This newsletter provides a snapshot of some of the key English judgments of 2011 and 2012 of interest to those involved, or potentially involved, in international arbitrations seated in London and therefore procedurally governed by English law.
As well as the much anticipated decision by the Supreme Court in Jivraj v Hashwani1 regarding an arbitrator's status as an "employed person" for the purposes of anti-discrimination legislation, the Court of Appeal provided clarity on the law governing arbitration agreements and handed down judgments on anti-suit injunctions and the enforceability of declaratory awards.
There were also significant decisions regarding the interpretation of the Arbitration Act 1996 (the "Arbitration Act").
Status of arbitrators
The Supreme Court overturned the widely criticised judgment of the Court of Appeal in Jivraj v Hashwani and declared that arbitrators are not employees and, therefore, not subject to anti-discrimination legislation.
This decision upheld the validity of an arbitration agreement requiring the arbitrator to be a member of a religious group, in this case the Ismaili Muslim community. The Court of Appeal had overturned the first instance decision and found that the contract for the appointment of an arbitrator constitutes a contract to do work personally and therefore falls under UK anti-discrimination legislation,2 thus rendering the arbitration agreement void.
The Court of Appeal also rejected the argument that being a member of the Ismaili community was a "genuine occupational requirement for the job", which would have provided an exemption from anti-discrimination legislation. The Supreme Court, however, unanimously agreed with the judge at first instance that arbitrators were not "employed persons" and hence the arbitration agreement did not fall foul of the anti-discrimination legislation.
The Supreme Court's decision upholds the principle of party autonomy in international arbitrations as it gives the parties full freedom to choose their arbitrators. There is a measure of controversy surrounding the decision however and the respondent, Mr Hashwani, recently filed a complaint to the Commission of European Communities for alleged breach of European laws against discrimination. It remains to be seen whether the European Commission will take any action on the basis of the complaint.
Governing law of arbitration agreements
In Sulamerica CIA Nacional de Seguros SA and others v Enesa Engenharia SA and others3 the Court of Appeal gave guidance on determining the law governing an arbitration agreement where no express choice of law has been agreed between the parties.
The Court of Appeal held that the proper law of an arbitration agreement is determined by considering, in the following order: (i) express choice of law, (ii) implied choice of law, and (iii) the law with which the arbitration agreement has its closest and most real connection.
Although, on the facts, the substantive terms of the contract (an insurance policy) were governed by Brazilian law, there were powerful factors against Brazilian law governing the arbitration agreement. In particular, the arbitration agreement specified London as the seat of arbitration, which imported an acceptance that English arbitration law would apply to proceedings. In addition, under Brazilian law, the arbitration agreement would only be enforceable with the consent of both parties. Since this would significantly undermine the referral of disputes to arbitration, it suggested that the parties did not intend the arbitration agreement to be governed by Brazilian law.
The governing law of an arbitration agreement will vary depending on the case and cannot be guaranteed to be the same as the governing law of the contract as a whole. To avoid any uncertainty, it is advisable to include an express choice of law clause for the arbitration agreement itself.
The Court of Appeal confirmed, in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC,4 that the Court has jurisdiction to grant an anti-suit injunction restraining foreign proceedings brought in breach of an arbitration agreement, even in the absence of an actual, proposed or intended arbitration.
The Court of Appeal held that it could grant injunctive relief to protect and preserve the arbitration agreement and that it would cause "unnecessary expense and delay" to require that a party commence an arbitration simply to put before a tribunal an issue of substantive jurisdiction which "in all practical terms, could only be definitively settled by the court".5
Enforcement of awards under section 66 of the Arbitration Act
In West Tankers Inc v Allianz SpA and another6 the Court of Appeal confirmed that it can enforce an arbitral award granting a negative declaration.
This is the latest instalment in the long-running series of West Tankers cases. The original case originated out of a vessel's collision and the ensuing insurance claim. Although the parties had agreed to arbitrate disputes in England, the insurers brought a claim before the Italian courts. The English High Court responded by issuing an "anti-suit injunction", ordering that the parties should instead resort to arbitration. In 2009, however, the European Court of Justice ruled that the anti-suit injunction was inconsistent with the Brussels Regulation and the Italian court should rule on its own jurisdiction. The result caused some dismay within arbitration circles in England.
Whilst the Italian proceedings were on-going, arbitral proceedings in London continued in parallel and the arbitrators held that the claimant (West Tankers) was not liable for the collision – this was a "negative declaration". By obtaining this award, the claimant hoped to pre-empt the enforcement in England of any contradictory judgment that may be obtained in the Italian courts.
In January 2012, the Court of Appeal held that a "negative declaration" could be enforced under section 66 of the Arbitration Act (i.e. arbitral awards can be enforced in the same manner as a court judgment). In so doing, the Court of Appeal recognised that an arbitral award can give rise to "issue estoppel" or res judicata (i.e. the case on that issue having already been decided, a conflicting result in a separate case is not permitted).
This decision affirms the English courts' pro-arbitration stance, endorsing an arbitral award in the face of a potentially inconsistent judgment from another member state. However, it is still unclear whether this will be sufficient to prevent any conflicting Italian judgment from being enforced in England, pursuant to the Brussels Regulation.
Challenges under section 68 of the Arbitration Act
In Chantiers De L'Atlantique S.A v Gaztransport & Technigaz S.A.S,7 the Commercial Court rejected an application to set aside an arbitration award on the ground that the award was obtained by fraud, despite finding that there had been fraud in the arbitration.
In this case it was found that the tribunal had been seriously deceived by the oral evidence of a principal witness. However, Flaux J held that in order to show that the award was obtained by fraud or that it had caused substantial injustice to the applicant, it was necessary to establish that disclosure of the fraud would probably have affected the result of the arbitration. In other words, in order to succeed in having an award set aside, it must be shown that there is a causal link between the fraud and the award itself. On the facts of this case, Flaux J considered that "even if the true position had been disclosed to the tribunal, it would not, in all probability, have made any difference to the decision ..."8