Arbitration

Question 1

What is the aim of arbitration?

Answer 1

To obtain a fair resolution by an impartial tribunal

Question 2

Where the parties have agreed to refer to arbitration, what does this imply?

Answer 2

They want a decision:

• By a tribunal they have chosen
• In a neutral location, with neutral arbitrators
• In privacy
• Speedily and efficiently
• With light but efficient supervision by the courts

Question 3

What kind of disputes are referred to arbitration?

Answer 3

Almost any type of dispute can be referred

Arbitration is most used for contractual disputes, the agreement to arbitrate usually found in a clause within the contract

Question 4

In contractual disputes, what are the 4 contracts usually in play in arbitration?

Answer 4

• The underlying substantive contract
• The agreement to arbitrate (separate even when contained within a clause)
• The agreement between the parties and arbitral institution referring the dispute to arbitration
• The agreement between the parties and/or the institution and arbitrators, appointing those arbitrators

Question 5

What is the effect of the separability of the arbitration clause?

Answer 5

• An arbitration agreement contained in another does not become invalid just because main agreement is invalid, and it should be treated as a distinct agreement
• It will only be invalid if the alleged invalidity affects the arbitration clause itself

Question 6

What is the mandate of the arbitral tribunal?

The courts tend to give a wide interpretation to the tribunal’s mandate (partly in support of the one-stop policy, partly in recognition that the precise scope tends to evolve as it is investigated)

Answer 6

• Depends on the mandate given by the parties
• A tribunal won’t have jurisdiction unless the dispute comes within the terms of the particular reference to arbitration
• Jurisdiction is limited by the agreement, and agreement between the tribunal/parties
• It is only authorised to determine the dispute referred to it and on the terms

Question 7

By accepting their appointment, what do the arbitrators agree to do?

Answer 7

• To consider the evidence and make decisions on the matters referred to them
• They are obliged to make decisions on all the central issues of the dispute, as well as on subsidiary issues that have to be decided en route to the central issues
• Arbitrators are not necessarily prevented from making decisions on matters arising after appointment. What is covered depends on the terms of appointment

Question 8

What are the requirements an effective reference to arbitration?

Answer 8

• Must be a dispute/difference
• Dispute must be ‘arbitrable’
• Must be an agreement to arbitrate
• (The agreement must be in writing for the AA to apply)
• Nature of the dispute must come within the terms of the agreement
• Parties must have had the capacity to enter into the agreement
• Conditions must be complied with
• Parties must find a tribunal willing to act and decide the dispute
• Dispute must come within the terms of the particular reference to arbitration

Question 9

What is a dispute or difference?

Answer 9

A claim admitted does not develop into a dispute. It is a response that makes it a dispute

There will be no dispute if:

• D does not dispute liability
• The contention now being relied upon by D was never put to C
• The right to dispute the matter has been lost under the contract or by law

Question 10

Which disputes are arbitrable?

Answer 10

• Only issues of a private law nature (with contractual basis)
• Public disputes are not completely off limit –EU competition law and ECHR

Question 11

Agreement to arbitrate

Answer 11

• An ‘arbitration agreement’ is one to submit present or future disputes to arbitration
• Can be made before or after the dispute arose
• Can be express written term of the contract

Question 12

What happens if a party breaches an agreement to arbitrate?

Answer 12

• A party is bound to its pre-dispute agreement
• If a party ignores the clause, any litigation may be stayed
• Litigation may also be a repudiatory breach of the agreement
• Correspondence denying its existence may also be a repudiation
• A party in breach may be liable in damages

Question 13

Is a second contract subject to an arbitration clause in a main contract?

Answer 13

• Common to have an arbitration clause in main agreement, and a clause in a subsidiary contract to adopt all or some of the terms in the main contract (incl. arbitration clause)
• The subsidiary is subject to the arbitration clause only if there is a specific reference to it in the subsidiary contract

Question 14

Can a third party enforce the arbitration clause under Contract (Rights of Third Parties) Act 1999?

Answer 14

A third party may in his own right enforce a term if:

• The contract expressly provides that he may
• The term confers a benefit on him (unless it appears that the parties did not intend the term to be enforceable by a third party)

Where a third party right exists and there is a valid arbitration agreement, the third party shall be treated as a party to the arbitration agreement

s8(2) applies where the parties expressly gave the third party a right to arbitrate (here, unlike s8(1), the third party can choose whether to arbitrate or not)

The courts are reluctant to find that third party rights come within arbitration clauses

Question 15

What about disputes covering several contracts?

