The anational character of arbitration is often said to be an appealing feature since parties agree to apply lex mercatoria or equitable principles (ex aequo et bono).30 Conversely, recourse will be had to national law where there are gaps in the ICC’s31 or United Nations Commission on International Trade Law’s (UNCITRAL) rules on arbitration. Moreover, courts, used for enforcing an arbitral award, may refuse to enforce the award in some circumstances. Similarly, the award may, in some circumstances, be subject to judicial review.

Finally, arbitral awards need to be enforceable if arbitration is to play a meaningful role in the dispute resolution process. In international commerce, the issue is whether an award made in England is enforceable abroad, and whether an award made abroad is enforceable in England. A number of international conventions make the recognition and enforcement process relatively simple. Important among these conventions is the New York Convention on Recognition and Enforcement of Arbitral Awards,32 adhered to by well over 100 states.

Arbitration in international commercial contracts

Arbitration clauses are most common in international commerical contracts, and arbitration is expected to play more of a central role as a result of globalisation.33 Parties may opt for institutional arbitration offered by national or international institutions, or ad hoc arbitration.

Institutional arbitration

The American Arbitration Association (AAA)34 and the Nederland Arbitrage Instituut (NAI) are perhaps the better known national institutions offering services in the area of commercial arbitration. At the international level, the ICC and the LCIA have a well established worldwide reputation. Recently established arbitration institutions, such as the Australian Centre for International Commercial Arbitration (ACICA)35 and the Australian Commercial Disputes Centre (ACDC), are also emerging as serious contenders in the provision of arbitration services in the Asia-Pacific region. Organisations, such as Grain and Feed Association (GAFTA),36 Federation of Oils, Seeds and Fats Associations (FOSFA)37 and the London Maritime Arbitration Associations, also provide arbitration facilities for commodities’ trade and maritime disputes.

Use of institutional arbitration offers a number of advantages:

(a)Set procedural rules. For example, the AAA, LCIA and ICC have specific rules to address procedural issues, such as the appointment of arbitrators and the language of the arbitration in the absence of any indication by the parties.The ICC adopted a revised version of Rules of Arbitration, which came into effect on 1 January 2012.38 The new rules, although preserving the changes

30Carbonneau (ed), Lex Mercatoria and Arbitration, 1990, Transnational Jurist; Paulsson, ‘Delocalisation of international commercial arbitration: when and why it matters’ (1983) 32 ICLQ 53.

31For instance, Art 19(1) of the ICC Rules of Arbitration provides: ‘The proceedings before the Arbitral Tribunal shall be governed by these Rules, and, where these Rules are silent by any rules which the parties or, failing them, the Arbitral Tribunal may settle on, whether or not reference is thereby made to the rules of procedure of a national law to be applied to the arbitration.’

32See ‘Foreign arbitral awards’, pp 604–7.

33See Wetter, ‘The internationalization of international arbitration: looking ahead to the next 10 years’ (1995) 11(2) Arbitration International 117.

34www.adr.org.

35www.acica.com.au.

36www.gafta.com.

37www.fosfa.org.

38The text of this document is available at www.iccwbo.org.

introduced by the Rules of Arbitration 1998 such as modification of time limits set by the rules and declaration by the arbitral tribunal that the proceedings are closed once parties have had a reasonable opportunity to present their cases, introduces new features. These include provisions to deal with disputes involving multiple contracts and parties (Arts 7–10) and the appointment of emergency arbirators (Art 29).

(b)Handling administrative matters. For example, assistance with establishing dates, time, venue.

(c)Wide-ranging experience. For example, the ICC has offered international commercial arbitration services for over 75 years.39

(d)Scrutiny of arbitral awards. For example, where the ICC Arbitration Rules apply, the tribunal is required to submit to the International Court of Arbitration of the ICC the award in draft form for its approval.The court may lay down modifications as to the form of the award, and may also draw its attention to points of substance without affecting the tribunal’s liberty of decision (Art 27).

(e)Some institutions (for example, the ICC) fix arbitrators’ remuneration and administrative costs within a scale providing the parties with a general idea about the likely cost of the arbitration. For instance, according to the ICC Rules of Arbitration 2012, where the sum in dispute is not in excess of $US 50,000, administrative costs are fixed at $US 3,000 and the arbitrator’s fee between the minimum of $US 3,000 and a maximum of 18.02% (i.e., $US 9,010). The actual amount payable to the arbitrator will be arrived at by taking into account the complexity of the dispute, the time spent, the rapidity of the proceedings and the diligence of the arbitrator according to Article 2(2)Appendix III to the ICC Rules of Arbitration.

Brief mention must also be made of another important institution that provides arbitration and conciliation facilities – the International Centre for Settlement of Investment Disputes (ICSID).40 Brought into existence as a result of the convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965,41 its focus, as can be gathered from the title of the convention, is investment disputes between states and foreign investors from contracting states. Although it has close links with the World Bank, it is an autonomous organisation with its headquarters in Washington, DC, US.

The march of globalisation has inevitably seen an increase in the number of cases submitted to the ICSID. As with other types of arbitration, parties’ submission to the ICSID arbitration is voluntary. As for recognition and enforcement of ICSID arbitral awards, contracting states are required under the convention to recognise and enforce such awards. Given the nature of the focus of ICSID, it does not impinge on commercial contracts for the sale of goods between two parties, hence, an examination of ICSID arbitration rules is beyond the scope of this book.

