Paul Crane Partner
Appeals from arbitration: is reform required?
In September 2022, the UK Law Commission published a consultation paper with provisional recommendations for updating the Arbitration Act 1996 (the Act 1996). Amongst other things, the Law Commission considered whether any changes need to be made to: (i) s.67 of the Act 1996, which deals with jurisdictional challenges to arbitral awards; and (ii) s.69 of the Act 1996, which deals with appeals on points of law.
This article summarises the current rules and considers what changes, if any, the Law Commission proposes.
Where a party seeks to challenge the tribunal’s jurisdiction, it can ask the tribunal to rule on its own jurisdiction under s.30 of the Act 1996. If either party is dissatisfied with the tribunal’s award on jurisdiction, it can apply to the Court under s.67 of the Act 1996 for permission to challenge that award.
Alternatively, it is possible to apply directly to the Court under s.32 of the Act 1996 for a ruling on the tribunal’s jurisdiction, but such an application requires either the agreement of all parties to the arbitration or alternatively permission from the tribunal or the Court. An application can also be made under s.32 if a party has obtained a jurisdictional ruling (as opposed to award) from the tribunal but is dissatisfied with it.
Where a party has participated in the arbitration and asks the tribunal to rule on its own jurisdiction under s.30 but is dissatisfied with that ruling, a challenge to the Court involves a full rehearing of the evidence on jurisdiction, as well as the arguments, rather than a mere review of the tribunal’s decision.
A rehearing potentially means duplication, which results in delay and increased costs. The appellant may also produce new evidence and develop its arguments for the appeal, which makes the arbitration hearing no more than a dress rehearsal. While s.67 applications are infrequent and the Court generally discourages speculative applications and will limit the introduction of new evidence, nonetheless the current position may potentially be used tactically to delay arbitration proceedings and postpone any substantive award on the merits.
The Law Commission, therefore, proposes that a s.67 should be by way of an appeal and not a rehearing. This would retain the Court’s role as the final arbiter of the tribunal’s jurisdiction, but would also recognise the fact that both parties had already agreed that the tribunal should decide on its own jurisdiction in the first instance. They had, therefore, conferred what the Law Commission referred to as a “collateral jurisdiction” to decide jurisdiction over the substantive dispute.
The Law Commission has queried whether this proposal should also apply to s.32 applications for consistency and has invited views on this.
The Law Commission’s stance on s.30/s.67 seems a sensible one. Insofar as a tribunal’s authority is accepted to the limited extent that the parties agree it can decide on its own jurisdiction in the first instance, then that jurisdictional award should be sufficiently respected that any appeal to the Court should be restricted to a review rather than extend to a full rehearing. Otherwise, the tribunal’s role is at risk of becoming virtually redundant in such cases. Furthermore, the Law Commission has stated that its proposal should not apply to cases where the party challenging jurisdiction has declined to participate in the arbitration at all, thereby distinguishing situations where a party has totally rejected the tribunal’s jurisdiction.
Appeals on point of law
There are generally no appeals from a tribunal’s findings of fact. However, s.69 of the Act 1996 allows a party to appeal to the Court if it believes that the tribunal got the law wrong on a particular issue. The Court will only give leave to appeal on a point of law in limited circumstances and it rejects attempts to appeal factual findings dressed up as points of law.
There are two schools of thought: (i) those who think that the right to appeal should be narrowed even further in order to increase the finality of arbitration awards; and (ii) those who think that there should be greater scope for such appeals so that the Court has more opportunity to consider points of law.
The Law Commission’s view is that s.69 as it currently stands strikes the right balance between preventing unmeritorious challenges and ensuring that errors of law are corrected so that the law is applied consistently. The number of s.69 applications being heard by the Court is sufficient, in the Law Commission’s view, to provide sufficient opportunity for useful judicial pronouncements on points of law.
Importantly also, s.69 is not mandatory, so parties to arbitration agreements can choose to opt-out if they so wish. In fact, the LCIA and ICC Arbitration Rules both provide exclusions to the right to appeal on a point of law. Parties can also agree their own criteria for when a right to appeal arises under their arbitration agreement. For example, the ARIAS Arbitration Rules used in the insurance and reinsurance industries provide an “opt-in” provision extending the parties’ rights of appeal.
The Law Commission’s recommendation that status quo be maintained reflects the autonomous nature of arbitration and the fact that arbitration agreements are consensual and should, therefore, be respected.
The Law Commission’s various proposals regarding the Act 1996 acknowledge that it is more than 25 years old and may need some revision in order to help maintain London’s primary position as an international arbitration centre. However, no major changes have been proposed and all recommendations remain provisional pending the outcome of the consultation period, which ends on 15 December 2022.
With regard to the proposals outlined above, the Law Commission’s views recognise that the need to obtain leave to appeal from arbitration awards and rulings effectively reduces the number of unjustified appeals to the Court, thereby discouraging unmeritorious applications and reinforcing the finality of awards.
By way of illustration, statistics for 2018 to 2021 show a relatively limited number of applications made under ss. 67 and 69 and a relatively low success rate for those applications. The Commercial Court Annual Report for 2020 to 2021 states that 35 applications were made under s.69 during that period and that, as at October 2021, 16 had permission refused, 5 were granted leave to appeal and 11 applications remained outstanding (of the remaining 3, 1 was dismissed at hearing, 1 discontinued and 1 transferred out). Only 15 jurisdiction applications were filed under s.67, most of which remained pending as at October 2021. However, the number of applications was down 21% from the 19 filed the previous year, only 2 of which were successful.
The Law Commission’s final report is likely to be published during 2023.
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