Arbitration disputes are increasingly ending up in court, raising questions as to whether this pays proper regard to the wishes of the parties. Wragge & Co’s Andrew Manning Cox considers the message the courts ought to give when invited to adjudicate arbitration issues.

  • ASM Shipping Ltd of India v TTMI Ltd of England [2006] EWCA Civ 1341
  • Babanaft International Co SA v Avant Petroleum Inc [1982] 3 All ER 344
  • CGU International Insurance plc & ors v AstraZeneca Insurance Co Ltd [2006] ECWA Civ 1340
  • Chaim Kohn v Sheva Wagschal & ors [2006] EWHC 3356 (Comm)
  • Elektrim SA v Vivendi Universal SA & ors [2007] EWHC 571 (Comm)
  • Fiona Trust & Holding Corporation & ors v Yuri Provialov & ors [2007] EWCA Civ 20
  • Lesotho Highlands Development Authority v Impregilo SpA & ors [2005] UKHL 42
  • Sinclair v Woods of Winchester Ltd & anor [2006] EWHC 3003 (TC)
  • Sumukan Ltd v The Commonwalth Secretariat [2007] EWCA Civ 243

In today’s global economy companies have been increasingly choosing arbitration as the preferred method of dispute resolution in commercial agreements. International trading partners may find an arbitration clause more palatable than a High Court jurisdiction clause. Often, the parties will prefer to incorporate the rules of internationally recognised and accepted arbitration bodies, even if they will accept an English law clause – indeed, one issue is regularly traded off against the other at the drafting stage.

London is a leading centre of excellence for international arbitration and English law is regularly chosen as the applicable law in international contracts. Both of these factors contribute to the invisible earnings of London and, indeed, the UK. They will, however, come under pressure if parties see that a future dispute stands a realistic chance of ending up in court. Although the parties may have freely chosen arbitration as their dispute resolution mechanism, recent case law continues to demonstrate that they may still find themselves litigating issues in Court. This may be to the considerable surprise of one or more of the parties and could give rise to a lack of confidence in the credibility of arbitration and its perceived advantages, leading them to consider choosing another applicable law/jurisdiction.

So why choose arbitration?


Arbitration decisions are not reported – pleadings, directions and awards are confidential. Hearings take place privately. In contrast, hearings in Court are almost always in public. Recent (and controversial) changes to the Civil Procedure Rules 1998 in England mean that all court pleadings are publicly available as soon as they are served, unless the Court has ordered otherwise. This is proving to be a fertile source of information for journalists. It is increasingly being used as a tactic by litigants, actual or potential, and is having the effect of discouraging some litigation. This change alone gives a boost to arbitration and is certainly now a factor in favour of agreeing to arbitrate rather than litigate.

Greater control

Parties to arbitration have more control over the dispute resolution process than parties in court proceedings, especially since the introduction of the CPR. These Rules require active case management by the court and the wishes of the parties are no longer necessarily paramount.

Relative and predictable speed

This is a hot topic for debate. The relative speed of resolution by means of arbitration and certainty of timetable as compared to court litigation will vary with the circumstances.

Convenience of seat and hearing location

The parties choose the law to apply to the dispute and where in the world hearings are to take place.

Particular expertise

With the specific commercial context in mind, the parties may wish to stipulate the qualifications and expertise of the arbitrator/s to ensure that they are confident that the eventual decision-maker will be appropriately skilled. In the High Court a judge will be allotted to hear and manage the case. The assignment of a judge to a case is normally made as an administrative exercise, based on a judge’s availability, with particular expertise a secondary consideration.

More than one decision maker

Often, a party will feel that a fairer decision will be reached if made by an arbitral tribunal of three rather than by one person sitting alone. Parties can stipulate in their contract that decisions must be reached by any number of decision-makers, whereas in the High Court first instance decisions are reached by a judge sitting alone.


There are only limited rights of appeal under the Arbitration Act 1996. This provides another of the benefits of arbitration: better costs predictability. The right of appeal is more extensive in court proceedings and therefore it is more difficult to assess the likely costs to be incurred to get to a final decision.

No precedent established

Because arbitration awards are not reported, arbitrators are not bound to reach a decision based on the precedent made in an earlier decision. By contrast, judges are often restricted when reaching their decisions, as they must follow (or, of course, distinguish) precedent. Interference or justified intervention?

Despite the fact that parties to a contract have made the choice to arbitrate rather than litigate, arbitrations have a tendency to sneak into the courtroom. This is an increasing trend and brings with it the danger of creating a parallel universe of satellite litigation. Typically, a party will go to court either to raise a particular discrete issue in the arbitration or to complain that the ultimate award is unfair.