Ad hoc arbitration

Unlike institutional arbitration, no administration costs are payable in an ad hoc arbitration (i.e., non-institutional arbitration), thus making it an attractive option. However, this type of arbitration does not provide the advantages found in institutional arbitration. In the absence of institution drafted rules, parties need to draft their own procedural rules or fall back on the arbitration rules found in the national law of the seat of arbitration (if available). In the case of England, this is the Arbitration Act 1996. English arbitration law is well established, since London has a long history

39According to the ICC International Court of Arbitration Bulletin (Vol 7(1):3), in 1995, the ICC received in excess of 400 new requests for arbitration to be held in more than 30 countries.

40Visit www.worldbank.org/icsid for further information and documentation.

41The convention came into force on 14 October 1966; and, as of September 2004, 154 states are contracting parties to the convention. It was implemented in the UK by the Arbitration (International Investment Disputes) Act 1966.

of ‘being the hub of international commerce, a clearing house for the financial, legal and other concomitants of world trade’.42 Parties are free, however, to incorporate rules designed by institutions, such as those of the ICC, though these may not always meet the requirements of the parties. A better alternative would be to adopt the arbitration rules devised by UNCITRAL, which does not provide arbitration services but whose rules provide certain safeguards in the event of a stalemate. For instance, if the parties are unable to reach agreement on the appointment of an arbitrator, Art 6(2) of the UNCITRAL Arbitration Rules provides that:

. . . if within 30 days after receipt by a party of a proposal made in accordance with para 1 the parties have not reached agreement on the choice of a sole arbitrator, the sole arbitrator shall be appointed by the appointing authority agreed upon by the parties. If no appointing authority has been agreed upon by the parties, or if the appointing authority agreed upon refuses to act or fails to appoint the arbitrator within 60 days of the receipt of a party’s request therefor, either party may request the Secretary General of the Permanent Court of Arbitration at The Hague to designate an appointing authority.

Arbitration under English law

The law relating to arbitration, until fairly recently (i.e., with the enactment of the Arbitration Act 1996), was dispersed amongst three statutes – the Arbitration Act 1950, the Arbitration Act 1975, and the Arbitration Act 1979. The Arbitration Act 1950 was the main statute containing procedural rules relating to, for instance, the appointment of arbitrators, appointment of umpires and the removal of arbitrators.The Arbitration Act 1975 gave effect to the United Nations Convention on the Enforcement of Foreign Arbitral Awards 1958, and the Act of 1979 addressed judicial review of the arbitral award.

Impetus for the new legislation on arbitration came from the Departmental Advisory Committee that studied UNCITRAL’s Model Law on International Commercial Arbitration 198543 with a view to adopting it into English law. Although rejecting the suitability of adopting the Model Law, the Committee proposed that a new Act should be enacted that was ‘user-friendly’ and accessible to those familiar with the Model Law. This was to ensure that London still maintained its international reputation as an arbitration centre. As Saville LJ observed:

User unfriendliness is a serious problem. London is still the leading world centre for arbitration. Farmoreoftenthannot,ininternationaltradeandcommerce,theonlyconnectionthepartieshave with this country is their agreement to arbitrate disputes here. It is in the interests of this country to promote our expertise in this fi eld and to encourage parties to use arbitration here. The direct and indirect benefi ts are very large indeed, not just in the form of direct foreign exchange earnings (though these are very substantial), but as a signifi cant selling point for City services generally.

There are, however, plenty of competitors, ready, willing and anxious to attract arbitrations to their jurisdictions so as to reap these benefi ts for themselves. Many countries have already adopted the Model Law or otherwise brought their arbitration procedures up to date. We cannot just sit on our existing reputation. The world moves on and to survive we must move with it. The fact is that 10 years have passed since the Model Law without this country improving

42Sir Laurence Street in Tackaberry (ed), International Commercial Arbitration for Today and Tomorrow, 1991, p 226.

43The Model Law was designed to harmonise arbitral procedure rules for the facilitation of international commerce. See Sanders, ‘Unity and diversity in the adoption of the Model Law’ (1995) 11 Arbitration International 1; Hotzmann and Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration, 1989, Kluwer; Broches, Commentary on the UNCITRAL Model Law on International Commercial Arbitration, 1990, Kluwer.Visit www.uncitral.org, which maintains a database of cases decided in countries that have adopted the Model Law. See also Steyn, ‘England’s response to the UNCITRAL Model Law on Arbitration’ (1994) 10(1) Arbitration International 1.

its statutory framework with regard to arbitration. This is not a good advertisement for us; indeed it is calculated to make us very much second best in the world at large unless we can do something very quickly.44

In 1994, the Department of Trade and Industry published a Bill in its consultative paper, which, with amendments, received the Royal Assent in 1996 and came into force on 31 January 1997. The object of the Arbitration Act 1996 is to give greater autonomy to the parties and to aid a fair resolution of the disputes without unnecessary delay or expense. The general principles on which this legislation is based (as expressed in s 1) are:

(a)to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

(b)to impart freedom to the parties to agree on how their disputes are resolved, subject only to those safeguards necessary in the public interest; and

(c)to restrict the extent of intervention by courts to matters specified in the Act.

The Arbitration Act 1996 is triggered when the seat of the arbitration is in England and Wales or Northern Ireland (s 2(1)). The seat of the arbitration is defined in s 3(1) as the juridical seat of the arbitration, which has been designated:

(a)by the parties to the arbitration agreement; or

(b)by any arbitral or other institution or other person vested by the parties with powers in this regard; or

(c)by the arbitral tribunal if so authorised by the parties, or determined, in the absence of any such designation, having regard to the parties’ agreement and all relevant circumstances.

