The Arbitration Act 1996
Mustill & Boyd say that the piecemeal evolution of English arbitration law has avoided the ossification of some other states where a codified arbitration law has been overtaken by events. But the English arbitration law’s most serious weakness has been its almost complete absence of any systematic analysis of the underlying concepts.
The 1996 Act aims to transform that picture by creating an accessible and almost complete code of conduct. What, then is arbitration? For the answer to that question it may be necessary to look at the aims of the Act.
The Aims and Philosophy of the Act
The fulfilment of its declared aim (its long title):
“An Act to restate and improve the law relating to arbitration pursuant to an arbitration agreement; to make other provision relating to arbitration and arbitration awards; and for connected purposes” leaves the substance of the previous law largely unimpaired.
Historically there has been a relationship between the courts and participants in voluntary arbitration that involved a mutual exchange of powers. However over time there has been an acknowledgement that as far as possible parties should have their disputes decided by procedures they have agreed.
Nevertheless Parliament recognized that it would not be possible to codify the huge amount of case law that has built up over centuries. Rather it sought to include what it felt were the more important common law principles.
Whereas other countries have either enacted the UNCITRAL Model Law on International Commercial Arbitration directly, or have passed legislation based upon it, the English Act is more ambitious. It aims to restate and improve the law relating to arbitration where the parties have agreed to arbitrate.
A small number of key areas have not been included, precisely because they are unsettled, and because they are better left to the common law to evolve.
One such aspect concerns privacy and confidentiality in arbitrations. Privacy and confidentiality have long been assumed as general principles in English commercial arbitration. However there are exceptions and it is only relatively recently that the English courts have examined the legal basis for such principles. There is no doubt that an arbitration agreement carries with it an implied term to the effect that the proceedings are confidential to the parties. However those drafting the new Act came to the conclusion that the exceptions have yet to be analysed in depth or detail by the courts. For now it is said that there are three main exceptions that have been brought to light by recent cases (pp112/113 M&B):
First, disclosure is permissible with the express or implied consent of the party originating the material;
Secondly, disclosure is permissible by leave of (or by order of) the court;
Thirdly, is where material is deployed before the court in proceedings concerning the arbitration.
However, the inclusion of these exceptions and qualifications was felt likely to create new impediments to the practice of English arbitration and, in particular, to add to English litigation on the issue. Far from solving a difficulty, it was felt that new ones would be created.
The essence of the Act offers a set of principles to replace those incorporated in decided cases. The main principles are:
“the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense"
"the parties should be free to agree how their disputes are to be resolved, subject only to such safeguards as are necessary to the public interest”
“in matters governed by this Part the court should not intervene except as provided by this part”.
All these are established in section 1 of the Act.
Principle 1 is also incorporated into section 33 that sets out the duties of the arbitrator qualified only by his selection of procedures “suitable to the circumstances of the particular case”. The reference to fair resolution will be recognizable as natural justice or due process. However, while economy is important it is not the whole criterion; the aim is to avoid unnecessary delay and expense. It is submitted that the avoidance of waste is supreme and the arbitrator should always have that in mind.
Principle 2 is expressed as party autonomy. The purpose of the Act is to give the parties and their representatives the opportunity to control all aspects of the proceedings. This axiom, though, is subject to public policy.
As to the third principle, the limitation on court interference is founded on Article 5 of the Model Law. The aim is not that there should be no intervention at all because the court is intended to have a free hand to cut across the carefully balanced regimes of international and national instruments. Of course, an arbitrator who under-performs should be subject to the sanction of the court, but there is an emphasis detectable in the Act to remit the case to him in preference to other remedies. Furthermore, it is clear that actions for the determination of preliminary points of law can only be entertained when all parties agree and when the question will produce substantial savings in costs and when the application is made without delay.
Scope of the Provisions
One problem area that had to be addressed is the context of international arbitrations. Where conflict of laws arises, it may have been possible to provide that all arbitrations conducted in England and Wales or in Northern Ireland should be subject to the Act. However Parliament decided that would be contrary to the principle of party autonomy. It decided that there were no reasons of public policy to prevent the parties conducting an arbitration here under an agreement governed by foreign law or in accordance with a foreign procedural law. Section 4(5) follows that principle. Of course, those drafting the Act recognized that cases could arise where considerations of our own concepts of public policy could lead to the refusal of the English court to enforce an award. But that is covered by section 66(3).
