The appeal of finality in arbitration

The appeal of finality in arbitration

arbitrationRichard Power, partner in the Global Arbitration Group at Clyde & Co LLP, and Catherine Reeves, professional support lawyer at Clyde & Co LLP, discuss the issue of finality in arbitration, which has returned to the spotlight following the Lord Chief Justice Lord Thomas’s 2016 BAILII lecture.

When asked to list the benefits of arbitration over litigation, many would say ‘certainty’ or ‘finality’ of the arbitral process. Indeed, in the Queen Mary/White & Case LLP Survey ‘2015 International Arbitration Survey: Improvements and Innovations in International Arbitration’, 18% of respondents named finality as one of their three most valuable characteristics of arbitration. This ‘certainty’ comes in part from the limited ability to appeal or challenge an arbitral award under national legislation (generally) and limited opportunity to defend against enforcement (primarily under the New York Convention).

This said, it is the case that some parties to arbitration agreements do not understand the full consequences of their decision to arbitrate at the point of contracting, let alone think through what would happen should an award be made against them, which may be ‘certain’ but isn’t in their favour.

Institutional rules

The rules of the leading arbitral institutions provide, in some form of wording, for their awards to be ‘final and binding’ on the parties. Many, the London Court of International Arbitration (LCIA) and the International Chamber of Commerce (ICC) being the obvious examples, go further and provide that the parties waive irrevocably their right to submit the award to any form of appeal, review or recourse to any state court or other legal authority so far as such waiver is not prohibited under any applicable law.

The effect of this under English law as set out in the Arbitration Act 1996 (AA 1996) is to preclude the right to appeal on a point of law (AA 1996, s 69). However, one cannot preclude a challenge for lack of substantive jurisdiction under AA 1996, s 67 or on grounds of serious irregularity under AA 1996, s 68 as these cannot be waived.

Note: a provision for an award to be ‘final, conclusive and binding’ without more is insufficient to exclude an appeal, see: Shell Egypt v Dana Gas [2009] EWHC 2097 (Comm).

The sharp end

The advantage of ‘certainty’ in this regard at the outset of an arbitration can, however, feel painful if an award is made against you and your right of appeal is limited. The tribunal’s findings on the law are unimpeachable regardless of whether they are right or wrong. In the same survey cited above, 17% also cited a lack of appeal mechanism on the merits as one of the three worst characteristics of arbitration—perhaps those 17% are the ones who have felt the pain of this right of appeal being precluded.

Parties have been known to try to challenge an award under AA 1996, s 68 where AA 1996, s 69 is not available and the courts are wise to this. In Kershaw Mechanical Services v Kendrick Construction [2006] EWHC 727 (TCC) an appeal was launched on the basis that the wrong answer to a hypothetical question of law could be inferred from the arbitrator’s findings on a set of facts. The application failed, the judge noting that the application was likely an ‘attempt to present an appeal on the facts as though it were an appeal on the law’ and that ‘any such attempt must be firmly discouraged.’

Are the tides turning?

Over recent months there has been much discussion in the press and arbitral community about whether the right to appeal arbitral awards under English law should be expanded. The proponents argue that an expanded right of appeal would be in the interests of the development of English commercial law. Their opponents responding, among other arguments, that it is not the arbitrating parties’ jobs to develop English law and that the drive behind AA 1996 to limit court intervention in arbitration was partly led by a respect for parties’ choice to arbitrate and resolve their disputes away from the court.

What this does raise, however, is the possibility of expanded right of appeal (or maybe making AA 1996, s 69 mandatory) in the future. This would be a significant change for English arbitration law and potentially impact London’s standing as a leading arbitral jurisdiction (it is worth noting that other leading arbitral jurisdictions such as Singapore permit an appeal on a point of law to be excluded in the same way as English law which the Singapore International Arbitration Centre Rules preclude in the same way as the ICC and LCIA).

What to do?

Have your eyes open—at the outset ensure that you are aware of the consequences of the institutional rules being subscribed to. This includes awareness of the great benefits of arbitration as well as the consequences of your choice (which must include the limited right of appeal). This is not to say that parties should fear the limited right of appeal as the calibre of the institutions and available arbitrators is high. Nor is it to say to choose one institution over another. It just ensures parties go in with their eyes open.

Appoint the right tribunal—during the arbitration where a right of appeal on a point of law is excluded, the tribunal’s ability to understand and apply the law is key. While a technical expert on the tribunal may be of great benefit in understanding parts of the technical case, it is imperative that the tribunal get the law right and this should be a key factor in nominating or appointing the tribunal. Even where you have no right of nomination or appointment, most nominating institutions will listen to requests of the skills or qualifications a suitable arbitrator may have and all have leading lawyers who sit as arbitrators on their panels.

Don’t be afraid—arbitration has a long tried and tested history. We cannot pretend for one minute that tribunals always reach the right result but it is a commercial, international dispute resolution method with many and varied benefits for parties who engage it in (however unwillingly). The courts, certainly in England, are there to support the arbitral process which certainly (for now at least) includes enabling parties to have the ‘certainty’ they sought at the time of contracting.




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