EM Law | Commercial Lawyers in Central London
Arbitration is an alternative to litigation as a means of resolving disputes. It is based on the parties’ agreement: all parties must agree to submit the dispute in question to arbitration. Like a judgment, the decision of an arbitral tribunal is final and binding. However, arbitration differs fundamentally from litigation in the following ways:
- Contractual basis. The rights and obligations of the parties to arbitrate their dispute arise from the arbitration agreement they have concluded.
- The parties usually choose where the arbitration is to take place.
- The parties can also choose rules to govern the procedure of the arbitration.
- The parties may have some choice in the arbitral tribunal.
- Arbitration proceedings are usually confidential.
- Tribunal’s powers. The arbitral tribunal’s powers derive from the arbitration agreement, as supplemented by any applicable legislative provisions.
- Jurisdiction of arbitrators. Usually the arbitral tribunal may decide on its own jurisdiction, but that decision is subject to review by a court at the seat of arbitration.
- Decisions on the merits of the dispute by an arbitral tribunal are usually final and not subject to appeal, although the award may in exceptional circumstances be set aside by a court.
- Enforcement of awards. Decisions of an arbitral tribunal are widely enforceable abroad by virtue of several conventions, in particular the New York Convention.
Arbitration rules and institutions
Arbitration agreements frequently incorporate institutional arbitration rules. Arbitral institutions (such as the International Chamber of Commerce and the London Court of International Arbitration) have well-established rules of arbitration that are often incorporated by adopting their standard arbitration clause.
In addition to providing rules, the arbitral institutions can be called on to administer an arbitration. In the absence of rules, the arbitration law of the seat of arbitration may set default rules for the procedure. For example, the Arbitration Act 1996 will fill most of the gaps where the seat of arbitration is in England or Wales, but it may involve an application to the High Court.
The “seat” of the arbitration will usually determine the law governing the procedure of the arbitration. The seat is the juridical seat (that is, the country in which the arbitration is “rooted”). This is not necessarily the same as the place where any hearing will take place.
Parties will normally agree to arbitrate for one or more of the following reasons:
- Privacy and confidentiality. This refers to privacy and confidentiality of arbitration proceedings. Unlike court proceedings, the parties to arbitration are subject to duties of confidentiality.
- Flexibility in procedure. The tribunal must tailor the procedure to the particular dispute, and the parties also have power to agree procedures that are efficient and speedy.
- Choice in selection of the tribunal. The parties have the ability to choose a tribunal with expertise relevant to the particular dispute.
- Neutrality of law, procedure, language and place of arbitration, as opposed to opting for one of the parties’ national courts.
- Binding nature of the award. The options for challenging the award are very limited.
- Relative ease of enforcement abroad. This is provided that the country in which you want to enforce the award is party to a relevant convention: most, although not all, are.
The composition and appointment of the tribunal is governed expressly or impliedly by the arbitration agreement or, in the absence of this agreement, by the law of the “seat” or “venue” of the arbitration.
Where a panel of three arbitrators is appointed, one will usually be appointed chairman with power to make procedural rulings and to cast the final vote. In the absence of agreement, the view of the chairman will prevail in relation to a decision, order or award in respect of which there is neither unanimity nor a majority.
There are no legal requirements to become an arbitrator. The arbitration agreement may require the arbitrator(s) to have special qualifications (for example, a solicitor, or other professional). Certain arbitral institutions run courses and award recognition to those it regards as competent arbitrators..
Arbitrators must be impartial and independent. In addition to remedies conferred by the AA 1996, the major arbitral institutions provide procedures for challenging arbitrators on the grounds of bias.
Appointment of arbitrators
The arbitration agreement, or the rules incorporated into it, will usually contain a procedure for appointing arbitrators. If parties fail to agree on the tribunal, the arbitration agreement usually provides for powers of appointment to be exercised by a third party, for example, the president of the Law Society. Referring to a third party is quicker and cheaper than applying to the court. An appointing authority may be a specialist professional institution, a trade association or arbitration institution. They normally charge a fee. Parties may make submissions on the identity, qualifications and characteristics of appointees.
If there is no provision for a third-party appointor, the parties may apply to the court to resolve disputes on appointment. The court can give directions on the making of an appointment, direct how the tribunal is to be constituted, and revoke and make an appointment. The court may also deal with arbitration agreements that fail to be specific about the tribunal.