The existence of a seat is central to arbitration under English law; it does not recognise the concept of an arbitration that has no seat.45 Floating arbitration (i.e., an arbitration that has no attachment to the law of a state or territory) is not recognised under English law.46 In most cases, the venue (i.e., physical location) of the arbitration tribunal and the seat of the arbitration will coincide. However, where proceedings take place in more than one location, or move to another location, the seat will have to be established. Where neither the parties to the arbitration agreement nor any arbitral or other institutions have designated the seat of the arbitration, the task of establishing a seat taking into account all the relevant circumstances can be complex, as Dubai Islamic Bank Pjsc v Paymentech Merchant Services Inc47 illustrates. The dispute between the plaintiff (a bank based in Dubai) and the respondent (credit card payment processing centre based in Texas, US) concerned the liability of the bank under a Visa card transaction. The two parties went through the Visa arbitration stages as provided for by the Visa regulations. The final stage (stage three) was the appeal process, to be dealt with by the Visa International Board acting as the appeal authority. The bank appealed against the decision given in favour of Paymentech to the International Board, which dismissed the appeal in a meeting that took place on 9 May 1999 in London. The bank then appealed against the appeal award, seeking relief under ss 67, 68 and 69 of the Arbitration Act 1996.48 The primary issue for the court was whether the seat of

44‘The Denning Lecture 1995: Arbitration and the Courts’ (1995) 61 Arbitration 159.

45Departmental Advisory Committee on Arbitration Law, Report on the Arbitration Bill, 1996, HMSO, para 27.

46See Mayer, ‘The trend towards delocalisation in the last 100 years’, in Hunter, Marriot and Veeder (eds), The Internationalization of International Arbitration, 1995, Graham & Trotman.

47[2001] 1 Lloyd’s Rep 65.

48See ‘Challenging arbitral awards’, below.

the arbitration was in England and Wales.The bank argued that the seat was in England on the basis of the Visa International Board meeting in London. Other than this, the connections to England were the original agreement concluded in England between the bank and Visa, the point of contact between the bank and Visa through the Visa centre based at Basingstoke, and the request for authorisation that would have originated from Basingstoke. Construing all relevant circumstances to mean taking into account any ‘connections with one or more particular countries that could be identified in relation to (i) the parties; (ii) the dispute which will be the subject of the arbitration; (iii) the proposed procedures in the arbitration, including (if known) the place of interlocutory and final hearings; and (iv) the issue of awards’,49 the court held that the seat was not in England. A number of factors contributed to this conclusion: Visa was based in California; the worldwide payment card scheme headquarters were in California, US; the Visa regulations contemplated the appeal process as being handled in California, US; and the notification of the appeal process result was to be handled by theVisa headquarters in California, US. As for the hearing in London, it was purely accidental, since it was not within the contemplation of the parties that the appeal process would necessarily be heard in London.

The Arbitration Act 1996 empowers the parties to an arbitration with control over the proceedings. In keeping with this, the parties’ freedom is wide ranging. It covers agreement on the number of arbitrators to form the tribunal, the procedure for appointment of arbitrators, the consequences on failure of the appointment procedure, the consequences of the resignation of an arbitrator, the filling of vacancies created by the resignation or death of an arbitrator, and the competence of the tribunal to rule on its own jurisdiction.50 The Act lists, in Sched I, mandatory provisions from which the parties cannot agree to derogate. These, according to para 4(1) of Sched I, are:

(a)the stay of legal proceedings (ss 9–11);

(b)the power of the court to extend time limits (s 12);

(c)the application of the Limitation Acts – that is, the Limitation Act 1980 and the Foreign Limitation Periods Act 1984 (s 13);

(d)the power of the court to remove an arbitrator (s 24);

(e)the effect of the death of an arbitrator (s 26(1));

(f)the liability of the parties for arbitrators’ fees and expenses (s 28);

(g)the immunity of the arbitrator (s 29);

(h)objection to the substantive jurisdiction of the tribunal (s 31);

(i)determination of preliminary points of jurisdiction (s 32);

(j)the general duty of the tribunal (s 33);

(k)items to be treated as expenses of arbitrators (s 37(2));

(l)the general duty of the parties (s 40);

(m)securing the attendance of witnesses (s 43);

(n)the power to withhold the award in case of non-payment (s 56);

(o)the effectiveness of agreement of payment of costs in any event (s 60);

(p)enforcement of the award (s 66);

(q)challenging the award: substantive jurisdiction and serious irregularity (ss 67 and 68),51 supplementary provisions, effect of order of court so far as relating to those sections (ss 70 and 71);

(r)saving for rights of persons who take no part in the proceedings (s 72);

49[2001] 1 Lloyd’s Rep 65, at p 74.

50See ss 15–18, 27 and 30. See R Durtnell and Sons Ltd v The Secretary of State for Trade and Industry [2001] 1 Lloyd’s Rep 275.

51See Paterson Farms Inc v C&M Farming Ltd [2004] 1 Lloyd’s Rep 603 on the issue of arbitrator’s jurisdiction to award damages for ‘parent losses’ on the basis of ‘group of companies’ doctrine.

(s)loss of the right to object (s 73);

(t)immunity of arbitral institutions (s 74); and

(u)a charge to secure payment of solicitors’ costs (s 75).

Other than severability,52 another important feature of the Arbitration Act 1996 is the recognition of the doctrine of Kompetenz-Kompetenz – that is, the power of the tribunal to rule on its own substantive jurisdiction. Unless agreed otherwise by the parties, s 30 enables the tribunal to rule on its own jurisdiction in respect of a number of matters – for example, the validity of an arbitration agreement,53 the question of the proper constitution of the tribunal – and to determine what matters have been submitted to arbitration in accordance with the arbitration agreement. Of course, the jurisdiction of the arbitrator can be challenged under s 67 of the Arbitration Act 1996, provided the right to object is not lost under s 73.54

Applicable substantive law

One of the issues that needs to be tackled in a non-domestic arbitration is what law the tribunal must apply to the contract.55 According to s 46 of the Arbitration Act 1996:

(1)The tribunal shall decide the dispute:

(a)in accordance with the law chosen by the parties as applicable to the substance of the dispute; or

(b)if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal.

