. If the local court cannot interfere before an award is made, what is to stop such an award being enforced, at least in the country in which it was made?
These are just some problems which can arise if recourse to the courts is excluded altogether. An advocate of zero court involvement would argue that some of these problems can be dealt with at the enforcement stage. For instance, an award made by a corrupt or biased arbitrator would not be enforced in other countries which are signatories to the New York Convention. The courts of the country in which the arbitration took place might also refuse enforcement on public policy grounds even though those same courts could not have interfered during the arbitration. However, whilst there may be answers to some of these problems, the risk remains that without judicial support some arbitrations could never be started; others where vital evidence could not be brought before the arbitrator and others where the subject matter of the dispute could be lost.
For these reasons, the majority of practitioners favour a degree of judicial support while also criticising the excessive court involvement which used to characterise English arbitration law.
The remaining question considered in this article is whether the new Arbitration Act allows parties to an arbitration taking place in England to opt out of recourse to the courts completely.
Many provisions of the Arbitration Act 1996 can be disapplied by agreement. Some cannot. Those provisions which are mandatory are helpfully gathered together in Schedule 1 of the Act (see box). These mandatory provisions apply where the seat of the arbitration is in England and Wales and would not apply if the seat was in, say, France. However, even in those circumstances, there is a residual category of powers vested in the English courts which are always available and which the parties cannot disapply by agreement. That category comprises the English court's powers to stay English proceedings where there is an arbitration agreement covering the dispute, the court's power to grant leave for an award to be enforced as if it were a judgement of the court and the power to grant subpoenas. Those are absolute powers always available to the English court irrespective of any contrary agreement and wherever the legal place of the arbitration.
Let us now return to those mandatory provisions in Schedule 1 which are not included in the short list of core powers which apply wherever the arbitration is taking place. Can the parties effectively avoid those provisions in relation to an arbitration taking place in England by specifying that the seat of the arbitration is elsewhere? The answer appears to be that they can. Section 3 of the new Act seems to provide that if the parties agree that the seat of the arbitration is, say, in Paris, then that choice has effect. The fact that the arbitration takes place exclusively in London (perhaps even between two English parties and relating exclusively to English subject matter) seems to make no difference. Quite why parties should wish to do this might be open to question. However, 'the less judicial intervention the better' remains a commonly held view, especially where sovereign powers are involved. An artificially designated seat does seem to be a possible way of achieving this.
Of course, if the parties nominate a foreign seat for their arbitration which will take place in London, they could find themselves subjecting the arbitration to the potential scrutiny of the courts in the country of that seat. That may be a case of out of the frying pan and into the fire. That leads to another thought. Can the parties nominate as the seat of their arbitration a place which is outside any court's jurisdiction? Perhaps a specified location in outer space? The report of the Departmental Advisory Committee on the Arbitration Bill chaired by Lord Justice Saville recommended that English law should not recognise the concept of an arbitration without a seat. To nominate as a seat a place which is outside any court's jurisdiction would, if valid, circumvent that objective. There must therefore be a real possibility that a choice of that kind would, in English law, be ineffective.
Even if such an artificial choice is possible under English law, there are doubts over the enforceability of the resulting award. In one of the best known delocalised arbitrations, British Petroleum Company (Libya) Limited v Libyan Arab Republic (1980) Yearbook of Commercial Arbitration, 143,147, the arbitrator, Lagergren J commented that 'the effectiveness of an arbitral award that lacks nationality...generally is smaller than that of an award founded on the procedural law of a specific legal system and partaking of its nationality.' In his published doctoral thesis on the New York Convention, Albert Jan van den Berg expresses the view that most countries would refuse to recognise and enforce a national award.
One final (and slightly frivolous) point. If the determined 'zero interventionist' is still not deterred from trying an artificial choice of seat in order to avoid English court intervention despite all the above, he may be wise not to select a point in outer space. Article II of the Treaty on Principles Governing the Activity of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies, 1967 prevents signatory states from claiming sovereignty over the moon and other points in outer space. However, it is clear from the wording of the treaty that this does not preclude the acceptance of jurisdiction by national courts in respect of activities taking place in outer space. Therefore, to conduct an arbitration in outer space, even hypothetically, might result in a number of national courts being willing to accept jurisdiction over the arbitration procedures!
In conclusion, it is believed that the new English Arbitration Act strikes a fair balance between the authority of arbitrators on the one hand and an assurance of sufficient judicial support to avoid injustice on the other. The Act allows a substantial measure of freedom for the parties to contract out but reserves a small core of powers to the courts in all cases. There is some scope for the determined anti-interventionist draftsman for seeking to avoid the non-core powers set out in Schedule 1. However, for the reasons discussed in this article, there are real risks involved in trying to avoid those powers by the selection of a seat of the arbitration outside England and Wales if the intention is that the arbitration should, in fact, take place there. There are even greater dangers in attempting to delocalise the arbitration or to designate as the seat of the arbitration a place beyond the reach of any court.
Provisions of the 1996 Act which are mandatory if the seat is in England & Wales
Section
*Stay of legal proceedings 9-11
Extension of time limits 12
Application of Limitation Acts 13
Removal of arbitrators 24
Death of arbitrators 26
Fees of arbitrators 28
Immunity of arbitrators 29
Objections to jurisdiction 31
Preliminary jurisdiction points 32
General duties of arbitrators 33
Expenses of arbitrators 37(2)
General duties of the parties 40
*Attendance of witnesses 43
Withholding award against fees 56
Orders for costs 60
*Enforcement of award 66
Challenging the award 67-71
Persons not participating in arbitration 72
Loss of right to object 73
Immunity of arbitral institutions 74
Charge in respect of solicitors' costs 75
*Provisions which are mandatory wherever the seat.
This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.