Fees will be payable to the tribunal, usually on appointment. Also, an additional administration charge may be payable if an arbitral institution is involved. There may also be expenses for the place where the hearings take place and of any appointing authority.
The level of fees varies considerably. Two common methods of calculating fees are:
- Charges according to the time spent (a method used in, for example, LCIA and ad hoc arbitrations).
- Charges based in part on a percentage of the amount in dispute, including a consideration of the complexity and other relevant circumstances (a method used in, for example, ICC arbitration).
Advance payments are common, for example, deposits and/or commitment fees to cover the loss of business likely to result if the hearings are postponed or cancelled at short notice.
The tribunal will commonly withhold the award from the parties until any outstanding fees have been paid. When the award is ready, the tribunal will notify both parties that it is ready, on payment of their fees. Either party or both may pay the fees to take up the award. If only one party pays, even though it is not liable under its terms, that party may recover from the other party the costs, including the tribunal’s fees, that the award imposes.
Conduct of the arbitration
Following the appointment of the tribunal, there will often be a preliminary meeting, at which the tribunal will set down the procedural timetable for all or part of the arbitration after hearing the parties’ submissions. The parties should seek to agree the procedure in advance.
None of the court restrictions on advocacy or form apply.
Arbitration proceedings in England and Wales are subject to duties of confidentiality. Unless there is an agreement otherwise, hearings may be attended only by the tribunal, the parties, and their representatives. The requirements of confidentiality also restrict the disclosure of documents produced during or for the purposes of an arbitration.
Awards and challenging awards
An award is equivalent to a judgment in litigation. It is “final and binding” in that it provides a final determination of the dispute, subject only to closely defined statutory rights of challenge.
The tribunal may make either of the following types of award:
- Final award. This is an award dealing with all of the issues in dispute.
- Partial award. This is an award dealing with a separate issue in dispute. Where there is a series of partial awards, the last award dealing with all outstanding issues is called the “final award”.
Where the parties have reached a settlement, and agreed terms, these terms may be incorporated into an award to facilitate enforcement (known as an “agreed award” or an “award by consent”). By contrast, purely procedural directions, for example, relating to timetabling, do not constitute awards and are not capable of either specific enforcement or of appeal.
Where there are no specific provisions in the arbitration agreement or applicable arbitration rules, the award must:
- Be in writing.
- Be signed by all the arbitrators.
- Contain reasons for the award (unless the parties have agreed otherwise).
- State the seat of the arbitration and the date that the award is made.
Under English law, the time limits for challenging an award are very strict. Normally, an application must be made within 28 days of the date of the award (although the position is different if any other arbitral process of appeal or review exists). There are several grounds for challenge to an award under the AA 1996:
- The award is incomplete, and has not addressed an issue in dispute. Here, the proper course is to apply to the tribunal. Thereafter, it may be possible to apply to the court to set aside or remit the award on the basis of serious irregularity.
- The award contains a clerical mistake or error, or an ambiguity. Here, the proper course is to apply to the tribunal to correct this error.
- The award is made by a tribunal lacking substantive jurisdiction. Here, an application to the court can be made under.
- There has been a serious irregularity affecting the tribunal, the proceedings or the award within section 68. Examples of irregularity include:
- the tribunal exceeding its powers;
- failure by the tribunal to conduct proceedings in accordance with the procedure agreed by the parties;
- failure by the tribunal to deal with all the issues that were put before it;
- uncertainty or ambiguity as to the effect of the award; and
- the award being obtained by fraud.
- The award contains a mistake of law. Here, the remedy is to appeal to the court for leave to appeal, which will be granted if:
- the court is satisfied that the determination of the question will substantially affect the rights of one or more of the parties;
- the question is one that the tribunal was asked to determine;
- on the basis of the findings of fact in the award the decision of the tribunal on this point was obviously wrong, or, the question is one of general public importance and the decision of the tribunal is at least open to serious doubt; and
- it is just and proper in all the circumstances for the court to determine the question.
Wherever the award is made, the procedure for enforcement in England is usually the same. The Arbitration Act 1996 provides for summary enforcement with leave of the High Court. Leave is usually given on terms that the award may be enforced in the same manner as a judgment or order to the same effect, which means that all the methods of enforcing a judgment of the High Court are then available to enforce the award.
Get in touch with our arbitration solicitor Joanna McKenzie for any questions you might have.