Does arbitration depend on the court system?
28th April 2016
Arbitration and litigation are traditionally considered as competing dispute resolution processes. International commercial arbitration is often argued to be ultimately reliant on national courts, fostering the view that it is less preferable to litigation as a system of adjudication. This article addresses whether arbitration is dependent on the courts and some of the circumstances in which the two processes interact.
The basis of arbitration is contractual and therefore legal. Parties must agree to refer a dispute to arbitration. They may consent at the time of contracting or after a dispute arises. In either situation, the agreement to arbitrate is a bargain between the parties. This has two main consequences. First, the arbitration agreement must be construed carefully, because it is the source of an arbitrator’s authority. Tricky questions over interpretation are routinely decided by arbitral tribunals, but then often a second time around by a court. Second, if there is a breach or anticipated breach of an arbitration clause, the innocent party may seek relief in a court. The courts in arbitration-friendly jurisdictions will typically grant such relief (for instance an anti-suit injunction under s.9 Arbitration Act 1996) to give effect to the arbitration agreement. In this sense, arbitration defers to litigation and the court system.
Courts may fulfil an active supervisory function. National courts can play a critical role during the course of an arbitration. Much will depend on the institutional rules that govern the particular arbitration proceedings, and how litigious the parties wish to be. If there are no institutional rules (an “ad hoc” arbitration), or where the rules and the parties’ agreement permit, the state courts will have considerable powers to regulate the conduct of arbitration proceedings. A curial court may be asked to give directions on the appointment and removal of arbitrators (s.15 et seq. Arbitration Act 1996), give teeth to a tribunal’s peremptory orders (s.42 Arbitration Act 1996), and decide questions of law (s.45 Arbitration Act 1996). Some of the provisions in the Arbitration Act 1996 are mandatory, while the parties can opt out of others such as the three identified above (s.4 Arbitration Act 1996, and Schedule I). Thus, whilst arbitration may help to resolve a dispute privately, this does not mean that a court will not be involved at several stages of the arbitration process.
Arbitration often depends on the assistance of a court for enforcement. An award would be meaningless if the award debtor failed to voluntarily comply and there were no mechanism for enforcement. National courts do not enforce awards, in the same way that they do not enforce judgments. In England and Wales, an award creditor has the same remedies open available to it as a judgment creditor (s.66 Arbitration Act 1996). The efficacy of a particular national court’s orders may differ. There may be an inconsistency of approach, depending for instance on whether enforcement is sought at a sensible seat or somewhere less predictable. Nevertheless, the power to make orders in aid of enforcement is a significant feature of the relationship between arbitration and the courts.
Parties challenge and seek to set aside awards in court. The laws in most jurisdictions provide for the challenge and appeal of awards on certain similar grounds such as a lack of jurisdiction and serious irregularity (see s.67 and s.68 Arbitration Act 1996). For this reason, the end of an arbitration process and receipt of a final award may not be the end of the journey for the parties, especially if due to political, tactical, or pure financial considerations an award debtor seeks to frustrate the creditor. The law of England and Wales goes a step further by permitting an appeal on a point of law (s.69 Arbitration Act 1996). It is correct to note that such appeals rarely get off the ground, let alone succeed. One has to only look at the stiff requirements in s.69(3) Arbitration Act 1996 to see why. However, these provisions as a whole act as something of a safety net. They lend further legitimacy to the arbitration process, even if they do introduce a level of uncertainty and reliance on the courts.
Arbitration aids the development of the law. A great deal has been written about the historic contribution of arbitration to the development of the common law. It has recently been suggested in a lecture by the Lord Chief Justice, Lord Thomas of Cwmgiedd, that the Arbitration Act 1996 has impeded the further development of the common law by restricting the scope for appealing awards. In this analysis, s.69 Arbitration Act 1996 sets the bar too high. Yet, there are a good number of cases (albeit mostly derived from the maritime industry) which began life as arbitrations and which have established significant legal principles. In time, it may well be that the statutory hurdles to appealing an award are lowered, but this is not a proposal that would sit well with many in the business community.
Relieving the burden from civil courts and fostering healthy competition. It is clear that arbitration has the potential to alleviate some of the increased burden on the civil courts. High Court judges in the Commercial Court are just as qualified and experienced as professional arbitrators to deal with issues that arise in commercial arbitration, but they certainly do not currently enjoy a similar level of resources. Arbitration is justifiably viewed as more streamlined and user-friendly. However, there is a growing trend in the creation and development of international commercial courts, for example in Singapore (SICC) and Dubai (DIFC), with an English-language court in Amsterdam due to open in 2017. The practices in these courts are modelled on the examples set by many arbitral bodies and tribunals. These include the internationalisation and specialisation of the judiciary, the clarity of procedural rules, and the use of new technology. Furthermore, the 2005 Hague Choice of Court Convention – which promotes comity by requiring countries to recognise and enforce forum selection clauses and foreign court judgments – is gradually being ratified in the major jurisdictions. The Hague Convention is conceptually little different from the 1958 New York Convention, which set a universal standard for the recognition and enforcement of arbitral awards. It can only be positive for users to have a wide choice of cross-border adjudication systems.
Overall, it is fair to conclude that arbitration depends on the court system more than the courts benefit from arbitration. But for the analysis to stop there is not particularly helpful. It is more instructive to compare these processes, as well as other forms of ADR, in order to create an effective, widely accessible, and truly global system of dispute resolution.