English Arbitration Act 1996 - Essay Example

?A Brief Study of the English Arbitration Act 1996 Introduction The roots of the English arbitration acts have been in existence for centuries. The first one was in 16981 followed by several acts that had organized and developed arbitration according to the requirements of each era. The last of these was the Arbitration Act 1996, which came into force on 31st of January 1997 (1996 Act).2 This Act was formed for improvements accumulating from the former arbitration acts and case law3 following the structure and language of the Model Law without completely adopting it.4 The 1996 Act is characterized by many features, the most important being confirming the Principle Part Autonomy. Although it includes a number of mandatory provisions, the Act leaves a large number of issues up to the freedom of parties. Moreover, it limits the intervention of courts during the arbitral process except for assisting in its efficiency. Even after rendering the arbitral award, it limits the right of parties to appeal, balancing between the significance of the courts' interference to assist in achieving justice when the arbitral tribunal conducts wrongly and issues an unjust award and the fact that the arbitral award shall be final and binding and that the intervention of courts shall be limited. In addition, it is inclusive as it deals with most aspects of the arbitral process in details leaving some aspects up to the discretionary power of the court.5In this chapter, the significant aspects of the arbitral process are addressed in the light of 1996 Act. 2. Scope Under the 1996 Act, any dispute may be arbitral unless it violates the public policy.6 Although in the wider concept of the public policy, which may cover a wide range of matters, the English courts give a limited interpretation of the public policy both in respect to domestic or international arbitration.7 Moreover, the English Arbitration Act 1996 is applied to all arbitrations when the seat of arbitration is in England, Wales or North Ireland and when the arbitration is institutional or ad hoc.8 Furthermore, particular provisions are to be applied when the seat of arbitration is outside these places or even has not been designated or determined yet. These include provisions related to stay in legal proceedings,9 the national court's power in supporting the arbitral process,10securing the attendance of witnesses,11 and enforcing arbitration awards.12 3. Arbitration Agreement The English Arbitration Act provides a simple and at the same time broad definition for the arbitration agreement by defining it as "an agreement to submit to arbitration present or future disputes (whether they are contractual or not)."13 With this broad definition, the English Act recognizes both types of the arbitration agreement; arbitration clause and submission agreement. Moreover, based on Section 6, the reference within an agreement between parties to a written arbitration clause or a document that includes an arbitration clause is considered an arbitration agreement between those parties "if the reference is such as to make that clause part of the agreement."14 However, although the English Act does not stipulate the explicitly of this reference, the approach of the English case law confirms the necessity of such reference to be in unambiguous and clear words.15 3.1 The Formal condition for the arbitration agreement Under the 1996 Act, the only formal condition for the arbitration agreement to be submitted to the provisions of this Act is the condition of being written.16 This Act gives a broad interpretation as for the existence of this condition. It deems that the arbitration agreement is in writing if it is made via exchanging written communications,17 or if it is written but not signed whether by one or all parties.18 Similarly, when this agreement "is evidenced in writing"19 or there has been an oral agreement to arbitration between parties by referring to written terms.20 In addition, the 1996 Act is sufficient with the existence of this requirement whenever the arbitration agreement is recorded via any means.21 Therefore, the arbitration agreement could be confirmed via emails or faxes. However, although the literal interpretation of this provision may involve oral recording, the 1996Act, as believed by many writers,22 is not applied to the whole oral arbitration agreements even if they are recognized at the common law.23 The 1996 Act is distinguished from the Model Law in this regard as it states the possibility of confirming the arbitration agreement as a written agreement when it is recorded by a third party on the condition that it shall be authorized by parties to arbitration.24 Further, this Act considers the arbitration agreement, like the Model Law,25 being written when there is an exchange of written submissions within legal or arbitral procedures in which there exists an alleged unwritten agreement by one party with the other party not denying it26 as it is regarded as implied consent to the existence of a written arbitration agreement. It may be useful to mention here that under the 1996 Act, the arbitration agreement whether it is an independent agreement or within another agreement shall be treated independently when the underlying agreement is "invalid, or did not come into existence or has become ineffective" unless parties agree