What with the speech of the Lord Chief Justice bemoaning the lack of commercial cases making their way through the English Commercial courts as a result of the limited rights of challenge and appeal under the English Arbitration Act, one might have gained the impression that the English courts were travelling in a different direction to the rest of the world on the fundamentals of arbitration law. Not so. A review of the case law from 2016 reveals that the English courts are as supportive of arbitration as ever, unafraid to strike out into new areas when so required. In this post, I explore 6 key areas.
- Support for third party funding: costs of third party funding are recoverable in arbitration proceedings
Amendments to legislation in Hong Kong and Singapore to legalise third party funding for international arbitration have recently caught the attention of the international arbitration community (see here and here). However, under English law, there have not been the same inhibitions on the permissibility of third party funding and, in fact, last year an English court went further by recognising an arbitral tribunal’s power to order that the costs of third party funding may be recovered.
In Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm) the English Court held that the costs of third party funding fall within an arbitrator’s general costs discretion. As a matter of language, context and logic, it falls within the “other costs” portion of the “legal or other costs of the parties” which an English seated tribunal has the discretion to order under ss 59(1)(c) and 63(3) of the English Arbitration Act 1996.
Is this potentially transformative? It has been widely predicted that this decision will lead to an increase in applications to recover the costs of third party funding in English seated arbitrations. This must be right. Essar Oilfields is a case which could be readily distinguished on the facts, but in practice is still opens the door widely to these sorts of claims.
First, the English court emphasised that whether or not the costs of third party funding will be recoverable is a matter for the discretion of the arbitral tribunal. In Essar Oilfields – described in the judgment as a “perhaps unusual” case – the arbitrator had been guided by the justice of the case. The defendant in the arbitration had sought to exert commercial pressure on the Claimant in what was described as a “David and Goliath battle”, leaving the claimant with no alternative but to enter into a litigation funding agreement. The actions of the defendant were so serious that indemnity costs were awarded against it.
A review of the case law from 2016 reveals that the English courts are as supportive of arbitration as ever, unafraid to strike out into new areas when so required.
This may have been a case with extreme facts, but the logic of the judgment does not limit the exercise of the arbitrator’s discretion to requiring a justice element. Indeed, as Essar Oilfields was an ICC case, the judge referred to ICC guidance that the overall requirement of reasonableness can act as an important check and balance. What constitutes reasonable is fact dependent, but would certainly seem to open the door to cases with less extreme facts than Essar Oilfields.
Second, there will often be limited scope for review by the English courts of the exercise of an arbitral tribunal’s discretion to direct that third party funding costs be recovered. Essar Oilfields was a case where these limitations were explored; an appeal on a point of law had been excluded by party agreement under the ICC Rules (as is often the case), so the only route to review of the arbitrator’s decision was under s 68(2)(b) of the Arbitration Act on the basis that the arbitrator had: (i) exceeded his powers; and (ii) this had caused substantial injustice. However, the court held that the arbitrator’s decision on the costs of third party funding did not fall within the s 68(2)(b) route; the arbitrator had the power to award costs, so there was no question that he had exceeded his powers. The upshot is that a defendant seeking to challenge the decision of an arbitrator to award third party funding costs may not have an easy time getting the English courts to look at it.
(It is interesting to contrast this decision with the other major third party funding decision last year from the Court of Appeal in Excalibur Ventures LLP v Texas Keystone Inc & Ors [2016] EWCA Civ 1144, where the court held that indemnity costs were recoverable from a third party funder. This is the other side of the coin, where a hopeless action had been funded by a third party funder. However, this was a litigation case, where a third party can be joined to the litigation. Of course, in arbitration proceedings there is no similar reciprocity because a third party funder is unlikely to be a party to the arbitration agreement.)
- The English court will disregard the IBA Guidelines on Conflicts of Interest to achieve a sensible outcome
The IBA Guidelines on Conflicts of Interest in International Arbitration have long been regarded as the go-to document when it comes to the appointment of an arbitrator for establishing whether arbitrators, counsel and/or parties have a conflict. Their success is in no small part due to the traffic light system, which sets out circumstances in which there can be no waiver or must be an express waiver (the Non-Waivable and the Waivable Red List); where if a disclosure is made and no objection is made after a timely period, the parties are deemed to have accepted the arbitrator (the Orange List); and where no conflict exists (the Green List).