Answer 15

• Where each has a different arbitration clause, it must be agreed which takes precedence
• Otherwise the clause in the contract at the commercial centre of the transaction applies

Question 16

What happens with a written agreement?

Answer 16

AA only applies to agreements if:

• The agreement is in writing, whether or not it’s signed by the parties (includes agreement by reference to terms that are in writing) OR
• Made by exchange of communication in writing OR
• Evidenced in writing

Question 17

What about oral agreements?

Answer 17

Will still be effective, but AA will not apply. It will be governed by common law

Question 18

Dispute must come within the arbitration agreement

Answer 18

• Arbitration clauses are usually given a broad and inclusive interpretation
• Take into consideration the commercial background of the contract
• Ultimately the parties agree to whatever restrictions they like on the nature of disputes to be referred to arbitration

Question 19

Capacity

Answer 19

• There is no valid reference to arbitration if either of the parties lacked legal capacity
• i.e. under-18s and those with mental incapacity under the Mental Capacity Act 2005
• Lack of capacity is a defence against enforcement of the agreement

Question 20

Conditions precedent to arbitration

Answer 20

• Compliance with conditions precedent
• Any express condition in the clause needs to be complied with

Question 21

What are Scott v Avery clauses?

Answer 21

• If included, a clause that provides that court proceedings shall not be brought until after an arbitration award has been made
• Ensures the parties arbitrate before they litigate
• If one side commences proceedings, the clause can be pleaded as a defence to the claim
• Its purpose is to protect the right to arbitrate

Question 22

OVERVIEW OF ARBITRATION PROCEDURE

(Possible court application relating to arbitration proceedings)

Answer 22

1. C raises issue
2. Issue not accepted
3. Notice of arbitration (challenge to jurisdiction)
4. Appointment of arbitral tribunal (appointment or removal of arbitrators by court)
5. Statements of case (determination of preliminary point of law)
6. Preliminary meetings
7. Conservatory and interim measures (Court application under s44)
8. Exchange of evidence (Court application under ss42-44)
9. Hearing
10. Closing of proceedings
11. Award (judicial review of award)
12. Enforcement of award (registration of award at court)

Question 23

What are the three general principles of AA arbitrations?

Answer 23

1. Fair resolution - the object of arbitration is to obtain a fair resolution of the dispute by an impartial tribunal without unnecessary delay or expense
2. Party autonomy - the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest
3. Minimal judicial intervention - the court should not intervene except as provided by the AA

These are similar to the Overriding Objective in r.1.1.

Question 24

FAIR RESOLUTION OF DISPUTES

Answer 24

To assist the tribunal, the parties must do all things necessary to facilitate this

Including complying without delay with any tribunal orders

Question 25

What are the general duties of the tribunal?

Answer 25

* To act fairly and impartially between the parties, giving each party a reasonable opportunity of putting its case and dealing with that of its opponent * To adopt procedures suitable for the circumstances of the case, avoiding unnecessary delay or expense, with a view to providing a fair means for the resolution of the matters falling to be determined

Question 26

What is the duty to follow the rules of natural justice?

Answer 26

* The rules of natural justice will be breached if the arbitrator fail to give the parties an opportunity to deal with factors that the arbitrators intend to take into account when making their decision * Not obliged to follow strict court procedures

Question 27

Arbitration need not be adversarial

Answer 27

Subject to party agreement, arbitrators can adopt an inquisitorial rather than adversarial system if that is preferred

Question 28

Mandatory provisions Represent the essential minimum requirements for effective arbitration. Examples include:

Answer 28

* Power of court to extend time limits for beginning arbitration * Application of the Limitation Act * Power of the court to remove an arbitrator if not impartial * General duty of arbitral tribunals * Loss of right to object * Enforcement of the award

Question 29

Non-mandatory provisions

Answer 29

* The AA provides default provisions for everything else relating to arbitration * The default provisions are adopted by not saying anything on the matter in the agreement

Question 30

Party agreement departing from the non-mandatory AA provisions can be reached in 4 ways:

Answer 30

1. Before the dispute arises – in the agreement 2. Where the arbitration clause adopts the rules of an arbitral institution 3. After the dispute has arisen –by subsequent written agreement 4. During the course of arbitration (e.g. procedural and evidential matters are for the tribunal, subject to party agreement)

Question 31

COURT APPLICATIONS - what are the principles for intervention?