There may be times where the intervention of the court is necessary during an arbitration to ensure it is properly conducted. For example, it may be necessary to ask the Court to assist in taking evidence, to make an order for the preservation of property, or to prevent the disappearance of assets. But is it right that, as Donaldson LJ suggested in Babanaft International Co SA v Avant Petroleum Inc [1982], the parties or arbitrator should be able to ‘nip down the road to pick the brains of one Her Majesty’s judges and, thus enlightened, resume the arbitration’?

If Court intervention is not restricted to very limited circumstances, it encourages the litigation of arbitration and brings with it the danger of a dilution of the benefits of the arbitral process.

Although one of the general principles of the 1996 Act is to restrict intervention by the court, it does provide for judicial intervention in certain circumstances. For example, the losing party may challenge an award on the basis that the tribunal exceeded its jurisdiction, there was a substantial miscarriage of justice or on some other legally recognised ground. The position under the Act is certainly not unique. The UNCITRAL Model Law on International Commercial Arbitration adopts a similar approach. Although Article 5 seeks to exclude the involvement of the courts as far as possible, the Model Law does not exclude their participation in ‘certain functions of arbitration assistance and supervision’.

In the majority of cases, the litigation of arbitration starts after an award has been made and involves an attempt to overturn aspects of the award. If the last 15 months of reported cases are anything to go by, this is a growing phenomenon.

It’s not fair!

Recent case law shows that attempts to persuade the English courts to reverse a decision of an arbitral tribunal are largely failing. However, that has not stopped the courts getting involved and it demonstrates a growing trend of parties to arbitration being prepared to litigate if they perceive that there may be an advantage in doing so. In the immediate aftermath of the 1996 Act, there were few challenges which reached the courts. That has now changed.

This trend means that the assumptions the parties had (and which no doubt underpinned their original decision to select arbitration as the agreed method of dispute resolution) are being undermined. This results in the perceived advantages of arbitration being substantially reduced, if not in some cases removed entirely, and leads to extra cost, time and uncertainty of outcome. It also means that the fact (if not the detail) of a dispute comes into the public domain, rather than remaining confidential. The ability of one party to make use of that fact tactically, and the corresponding concern of another party to preserve confidentiality, may lead to inappropriate attempts to involve the courts in private arbitrations. These are precisely the problems that arbitration, as a method of dispute resolution, should be addressing and which form the basis of many decisions to opt for an arbitration, as opposed to a High Court jurisdiction clause.

Donaldson LJ’s dictum about ‘nipping down the road’ was, no doubt, never intended to encompass unwarranted attempts by unsuccessful parties to avoid being bound by an arbitral award. If contracting parties do not have confidence that stipulating arbitration as the dispute resolution forum provides any certainty of benefit, they simply will not use arbitration. If they believe there is a real possibility that any issue arising in the arbitration or the decision itself will end up in the English courts, even if they agree the principle of arbitration, they may refuse to agree to the arbitration being subject to English law.

In this context it is pleasing to see the recent and robust decision of the Court of Appeal in Fiona Trust & Holding Corporation v Yuri Privalov [2007], holding that any jurisdiction or arbitration clause in an international commercial contract should be liberally construed. If the original intention was to refer disputes to arbitration then neither party should be allowed to avoid that consequence through legal niceities. In giving judgment Longmore LJ said:

"…if businessmen go to the trouble of agreeing that their disputes be heard by a tribunal of their choice they do not expect that time and expense will be taken in lengthy argument about the nature of particular causes of action and whether any particular cause of action comes within the meaning of a particular phrase they have chosen in their arbitration clause."

This principle - on the facts of this case it is relevant to the proper interpretation of an arbitration clause - could and should also be applied to issues arising once the arbitration has commenced or when the decision is reached.

Balancing Act

The litigation of arbitration is unlikely ever to disappear entirely; nor should it. Arbitration cannot exist in aspic. As the 1996 Act recognised, there will always be the need for the potential of court support and intervention when the agreed machinery has broken down. That machinery will have been agreed between the parties at a time when they were co-operating to achieve a commercial goal and a dispute was a far and distant prospect (if contemplated at all).

However, there must be a balance. Whilst there is a place for the courts to become involved, the circumstances in which it does so should be limited - the scope for such involvement allowed by the 1996 Act should be construed narrowly. Otherwise the perceived advantages of arbitration as a method of resolving disputes, English law and jurisdiction, and indeed London and the UK as a centre of excellence for international arbitration, will be damaged.

