Background
When the Skinners and the Taylors had a dispute just over 500 years ago they decided to arbitrate, although that decision was not reached until after there had been some blood letting between them. They were Craftsman's Guilds, not neighbours, and were arguing as to seniority. The arbitration award subsequently rendered (and which is still in force today) requires the Guilds to take it in turn to have precedence. They alternate between sixth and seventh in rank amongst the Guilds and this alternation gives rise to the common expression used to describe being confused and not knowing where you are, of being "all at sixes and sevens".
I do not believe there is any truth in the rumour that the same dispute also gave rise to the expressions being "skinned" by your opponent or being "stitched up"!
Until relatively recently parties to arbitration in this country, particularly parties from overseas often felt all at sixes and sevens, in that since 1484, when the Skinners and the Taylors went to arbitration, there has been a similar dispute about precedence in this country between arbitration and the courts.
At first it was arbitration that had the upper hand and the courts did not interfere in the process at all, but the first chink in the armour came with the inaugural Arbitration Act in 1698 which allowed review by the courts if the arbitration had been
"Procured by corruption or undue means".
Since then things have gone first one way, and then the other, and certainly during the course of the last 20 or 30 years England has begun to decline in popularity as a centre for international arbitration because it was felt that the courts were interfering too much. Part of the rationale for the Arbitration Act 1979 was to dispel that fear but it didn't seem to work. Thus in 1989 a committee of the Department of Trade and Industry led by Lord Mustill produced a report which made a number of recommendations for reform. It took a long time for those recommendations to reach fruition and, indeed, the first draft Bill was not produced until 1994. This was greeted with such a chorus of disapproval that the whole thing was re-drafted from scratch.
In late Autumn 1994 Lord Justice Saville took over chairmanship of the Committee and, as he said in his own words
"What I was faced with was the fact that competitor nations had gone a long way towards improving their own arbitral procedures in the light of the [UNICTRAL] Model Law, while here no progress was apparent despite the years that had passed by. In these circumstances it seemed to me that while what had to be done was obvious, it had to be done as fast as possible."
Court intervention clearly had to be tackled if England was not to become even more unpopular as a venue for arbitration. In addition, competition as a venue for international arbitration was hotting up. It had been said by one commentator that
"It is unlikely that the Model Law will be embraced by any major arbitration centre."
In fact, the Model Law was adopted into the law of Scotland in 1990 and has been accepted in Hong Kong and in over 30 other countries and territories. Not England though.
The Arbitration Act 1996 was to be England's response and the backbone of its attempt to reinstate itself as the premier venue for international arbitration. But it didn't get rid of court interference.
Assurance that local courts will not involve themselves in an arbitration is especially important to international parties and is often a key factor in their choice of a place of arbitration. Excessive court involvement defeats the goals and purposes of the parties' initial decision to arbitrate their differences. They lose the advantage of confidentiality. The extra proceedings result in greater costs. Most importantly, parties who sought to avoid the courts by entering into an arbitration agreement are required to deal with a foreign legal system and rules of procedure with which they are not familiar.
The UNCITRAL Model Law covers all this and makes it clear that there are a set number of grounds for setting aside an award and that this is the only recourse against an arbitration award where the Model Law applies. The grounds are taken from the New York Convention on Recognition and Enforcement of Arbitral Awards and are obvious things like lack of capacity of the parties to conclude an arbitration agreement, lack of a valid arbitration agreement, failure to give proper notice to a party, matters being dealt with outside the arbitration clause or conflict with the public policy of the State.
There is no appeal on a matter of law.
Some of these grounds for an application to set aside an award have been reflected in the Arbitration Act 1996 but the Act does not go the whole way and retains a right of appeal on a matter of law.
Challenges
A party who is unhappy with an arbitral award made under the new Act can challenge it in a number of ways. It may seek to challenge the substantive jurisdiction of the tribunal, to attack the award by alleging serious irregularity or, as has been mentioned earlier, to appeal on a point of law. The stated aim of the new Act has been greatly to reduce the possibility for court intervention and the chances of a successful challenge.