Answer 31

* The third principle - where the parties have agreed that their dispute should be resolved by arbitration, the court should not intervene except and to the extent that it is necessary * The two main reasons for intervention are: * To give support to the arbitral proceedings * To put right any serious injustice * The third principle is to support the parties’ decision of arbitration * If the court intervened readily, the benefit of arbitration would be lost

Question 32

Institutional arbitration

Answer 32

* Where the arbitration is administered by an arbitral institution, with the institution’s rules * Provides support services (e.g. appointment, arranging facilities etc) * Some include an internal appeal process * Involves additional costs, but may be less expensive than trying to agree with the other side, and benefits of using ready-made system may outweigh the costs * Beneficial if relationship between parties has broken down

Question 33

Ad hoc arbitration

Answer 33

* Arbitrating without using an institution * Parties may still use an institution as an appointing authority, or appoint themselves * Parties may still adopt the rules from an institution, and leave details of the procedures to be decided by the arbitrators * Saves fees * Parties retain more control

Question 34

Non-binding arbitration

Answer 34

* Follows similar process, with an arbitration providing a non-binding advisory decision * There is no final award * Decision may provide good basis for future negotiation if not accepted * Parties can practice arguing their case

Question 35

Statutory arbitration

Answer 35

* An exception to the universal rule that arbitration is based on agreement * Legislation can require certain types of dispute to be referred * Quite rare – arises in landlord and tenant disputes, and company law * The relevant legislation is treated as if it were an arbitration agreement

Question 36

Consumer arbitration

Answer 36

There are restrictions on arbitration in consumer disputes, aimed at ensuring that arbitration clauses are not used against consumers as a means of preventing them from seeking redress from the courts

Question 37

What are the problems with med-arb?

Answer 37

* If the parties mediate first unsuccessfully, the settlement is not enforceable under the NYC or the AA because there is no ‘dispute’ as required by the AA. It is possible to ensure enforceability by starting with a formal reference to arbitration, then immediately referring to mediation, and, if the matter is settled, recording the agreement in a consent award * Ethical problems with the mediator becoming arbitrator * Important information disclosed in mediation may influence the arbitration decision * The parties may be more reluctant to reveal information in mediation * Private discussions with a mediator in the absence of the other party may be improper for the purpose of arbitration

Question 38

MULTI-TIERED DISPUTE RESOLUTION

Answer 38

* Some clauses provide more than two levels of ADR * If one is not a condition to the next, a party can proceed directly to arbitration

Question 39

ONE-STOP ADJUDICATION

Answer 39

* A clear agreement for med-arb or multi-tiered ADR will be upheld by the courts * However, there is a strong presumption that the parties will have intended the dispute be resolved through a single process * Because reasonable businessmen are unlikely to intend that their disputes be looked into by both arbitrators and the courts * The underlying purpose of the AA is therefore one-stop adjudication

Question 40

EUROPEAN CONVENTION ON HUMAN RIGHTS AND ARBITRATION

Answer 40

* The right to a hearing in public and in front of a tribunal established by law can be waived by the Claimant through an arbitration clause, and is not contrary to Art 6 * Excluding the right to appeal through a clause is not contrary to Art 6, as it is a common provision in arbitration rules

Question 41

What are the differences between arbitration and litigation?

Answer 41

**Arbitration** * Party agreement to have a dispute decided by impartial arbitrators * Parties retain a measure of control over: * Arbitrator appointment * the procedures adopted by the tribunal * the level of formality of the procedures * the complexity of procedures * whether the tribunal has the power to grant interim injunctions * Arbitration is private * Arbitrators can’t join additional parties * Weak sanction powers * Difficult to overturn * Easily enforceable overseas **Whereas in litigation:** * The procedure is controlled by the CPR * The tribunal is selected by the state * Proceedings are formal * Court hearings are public * Litigation can join additional parties, especially where there are related disputes * Wide sanction powers * Can easily appeal * Difficult to enforce overseas * Much more easily enforceable in the same jurisdiction (no need to register the award as a judgment)