(2). . .

(3)If or to the extent that there is no such choice or agreement, the tribunal shall apply the law determined by the confl ict of laws rules which it considers applicable.

From these provisions, it is clear that the tribunal will apply the law chosen by the parties. There is no problem where parties have expressly chosen the law of a state to apply to the substance of the dispute. It is much less clear, however, whether s 46(1)(a) also admits of implied choice. Prior to the 1996 Act, a London arbitration clause was regarded by the English courts as a very strong indication of an implied choice of English law as the proper law of the contract, and the advent of the Rome Convention 1980 had not altered the position.56 Unfortunately, the 1996 Act leaves it unclear whether such an implication remains operative under s 46(1)(a), or whether the existence of such an implied choice is to be remitted to the conflict rules that the arbitrator considers applicable under s 46(3). Probably the former law remains unchanged on this point, in view of the ambiguous wording of s 46 and the absence of a weakening of the widespread commercial expectations that a London arbitration clause normally implies a choice of English substantive law.

52See ‘Characteristics’, above; s 7 of the Arbitration Act 1996.

53See LG Caltex Gas Co Ltd v China National Petroleum Corp [2001] 2 All ER (Comm) 97, confirming that s 30 gives the power to the arbitrator to rule on his own jurisdiction in the absence of agreement to the contrary. See also Goodwin, ‘Ad hoc agreements and the Arbitration Act 1996: the LG Caltex case’ (2002) International Arbitration LR 15. See also Kalmneft JSC v Glencore International AG [2002] 1 All ER 76, where the court decided that even in the event of an overlap of facts relating to jurisdiction and substantive issues, the arbitrator could rule on his jurisdiction as a preliminary matter since it was efficient in terms of cost and time. See also People’s Insurance Company of China, Hebei Branch (2) China National Feeding Stuff Import/Export Corp v Vysanthi Shipping Co Ltd (The ‘Joanna V’) [2003] 2 Lloyd’s Rep 617.

54See ‘Challenging arbitral awards’, below.

55See Chukwumerije, ‘Applicable substantive law in international commercial arbitration’ (1994) Anglo-Am LR 265.

56See Chapters 16 and 17.

What if the parties have agreed to apply either ‘internationally accepted principles of law governing contractual relations’ or lex mercatoria (merchant law), or have authorised the arbitrator to decide the issues ex aequo et bono – that is, to be guided by notions of justice and fairness? (Where the choice is ex aequo et bono, the arbitrator takes a lenient view of legal rules, but cannot totally disregard them.) Are awards decided under these conditions acceptable and enforceable? It seems from the decided cases that there would be no problems where internationally accepted principles of law governing contractual relations are applied. In Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Ras alKhaima National Oil Co,57 the enforcement under the New York Convention58 of an award decided on the basis of such principles was allowed. The situation with lex mercatoria (a transnational system of law) may be different, but the wording of s 46(1) is wide enough to accommodate it. Commercial law in England has always taken mercantile custom into account, so why not the law merchant?

As for the arbitrator deciding ex aequo et bono, decisions before the 1996 Act were often hostile. In Orion Compania Española de Sefuros v Belfort Maatschappij voor AlgemeneVerzekgringeen,59 according to Megaw J:

. . . in the conduct of arbitrations, arbitrators must in general apply a fi xed and recognisable system of law, which primarily and normally would be the law of England, and that they cannot be allowed to apply some different criterion such as the view of the individual arbitrator in abstract justice or equitable principles [at p 264].

However, other cases, such as Eagle Star Insurance v Yuval Insurance Co60 and Home and Overseas Insurance v Mentor Insurance,61 support resort to equitable principles. Moreover, s 46(1)(b) states that the arbitration tribunal can decide the issue in accordance with other considerations, and these must surely include equitable principles. Further, it must be remembered that one of the reasons for drafting the new legislation was to maintain London as a centre for arbitration in the face of competition from countries that have adopted the UNCITRAL Model Law on International Commercial Arbitration. Support for the view that the Model Law should be taken into account when interpreting the Arbitration Act 1996 can be found in a number of cases, such as Jitendra Bhailbhai Patel v Dilesh R Patel,62 where the court said that ‘the terms of the UNCITRAL Model Law on International Commercial Arbitration should be taken into account because it is clear that those responsible for drafting the Act had the provisions in mind when doing so’ (at p 325). The Model Law allows for the possibility of arbitrators deciding ex aequo et bono or as amiables compositeurs, under Art 28(3), which states: ‘The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so.’

In the absence of choice, under s 46(3), the tribunal will determine the law applicable to the contract on the basis of the conflicts of law rules it regards as appropriate. As stated earlier, the common law rules on determining the proper law of the contract have been largely supplanted by the Contracts (Applicable Law) Act 1990.63 Although Art 1(2) of the Rome Convention specifically excludes arbitration agreements from its scope, it is clear that this relates only to the validity and interpretation of the arbitration clause itself, and to its potential effect in preventing judicial litigation.The Convention remains applicable in determining the proper law of a contract which contains an arbitration clause, and the arbitration clause must be taken into account under

57[1987] 3 WLR 1023 (CA).

58See ‘Foreign arbitral awards’, below.

59[1962] 2 Lloyd’s Rep 257.

60[1978] 1 Lloyd’s Rep 357.