The English courts have long stated that they are not bound by the IBA Guidelines, although they may be of some assistance; for example failure to comply with disclosure requirements under the Orange List was cited in the extraordinary case of Cofely Ltd v Bingham and Knowles [2016] EWHC 240 (Comm) from February 2016.
However, last year also saw the English court take a far more critical approach. In W Ltd v M SDN BHD [2016] EWHC 422 (Comm), Knowles J identify two inter-connected “weaknesses” in the IBA Guidelines, namely that: (i) the IBA Guidelines treat compendiously (a) the arbitrator and his or her firm, and (b) a party and any affiliate of the party, in the context of the provision of regular advice from which significant financial income is derived; and (ii) this treatment takes place without reference to the question whether the particular facts could realistically have any effect on impartiality or independence. Knowles J’s comments are best understood within the context of the facts of this case.
In W Ltd, the arbitrator was a partner with a Canadian law firm. That law firm provided legal services to, and earned substantial remuneration from, Q. Q was a subsidiary of the defendant, P, in the arbitration. At the time of the arbitrator’s appointment, and subsequently, the arbitrator had conducted conflict checks with his firm and made immaterial disclosures. He was not alerted to the fact that Q was a client of the firm or its relationship with P.
But there is still plenty of grey area to be worked out: what if the arbitral institution took an erroneous view that a matter did not require urgent attention, would the court accept the application?
Under English law the issue is whether there is apparent bias: i.e. whether: “a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”. This case did not meet that standard. There was no suggestion that the law firm of the arbitrator acted for a party or the parent of a party, conflict checks had been made and this issue had not been brought to the attention of the arbitrator, and finally had the arbitrator known of the issue, he would have made a disclosure. Simply put, there was no evidence that the arbitrator could have been biased as a result of the work done by the firm as he did not know about the work his firm had done for a subsidiary of the defendant.
Notwithstanding this, the circumstances of W Ltd prima facie fell within the Non-Waivable Red list. Knowles J expressed serious doubt that they should. One of his principal complaints was that this case called for a case-specific judgment, which was not catered for under the IBA Guidelines in this particular case. This analysis goes further than the court in A & Ors v B, X [2011] EWHC 2345 (Comm), another case where the court did not find the IBA Guidelines to be of particular assistance. However, there the court construed the Guidelines so that the circumstances of the case (where an arbitrator was instructed by lawyers representing one of the parties in the arbitration in an unrelated litigation case) fell outside the Waivable Red List.
Knowles J’s decision in W Ltd may be seen as preserving the arbitral process in the absence of good grounds for concern regarding the arbitrator’s independence and impartiality, but it also underscores the importance of not taking the IBA Guidelines at face value at least as far as English law is concerned.
- The English court may not issue urgent interim relief where an application to an emergency arbitrator can be made
Gerald Metals S.A. v Timis & Ors [2016] EWHC 2327 (Ch) also attracted attention last year because it dealt with the circumstances in which the English court will grant urgent interim relief when an application may be made to an emergency arbitrator. This is particularly interesting because the inclusion of emergency arbitrator provisions in major institutional rules is a relatively recent phenomenon, and this was the first time the English court had cause to consider their interplay with the English Arbitration Act.
One of the techniques adopted under the English Arbitration Act, so as not to interfere with the jurisdiction of an arbitral tribunal, is found in S44 which gives the court powers to make order in support of arbitral proceedings; specifically s 44(3) which requires urgency and s 44(5) which provides that “the court shall act only if or the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively.” If it is possible to appoint an emergency arbitrator to deal with an application for urgent interim relief (as it is under many institutional rules now), will the court ever be able to act under s 44?
In Gerald Metals, the court accepted that the obvious interpretation of the provision in the LCIA rules providing for an emergency arbitrator was that it intended to reduce the need to invoke the assistance of the court in cases of urgency. Therefore, while it was accepted that the court still has a role to play in granting urgent relief, it is more limited. It was common ground that there will still be circumstances in which the court may properly act, where relief was so urgent that the power to appoint an emergency arbitrator is insufficient – for example, an application which needs to be made without notice, such as a freezing injunction. However, the court will only be able to act because the arbitral tribunal was unable to act effectively within the relevant timescale. The relevant timescale is the time it would take to form an arbitral tribunal, which must be shortened as a consequence of the availability of expedited formation of a tribunal or the appointment of an emergency arbitrator.