otherwise.27 This is confirmed by the English courts in many cases.28 4. The Applicable Law Pursuant to section 46 of the 1996 Act, which is based on Article 28 of the Model Law, parties to arbitration are free to choose the applicable law. The Arbitral Tribunal shall apply the law agreed upon by parties.29 In case where the parties choose the law of a particular country, the Arbitral Tribunal shall apply that country's substantive laws without its rules of conflict of laws. 30 In the case, when the parties do not agree on the applicable law, the arbitral tribunal shall determine that law according to the conflict of laws rules it deems appropriate to be applied.31 However, as section 46 is not mandatory, parties may not apply it. They may choose ex aequo ET bono to resolve the dispute between them. The 1996 Act does not expressly deal with that contrary to the Saudi Arbitration Law 2012, which gives the arbitral tribunal the right to decide the dispute based on ex aequo ET bono whenever parties agree to authorize the arbitral tribunal of conciliation as pointed out in the previous chapter. With regards to the choice of law to be applicable in the arbitral proceedings, the courts recognise and enforce the law as per arbitration agreement.32 It further confirms that when selecting England as a seat of arbitration, English courts have the competence of arbitration and that the mandatory provisions in the English Arbitration Law 1996 are going to be applied 33 5. Arbitration Proceedings and Power of The Arbitral Tribunal Arbitration proceedings have the most essential matters that shape the scope of effectiveness of the arbitration process. Hence, this issue is given a considerable attention by the 1996 Act in several aspects. This section addresses three aspects of them; the freedom of parties and their obligations regarding arbitration procedures, commencing arbitration proceedings and the powers of the arbitral tribunal regarding procedures of arbitration.  5.1 The Freedom of Parties and their Obligations Regarding Arbitration Procedures, The English legislature's belief in the freedom of parties to arbitration to choose arbitral proceedings resulted in the 1996 Act granting parties a wide freedom in choosing and tailoring the proceedings they deem appropriate for disputes that may arise between them.34 This includes determining the language/s used during the process of arbitration35 as well as determining the seat of arbitration or the seat of enforcing any part of the arbitral process or even amend the chosen place when they deem it is more appropriate.36 However, of this granted freedom, section 40 of this Act commit parties to arbitration to general obligations during the arbitral process by performing every necessary action "for the proper and expeditious conduct of the arbitral proceedings".37 Moreover, the Act commits them to comply with any directions or order of the arbitral tribunal regarding procedural or evidential matters, without delay,38 as the Act grants it wide powers in choosing and conducting arbitration proceedings as will be seen later in this chapter. 5.2 Commencing Arbitration Proceedings Section 14 of the 1996 Act addresses the method of commencing arbitration proceedings confirming the freedom of parties in determining that. If the case parties fail to determine such procedures, this section assumes three situations. The first case is the arbitrator/s being already selected in the arbitration agreement. In this case, the proceedings are commenced regarding a matter by notifying in writing the other party or parties to submit that matter to the arbitral tribunal selected earlier.39 The second case is when the arbitral tribunal is selected by the parties, but not yet appointed. In this situation, arbitration procedures commence regarding a matter when presenting a written notice to the other party or parties to appoint an arbitrator or agree on the selected arbitrator in regard to that matter.40 The third case is when the appointment of the arbitral tribunal is fulfilled by a third party where the proceedings are commenced regarding a matter when one party notifies in writing that party requesting him to fulfil the appointment in regard to that matter.41 However, despite the significance of accurate determination of the date of commencing arbitration, due to the consequent legal effects on the arbitration process and arbitral award particularly when there is a particular period to issue the arbitral award, the 1996Act does not clearly address this issue from two points of view. Firstly, it does not mention clearly the exact time of commencing arbitration whether it is the day the defendant receives the referral request to arbitration as the case in the Model Law.42It is difficult to say that commencing arbitration procedures are from the time of giving one party a written notice to a third party for appointing the arbitrator/s, which means that the commencement of arbitration is before the other party becomes aware of that party's desire. Second, the 1996 Act does not address clearly the content of the written notice. Therefore, there have arisen many controversies regarding whether this notice must be in an express and precise language in order to be efficient.43 Nevertheless, the English judiciary provides a broad and flexible interpretation of the context of this notice44 as it believes that it would