61[1989] 1 Lloyd’s Rep 473. See also Channel Tunnel Group v Balfour Beatty [1993] AC 334.

62[1999] 3 WLR 322. See also Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd [1998] 4 All ER 570; Shackleton, ‘English arbitration and international practice’ (2002) 5(2) International Arbitration LR 67.

63For Rome I see Chapter 17.

the Convention in determining the proper law of the contract by reference to implied choice or closest connection.64 However, as we have seen, it is possible to read s 46(1)(a) as confined to an express choice of law, so that s 46(3) would leave the significance of an arbitration clause in determining the proper law to the conflict rules considered applicable by the arbitrator. On that basis, the Rome Convention might not apply, and less weight might be given to a London arbitration clause if the parties are from New York and New South Wales, and the conflict rules of those jurisdictions agree – for example, that where the seller must deliver the goods in his own country, a clause specifying arbitration elsewhere is of little importance in determining the proper law.

Where arbitration is conducted under the ICC Rules of Arbitration, the parties have a wide choice. According to Art 21(1), the parties are free to determine the rules of law to be applied to the merits of the dispute. The emphasis on rules of law suggests that the parties need not choose the law of a state but may agree for a body of law, such as lex mercatoria (law merchant), to be applied. In the absence of agreement, the arbitral tribunal will apply rules that it determines are appropriate. Even where the parties have agreed to the application of a national law, the tribunal will take account of the contract provisions and the relevant trade usages (Art 21(2)). If the parties agree, Art 21(3) allows the arbitral tribunal to assume the powers of amiables compositeurs, or to decide ex aequo et bono.

Similar provisions on the law applicable to the dispute are also found in the UNCITRAL Arbitration Rules. Article 33 of these Rules provides that:

(1)The arbitration tribunal shall apply the law designated by the parties as applicable to the substance of the dispute. Failing such designation, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

(2)The arbitral tribunal shall decide as amiable compositeur or ex aequo et bono only if the parties have expressly authorised the arbitral tribunal to do so and if the law applicable to the arbitral procedure permits such arbitration.

(3)In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.

Stay of court proceedings

It is possible that, despite an arbitration agreement, one of the parties initiates court proceedings. The question, in these circumstances, is whether the party who wishes to proceed to arbitration can stop the proceedings that have been initiated in court. According to s 9(1) of the Arbitration Act 1996, a party may, on notice to the other party, apply to the court for a grant of stay. The court will grant a stay of court proceedings unless:

(a)the arbitration agreement is null and void, or

(b)the arbitration agreement is inoperative, or

(c)the arbitration agreement is incapable of being performed (s 9(4)).65

An application for a stay, according to s 9(3), ‘may not be made by a person before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against or after he has

64See Art 1(2) Rome I. For further on Rome I see Chapter 17.

65See Halki Shipping Corp v Sopex Oils Ltd [1998] 1 Lloyd’s Rep 465; Ahmad Al-Naimi v Islamis Press Agency Inc [2000] 1 Lloyd’s Rep 522. See also Atlanska Plovidba v Consignaciones Asturianas SA (The Lapad) [2004] 2 Lloyd’s Rep 219.

598 | ARBITRATION

taken any step in those proceedings to answer the substantive claim’. What constitutes an appropriate procedural step for the purposes of s 9(3) was examined in Capital Trust Investment Ltd v Radio Design AB and Others.66 The defendant (Radio Design) made an application for a stay in December 1999; and, in February 2000, the application was amended to refer expressly to s 9 and to make the assertion that it had not taken any step in the action, such as filing a defence to answer the substantial claim. In May 2000, before the hearing of the application, a further application notice was issued by the defendant in which it stated that an application for stay had been made and ‘in the event its application for a stay was unsuccessful [Radio Design] applies for a summary judgment against the claimant’ (at paras 58 and 59). The court, taking into consideration case law67 decided before the Arbitration Act 1996 and citing statements from commentaries on the 1996 Act approved in an earlier decision,68 concluded that the application for the summary judgment, which stood only in the event that the application for a stay was not successful, was not an appropriate procedural step. In other words, the application did not ‘express the willingness of Radio Design to go along with a determination of the courts instead of arbitration’; instead it was ‘specifically seeking a stay’ (at para 60).

Challenging arbitral awards

By giving the parties greater control over the arbitration process, the role of the court is substantially reduced by the Arbitration Act 1996. Nonetheless, it is possible to challenge the arbitral award on a point of law, for serious irregularity and for failure of substantive jurisdiction.

Point of law

The Arbitration Act 1996 draws a distinction between reasoned awards (i.e., where the arbitrator provides reasons for his awards) and awards lacking reasons. Where parties have agreed to dispense with reasons, it is an agreement to exclude the court’s jurisdiction over review of an arbitration award (s 69(1)). Reasoned awards may, on notice to the other parties and the tribunal, be reviewed by the courts on a question of law. In other words, questions on principles of law, such as whether there is frustration,69 or whether certain terms can be implied into a contract,70 may be reviewed by the courts.

Under s 69(2), an appeal to the court may be brought:

(a)with the consent of all the other parties to the proceedings or

(b)with the leave of the court.

According to s 69(3), leave will be granted only where the court is satisfied that:

(a)the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement;

(b)the question is one which the tribunal was asked to determine;

66[2002] EWCA Civ 135.

67See Kuwait Airways Corp v Iraq Airways Corp [1994] 1 Lloyd’s Rep 276.

68Per Otton LJ in Jitendra Bhailbhai Patel v Dilesh R Patel [2000] QB 551, p. 558.

69Pioneer Shipping Ltd and Others v BTP Tioxide Ltd (The Nema) [1981] 2 All ER 1030. See The Agios Dimitrios [2005] 1 Lloyd’s Rep 23 at p 25 where the approach to s 69 appeal on question of law was no different from The Nema.