The court’s logic is to uphold the parties’ agreement (reflected in the LCIA Rules in this case) that urgent cases be referred to a tribunal where there is time for expedited formation of the tribunal or for the emergency arbitrator to be appointed and there are not other special circumstances which make application to the court necessary (such as the need for it to be made without notice). Again, the English court seeks to support the arbitral process by preserving the full effect of an agreement to expedited formation/an emergency arbitrator. However, we may expect this issue to come back before the courts before too long.
In Gerald Metals, the LCIA had rejected an application for the appointment of an emergency arbitrator in light of certain undertakings given by the respondent to meet the claimant’s concerns. The English court’s decision can therefore be seen as striving to uphold the process agreed by the parties (again).
But there is still plenty of grey area to be worked out: what if the arbitral institution took the erroneous view that a matter did not require urgent attention? Would the court then accept the application? Would it make a difference if an application is made under S37 of the Senior Courts Act for an anti-suit injunction, for example (s 37 does not have the limitations of s 44(5))? What of the scope of Article 9.12 of the LCIA Rules? This provides that the provisions relating to emergency arbitrators shall not prejudice any party’s right to apply to a state court for interim measures before the formation of the arbitral tribunal and shall not be treated as an alternative to or substitute for the exercise of that right. In Gerald Metals, the court rejected the suggestion that this meant that the availability of an emergency arbitrator should not be taken into account for the purposes of assessing the court’s powers under s 44. If so, then what is the point of this broadly worded preservation, in particular that it does not represent an alternative or substitute? These are all issues which the court may yet return to in future.
- The English court determines issues which are usually the preserve of investment treaty tribunals
In Gold Reserve Inc v The Bolivian Republic of Venezuela [2016] EWHC 153 (Comm), the English Court stepped into the shoes of an investment treaty tribunal. In this case the court considered an application to set aside an order granting leave to enforce an arbitral award issued in respect of a claim under the Canada-Venezuela Bilateral Investment Treaty (the “BIT”). Venezuela applied, unsuccessfully, to set aside the order on the grounds that the tribunal had no jurisdiction because Gold Reserve was not an “investor” under the BIT.
In this case the court grappled with what was required under the BIT to qualify as an “investor”, and in particular what would constitute making an investment in Venezuela. While the English court did not defer to the reasoning of the arbitral tribunal, in reality it departed from the tribunal’s rationale in only limited ways; again upholding the approach taken in international arbitration.
I will post more shortly on the jurisdictional issue, as well as on the short but important practical points for enforcement applications against States which arose in this case.
- Expansionist approach to the adjudicatory jurisdiction of the English court for sovereign immunity purposes where there is an arbitration agreement
In L R Avionics Technologies Limited v The Federal Republic of Nigeria, Attorney General of the Federation of Nigeria [2016] EWHC 1761 (Comm), the English Court held that proceedings under the Arbitration Act 1996 to recognise an arbitral award and enter judgment fall within the State Immunity Act 1979, s 9. As such proceedings “relate to an arbitration”, they are subject to the arbitration exemption from state immunity, giving the English Court adjudicatory jurisdiction over those claims. I will also be posting on this case very soon.
- Post-award, a non-interventionist approach is still the order of the day
We also saw a typical stream of cases where the English court refused to overturn decisions of arbitral tribunals:
- C1 & others v D [2016] EWHC 510 (Comm) dismissing challenges for lack of jurisdiction and serious irregularity related closely to the logic applied by the tribunal to the facts of the case;
- National Iranian Oil Company v Crescent Petroleum Company [2016] EWHC 1900 (Comm) dismissing challenges to jurisdiction and an argument that the award was procured contrary to public policy (allegations of bribery);
- Union Marine Classification Services v Government of the Union of Comoros [2016] EWCA Civ 239 refusing an appeal of a decision to set aside a second arbitral award where it was alleged that the tribunal was functus officio upon the publication of their first award; and
- NYK Bulkship v Cargill International SA [2016] UKSC 20 reinstating the decision of the arbitral tribunal on an appeal on the law.
So in 2016 the English courts remained robust, consistently supporting the arbitration process.
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