be sufficient "if the notice can be construed, expressly or implicitly, as a request of the dispute to be submitted to arbitration" 45 5.3 Powers of The Arbitral Tribunal Regarding Arbitration Proceedings   The arbitral tribunal draws its power from arbitration agreement.46 They are supposed to exercise this power within the limits of this agreement unless parties allow them to exceed these limitations. Hence, the agreement is supposed to include all procedure rules and powers exercisable by the arbitral tribunal, which are usually not included in the agreement.47 Therefore, in order to ensure the efficiency of arbitration, national legislation and arbitration rules involve provisions as filling gaps for the arbitration agreement and granting arbitrators a wide scope of discretionary powers that are to be exercised in case of failure of the agreement of parties. The 1996 Act grants the arbitral tribunal a wide power "to decide all procedural and evidential matters" throughout the arbitration process and at the same time committing it to take into consideration what parties agree on.48 However, under section 34 of this Act, there is a list of procedures as guidance to the arbitral tribunal while conducting the process of arbitration, which includes when and where any of the arbitration procedures shall be held,49 the format and schedule to present claim and defence,50 or even deciding whether there shall be an oral hearing session or being sufficient with merely the written proceedings alone.51 Also giving directions for parties and determining the duration within which they shall be performed as well as amending this duration whether before or after it is expired.52 In addition to this, the Act grants the arbitral tribunal, throughout sections 37 to 39 and sections 41 to 49, extensive powers such as appointing legal advisers or experts,53 issuing a provisional order for the money payment between the parties54 or ordering a claimant to present security for arbitration expenses.55 Furthermore, based on section 48 of the 1996 Act, the power of the arbitral tribunal is the same as the court in granting a permanent injunction,56ordering specific performance of a contract57 and even ordering "the rectification, setting aside or cancellation of a deed or other document."58 However, with these extensive powers, the law commits the arbitral tribunal to exercise these powers taking into consideration providing reasonable opportunities to each party to present its case and respond to the case of its opponent fairly and equally.59 The arbitral tribunal is also committed to adopt appropriate proceedings and avoid any unnecessary delay or expenses.60 If the arbitral tribunal fails to fulfil its duties, the grieved party may challenge the procedures or the award on the ground of "serious irregularity".61 However, despite of these obligations laid down by the legislature, the general approach in the English judiciary regarding this matter is to rule for the arbitral tribunal.62 Therefore, many questions are raised regarding the scope of the arbitrator's power during the arbitration process as viewed by the English judiciary. Not only that, but also whether the exercise of some of these powers such as awarding interests or making awards in specific currencies can be challenged and reviewed at all.63 6. Rule of English Courts in The Arbitration Process The role of courts towards the arbitration processes is an essential matter for the success and effectiveness of arbitration in general and international arbitration in particular. The 1996 Act gives a remarkable attention to this issue adopting the approach of the Model Law. In this regard, as it does not grant the English courts the right to intervene in the arbitration process except in particular situations stipulated by this Act. In general, in these situations, the court intervenes to assist the success and efficiency of arbitration whether this interference is carried out upon the request of a party to the arbitration agreement or the arbitral tribunal or even a third party. This section addresses five essential situations for the intervention of courts whether before Commencing the arbitration process or during the arbitral process. 6.1 Stay of Court Proceedings Pursuant to section 9 of the Act 1996, either arbitration party may apply to national court to stay in litigation procedures before them concerning a matter when there is an arbitration agreement between the parties regarding that matter. Based on this section, the stay applicant shall exhaust all other procedures of resolving dispute before requesting the stay.64 Further, the request applicant shall present this request before discussion and defences regarding the subject matter of dispute,65 otherwise, it would be considered as implied waiver. If the stay applicant fulfils the legal requirements, the English court shall grant stay procedures unless it is satisfied that the arbitration agreement is "null and void, in operative, or in capable of being performed."66 However, pursuant to the Principle of Separability,67 which is recognized in this Act,68 the nullity and invalidity of the underlying contract does not affect the validity of the arbitration agreement as long as they are not related to the arbitration agreement itself. Even in case the underlying contract included in the arbitration agreement is resulted from