ARBITRATION (1)
WHAT IS ARBITRATION?
“Arbitration”
What is Arbitration?
◦ Arbitration involves agreeing with the other side to refer a dispute or difference to an impartial tribunal to make a
decision on that dispute or difference which will bind the parties.
Features:
◦ Adjudicative process
◦ Independent arbitrator/tribunal considers both sides of dispute and makes a decision on the issues referred to
◦ Due to contractual basis, not every dispute can go to arbitration
◦ Agreement to arbitrate can be made before/after dispute arises
◦ Arbitration takes place outside the court system but with a measure of supervision by the courts.
No statutory definition of “arbitration”
Public Policy
Strong public policy in favour of upholding arbitration agreements, supported by:
◦ The arbitration clause in a contract is separable from the rest of a substantive contract
▪ Therefore, it remains binding even if the substantive contract is void
◦ The court has jurisdiction to stay proceedings brought in breach of arbitration agreement.
Aim of Arbitration
S. 1 Arbitration Act 1996 (“AA”) – To obtain a fair resolution of the dispute by an impartial tribunal without unnecessary
delay or expense.
Arbitration & Litigation
Arbitration – A private version of litigation
Differences from litigation:
◦ The dispute is only referred to arbitration if agreed by both parties
◦ Arbitrator/tribunal appointed by parties unlike Judges.
◦ Arbitration is confidential.
GENERAL PRINCIPLES AND FUNDAMENTAL CONCEPTS
General Principles – S. 1
The provisions of this Part are founded on the following principles, and shall be construed accordingly—
(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or
expense;
(b) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in
the public interest;
(c) in matters governed by this Part the court should not intervene except as provided by this Part.
S. 1(a) – is similar to the overriding objective of dealing with cases justly and at proportionate cost in CPR r 1.1 and the right to a
fair trial in ECHR Article 6.
Fili Shipping Co – Once the parties refer the dispute to arbitration, this implies they want the dispute decided:
By a tribunal they have chosen
In a neutral location with neutral arbitrators
In private
Speedily and efficiently
With light but effective supervision by the courts
Principle 1: Fair Resolution of the Dispute
Similar to the Overriding Objective
Most cases the tribunal will seek to resolve the dispute by applying the appropriate law – Though parties may agree to
apply some other system of rules or principles in resolving their dispute.
Must be resolved by an “impartial” tribunal (rather than independent) (S. 1(a))
Saving Costs & Expedition
S. 40(1) - The parties shall do all things necessary for the proper and expeditious conduct of the arbitral proceedings.
S. 40(2) - This includes—
(a) complying without delay with any determination of the tribunal as to procedural or evidential matters, or with any
order or directions of the tribunal, and
(b) where appropriate, taking without delay any necessary steps to obtain a decision of the court on a preliminary
question of jurisdiction or law
,General Duty of the Tribunal
S. 1(a) supported by S. 33(1) – Imposes general duties on the arbitral tribunal to:
(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case
and dealing with that of his opponent, and
(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense,
so as to provide a fair means for the resolution of the matters falling to be determined.
Follow Rules of Natural Justice
Under S. 33(1) the tribunal is required to follow the rules of natural justice.
Breached if the tribunal fails to give each party opportunity to deal with factors the arbitrators intended to take into
account when making a decision (Gbangola v Smith & Sheriff Ltd [1998])
Giving the parties a fair opportunity to present their case may not mean that the arbitrators are obliged to follow the strict
rules of court procedure
Arbitration need not be Adversarial
Arbitrators can completely depart from the usual adversarial system of the English courts.
This follows from S. 34(2)(e) – The tribunal has the right to decide all procedural and evidential matters (subject to
parties’ right to agree any matter) including (e) whether and which questions should be put to the parties and how they
should be answered.
Read together with S. 43(2)(g) – The tribunal can determine whether and to what extent it should take its own initiative
to assert facts and law.
Therefore, arbitrators can adopt an inquisitorial as opposed to adversarial method for resolving the dispute.
Principle 2: Party Autonomy
The AA has detailed provisions dealing with the procedure to be followed in arbitrations. For the most part, they are
‘default provisions’ laying down sensible procedures, but which they can be replaced by the parties agreeing some
alternative procedure.
Concept of arbitration is that it is a consensual process based on agreement between the parties.
In practice, parties frequently use arbitral institutions, which usually have their own arbitral rules laying down the
procedure to be followed.
Typical steps:
◦ Whether institutional arbitrations or ad hoc
◦ Which institutional rules apply
◦ Any requirements in the arbitration clause
◦ What the parties subsequently agree
◦ Procedural orders made by the arbitrators.
