UK: International Arbitration In England - The Arbitration Act 1996

Last Updated: 22 July 1997

CONTENTS

  • An overview of key developments
  • More flexible procedures
  • Party autonomy
  • Reduction in the powers of the courts
  • A clear restatement of the law
  • Conclusion
  • The Norton Rose Arbitration Group

1 AN OVERVIEW OF THE KEY DEVELOPMENTS

"I hope that those from abroad who read the Act will be persuaded that this jurisdiction is an ideal place to hold an international arbitration, since they can now understand what this is likely to entail, and can see that we have tried to reflect generally accepted international views on the proper conduct of the arbitral process." (The Right Honourable Lord Justice Saville)

A new Arbitration Act is set to come into force in England, Wales and Northern Ireland on 31st January 1997. Designed to strengthen London's position as a prime venue for international dispute settlement, the new Act provides arbitration users with a thoroughly modern law to encourage faster, less expensive and less complicated arbitrations. To achieve this, the Act limits the extent to which the courts can become involved, while giving increased freedom to the parties themselves and broad new powers to arbitrators. It ensures that English law remains in step with recent international developments by incorporating most of the provisions of the model arbitration law developed by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. The result is an improved legal framework for arbitration which will be attractive and workable for the international business community.

Perhaps the main improvement of interest to international users of arbitration in London is the firm entrenchment in English law of the principle of "party autonomy". Essentially, this principle protects the parties' freedom to choose and define the arbitration procedure they feel best suits the particular circumstances of their dispute. This is especially significant to international commercial parties arbitrating in London because it means that, in the interests of economy and expediency, they will be able to adapt the arbitral procedure to the specific nature of their dispute and to their own legal, cultural and linguistic backgrounds. This allows international parties, for example, to adopt and use legal procedures and practices similar to those with which they may already be familiar in their countries of origin. In fact, the Act positively encourages parties not to follow English rules of court procedure with which foreign parties will almost certainly not be familiar. Moreover, the Act makes specific provision for some aspects of procedure and practice that are entirely foreign to English court proceedings such as inquisitorial initiatives by arbitral tribunals, and "neutral" or tribunal appointed experts. The choice to arbitrate disputes in London will not necessarily be a choice to do so in accordance with English rules.

There are other significant improvements in the new law:

1. The Act conveniently brings together and restates in simple, user-friendly language, the English law on arbitration which was previously spread out over three statutes and in many court decisions.
2. The Act is based on the principles of fairness, impartiality and avoidance of unnecessary delay. These principles, which are clearly spelled out in the Act, will serve as directives to both arbitrators and judges who will have to interpret and apply the new law.
3. The court's power to intervene in and supervise arbitrations is greatly reduced.
4. Arbitrators' powers have been correspondingly increased. Arbitrators, not the courts, will decide such issues as their own jurisdiction, security for costs and whether an arbitration can be dismissed for want of prosecution.
5. The Act confirms the concept of the "separability" of the arbitration clause in English law. This principle operates to preserve the parties' decision to resolve their disputes through private arbitration in cases where the contract containing the arbitration clause may otherwise be void or unenforceable.
6. What is meant by the legal "seat" of an arbitration has been clarified. This ensures that arbitration proceedings, meetings and hearings can take place outside London, when that is more convenient or less expensive, without the loss of the security and advantages resulting from the parties' choice of London as the legal "home" of the arbitration.
7. A broad and commercially practical meaning has been given to the requirement that arbitration agreements be in writing. This now includes a variety of situations such as arbitration agreements which are contained in an exchange of documents or correspondence, those contained in unsigned contracts or which are evidenced in other documents.
8. Arbitrators now have the power to award compound interest.

2 MORE FLEXIBLE PROCEDURES

"... one of the main purposes of the [Act], ... is to encourage arbitral tribunals not slavishly to follow court or other set procedures." (Report of the Departmental Advisory Committee on Arbitration Law)

In the past, too many arbitrations have been conducted as though they were court proceedings. As a result, many of the supposed advantages of arbitration, such as speed and flexibility, were sometimes lost. Section 33 of the Act now specifically requires arbitrators to "adopt procedures suitable to the circumstances of the particular case". The intention for the future is that where the parties fail to agree on procedure, arbitrators will exercise control over the conduct of arbitrations in a flexible and innovative manner, having regard to the wishes of the parties and the nature of the dispute. This practical approach to procedure should allow arbitrators wide discretion for cutting costs even where the parties themselves are unable to agree.