bribery69 or fraud70 In general, the approach of the English court is in favour of the arbitration agreement. Even in the case of rejecting the request to stay the arbitration proceedings based on section 9 , the court may stay its own procedures according to its inherent power under section 49 (3) of the Senior Courts Act 1981.71 It may be useful here to indicate two matters. Firstly, it is the possibility of challenging the court's decision regarding the stay of procedures whether it is granted or rejected. In this regard, the 1996 Act is silent, but the case law confirms accepting such appeal before the English courts.72 In the case Inco Europe Ltd v First Choice Distribution,73 the Court of Appeal held that"there is nothing in s. 9, which excludes … the jurisdiction of the Court of Appeal" and therefore, the Court has the jurisdiction to hear appeals from the decisions of a judge or a court The second matter is the possibility of issuing anti-suit injunction by the English courts to stay commencing or continuing the litigation procedures before the courts of another State regarding a subject matter of a dispute related to an arbitration agreement. Within its provisions, the 1996 Act does not handle the possibility of granting such matter. But based on section 37 (1) of the SCA 1981, either party can apply for an anti-suit injunction from the English courts. However, there are many case laws in which the English court granted it when satisfied with the existence of a valid arbitration agreement and the seat of arbitration is in England and Wales.74 For instance, in Midgulf International Ltd v Groupe Chimique Tunisien,75 the Court of Appeal granted an anti-suit injunction in order to restrain the defendant from continuing the proceedings in Tunisia, which were viewed by the Court of Appeal as a violation of the arbitration agreement. 6.2 Extending Time Limits The futuristic arbitration agreement whether within the underlying contract or in an independent agreement (arbitration clause) usually includes a particular method of notifying a particular address within a particular period of time. Such a requirement is barred if it does not consider the right of parties to resolve to arbitration and commence the procedures.76  The 1996 Act, contrary to the Model Law, which does not handle this issue, grants national courts the power to intervene to extend the duration of commencing arbitration upon the request of either party to arbitration whether before the expiry of the duration within which the arbitration process shall be commenced or after it is expired. 77 Pursuant to section 12, a party may apply for such extension after notifying the other party, but only after a dispute has arisen between the parties as well as after the exhausting of any existing arbitral procedure for having this extension. In practice, the English judiciary is strict in relation to exercising this power and extending the duration. It considers that as long as parties agree on the time required for commencing arbitration, they have to commit to their agreement and abide by it.78 Further, the Principle of Part Autonomy should prevail and hence the intervention of courts upon the request of a party to arbitration shall be limited.79 Therefore, the English courts rejected to extend the duration in many cases. However, even with this strict approach, the case law confirm that the exercising of this power (extending the time) by the English courts where ever the courts are satisfied, for example, "that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.".80 In the case Anglian Water Services Ltd v Laing O'Rourke Utilities Ltd,81 the arbitration agreement required sending a notice of the desire to commence arbitration procedures to the other party on a particular address within a particular duration of time. In this case, although the plaintiff failed to fulfil this requirement as he did not send the notice notifying the other party to the address specified in the agreement, the court held that receiving such notice within the specified period of time by the relevant individuals at Laing O'Rourke Utilities Ltd, the defendant, who were the persons concerned that needed to view such notice is sufficient. Therefore, the court exercised its discretion and extended the time of commencing the arbitration. 6.3 Appointing Arbitrator Either party may fail in fulfilling his duty to appoint the arbitrator or participate in the selection of the arbitrator. Parties may even fail to agree on determining the procedures of selecting the arbitral tribunal. The 1996 Act handles this issue in detail82 unlike the Model Law, which deals with it briefly.83  According to the 1996 Act, there are two situations for the court to intervene in this matter. The first situation: failure by parties to agree on the appointment procedures. In this case, either party may, "upon notifying the other party", apply to the court for assistance in appointing the arbitral tribunal.84Under section 18 (3) of the 1996 Act, national courts may use their power, upon requesting this assistance by either party, in several aspects (i.e. providing directions to make any necessary appointments or even carrying out any necessary appointments by the court itself). The second situation: either party requesting the court to interfere to set aside the sole arbitrator appointed by the other party without the participation of the applicant party due to his rejection to participate or failure to do so within the particular duration of time.85 In this regard, the 1996 Act does not deal clearly with the case of the court setting aside the appointed arbitrator; whether the alternative arbitrator is appointed by the court or by the parties agreement and then the provision of section 17 or 18 is applied in case parties fail to appoint the arbitrator. Even with the provision of section 27 (3), which addresses how to fill the vacancy of an arbitrator, there still exist some uncertainty.  