"Our basic principle has been to provide the Court only with powers than can properly be said to be supportive of the arbitral process; and to exclude others." (Lord Justice Saville)
This has been achieved by limiting the grounds for challenges, by raising the threshold of error reviewable by a court, by prohibiting the parties from raising objections at the challenge stage that were not raised before the arbitral tribunal and by limiting the time in which a party might raise objections after which they will be deemed to have lost any rights to rely on them. The overall effect of such changes is to increase the finality of arbitral awards in this country. However challenges are still possible.
Substantive Jurisdiction
It is often said that in England there is no possibility of appeal to the courts on questions of fact. This is not quite true and the question of substantive jurisdiction of the tribunal is one particular area where the courts sometimes get a shot at ruling on the facts as well as the law. The new Act recognises what is called the doctrine of "Kompetenz-Kompetenz" by adopting provisions of the Model Law and allowing the arbitral tribunal to rule on its own substantive jurisdiction on things such as whether there is a valid arbitration agreement, whether the tribunal is properly constituted and what matters have been submitted to arbitration (Section 30). However, the Act specifically allows a party to go off to court to challenge this. He must do it quickly though, and it can no longer be used as a delaying tactic as it often was. Unless the parties agree otherwise (and it is unlikely, in most cases the other party will agree), the arbitration continues whilst the application to court is pending.
Substantive jurisdiction is not just a question of law and this is clearly recognised by the Departmental Advisory Committee Report on the Arbitration Bill of February 1996 which stated:
"A challenge to jurisdiction may well involve questions of fact as well as questions of law. Since the arbitral tribunal cannot rule finally on its own jurisdiction, it follows that both its findings of fact and its holdings of law may be challenged".
Any challenge to jurisdiction must be made before taking part in the arbitral proceedings or, if the grounds for the application arise later, without taking further part. In addition, the application to the court cannot be brought if the applicant has not first exhausted any available arbitral process of appeal, review or correction of award and in any event the application must be made within 28 days of the date of the arbitration award.
Serious Irregularity
Before the new Act, it was possible to attack awards for "misconduct" by an arbitrator. This test has now been changed to "serious irregularity". In addition to being a more difficult criterion to satisfy than "misconduct", "serious irregularity" has been exhaustively defined by the Act in order to reduce unpredictability. The court no longer has a general supervisory jurisdiction over this area. The serious irregularity must be one of those in the list. It is not open to the court to extend the list and even if the alleged irregularity is on the list, the court must be satisfied that it "has caused or will cause substantial injustice to the applicant" before it will do anything about it.
Serious irregularity is essentially concerned with ensuring procedural fairness. It covers any failure by the tribunal to comply with its duties and the list which is in Section 68 includes the fair and impartial treatment of the parties, the duty to allow each party a reasonable opportunity to be heard and the adoption of procedure suitable to the circumstances of the particular case.
A tribunal which exceeds its powers or which fails to conduct the proceedings in accordance with the agreed procedure may be held to have committed a serious irregularity. An award may even be challenged on the grounds that the arbitration institution, under whose auspices the proceedings are organised, exceeded its powers. A failure by a tribunal to deal with any issue put to it or the rendering of an award that is ambiguous or uncertain or which does not comply with requirements of form may likewise be grounds for a challenge under Section 68.
Serious irregularity also means that an award must not be obtained by fraud or other means contrary to public policy. It will encompass as well any irregularity admitted by the tribunal or by the administering institution.
The test is undoubtedly stricter than it was and will not, for instance, now permit the court to remit an award to an arbitral tribunal because the lawyers acting for one party failed (or decided not) to put a particular point to the tribunal. However it is likely to encompass such things as the Arbitrator, without proper notice to both parties, giving audience to one in the absence of the other, or wrongly rejecting relevant evidence. There is still, therefore, plenty of scope to involve the court.
