UK: Arbitration Round-Up

Last Updated: 30 July 2008
Article by Leigh Williams and Simon Jackson

Arbitration has historically been a popular method of resolving insurance and reinsurance disputes. The advantages of arbitration - in particular, confidentiality, flexibility, finality (in terms of avoiding the costs and delay of endless rounds of appeals) and the ease of enforcement of awards - have all contributed to this popularity. However, critics suggest that these advantages are being eroded as the courts are asked to hear increasing numbers of appeals from arbitrations, adding cost and delay to the process and prejudicing confidentiality.

The first half of 2008 has produced a number of cases which bear on these criticisms, and illustrate some issues that parties to arbitration should bear in mind in order to get the best out of the process.

Confidentiality

The Court of Appeal's decision in Michael Wilson & Partners v Emmott (2008) has raised again the question of exactly how confidential the arbitral process is meant to be.

The case arose out of a dispute between Mr Emmott, an English solicitor who joined Michael Wilson & Partners ("MWP"), a firm set up by Mr Wilson to provide legal services in Kazakhstan. After five years with MWP, Emmott left and went into business on his own account with some former MWP employees. This led to arbitration proceedings between Emmott and Wilson in London, with Wilson claiming that Emmott had been engaged in a scheme to divert MWP's business in breach of contract. Wilson also started court proceedings in a number of jurisdictions alleging fraud. Emmott was concerned that fraud was alleged in the court proceedings, but not in the arbitration proceedings, giving a misleading impression of what MWP in fact alleged, and so applied to the English court for permission to disclose the documents in the arbitration in the court proceedings.

The court decided that the documents should be disclosed as, although they were in principle confidential, the interests of justice demanded that parties to arbitration should not be allowed to use its confidential nature to mislead foreign courts. The Court of Appeal upheld this decision, commenting that the focus on the limits of confidentiality in this case "should not obscure the fact that the overwhelming majority of arbitrations in England are conducted in private and with complete confidentiality".

Emmott serves as a useful reminder that arbitration confidentiality is not absolute nor all encompassing. The existence of an arbitration dispute has never, in practice, been confidential, and any court involvement in the arbitral process has implications for confidentiality. However, the subject matter of the dispute, the evidence and argument before the tribunal on the merits of the dispute, are confidential and will not be disclosed save in exceptional circumstances. Emmott is a good example of such a circumstance - where keeping the content of the arbitral proceedings confidential might mislead a foreign court when, given the existence of multiple proceedings around the world, the subject matter of the dispute could not be said to be truly confidential in any event.

Challenges

The ability of a party to appeal or otherwise challenge an arbitration award has important implications for the length of time the process of arbitration takes, the cost of resolving a dispute, and how much publicity the dispute receives. An arbitral award that is not appealed inevitably attracts less publicity than one that is.

In the past 18 months, there has been a spate of challenges to arbitration awards under s.68 of the Arbitration Act 1996. This provision gives the court the power to set aside or remit an award on the grounds that there has been a serious irregularity in the arbitration that has caused or will cause substantial injustice to a party. There is an exhaustive list of the kinds of irregularity that qualify and the applicant must bring himself within at least one of them. One kind of irregularity is where the tribunal has failed in its duty to act fairly.

S.68 challenges rarely succeed - reflecting the English courts' respect for the integrity of the arbitral system. Court interference in the arbitral process must be kept to a minimum since arbitration, not court, is what the parties have chosen as the means for resolving their disputes.

One of the most recent challenge cases, Bandwidth Shipping Corporation v Intaari (2007), illustrates this well. During final argument in the arbitration, Bandwidth's counsel failed to deal with an important point on causation because the arbitrators did not ask him whether he had anything to say on it. The arbitrators proceeded to make an award in Intaari's favour, including on this point. Intaari made a s.68 challenge on the grounds that the arbitrators had breached their duty to act fairly. The Court of Appeal dismissed the challenge. Bandwidth needed to show that the arbitrators had appreciated that Bandwidth had overlooked the point and there was no such appreciation. The Court of Appeal reiterated that there was a high threshold to succeed under s.68 and it should not be used simply because a party did not like an award.

Enforcement of arbitration awards

The ease of enforcement of arbitration awards under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is an important advantage that arbitration enjoys over litigation. In contrast to the patchwork of systems for enforcing foreign court judgments that exist across the world, the New York Convention has almost universal acceptance.

Challenges to the enforcement of New York Convention awards are only allowed in very limited circumstances and, as the court demonstrated in Sheltam Rail Company v Mirambo (2008), a dim view will be taken of cynical attempts to frustrate the enforcement of awards.

In Sheltam, an arbitration award which had been made by an English arbitral tribunal was likely to require enforcement in a number of foreign jurisdictions. Sheltam, the unsuccessful party, sought to challenge the award in the English court. However, before the challenge was heard, Sheltam discontinued its claim, saying it had run out of money with which to fund it. The court was not impressed and decided that Sheltam's true objective was to seek to cast doubt over the award (and so try to prevent its enforcement abroad) by suggesting that, had it not run out of money, its challenge might have been successful. Sheltam was forced to undertake to the court that it would not challenge the enforcement of the award abroad if that proved necessary.

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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