It may be useful to point out the possibility of the court to interfere also during the arbitral process by appointing an umpire. This intervention occurs when the arbitral tribunal includes an umpire with the arbitrators not being able to reach a consensus or majority to make orders, decisions and awards. In this case, either party may request the court to intervene to replace the arbitrators with the umpire if they have not notified the umpire or parties to arbitration of that failure in writing or if any of the arbitrators fail to participate in notifying.86 6.4 Issuing Interim Measures Unless parties agree otherwise, the 1996 Act gives the courts the power to grant interim measures to assist the arbitral process. This Act balances between the significance of issuing such measures for the efficiency of arbitration on the one hand. On the other hand, the significance of the independence of the arbitration processes (the Principle of Part Autonomy). It distinguishes between two cases; the case of urgency and the case when there is no urgency. In the first case, this right is given to a party or proposed party to the arbitral proceedings. Also the 1996 Act commits the court to make these orders only when there is a necessity in order to preserve assets or evidence.87In the second case, when there is no urgency, this application is limited to parties to dispute provided that it is after obtaining either the arbitral tribunal's permission or the written agreement of the other parties.88 In both cases, the arbitral tribunal shall have not been established yet or it cannot act effectively.89 Hence, the power of court pursuant to section 44 is as Morison J says "plainly intended to cover over the crack between the moment of the application and the time when the arbitral tribunal can be formed and take its own decisions about preserving the status quo".90 In this position, a question emerges regarding whether the court has the power to issue the freezing order. In other words, is it permissible for the English courts to issue such an order when the assets are located abroad? In line with the case law, the practice confirms that it is permissible when the court is satisfied that granting such order is necessary and the seat of arbitration is within the UK. In the case Belair LLC v Basel LLC,91 the parties entered into a preliminary purchase agreement for assets in Georgia. They agreed to arbitration and that the seat of arbitration is London under the rules of the Model Law. In this case, although the defendant undertook a commitment towards the plaintiff not to take any action regarding the assets subject of selling during the arbitration process, but due to refusing to register this commitment in Georgia, the plaintiff presented a request from the court to issue a freezing order. The court granted the freezing order in order to reserve the assets in Georgia until the arbitral tribunal is formed and be able to decide such order effectively. 6.5 Gathering Evidences Parties to arbitration have the right to agree on whether there are particular rules of evidence92 and the documents that are to be presented in the course of the arbitration process.93 If there is no agreement between parties in this regard, the arbitral tribunal has the power to decide such matters.94 However, during the arbitration process, there may emerge some circumstances that necessitate the arbitral tribunal to view documents in the hand of a third party or the attendance of a witness as its power does not extend to compel them when examining these documents or attending for testimony. Therefore, section 43 of the 1996 Act stipulates the permissibility of parties to arbitration to agree on applying the same procedures as those of a court in order to secure the attendance of a witness or to "produce documents or other material evidence".95 It may be useful to mention here that the 1996 Act does not grant the courts the power of pre-action disclosure of documents "by potential defendant" regarding a dispute, which is covered by an arbitration clause. In the caseEDO Corporation v Ultra Electronics Limited,96the plaintiff requested from the court to issue a pre-action disclosure for documents in the hand of the defendant. The High Court confirmed that its power in granting a pre-action disclosure is limited to judicial claims and that neither the 1996Act, nor the Supreme Court Act 1981(SCA 1981) contains a provision that grants it this power regarding a dispute, which is to be submitted to arbitration. 