Recent debate on the right to appeal Under limited circumstances, a party to an English arbitration award who is dissatisfied with the result can challenge that award in the courts. There are concerns that the current legal framework for such a challenge (or at least, the operation in practice of the framework) does not strike the right balance between upholding awards and allowing defective awards to be challenged.
Reed Smith attended the Commodity Arbitration Club lunch in May 2015, which hosted a number of representatives of main arbitration bodies, arbitrators and legal practitioners. One of the hotly debated topics of the day was appealing arbitration awards in the courts. Concerns were expressed that appeals on points of law may be happening too often. Whether this frequency is a perception or a reality, the possibility that your English law arbitration award may be appealed on a point of law is a reality. So, can you make your arbitration awards truly “final, conclusive and binding”?
This alert sets out the current position regarding the right to appeal on points of law under English law and some of the more commonly used arbitration rules. We will also discuss the pros and cons of excluding your right to appeal and how this may impact your choice of arbitration rules and arbitration clauses.
The position under English law: the Arbitration Act 1996
When can you appeal or challenge an award?
The English legal framework for arbitration is governed by the Arbitration Act 1996 (the ‘Act’). The Act provides that arbitration awards can be challenged or appealed to the court by:
- challenging the tribunal’s substantive jurisdiction to decide the case under Section 67
- challenging the award on the basis of a serious (procedural) irregularity under Section 68
- appealing the award on a point of law under Section 69
Sections 67 and 68 challenges are said to preserve proper administration of justice and therefore apply to all English seat arbitration awards and cannot be excluded. In contrast, Section 69 applies only “[u]nless otherwise agreed by the parties”1. Therefore the Section 69 right of appeal can be excluded in the arbitration agreement, and requires further consideration by the parties.
Scope of Section 69 of the Act The scope of Section 69 is already significantly restricted by law (in keeping with the principle that arbitration awards should, in general, be final):
- Section 69 can be used only to appeal questions of law, not to challenge findings of fact.
- Appeals under Section 69 are not automatic – they are possible only by agreement of the parties or with the permission of the court. Permission will only be given if the court is satisfied by a number of things, including where it considers:
- the decision of the tribunal on the question is obviously wrong, or
- the question is one of general public importance and the decision of the tribunal is at least open to serious doubt…”
- The appeal must be filed with the court within 28 days of the date of the award.
This may seem like a high threshold for any appeal. However, there is a growing concern that the courts are becoming more liberal in granting permission to appeal, so in a number of cases where a party might have assumed that arbitration would be the only forum for the dispute, it has ended up before the English Commercial Court on appeal.
When does the Arbitration Act 1996 apply to challenges/appeals? Sections 67-69 of the Act apply where the ’seat’ of the arbitration is in England, Wales or Northern Ireland. The seat means the place designated by the parties, or the relevant arbitral institution/ the tribunal as ‘seat’ for that arbitration.
How to avoid an appeal under Section 69 of the Act? Parties may exclude Section 69 of the Act by:
- Using express wording: clear words are necessary for the parties to exclude the right to appeal under Section 69. It is not enough that the parties agree the award shall be “final, conclusive and binding”2; parties must use explicit exclusions, e.g. “the parties waive any right of appeal or legal recourse insofar as such waiver may be validly made”.
- Making reference to certain arbitration rules: many of the arbitration rules limit the right to appeal (see further below). The courts have accepted that agreeing to arbitrate (for example) under ICC arbitration rules amounts to an effective exclusion of Section 693, and an equivalent approach has been adopted in Singapore4.
- Dispensing with reasons for the decision: in Section 69(1), it is set out that agreeing that the tribunal’s award does not need to include reasons will be treated as an exclusion of Section 69, whether that is the parties’ intention or not. (It should be said that rarely is such a provision included within a parties’ arbitration agreement.)
Approach under popular arbitration rules Some arbitration rules expressly exclude the right to appeal the tribunal’s award (for example, the ICC and the LCIA rules). However, some arbitration rules leave it open, notably those rules associated with soft commodity trade associations. A tabular summary setting out the approach to appealing the tribunal’s award under commonly-used arbitration rules can be found here. To exclude appeals under those rules, the parties would need to insert an appropriate provision in their agreement as suggested above.
To appeal or not to appeal?
Why would a party want to retain the right to appeal?
- By keeping the right to appeal an arbitration award to the courts, a party avoids the risk of being left with an award which is clearly wrong on a point of law. While many arbitrators are well versed in the law relevant to their field, errors may still happen, even where arbitration rules allow for internal appeals.
- Every appeal to the courts contributes to the body of precedent cases, which allows the law to develop. Without new decisions, the law in a particular area may become stagnant and fall behind industry trends. Some arbitration associations, including FOSFA and LMAA, seek to mitigate this risk by publishing anonymised awards, but progress is bound to be slower without legally binding precedents. While a party may not care about developing the law in the area, it may be a reason for an arbitration association to decide to permit appeal to the court from awards they issue.
- A binding legal precedent may be of value to you, in particular if you face the same or similar questions on a regular basis, or if you have connected proceedings. Even if you lose, you may prefer to have certainty on an issue for the future.
Why would I want to exclude the right to appeal?
- A commonly cited benefit of arbitration is that it allows the parties to limit costs and expedite matters. Adding a layer (or further layers) of appeal, particularly in the courts, adds both time and very significant additional cost to the legal process.
- To ensure confidentiality. By bringing the case before the courts, a party will lose privacy as to the existence of the dispute, details of the award and related documents (often the contract).
- A party may prefer to have the issues decided by industry experts or your chosen arbitrators rather than an appointed judge, who may possibly know less about the relevant industry and/or commercial practice in that industry.
- Courts are required to decide appeal cases on the basis of only the key documents referred to in the award, and so decisions on appeal are often made without the benefit of all of the information provided to the tribunal.
Exhaust all arbitration remedies first It is important to remember that Sections 67-69 of the Act are not available (in any event) until a party has first exhausted any available arbitral process of appeal/review and (if applicable) recourse under Section 57 of the Act (power for the arbitrators to correct an award).
Conclusions Whether parties retain or exclude the right to appeal an arbitration award under Section 69, thought must be given to whether the risks of doing so outweigh the advantages. This balance will necessarily depend on the circumstances of specific contracts, the industry trends and the parties’ own priorities.