Principle 3: Minimal Court Intervention
S. 1(c) – In matters governed by this Part the court should not intervene except as provided by this Part.
Principle of non-intervention: Where parties have agreed to resolve their dispute by arbitration, the court should not
intervene except to the extent that this is necessary.
Two main reasons for the court to intervene:
◦ In order to give support to the arbitral proceedings, or
◦ In order to put right any serious injustice
CONTRACTUAL FOUNDATION
The Contracts
Almost any type of dispute can be referred to arbitration, regardless of the legal classification of the underlying cause of
action.
However, arbitration is most commonly used for resolving dispute arising out of a contract between the parties.
Where such a dispute is referred to arbitration, from a technical legal point of view, there will often be four contracts:
1. The underlying contract (the substantive contract)
2. The agreement to arbitrate (clause as a separate contract)
3. The agreement between parties and an arbitral institution referring the dispute to arbitration under the aegis of
that institution
4. The agreement between parties and/or the arbitral institution and the individuals who will act as arbitrators –
appointing them to preside over and decide dispute.
Separability of the Arbitration Clause/Contract
S. 7 – Unless otherwise agreed by the parties,
◦ An arbitration agreement,
◦ Which forms (or was intended to form) part of another agreement (whether or not in writing),
◦ Shall not be invalid/ineffective/non-existent because the other agreement is invalid/did not come into existence/has
become ineffective
For that purpose, it shall be treated as a distinct agreement. (Fili Shipping Co)
, MANDATE OF ARBITRATOR/ARBITRAL TRIBUNAL
The jurisdiction of the arbitral tribunal depends on the mandate given to it by the parties. It can only arbitrate on matters they have
been instructed to.
Contract Appointing Arbitrator
When the arbitrator accepts an appointment, it enters into a contract with the parties on agreed terms.
This usually include:
◦ Identification of the dispute/difference to be adjudicated
◦ The terms on which the adjudicator is prepared to act, including the fees payable to the arbitrator,
◦ Basis on which the arbitration is to be conducted,
▪ Usually in accordance with the terms of the arbitration agreement between the parties and any institutional rules
what have been incorporated or otherwise agreed,
◦ Agreement by the arbitrator to conduct the arbitration and to issue an award without undue delay (S. 33(1)(b) AA) or
within any agreed time-frame or in accordance with the institutional rules.
Once appointed the arbitrator is contractually bound to complete their mandate.
The mandate also has the effect of limiting their jurisdiction to the matters referred to them in the mandate.
Jurisdiction
Tribunal only has jurisdiction to resolve the dispute if it falls within:
◦ The terms of the arbitration agreement (eg. clause in substantive contract), and
◦ The terms of the agreement appointing the tribunal
Only authorised to:
◦ determine the dispute referred
◦ on the terms agreed between the tribunal and the parties.
Once a dispute is referred to arbitration, courts give wide interpretation to what is included in the tribunal's mandate as:
◦ Supports one-stop policy
◦ Parties usually intend all disputes should be determined by single decision-making body
Procedure
Arbitrators must adhere to the parties' agreement on the procedure to be used
This may include adhering to a set of institutional rules
Duties of Arbitrators
By accepting appointment, arbitrators obliged to:
◦ Consider the evidence, and
◦ Make decisions on the “issues” referred to them
“Issues” - purposive construction (Checkpoint Ltd)
◦ Must decide on all matters critical to the overall decision and any such subsidiary issues that must be decided en
route to the central issues.
◦ What is included depends on terms of appointment
May include issues arising after appointment of arbitrator (Rederij)
If fails to decide on central issue - “serious irregularity” (S. 68 AA) – award may be challenged in court (Ascot
Commodities)
Qualifications of Arbitrators
Arbitration agreements may specify qualifications required of arbitrators (eg. minimum professional qualifications or
membership of an organisation or status)
Hashwani – Arbitration clause requiring the arbitrators to be respected members of the Ismaili Muslim Community was
valid.
Impartiality
S. 1, S. 24, S. 33 AA require any arbitrator appointed (even if by the parties) to be impartial.
Arbitrator is liable to be removed if impartiality is compromised (S. 24) – if there is actual bias or a real possibility of
biasness.
◦ To consider: Whether a fair-minded and informed observer would conclude there had been a real possibility of bias
(Porter v Magill [2002])
Some arbitral institutional rules (eg. UNICTRAL Model Law Art 12) require the arbitrator(s) to be independent.
REQUIREMENTS FOR AN EFFECTIVE REFERENCE
In order for there to be an effective reference to arbitration the following requirements must be met:
Requirement 1: Dispute or Difference
WHAT IS ARBITRATION?