7. Recognition and Enforcement of Arbitration Awards Under 1996 Act, the recognition and enforcement of awards whether domestic or foreign, requires permission from the court of enforcement. After obtaining the permission, the arbitral award is enforced as the manner within the judgment.97 Based on Section 99 of the the1996 Act, the arbitration Act 1950 is continuing to be applied regarding the recognition and enforcement of foreign awards except for the New York Convention Awards (Convention Award).98According to the 1996 Act, the convention award means that the state seat of arbitration, other than the UK, is a party of the New York convention regardless of the place of signing the award, despatching or delivering it to either party.99 Due to the fact that most countries are parties in this convention,100 most foreign awards in the UK, and other countries, are being enforced according to this convention. Pursuant to Section 103 of the 1996 Act, the recognition and enforcement of the Convention Awards may only be refused if the party opposing enforcement confirms one or more of the following defences. First, the incapacity of a party of the arbitration agreement according to the law applicable to him or the invalidity of the arbitration agreement in line with the law of the state seat of arbitration.101 However, due to the Principle of Separability, which is recognised by the 1996 Act, the defense of the invalidity of the arbitration agreement may not succeed if the reason for this defence is that the underlying contract is "invalid, or did not come into existence or has become ineffective".102Second: not having an appropriate opportunity to present his/her case or the lack of duo notice.103 In this regard, the enforcement court often considers the actual effects of this defense on the arbitration award and by not just examining whether or not it is existed, which is supposed to be considered via the discretionary power of the arbitral tribunal.104 Third the arbitral tribunal has dealt with matters beyond the scope of arbitration agreement.105Fourth, the composition of arbitral tribunal or the arbitral proceedings are contrary to the arbitration agreement or the law of the state seat of arbitration.106 Although the English courts strictly enforce the arbitration agreement, the success of this defense depends on the assessment of court to the degree of prejudice to the defendant particularly if the arbitration agreement is not clear in determining the rules of arbitration proceedings. In the case China Agribusiness Development Corporation v Balli Trading,107the arbitration agreementbetween the parties referred the dispute to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade (FETAC), under its provisional rules. After a dispute has risen between the parties, FETAC had been renamed and it used new provisional rules that were applied to arbitration. The respondent defended before the enforcement courts in the UK with that the procedural rules agreed by the parties had not been applied. The court rejected the claim, upheld that the arbitral tribunal used the appropriate procedures and granted permission to enforce the arbitral award. Fifth, the award has not been binding and final yet or it has been suspended in the state seat of arbitration.108 In this regard, it may be useful to point out that the New York Convention and the 1996 Act do not require ratifying the arbitral award by the state seat of arbitration contrary to the earlier Geneva Convention.109 In addition to these defences, there are two other defences with which the court is entitled to rule sua sponte even though not raised by the party whom the award is against. These are the subject matter of the dispute is not arbitrable or the enforcement of the award contradicts the public policy. 110 However, although of the diversity of defenses, which may prevent the enforcement of arbitral awards in the UK, The approach of the English courts in this regard is to assess the extent of the effects of these defences on the arbitral award rather than examining whether or not they are existed as Longmore J said " It is clear from the terms of the statute that refusal to enforce a Convention award is a matter for the discretion of the Court. In that context it must be relevant to assess the degree of prejudice to [the party against whom the award is enforced]".111 Therefore, the practice confirms the rarity of the English courts to reject the enforcement of the New York Convention awards even in case of violating the public policy.112 8. Conclusion The English Arbitration Act 1996 combines both the experience of the English arbitration throughout the centuries and the modern approach of arbitration represented in the Model Law to ensure that England/UK remains a leading nation in this field as one of the most important arbitration countries in the world. With the inclusiveness and clarity of 1996 Act, it combines three factors, which make arbitration the best choice to solve disputes either domestic or international, increasing the extent of the freedom of parties in forming the arbitral process as they deem appropriate, limiting the interference of courts in arbitration whether before or during the arbitral process or even after rendering the arbitral award. Besides these two factors, the 1996 Act grants the arbitral tribunal broad powers during the arbitral process that ensure the success and effectiveness of the course of the arbitral process. The English courts remain willing for interfering in case the arbitral tribunal cannot efficiently conduct or exercises its power wrongly whether before or after the rendering of the arbitral award. ) Read More