The Act confirms and clarifies other procedural powers which arbitrators may exercise. These include, for example, the right to appoint experts and assessors (s.37), the power to order security for costs (s.38) and the power to dismiss claims in cases where there has been inordinate and inexcusable delay (s.41).

The Act makes it quite clear that international arbitral procedures taking place in London need not mirror English court procedures. It confirms that arbitrators are not obliged to apply English rules of evidence (s.34(2)(f)). In fact, the parties may dispense with them altogether. In addition, arbitrators may "take the initiative in ascertaining the facts and law" - a clear departure from the strictly adversarial nature of English court proceedings.

3 PARTY AUTONOMY

"An arbitration ... is a consensual process. ... Unless the public interest otherwise dictates, this has two main consequences. Firstly, the parties should be held to their agreement and secondly, it should in the first instance be for the parties to decide how their arbitration should be conducted." (Report of the Departmental Advisory Committee on International Law).

One important feature of the Act is the repeated emphasis of the principle of party autonomy. The parties to an arbitration in London will enjoy important new freedoms. They can decide what powers to give the arbitrators, whether the arbitrators should be persuaded to consolidate several arbitral proceedings and the laws which the arbitrators are to apply to the merits. Parties may even ask the arbitrators to rule on the basis of general principles of equity or their own subjective judgement of what is fair rather than on the basis of the strict letter of a national law.

The parties' freedom is perhaps best exemplified by the opportunity for them to opt out of many provisions of the Act. They may, for example, exclude any appeals on points of English law thereby ensuring the finality of the award (s.69).

As mentioned above, arbitrators have been given quite wide powers to determine procedure. However, it is important to bear in mind that the exercise of those powers is almost always subject to any agreement on such questions which the parties themselves may have reached.

If the parties fail to agree, the arbitrators may exercise their powers under the Act to determine procedure. The Act's emphasis upon party autonomy and the principles of efficiency, speed and cost -effectiveness means that the arbitrators will now be far less likely to fall back on English style court procedures. The Act requires them to determine procedure with a view to what is in the best interests of the parties.

4 REDUCTION IN THE POWERS OF THE COURTS

"...our law has been subject to international criticism that the Courts intervene more than they should in the arbitral process [...]. The idea that the Court has some general supervisory jurisdiction over arbitrations has been abandoned." (Report of the Departmental Advisory Committee on Arbitration Law.)

If arbitration is to flourish as a distinct form of dispute resolution and if the principle of party autonomy is to be fully respected, private arbitrations should be kept as free as possible from court intervention. The Act achieves that goal. Appeals, time extensions and ancillary relief - three areas where the courts have traditionally become involved - illustrate the scope of the new reforms:

APPEAL ON A POINT OF LAW

A right of appeal on a point of law has been retained. However, the occasions on which the court may be called on to intervene are severely restricted (s.69). In the first place, the possibility arises only where English law is applicable to the merits. In addition, parties will be free to exclude the right of appeal. In fact, any instruction by the parties that the arbitration tribunal need not give reasons for its award will be understood as an intention by them to exclude appeals on points of law. Other notable restrictions on this right of appeal are:


1) the point of law must have a substantial effect upon the rights of at least one of the parties, and
the point must be one that has been raised before the arbitral tribunal, and
2) on the basis of the facts decided by the tribunal, the court (when hearing an application for leave to appeal) must be satisfied, either:
(i) that the point of law obviously has been wrongly decided by the tribunal, or
(ii) that the issue is one of general public importance and there is a serious doubt as to whether the tribunal decided it correctly; and finally
3) the court must consider that it is just and proper to intervene.