Potential Benefits of Arbitration Under the 1996 Act
The following part of this talk focuses on some aspects of the Act that may be seen as benefits that arise from the new statement of arbitration law. These are by no means intended to be exhaustive but aim to show the way in which the new environment of English arbitration law offers more appropriate procedures and remedies for those seeking dispute resolution.
Among the more obvious assets are that the parties may select their arbitrator or tribunal, which may be a choice of a panel of three arbitrators. Convenience is equally apparent in the choice of language and, of course the choice of venue, whether in geographical terms or in terms of suitable surroundings. Arbitration offers a wider choice of procedure than litigation. Thus the parties may demand an early resolution as part of their selection of arbitrator: for example I have often been asked whether, if appointed, I would undertake to produce an award by a given date. The 1996 Act allows the parties to dictate the specific procedure to be adopted, whether by an “ad hoc” selection of procedures for the whole arbitration or for any preliminary issues. Privacy may be an important aspect for the parties, particularly where commercial interests are at stake.
An arbitration award may be regarded as binding because of the restricted rights of appeal. Thus unless the arbitrator misconducts the hearing or fails to take account of matters addressed to him, there can be no recourse to the courts save where, as indicated above, the court’s determination of a point of law is sought by the parties and it would save costs.
I have already looked at issues of privacy, which in my experience often have a real impact as far as the parties are concerned. And, of course, there is a closer consideration of finality.
There are in my submission, particular financial aspects that make arbitration preferable to litigation in appropriate circumstances. First there is the availability of awards of compound interest on debts and certain damages. In commercial disputes the inability of the court to award compound interest save as damages in itself can severely restrict the remedy available to a winning party. That is an innovation of the 1996 Act. Even more attractive to the winning party is the award of compound interest on sums awarded and not paid after the delivery of the award. As a spur to settlement of the sums awarded, whether in respect of the substantive award or of costs, there must be an incentive to the parties to settle those matters once and for all.
Furthermore, the Act introduces the concept of limiting recoverable costs, sometimes known as “cost capping”. Sensibly used, and subject to any tactics deployed by financially stronger adversaries, there can be a real incentive to adopt suitably economical procedures. In the right circumstances it can be a powerful aid to reducing unnecessary expenditure.
The use of “documents only” procedures arise not entirely as a result of the 1996 Act although the arbitrator is given a wider range of procedural and evidential matters under section 34. These are for the arbitrator may decide, subject to the right of the parties to agree any such form. These options include, for example, the way in which documents are to be used. The section also looks at the application of the strict rules of evidence and allows the arbitrator to consider whether and to what extent he or she may take the initiative in ascertaining the facts and the law.
As can be seen, using these powers may indicate whether the arbitrator should focus on a definition of the issues at an early stage. The Act has spawned the introduction of sets of rules that may be adopted by the parties in relevant cases taking advantage of a series of options given to them by the Act. In the construction field, for example, the Joint Contracts Tribunal has adopted the CIMAR. If adopted these rules grant wide powers to the arbitrator.
The introduction of partial awards allows issues to be separated with consequent savings of costs and time.
It goes without saying, perhaps, that rights of representation are not limited and, indeed, it is common for parties to be represented by lay specialists. Not always successfully, I should add.
A major attraction of arbitration is, as I have mentioned above, the enforceability of an award internationally.
There are a series of changes in arbitration law that warrant mention in this brief review. Among those that I have highlighted is provision for the arbitrator who resigns to go to the court for relief from any liability incurred through his resignation.
I have already mentioned the provision for an arbitrator to take the initiative in ascertaining the facts and the law. Some see this as an inquisitorial procedure and there is some support for that view from the courts, but a prudent arbitrator will take care to ensure that he takes his lead from the parties. The effect of the section is intended to free the arbitrator and the parties from the need to mimic court procedure where the circumstances of the case demand a different approach.
