Holding on to the baton
"Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the Court…When the arbitrators take charge they take over the baton and retain it until they have made an award."
This seamless transition from litigation to arbitration and back again (Conservatory & Provisional Measures in International Arbitration) represents a Utopian view of how the relationship between litigation and arbitration should operate. However, as the author, Lord Mustill, went on to note, the position is not so clear cut in real life.
Trading organisations in a global economy have turned increasingly to arbitration instead of litigation to resolve disputes. The pros and cons of each process have been much debated. But, any confidence in an assumption that an informed choice of arbitration as the agreed method of dispute resolution will oust any role of the courts is belied by recent case law.
Arbitration has attracted satellite litigation. Statistics show that arbitral disputes are demonstrating a growing tendency to sneak their way into the court room, attracting the attention of the House of Lords. There is a clear view emerging that steps should be taken to bolster London’s importance as an international arbitration centre. The courts can play a support role by not interfering unduly with the process of arbitration and keeping parties to their original bargain.
Is effect being given to the will of the contracting parties at the time they signed the contract? Are arbitrators being allowed to grab hold of the baton and run with it?
The role of the courts in arbitration - interim measures
Although one of the general principles of the Arbitration Act 1996 is to restrict intervention by the courts, the Act nevertheless goes on to provide for judicial intervention in certain circumstances.
The position under the Act is 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 carrying out "certain functions of arbitration assistance and supervision".
Once an arbitral tribunal has been validly constituted, most arbitrations are conducted without any reference to the court. There may, however, be times where court intervention is necessary to ensure the proper conduct of the arbitration e.g. in preventing the disappearance of assets. Article 23 of the ICC Rules empowers an arbitral tribunal to order interim measures, although this does not disentitle the parties from applying to a competent judicial authority for such measures.
The powers of a tribunal to order interim measures stems as always from the arbitration agreement itself, any arbitration rules incorporated into it and any applicable national law.
Practical difficulties arise in obtaining an injunction in an arbitration: some examples being the fact that no such order can be made before a tribunal is duly appointed; a clear view that such an order could never be made ex parte (going against the thread of consensus woven throughout arbitration) and the lack of sanctions for breach of such an order (no contempt of court equivalent).
Interventionist or non-interventionist – does it really matter?
Recent case law suggests that parties are calling upon the courts to intervene in the arbitral process, culminating in the 2007 Court of Appeal decision in Fiona Trust & Holding Corporation & Ors v Yuri Privalov & Ors. This brought a fresh approach to interpreting any jurisdiction or arbitration clause in an international commercial contract. Of significant note is the judgment of Longmore LJ:
"…the time has now come for a line of some sort to be drawn and a fresh start made…for cases arising in an international commercial context. Ordinary businessmen would be surprised at the nice distinctions drawn in the cases and the time taken up by argument in debating whether a particular case falls within one set of words or another very similar set of words."
This principle was reflected in the House of Lords decision in West Tankers Inc v Riunione Adriatica di Sicurta SpA . Here, the question was whether a court of an EU member state can properly make an order restraining a party from commencing or continuing proceedings in another member state on the grounds that such proceedings are in breach of an arbitration agreement. Although the House of Lords referred the question to the ECJ it made clear its preferred view that such an anti suit injunction is acceptable where its purpose is to enforce an arbitration agreement.
"No bad thing"
The litigation of arbitration is unlikely ever to disappear; nor should it. Arbitration cannot exist in aspic. There will always be the need for the potential of court support and intervention when the machinery, agreed between the parties at a time when they were cooperating to achieve a commercial goal and a dispute was a far and distant prospect (if contemplated at all), has broken down.
There has, however, been a clear and recent trend of parties increasingly seeking court intervention. This leads to extra costs, time and uncertainty of outcome until an appeal process has been exhausted – precisely the problems which it can be said arbitration, as a method of dispute resolution, should be addressing.
Hints & Tips
If it’s only arbitration you want, here are some practical hints and tips to try and avoid satellite litigation!
Review your arbitration clause. Make sure it is clearly drafted, incorporates the appropriate rules and is up to date, so should you need to rely on it, you can. Failure to draft an arbitration clause properly can mean becoming embroiled in a lengthy and costly jurisdictional dispute as well as the parties’ rights and obligations being unclear.
In long duration contracts keep your clause under review. Have the circumstances changed, or the nature of a possible dispute, the applicable rules, the (default) appointing body, the parties, the enforcement regime?
Remember those parts of the residual powers of the courts which can be excluded by agreement under the 1996 Act. Do you want them to apply or not?
Don’t give your contracting party (who, in a dispute, may ultimately be your opposition) a chance to wriggle free. Any ambiguity will be construed against you. So ensure your arbitration clause is robust. The court will preserve the freedom of the parties to agree how their disputes are resolved but needs to be able to identify what the parties originally agreed before it can hold them to their bargain.
Avoid sitting on the fence. If arbitration is what you want, set your stall out. A clause providing for both litigation and arbitration will cause confusion.
Don’t use ambiguous or vague terminology. This can lead to an arbitration clause being declared invalid or lengthy court proceedings to determine the correct meaning.
Try and keep your arbitration clause simple, and avoid over elaboration. Cover key areas such as where the arbitration will take place, which procedural rules you will use and how the arbitrators will be selected. The key to a successful arbitration clause is simplicity.
Choose a default appointing authority with care. Ensure that you have chosen the correct authority; that it exists and is prepared to take on the role. If the appointing authority refuses to act, you may find yourself in court.
Consider the dispute resolution clause early in negotiations as well as the scope of the agreement to arbitrate.
Agree which non-mandatory provisions of the Act are to be excluded.
Don’t draft the arbitration clause in isolation. Consider it in the context of the whole agreement.