70Islamic Republic of Iran Shipping Lines v The Royal Bank of Scotland (The Anna Ch) [1987] 1 Lloyd’s Rep 226.

(c)on the basis of the finding of fact in the award, the decision of the tribunal on the question is obviously wrong; or

(d)the question is one of general public importance and the decision of the tribunal is open to doubt; and

(e)despite the agreement to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.

Further, the right to appeal is subject to the provisions contained in s 73 and s 70(2). According to s 70(2), the applicant has first to exhaust any available arbitral process or review, or any available recourse for correction of an award or additional award, under s 57. Under s 73, a party will lose his right to object if he continues to take part in the arbitral proceedings without making his objections known within the stipulated time. The appeal must be brought within 28 days of the date of the award, according to s 70(3). In the event of arbitral process of review of the award, the 28 days is counted from the date when the party was notified of the result of the process.

The provisions in respect of granting leave to appeal are restrictive and reflect the sentiments expressed in the leading case, Pioneer Shipping Ltd and Others v BTP Tioxide Ltd (The Nema),71 decided under the old legislation (the Arbitration Act 1979). The judicial expressions in this case are still relevant; and, as David Steel J observed, the limitations expounded in The Nema and reaffirmed in The Antaios (see p 600 below) were given statutory form in s 69 of the Arbitration Act 1996.72 In The Nema, the House of Lords said that the courts should be economical in giving leave to appeal. In their guidelines, their Lordships drew a distinction between a one-off clause (e.g., an individually negotiated clause) and standard terms, and suggested that in the former, leave should not normally be given, unless the judge is convinced that the decision of the arbitrator was obviously wrong. As for the latter, leave must be given more freely since the term under consideration could affect like transactions amongst other parties. As Lord Diplock said:

. . . where . . . the question of law involved is the construction of a one-off clause the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge, on a mere perusal of the reasoned award itself without the benefi t of the adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong; but if on such persual it appears to the judge that it is possible that argument might persuade, despite impression to the contrary, that the arbitrator might be right, he should not grant leave; the parties should be left to accept, for better or worse, the decision of the tribunal that they had chosen to decide the matter in the first instance . . .

. . . less strict criteria are, in my view, appropriate where questions of construction of contracts in standard terms are concerned. That there should be a high degree of legal certainty as it is practicable to obtain as to how such terms apply on the occurrence of events of a kind that is not unlikely may reproduce themselves in transactions between other parties engaged in the same trade is a public interest that is recognised by the 1979 Act, particularly in s 4. So, if the decision of the question of construction in the circumstances of a particular case would add significantly to the clarity and certainty of English commercial law it would be proper to give leave in a case suffi ciently substantial to escape the ban imposed by the first part of s 1(4), bearing in mind always that a superabundance of citable judicial decisions arising out of slightly different facts is calculated to hinder rather than to promote clarity in settled

71[1981] 2 All ER 1030.

72Mousaka Inc v Golden Seagull Maritime Inc and Another [2001] 2 Lloyd’s Rep 657.

principles of commercial law. But leave should not be given, even in such a case, unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves one off events stricter criteria should be applied on the same lines as those that I have suggested as appropriate to one-off clauses [at pp 1039–40].

The guidelines set out in The Nema were not meant to be rigid, and the courts may adapt them to suit the circumstances. As Lord Diplock stated in The Antaios73:

From the general guidelines stated in The Nema, I see, as yet, no reason for departing. Like all guidelines on how judicial discretion should be exercised they are not intended to be allembracing or immutable, but subject to adaptation to match changes in practices when these occur or to refi nement to meet problems of kinds that were not foreseen, and are not covered by, what was said by this House in The Nema [at p 200].

Where a point of European Community law needs to be referred to the European Court of Justice, leave to appeal will be given more readily. Only tribunals or courts (and not arbitrators) can refer the matter to the Court under Art 177 of the EC Treaty.74

As stated in s 69(1), it is possible to appeal on a question of law.75 But which law? According to s 82(1), ‘question of law’ means ‘for a court in England and Wales, a question of the law of England and Wales’. In Reliance Industry Ltd v Enron Oil and Gas India Ltd,76 the court had to decide whether the application by the arbitrators, with the agreement of the parties, of principles of construction under English law that were the same as the principles of construction under Indian law (the proper law of the contract agreed to by the parties) was an application of English law for the purposes of s 69. Aikens J concluded that the arbitrator had applied the proper law of the contract, which, according to the agreement, was Indian law. It was purely incidental that the principles of construction were the same in English law and in Indian law. He illustrated his point thus:

The point can be tested by imagining a contract governed by a foreign law and, as in the present case, before the arbitrators (sitting in London), the foreign law and English law were agreed to be the same. Imagine that the arbitrators issued their award applying the foreign law as agreed. Both parties agreed that, on the facts as found, the legal result must be as the arbitrators had determined. Then imagine the House of Lords subsequently declared that English law was different. But the advice of experts was that the foreign law remained as the English law had previously been declared. In that case leave to appeal under s 69 of the 1996 Act on a question of law could not be given. There would be ‘no question of the law of England and Wales arising out of [the] award in the proceedings’ because the award had stated accurately and applied correctly the foreign law that governed the contracts [at p 650].77

73[1985] AC 191.

74Bulk Oil (Zug) AG v Sun International Ltd (No 1) [1983] 2 Lloyd’s Rep 587; Case 102/81: Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG and Co KG [1982] ECR 1095, p 1111.

75See BR Cantrell, EP Cantrell v Wright & Fuller Ltd [2003] EWCA Civ 1565.

