Arbitration is a consensual process central to which is the assumption that parties should be free to agree how their disputes are resolved. What happens after the publication of an arbitration award1 also depends on what the parties have agreed should happen. Either it is the end of the road, the issues cannot be reopened between the parties, and if appropriate the award may be enforced; or the award could, if certain conditions are fulfilled, be appealed further to the Courts. However, it is not always clear what the parties intended should happen.
The issue recently came before the Commercial Court in Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd ("Shell v Dana"), which has served to highlight a need for clear words in arbitration agreements to reflect what the parties intend should happen after an award is published.
Right of appeal under English law
Arbitrations are governed by the Arbitration Act 1996 (the "Act"). In the spirit of the consensual nature of arbitration, some provisions of the Act can be excluded by agreement.
The normal position under the Act (section 69) is that parties to an arbitration have the right to appeal an award on a point of law:
"Unless otherwise agreed by the parties, a party to arbitral proceedings may...appeal to the court on a question of law arising out of an award made in the proceedings."
Excluding right of appeal under section 69
It is clear from the words "Unless otherwise agreed by the parties" that section 69 of the Act envisages that parties can agree to exclude the right to appeal an award.2 It is not uncommon for parties to do just that in the contract itself.
Each party will have its own reasons to want (or not to want) the right to appeal against an award on a point of law. On the one hand, excluding an appeal will create a degree of closure between the parties and could speed up enforcement of the award. On the other hand, what if the arbitrators plainly get the law wrong?
Many arbitral bodies expressly adopt the approach of excluding rights of appeal in their rules as a matter of course. For instance, Article 28.6 of the ICC Rules provides:
"Every Award shall be binding on the parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out any Award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made."
Similarly, Rule 26 of the LCIA Rules provides that parties are deemed to waive irrevocably their right to any form of appeal, review or recourse to any state court or other judicial authority:
"All awards shall be final and binding on the parties. By agreeing to arbitration under these Rules, the parties undertake to carry out any award immediately and without any delay...; and the parties also waive irrevocably their right to any form of appeal, review or recourse to any state court or other judicial authority, insofar as such waiver may be validly made."
Clauses drafted in such terms tend not to create much controversy. The use of the language of waiver makes clear what the parties have agreed—that the right to appeal is excluded.
However, what if the parties have simply agreed that any award shall be "final and binding" or "final, conclusive and binding"? Does that amount to an agreement to exclude the right to appeal?
Take for example the GAFTA Rules of Arbitration, which are incorporated by reference into many contracts for the sale and purchase of grain and feed. Paragraph 12.6 provides that:
"The award of the board of appeal whether confirming, varying, amending or setting aside the original award of arbitration, shall be signed by the chairman of the board of appeal and when so signed shall be deemed to be the award of the board of appeal and shall be final, conclusive and binding."
One may be inclined to think that by adopting such words the parties had agreed to exclude the right to appeal. The recent decision in Shell v Dana now tells us otherwise.
Shell v Dana
A dispute arose in connection with a co-operation agreement between Shell and Dana in relation to two concessions for crude oil and gas exploration in Egypt. The agreement was subject to an arbitration clause which provided that:
"the decision of the majority of the arbitrators...shall be final, conclusive and binding on the parties."
The matter proceeded to arbitration under UNCITRAL Rules, and the tribunal made an award against Shell. Shell applied for permission to appeal on certain points of law arising out of the tribunal's award. Dana argued that the court had no jurisdiction to hear Shell's application because the words "final, conclusive and binding" meant that the parties had agreed to exclude the right to appeal that would otherwise arise under section 69 of the Act.
Following an earlier decision,3 the Court concluded that sufficiently clear wording was necessary in order to amount to an agreement not to appeal an arbitration award, although no express reference to section 69 of the Act was required. The Court also clarified that the use of the words "final, conclusive and binding" without any contextual indication otherwise did not convey the meaning that the parties intended to exclude all rights of appeal. In short, the Court treated the three words as overlapping each other such that:
- "Binding" means that "each party promises to abide by the award and to perform it."
- An award is "final" in the sense that the successful claimant is precluded by the award from bringing the same claim again in a fresh arbitration or action.
- An award is "conclusive" of issues of fact and law. A conclusive award "precludes a party from reopening in a later dispute individual issues of law or fact which had been necessarily decided by the award."
The Court was therefore of the view that the phrase "final, binding and conclusive" simply means that the parties cannot re-litigate or re-open the legal issues decided by the tribunal.4
Shell was granted permission to appeal.
- The Commercial Court has affirmed that, while it is not necessary to refer expressly to section 69 of the Act, clear words are required to exclude rights of appeal.
- It is therefore important when drafting an arbitration clause intended to exclude rights of appeal that sufficiently clear wording to that effect is used.
- Although each arbitration clause will be construed in its own factual matrix, use of the "final, conclusive and binding" formula is unlikely to be sufficiently clear to achieve exclusion.
- If you want to exclude the right of appeal, the only way to be sure is to spell it out expressly and in full, e.g., "the parties waive irrevocably their right to any form of appeal, review or recourse insofar as such waiver may be validly made."