It is to be hoped that the recent guidance set out in Fiona Trust will be followed by further robust court decisions extending to challenges during the arbitration process. Additionally, it is hoped that attempts to undermine the agreed dispute resolution forum simply in an attempt to avoid liability under an award will be strongly discouraged and we will in future see far fewer reported decisions arising from the litigation of international arbitration.

Recent Cases illustrating the view taken by the English Courts

Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ 243

The claimant sought leave to appeal the decision of the tribunal on a point of law. The Court held that, on the wording of the arbitration clause, the parties had agreed for the purposes of section 69 of the 1996 Act to exclude the jurisdiction of the Court. The claimant argued that such an exclusion infringed its rights under the European Convention on Human Rights 1950 (ECHR) Article 6: right to a fair hearing before an impartial tribunal. The Court of Appeal held that the 1996 Act permitted the incorporation by reference of an agreement excluding the right of appeal and that such incorporation was not contrary to the ECHR.

Earlier this year, the Court also refused the claimant’s subsequent challenge to the award on the grounds that the arbitral tribunal lacked substantive jurisdiction and there had been serious irregularity in the form of bias.

Elektrim SA v Vivendi Universal SA and others [2007] EWHC 11 (Comm)

The applicant issued Court proceedings to set aside a partial arbitration award, alleging that the actions of the respondent amounted to fraud. Under the 1996 Act an award is unenforceable if obtained by fraud. The Court held there was no link between the alleged fraudulent actions of the respondent and the award. It could not be said that the award was obtained by fraud. The Court refused to set the award aside.

Chaim Kohn v Sheva Wagschal & others [2006] EWHC 3356 (Comm)

The Court refused to set aside an order enforcing the award of an arbitrator, finding that the objections to the enforcement were specious. The applicants alleged that to enforce the award would be to enforce an arrangement tainted with illegality, that an agreement that the award would not be enforced had been made which superseded the award and also jurisdictional objections. The Court found no evidence of illegality and no binding agreement. The applicants’ jurisdictional argument was also rejected. The Court found there was no basis for objecting to the award. However, in dealing with the applications the Court had to look at the detail of the dispute and it was recorded in the judgment.

Sinclair v Woods of Winchester Ltd and another [2006] EWHC 3003 (TCC)

The applicant tried on two separate occasions to challenge an arbitration. First, they applied to the Court to remove the arbitrator and to set aside his first award for serious irregularity under section 68 of the 1996 Act. The attempt failed. Over a year later the applicant sought permission to appeal the arbitrator’s third award. That too failed but only after the judge considered some underlying facts – thereby removing the confidentiality of the dispute at least in relation to these issues.

CGU International Insurance PLC & ors v Astrazeneca Insurance co Ltd [2006] EWCA Civ 1340

A partial arbitration award on a preliminary issue ended up in the Court of Appeal. On 1 December 2005, the judge refused an application under section 69(8) of the 1996 Act for permission to appeal the award. The applicant alleged that refusal was unfair. The Court of Appeal delivered its judgment in October 2006, 18 months after the original award, confirming there was no unfairness in the judge’s decision.

ASM Shipping Ltd of India v TTMI Ltd of England [2006] EWCA Civ 1341

Another decision from the Court of Appeal and, again, another refusal to grant relief to a party dissatisfied with an arbitration award. As in Sumukan, the dissatisfied party attempted to rely on the ECHR to avoid being bound by the award. The judge at first instance dismissed a challenge to an award on the ground of serious irregularity for apparent bias. On appeal the applicant argued that the judge’s decision contravened article 6 of the ECHR. The Court of Appeal refused the application for leave to appeal on the grounds that they lacked jurisdiction because there was no realistic argument that the judge’s decision contravened the ECHR.

Lesotho Highlands Development Authority v Impregilo SpA & Others [2005] UKHL 43

This case involved the power of the arbitral tribunal to decide the currency in which to make their award and the power to award interest. The House of Lords decided that the erroneous exercise of an available power could not by itself amount to an excess of power under s.68(2)(b) of the 1996 Act and neither could a mere error of law.

Lord Steyn stated:

"I am glad to have arrived at this conclusion. It is consistent with the legislative purpose of the 1996 [Arbitration] Act, which is intended to promote one-stop adjudication. If the contrary view of the Court of Appeal had prevailed it would have opened up many opportunities for challenging awards on the basis that the tribunal exceeded its powers on ruling on currency".