76[2002] 1 Lloyd’s Rep 645. In Sanghi Polyesters Ltd (India) v The International Investor (KCFC) Kuwait [2000] 1 Lloyd’s Rep 480, the applicable law was English law ‘except to the extent it may conflict with Shari’a law, which shall prevail’. The court held that, in deciding the extent to which the Shari’a law applied to various contracts, the arbitrator was not applying English law.

77Of course, s 46 on rules applicable to the substance of the dispute is itself part of English law. Thus, appeal is possible on the ground that the arbitrator misconstrued or misapplied s 46 and, therefore, applied the wrong law or other principles.

The court does not give reasons for its refusal to grant leave to appeal and there is no requirement that it does. Given the all-pervasive applicability of the Human Rights Act 1998,78 does the refusal to give reasons contravene the right to a fair hearing guaranteed by Art 679 of the European Convention on Human Rights 1950 (ECHR)? In Mousaka Inc v Golden Seagull Maritime Inc and Another,80 the applicants sought permission to appeal pursuant to s 69 of the Arbitration Act 1996. Permission for leave to appeal was refused on grounds that the questions raised were not of public importance, and neither were the arbitrators’ decisions obviously wrong or open to serious doubt. Full reasons for the refusal were sought by the applicants on the grounds that there was a duty on the courts to give reasons for their decisions, that it was inconsistent with Art 6 of the ECHR, and on principles of fairness and natural justice.

David Steel J drew attention to Lord Diplock’s judgment in The Antaios, where he stated clearly:

. . .save in exceptional cases in which he does give leave to appeal to the Court of Appeal under 1(6)A) [of the Arbitration Act 1979] a judge ought not normally to give reasons for a grant or refusal under s 1(3)(b) of leave to appeal to the High Court from an arbitral award . . . It has been the practice of this House at the close of the short oral argument on the petition, to say no more than that the petition is allowed or refused as the case may be. Save in very exceptional circumstances which I am unable at present to foresee, I can see no good reason why a commercial judge . . . should do more than that . . .81

After an examination of the Strasbourg jurisprudence in respect of Art 6, David Steel J concluded that ‘where there are legitimate restraints on a right of appeal, such as the need for it to be a matter of general importance, it is sufficient for the Court to refer to these limitations’ (at p 662). Further, in agreeing to arbitrate, the parties had opted for privacy and finality and had renounced the application of Art 6 of the ECHR. This limitation had a legitimate purpose and it was not disproportionate to that purpose.

What seem to have influenced the judge are the aims of the arbitral process – to provide an efficient system of dispute resolution which exudes confidence, privacy and finality. To elaborate on the refusal might well give the parties an opportunity to read reasons into the elaboration, thus leaving room for doubting the arbitrators’ decision and the standing of arbitration as a reliable form of dispute resolution in the long run.82

Where an arbitration is subject to the ICC Arbitration Rules, Art 28(6) provides an exclusion clause, which reads:

Every award shall be binding on the parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out any award without delay and to have waived their right to any form of recourse insofar as such waiver can be validly made.

78An Act giving effect to rights and freedoms guaranteed under the European Convention on Human Rights 1950 (Convention for the Protection of Human Rights and Fundamental Freedoms).

79 Article 6(1) provides: ‘In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interest of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the

private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice.’

80[2001] 2 Lloyd’s Rep 657.

81[1984] 2 Lloyd’s Rep 235.

82See also Ambrose, ‘Arbitration and the Human Rights Act’ [2000] LMCLQ 468 for an interesting account of the effect of the Human Rights Act 1998 on commercial arbitration.

A differently worded provision waiving the right of appeal, expressed in Art 24(2)83 of the ICC Rules for Arbitration 1988, was recognised by the English courts as an advance exclusion agreement in Arab African Energy Corp Ltd v Olieprodukten Nederland BV.84 No doubt the same approach will be taken to Art 28(6).

Serious irregularity

Challenging an arbitral award on grounds of serious irregularity is allowed by s 6885 (subject to ss 73, 70(2) and 70(3))86 of the Arbitration Act 1996. Events that will be regarded as comprising serious irregularity are listed in this section to include, among others: failure by the tribunal to comply with its general duty,87 such as acting fairly and impartially as between the parties and giving the parties a reasonable opportunity of putting their case and dealing with that of their opponent88; failure to deal with all issues put before it; obtaining an award through fraud; and failure to conduct the proceedings in accordance with the procedure agreed by the parties.89

Substantive jurisdiction

Section 67 makes room for the award to be challenged on the grounds that the arbitrators did not have substantive jurisdiction. Questions such as the validity of the arbitration agreement, the applicability of the arbitration agreement to parties not named in the agreement,90 and the constitution of the tribunal will come within substantive jurisdiction. Like ss 68 and 69, this section is also subject to the provisions of ss 70(2), 70(3) and 73.91

Other than the powers imparted to the court as a result of an arbitral award being challenged, the court, it must be remembered, also has a number of other powers. These include the granting of interim orders, the enforcement of pre-emptory orders of the tribunals and securing the attendance of witnesses.92

Equally, to ensure that the tribunal can carry on its task of resolving the dispute smoothly, it is vested with powers, including deciding on procedural and evidential matters subject to rights of the parties, the appointment of experts, and ordering security for costs and making provisional awards.93 The tribunal also has the power to dismiss a claim in the event of a party’s default; such circumstances are listed in s 4194 of the Arbitration Act 1996.

83It read: ‘By submitting the dispute to arbitration by the International Chamber of Commerce, the parties shall be deemed to have undertaken to carry out the resulting award without delay and to have waived their right to any form of appeal insofar as such waiver can validly be made.’