“Arbitration”
What is Arbitration?
◦ Arbitration involves agreeing with the other side to refer a dispute or difference to an impartial tribunal to make a
decision on that dispute or difference which will bind the parties.
Features:
◦ Adjudicative process
◦ Independent arbitrator/tribunal considers both sides of dispute and makes a decision on the issues referred to
◦ Due to contractual basis, not every dispute can go to arbitration
◦ Agreement to arbitrate can be made before/after dispute arises
◦ Arbitration takes place outside the court system but with a measure of supervision by the courts.
No statutory definition of “arbitration”
Public Policy
Strong public policy in favour of upholding arbitration agreements, supported by:
◦ The arbitration clause in a contract is separable from the rest of a substantive contract
▪ Therefore, it remains binding even if the substantive contract is void
◦ The court has jurisdiction to stay proceedings brought in breach of arbitration agreement.
Aim of Arbitration
S. 1 Arbitration Act 1996 (“AA”) – To obtain a fair resolution of the dispute by an impartial tribunal without unnecessary
delay or expense.
Arbitration & Litigation
Arbitration – A private version of litigation
Differences from litigation:
◦ The dispute is only referred to arbitration if agreed by both parties
◦ Arbitrator/tribunal appointed by parties unlike Judges.
◦ Arbitration is confidential.
GENERAL PRINCIPLES AND FUNDAMENTAL CONCEPTS
General Principles – S. 1
The provisions of this Part are founded on the following principles, and shall be construed accordingly—
(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or
expense;
(b) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in
the public interest;
(c) in matters governed by this Part the court should not intervene except as provided by this Part.
S. 1(a) – is similar to the overriding objective of dealing with cases justly and at proportionate cost in CPR r 1.1 and the right to a
fair trial in ECHR Article 6.
Fili Shipping Co – Once the parties refer the dispute to arbitration, this implies they want the dispute decided:
By a tribunal they have chosen
In a neutral location with neutral arbitrators
In private
Speedily and efficiently
With light but effective supervision by the courts
Principle 1: Fair Resolution of the Dispute
Similar to the Overriding Objective
Most cases the tribunal will seek to resolve the dispute by applying the appropriate law – Though parties may agree to
apply some other system of rules or principles in resolving their dispute.
Must be resolved by an “impartial” tribunal (rather than independent) (S. 1(a))
Saving Costs & Expedition
S. 40(1) - The parties shall do all things necessary for the proper and expeditious conduct of the arbitral proceedings.
S. 40(2) - This includes—
(a) complying without delay with any determination of the tribunal as to procedural or evidential matters, or with any
order or directions of the tribunal, and
(b) where appropriate, taking without delay any necessary steps to obtain a decision of the court on a preliminary
question of jurisdiction or law
,General Duty of the Tribunal
S. 1(a) supported by S. 33(1) – Imposes general duties on the arbitral tribunal to:
(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case
and dealing with that of his opponent, and
(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense,
so as to provide a fair means for the resolution of the matters falling to be determined.
Follow Rules of Natural Justice
Under S. 33(1) the tribunal is required to follow the rules of natural justice.
Breached if the tribunal fails to give each party opportunity to deal with factors the arbitrators intended to take into
account when making a decision (Gbangola v Smith & Sheriff Ltd [1998])
Giving the parties a fair opportunity to present their case may not mean that the arbitrators are obliged to follow the strict
rules of court procedure
Arbitration need not be Adversarial
Arbitrators can completely depart from the usual adversarial system of the English courts.
This follows from S. 34(2)(e) – The tribunal has the right to decide all procedural and evidential matters (subject to
parties’ right to agree any matter) including (e) whether and which questions should be put to the parties and how they
should be answered.
Read together with S. 43(2)(g) – The tribunal can determine whether and to what extent it should take its own initiative
to assert facts and law.
Therefore, arbitrators can adopt an inquisitorial as opposed to adversarial method for resolving the dispute.
Principle 2: Party Autonomy
The AA has detailed provisions dealing with the procedure to be followed in arbitrations. For the most part, they are
‘default provisions’ laying down sensible procedures, but which they can be replaced by the parties agreeing some
alternative procedure.
Concept of arbitration is that it is a consensual process based on agreement between the parties.
In practice, parties frequently use arbitral institutions, which usually have their own arbitral rules laying down the
procedure to be followed.
Typical steps:
◦ Whether institutional arbitrations or ad hoc
◦ Which institutional rules apply
◦ Any requirements in the arbitration clause
◦ What the parties subsequently agree
◦ Procedural orders made by the arbitrators.
