UK: Litigation Vs Arbitration: Unclear Choice Of Forum

Last Updated: 1 December 2015
Article by Paul Friedman

The English courts generally strive to uphold agreements between parties and this principle applies equally to arbitration agreements. The English courts are also committed to supporting arbitrations over which they have jurisdiction.

The English Arbitration Act 1996 defines an arbitration agreement simply as: "an agreement to submit to arbitration present or future disputes (whether they are contractual or not)" (and requires such an agreement to be in writing).  The statutory requirements for a valid arbitration agreement are, therefore, minimal (although it is advisable to provide as much detail as possible about the future framework of any arbitration, to reduce the risk of dispute).  The English courts have shown that they are prepared to afford the parties some leniency when deciding if an arbitration agreement entered into by the parties is valid, and to strive to interpret ambiguities in such a way that the validity of the agreement may be upheld.  A recent Commercial Court decision demonstrates this point.

In Exmek Pharmaceuticals SAC v Alkem Laboratories Limited [2015] EWHC 3158, the claimant challenged an award on jurisdiction (pursuant to section 67 of the Arbitration Act 1996). The contract between the parties had provided for the exclusive jurisdiction of the "courts of the UK" and for any disputes to be arbitrated in accordance with the "law in the UK". However, there are no "courts of the UK or "law in the UK", instead, the United Kingdom has three legal systems: English (applying to England and Wales), Northern Irish and Scottish.

Burton J noted, as a preliminary point, that the reference to the exclusive jurisdiction of the courts as well as arbitration was not irreconcilable and could be read together: the procedural law of the arbitration would be "UK law" and the "UK courts" would have supervisory jurisdiction. He then went on to hold that the reference to UK law was not ineffective or ambiguous – instead it should be read as referring to the courts and law of England and Wales. This was a case involving an international trade contract and the jurisdiction of England and Wales (and its law) is regularly resorted to for resolving such international legal disputes (the Commercial Court deals with such disputes on a daily basis). It made no difference that there were no factors indicating a connection with England or London here.

As such, this case confirms that the English courts are prepared to ascertain the intention of the parties in relation to an arbitration agreement, even if the express words used do not make legal sense.  A further example of this approach can be found in the 2010 decision in Chalbury McCouat International Ltd v PG Foils Ltd [2010] EWHC 2050. There, the parties had referred to the "laws of European Union in the Europe", but the court had construed this as meaning that there was a strong suggestion that the applicable law should be determined under the laws of the European Union and so the Rome Convention applied. That in turn had indicated that English law would be the governing law in that case.

Some further issues of interest arose in the Exmek case.  The contract provided for disputes to be referred to arbitration before any legal proceedings are initiated. Although there was no express provision for the arbitration to be final and binding, the judge was satisfied that the parties intended it to be so and in any event section 58 of the Act (which provides that unless otherwise agreed by the parties, an award shall be final and binding) applied.

The judge also commented that although it is possible to abandon an arbitration (either expressly or impliedly), mere "radio silence" by the defendant had not been enough to prove this.

Having concluded that the parties had agreed a binding arbitration clause, the judge also considered whether the arbitrator had been precluded from acting because he was the same nationality as the claimant. A number of arbitral institution rules (including the LCIA and ICC) provide that a chairman or sole arbitrator should not be the same nationality as one of the parties. However, the judge rejected an argument that if an application were to be made under section 18 of the Act, the court would not sanction the appointment of a sole arbitrator with the same nationality as one of the parties. In any event, this was not a jurisdictional issue, instead, a challenge should have been brought under section 68 of the Act on the ground that the duty of fairness had been breached (because the arbitrator had selected which of the LCIA rules he would, and would not, be guided by).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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