While an arbitrator could always examine his own jurisdiction, the approach is now given statutory support. He has express power to rule on the question by way of award. Moreover the Act grants a series of methods by which the parties may challenge that jurisdiction. The main change is that the new scheme allows the arbitrator to proceed rather than waiting for the challenge to come to fruition. A challenging party that fails to act quickly may also lose its right to found the challenge but equally, or alternatively, a party that is sure of its ground may take no part in the proceedings and mount its challenge after publication of the award.
While it is a fundamental pillar of the Act that the court’s interference in the arbitration process should be limited, section 44 sets out powers exercisable by the court in support of the proceedings. For example it may order what used to be known as Mareva or Anton Pillar relief (freezing orders or search orders). But the court can only act with the agreement of the parties or with the permission of the tribunal. They cannot, of course, confer different powers on the court as they can in relation to the tribunal under section 38 (in terms of procedural matters).
Section 48(5) permits an arbitrator to order a party to do or refrain from doing anything or to order rectification. The setting aside or cancellation of contracts may be appropriate where certain forms of mistake are alleged. Specific performance has long been a tool of arbitrators although the usual caveats apply. These provisions were described by those drafting the Act as clarifying the power of arbitrators to award injunctive relief and the like. Mustill & Boyd suggest that the forms of relief given by the section are self-executory. Only if the award is first converted into a judgment can 1these remedies bite but the relief is available in arbitral proceedings.
The powers to make provisional awards compares with the court’s powers to give summary judgments or orders for interim payment. Such powers can only be exercised when the parties have so agreed and such agreements would have to be carefully drafted. As indicated the power is limited but is nonetheless valuable in certain circumstances.
Finally, the provisions for correcting slips has now been widened to allow an arbitrator to make an additional award where he is aware of a mistake, or where it has been brought to his attention. These provisions are not intended to allow the arbitrator to change his mind but they allow a party to make further representations if there has been an omission in the award.
How to find an Arbitrator
The Chartered Institute of Arbitrators exists to promote arbitration among other forms of dispute resolution. It has a large membership at home and overseas, principally Fellows, Members and Associates nearly all qualified by examination. The governing body of the Institute is the Council made up of elected members augmented by representatives of the branches of which there are a dozen or so. The local branch is the West Midlands. It organizes a series of events, partly educational and partly concerned, among other things with public relations as well as social gatherings.
The headquarters of the Institute is at Russell Square, London. One of its functions is the maintenance of a series of panels of arbitrators. Only chartered arbitrators that are Fellows specially qualified to act as arbitrators are included on the panels. Selection of panel members is by interview. Some panels are devoted to commercial schemes run for organizations such as BT, ABTA, NHBC and the like. Others are devoted to special aspects of the law like shipping or other maritime areas, insurance, or partnerships. Anyone seeking an arbitrator may be assisted by headquarters or by the branches.
Most arbitrations stem from an arbitration clause in a standard form contract although there are many referrals based on ad hoc agreements after disputes arise. Where there is an arbitration clause the usual course is for an aggrieved party to write to the other inviting them to agree on the appointment of an arbitrator. Although it is not unknown for the parties to distrust the other’s nominee, most sensible parties will co-operate on the selection of a suitable arbitrator. Once appointed the arbitrator will normally call a preliminary meeting so that he can be made familiar with the outline of the dispute and make directions for the conduct of the arbitration. Since the 1996 Act with the duty placed on the arbitrator by section 33 to adopt procedures suitable to the circumstances of the case, avoiding unnecessary delay or expense, the preliminary meeting takes on an important role. The arbitrator must attempt to find the particular nature of the dispute so that he can tailor procedures to the parameters of the dispute.
By way of conclusion I recommend arbitration under the 1996 Act as a suitable option to recommend to your clients seeking dispute resolution. Furthermore, an arbitration clause inserted into contracts where such disputes have to be safely covered is a prudent course. Although the right arbitrator has to be selected, the arbitral process can be more user-friendly than litigation with less rigid procedures without sacrificing the means of reaching a fair judgment. Used properly it can be more economical than a route through the courts. Finally it is more effective in terms of enforcement with the benefit of compound interest to ensure speedy payment.
A presentation to Pinsent Curtis: 31 October 2001
by D Roger Dyer