Principle 3: Minimal Court Intervention
S. 1(c) – In matters governed by this Part the court should not intervene except as provided by this Part.
Principle of non-intervention: Where parties have agreed to resolve their dispute by arbitration, the court should not
intervene except to the extent that this is necessary.
Two main reasons for the court to intervene:
◦ In order to give support to the arbitral proceedings, or
◦ In order to put right any serious injustice
CONTRACTUAL FOUNDATION
The Contracts
Almost any type of dispute can be referred to arbitration, regardless of the legal classification of the underlying cause of
action.
However, arbitration is most commonly used for resolving dispute arising out of a contract between the parties.
Where such a dispute is referred to arbitration, from a technical legal point of view, there will often be four contracts:
1. The underlying contract (the substantive contract)
2. The agreement to arbitrate (clause as a separate contract)
3. The agreement between parties and an arbitral institution referring the dispute to arbitration under the aegis of
that institution
4. The agreement between parties and/or the arbitral institution and the individuals who will act as arbitrators –
appointing them to preside over and decide dispute.
Separability of the Arbitration Clause/Contract
S. 7 – Unless otherwise agreed by the parties,
◦ An arbitration agreement,
◦ Which forms (or was intended to form) part of another agreement (whether or not in writing),
◦ Shall not be invalid/ineffective/non-existent because the other agreement is invalid/did not come into existence/has
become ineffective
For that purpose, it shall be treated as a distinct agreement. (Fili Shipping Co)
, MANDATE OF ARBITRATOR/ARBITRAL TRIBUNAL
The jurisdiction of the arbitral tribunal depends on the mandate given to it by the parties. It can only arbitrate on matters they have
been instructed to.
Contract Appointing Arbitrator
When the arbitrator accepts an appointment, it enters into a contract with the parties on agreed terms.
This usually include:
◦ Identification of the dispute/difference to be adjudicated
◦ The terms on which the adjudicator is prepared to act, including the fees payable to the arbitrator,
◦ Basis on which the arbitration is to be conducted,
▪ Usually in accordance with the terms of the arbitration agreement between the parties and any institutional rules
what have been incorporated or otherwise agreed,
◦ Agreement by the arbitrator to conduct the arbitration and to issue an award without undue delay (S. 33(1)(b) AA) or
within any agreed time-frame or in accordance with the institutional rules.
Once appointed the arbitrator is contractually bound to complete their mandate.
The mandate also has the effect of limiting their jurisdiction to the matters referred to them in the mandate.
Jurisdiction
Tribunal only has jurisdiction to resolve the dispute if it falls within:
◦ The terms of the arbitration agreement (eg. clause in substantive contract), and
◦ The terms of the agreement appointing the tribunal
Only authorised to:
◦ determine the dispute referred
◦ on the terms agreed between the tribunal and the parties.
Once a dispute is referred to arbitration, courts give wide interpretation to what is included in the tribunal's mandate as:
◦ Supports one-stop policy
◦ Parties usually intend all disputes should be determined by single decision-making body
Procedure
Arbitrators must adhere to the parties' agreement on the procedure to be used
This may include adhering to a set of institutional rules
Duties of Arbitrators
By accepting appointment, arbitrators obliged to:
◦ Consider the evidence, and
◦ Make decisions on the “issues” referred to them
“Issues” - purposive construction (Checkpoint Ltd)
◦ Must decide on all matters critical to the overall decision and any such subsidiary issues that must be decided en
route to the central issues.
◦ What is included depends on terms of appointment
May include issues arising after appointment of arbitrator (Rederij)
If fails to decide on central issue - “serious irregularity” (S. 68 AA) – award may be challenged in court (Ascot
Commodities)
Qualifications of Arbitrators
Arbitration agreements may specify qualifications required of arbitrators (eg. minimum professional qualifications or
membership of an organisation or status)
Hashwani – Arbitration clause requiring the arbitrators to be respected members of the Ismaili Muslim Community was
valid.
Impartiality
S. 1, S. 24, S. 33 AA require any arbitrator appointed (even if by the parties) to be impartial.
Arbitrator is liable to be removed if impartiality is compromised (S. 24) – if there is actual bias or a real possibility of
biasness.
◦ To consider: Whether a fair-minded and informed observer would conclude there had been a real possibility of bias
(Porter v Magill [2002])
Some arbitral institutional rules (eg. UNICTRAL Model Law Art 12) require the arbitrator(s) to be independent.
REQUIREMENTS FOR AN EFFECTIVE REFERENCE
In order for there to be an effective reference to arbitration the following requirements must be met:
Requirement 1: Dispute or Difference