Appeal on a Point of Law
There was a lot of support amongst practitioners for the abolition of any right of appeal on substantive issues in the arbitration. After all if the parties have agreed to arbitrate their dispute and agreed to abide by the decision of their chosen tribunal (and not the court) it should be irrelevant whether or not the court would have reached the same conclusion. Substituting a court decision wholly subverts the agreement the parties made.
These arguments were rejected by the drafters of the Bill even though they are accepted in many other countries.
The argument which was put forward in support of rejection is that many arbitration agreements contain an express choice of law which is intended to govern the rights and obligations arising out of the bargain made between the parties and, therefore, if the parties have agreed upon a law they ought to have it properly applied by the arbitral tribunal. If the arbitral tribunal don't do this then they have not achieved what was contemplated by the arbitration agreement.
What this argument does not address is the fact that, in their agreement to arbitrate, as well as choosing the law they also usually choose the arbitral tribunal themselves or, at least, agree on who should choose it for them. It is perfectly arguable, therefore, that that is the manner in which the parties sought to seek to ensure that their chosen law was properly applied.
Nevertheless Section 69 of the new Act retains a right of appeal to the courts on questions of law, but severely restricts the circumstances in which such an appeal might be allowed. The right arises only with respect to arbitrations where the seat is in England and Wales or Northern Ireland and only where English law is applicable to the merits. This right to appeal will not be available to parties to an arbitration in a foreign jurisdiction even where the law applicable to the merits is English law.
It is not going to be as easy as it used to be to get an appeal heard as again, the Act uses a list of conditions which must be met for a successful challenge. The conditions are fairly restrictive. The point of law must be considered to have a substantial effect (note substantial) on the rights of at least one of the parties; it must be a point that was previously raised before the arbitral tribunal; and the court must be satisfied that the point of law has obviously been wrongly decided by the arbitral tribunal on the basis of findings of fact made by the arbitral tribunal.
This mechanism "on the basis of the findings of fact" is the mechanism the Act uses to try and avoid the prevalent previous practice of dressing up questions of fact as questions of law. It will be interesting to see if it works. The test of obviously wrong is watered down where the issue raised is one of general public importance. Then the test is "serious doubt" about whether the point of law was decided correctly. In addition to all of these considerations, the court must be convinced that it is "just and proper" to intervene. Quite what this will be construed to mean is open to debate. The only guidance from the Departmental Advisory Committee Report is:
"The Court should be satisfied that justice dictates that there should be an appeal; and in considering what justice requires, the fact that the parties have agreed to arbitrate rather than litigate is an important and powerful factor".
Not a lot of help.
The provisions for appeals on a point of law are not mandatory. Rights to appeal under Section 69 can be excluded by the parties in an arbitration clause. In fact, where the parties instruct the arbitral tribunal not to give reasons for its award, or where they ask the tribunal to decide the matter as amiable compositor or according to its own best judgement of what is fair, rather than in accordance with the letter of the law, they will be considered to have waived their rights to appeal on questions of law.
Strict conditions are imposed for the exercise of any such appeal. The appeal must be brought within 28 days of the award and, in addition, the applicant must also show that it has exhausted all appeal processes available pursuant to the arbitration agreement and all recourse under Section 57 of the Act for correction of the award or for any additional award.
Conclusion
Thus the courts still have a finger in the arbitration pie in England but, at least, their ability to interfere is significantly reduced. Nevertheless there are still a number of opportunities for the courts to impose their own view of law or appropriate procedure on a dispute notwithstanding that the parties have agreed that somebody else should resolve the problem for them. There is still plenty of scope for unwary arbitrators to find their awards up for judicial consideration and for dissatisfied parties and imaginative lawyers to make challenges of the sort which would not have been contemplated when the arbitration agreement was entered into.
In 1484 the Skinners and the Taylors did not want the courts to sort out their problem and those views are held by many commercial men today. The new Act is being marketed as putting England back in the forefront of arbitration venues and it is to be hoped the courts will be very sparing indeed in their wish to interfere. When parties go to arbitration they look for privacy, certainty and finality. The last thing they want is to be "all at sixes and sevens" as to how their dispute will be dealt with.
This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.