TIME EXTENSIONS

In recent years it has become not uncommon for claimants to obtain a time extension from the English courts, thereby permitting the commencement of arbitration proceedings after the expiry of a contractual time-bar. Such extensions were granted under s.27 of the Arbitration Act 1950, which applied a test of "undue hardship". Claimants who had inadvertently failed to observe the contractual time-bar were often successful in obtaining a time extension. Under the Act (s.12), it will be much more difficult to obtain a time extension. The court will grant an extension only if:

  • the circumstances which have arisen were outside what the parties reasonably contemplated at the time the time-bar was agreed and it is just that time should be extended, or
  • the conduct of the other party makes it unjust to enforce the time-bar against the claimant.

In recent years, a large proportion of time extension applications have resulted simply from a claimant's inadvertent failure to give timely notice of arbitration. It is most unlikely that time extensions will be granted in such cases in future.

ANCILLARY RELIEF

Of course, it is seldom desirable to exclude the jurisdiction of the courts completely. As the inherent jurisdiction of the courts is much wider than the powers of arbitrators, there will always be occasions when it may be called upon to assist the arbitral process by the appointment or replacement of arbitrators or by granting orders for ancillary relief. Such orders will now correctly be seen as an aid to arbitration rather than as an attempt to supervise or interfere with the arbitral process.

This extra-arbitral assistance is especially important in the area of urgent interim or conservatory measures since it can sometimes take some time to establish an arbitral tribunal. Section 44 of the Act provides that unless the parties have agreed to exclude the court's jurisdiction, the courts may, for example, make orders for:
  • the taking of evidence from witnesses;
  • the preservation of evidence;
  • the sale of goods; and
  • the granting of an interim injunction or the appointment of receivers.

5 A CLEAR RESTATEMENT OF THE LAW

" ... what is called for is ... a restatement of the law, in clear and 'user-friendly' language, following, as far as possible, the structure and spirit of the Model Law ..."(Interim Report of the Departmental Advisory Committee on Arbitration Law)

Whilst the Act is not an exhaustive code of English law relating to arbitrations, it does codify the leading principles extracted from existing legislation and case law. This makes English arbitration law more accessible than ever before to domestic and international users alike. In fact, the Act has been drafted to take account of the fact that foreign parties do not always have ready access to the reported decisions of the English courts.

The Act completely replaces all the pre-existing legislation and does so in remarkably clear and straightforward language. It is intended to be readily understood by all users including lawyers from diverse legal systems and by business people with no legal training.

6 CONCLUSION

The most obvious immediate effect of the Act is greatly to simplify English law. The Act brings English law up to date, in particular because it adopts large parts of the UNCITRAL Model Law which has been tried and tested in numerous other jurisdictions and has proved to be popular with international lawyers and business executives alike.

The new English law also allows arbitral tribunals henceforth to give full effect to the specialised rules of international arbitration institutions such as the London Court of International Arbitration (LCIA) and the International Chamber of Commerce (ICC) whenever arbitrations conducted pursuant to such rules take place in London. The idea that the courts have a general right to supervise arbitrations has now been abandoned in English law. The parties - and arbitrators - have been given much greater powers to control their own procedures and to develop their arbitral process as a flexible, discrete and cost- effective form of dispute resolution.

7 THE NORTON ROSE ARBITRATION GROUP

Norton Rose's Arbitration Group comprises lawyers with wide-ranging experience of cases before various arbitration tribunals, including those established under the rules of the major international arbitration bodies, such as the ICC, the LCIA, the London Maritime Arbitrators Association (LMAA), the Hong Kong International Arbitration Centre (HKIAC), the Singapore International Arbitration Centre (SIAC) and the China International Economic and Trade Arbitration Commission (CIETAC) as well as various professional, commodity and trade associations.

Members of the Norton Rose Arbitration Group are based in our offices in Paris, Hong Kong, Singapore, Bahrain, Piraeus and Moscow as well as in London. They work in a number of languages and are qualified and experienced in a broad variety of national legal systems, including those of both common law and civil law countries. Some partners sit as arbitrators in both international and domestic disputes. The firm is a member of the LCIA, the LMAA and the City Disputes Panel. Michael Lee, the Head of the Group, is a member of the UK National Committee of the ICC International Court of Arbitration and the ICC Commission on International Arbitration. In addition to conducting cases before arbitration tribunals, we also advise on the suitability and form of arbitration clauses in commercial contracts at the important drafting stage.

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.

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