84[1983] 2 Lloyd’s Rep 419.

85The power of review by Court under s 68 is mandatory and cannot be excluded. See Al Hadha Trading Co v Tradigrain SA and Others [2002] 2 Lloyd’s Rep 512.

86See ‘Point of law’, above.

87See s 33; also ‘Characteristics’ above.

88See Flotamentos Maritimos SA v Effohn International BV [1997] 2 Lloyd’s Rep 301; Pacol Ltd v Joint Stock Co Rossakhor [2000] 1 Lloyd’s Rep 109; Margulead Ltd v Exide Technologies [2004] EWHC 1019 (Comm); Petroships Pte Ltd of Singapore v Petec Trading & Investment Corp of Vietnam (The Petro Ranger) [2001] 2 Lloyd’s Rep 348.

89 See s 68(2) for a complete list. See for instance Margulead Ltd v Exide Technologies [2004] 2 All ER (Comm) 727; World Trade Corporation Ltd v Czarnikow Sugar Ltd [2004] 2 All ER (Comm) 813 and Van der Giessen-De-Noord Shipbuilding Division BV v Imtech Marine & Offshore BV

[2008] EWHC 2904 (Comm), where arbitral awards were challenged under s 68.

90See Peterson Farms Inc v C&M Farming Ltd [2004] 1 Lloyd’s Rep 603. See also Nisshin Shipping Co Ltd v Cleaves and Co Ltd and Others [2004] 1 Lloyd’s Rep 38, where shipbrokers (not party to a charterparty that contained an arbitration clause) were entitled to refer to arbitration by virtue of ss 1 and 8 of the Contracts (Rights of Third Parties) Act 1999.

91See ‘Point of law’, above.

92Sections 42 and 43. See also ss 18, 44 and 45. See Hiscox Underwriting Ltd v Dickson Manchester and Co Ltd [2004] EWHC 479 (Comm).

93See, for example, ss 34, 37, 38 and 39.

94For instance, in the event of failure to attend upon receiving due notice.

Recent trends: arbitration online95

Before proceeding to recognition and enforcement of arbitral awards, a few words must be included about providing arbitration online. The late 1990s, as is well known and documented, witnessed the electronic commerce explosion widely predicted to be a vital contributor to global economic growth. Along with other legal issues, such as recognition of digital signatures and electronic bills of lading, providing arbitration online (i.e., conducting all processes relating to an arbitration such as submission to the arbitration tribunal, hearings and award electronically) caught the imagination of information technology lawyers and the net community. As a result, projects, such as the Virtual Magistrate project and the Global Arbitration and Mediation Association (GAMA), came into existence during 1996–97. The former was a pilot project for providing arbitration entirely online for disputes ‘involving users of online systems, for those who claim to be harmed by wrongful messages, postings, or files, and system operators to the extent that complaints or demands are directed at system operators’. The Cyberspace Law Institute (CLI) and the National Center for Automated Information Research (NCAIR) were the main partners in the project, although the AAA was to provide help with the selection of arbitrators (called magistrates). The purpose behind the project was to provide a cheap, speedy and readily accessible remedy for the disputes. Unfortunately, post 1996–97,96 nothing is available on the web to indicate the results of the project. The web address provided for the Virtual Magistrate project97 does not elicit a response from the server. As for GAMA, it is reported as offering international commercial arbitration on the Internet.98 A visit to their site provides a database of arbitrators and forums/organisations for arbitration.This suggests that these attempts at online arbitration have not been successful.99

Other websites offering online arbitration have been set up recently and it is difficult, in the absence of statistics, to assess their success.100 Nonetheless, the concept of online arbitration raises interesting legal issues that will have to be resolved before it becomes a realistic possibility. The purpose of locating a seat, as we saw earlier, is to identify the law of state that will apply to the arbitral process.101 The Internet, with its global character, is not tied to notions of territory or nations, raising difficult questions about the seat of the virtual arbitration. Various solutions, such as the location of the arbitrator or the server, have been put forward, but these are not satisfactory. For instance, the arbitrators could be located in different places, and the location of the arbitrator could change during the period of the hearing. Similarly, the server location solution is based on a naïve understanding of the way information networks operate.102 Lack of security on the Internet also raises problems about privacy and confidentiality, although to some extent these can be resolved through sophisticated encryption systems. Further, there are problems with enforceability since the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958

95Also known as virtual arbitration, cyber arbitration.

96See http://w2.eff.org/Legal/Arbitration/virtual_magistrate.announce; www.vmag.org/docs/concept.html; www.umass.edu/ dispute/ncair/gellman.htm; www.loundy.com/CDLB/Virtual-Magistrate.html; http://mantles.sbs.umass.edu/vmag/disres. html. See also www.net-arb.org

97http://vmag.law.vill.edu:8080/.

98See Schneider and Kuner, ‘Dispute resolution in international electronic commerce’ (1997) 14 Journal of International Arbitration 1.

99World Intellectual Property Organization (WIPO), in respect of domain name disputes, offers online procedures for filling a case and submissions, and normally resolves most cases within two months from the date of filing. No in-person hearings are conducted except in extraordinary cases, and costs are low. Visit www.wipo.int.

100See Schultz, Kaufmann-Kohler et al, Online Dispute Resolution:The State of the Art and the Issues, 2001, University of Geneva, available at www.online-adr.org, for a complete list of organisations offering arbitration online.

101Dubai Islamic Bank Pjsc v Paymentech Merchant Services Inc [2001] 1 Lloyd’s Rep 65.

102See Arsic, ‘International commercial arbitration on the Internet: has the future come too early?’ (1997) 14 Journal of International Arbitration, 210.